Bank regulators have the authority and responsibility to tear down many of the barriers inhibiting competition among financial services companies, according to a report released Monday by the Bank Administration Institute.
"The regulatory system is outdated and does not give banks a chance to compete in the emerging financial services marketplace," said First Commercial Corp. executive officer J. French Hill, who helped Chicago-based BAI with the report.
The BAI report makes 34 recommendations for regulators, including:
*Easing rules and restrictions on better-run banks.
*Abolishing rules that prevent banks from requiring a consumer to buy one product in order to receive a second.
*Targeting exams on a bank's risk-management system and requiring institutions to disclose publicly the amount of risk they are willing to accept.
*Eliminating on-site safety-and-soundness reviews for well-managed banks and permitting these institutions to self-certify their compliance with consumer regulations.
*Replacing applications for acquisitions and branch openings with notifications and giving the Justice Department sole authority for reviewing the competitive effects of mergers.
The study also suggested that Congress change the law so that well- managed banks are able to offer the same products and services as unitary thrift holding companies and brokerage houses.
Such changes would benefit consumers, regulators, and bankers, said Gregory P. Wilson, a partner at McKinsey & Co., which was hired to write the report.
Consumers stand to gain because banks could channel the savings from a reduction in compliance costs into more competitive rates, he said. Regulators would come out ahead because they could concentrate on problem institutions and investigate complaints filed by consumers against particular institutions, he said. And bankers would prosper because they would be freed from artificial constraints that prevented then from challenging nonbanks for business, he said.
"The 34 recommendations could be done in the very short run, and you would not give up anything on safety and soundness," Mr. Wilson said.
Bankers, trade group officials, and lawyers at the BAI briefing cheered the report.
"This is very timely, and it is something we should be doing as regulators," said Robert A. Richard, acting chief executive officer of the Conference of State Bank Supervisors.
"This needs to be translated into action," agreed Richard Whiting, general counsel of the Bankers Roundtable.
Stanley S. Stroup, general counsel at Norwest Corp., said supervisors have little choice but to adopt many of the recommendations. "The market has gotten so far ahead of the regulations that the regulators have got to catch up," he said.
BAI also included several long-range reforms in its study, including the transformation of the Federal Deposit Insurance Corp. into a private firm. That change would eliminate much of the government's rationale for social policy rules, such as the Community Reinvestment Act, it said.
The trade group also advocated eliminating restrictions on the types of products banks can sell.
Finally, BAI said banks should be allowed to underwrite securities either from affiliates of the holding company or from the bank itself. A proposal to permit this is pending at the Office of the Comptroller of the Currency.
