When banking, securities, and insurance are blended by the Gramm-Leach-Bliley Act in mid-March, Comptroller of the Currency John D. Hawke Jr. expects commercial banks to dominate the conglomerates created.
"The banking relationship is going to be the nexus for selling a lot of these other products," he said in an interview Friday. "That's why I feel so strongly that the benefit of those business opportunities ought to go first to the bank."
The House approved the legislation 362-57 Thursday after a 90-8 vote in the Senate. President Clinton is expected to sign the bill this week or next. To give regulators time to write the implementing rules, mergers under the new law will be allowed 120 days after enactment.
Mr. Hawke said he expects the one-stop financial shop to flourish.
"I think it will succeed because a lot of the business opportunities are not being captured by banks," he said. "Every time a bank makes a loan it gives rise to some opportunity to sell insurance or to establish a securities relationship with a customer."
As Congress debated how best to construct a new financial services industry, lawmakers heard conflicting advice from the Comptroller's Office, its bosses at the Treasury Department, and the Federal Reserve Board.
The Fed argued that all new activities should be conducted through holding company affiliates. The Comptroller's Office preferred direct bank subsidiaries. After more than a year of debate, a compromise was struck that many experts said favored the Fed. But Mr. Hawke begs to differ.
"We end up, not with a complete victory, but with a major victory for banks," he said. "The holding company-only format that the Fed was arguing for would affirmatively weaken banks" as profits were siphoned to fund holding company units.
Congress did decide it was safer to wall off insurance underwriting, real estate development, and merchant banking in holding company units, but bank subsidiaries will be allowed to underwrite corporate debt and equities and sell insurance without any geographic limits, such as from a town of 5,000 or fewer residents.
Bank subsidiaries also will be able to offer any financial products that are developed, say a hybrid banking/insurance product. "There are a tremendous number of activities that are going to be doable in bank subsidiaries," Mr. Hawke said. "We end up with significant new opportunities for national banks."
This is crucial because new products will help banks diversify their revenue sources and increase profits.
"Bankers all over the country are scrambling for ways to build up their noninterest, that is their non-loan, revenue," he said. "And being able to capture the day-to-day opportunities that arise out of your ordinary business is one of way to doing that."
Those profits make the bank stronger, which is the part of a banking company scrutinized by depositors, debt holders, counterparties, and regulators. "The bank is looked at by regulators and by important segments of the investing public on a stand-alone basis," he said. Stronger banks are also able to borrow funds and attract capital at lower cost.
Mr. Hawke said bankers have told him they plan to move operations from holding company units to bank subsidiaries. "That's the obvious place to do it, under the bank, where the relationships are closest," he said. "The bank is able to manage its relationships much more efficiently."