The House Commerce Committee on Wednesday wrapped up hearings on pending financial reform legislation with a key lawmaker pledging to tighten regulation of bank securities sales.
Rep. Michael Oxley, chairman of House Commerce's finance subcommittee, said the bill must subject all bank securities sales to Securities and Exchange Commission supervision.
Commerce committee staffers will draft changes to the financial reform bill in August while lawmakers take a monthlong recess. Subcommittee members are expected to vote on the new package shortly after the House reconvenes Sept. 2; the full committee vote is scheduled to take place before Sept. 15.
Rep. Oxley complained that legislation passed by the House Banking Committee on June 20 would allow banks to escape SEC regulation for many securities products, such as municipal revenue bonds.
"When investors buy securities in a bank, they do not have access to the disciplinary history of bank personnel selling securities," the Ohio Republican said. Rep. Oxley also said that banks should be required to determine whether a securities product is suitable for a particular investor.
Mary Griffin, insurance counsel for Consumers Union, applauded Rep. Oxley's stand. Consumer protections included in the Banking Committee's bill "have no teeth," she said, because there is no method for recovering losses after violations occur.
"When registered brokers violate the securities laws, investors can recover their losses through an arbitration system," she said.
But Harley Bergmeyer, chairman of Saline State Bank in Wilber, Neb., said bank regulators are protecting investors adequately. "The Federal Deposit Insurance Corp. makes sure we have adequate disclosure when products aren't federally insured, and that we conduct sales in a separate part of the bank," he said.
Rep. Oxley also argued that the Banking Committee's bill would hurt the financial markets by requiring Federal Reserve Board supervision of securities and insurance companies that acquire banks. By focusing primarily on safety and soundness, Fed regulation would "needlessly trample on our nation's prized capital markets by impeding the entrepreneurial risk-taking that is fundamental to their success," he said.
James S. Riepe, managing director of mutual fund company T. Rowe Price Associates Inc., agreed. He said banking regulators are not qualified to regulate either bank securities sales or securities firms.
"It would be fundamentally inconsistent with the very nature of the securities markets to impose bank-like regulation on securities firms affiliated with banks," he said.
