As they reorganize the House, Republicans should not miss an
opportunity to move regulation of securities and insurance into the
same committee as banking regulation. This change would achieve two
stated goals of the new GOP majority: streamlining the House committee
organization, and modernizing financial services to improve
opportunities for business and consumers.
The existing organization gives the House Energy and Commerce
Committee jurisdiction over securities and insurance. Current Chairman
John Dingell (D., Mich.) has been legendary for his drive to expand the jurisdiction of the committee. He has also vigorously opposed reform of
the Glass-Steagall Act, which separates commercial from investment
banking, and which his father helped pass in 1933.
Energy and Commerce has thus stood as a roadblock to modernization
of banking legislation. The power of Mr. Dingell was most evident in
1988, when the Senate passed Glass-Steagall reform by 94-2, and the
House Banking Committee approved a similar bill. But the legislation
was referred to Energy and Commerce, where it was effectively killed.
Though Mr. Dingell now will likely be replaced by Rep. Thomas Bliley
Jr. (D., Va.), the reality of shared jurisdiction -- and competing
interests -- will not change when it comes to addressing the No. 1
topic for the banking industry: functional regulation. The new chairman
of the House Banking Committee, Jim Leach (R., Iowa), favors this
approach, under which regulation would no longer depend on whether the
owner of a business is a bank, insurance company or securities firm.
For instance, under current law a securities company is usually
regulated by the Securities and Exchange Commission. But if a bank
holding company owns it, then it is subject to a different regulatory regime, supervised by the Federal Reserve. Businesses and taxpayers are
thus saddled with two sets of regulators. Under functional regulation,
one set of securities regulators would supervise all securities
companies.
Regulation would turn on the risks and opportunities associated with
each financial product. Businesses, no matter who owns them, would deal
with the regulatory agency that specialized in that sort of business
transaction. Duplication would be eliminated.
This widely shared goal of functional regulation is a practical
impossibility under the current House committee structure. There has
been an irresistible temptation for each committee to treat reform as
an opportunity for expanded jurisdiction. Energy and Commerce has tried
to gain control of bank-owned securities activities, while the Banking
Committee has tried to expand its reach over securities and insurance
activities related to banking. The usual result has been stalemate,
despite rapid and enormous changes in the underlying financial markets.
Financial services policy thus justifies a unified committee, with
jurisdiction over banking, securities and insurance. A unified committee of this sort already exists in the Senate, to good effect.
The change would also further the Republican goal of reducing
subcommittees and congressional staff. By moving securities and
insurance jurisdiction out of Energy and Commerce, the current
subcommittee on telecommunications and finance could be eliminated.
Telecommunications would be merged into a different subcommittee.
Meanwhile, the new jurisdiction could comfortably fit within Banking
subcommittees that already address securities and insurance issues.
As an added bonus, the unified committee structure would attack some
of the cozy interest-group patterns that have stymied market-opening
reform. To date, interest groups benefiting from the status quo each
have had a friendly committee to protect their interests. Insurance and
securities firms could count on a friendly hearing in Energy and
Commerce, where banking lobbyists were weak. And banks could count on a
similarly more favorable outcome from the Banking Committee. Protective
legislation could usually be repealed only in the unlikely event that
both committees (and the Senate) could agree.
A unified Financial Services Committee thus makes policy and organizational sense, and deserves bipartisan support. The Clinton
administration has itself expressed support for repeal of the
Glass-Steagall Act. Financial-services legislation should match the
realities of today's marketplace, and not be held hostage to the
jurisdictional agreements of a departing House leadership.
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Mr. Swire is a law professor at the University of Virginia.