After Glass-Steagall, Repeal Bank Holding Company Act

Article excerpt

Repeal of the Glass-Steagall Act is shaping up as a front-burner issue in both the House and Senate banking committees.

The principal obstacle to repeal in years past had been Rep. John Dingell, former chairman of the House Energy and Commerce Committee, who almost single-handedly blocked serious discussion of the issue.

With Mr. Dingell relegated to minority status, the major remaining hurdle is a looming debate over the Bank Holding Company Act. The securities firms view Glass-Steagall repeal, standing alone, as a one-sided deal.

Elimination of Glass-Steagall would allow banks full-fledged participation in the securities business. But the securities firms say the Bank Holding Company Act would block many securities firms from full participation in the banking business.

The problem, according to the securities firms, is that many of them have affiliates engaged in activities not permitted to bank holding companies.

If, for example, a securities firm has an affiliate engaged in underwriting life insurance, the securities firm may not become a bank holding company without shedding the life insurance business.

I understand why securities firms would not wish to divest their nonpermissible activities as a quid pro quo for being permitted to acquire banks.

But it's not obvious to me how a requirement that they do so would place the securities firms at a competitive disadvantage vis-a-vis banking companies.

It's simply a fact of life, under current law, that if a company wishes to own a bank, it must for-go engaging in a wide range of other activities. The rules are the same for everyone.

While I don't agree there is an inequity in repealing Glass-Steagall without repealing the Bank Holding Company Act, I believe the Bank Holding Company Act has outlived whatever purpose it was intended to serve.

The Bank Holding Company Act should be near the top of any list the administration and Congress might develop of government laws and regulations that should be eliminated.

The law was adopted in 1956 primarily as a means to prevent the spread of interstate banking.

There were virtually no problem banks or bank failures during the 1940s and 1950s, so the measure was clearly not intended to address any concerns about safety and soundness, modern-day rhetoric to the contrary notwith-standing.

The law was aimed specifically at the banking and insurance empire assembled by Bank of America's, A.P. Gianinni.

No doubt because Mr. Gianinni was one of the best and most innovative bankers in U.S. history, he and his organization engendered more than a little fear and jealousy among competitors. …