New Decade Promises Reprise of Financial Services Holding Company
Cleland, George, ABA Banking Journal
New decade promises reprise of financial services holding company
The arrival of 1990 offers a chance to look at what's in the cards for banking in the final decade of the millenium. Will there be a serious effort to reform deposit insurance? Will banking be restructured? What about the Glass-Steagall Act? Insurance for banks? And real-estate services?
The seeds of answers to these questions were contained in several studies released in the 1980s.
There was the Corrigan Plan, advanced by New York Federal Reserve Bank President Gerald Corrigan. The FDIC's contribution was Mandate for Change - Restructuring the Banking Industry. The concept of a "narrow bank" was advanced by Robert E. Litan, a senior fellow at the Brookings Institution, as a way to separate insured deposits from riskier activities.
Some industry analysts even supported the creation of six or seven U.S. "superbanks" that could compete more effectively with the large Japanese and European giants.
Association blueprint. For its part, ABA supports a financial services holding company concept very close to a model first proposed by the Association of Bank Holding Companies. Such a structure would recognize that banks, as well as many other types of institutions, want to offer financial services. ABA's version of the concept makes special provisions to allow community banks to participate without having to form holding companies.
A financial services holding company would be a monetary jack-of-all-trades. It could own banks, savings and loans, broker-dealers, investment companies, insurance companies, and real-estate firms.
Regulation would be according to function. The bank subsidiary, for example, would answer to appropriate federal banking regulators. The securities subsidiary would be subject to Securities and Exchange Commission oversight. The insurance subsidiary would fall under the auspices of state insurance commissions. And so on.
So-called firewalls would limit extensions of credit and other risky relationships among the affiliates, as well as pre-empt conflicts of interest. …