answer was " no. " the answers to these questions are important because the firewalls are far from costless. they impose operational inefficiencies on bank holding companies that increase their costs and reduce their competitiveness, and they limit a bank holding company ’ s ability to market its products in a way that is both most profitable and desired by its customers. as such, the firewalls have served as a significant barrier to entry for small and mid - size bank holding companies because those companies cannot realize sufficient synergies or achieve adequate operating revenues to justify establishing a section 20 subsidiary. the loss is not just to these companies but also to their customers and market competition. let me now discuss the most important of the firewalls to which the board has proposed changes. the comment period closed on this proposal last week, and the comments were overwhelmingly favorable. i will not discuss all 28 firewalls but have attached a summary list and their proposed disposition. restrictions on funding the board proposed to eliminate a series of firewalls that constitute a blanket prohibition on a bank ’ s funding its section 20 affiliate, and to rely instead on the protections of sections 23a and 23b of the federal reserve act. the firewalls in question prohibit a bank from extending credit to a section 20 affiliate, purchasing corporate and other non - governmental securities being underwritten by the section 20 affiliate, or purchasing from the section 20 affiliate such securities in which the affiliate makes a market. these firewalls were intended to prevent a bank from assisting a troubled affiliate by lending to it on preferential terms or by bailing out a failed underwriting by purchasing securities that cannot otherwise be sold. except for the prohibition on purchasing securities during the underwriting period, none of these funding firewalls was applied under the board ’ s original 1987 order, but were added in 1989 when the range of permissible securities activities was expanded. bank subsidiaries of the fourteen companies operating under the 1987 order have therefore been free to, and have in fact, funded their section 20 affiliates subject to sections 23a and 23b. the board has not encountered problems arising from such funding. if the board were to eliminate the funding restrictions for the remaining section 20 subsidiaries, sections 23a and 23b would continue to impose quantitative and qualitative restrictions on inter - affiliate transactions. in addition to requiring that the transaction be on market terms, section 23b specifically prohibits a bank from purchasing any security for which a section 20 affiliate is a

regulatory environment was far different then. i believe that the drafters of the glass - steagall act would have had a very different discussion - - and passed a very different act - - had today ’ s statutory and regulatory protections been present in 1933. not only were these protections largely absent in 1933, some were not even present in 1987 when the board first erected its firewalls. section 23b of the federal reserve act had not been adopted at the time of the board ’ s first section 20 order in 1987. as a result, many of the firewalls overlap the restrictions of section 23b, which as i noted requires interaffiliate transactions to be at arm ’ s length and on market terms, but also prohibits a section 20 affiliate from representing that an affiliated bank is responsible for its obligations, and prohibits a bank from purchasing certain products from a section 20 affiliate. similarly, risk - based capital standards did not exist in 1987, and those standards now require a bank to hold capital against many of the on - and off - balance - sheet exposures it maintains in conjunction with a section 20 affiliate. finally, the interagency statement on retail sales of nondeposit investment products was not adopted until 1994. the interagency statement includes disclosure and other requirements that are now the primary means by which the federal banking agencies seek to ensure that retail customers are not misled about the nature of non - deposit products they are purchasing on bank premises. the board ’ s review thus, when the board last year decided to reexamine the firewalls, we felt it important to do so with a fresh eye, benefitting from our ten years of experience supervising the section 20 affiliates, acknowledging regulatory and legal developments since 1987, and focusing on the relevance of the firewalls in today ’ s financial markets. as we began to look at the concerns the firewalls were designed to address, we asked two questions. does the affiliation of a commercial and an investment bank cause safety and soundness or other concerns not present with any other commercial bank affiliation - - concerns not addressed by general bank holding company regulation? does operation of a broker - dealer within a bank holding company cause concerns that independent operation does not - - concerns not addressed by broker - dealer regulation? in some areas - - most notably, consumer protection - - we believed that the answer was " yes. " in most other areas, however, the board believed, at least pending public comment, that the