Banking Reform Is in the Wind
COMPREHENSIVE reform of the United States financial services industry is long overdue. So says Sam Baptista, a longtime expert on US banking laws. Mr. Baptista is urging Congress and the White House to bring a sense of order to the badly fragmented - and tightly regulated - industry before the US faces stepped up competition from a united Europe in the early 1990s. The nations of Western Europe, as Baptista quickly notes, are working flat out to prepare for economic integration in 1992 - and in the process, to grab business away from from US banks and other financial concerns.
Nor is that the only woe for the Americans. Japan's banks are huge money centers. No major US bank can now be found among the roster of the top 10 global banking institutions.
That's a far cry from just two decades ago, when seven of the Big Ten were US institutions.
``The current framework governing the financial community is based on a 1930s mentality,'' Baptista contends. What that has meant, he says, ``is that US financial companies are finding it increasingly difficult'' to compete with their overseas counterparts - especially the large integrated financial institutions from Europe which can offer corporate and individual customers a broad range of financial services, from the selling or underwriting of securities to insurance products. By contrast, US financial firms have been essentially segmented - insurance firms in insurance, securities firms in securities, commercial banks in depository/lending activities.
Baptista is president of the Washington-based Financial Services Council. The council, a trade group, is made up of some of the most powerful voices in the US financial services sector, including Citicorp, Bankers Trust, Chemical Bank, American Express Company, Dean Witter Financial Services, and John Hancock Mutual Life Insurance Company.
Baptista, a former official with the American Bankers Association and VISA, the credit-card company, is also fed up with what he calls Washington's ``piecemeal approach'' to regulatory reform: a measure here, a measure there, such as the current multibillion legislative stitching process under way to save the savings-and-loan industry.
Baptista's group wants not just laws, but a law - specifically, a comprehensive legislative package called the ``Depository Institution Affiliation Act.''
In the Senate, his package has been sponsored by three lawmakers who represent diametrically opposite sides of the ideological spectrum: Alfonse D'Amato (R) of New York and Jake Garn (R) of Utah, both conservatives, and Alan Cranston (D) of California, a liberal. House backers also span the political spectrum.
The proposal, among other things, would:
Repeal the Glass-Steagall Act, the New Deal measure that prohibits banks from owning securities firms or underwriting corporate securities or municipal revenue bonds.
In fact, of course, federal regulatory agencies have been slowly dismantling Glass-Steagall over the years.
Allow any company - even a nonbanking or nonfinancial company, such as a manufacturer or retailer - to become a ``depository institution holding company'' (DIHC).
A DIHC could engage in a broad range of financial services, including owning a bank or S&L. The holding company would not be regulated as a bank, although the subsidiary bank or S&L would be regulated by the appropriate federal banking agency.
Baptista's plan, not surprisingly, has snapped up a lot of opposition.
Congressional sources say that the call for comprehensive reform will not go anywhere this year - nor possibly even in 1990.
Baptista notes that Henry Gonzalez (D) of Texas, the chairman of the House Banking Committee, is talking about the need for ``comprehensive financial reform.'' But Mr. Gonzalez, an old-line liberal, has also reportedly been wary of any effort to quickly scuttle Glass-Steagall. A measure that would have done that cleared the Senate last year but failed to get before the full House.
Baptista says he believes that Glass-Steagall will eventually be sent packing; that comprehensive reform will occur; and that 10 years from now the financial industry will look quite different. S&Ls, he believes, will probably disappear.
But Baptista's haunting concern remains the same:
Will the US opt for full financial reform in time - before the Europeans and Japanese get an unstoppable toehold in world financial markets?