Reform of Financial System Is Essential, Brady Contends

Top officials from both the Bush Administration and Wall Street declared Friday that major surgery is needed to treat the ills of the nation’s banking and financial system.

And they stepped up their calls for action by Congress to deal with financial problems they say go beyond the current slump in the economy and the savings and loan crisis.

“The legal and regulatory structure of our financial system is outmoded, burdensome and inefficient,” said Treasury Secretary Nicholas F. Brady, addressing the annual convention of the Securities Industry Assn., Wall Street’s main trade group. “Fundamental reforms are needed.”

“The issue is not whether we should reform the financial system,” asserted Richard C. Breeden, chairman of the Securities and Exchange Commission. “The question is how.”

“We need to have a financial summit,” said Gedale Horowitz, senior executive director of Salomon Bros. Inc., who took over Friday as chairman of the SIA for 1991.

Their statements came a day after President Bush indicated his support for a drive to rewrite the rules under which American banks, investment firms and other financial businesses operate.

The Treasury is working on a detailed proposal, due out in January, for changes in the financial laws. Bush said Thursday that he would take a “leadership role” in bringing the matter before Congress.

Among the prime subjects being examined is reform of the federal deposit insurance system, which has been cited by many observers as a key factor in the S&L; crisis.

Brady also spoke Friday of giving close scrutiny to decades-old rules that set barriers between banks and brokerage firms, and that restrict interstate activities by banks.

Prospects for early action on any of these ideas by Congress remain hazy, especially given the apparent onset of a recession and uncertainties raised by the showdown in the Persian Gulf.

But proponents of prompt action on financial reform say economic woes and competition from financial institutions based in other countries, among other things, are only likely to worsen the situation as time passes.

“If we don’t bring about this change in 1991, then when?” Horowitz said.

“Every day we read about layoffs in securities firms, another troubled bank, a higher estimate of the cost of the savings and loan bailout. Every day without financial systems reform costs American taxpayers more money.”