206 lines
9.0 KiB
Markdown
206 lines
9.0 KiB
Markdown
---
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created_at: '2009-03-24T16:14:03.000Z'
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title: Congress passes wide-ranging bill easing bank laws (1999)
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url: http://www.nytimes.com/1999/11/05/business/congress-passes-wide-ranging-bill-easing-bank-laws.html?sec=&spon=&pagewanted=1&emc=eta1
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author: iamelgringo
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points: 67
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story_text: ''
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comment_text:
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num_comments: 43
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story_id:
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story_title:
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story_url:
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parent_id:
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created_at_i: 1237911243
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_tags:
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- story
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- author_iamelgringo
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- story_530311
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objectID: '530311'
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year: 1999
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---
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Administration officials and many Republicans and Democrats said the
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measure would save consumers billions of dollars and was necessary to
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keep up with trends in both domestic and international banking. Some
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institutions, like Citigroup, already have banking, insurance and
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securities arms but could have been forced to divest their insurance
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underwriting under existing law. Many foreign banks already enjoy the
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ability to enter the securities and insurance industries.
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''The world changes, and we have to change with it,'' said Senator Phil
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Gramm of Texas, who wrote the law that will bear his name along with the
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two other main Republican sponsors, Representative Jim Leach of Iowa and
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Representative Thomas J. Bliley Jr. of Virginia. ''We have a new century
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coming, and we have an opportunity to dominate that century the same way
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we dominated this century. Glass-Steagall, in the midst of the Great
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Depression, came at a time when the thinking was that the government was
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the answer. In this era of economic prosperity, we have decided that
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freedom is the answer.''
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In the House debate, Mr. Leach said, ''This is a historic day. The
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landscape for delivery of financial services will now surely shift.''
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But consumer groups and civil rights advocates criticized the
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legislation for being a sop to the nation's biggest financial
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institutions. They say that it fails to protect the privacy interests of
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consumers and community lending standards for the disadvantaged and that
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it will create more problems than it solves.
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The opponents of the measure gloomily predicted that by unshackling
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banks and enabling them to move more freely into new kinds of financial
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activities, the new law could lead to an economic crisis down the road
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when the marketplace is no longer growing briskly.
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''I think we will look back in 10 years' time and say we should not have
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done this but we did because we forgot the lessons of the past, and that
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that which is true in the 1930's is true in 2010,'' said Senator Byron
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L. Dorgan, Democrat of North Dakota. ''I wasn't around during the 1930's
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or the debate over Glass-Steagall. But I was here in the early 1980's
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when it was decided to allow the expansion of savings and loans. We have
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now decided in the name of modernization to forget the lessons of the
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past, of safety and of soundness.''
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Senator Paul Wellstone, Democrat of Minnesota, said that Congress had
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''seemed determined to unlearn the lessons from our past mistakes.''
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Advertisement
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[Continue reading the main story](#story-continues-4)
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''Scores of banks failed in the Great Depression as a result of unsound
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banking practices, and their failure only deepened the crisis,'' Mr.
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Wellstone said. ''Glass-Steagall was intended to protect our financial
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system by insulating commercial banking from other forms of risk. It was
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one of several stabilizers designed to keep a similar tragedy from
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recurring. Now Congress is about to repeal that economic stabilizer
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without putting any comparable safeguard in its place.''
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Supporters of the legislation rejected those arguments. They responded
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that historians and economists have concluded that the Glass-Steagall
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Act was not the correct response to the banking crisis because it was
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the failure of the Federal Reserve in carrying out monetary policy, not
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speculation in the stock market, that caused the collapse of 11,000
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banks. If anything, the supporters said, the new law will give financial
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companies the ability to diversify and therefore reduce their risks. The
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new law, they said, will also give regulators new tools to supervise
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shaky institutions.
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''The concerns that we will have a meltdown like 1929 are dramatically
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overblown,'' said Senator Bob Kerrey, Democrat of Nebraska.
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Others said the legislation was essential for the future leadership of
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the American banking system.
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''If we don't pass this bill, we could find London or Frankfurt or years
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down the road Shanghai becoming the financial capital of the world,''
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said Senator Charles E. Schumer, Democrat of New York. ''There are many
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reasons for this bill, but first and foremost is to ensure that U.S.
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financial firms remain competitive.''
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But other lawmakers criticized the provisions of the legislation aimed
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at discouraging community groups from pressing banks to make more loans
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to the disadvantaged. Representative Maxine Waters, Democrat of
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California, said during the House debate that the legislation was
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''mean-spirited in the way it had tried to undermine the Community
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Reinvestment Act.'' And Representative Barney Frank, Democrat of
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Massachusetts, said it was ironic that while the legislation was
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deregulating financial services, it had begun a new system of onerous
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regulation on community advocates.
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Many experts predict that, even though the legislation has been trailing
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market trends that have begun to see the cross-ownership of banks,
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securities firms and insurers, the new law is certain to lead to a wave
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of large financial mergers.
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The White House has estimated the legislation could save consumers as
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much as $18 billion a year as new financial conglomerates gain economies
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of scale and cut costs.
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Other experts have disputed those estimates as overly optimistic, and
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said that the bulk of any profits seen from the deregulation of
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financial services would be returned not to customers but to
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shareholders.
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These are some of the key provisions of the legislation:
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\*Banks will be able to affiliate with insurance companies and
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securities concerns with far fewer restrictions than in the past.
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Advertisement
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[Continue reading the main story](#story-continues-5)
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\*The legislation preserves the regulatory structure in Washington and
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gives the Federal Reserve and the Office of Comptroller of the Currency
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roles in regulating new financial conglomerates. The Securities and
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Exchange Commission will oversee securities operations at any bank, and
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the states will continue to regulate insurance.
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\*It will be more difficult for industrial companies to control a bank.
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The measure closes a loophole that had permitted a number of commercial
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enterprises to open savings associations known as unitary thrifts.
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One Republican Senator, Richard C. Shelby of Alabama, voted against the
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legislation. He was joined by seven Democrats: Barbara Boxer of
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California, Richard H. Bryan of Nevada, Russell D. Feingold of
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Wisconsin, Tom Harkin of Iowa, Barbara A. Mikulski of Maryland, Mr.
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Dorgan and Mr. Wellstone.
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In the House, 155 Democrats and 207 Republicans voted for the measure,
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while 51 Democrats, 5 Republicans and 1 independent opposed it. Fifteen
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members did not vote.
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Tucked away in the legislation is a provision that some experts today
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warned could cost insurance policyholders as much as $50 billion. The
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provision would allow mutual insurance companies to move to other states
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to avoid payments they would otherwise owe policyholders as they
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reorganize their corporate structure. Many states, including New York
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and New Jersey, do not allow such relocations without the consent of the
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insurer's domicile state. But the legislation before Congress would
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pre-empt the states.
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Both the Metropolitan Life Insurance Company and the Prudential Life
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Insurance Company are in the midst of reorganizing into stock-based
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corporations that are requiring them to pay billions of dollars to
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policyholders from years of accumulated surplus. In exchange, the
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policyholders give up their ownership in the mutual insurance company.
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The legislation would permit any mutual insurance company to avoid
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making surplus payments to policyholders by simply moving to states with
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more permissive laws and setting up a hybrid corporate structure known
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as a mutual holding company.
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The provision was inserted by Representative Bliley at the urging of a
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trade association. It attracted little opposition because it was
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attached to a provision that forbids insurers from discriminating
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against domestic-violence victims.
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In a letter sent to Congress this week, Mr. Summers said that the
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provision ''could allow insurance companies to avoid state law
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protecting policyholders, enriching insiders at the expense of
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consumers.''
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[Continue reading the main story](#whats-next)
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