Financial Institutions Restructuring and Services Act of 1981

The CHAIRMAN. The Banking Committee will come to order. This morning marks the opening of the committee consideration of legislation which I am confident will mark the beginning of a new era of growth and stability for the Nation's financial system.

Almost 50 years ago, Congress rejuvenated a financial system suffering from the ravages of the Depression. To protect depositors, the FDIC was established. To promote mortgage financing, the home loan bank system became a reality. To protect the integrity of financial institutions, the business of commercial banking was statutorily separated from other forms of commerce.

What has resulted from such actions is a highly regulated and compartmentalized system, which has served the capital and financial needs of our country for five decades. We are now faced with new challenges brought on by diverse causes, of which we are all well aware, for example, high interest rate and inflation, increased competition among depository and nondepository institutions, development of sophisticated communications and other technical equipment, and the internationalization of financial and economic markets.

What Congress must do now is to revamp the statutory framework established over the past 50 years to insure that the financial system is able to continue to meet the savings and credit needs of the Nation.

The layers of competitive restrictions and regulatory requirements on depository institutions have to be reduced if those institutions are to compete in a changing environment with innovative and aggressive nondepository financial intermediaries. The legislation before the committee today, S. 1703, the administration-Pratt bill; S. 1720, the financial restructuring bill; S. 1721, the insuring agencies consolidation bill; and S. 1686, the local government NOW account bill, represents the first step toward comprehensive restructuring and upgrading of the financial system.

As I have noted in statements introducing S. 1720, and announcing these hearings, S. 1720 represents the efforts of several committee and former committee members. Senators Heinz, Lugar, Chafee, D'Amato, Tsongas, and Mitchell are responsible for introducing in separate bills parts of S. 1720. Senator Proxmire, the distinguished former chairman of the Banking Committee, is a cosponsor of many of the individual bills. Thus I express my thanks to them and look forward to their continued interest in enacting necessary revisions to the banking statutes.

Pending legislation before the committee will sharpen the focus of the members, resulting in what should be final congressional action this year on a bill that will address some of the fundamental issues facing our financial system. Final legislation may not include all of that which is before the committee now, but I am confident that it will contain most of the major components.

For the past several years, this committee has considered various issues affecting the health and condition of financial institutions. What this legislation and these hearings represent are remedies for the health problems that go far beyond temporary relief.

There can be little doubt that financial market conditions have changed dramatically during the past 10 years. Consumers are interested more than ever in obtaining the market rate on their savings, putting an end to the historical pattern of low-yielding deposits, subsidizing relatively low-cost loans. Corporations, eager to keep their credit costs down, have issued large amounts of commercial paper, thereby bypassing banks as middlemen in the credit process. New financial products and services, such as money market funds and the secondary market for commercial paper have sprung up to serve the needs of the individual and business consumers. Such new developments, often the work of nondepository institutions, have heightened competition within the financial services industry.

By removing the unnecessary competitive restrictions and reducing traditional Government involvement in the operations of depository institutions, the legislation before the committee would allow such institutions the necessary latitude to determine for themselves how best to serve the savings and credit needs of their customers. Congress has considered revisions to existing competitive restrictions on depository institutions for several years. It began the process last year with the Depository Institutions Deregulation Act.

The pending legislation representing ideas and issues that have been before this committee as long, or longer, than I have been a Member of the Senate, represents another step toward a competitive and a stronger financial system.

Let me remind everyone that in preparation for this particular legislation we did hold 7 days of very intensive and detailed hearings this past spring. Those hearings were published in the last couple of weeks, more than 2,000 pages of testimony and information on which to base the direction that we now are going.

To sum up what I have said, it is just simply in my opinion that we have reached a point where we have a revolution going on in the financial services industry. The nondepository institutions that you are all well aware of-the Secretary's former company, Mer

rill, Lynch; American Express buying Shearson; Prudential buying Bache; Sears' getting involved in all of their new types of financial activities outside of the banking laws-we have created a very unfair situation. An unbalanced playing field, with some financial organizations not being able to have to abide by the same rules and regulations as other.

As I said in the hearings last spring, there are two ways you can go. There was a great clamor at that time for imposing reserve requirements on the money market funds and the nondepository type institutions. I reject that idea. It is against my basic philosophy to put more and more Government regulations on business. So the other alternative is to reduce the present rules and regulations on the depository institutions so that Government is not creating an unfair competitive situation. This is the beginning of that effort to restructure and reduce those rules and regulations that have hampered competition, so that the new types of institutions will not have an unfair competitive advantage.

So we are pleased to start these hearings today. And I would first turn to Senator Chafee to see if he has any opening remarks, before we go to the Secretary.

OPENING STATEMENT OF SENATOR CHAFEE

Senator CHAFEE. Well, thank you very much, Mr. Chairman. And I, too, want to welcome Secretary Regan to these hearings. And I also want to commend you, Mr. Chairman, for calling the hearings so swiftly following the introduction of the administration's proposals. The kind of structural changes proposed by the administration and included in title I of S. 1720, I don't believe can be viewed in a vacuum. They affect more than just the industry they are intended to aid. They affect the role of the S. & L.'s relative to the commercial banking, and the financial community in general-relationships which have been established by banking law that, as you know, has existed for decades.

Thus, the remedies for the thrifts, even narrowly drawn, will have a pervasive effect on other financial institutions. Moreover, the problems themselves that have led to the financial difficulties of the thrifts are also experienced by the commercial banking industry. Obviously, the thrifts have been hardest hit by economic conditions and problems in the housing industry. But economic conditions have contributed to increased competition by nondepository institutions, as you mentioned, and this competition has hurt banks along with savings and loan associations.

I agree with the broad approach we are taking, because many of the problems are widely shared and even the narrowest solutions will be widely felt. S. 1720 and S. 1721 will make some very important, valuable reforms that I believe will aid the thrift industry, promote competition, and encourage a broader range of services available to the consumer.

And I am delighted that the proposals I have advanced will allow banks, thrifts, and credit unions to offer commingled account services, including money market mutual funds. I am glad that has been included.

I completely agree with you, rather than imposing the restrictions on those institutions that are currently offering the money

« 이전 계속 »

도서

Financial Institutions Restructuring and Services Act of 1981: Hearings ...