, or mortgage guaranty insurance. to engage in the broader range of insurance activities, a bank holding company must qualify to become a financial holding company by certifying that its subsidiary banks are well capitalized and well managed, among other criteria. as of year - end 2003, about 630 bank holding companies and foreign banks have chosen to become financial holding companies. only 12 percent of u. s. bank holding companies have become financial holding companies ; however, these financial holding companies control about 80 percent of the domestic banking industry ’ s assets. since enactment of the glb act, surprisingly few banking organizations have taken advantage of their expanded insurance powers. about 25 percent of financial holding companies have used their new insurance powers, largely through acquisitions of insurance agency or brokerage firms or, in a few instances, of insurance underwriters. only a few financial holding companies have expanded their insurance activities in any significant way. anecdotal evidence suggests that many more financial holding companies are considering commencing or further expanding their existing insurance sales and, to a lesser extent, insurance underwriting. the sale of insurance by banking organizations makes sense. insurance is a financial product that many customers need. entering the insurance market as an agent fits naturally with the nature of banking. banking organizations have developed networks and systems for delivering financial products to consumers - a business model that does not always require manufacture of the product. insurance is increasingly viewed not just as a product that stands on its own, but as an important item on a menu of financial products that helps consumers create a portfolio of financial assets, manage their financial risks, and plan for their financial security and well - being. many consumers find it convenient to purchase financial planning products at a single location that offers a full range of financial services. thus, banking organizations are a natural alternative sales channel for insurance underwriters looking to expand their customer base. compliance and risk management issues with these developments have come new challenges. while some types of risks are common to banking organizations and insurance companies, the products, business practices, and regulatory framework of the insurance industry are outside the experience of many banking organizations. changes in the banking and financial services industry have highlighted the importance of incorporating an assessment of compliance risk into the evaluation of a banking organization ’ s overall risk profile and into its enterprisewide risk - management program. in december 2003, to further augment the federal reserve ’ s risk - focused supervision program, we adopted a policy to emphasize the importance of compliance with consumer protection regulations in the

mark w olson : regulatory update - banking industry, insurance and securities activities remarks by mr mark w olson, member of the board of governors of the us federal reserve system, at the bank insurance and securities association legislative, regulatory and compliance seminar, washington dc, 10 june 2004. * * * introduction many thanks to the bank insurance and securities association ( bisa ) for inviting me to speak to you this afternoon. financial modernization, characterized by the ever - increasing ability of financial services firms to offer banking, securities, and insurance products, introduces new challenges as well as new opportunities. from the perspective of the federal reserve board, i ’ d like to discuss compliance and riskmanagement issues for banking organizations that are beginning new, or expanding existing, insurance sales activities. i ’ d also like to offer a few observations on the “ push - out ” provisions being drafted by the securities and exchange commission to require certain securities - related activities previously conducted by banks to be removed from the banks and “ pushed out ” to an entity that is a licensed, sec - regulated securities broker - dealer. my comments today are my own and do not necessarily represent the views of my fellow federal reserve board members or the federal reserve system. background following enactment of the mccarran - ferguson act in 1945, supervision of insurance was almost exclusively the domain of the states. therefore, for most of the past century, we - that is, the federal reserve and state insurance supervisors - have traveled in different circles. the federal reserve has had very little to do with insurance issues because banks and bank holding companies have generally been involved only in credit - related insurance sales and underwriting activities. in fact, the federal legislation that charges the federal reserve with supervising bank holding companies - the bank holding company act of 1956 - was enacted in large part to prevent the affiliation of one of the largest banks in this country with a large insurance underwriter. congress went on to strengthen the separation of banking and insurance in 1982 with an amendment to that act generally prohibiting bank holding companies from engaging in insurance agency activities. the historic statutory separation of banking and insurance was ended in november 1999 by the gramm - leach - bliley act ( glb act ), which allows well - managed and well - capitalized banking organizations to affiliate with any kind of insurance underwriter and insurance sales and brokerage firms not just those that offer credit - related financial services, such as insurance to pay off a loan in the event of a borrower ’ s death or disability