WASHINGTON - Securities and Exchange Commission Chairman Arthur Levitt on Wednesday said Glass-Steagall legislation sponsored by House Banking Committee chairman Jim Leach unfairly limits securities firms.
While Mr. Levitt told the House Banking Committee that he agreed with the major thrust of the Iowa Republican's bill, he said that the measure's call for a "two-way street" to allow banks and securities firms to enter each other's business is a misnomer.
Under Rep. Leach's bill, securities firms may acquire insured banks by becoming "financial service holding companies." However, securities companies that become holding companies must divest any investments in commercial firms within a maximum of 10 years.
"It strikes me as unfair to require such firms to divest themselves of commercial holdings and unproductive to saddle them with radical changes in their regulatory regimen," Mr. Levitt said.
"These burdens are tantamount to a major roadblock on one side of the street, and they threaten to make it 'two-way' in name only," Mr. Levitt added.
The Leach bill would also subject securities firms that become holding companies to Federal Reserve oversight, which Mr. Levitt said would create "significant new regulatory costs" for the firms.
Rep. Richard Baker, R-La., who introduced a bill that would allow common ownership of insured banks and commercial firms, asked Mr. Levitt whether the riskiness inherent in mingling commerce and banking should be treated in the same way as derivatives.
Congress "should not necessarily prohibit the market from producing a product that may be filling a particular market need," Rep. Baker suggested.
While Mr. Levitt did not directly endorse mixing commerce and banking, he did indicate that he believes maintaining the separation may be futile.
"American commercial society is remarkably resourceful in its ability to adapt to laws, even bad laws," Mr. Levitt said.
Mr. Levitt was supportive of the functional regulation prescribed by Rep. Leach's bill.
However, the SEC chairman criticized the measure because it would permit banks to conduct a "significant volume" of securities business outside SEC jurisdiction.
"We believe investor protection might be undercut by the numerous exemptions the bill would grant banks from securities laws," Mr. Levitt said.