Magazine article Independent Banker

Overstepping Boundaries

Magazine article Independent Banker

Overstepping Boundaries

Article excerpt

In 1788, our founding fathers adopted the U.S. Constitution to establish the principle that our country would be governed "by the people" and "for the people." For more than 200 years our nation has operated on that principle. And today the system on which the U.S. government and economy are founded is the envy of the world.

Yet a strange thing happened in mid-September. Shortly before the full Senate was to begin debate on H.R. 10the financial industry's reform bill-the Federal Reserve blessed the marriage between two financial industry behemoths, Citicorp and Travelers Group. Approval of the deal came despite the fact that the merger was a violation of the Glass-Steagall Act and the Bank Holding Company Act. Recall that passage of the financial reform bill likely would have made the merger legal. The timing of the Fed's decision opened it to criticism that it was trying to influence the legislative process.

In our judgment, former Federal Reserve Board Chairman Paul Volcker said it best. Although he supported passage of H.R. 10, he argued against Fed approval of the Citicorp-Travelers merger in an op-ed piece in the Washington Post. He wrote, "Change has been aided and abetted by regulatory and court decisions. By now, reinterpretation of existing law has been stretched to the limits (I would argue beyond the limits)."

The Glass-Steagall Act and the Bank Holding Company Act have been the law of the land since our country's last economic meltdown in the 1930s. Since then a considerable span of time has elapsed, a time during which the Federal Reserve never sanctioned the common ownership of a commercial bank and an insurance underwriter. …

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