SEC Stresses Consumer Protection in Backing Bank-securities Power

Journal Record, The (Oklahoma City), Mar 16, 1995

WASHINGTON (AP) _ Securities and Exchange Commission Chairman Arthur Levitt Jr. told a U.S. House of Representatives panel Wednesday that consumer protection must be a key element to any bill permitting banks and securities firms to combine.

"As Congress weighs giving banks new securities powers, investor protection has got to be an explicit priority," Levitt told the House Banking Committee.

Any bank reform bill must not further confuse consumers about the sale of mutual funds and other securities investments by banks, he said. An SEC survey in 1993 showed that more than 60 percent of consumers mistakenly thought the mutual funds they purchased in banks were protected by federal bank deposit insurance.

Later, responding to questions, the SEC chief said he disapproved of the widespread practice of banks using a variation of their corporate name on mutual funds they sponsor.

"I think for a bank to offer a mutual fund with a name similar to a bank is a deceptive practice," said Levitt.

Erick Kanter, spokesman for the Investment Company Institute, a mutual-fund trade group, noted the SEC previously had warned banks about misleading uses of bank names in mutual funds. Kanter said the mutual-fund industry favors passage of SEC rules to clarify name confusion, but doesn't oppose an outright ban.

Levitt said he supported a bill by House Banking Chairman Jim Leach, R-Iowa, which would allow banks and securities firms to combine by loosening the 60-year-old Glass-Steagall Act.

The law, passed during the Depression, forbids banks from engaging in investment banking. Back then, Congress felt such activity was too risky for banks entrusted with federally insured deposits.

The Leach bill, called the Financial Services Competitiveness Act, also would greatly simplify the approval process a healthy, well-capitalized bank would have to undergo to expand into riskier, non-banking activities, such as sale of insurance.

The bill also would alter the jurisdiction of financial regulation, with the SEC placed in charge of any participant in the securities market. Banking regulators would focus strictly on banking activities.

Levitt backed these improvements in regulation, saying consumers should be concerned about the costs of the confusing and duplicative system of financial regulations.

"Ultimately, the cost of redundant regulation is borne by the consumer," Levitt said.

The Clinton administration last month unveiled a proposal to let banks and Wall Street firms combine. Levitt differed on a technical but important aspect of the administration's plan.

The first concerns the Treasury Department's proposal to let banks own securities-dealing subsidiaries. Leach and others say such arrangements open bank to losses in the risky securities business, which would expose the federal deposit insurance fund to losses.

Leach's plan, by contrast, would permit the securities activities to be conducted in separate companies at the bank's holding company level, an approach Levitt also backed.

The Clinton administration also opposes letting industrial firms such as General Motors Corp. own banks, an activity they believe may be too risky.

Levitt warned the panel against a bill that forces commercial firms to divest of their securities businesses. He cited the case of General Electric, which was "instrumental in infusing capital at critical points" into its former securities unit, Kidder Peabody Co., which has since been sold.