Thank you, Mr. Chairman for holding the first of several hearings on H. R. 1 0, the "Financial Services Act of 1998." It is a pleasure to have two very distinguished witnesses here before the Committee. Chairman Greenspan and Secretary Rubin, thank you for taking time out of your busy schedules to share your views with the Committee.
Consumers in America have become more sophisticated, using many types of financial service providers for their savings, investing and retirement needs. We see this clearly by looking at how the market share of bank deposits has declined from 28 percent of household assets in 1971 to about 15 percent of household financial assets in 1996. These figures illustrate the growing popularity of the stock market, mutual funds and insurance and pension reserves by people of ordinary means.
Despite the restrictions that exist in Glass-Steagall and other federal law, commercial banks have been offering non-traditional banking services, such as securities and insurance, with less restriction, at least in part because of their decreasing market share of deposits. It is also important to note that the securities and insurance companies offer many traditional bank products. Technological developments and financial innovations of financially-related institutions require that our laws catch up to the changes.
As someone who is new to the Banking Committee, I have not had the opportunity to examine the financial modernization legislation of the past in this capacity. I do feel that our banking laws should be updated, however, I want to ensure that it is as fair as possible to all industries, of all sizes. That is why these hearings are so important - so I can evaluate the bill by how fair it is to the industries involved, as well as the consumer.
The goal of financial modernization legislation should be to facilitate affiliations between industries while achieving competitive fairness. H.R. 10 takes the first step toward this aim by repealing sections 20 and 32 of Glass-Steagall; allowing the financially-related industries of insurance, securities and banking to affiliate; and requiring regulation by function, instead of institution. The next step in the process is where opinions diverge significantly: determining what corporate and regulatory structure allows the banking, securities and insurance industries to compete on a level playing field. Some form of functional regulation is desirable to ensure adequate supervision of activities within a financial holding company.
I look forward to learning more about the corporate structure included in H.R. 10, as well as the Department of the Treasury's proposed structure which would allow the same activities to be done within a subsidiary of a bank or an affiliate of a bank holding company. The upcoming hearings will help address the remaining concerns I have about this bill.
Thank you, Mr. Chairman.
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