Greenspan, Rubin Clash on Reform of Banking Laws

Any chance of overhauling Depression-era banking laws this year dimmed Wednesday as Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert E. Rubin aired their differences before Congress.

At a Senate Banking Committee hearing, the government’s two top economic policymakers refused to bend on the appropriate structure for financial services companies that would offer bank accounts, sell insurance and trade stocks.

The central bank chairman said he favored legislation that narrowly passed the House last month, which would force the companies to put insurance and other non-bank activities in separate holding-company affiliates. The bill would shift most bank oversight to the Fed from the Treasury Department.

Greenspan called the bill “a sound and much-needed framework for launching our financial services industry into the 21st century.”

Rubin, however, contended the bill “would limit the ability of [financial institutions] to make their own judgments about how best to lower costs, improve services and provide benefits to customers.” Requiring banks to sell insurance or trade stocks via holding-company affiliates is more costly for smaller community banks, he said.

But Greenspan maintained that banks want this option because it is cheaper for them.

The Clinton administration, represented by Rubin, has threatened to veto the bill. It wants to let banks diversify through subsidiaries of the bank itself. That arrangement would increase the power of the Treasury Department’s Office of the Comptroller of the Currency, regulator of nationally chartered banks.

Several senators said any chance of passing a bill to dismantle Depression-era laws would founder because Rubin and Greenspan could not settle differences that amounted to a regulatory turf battle.

Associated Press and Reuters were used in compiling this report.