WASHINGTON - Private and public enterprises seeking to raise capital would benefit handsomely from the removal of the walls separating commercial from investment banking, the House Banking Committee was told this week.
"Bankers are accustomed to making loans that might be outstanding for a period of years," said William Heiligbrodt, president and chief operating officer of Service Corporation International, the world's largest operator of funeral homes and services.
"Because they have that kind of exposure, they have to know . . . our company well and can use that knowledge to help us prepare disclosure documents and to tell our company's story to investors," said Mr. Heiligbrodt, who used to be chairman of Texas Commerce Bank in Houston.
House Banking Committee Chairman Jim Leach concurred, saying that smaller businesses may lack the option larger enterprises have of patronizing an investment bank when they want to grow.
"The vast majority of commercial enterprises have never dealt with an investment bank," said the Iowa Republican, whose Glass-Steagall repeal legislation would let securities firms affiliate with insured depositories.
"For a smaller enterprise that wants to grow, its only alternative at the moment is a lending approach," Rep. Leach said.
Steve McCoy, director of the Georgia Office of Treasury and Fiscal Services, said giving commercial banks more "investment bank flexibility" would let the public be served by institutions with a stake in the community.
"The possibility for creating an atmosphere where abuse could occur is reduced by providers which have long-term interests in the local area, rather than an outside affiliate that does not intend to be there for better and worse," said Mr. McCoy, who is also chairman of the National Association of State Treasurers' Banking Committee.
Rep. Leach was also lauded for including a provision in his legislation that would authorize municipal revenue bonds as bank-eligible securities for well-capitalized institutions.
"As a publicly owned utility, we raise our capital in the municipal revenue bond market," said Walter Bussells, deputy managing director of the Jacksonville Electric Authority, a utility serving northeast Florida.
"I am convinced that providing the authority contemplated in this legislation to commercial banks will enable JEA to raise the capital required to serve our customers at a lower cost than would otherwise be possible," added Mr. Bussells.
However, not all those testifying at Tuesday's hearing fully supported the chairman's bill.
Patrick Forte, president of the Association of Financial Services Holding Companies, said he felt the Leach bill would unfairly hamper unitary thrift holding companies (see accompanying article).
"We see no benefit and, indeed, see a clear detriment from limiting a structure that has worked so well in the past and could well do so in the future," Mr. Forte said.
Rep. Leach's bill would eliminate the unique powers granted to unitary thrifts, covering insurance and securities and, particularly, their eligibility for ownership by commercial and industrial companies.
After negotiations with Mr. Forte's group, Rep. Leach agreed to exempt or "grandfather" unitary thrifts existing as of Jan. 4 from any further banking and commerce restriction.
During the hearing, Rep. Leach grew uncharacteristically impatient when Mr. Forte said that grandfathering is "not the answer."
"I'm a little taken aback," said Rep. Leach. "In deference to the concerns of (your group), I have agreed to grandfather, and you have come and testified that that is totally inadequate.
"Aren't you saying you want the entire cake and to eat it, too?" Rep. Leach said.
Mr. Forte responded by saying that the Leach bill "demonstrates the effect of changing the law without being able to point to a problem."
If thrift subsidiaries of unitary thrift holding companies have a competitive advantage, as Rep. Leach claims, then banks "would be converting charters in great numbers," Mr. Forte argued.
