Greenspan seeks more bank leeway

September 20, 1994|By New York Times News Service

NEWTON, Mass. -- Federal Reserve Chairman Alan Greenspan called yesterday for Congress to expand banks' business options by allowing them to sell insurance and stocks.

Mr. Greenspan also suggested that some limits could be placed on bank deposit insurance and seemed to imply that these limits might be imposed as part of a compromise that would allow banks into securities and insurance activities.

Depository insurance makes it possible for banks to hold larger and riskier asset portfolios than otherwise, distorting the economy and exposing taxpayers to possible significant losses, Mr. Greenspan said.

Last week, Congress passed leg

islation allowing banks to do more business across state lines. But Mr. Greenspan cautioned yesterday that if banks were not allowed to diversify into these new lines of business, they might still prove uncompetitive.

"So far, banks have been adept at finding ways to better serve their customers by taking advantage of new technologies and markets," he said. "However, I am concerned that they may be reaching the limits to efficient and low-cost ways of doing so.

"The unanswered question is: Will we continue to rescind and modify outdated laws and regulations in order to permit banks to serve the needs of their customers?"

Mr. Greenspan issued similar warnings during the Bush administration, which tried unsuccessfully to persuade Congress to pass interstate banking legislation and remove other restrictions on banks. While his position is not new, he is the first senior banking

official to put forward the next agenda for U.S. banking deregulation after approval of interstate banking.

Insurance and brokerage companies remain hostile to any move by Congress to allow banks to move into their industries, making it unclear when any further legislation may pass.

The Senate gave final approval Sept. 13 to a bill that eliminates the remaining restrictions in a dozen states on interstate banking and wipes out the costly requirement that banks set up a separate subsidiary in each state. President Clinton lobbied for the legislation and is expected to sign it in the coming days.

Yesterday, Mr. Greenspan did not discuss short-term interest rates, which the Federal Reserve has raised five times so far this year.

The Federal Reserve chairman was one of eight Washington policy-makers who spoke at a conference at Boston College.

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