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From: By Ianthe Jeanne Dugan, Washington Post Staff Writer
Time: 2:41:24 PM
After the crash in 1929 everyone was anxious to place the blame somewhere and the banking establishment was the easiest place to go. Thus, the creation of the Securities and Exchange Commission, the Securities acts of 1933 and 1934, the Exchange Act and a whole bunch of other cookies. In particular, the Glass Steagell Act prevented the banks from encroaching on the Securities Industry and created a line in the sand from whence they could not cross. This line has been eroding ever since and it is hardly visible anymore. Deals like the Travelers, Solomon Smith Barney, Citibank transaction seem to have eclipsed whatever the law might have been. On the other hand, no formalization has taken place and the change in regulations seems to be hopelessly pigeon-holed in Congress. New York's Governor, who is seemingly running for King or something grander, has another idea.
Robert A. Spira Chapman Spira and Carson LLC
N.Y. Bank Bill Seeks To Sidestep U.S. Law By Ianthe Jeanne Dugan Washington Post Staff Writer Wednesday, May 12, 1999; Page E03
NEW YORK, May 11 New York Gov. George E. Pataki (R) has proposed a bill that would allow state-chartered financial services firms to sell securities and insurance and provide commercial banking, thus sidestepping federal law against mixing those businesses.
The proposal would radically alter the state charter, essentially repealing rules that mirror the federal Glass-Steagall Act, which was instituted during the Great Depression to prohibit most affiliations between banks and securities firms.
The proposal could help spur a similar initiative that is being debated in Congress, experts said. Versions of the bill in the House and Senate would up date federal banking law by blurring the lines of the financial services industry. Despite years of debate, Congress so far has been unable to approve such a bill.
If Congress fails to act again this year, "this dictates how we might exercise expanded powers," said Elizabeth McCaul, the state's acting superintendent of banks. McCaul has been working on the proposal for two years.
Federal law basically prohibits retail banks from also offering most insurance and securities products.
Pataki's plan would allow banks chartered by New York State to put under a single umbrella businesses that under federal law they must operate as affiliates. Citigroup, for example, is now a nationally chartered bank governed by the Comptroller of the Currency. It was formed last year through the merger of Travelers Group Inc. and Citicorp, and unless federal laws are changed will be required to divest, over time, much of its insurance underwriting business.
Under the Pataki plan, it could get a state charter to run a business comprised of commercial banking, securities and insurance. Federal securities and bank regulators would still have some oversight responsibility. For example, the bank's retail business would have to be structured as a separate subsidiary to comply with federal laws, but nonetheless the bank would have a far easier time mixing its various financial services products.
In a joint statement Citigroup co-chairmen Sanford I. Weill and John Reed cheered the bill, saying they hope it "galvanizes Washington to enact a comparable bill."
Merrill Lynch & Co. would also get a boon from the bill by combining a mishmash of activities throughout New York and New Jersey under a single business. Merrill Lynch chief executive David Komansky said the law would "benefit every New Yorker who invests in the securities markets, holds an insurance policy or has a checking account."
If Pataki's proposal is passed, essentially banks chartered by New York State would have greater authority than nationally chartered banks. That, said a spokesman for the House Banking Committee, could motivate nationally chartered banks to consider becoming state-chartered instead.
"It would probably encourage Washington to do this," the spokesman said. "Anything that would give an upper hand to state-chartered banks, the Treasury Department would be concerned about."
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