Fed Chairman Calls for More Bank Powers

Federal Reserve Board Chairman Alan Greenspan called Wednesday for expanded powers for U.S. banks. He and another top banking official criticized a House bill for imposing new bank restrictions.

“The board believes that the Congress has an historic opportunity to put the nation’s financial system on a sounder footing,” Greenspan told a House Judiciary subcommittee.

Greenspan testified that banks should be able to enter new businesses, such as underwriting corporate stocks and bonds and selling insurance. Giving new rights to banks would not be an anti-competitive power concentration, he added.

He urged adoption of laws to lower 55-year-old legal barriers between commercial banks and the securities industry. The Glass-Steagall Act of 1933 prohibits commercial banks from underwriting or dealing in securities except for a few select bonds and U.S. government debts.

A bill currently in the House would permit banks to offer new services, such as selling mutual funds and underwriting municipal revenue bonds through separate subsidiaries. It would also let Congress consider in 1991 whether to allow bank underwriting of corporate stock.

U.S. Comptroller of the Currency Robert Clarke, also an advocate of reform, said the bill works toward modernizing banking, but it imposes new restrictions on bank mergers and business activities.

He said curtailing banks’ ability to offer insurance services would lower the opportunity for banks to use new businesses to improve earnings. It would also lower competition beneficial to consumers, he added.

Some Mergers Prohibited

“All consumers of financial services will benefit if Congress eliminates the antiquated statutory restrictions on the ability of providers of financial services to compete on more equal terms,” Clarke said.

Greenspan said he did not favor a provision in the bill which would prohibit mergers between banks and security firms but said that it was not enough to justify the Fed’s opposing the entire reform bill.

The House bill would prohibit such mergers if the bank or the securities firm were one of the largest 15 firms in their respective industries.