WASHINGTON - Wall Street firms that acquire wholesale banks should not be subject to Federal Reserve oversight, an investment banker warned the House Banking Committee on Tuesday.
Under legislation sponsored by House Banking Committee Chairman Jim Leach, a new type of "investment bank holding company" would be permitted to own both an uninsured bank and a securities firm.
The Iowa Republican would give the Fed oversight over the holding company.
John A. Thain, a partner of Goldman, Sachs & Co., balked at the holding company supervision.
"I doubt whether we or other investment banks would create a wholesale financial institution if there is regulation at the holding company level," Mr. Thain said.
"Freedom from regulation at the holding company level has enabled securities firms to respond rapidly to business opportunities and changed market conditions without seeking prior regulatory approval," Mr. Thain added.
Rep. Charles E. Schumer, D-N.Y., concurred with Mr. Thain, saying that the "difference in cultures" between commercial and investment banking is too great.
The "entrepreneurial" spirit of investment banking could be stifled by Fed oversight, the New York Democrat added.
"Having the Fed's . . . paws all over the (investment bank) holding company . . . is probably not a good idea," Rep. Schumer said.
Lewis W. Coleman, vice chairman of the board of BankAmerica Corp., criticized the Leach bill for stopping short of permitting commercial banks to participate in insurance underwriting and sales.
"Outside the United States, banking and insurance affiliations are common," Mr. Coleman said. "All but three of the 20 countries with major insurance markets now allow banks to sell insurance, and 15 of these countries permit either direct or indirect ownership of insurance companies by banks."
Mr. Coleman also praised an administration proposal to allow banks to engage in nontraditional activities directly through a bank subsidiary.
"It has been well tested in a number of important markets such as the United Kingdom," Mr. Coleman said. "Corporate separateness and firewall protections are as easily maintained for subsidiaries of a bank as they are for subsidiaries of a holding company."
Rep. Leach has criticized the administration's approach as one that would dangerously expose a federally insured bank to risky activities undertaken within direct subsidiaries.
