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

of instability, and what reforms, if any, should be considered? as i pointed out earlier, one recurring theme in the debate has been the question of reserve assets. our second panel, chaired by george soros, will examine ways to improve the supply of reserve assets. is a diversification of reserve assets desirable, and if so, should it be actively promoted? is there a greater role for sdrs in the international monetary system, and if so, what reforms would be required to give sdrs a greater role? over the past decades, private capital flows have greatly increased. although capital account liberalization is clearly beneficial in the long run, it entails significant short - run vulnerabilities. the third panel, chaired by duvvuri subbarao, will take up the question of how to deal with these vulnerabilities. what are the appropriate policy responses, and what is the role for regulation and capital controls? one policy response has been the accumulation of reserves, which can provide a temporary shock absorber. however, reserve accumulation entails costs for the countries accumulating reserves as well as for the world economy as a whole. our last panel, chaired by masaaki shirakawa, will discuss alternatives to self - insurance. an obvious question here is the role of imf lending facilities. as already mentioned, the questions we address today are difficult and complex. someone who played an important role in trying to address them over several decades was jacques polak. sadly, he passed away earlier this year. reflecting on the efforts to reform the international monetary system since the bretton woods conference, jacques polak once suggested that “ those of us who toil at the international monetary system would do well to adopt sisyphus as our patron saint ”. in honor of jacques polak, let us then push the stone back up the mountain once more and start with our first panel. thank you for your kind attention.