In his June 23 comment in American Banker, Rep. John Boehner calls for support of financial law modernization based primarily on the need for action and the passage of HR 10 in the House by a one-vote margin.
The sum and substance of this flawed measure are not described, however. In short, a forceful argument is made on the need for reform, but a review of the contents of the bill makes clear that it is not such a measure.
The Senate hearings have revealed already a number of significant problems with HR 10-problems that banks sought to rectify in the House-and that a bill along these lines should not be enacted.
Supporters admitted that language on insurance sales could discriminate against banks. They agreed that the requirement that banks must acquire existing insurance agencies in new states is unfair. Even Federal Reserve Board Chairman Alan Greenspan agreed that something ought to be worked out with the Treasury regarding the role of operating subsidiaries. Yet it was argued previously that all of these provisions should have been accepted by banks and their trade groups as the bill moved through the House of Representatives.
Banks have worked with Congress on HR 10. Indeed, for more than two decades banks have called for and at times been the only supporters of financial modernization that would benefit all providers of services and their customers. Banks rejected HR 10 on substantive grounds, and no reason exists that banks should go along with a bad bill simply because it has been developed and passed by one vote in the House.
Simply calling a bill modernization does not make it so. Elements of HR 10 that would serve to improve the financial services marketplace are overwhelmed by more than 200 pages of new rules and restrictions, aimed primarily at banks.
A number of questions need to be resolved prior to seeking bank support for this measure.
Why does HR 10 permit insurance and securities regulators to challenge bank products, but affords no comparable authority for bank regulators to look into insurance or securities products with banking features?
Why does HR 10 limit bank use of subsidiaries, but not insurance company or securities firm use?
Why does HR 10 require banks to offer special low cost accounts, but does not require securities firms to offer low-fee mutual funds or insurers to offer low-premium policies?
Why does HR 10 require new consumer rules be applied to bank insurance sales, but not to insurance firm sales?
Why does HR 10 carve out title insurance from competition from banks, but not from other providers?
Why does HR 10 mandate that special insurance rules on domestic violence apply to banks, but only urges states to consider such rules for insurers?
Why does HR 10 permit states to discriminate against banks as providers of insurance products?
With all these and many other questions, perhaps it is clear why HR 10 does not deserve the support of banks or their trade groups.
HR 10, apart from individual provisions, as a whole would engender litigation and new regulation and would discriminate against banks in relation to other providers.
As noted during the Senate hearings, customers should be the beneficiaries of strong financial service competition that provides new products and services through new technologies in a manner customers desire.
Making banks less competitive and subject to extraordinary limits will harm bank customers and work contrary to the goals of financial modernization. Unfortunately, as currently crafted, that is exactly what HR 10 does.