Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: WEDNESDAY, February 6, 1991 TAG: 9102060632
SECTION: NATIONAL/INTERNATIONAL PAGE: A/1 EDITION: EVENING
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Long
Lawmakers generally praised the Treasury Department's recommendation, sent to Congress on Tuesday, for tightening regulators' supervision of banks and slightly shrinking the government's deposit insurance commitment.
But they vowed to fight attempts to break down the traditional walls between banks and other businesses, comparing that to deregulatory moves that worsened the savings and loan crisis.
Treasury Secretary Nicholas Brady dismissed the criticism today, calling it a "smoke screen" and the "usual stuff" that occurs when Congress is asked to change decades-old laws.
"The difference between the banking industry and the S&Ls is the difference between chalk and cheese," Brady said on "CBS This Morning," noting that banks have $200 billion in capital backing up deposits.
Longstanding laws barring commercial and industrial companies from owning banks would crumble under the administration plan, as would the division of banking from the insurance and securities industries.
Customers, for instance, would be able to get a car loan, shares in a mutual fund and a life insurance policy at their bank, which could be owned by a department store chain.
"This is a program sufficiently similar to the savings and loan deregulation that I am compelled to ask whether the good folks who brought to us that success are seeking to inflict a second success on society," said Rep. John Dingell, chairman of the House Energy and Commerce Committee.
"These administration proposals are bad medicine for banks and poison for the American public," he said.
Dingell expressed fear that huge Japanese and European companies would buy up the nation's banks if provisions mixing banking and commerce were approved.
"Corporate America loaded up its balance sheets with debt in the 1980s. It does not have the capital to buy our banks," he said.
The chairmen of the House and Senate Banking committees said they favored tightening oversight of the banking industry first and delaying consideration of proposals to restructure the financial system.
"The barriers between banking and commerce have served the nation well," said Sen. Donald Riegle, D-Mich., chairman of the Senate banking panel. "I personally am inclined to think it may be better to wait to consider these portions of the administration's proposal until we actually have reformed the deposit insurance system and improved the way we supervise the nation's banks."
Rep. Henry Gonzalez, chairman of the House Banking Committee, said the administration package exhibits "the same cart-before-the-horse mentality which plagued the deregulation of the savings and loan industry."
Brady, in an interview with a small group of reporters Tuesday, acknowledged the administration may not get everything it wants. But he predicted Congress would enact meaningful reforms this year and said he would be gratified if passage came by midsummer.
"I think we've got a problem, and Congress will deal with it. . . . This is common-sense stuff that, if enacted, is going to put America back on the map as a leading banking power," Brady said.
Three senior Democrats on the House Banking Committee - John La Falce and Charles Schumer of New York and Doug Barnard of Georgia - declared their support for the restructuring.
"This will strengthen our banking system by infusing it with new capital and will benefit consumers by providing a greater range of financial services at more competitive prices," Schumer said.
"We cannot hope to put the banking industry on a solid basis if we offer it no prospect of increased profitability," LaFalce said.
The Treasury recommendations are the administration's response to a rising tide of bank failures unrivaled since the Depression. More than 1,000 banks have failed in the last six years.
Prepared after 18 months of study, the package would put the financial system through the biggest changes in 50 years, affecting nearly every American who borrows and saves.
For the first time since the establishment of federal deposit insurance in 1934, government guarantees to bank customers would shrink rather than expand.
by CNB