With an overwhelming 94-2 victory in the U.S. Senate this week, banks moved an important step closer to being able to take part in the securities business for the first time since the Great Depression.
It is a long-overdue action, but the struggle isn't finished. The bill must still go to the House where there is formidable opposition in key committees. But the lopsided Senate vote ought to give hard-to-resist momentum to the banking bill.The measure would allow banks to underwrite municipal revenue bonds, mortgage-backed securities, and commercial paper. After six months, banks could underwrite long-term corporate bonds and mutual funds.
Another vote would be required by Congress in 1991 before banks could underwrite corporate stock, the most lucrative securities activity.
To protect banks, the bill requires that they set up a bank holding company and create a separate, arms-length subsidiary to engage in any securities activities.
Essentially, the legislation would make "a level playing field," according to Sen. Jake Garn, R-Utah. This is necessary because the securities industry, and other financial entities have invaded the banking business. Such non-bank banks offer all kinds of banking services, including checking accounts.
This expansion caused federal agencies to start giving banks a little more room to compete. A year ago, the Federal Reserve allowed a few banks to enter the securities business, as long as they kept banking as their primary business.
It was the sense that federal regulators were, in effect, repealing Depression-era banking laws, that caused Congress to act after years of foot-dragging.
Congress placed a moratorium on the expansion of bank powers to give it a chance to get its own legislation on the books.
The securities and insurance industries had fiercely fought the banking bill, but their opposition seems to be based mostly on protecting their own turf. By letting banks compete, the big winners will be bank customers who may benefit from better service and lower prices.
The House should quickly follow the Senate's lead and give the nation's banks the right to take part in the securities business.