Magazine article American Banker

Administration Now Says It Will Push Next Year for Broad Modernization Law

Magazine article American Banker

Administration Now Says It Will Push Next Year for Broad Modernization Law

Article excerpt

In a reversal, Treasury Under Secretary John D. Hawke Jr. said Thursday that the administration will pursue an ambitious plan for financial modernization next year in Congress.

Mr. Hawke had insisted in recent weeks that expanding bank powers would have to wait until narrow legislation designed to merge the bank and thrift charters was enacted.

But he told a group of banking lawyers Thursday, "You can't deal with the thrift charter without coming to grips with the broader elements of financial modernization."

Within four to six weeks, Mr. Hawke said, the Treasury will recommend that banks be allowed to conduct new activities such as securities and insurance underwriting through subsidiaries. He specifically said the Treasury will not require banks to use holding companies.

Speaking at the American Bankers Association's litigation conference, Mr. Hawke said banks can safely offer new services through subsidiaries if insured deposits are not at risk.

"We should prohibit piercing of the corporate veil so federally insured banks can't be held liable for the actions of their affiliates and subsidiaries," he said.

Adequate safeguards will make it possible for a subsidiary to fail without affecting the bank's capital, he said.

The Treasury's approach contrasts sharply with legislation proposed by House Banking Committee Chairman Jim Leach in the last Congress. Under Rep. Leach's proposal, only holding companies regulated by the Federal Reserve could launch subsidiaries for activities that are now off-limits to banks. …

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