[Congressional Record Volume 143, Number 19 (Thursday, February 13, 1997)]
[Extensions of Remarks]
[Pages E260-E261]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




UPON THE INTRODUCTION OF THE ``DEPOSITORY INSTITUTION AFFILIATION ACT''

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                      Thursday, February 13, 1997

  Mr. LaFALCE. Mr. Speaker, I am pleased to be the chief Democratic 
cosponsor of H.R. 669, the Depository Institution Affiliation Act, 
introduced by Chairman Richard Baker. The goal of modernizing our 
financial services industry has been a longstanding objective of mine 
and many other Members of Congress, as well as many in the financial 
services industry. Unfortunately, that goal has eluded us to date.
  The purpose of any financial modernization legislation should be to 
encourage the development of a competitive and efficient financial 
services system. Such a system should provide consumers with financial 
services at the lowest possible cost, while at the same time ensuring 
safety and soundness. In fact, a competitive industry providing a 
broader range of services enhances the safety and soundness of the 
industry, rather than reducing it. Indeed, it is the narrowness and 
rigidity of the bank charter that has been responsible for the banking 
industry's loss of market share over the past several decades.
  There are several different approaches to financial modernization 
being discussed in this Congress, as has been the case in all previous 
debates. Of all of these, Chairman Baker's legislation--which is the 
companion to Senator D'Amato's bill in the Seante--is the broadest, and 
therefore I believe offers the best opportunity for Congress to debate 
the full range of issues related to modernization. It is expected that 
the administration will soon present its own proposal to Congress, and 
I believe it also will be broad in scope. In order to get the job done, 
it is critical that we work on a bipartisan basis and in close 
cooperation with the Senate and the administration.
  If we are to seriously take up the modernization issue, we must not 
restrict ourselves to considering only delimited legislation which 
addresses a very finite array of issues. Such legislation is necessary 
too narrow in scope to reflect the rapidly changing financial services 
market. Nor should we assume that legislation passed by the Banking 
Committee in previous years is a model for reform today. As the 
financial marketplace evolves, Congress must explore that evolution. We 
must attempt to understand its implications, ask critical questions 
about the most effective means of regulating new developments, and only 
then consider the most effective legislative vehicle for achieving 
reform.
  Despite our previous failures to pass legislation, the debate in 
Congress over financial modernization has been progressing along with 
the evolution in the marketplace. Indeed, issues on which there was 
major disagreement in past debates are now a matter of near consensus. 
For example, many now agree that the total separation between 
commercial and investment banking is artificial in today's financial 
world.
  No bill before this House has yet found the perfect resolution of the 
many issues we must address, including this one. But our bill has the 
advantage of raising the full range of issues we must study if we are 
to legislate intelligently. First, we need to understand more fully the 
appropriate relationship between banking and commerce. The affiliation 
of banks with commercial firms is an issue with a long and 
controversial history, and one on which many have strong and often 
contradictory opinions. However, very few of us adequately understand 
the rationale for allowing affiliations between banking and nonbanking 
or commercial firms. It is difficult to even agree on the meaning of 
the word ``commercial.''

  The proposal to allow banks to affiliate with commercial firms should 
not be an ideological issue requiring one to take sides. There are 
beneficial aspects to linkages between banking and commercial firms, as 
well as some very legitimate concerns which should be addressed. I 
believe it is possible to strike a balance. We can place appropriate 
limitations on the affiliations between banks and commercial firms, 
while retaining the benefits of such affiliations and recognizing that 
companies in which some mix of banking and commerce already exists have 
posed no harm and done much good.
  We also need to recognize that there are a broad range of nonbanking 
activities that some might consider ``commercial.'' Some of

[[Page E261]]

these are clearly financial in nature and have a close relationship to 
banking. Other nonbanking activities are technological in nature, 
making them crucial to the ability of banking organizations to compete 
with nonbank firms offering similar technology-based financial 
products. Other nonbanking activities involve making passive equity 
investments in commercial firms.
  Before making any definitive decisions about the combination of 
banking and commercial firms, we need to understand more fully some of 
the complexities involved. This bill will contribute to that debate.
  Second, we need to gain a better understanding of holding company 
regulation--whether it is needed, and what is its proper scope. In 
particular, we need to explore the question of whether a holding 
company is the most effective means of promoting competitiveness in the 
financial services market. In short, we need to understand the benefits 
as well as the disadvantages of a holding company structure.
  Third, we need a more thorough understanding of how functional 
regulation would operate in reality. The basic concept is simple, but 
its application is not. The current regulatory structure mirrors to 
some degree the truncated system it regulates. A new system cannot so 
readily be forced back into an old framework.
  On all these questions, our goal should be to maintain an openmind, 
and explore the issues fully. I encourage my colleagues to engage in as 
far-reaching a debate as possible, because that process will result in 
a superior legislative product.
  I congratulate Chairman Baker for his ongoing contribution to the 
vital goal of financial services modernization and pledge my support to 
work for a bill that addresses the issues in the most comprehensive way 
possible.

                          ____________________