Industry leaders took the stage at the New York Bankers Association's conference last week to explore some of the complexities of the financial reform law.

William J. McDonough, the president of the Federal Reserve Bank of New York, and Comptroller of the Currency John D. Hawke Jr. addressed an audience of 375 bankers Thursday at the Waldorf-Astoria Hotel.

Mr. McDonough, in the forum's opening presentation, discussed the numerous opportunities spawned for banks by the Gramm-Leach-Bliley Act of 1999, including their new freedom to become financial holding companies for brokers and insurers.

He spoke of the challenges the law holds for those who must regulate these diversified companies. Under the law, the Federal Reserve Board will remain an umbrella supervisor of holding companies, but oversight of nonbanks will be handled by the appropriate regulator, such as the Securities and Exchange Commission or state insurance departments.

The law stipulates that the Fed must rely "to the fullest extent possible" on publicly available information and data submitted to other regulators. "We at the Federal Reserve take this aspect of our revised role - sometimes referred to as 'Fed lite' - very seriously," Mr. McDonough said.

Mr. Hawke said attempts to consolidate regulators have failed because they have lacked a "compelling, practical reason" for doing so.

"While our system does not conform to any standard model of bureaucratic orderliness, it has worked extremely well," the comptroller said.

Mr. McDonough defended the changes Gramm-Leach-Bliley made to the Community Reinvestment Act. The CRA was not weakened by the new law's lengthening of the exam cycle for high-rated small banks, he said.

Furthermore, he reminded bankers that the new law makes good CRA ratings a condition of expansion. Should any banking subsidiary of an approved financial holding company fail to maintain a "satisfactory" CRA rating, the company "would be prohibited from commencing any new financial activities," Mr. McDonough said.

"In this way, the act extends the ramifications of poor CRA performance to potential nonbank activities."

Gramm-Leach-Bliley also provides powerful incentives for companies to achieve and maintain at least satisfactory CRA ratings, Mr. McDonough said. "In my view, this amounts to a reaffirmation of the key principles of the Community Reinvestment Act," he said.

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