Since 1933, the Glass-Steagall Act has maintained walls of separation between the banking, insurance, and securities industries. For at least the last 20 years, it has been clear that these divisions were being overtaken by the modern global economy. And for 20 years Congress has failed again and again to update the law.
Meanwhile, marketplace demands and regulators' rulings have changed the on-the-ground reality while Washington dillydallied. Today one-stop financial shopping is increasingly available, although banks and brokerages have to engage in organizational jujitsu to offer it.
In the few days left before Congress adjourns, it has the best opportunity ever to create a financial framework for the new millennium. The Senate this week should consider a bill written by its Banking Committee to allow each financial sector to offer the others' products. The House passed a similar measure last spring. The final version ought to include clear safeguards against conflicts of interest.
The bill faces two roadblocks. First, Sen. Phil Gramm (R) of Texas and others are threatening to try to block the bill if new financial entities are not exempted from the Community Reinvestment Act. That law requires federal regulators to take into account a bank's lending to minorities when approving a branch or merger.
Second, the bill is caught in a turf tussle between Treasury Secretary Robert Rubin and Federal Reserve Chairman Alan Greenspan. The proposal as written would organize the new companies as bank affiliates of holding companies (regulated by the Fed), instead of operating subsidiaries (overseen by Treasury's Office of the Comptroller of the Currency). Secretary Rubin wants a presidential veto.
The Fed is the right body to regulate the new companies, insulated as it is from political considerations.
To lose this opportunity to create a modern financial-services industry would be a mistake. The senators should let the bill come to a vote. The House should go along. And President Clinton should sign it.