[Congressional Record Volume 141, Number 22 (Friday, February 3, 1995)]
[Extensions of Remarks]
[Pages E271-E272]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


             DEPOSITORY INSTITUTION AFFILIATION ACT OF 1995

                                 ______


                         HON. RICHARD H. BAKER

                              of louisiana

                    in the house of representatives

                        Friday, February 3, 1995
  Mr. BAKER of Louisiana. Mr. Speaker, the landmark legislation I am 
introducing this afternoon, the Depository Institution Affiliation Act 
of 1995, is designed to restore the competitiveness of our Nation's 
financial services sector and to set the stage for the financial 
markets in the 21st century. I am particularly pleased to introduce 
this legislation with Senate Banking Committee Chairman Alfonse D'Amato 
who introduced similar legislation yesterday in the Senate. In the 193d 
Congress, I had the distinguished honor to work with the Senator on 
another piece of legislation, the Small Business Loan Securitization 
Act of 1994, and it is certainly my hope that our efforts this year 
will be just as successful.
  Mr. Speaker, I would like to digress a moment with a bit of history 
to illustrate the great importance of this legislation. In 1933, an 
American engineer perfected the FM radio. In 1956, color televisions 
were selling in the retail market. In 1969, Neil Armstrong took the 
historic first walk on the Moon. Today, while we are at the edge of the 
information superhighway, we take for granted home computers, fax 
machines, and pocket-sized cellular phones. If you were born some 50 
years ago, you've seen remarkable advancements in technology and 
business opportunities that have revolutionized the way we live and the 
way we work. Unless, of course, you are a banker or a provider of 
financial services. I invite everyone in the House of Representatives 
to join me in rewriting the laws governing our Nation's financial 
services industry by supporting the Depository Institution Affiliation 
Act of 1995.
  A few days ago, I had a conversation with one of our Federal bank 
regulators which had a lasting impression on me. While detailing the 
present condition of the banking industry, he suggested that it was in 
many ways analogous to the state of our Nation's railroad industry a 
decade ago. In making that comparison, he underscored that our banking 
industry, and more broadly the financial services industry, is at a 
crossroads. He suggested that the regulatory structure that presently 
governs our financial services marketplace--like that of our railroad 
industry a century ago--serves only to hinder competitiveness, to 
restrict rapidly developing markets, and to limit the availability of 
financial products and services to American consumers.
  Mr. Speaker, the legislation I introduce today is virtually identical 
to legislation that I have previously cosponsored in the past three 
Congresses. I introduce this bill today with broad bipartisan support, 
just as it has enjoyed bipartisan support in years past. I would like 
to personally thank my colleagues Bill McCollum, David Dreier, Mike 
Castle, Peter King, John LaFalce, Barney Frank, and Floyd Flake for 
joining me as original cosponsors of this landmark legislation.
  The bill this year differs only slightly to reflect the changes in 
the banking laws over the past few years. Most notably, for example, 
some changes were made as a consequence of the Federal Deposit 
Insurance Corporation Improvement Act of 1991--Public Law 102-242.
  With this in mind, Mr. Speaker, the Depository Institution 
Affiliation Act of 1995 seeks: (1) To promote competition among bank 
and nonbank providers of financial services; (2) to encourage 
innovation in the design and delivery of financial services and 
products to individuals, consumers, large and small businesses, non-
profit institutions, and States and municipalities; (3) to ensure that 
adequate regulation of financial intermediaries in order to protect 
depositors and investors;
 (4) to preserve the safety and soundness of the banking system and the 
overall financial system; and, (5) to protect the Nation's taxpayers by 
requiring that nonbanking activities are conducted in separately 
capitalized and functionally regulated affiliates.

  It is important for all of us to remember that the antiquated 
structure of today's financial services industry is much the same as it 
was 62 years ago, except there are more rules and regulations to 
prohibit the development of new products and services. The banking 
rules of 1933 and 1956 are still the law of the land, despite the fact 
that the rest of the business world has changed dramatically.
  In the last half of this century, the banking and financial services 
industry has undergone enormous change largely due to advances in 
technology and information processing--changes that were not 
contemplated when our present structure was conceived. Between 1933, 
with the Glass-Steagall Act, and 1956, with the Bank Holding Company 
Act, much of the current Federal legal structure governing providers of 
financial services was erected. Thus, our present structure is based on 
a by-gone era of market segmentation of generally distinguished 
financial products, such as deposits, securities, whole life insurance, 
and other products. This form of market segmentation no longer 
corresponds to the realities of today's dynamic financial marketplace. 
In many ways the financial markets are progressing despite Congress. 
Interstate banking, for example, was practically obsolete by the time 
Congress got around to it last year. All too often, participants in the 
financial markets, like commercial banks and investment banks, work 
together within the confines of current law to improve the availability 
of products and services to the consumer. We can improve upon 
[[Page E272]] the financial service industry's ability to deliver these 
services to their customers with this legislation I introduce today.
  As a member of the House Banking Committee since 1989, I have noticed 
that we all to often respond to the problems of the past instead of 
trying to set the stage for a competitive marketplace in the 21st 
century. As with competition in any business, there will be winners and 
there will be losers. The real question is, who should decide the 
winners? Governmental rules that restrict the markets of hard work and 
competitiveness in the financial marketplace?
  Recently, Bill Gates, the chairman of Microsoft Corp., referred to 
the banking industry as a ``dinosaur'' because of the banking 
industry's inability to keep pace with technological advances. Under 
today's artificial segmentation of the financial services industry, if 
a customer goes to a bank for financial planning they may be told to 
invest in a CD, a money market fund, and get a home equity loan--
because that is all the bank has to offer. At the insurance company, 
they may be told to invest in an annuity and buy whole life insurance. 
And finally, at a securities firm, they may be told to invest in a 
mutual fund, stocks, or government bonds. All of these suggestions are 
based not necessarily on the best interests of the consumer, but simply 
on what the institution has to offer. I believe that if institutions 
were able to market a full array of financial products they could 
better serve the needs of all customers.
  The legislation has been carefully designed to address the barriers 
to market entry contained in the Bank Holding Company Act, the Glass-
Steagall Act and other laws designed to artificially restrict 
competition.
  As the chairman of the Subcommittee on Capital Markets, Securities 
and GSE's, I hope that the introduction of this bill, with broad 
bipartisan support, will encourage further debate on the future of the 
entire financial services industry rather than merely focus on only one 
of its component parts. To this end, I intend to hold a series of 
hearings addressing the way our capital markets function and how the 
financial services industry operates under current law. Finally, it is 
my hope that we will advance legislation this spring to respond to our 
ever-changing financial marketplace.
  Piecemeal reforms that merely address bank powers without taking into 
consideration competitive interests of the system as a whole does the 
consumer of financial products a disservice. Removing restrictions on 
bank affiliations, while at the same time ensuring safety and soundness 
within the depository institution affiliate, would ensure that the 
financial services industry could continue offering new products while 
protecting and enhancing the financial system as a whole.
  Whatever reforms we undertake must recognize the reality of the 
marketplace, which is that the financial services industry has become 
one market. We must eliminate outmoded barriers to the conduct of 
financial businesses that deny this reality and thereby limit the 
profitability of all financial firms.
  Mr. Speaker, I look forward to working with you and all Members of 
the House in order to bring real reforms to our Nation's financial 
marketplace. For the record, I also would like to include the enclosed 
article written by the Senate Banking Committee Chairman Alfone D'Amato 
that appeared in yesterday's Wall Street Journal. I ask that you please 
join me today in supporting the Depository Institution Affiliate Act of 
1995. Thank you.
              [From the Wall Street Journal, Feb. 2, 1995]

               My Plan for a Stronger Financial Industry

                          (By Alfonse D'Amato)

       It's time to bring financial regulation out of the 1930s 
     and into the 21st century. To achieve that goal, I am 
     introducing legislation today that would break the Chinese 
     wall between different sectors of the financial industry 
     built by the Depression-era Glass-Steagall Act and other 
     laws.
       My Depository Institution Affiliation Act would level the 
     playing field for banking, securities and insurance companies 
     by authorizing the creation of ``financial services holding 
     companies'' to engage in everything from banking to 
     securities underwriting to manufacturing.
       This diversification--which would reduce the risk that 
     taxpayers would have to pick up the tab for a future banking 
     crisis--is long overdue. The past 20 years have seen growing 
     competition among financial providers that has undermined the 
     strict limits in federal law on permissible activities for 
     bankers, stock brokers and insurance underwriters. The 
     banking industry's share of U.S. financial assets has fallen 
     to less than 30% from 66% in just 20 years. Borrowers are 
     relying on securities, finance and insurance firms to raise 
     funds. Since 1980, mutual funds assets have grown at a 
     compounded rate of 22% and today total $2 trillion--not much 
     less than the $2.4 trillion of domestic deposits in U.S. 
     banks.
       The walls between different financial sectors have been 
     crumbling--but slowly. Banks have had to jump through all 
     sorts of regulatory hoops to move into new areas such as 
     securities and insurance. Major retailers, auto makers and 
     appliance manufacturers, meanwhile, have established finance 
     arms to provide customers with credit to purchase their 
     goods. But they haven't been able to open their own banks.
       Many of these developments have come about through a 
     patchwork of deregulation by bank regulators and the courts. 
     Recently, for example, the Supreme Court approved the 
     Comptroller of the Currency's ruling that banks may broker 
     annuities.
       Last year Congress got into the picture by authorizing 
     interstate banking. But Congress has so far been unable to 
     enact a sweeping reform that would simplify the regulatory 
     picture and make the U.S. financial services industry more 
     competitive globally.
       My bill would accomplish that goal. Under this legislation, 
     regulation of banks and nonbank affiliates would be divided 
     along functional lines. The FDIC-insured-bank affiliates 
     would be regulated by federal and state bank regulators; the 
     securities affiliates by the Securities and Exchange 
     Commission; and the insurance affiliates by state insurance 
     commissioners.
       Strong firewalls, costly penalties and expedited 
     enforcement procedures would prevent bank holding companies 
     from jeopardizing taxpayer-insured deposits. Provisions 
     against ``tying''--requiring a bank customer to use a bank's 
     new services in conjunction with its old ones--would protect 
     customers against anti-competitive conduct.
       A National Financial Services Oversight Committee 
     consisting of representatives of the leading financial 
     regulatory agencies (Treasury, the Federal Reserve, FDIC, 
     SEC, CFTC, and so on) would help to ensure that regulations 
     for the entire financial industry are streamlined and 
     uniform.
       As long as the insured-bank affiliates are protected, there 
     is little to fear, and much to gain, from allowing industry 
     and commercial businesses into banking. Commerical firms will 
     infuse new capital and expertise into the banking system.
       What makes me think this ambitious bill can pass now after 
     similar efforts were defeated in the recent past? For one 
     thing, there is now a Republican Congress. In the House, 
     legislation was often blocked in the past by splits between 
     the Banking and Commerce committees; now that authority over 
     financial services has been consolidated in the Banking 
     Committee, that shouldn't be a problem. And House Banking 
     Chairman Jim Leach has moved in our direction by introducing 
     legislation that would remove barriers on commercial banks 
     affiliating with securities firms.
       The Clinton administration is now studying our plan. I've 
     urged Treasury Secretary Robert Rubin to support the 
     principles outlined in the Depository Institution Affiliation 
     Act, and endorsed by the Bush Treasury Department in 1991. By 
     working together with the administration, the Republican 
     Congress can overcome the companies of vested interests and 
     reform our outdated financial services laws. We should not 
     miss this opportunity for bipartisan cooperation.
     

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