Underwriting insurance should be as much as part of banking as taking deposits or making loans, a senior Federal Reserve Bank of New York official said Thursday.
"The issue is how fast should banks be allowed to do it, not whether they should be allowed to do it," Ernest T. Patrikis, first vice president of the New York Fed, told a Practicing Law Institute conference here.
Insurance underwriting requires expertise in mathematics and investing - two skills bankers already possess, he said.
In a wide-ranging speech, Mr. Patrikis also said policymakers should not mandate whether banks conduct new activities directly or through holding company affiliates.
The Fed, which favors the holding company model, and the Office of the Comptroller of the Currency, which endorses letting banks engage in many activities directly, shouldn't use corporate structure as a battleground for regulatory supremacy, according to Mr. Patrikis.
"You know the Fed says, 'Tsk, tsk, tsk, it should be done under a holding company,'" he said. "But the issue shouldn't be which regulator has precedence; the issue ought to be what's the best structure for banks, consumers, and businesses."
However, when asked how banks should be allowed to underwrite insurance, Mr. Patrikis retreated to more conservative ground, saying the business ought to be done in holding company subsidiaries.
Mr. Patrikis also argued against letting banks affiliate with commercial firms, arguing that such combinations have not been tested sufficiently. He added that a bank may be tempted to lower credit standards when lending to an affiliated nonbanking company.
"We want a banker, when he grants credit in times when credit may be a little tight, to do so because it is the better credit, not because it is a brother or sister (company(," Mr. Patrikis said. "The question is whether people are going to be that rational."