A Solid Banking Bill
Amazing! The House of Representatives last week passed banking-reform legislation - and it's pretty sensible.
For 20 years Congress has tried to modernize the laws governing the $500-billion-a-year financial services industry. But nothing has happened.
The 1933 Glass-Steagall Act that separates banking from the securities business remained in place. Its effectiveness crumbled, though, as regulators gradually let banks play more and more in securities and insurance. And brokerages invaded banking.
One reason for inaction was division in the financial industry. Lobbies for the various sectors of the industry found little common ground. Each sought legislative advantages. Result: stalemate. This had one advantage for members of Congress: It produced fat campaign checks. Why pass a bill when the battle between lobbyists was so lucrative?
The bill still faces hurdles in the Senate and the White House. Senate Banking Committee chairman Alfonse D'Amato (R) of New York only has said he would hold hearings on the House bill. And Treasury Secretary Robert Rubin threatens a presidential veto.
We like the bill.
It maintains the ban on banks engaging in commercial activities, businesses that can be risky. It provides several consumer protections, including a requirement that banks provide inexpensive basic checking accounts aimed at those who are unable to afford soaring bank fees.
The bill also requires a holding-company structure when a bank enters a nonbanking business. This maintains a separation of businesses that should help avoid conflicts of interest. Also, a failure, for example, in a brokerage business would not endanger a separate bank subsidiary of the same holding company.
This feature annoys the Treasury. It would put bank regulation primarily in the hands of the Federal Reserve, reducing the role of Treasury's Office of the Comptroller of the Currency.
That's all right. It would make financial regulation more remote from politics. The White House might be less able to milk the financial community for campaign funds.
We hope Senator D'Amato takes up the bill. It could stand some further polishing. But after 20 years, it's a fine start.