Tuesday urged financial reform negotiators to adopt broad powers for direct subsidiaries of banks.
The bipartisan group of lawmakers cited four studies released by the Financial Services Roundtable as proof that banks are not subsidized by the "federal safety net," a collective term used for deposit insurance, emergency loans from the Federal Reserve, and the federal payments system.
Federal Reserve Board Chairman Alan Greenspan has used the subsidy argument in demanding that securities underwriting and other higher-risk activities be conducted in bank holding company units instead of in direct bank subsidiaries. The Treasury insists that broad powers be granted to both structures.
"Today's studies serve as a detailed, objective refutation of the Federal Reserve's subsidy argument," Senate Minority Leader Thomas A. Daschle said in a statement.
"There is simply no longer any serious debate among independent, informed observers over this issue. Some are using these arguments as an excuse for blocking the financial services modernization bill."
Treasury Secretary Lawrence H. Summers said in a separate statement that the studies confirm "a financial modernization bill should allow banking organizations to choose the structure that best serves their customers without adversely affecting competition or safety and soundness."
The studies also conclude the safety net actually costs banks money because they have to pay deposit insurance premiums, assessments for exams, and other regulatory expenses.
Senate Banking Committee Chairman Phil Gramm, a Greenspan ally, was not persuaded. "We haven't had a chance to look it over," his spokeswoman said of the studies, "but we expect this is like the dairy council saying milk is good for you."
