Introduction: Modernization of Financial Institutions

By Leach, James A. | Journal of Corporation Law, Summer 2000 | Go to article overview

Introduction: Modernization of Financial Institutions


Leach, James A., Journal of Corporation Law


I. INTRODUCTION

The financial services modernization legislation of 1999 discussed in this issue of the Journal of Corporation Law came about after years of changes within the banking, securities, and insurance industries. Thus, one fundamental basis for revision of the nation's financial services laws-changes which had been debated for most of the 1990s-was to update the laws to make them current with actual practice. In addition, Congress sought to write a new law that would provide for continued growth in the industry at home and abroad, as well as a law which would allow financial services firms to use new technologies to better serve their individual and business customers. The bipartisan bill that was produced last fall in a House-Senate Conference Committee successfully fulfilled these goals. Whereas under previous law, when banks, insurance companies, and securities firms were broadly constrained in market niches, the new legislative framework allows all financial services firms to compete head-to-head with a complete range of products and services. The law is based upon the following premises:

(1) No parts of America-whether inner city or rural hamlet-should be denied access to credit. Hence, this bill solidifies community reinvestment obligations of banks and makes available new, sophisticated financial services in even the most rural comers of America.

(2) In a free market economy, expanding competition in finance should increase consumer access to a wider variety of products at the most affordable prices. The consumer can be expected to benefit from the cost savings implicit in greater efficiencies of scale and breadth of product offerings. The Treasury, in fact, estimates an $18 billion annual consumer savings.

(3) While competition should be opened up in finance, the American model of separating commerce from banking should be maintained. Indeed, this legislation plugs the current loophole in this system-the ability of commercial firms to own federally insured unitary thrifts.

(4) Privacy protections of American consumers should be expanded in unprecedented ways. While some advocate more aggressive views, it is important to note that this bill provides the greatest consumer privacy protections of any legislation ever considered by Congress. Individuals are given powerful new rights to prevent financial institutions from transferring or selling information to third parties. In addition, pretext calling-the idea that someone can call a financial institution and obtain your financial informationis now effectively outlawed.

(5) The public protections contained in a prudential regulatory regime should be rationalized. Utilizing a functional framework, cracks in the current system are sealed, rather than widened, by provisions of this Act.

(6) The international competitiveness of American firms should be bolstered. Foreign institutions should not be allowed to operate with competitive advantages over American institutions because of this Act.

111. BACKGROUND

To understand where the financial services industry is going, it is relevant to know where it has been. Prior to the enactment of the Gramm-Leach-Bliley Act, financial services were statutorily fragmented into three broad sectors: (1) commercial banking, (2) securities, and (3) insurance. In addition, because banking is a highly regulated industry, subject to significant costs of compliance as well as limitations on activities, a panoply of financial companies outside the reach of bank regulation sprang up and acquired an ever expanding market share in the last decades of the twentieth century.

Foremost among barriers to competition was the Banking Act of 1933,1 several provisions of which came to be known by the names of their authors, Senator Carter Glass and Representative Henry Steagall. The Glass-Steagall Act, born in the aftermath of the failure of 11,000 banks during the Great Depression, established a wall between the commercial banking and securities industries. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

Introduction: Modernization of Financial Institutions
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Author Advanced search

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.