Date: 1983-06-30
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. last May I addressed the House posing a number of questions regarding current terrainology used to describe the financial services industry. Since then I feel at times like it must have felt during the days when the Tower of Babel was being constructed. The confusion of voices and sounds emanating from trade group offices downtown. corporate headquarters in New York. the executive branch. the banking agencies. and the halls of Congress is truly unbelievable. Examples of this confusion abound. The U.S. League of Savings Institutions in a recent letter stated: The U.S. League is increasingly concerned about the high level of interest being shown by powerful investment banking and other securities firms in acquiring savings institution subsidiaries . . . We are also apprehensive about acquisitions of savings institutions by major retail organizations. Yet the U.S. League is apparently not concerned about numerous savings and loans. through a service corporation subsidiary. offering their customers a full line of brokerage services. Nor is it apprehensive about the ownership today of savings and loans by a major steel company. by an oil and gas producer. by insurance companies. or by the largest retailer in the country. The chairman of Prudential Insurance Co. is reported in the Washington Post to have supported a moratorium on cross acquisitions as a way of giving Congress time to do a comprehensive review of the banking implications of the mergers that are taking place. Yet Prudential has received notice from the FDIC that the FDIC has no objection to its acquisitions of a commercial bank in Georgia which Prudential will operate as a nonbank. The chairman of Citicorp. in commenting on mergers of banks and inonbank companies. is quoted in the same article as saying: "That horse is long since out of the barn. To freeze this picture is. in effect. to allocate markets to those companies shrewd or lucky enough to be first off the mark. Yet Citicorp is the largest horse that is out of the barn and is obviously enJoying its romp in the unfenced pastures of South Dakota. The Federal Reserve Board has expressed concerns about these nonbank banks. about the agencys ability to control monetary policy. and about its regulatory authority over bank holding companies. The Board sent proposed legislation esablishing a moratorium on cross acquisitions to the Congress last week. Yet the Boards legislation does not address the issue of bank and bank holding company acquisitions or chartering of discount brokerage operations. It argues that those activities are permissible under its Interpretation of section 4(c)(8) of the Bank Holding Company Actnonbanking activities section of the act. Its moratorium legislation. however. would effectively bar the operation of a statutory provision which permits nonfinancial companies to acquire savings and loans. The Treasury Department is opposed to a moratorium and instead will apparently request the introduction of its socalled affiliate proposal. That bill. at least as it was drafted in the last Congress. would provide new and expanded powers for banks and bank holding companies. Yet that proposal did not include savings and loans or savings banks which as a result of legislation enacted in the last two Congresses compete headon with commercial banks and bank holding companies. Reportedly the Departments new version will address this issue. Assistant Attorney General Baxter. representing the Antitrust Division of the Justice Department. testified before the Senate Banking Committee recently. In commenting on arguments that relaxing restrictions on interstate banking. for example. would lead to the demise of small banks and would result in concentration of economic resources. Mr. Baxter stated: Neither of these related arguments appears valid. For most banking services. there is little evidence of substantial economies of scale. Thus. smaller banks should be able to achieve efficient operating levels and continue to provide competitive services to a wide range of customers . . . . In addition. increasing the potential for new entry into presently concentrated markets should Improve the competitive performance of existing firms. Yet Mr. Baxter does not amply address the concerns of many persons that economies of scale may not be the real issue. The demands by major banks for new product offerings suggest that there may be economies of scope which allow larger firms to operate efficiently at sizes far above those suggested in studies limited solely to examination of traditional banking services like deposit taking. In addition. he does not address the question many raise about potential concentration of economic -resources by suggesting that new entry into presently concentrated markets should improve the competitive performance of existing firms. In part. the issue is whether the old definitions of markets used to consider mergers and acquisitions in the banking field are totally relevant today. Do we. in fact. have a national market in which the largest firmsthe Citicorps. the Bank of Americas. the Merrill Lynchesare the only ones who can realize economies of scope by virture of their being out of the barn first? If we truly want to allow Congress time to decide these issues in a rational manner and to provide legislation which will shape the financial system of the future. then it might be wise to take all of these often confusing and conflicting positions into account and to enact moratorium legislation which really shuts the barn door and which brings as many of the horses back into the barn as possible. Such an approach would not prejudice congressional deliberations by structuring a moratorium in a manner which suggest that certain activities for banks are OK or that these are. not. The bill which I am introducing today provides a true moratorium and would force all parties to work to produce permanent legislation which will give this Nation a financial system that will serve the country well in the future. The bill would impose a moratoriumi effective January 1. 1984. on all cross acquisitions of financial services firms. Thus. securities firms. nonfinancial firms. and insurance companies would be prohibited from acquiring banks and savings and loans. Banks and savings and loans. in turn. would be prohibited from acquiring or establishing brokerage operations or insurance companies. Depository financial institutions. whether national or State chartered. would be restricted to engaging in those activities which were permissible pursuant to Federal and State law as of January 1. 1983. The depository institution regulatory agencies would be prohibited from writing regulations or offering interpretations which would expand on powers or activities permissible for depository institutions. Thus. all regulations considered since January 1. 1983. with the exception of those implementing specifically the Garn/St Germain Act. would be nullified. Mr. Speaker. I am convinced that if supporters of a moratorium are serious about providing a calmer atmosphere in which Congress can consider financial services legislation then this approach is more equitable and would eliminate the prejudice which exists in the various proposals suggested to date. if we do not adopt such an approach. then it may well be better to consider legislation which directly addresses the issues that have been raised in recent months. Examples would include the expected Treasury Department affiliate proposal. the legislative recommendations of the insuring agencies discussed in their reports to the Congress this spring. and other proposals which would realine the financial services industry. No matter which approach. the country should not continue to be battered by the confusion of voices and sounds from the financial industry. the Congress and those in the Federal or State executive branches of government.e