Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, made the following statement today at a joint hearing of the Subcommittee on Financial Institutions and the Subcommittee on Securities regarding the interim rule and proposed regulations implementing the merchant banking provisions of the Gramm-Leach-Bliley Act:

"When we set out to modernize financial services under the Gramm-Leach-Bliley Act, our clear intention was to set up a structure whereby banks could diversify their financial activities. As the bill was structured in this committee, those financial activities related to merchant banking were to be conducted in holding companies.

"It is almost a paradox that one of the compromises struck with the Treasury Department was to give the Federal Reserve and the Treasury Department the ability, after five years, to look at the possibility of allowing national banks to conduct merchant banking within the banks themselves.

"One would have thought that that provision, insisted on by the administration, was a forerunner for a vast expansion of merchant banking in commercial banks in the United States. The irony is that banks that are currently engaged in merchant banking find that these interim regulations restrict what they're doing now. They are imposed retroactively on banks that had in the past conducted business safely under the old rules.

"Congress passed a sweeping reform bill that had as one of its many objectives to open up the ability of banks, through holding companies, to expand merchant banking activities on a sound and prudent basis. I think there was surprise in Congress and in the banking sector of the economy that, in fact, under these new regulations, not only is there no opening up of merchant banking, but merchant banking activities that could be conducted prior to the new law would be substantially limited.

"We have a job to do. The Fed and Treasury have a job to do. Our job is writing laws; their job is implementing those laws. We don't want to do their job. We don't want them to do ours. So, what we're trying to do here today is to listen to the regulators, to give them an opportunity to listen to us, and to give all of us an opportunity to listen to people who are engaged in merchant banking and have concerns about these regulations.

"These are interim regulations. Obviously they can and, to some extent, will be changed. I want to thank both of our subcommittee chairmen – Sen. Robert Bennett and Sen. Rod Grams – for holding this hearing to give us an opportunity to learn more about this important area, to give us an opportunity to speak out on this issue, and to give people in industry who will be affected by these rules an opportunity to speak out as well."