It's a 50-50 bet that a new banking bill allowing banks to underwrite and sell such investment products as mutual funds, mortgage-backed securities, municipal bonds and commercial paper will be passed by the U.S. House of Representatives this summer, says an adviser to the American Bankers Association.
But the quest by bankers to also sell insurance and real estate will likely be left up to state legislatures to decide, said Joseph L. Boutin, executive vice president of The Howard Bank, Burlington, Va.Boutin talked to the Deseret News on current banking legislation during a recent trip to Salt Lake City to push for support of the ABA's efforts to repeal the Glass-Steagall Act, legislation passed in 1933 which limits the activities of commercial banks.
Two weeks ago, the Senate passed 94-2 a bill sponsored by Sens. William Proxmire, D-Wis., and Jake Garn, R-Utah, chairman and member respectively of the Senate Banking Committee. That bill would allow banks access to the securities business and is characterized by the ABA as "the first step toward an open and competitive financial services marketplace."
The ABA claims that if banks could provide customers a variety of financial services now denied them, consumers could save $8 billion-$10 billion per year in insurance premiums and $4 billion in commission costs for real estate. The ABA also cites studies showing 65 percent of Americans would rather buy mutual funds from banks than from stockbrokers or investment companies.
If all that isn't enough, the ABA has endorsement of the bill from 14 consumer advocate groups.
But there's a stumbling block to all this banking bliss, says Boutin, and it goes by the unlikely name of Fernand St. Germain. Rep. St. Germain, D-R.I., has proposed House of Representatives legislation that, unlike the Senate version, the ABA finds to be "regressive and anti-consumer."
According to Boutin it contains restrictions that would make it virtually impossible for banks to add meaningful new competition in the securities, insurance, and real estate areas, and consumer provisions that will impose prohibitive costs.
"It's going to take every bit of resources we have available to push the House into banking reform," said Boutin.
That means lobbying, and Boutin concedes the banking industry has not been as effective in that area as have its competitors in securities, insurance and real estate.
"We've been conditioned over the years to accept all the regulations imposed on us, regulations insurance and real estate don't have. There's a reason for that, of course; since we have depositors' money, we have to be right 99.5 percent of the time."
While other financial industries relatively unencumbered by government regulation have been able to react quickly to the changing markets of the '80s, said Boutin, banking has not, and is thus perceived as lethargic and inflexible.
"As a result, banking has lost $240 billion in deposits to money market mutual funds, and our market share is down from 79 percent to 76 percent in the last 10 years. Before 1960 we did all of the commercial lending, now we do only 40 percent."
And the rise in credit unions has been at the expense of banks, he said. If they had been taxed as are banks, they would have contributed $4 billion to the treasury. "People think we can't match the interest rates and free services offered by credit unions because we don't want to. That's wrong; we don't because we can't."
Despite the battle still ahead in Congress, Boutin predicts that the first bank to sell securities will do so as early as 1990.
"And it will be the Citicorps of the world who will get into it first. They're the ones (large banks) who have already done the research and hired the people, and they will do it as soon as the legislation is passed."
What that final version passed into law will contain remains unclear, but Boutin and the ABA have little doubt that it will offer some new investment powers for banks.