Greenspan Favors GOP Bank Proposal
WASHINGTON (AP) _ Federal Reserve Chairman Alan Greenspan waded into this year’s debate on overhauling the nation’s financial services laws, brushing aside concerns that encouraging the creation of one-stop shopping would bring a dangerous concentration of economic power.
At the same time Thursday, Greenspan extended his public disagreement with the Clinton administration over the best approach to take to change the laws governing banks, brokerage firms and insurance companies.
The Fed chief testified as Congress began the latest round of debate on legislation to remove the Depression-era barriers between those industries.
At a House Banking Committee hearing, Greenspan endorsed a bill proposed by committee Chairman Rep. Jim Leach, R-Iowa, that would lift the barriers and give the Fed more power over new financial activities.
Similar legislation to let banks, brokerages and insurers merge and get more deeply into each other’s businesses died in Congress last year after coming closer to passage than in many years.
Supporters say such an overhaul is needed to keep the U.S. industry competitive in a fast-changing world and to cut costs for American consumers, who spend an estimated $300 billion a year on financial services.
On Wednesday, a parade of officials from Wall Street, banks and insurance firms _ all of which have spent millions of lobbying dollars on the issue _ urged Congress to enact legislation.
But opponents, including several consumer groups and activist Ralph Nader, contend it could bring more megamergers and concentrate economic power in a few hands.
Leach’s bill ``is not a bill for consumers,″ Nader testified Thursday. ``It is a bill designed to create new profit centers for a relative handful of banking and financial services corporations.
Appearing with Nader were representatives of Consumers Union, U.S. Public Interest Research Group, the National Community Reinvestment Coalition and the Center for Community Change.
Earlier, in response to questions from Rep. Bernard Sanders of Vermont, Congress’ lone independent, Greenspan said he didn’t share those concerns because technology has brought ``a major increase in competitive pressures throughout this economy.″
While acknowledging there are some ``extraordinarily wealthy billionaires″ in this country, Greenspan said that’s the result of soaring stock prices, not corporate mergers. Many mergers actually haven’t worked very well, he maintained.
Critics of the legislation worry that mergers creating financial conglomerates _ such as the recent marriage of banking giant Citicorp and the Travelers Group insurance-brokerage company _ will encourage a ``too big to be allowed to fail″ doctrine leading to government bailouts.
Greenspan did express concern over rising bank fees to consumers, which critics believe have been pushed higher by bank mergers.
``It’s an ongoing process (for regulators) ... to make sure that banks maintain appropriate services to their customers,″ he said.
Greenspan’s endorsement of a key Republican lawmaker’s bill put him at odds again with the administration’s top economic policymaker, Treasury Secretary Robert Rubin.
Both men support revamping the laws but have taken different approaches in a regulatory turf battle.
Leach’s bill ``has chosen the appropriate structure to combine banking, securities and insurance firms (by) using financial service holding companies,″ Greenspan testified.
On Wednesday, the administration threw its support behind a new, competing bill by Rep. John LaFalce of New York, the Banking Committee’s senior Democrat. That would lift the barriers among financial industries, but preserve the split regulatory authority between the Treasury Department and the Fed.
The Treasury, represented by Rubin, and the central bank, represented by Greenspan, have long been at odds over how to overhaul the existing Depression-era legislation.
The administration wants to let banks diversify through subsidiaries of the bank itself, not just through affiliated companies within the same parent holding company. That arrangement would increase the power of the Treasury’s Office of the Comptroller of the Currency, regulator of nationally chartered banks.
On the other side of the battle, the proposal to let banks into other kinds of financial activities through a holding company would expand the Fed’s role in regulating.