WASHINGTON -- With interstate branching ready for the President's signature, a top Treasury Department official says the Glass-Steagall Act's restrictions on bank underwriting activity may be the administration's next target.
"Clearly, Glass-Steagall has to be on the agenda to look at very carefully," Treasury Under Secretary Frank Newman said during an interview last week.
In part, he said, that's because competitors are moving so deeply into the basic business of commercial banking. "We see investment banking firms actively going into commercial lending in a very major way," he said. "So that's an obvious item to look at."
The interstate bill requires the Treasury Department to take a look at the strengths and weaknesses of the U.S. financial services industry, and Mr. Newman said he hopes the study will be completed "sooner, rather than later."
That study, due within 15 months of the bill's enactment, could set the stage for the next congressional consideration of financial industry restructuring.
A similar study, required by the 1989 thrift bailout law, led to a massive administration effort in 1991 to pass legislation that would have thoroughly overhauled the laws governing banks and other financial services companies.
In this case, however, the timing may be less favorable, since the study isn't due until the end of 1995. That means Congress would take up the recommendations in 1996, a presidential election year not always the best time to deal with complex financial issues.
The bill requires Treasury Secretary Lloyd Bentsen to appoint and consult with an advisory committee before completing the study.
Mr. Newman and a fellow Treasury official, Assistant Secretary Richard S. Carnell, declined to predict what direction the study would take. But Mr. Carnell said he expected it to deal broadly with financial services laws.
"The Bank Holding Company Act and Glass-Steagall that's all fair game," he said. "Our goal will be to look at what this industry will look like. We want to see what changes will be needed."
Mr. Newman, though elated over passage of the interstate bill, declined to predict how much impact it will have on the industry. "I don't know if anyone could predict what the effect will be, ultimately, on consolidation," he said. "And that wasn't the objective," he added.. "The idea was to obtain more efficiency." Banking affects so many other industries, he said, that an uptick in efficiency helps the economy as a whole.
Still, Mr. Newman said that a bank like his former employer, BankAmerica Corp., could expect to realize savings in the neighborhood of $50 million a year. "That's a good number," he said. The Treasury official said he believes consolidation may be more suited to some regions of the country than others.
"There are some areas where consolidation makes sense, and some areas where it will not," he added.
Mr. Newman said he expects to see a number of smaller banks take advantage of interstate.
"A lot of banks might have branches on a state border" and will want to serve customers on both sides of a state line," he said. "That's a feature which will be taken advantage of. It eliminates a real nuisance to customers."
