Panel Calls for Big Changes in Banking Laws

A House committee has recommended sweeping changes in the nation’s banking laws, criticizing present laws that bar banks from the securities business and other industries as anti-competitive and potentially dangerous to their financial soundness.

The House Government Operations Committee, in a report adopted Tuesday and released Friday, recommended changes that would allow federally insured banks and thrift institutions to operate as part of corporations that also own securities or non-bank financial firms.

The report did not propose specific legislation but comes as Congress prepares to debate bills revising federal banking laws.

The committee stated that the 1933 Glass-Steagall Act, which separates commercial and investment banking, and the Bank Holding Company Act, which prohibits affiliations between banks and other types of businesses acting in combination with each other, “severely impair the mobility of corporate capital invested in the commercial banking industry.

Tough Restrictions

“These legal barriers to the redeployment of corporate capital by banking firms, which have no counterpart in other industries, have serious adverse consequences for the financial soundness of banks and the efficiency and competitiveness of the entire U.S. financial sector,” the report stated.

The report is based on a study by the panel’s subcommittee on commerce, consumer and monetary affairs, whose chairman, Rep. Doug Barnard Jr. (D-Ga.), is a member of the House Banking Committee.

Federal laws prohibit banks from owning or being owned by a company that is not related to banking, and ban most banks from being affiliated with securities firms.

Major banks have argued for years that the government should ease the restrictions because of the increasing competition from giant securities houses and other non-bank corporations for the banks’ traditional customers, such as corporate borrowers and retail consumers.

“The effects of these barriers are strongly anti-competitive because they protect other industries, particularly the heavily concentrated and highly profitable investment banking industry, from bank competition,” the committee report stated.