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Times: Treasury Now Favors Creating Huge Banks

June 7, 1987

NEW YORK (AP) _ Top officials at the Treasury Department now favor the creation of very large banks that could better compete with the large financial institutions in Japan and Europe, according to a report published Sunday.

The New York Times also reported that the plan was endorsed by Alan Greenspan before President Reagan nominated him to be chairman of the Federal Reserve Board last week. Greenspan has declined to be interviewed since.

Greenspan told the Times that the plan would provide multibillion-dollar pools of money for a banking industry that was ″severely undercapitalized.″

The plan also would allow the acquisition of banks by large industrial companies.

Although no formal policy has been adopted by the administration, George Gould, under secretary of the Treasury, said he favored creating five to 10 giant banks that could rival the largest banks in Japan, West Germany, Britain and France, the Times reported.

″If we are going to be competitive in a globalized financial-services world, we are going to have to change our views on the size of American institutions,″ Gould was quoted as saying.

″People are going to have to accept that some big American financial institutions will need more capital to be competitive.″

Gould speculated that Greenspan’s appointment would provide an important stimulus to changing attitudes that date back to the founding of the United States.

Greenspan contends that many of the laws restricting commercial banks severely limit their ability to adapt to a changing marketplace.

Large banks have been stopped from forming by two laws, the Glass-Steagall Act of 1934, which separates underwriting and commercial banking, and the Bank Holding Act of 1956, which prohibits non-banking companies from owning banks.

Currently, only two American banks are ranked among the world’s 25 largest: Citicorp and BankAmerica. Japan has 14 banks in the group, including the four largest, while Germany has two, Britain three and France four.

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