Regarding your three-part series last week on the Gramm-Leach-Bliley Act ["Financial Modernization: One Year On," Nov. 7-9], trying to get one's arms fully around the historic legislative "elephant" one year after enactment is an admirable objective.

Any such attempt is likely to miss a tusk here and a foot there, particularly since the industry's response to the law, other than from Citigroup Inc., remains to some degree in the gestation phase. Further, any suggestion that this elephant has already turned into a mammoth is vastly premature.

Two important issues deserve further comment:

  • Gramm-Leach-Bliley permits insurance firms to buy banks or thrifts. Many of the major insurance companies of the United States have now filed applications for thrift charters, and 27 such charters have been approved by the Office of Thrift Supervision.
  • The insurance industry is using these thrift charters to market banking products in a significant way. This activity, for better or for worse, was validated by Gramm-Leach-Bliley.
  • One of the major issues that was fought and resolved during the lengthy congressional consideration of the bill was whether Wal-Mart or other commercial companies should be allowed to own a bank.

Those opposing this concept - led by House Banking Committee Chairman Jim Leach of Iowa; Paul Sarbanes of Maryland, the ranking minority member of the Senate Banking Committee; Sen. Tim Johnson, D-S.D.; and Rep. Steve Largent, R-Okla., and supported by Federal Reserve Board Chairman Alan Greenspan and community financial institutions - won decisively over Senate Banking Chairman Phil Gramm of Texas and House Commerce Chairman Tom Bliley of Virginia, who were strongly supported by the largest banks, securities firms, and insurance underwriters and also quietly supported by Comptroller of the Currency John D. Hawke Jr.Congress said "no."
So commenting on the headline "Commerce, A Reform Gem, In Fed's Hands" [Nov. 9, page 1] and the overall bias of the article, it is true that the Federal Reserve, working closely with the Treasury (but apparently not with the Office of the Comptroller of the Currency), is writing the regulations governing merchant banking. It isn't true under our democratic system that the Federal Reserve or the OTS, or even the OCC, could permit Wal-Mart to own a bank or thrift.

Gramm-Leach-Bliley thus preserved a key foundation of separating banking and commerce. Chairman Gramm has indeed promised to revisit this issue. Such a revisitation will be controversial.

The article also makes the assumption that there will be no or little future interest in the merger of large financial conglomerates and commercial firms. Perhaps - but who knows what evil will lurk in the hearts of the future leaders of finance and commerce?

Ten years ago it would have been dismissed out of hand that Citicorp and Travelers would ever contemplate merging. But as James Bond once cautioned, "Never say never."

We must recognize that eternal vigilance is not only a foundation block of our democracy but also a requirement if unacceptable economic and financial concentration are not to characterize our nation in the opening years of this century, as they blighted our economic and financial structure 100 years ago prior to the trust-busting presidency of Teddy Roosevelt.

Kenneth A. Guenther
Executive vice president
Independent Community Bankers
of America Washington

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