The Case for Preserving Regulatory Distinctions

The structure of the monetary, banking, and financial institutions of the United States is currently a topic of unusual excitement and controversy. Divers reforms have been proposed, some in legislative form. No consensus has been reached, and at present there appears to be a political stalemate. Meanwhile, the structure is changing in a piecemeal and anarchic fashion, as a result of technological and institutional innovations, private initiatives, accidental quirks of ancient laws, administrative and judicial decisions, and actions by various states. As recent events attest again, Congress cannot agree on basic solutions and tries halfheartedly to arrest the disorderly drift. Two sets of issues are before the Congress, the Executive, the. courts, and the country. One concerns the range of activities permitted to various types of financial and nonfinancial enterprises and their affiliates or subsidiaries. Should banks and other depositories, or their holding companies, be allowed to engage in various businesses from which they are now excluded-underwriting and other investment banking activities, insurance, real estate, and other non-monetary and even nonfinancial transactions? Should other private enterprises, financial and nonfinancial, be allowed to engage in commercial banking and/or to accept insured deposits, either directly or through affiliates or subsidiaries? Issues of this type touch conflicting private interests and privileges, the principal stuff of politics. Consequently, they are the focus of attention in the affected industries, in the media, and in legislative debate. Nevertheless, I think the second set of issues is the more crucial