Washington wrangles over financial reform
WASHINGTON — Just weeks after ending impeachment proceedings against President Clinton, Congress is tackling an issue that, in terms of dogged political longevity, puts even the chief executive to shame.
Congress is considering, for the 12th time, whether to reform the Glass-Steagall Act, enacted in 1933 to separate investment banking, commercial banking, and insurance.
The stakes for consumers and the US financial industry are immense.
Reform proponents - primarily the financial-services industry - say Glass-Steagall inhibits efficiency, value, and convenience at home and US competitiveness abroad.
"We have a cobbled together, inefficient financial system because of regulation," says Jack Morris, spokesman for Citigroup in New York. "The purveyors of financial services would be better served and consumers would be better served with a more market-driven approach," he says.
Citigroup, formed as a result of a $70 billion merger last year between Citicorp and Travelers Group, has much at stake. The nation's largest financial company would eventually have to cast off its insurance underwriting business should Glass-Steagall once again dodge reform. But if reform succeeds, Citigroup by 2010 aims to amass 1 billion customers worldwide.
Consumers also may gain from the financial supermarket envisioned by Citigroup and others: one-stop shopping for brokerage, insurance, and retail banking. Increasingly, bankers will sell stocks; stockbrokers will sell annuities; and insurance agents will sell mutual funds.
Glass-Steagall reform, however, is stalled in part by a turf battle among regulators. Even then, skeptics wonder if financial institutions will consider reform worth years of lobbying.
"No one has proven that cross-selling works," says Jeffrey Hopson, an insurance industry analyst at A.G. Edwards in St. Louis. "Just because someone has a checking account doesn't mean they'll want to buy auto insurance at the same place," says Mr. Hopson: "It should be able to work, but no one has succeeded."