| FED'S HELLER URGES BROAD REFORM TO AID BANKING | |
| Federal Reserve Board Governor | |
| Robert Heller said the banking system could be strengthened by | |
| permitting formation of financial services holding companies | |
| involved in areas like banking, insurance, real estate and | |
| securities. | |
| In a speech prepared for delivery in New York to the Bank | |
| and Financial Analysts' Association, Heller said, "I believe | |
| that increased diversification along geographic and product | |
| lines is the key to strengthening the American banking system." | |
| He said he supported the idea of financial services holding | |
| companies advocated by the Association of Bank Holding | |
| Companies in which regulation of various bank, thrift, | |
| insurance, investment, securities and real estate subsidiaries | |
| would be handled on functional lines. | |
| "Limits would be placed on the extension of credit by the | |
| bank to the associated institutions, and all transactions would | |
| have to be on an arms-length basis," Heller said. | |
| Measures would be necessary to avoid abuse of the banks' | |
| special position by such holding companies or subsidiaries. | |
| Heller said he "would require the holding company to serve | |
| as a 'source of strength' to the bank by making a commitment to | |
| maintain the bank's capital. | |
| "In other words, the bank would not be allowed to fail as | |
| long as the holding company has a positive net worth." | |
| Heller also said commercial enterprises should be permitted | |
| to own a financial services holding company, again with the | |
| provision that capital would flow to the financial enterprise | |
| if necessary. | |
| Heller said the effects of these actions "would be banks | |
| that are at least as strong as the corporations holding them" in | |
| which customer deposits were assured while any incentive to | |
| "loot the bank" was removed. | |
| Such diversification would give access to national and | |
| international financial services to corporations across the | |
| United States. | |
| Heller said that would mean "the steady decline of America's | |
| banks in the world financial league tables would be arrested" by | |
| permitting them to become more competitive. | |