WASHINGTON, Nov. 19 — Federal Reserve Board Chairman Alan Greenspan urged Congress on Wednesday to strike down barriers that have kept bank holding companies out of the securities underwriting business.
In an appearance before a House Banking subcommittee, Mr. Greenspan said repeal of the Glass-Steagall Act would lead to lower costs and wider availability of investment banking services for businesses and state and local governments.
But he said repeatedly that bank involvement in underwriting would have only a minor impact on pricing. And he reiterated his view that healthy competition already exists within the securities industry.
Mr. Greenspan's testimony — his first before Congress since the stock market plunge — provided the greatest detail to date of his stand on Glass-Steagall and banking deregulation since he became Fed chairman in August.
Among the federal banking agencies' stands on banking powers, only the Fed's has remained largely obscure, and Mr. Greenspan's remarks on Wednesday are expected to lend strong support to current legislative efforts under way by the Senate Banking Committee to move banks further into the securities business.
In its pursuit of expanded securities powers, the banking industry has argued that oligopolistic conditions exist for a number of instruments, such as commercial paper. Moreover, banks have argued that their participation in underwriting would drive down prices dramatically.
A number of subcommittee members expressed concern about the degree of risk banks would assume if they entered the underwriting business. Mr. Greenspan acknowledged that underwriting and dealing in securities is at the very least somewhat more risky than traditional commercial lending.
In part, that is because earnings from underwriting are more volatile than those obtained in lending, the central bank chairman said. That risk may be offset, though, by the generally higher profitability of investment banking, he said. Risk also arises because of the secondary market support that underwriters usually provide to clients, he said.
Mr. Greenspan said bank involvement in underwriting would not dramatically affect either the price of underwriting services or bank industry profits.
He said, without elaborating, that underwriting prices might decline by 10 to 30 basis points. Moreover, U.S. institutions would not become significantly more competitive internationally as a result of a Glass-Steagall overhaul, he said.
"There will be some improvement in the competitive situation," he said, "but not a great deal. There will be no tremendous change."
"What I am saying, is that if you have artificial barriers that create higher costs, I can find little to say on their behalf," he said. "So they should be eliminated."
Committee Chairman Fernand J. St Germain declined afterward to discuss his views on repealing Glass-Steagall. Subcommittee hearings on restructuring of the financial industry will resume Dec. 2 and 3 with testimony from consumer groups and banking trade associations.
Rep. Chalmers Wylie, R-Ohio, ranking minority member of the committee, said he doubts that any bill repealing Glass-Steagall would be likely to win committee approval. The only chance such a measure would have, he said, is if it passes the Senate first.
"Today, a majority of the committee would be opposed to a Glass-Steagall repeal," Mr. Wylie said. He added that he also has serious reservations about overhauling the 54-year-old act.
Most House members would prefer not to vote on a Glass-Steagall repeal, he said. "It's not a front-burner issue. There's no great crisis out there in banking that would militate in favor of a bill."
On the Senate side, however, prospects for a bill continued to brighten this week. Senate Banking Committee Chairman William Proxmire, D-Wis., and ranking committee Republican Jake Garn of Utah, moved closer to an agreement to cosponsor a bill that would repeal key sections of Glass-Steagall.