MOVING ON MONEY

November 3, 1999
		Congress moved toward the passage of a bill that would lift restrictions on the banking industry, allowing banks, securities firms and insurance companies to merge and sell each other's products.

Oct. 28, 1999: Dueling over congressional budget dollars Oct. 26, 1999: Democrats and Republicans defend their budget plans. Oct. 1, 1999: Congress welcomes the new fiscal year, but with many old problems Sept. 23, 1999: Two congressmen on the president's veto of the Republican budget June 28, 1999: The White House budget director discusses the budget surplus March 22, 1999: The Senate Budget Committee approves the Republican budget plan March 9, 1999: From budget deficit to surplus Browse the NewsHour's coverage of the budget, Congress and economy     Consumers Union	KWAME HOLMAN: Seventy years ago last month, Wall Street stocks crashed, thousands of banks failed after the 1929 collapse, and the Great Depression ensued. On Capitol Hill and elsewhere, bankers themselves got much of the blame for the meltdown. Labeled "banksters," they were scolded for engaging in risky stock bets that brought them and their depositors down. In 1933, President Franklin Roosevelt signed a law that restricted commercial banks' ability to buy and sell stocks. It was called the Glass-Steagall Act, after its chief proponents, Senator Carter Glass and Congressman Henry Steagall. In the 1950s, Congress again put limits on commercial banks, this time prohibiting them from owning insurance companies. But in the decades since then, banking regulators and the courts have chipped away at the walls separating banking from other financial services. In the 1980s, the Federal Reserve gave the largest banks permission to trade securities on Wall Street on a limited basis. In 1997, federal regulators allowed Bankers Trust, a commercial bank, to buy investment firm Alex Brown. And last year, banking powerhouse Citicorp merged with Travelers, an insurance and investment giant. Under the existing barriers, however, the new conglomerate will have to sell off its insurance business. At the merger announcement, Travelers CEO Sanford Weill appealed to Congress to undo the Depression-era restrictions on banking in order to help American financial companies compete overseas. SANFORD WEILL: I think that if you look to Europe or you look to Asia, organizations like ours already exist, where banks and insurance companies and investment companies are all part of what they call universal banks. KWAME HOLMAN: Now, after two decades of legislative stalemate, Congress is poised to pass a compromise bill, which President Clinton is expected to sign it into law. Billed as financial services reform, the legislation would allow banks, stock brokerage firms and insurance companies to merge more easily, to enter into each other's businesses, and pave the way for financial service supermarkets that could sell all three kinds of services under one roof. The bill also would allow financial companies to share consumer information, such as account details, with other businesses. Firms would have to make such disclosure policies public. A key sticking point in the bill was renewal of the Community Reinvestment Act, which requires banks to lend in underserved communities. As it stands now, the bill would allow smaller banks to be reviewed less often by regulators if they maintain a good record of lending in low-income areas.
	Creating a one-stop shop
	GWEN IFILL: For more we're joined by Edward Yingling, executive director of government relations for the American Bankers Association; Frank Torres, lead advocate on banking and financial services issues for Consumers Union; Jane D'Arista, program director for the Financial Market Center, a nonprofit think tank based in Virginia; and David Beim, a professor of finance and economics at Columbia University's Graduate School of Business -- he spent 25 years in corporate finance and investment banking. Mr. Torres, this has been the most expensive, most heavily lobbied, most sweeping, some people would say, bill to reach Congress in a generation. Is it a good bill? Is it a good bill for consumers? FRANK TORRES: It's going to have a mixed effect on consumers. I mean, what's been touted is this idea of this one-stop shop, this financial supermarket for consumers. And that may very well be, and there might be some convenience in that. Unfortunately, we're fearful that there's a dark side to this. A customer might get a product that isn't really suitable for them, or they might hit hard times going to try to get a loan to help them get out of those hard times, and then they may find it difficult to get an insurance or other type of product because their information has been shared about the fact that they're now on the financial edge. We also question what this will mean for the typical American, hard working family who the Federal Reserve says keeps less than a thousand dollars in their checking account. A recent study says that half of American families have only a thousand dollars' worth of assets. How are they going to be able to afford these new products or pay the fees on them at a time when bank customers are tired of ATM fees, they're getting stuck with all sorts of service charges, they really find it difficult to find a way to avoid fees, especially if they're not keeping large amounts of money in these financial institutions. Will these customers be forced out into say a payday lender that some banks are pairing with, or to some sort of other loan that may not be the best for them? GWEN IFILL: Mr. Yingling, as we just saw in Kwame Holman's piece, the Citicorp-Travelers merger obviously demonstrated that a lot of these walls have already collapsed. How does this piece of legislation actually change the financial landscape? EDWARD YINGLING: Well, that's exactly right. This is the most important piece of financial services legislation in over 60 years. And basically, it's designed to update the laws. Our laws governing our financial system are really based on the 1930s; they're really 60 years old -- before we had ATMs, before we had brokerage accounts on the Internet, before we had mass marketing of mutual funds, so they're totally out of date. And the idea is you update these laws really to take into account what is already going on in the marketplace. As you point out, these mergers and these combinations are taking place today, driven largely by changes in technology and what consumers want. So the idea is let's update our laws, we can cut costs, we can be more efficient. The Treasury has estimated that this can save consumers $15 billion a year, and actually in a letter today the secretary said under some circumstances it could be as high as $18 billion a year. GWEN IFILL: Ms. D'Arista, picking up on the earlier point, when I first got a bank account and you probably first got a bank account, we had a little passbook. That's long since passed. Most people don't keep their money that way anymore; they keep their money in all kinds of ways. Why isn't this one-stop shopping idea the best solution? JANE D'ARISTA: Well, I think the point that has been made is that the laws are 60 years old; they remain that way in terms of regulation. One-stop shopping does not always give you the best choices; you may feel compelled to take a product from an institution in order to get another product. But I think the problem with this legislation and the problem is very real, is that it has not updated the regulatory framework for the system. It has recognized what has happened in the marketplace, in part, allowed by regulators, but we still have this proliferation of regulatory agencies, of state and federal agencies overlapping, products which are regulated in very different ways though they're very much the same kind of things, and, above all, no attempt to address the protection for the consumer in terms of the safety net. We don't have a system now in which banks are dominant. The dominant activity is money management, that's spread across the entire financial sectors, and if you bring them together in one place, you'll have less of a market and much less protection for the consumer.
	Questions of choice and privacy
	GWEN IFILL: Mr. Beim, John Dingell, the congressman from Michigan, Democrat, has said that this legislation will create banks too big to fail, too big to bother, and too big to care. Picking up on the concern of Ms. D'Arista, do you think perhaps that regulators will have a vested interest in making sure that these banks succeed because they will be such huge financial behemoths? DAVID BEIM: Well, I think we have a complex financial marketplace in which there is a wide variety of different kinds of institutions. We have thousands of small banks in the country if people like small banks. We also have some absolutely enormous institutions, and they will get bigger and more complex as a result of this legislation. I think it's good for the marketplace to sort out what is best for consumers, rather than try to legislate it, why not let the consumers decide. If they want to go to a large financial supermarket and that meets their needs and gives them creativity, and the mixture of securities and banking products and insurance that's interesting and imaginative, then they will do that. If it does not, if they become too big and too heavy and bureaucratic, and a nuisance to consumers, consumers will avoid them. As far as too big to fail, that doctrine already applies to the banking business, and it applies, frankly, to almost any bank of any significant size. No bank is permitted to default on its deposits in the United States and has not been since 1984. GWEN IFILL: Mr. Torres, let's talk about the privacy issues for a moment. Say I have a bank account and I'm suddenly getting phone calls, with this legislation, will I start getting phone calls from insurers or brokers who suddenly have had access to say, my checking account activity? FRANK TORRES: Absolutely. There's nothing in this legislation that will prevent your information from being shared amongst affiliated companies of that bank, and you have no opportunity under this law to say no, to opt out from the sharing of information in that sense, and so it would be very difficult for you to-- the best thing you could hope for is that your financial institution could listen to you, but they don't have to under this law. GWEN IFILL: Mr. Yingling, when you were shaking your head -- EDWARD YINGLING: Well, the impression is given that somehow or other this law contains some provision that allows institutions to share beyond what they can do today. There's not one word in this legislation that gives new authority for institutions to share information -- GWEN IFILL: Does it give new protections? EDWARD YINGLING: It gives over 30 pages of new protections. It is the strongest, most comprehensive privacy protection law the Congress will have ever enacted. Let me just quote what Secretary Summers said today on privacy -- provides protections for consumers that extend far beyond existing law.
	Regulating conglomerates
	GWEN IFILL: Ms. D'Arista, one of the big sticking points at the end of this that almost scuttled this bill last week was the question of whether banks should be compelled to invest in the communities which they get their deposits from. Did that sort itself out to your satisfaction? JANE D'ARISTA: I don't think that it really has, because I think that the issue is who else needs to comply with such community reinvestment restrictions or provisions. And I think that we have to look at a system in which we've left a lot of folks out in this legislation. For example, GE Capital is not brought in to the system, even though it operates in many respects like a financial conglomerate already, like the ones that are going to come into being. GWEN IFILL: What do you mean by that? JANE D'ARISTA: Well, it is -- instead of bank has a finance company, but it has any number of other financial businesses, some of which are regulated and some of which are not -- but none of which will be subject to umbrella regulation, because it will not be a bank holding company. In this instance, many things can happen, and we don't have any sense of the real soundness of this institution. And soundness has got to be a concern now that we're facing a situation in which the levels of debt in this country, both households and businesses and the financial system itself are extremely high, higher than they have ever been before. We're doing a piece of legislation without thinking through how we need to regulate the new entities that are being created. We've been discussing this over in Bal for several years without any satisfactory solution, and how you actually do regulate a conglomerate to get the best of the functional and institutional aspects of regulation in place. GWEN IFILL: Mr. Beim, this bill sounds like a victory for the free market. Maybe over-regulation's a bad idea. DAVID BEIM: I think over regulation is a bad idea. This law, the Glass-Steagall Act was, I think, in my opinion, a bad idea from the beginning. Congress has tried 11 times to repeal it. This is the 12th time. And they've finally succeeded. It is a law, which urgently needed to be repealed. It said that banks should not be part of financial markets, that banks should somehow be kept apart from markets. GWEN IFILL: But in practical terms, Mr. Beim, was anything of that Act actually left? DAVID BEIM: Excuse me? GWEN IFILL: Was anything of Glass-Steagall actually left after it had been chipped away at over so many years? DAVID BEIM: Well, it's a little bit as if a couple had been living together for a number of years and finally decided to get married. Has anything changed? Well, at some level nothing has changed, but at another level everything has changed. The new arrangement has become legal. It's become normalized. It's become permanent, and it's a sound thing when the law corresponds to reality. The Glass-Steagall Act had gotten out of touch with reality, and it's high time it was repealed. GWEN IFILL: Mr. Torres, I don't want to skip too quickly over the Community Reinvestment Act portion of this. In some way, both sides won, the Act still exists, but there are greater accounting procedures. Why shouldn't people who receive these kinds of funds, these kinds of benefits from banks have to account for the way they spend the money? FRANK TORRES: Well, the Community Reinvestment Act groups I don't believe have a problem with being accountable, but at the same time, at the time when we're trying to build these communities up, is that -- do we want to put overly burdensome requirements on them? But they were in a better position than us to really talk about that particular point.
	Saving money
	GWEN IFILL: Mr. Yingling, one of the things which everyone has talked about in this is that -- in fact, I think you mentioned it earlier -- $15 billion would be saved through efficiencies. Does this money get passed on to consumers, these savings -- lower ATM fees like we're going to be talking about in a few minutes on this program? EDWARD YINGLING: We already have in this country the most competitive financial system. We talked about earlier the fact that it's not going to be just big financial supermarkets. We have literally several hundred new community banks formed every year in this country. They're going to be all kinds of consumer choices, lots of competition. What this bill will do is actually increase that level of competition. And in our economy, it's competition that drives the cost savings that the businesses may have on down to the consumers. So it will be driven down by a very strongly competitive financial system. GWEN IFILL: Mr. Torres, obviously you -- FRANK TORRES: Yes. We heard the same type of promises made when the Telecommunications Act was passed. That consumers would see more choices, lower prices, and I think some American consumers would say that that has not come to be yet. I've heard this $15 billion, $18 billion cost savings. You know, who is going to see that? Will the typical American who doesn't keep that much in the bank, who may not avail themselves to this one-stop shopping, will the cost savings be passed on to them, or will it be kind of the higher income, higher bracket customers who take advantage of all these services? Will they be the only ones to see that? So we're very skeptical about some of the numbers are that are being tossed around and whether or not the savings will, in fact, be passed on to consumers. EDWARD YINGLING: Just one point on that. I think there is maybe a tendency to maybe compare this to the telecommunications deregulation. It's really different. It's apples and oranges. There you had a system where you had a monopoly system, a utility system. And it came off with major changes. As you've been pointing out, most of these changes are already in the marketplace today. GWEN IFILL: Ms. D'Arista, in the end, who wins, who loses, does anybody? Do we know? JANE D'ARISTA: I think the financial system itself wins big for a while. But financial products are not viable in the end unless they have an income stream behind them. And unless this system that they are creating actually performs an economic function in keeping this economy going, it is going to fail, and we will all be facing very difficult times. GWEN IFILL: And Mr. Beim, briefly, can you tell us whether you think in the end there will be big difference for the average consumer because of the passage of this legislation? DAVID BEIM: I think the main difference to the consumer will not be in terms of cost savings so much as in terms of creativity of product. If you allow people to share information within the walls of an institution and to create products that have some elements of securities markets, and some elements of bank, some elements of insurance company, you're going to get a lot of creativity going. There's going to be some very creative and imaginative ideas, reverse mortgages and other such things which are awkward to implement now but which I think will start coming in the new institutions that combine these three important areas of the financial marketplace. GWEN IFILL: And we'll have to leave it there. Thank you, everyone. JIM LEHRER: For the record, CitiGroup, which was mentioned prominently in that segment, is of course an underwriter of this program.