Congress weighs deregulation curb on financial firms
There will be a flurry of activity this fall as the Reagan administration and Congress try to grapple with the rush to build financial supermarkets. The administration as well as federal regulators has advanced various proposals to stop or modify the mixing of the banking, brokerage, and insurance businesses.
On Sept. 13 and 14 the Senate Banking Committee resumes hearings on legislation proposed by the administration, the Federal Reserve Board, and the Federal Deposit Insurance Corporation.
And by early October the Task Group on Regulation of Financial Services, headed by Vice-President George Bush, is slated to suggest ways to streamline federal oversight of financial institutions. It is a chore currently split among five agencies.
''We should have a set of recommendations for the (panel members) to review by Oct. 1,'' a task force spokeswoman says. She expects the recommendations to be made public a week or so later.
Still, most observers do not think Congress will be able to complete action on various proposals this year and maybe even not by 1984. So market forces remain in the saddle for the time being, anyway.
Comprehensive legislation ''steps on the toes of very influential special-interest groups - insurance companies, home builders, and the real estate industry,'' among others, says James B. Benda, counsel at the Independent Bankers Association.
Then, too, congressional support for increasing the power of banks was eroded by the hard-fought battles over withholding on interest payments and support for the International Monetary Fund. Aid to the IMF, which makes short-term loans to nations with international payments problems, is viewed by critics as helping big banks get repayment on the large - and in some cases troubled - loans they have made to developing countries.
The financial-services industry used to resemble a row of shops on an early American main street, with one store providing banking, another selling brokerage services, and a third displaying insurance products.
But now many firms are racing to erect financial supermarkets that can offer customers one-stop shopping and a buffet of services. So each branch of the industry is looking for ways to enter the other's business. As a result, longtime regulatory walls between the various sectors are crumbling.
For example, the Prudential Insurance Company has purchased one of the nation's largest brokerage firms and a bank. Merrill Lynch provides a brokerage account offering clients free checking and has applied for a bank charter.
The marketplace free-for-all means consumers will be offered new services and , at least in theory, better prices.
''Clearly, consumers are reaping major benefits from financial deregulation and innovation,'' Treasury Secretary Donald Regan told Congress awhile ago.
There is little doubt that the upheaval in financial services is a regulatory nightmare. Paced by South Dakota, states are in a bidding war to lure financial-services firms by changing rules so that banks can offer services, like insurance, forbidden to federally chartered banks.
Congress should not sit idly by and let states ''circumvent the very clear intention of Congress for 50 years and expressed again in 1982 in the Garn-St Germain Act,'' argues Willam W. Suttle, senior vice-president of the American Insurance Association.
Meanwhile, companies outside the banking industry are crawling through a loophole in the Bank Holding Company Act that lets them buy a bank, sell off its commercial loans, do business in other states, and get federal deposit insurance on certificates of deposit, money market accounts, and so on.
''Inequalities abound in the current statutory framework,'' said the chairman of the Federal Deposit Insurance Corp. (FDIC), William M. Isaac, in a July 25 letter to Senate Banking Committee chairman Jake Garn (R) of Utah. Mr. Isaac noted that the regulatory system is in a ''state of disarray.''
Chances for action are greatest in the Senate committee. Among the legislation to be considered at this week's hearings is an administration bill that would expand bank powers. The banks would be able to set up mutual funds and underwrite insurance, as well as engage in real estate investment, development, and brokerage. Banks would also be able to own thrift institutions.
The administration bill would also close the loophole that allows a nonbanking institution to buy a bank and qualify for federal insurance without being subject to Bank Holding Company Act regulations.
The Senate Banking Committee will also consider a Federal Reserve proposal for a moratorium until Dec. 31 on financial acquisitions and mergers. An FDIC plan that will also be considered would stop nondepository companies from taking over banks and thrifts and would require divestiture of banks and thrifts already purchased if Congress does not act on financial institution regulatory reform by next summer.
While action by the Senate committee is rated as ''a real possibility'' by committee aides, House action is much less likely. House Banking chairman Fernand J. St Germain (D) of Rhode Island has proposed a moratorium of his own, but has not yet ordered hearings on the subject, committee aides say. The panel has been preoccupied with IMF funding legislation, which still has several hurdles to clear.
As a result, ''there is no chance (of comprehensive legislation) by the end of this year,'' a spokesman for the American Bankers Association says.