Us Banks To Be Allowed Into Share, Insurance Business After 60

US treasury secretary Robert Rubin yesterday outlined the Clinton administrations plan to allow banks to get into the securities and insurance businesses, eliminating 60-year-old legal barriers enacted during the Great Depression.

The old lines that separated insurance, securities and banking industries have increasingly blurred as new financial services and products have appeared, Rubin said.

The plan would allow banks, securities firms and insurance companies to compete directly under a uniform set of regulations. That increased competition should benefit consumers, generating savings of up to $15 billion a year, Rubin said in a speech at the Exchequer Club in Washington.

The highly anticipated administration proposal, originally expected in March, takes its place with several bills already introduced in Congress to overhaul the Glass Steagall Act of 1933. We look forward to working with Congress on this important initiative, Rubin said.

 

Congress and industry have been working to reform the law for more than a decade without success. But this year, previous opponents of reform have come to the table as regulators and courts have chipped away at the law and granted banks some new powers.

House banking committee chairman Jim Leach welcomed the plan, but said some substantive issues were unresolved.

While differences of judgment on several key legislative points remain, secretary Rubins statement today is very constructive to the process, the Iowa Republican said.

Senate banking committee chairman Alfonse DAmato said he looked forward to working with the administration. Our overriding concern should be to minimise the risk to taxpayers, DAmato said.

Industry participants said the administration plan would give the reform effort a needed boost.

The proposal should provide considerable momentum for long-needed reform, Bankers Trust New York Corp chairman Frank Newman said. Newman gave the effort some prior momentum last month, when his bank took advantage of recent regulatory changes and acquired the securities firm Alex Brown Inc.

Consumer advocates, however, complained that the proposal did not contain adequate measures to protect bank customers buying insurance.

Were very disappointed that there are no protections on insurance, Mary Griffin of Consumers Union said. Banks have a weak track record in that area, she added.

Credit insurance on mortgages, the second most popular insurance product sold by banks is one of the biggest consumer rip-offs out there, she said.

The Rubin proposal did not take a firm position on the controversial question of allowing banks to combine with non-financial, commercial firms.

Because of the nature of the issues and the complete lack of consensus, we think the issue needs to be further debated by Congress before settling on a final approach, Rubin said.