As financial reform legislation heads for a vote in the House of Representatives Tuesday, the financial services industry is sharply divided on the measure. In the following commentaries, Philip J. Purcell, chairman and chief executive officer of Morgan Stanley, Dean Witter & Co., voices support for the plan, while William L. McQuillan, president of the Independent Bankers Association of America, offers the opposing view.
"Politics stop at the water's edge" describes the tradition of transcending political differences when national security demands that we speak with one voice. Congress is about to consider legislation to modernize the regulation of our financial services industry, which requires a similar unity of purpose. This effort deserves broad support.
The Financial Services Act of 1998 (H.R. 10) allows all financial services providers to affiliate so that both consumer and commercial customers can be offered a full array of services. It establishes regulatory rules that encourage competition, while establishing requirements that protect investors, depositors, and the federal safety net from abuse.
As in the past, some view financial modernization as little more than a battle for market share among U.S. banks, securities firms, and insurance companies; a regulatory turf war; or an election-year political exercise.
Today the stakes are different, and we need to view this legislation from a different perspective.
Financial modernization has an international dimension and a profound impact on our country's ability to retain its leadership position in global financial markets.
It is no secret that financial services providers compete across international borders at a pace that is increasing rapidly.
Communications and information technology allow U.S. firms to serve foreign consumers and businesses as easily as clients at home and to provide foreign competitors with ready access to American consumers and commercial customers.
At Morgan Stanley, Dean Witter, we offer clients in the United States access to investments from around the world, while providing financing and investment advisory services to corporate clients and governments worldwide. We compete for this business not just with firms headquartered in the United States but with sophisticated and aggressive financial services giants in London, Zurich, and Tokyo.
The ability of U.S. companies in all sectors of the financial services industry to compete in this arena is jeopardized by outdated financial laws.
Our foreign competitors have, or will soon operate under, legal and regulatory systems that allow them to offer a full range of financial products and services and the flexibility to organize their operations in a more efficient and cost-effective manner.
But in the Digital Age, America's financial services firms struggle to compete in this environment under rules devised before the advent of the rotary-dial telephone.
Depression-era laws limit the products and services we can offer, prohibit interindustry affiliations that would enhance efficient delivery of services to customers and burden us with unnecessary regulatory costs.
Like the used car that saw me through college, this system works, but it's not working well.
And because it seriously hampers the competitiveness of U.S. financial firms, it won't work for long.
Congress must act promptly to rebalance the rules governing competition in the international financial services arena.
The Financial Services Act of 1998 represents a thoughtful attempt to accomplish this objective and deserves serious consideration this year.
In a recent letter on behalf of the Federal Reserve Board, Chairman Alan Greenspan characterized H.R. 10 as "an historic achievement that would update the increasingly antiquated laws that constrain the development and competitiveness of our financial system."
This legislation, he said, "would provide significant benefits to the public by allowing financial organizations to be more competitive and to provide a broader range of services" and to "take fuller advantage of current and future technologies and of the synergies and efficiencies available through financial affiliations."
Is this legislation perfect? Hardly. Could it be improved? Certainly. But the fact that it is drawing at least some criticism from virtually every industry sector may be a sign that Congress is getting close to balancing the interests of a diverse group of competitors who are unlikely ever to agree on everything.
Congress has been considering various approaches to financial services "modernization" legislation for nearly two decades. Now it's time to act. For the U.S. economy, the stakes are simply too high, and the hour too late, to defer action.