Prepared Testimony of U.S. Senator Chuck Hagel (R-NE)

Hearing on H.R.10 - "The Financial Services Act of 1998"
(First Hearing in a Series)

Good morning and welcome to our distinguished witnesses.

I would like to thank Chairman D'Amato for scheduling these hearings. All the members of this Committee understand the importance of balancing the sense of urgency surrounding passage of financial services reform legislation with the need to ensure that any legislation considered in the Senate respond to future marketplace dynamics and not just to today's realities and political pressures.

America's financial services companies operate under a regulatory regime that dates back to the Great Depression. Our banks, insurance and securities firms are bound by artificial barriers that don't recognize the current realities of the marketplace- that the lines separating these industries have been blurred by the evolution of new financial products. Securities firms, insurance companies, and banks already affiliate with one another because the marketplace demands this. However, these affiliations cannot lead to full and fair competition because of the Glass-Steagall legal barriers. This is a charade.

Clearly, it is time for Congress to modernize U.S. financial services regulations and introduce full and open competition across the banking, securities and insurance industries. This action will benefit consumers in two ways. First, allowing competition among banks, securities firms and insurance companies will lead to lower costs and higher savings for consumers. Second, this competition will strengthen our financial services firms that are integral to the health of the American economy.

If we don't modernize our laws governing the delivery of financial services then we will put our companies at a severe disadvantage in the global arena. Today, the U.S. is the global leader in financial services. We must not jeopardize this position through Congressional inaction or wrong action. Just as exports of manufactured goods and commodities have become increasingly important to the growth of our nation's economy, so are our exports of financial services important to domestic, dynamic economic growth.

Our global position has been strengthened by the conclusion of a historic financial services side agreement to the Uruguay round of GATT. It is ironic that the U.S. pushed hard for this agreement to reduce barriers to competition abroad, while our domestic market continues to operate under a 1930's regulatory regime that stifles competition. It is time to tear down barriers to competition in our domestic markets and ensure that our industries are able to continue to compete at home and abroad.

The House of Representatives should be commended for its progress on H.R. 10. Many of the contentious issues surrounding the repeal of Glass-Steagall have been worked out, however problem issues still remain. Certain questions must be answered before the Senate takes final action on this legislation;

• Are we creating a legal framework flexible enough to adapt to a highly dynamic domestic marketplace?
  
  
• Will we allow our financial industry to innovate and compete in a highly competitive global economy or is the new framework too restrictive?
  
  
• Do we ensure non-discrimination among different segments of the financial services sector? Are we penalizing one industry over the others?
  
  
• Are we protecting the deposit insurance funds and the American taxpayer?
  
  
• Are we adding to any legal uncertainty and encouraging litigation through our actions?
  
  
• Are we expanding unnecessary mandates similar to the Community Reinvestment Act?

I am confident that the hearing process will provide answers to these questions and help us craft legislation that incorporates principles of soundness, fairness, innovation and competition.

I look forward to the testimony.

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