FINANCIAL SERVICES MODERNIZATION FOR THE 21ST CENTURY: LOWERINGCONSUMER COSTS, BUILDING COMMUNITIES, AND BOOSTING COMPETITIVENESS
November 12, 1999
President Clinton today will sign historic legislation to modernize our
banking and finance laws. For the first time, financial firms will be
able to offer a full range of banking, securities, and insurance
products, stimulating greater innovation and competition. This
legislation will have the following benefits:
Consumers, as well as businesses small and large will have
greater choice, more innovative services, and the possibility of
one-stop shopping for financial products.
Prices will be lower as a result of increased competition.
Americans spent $367 billion in 1997 on fees and commissions for
brokerage, insurance and banking services. If deregulation in other
industries is any guide, it is reasonable to expect that increased
competition will yield lower prices and billions in savings for American
American financial institutions will be more efficient and thus
better able to compete in the global marketplace.
Low- and moderate-income communities will receive new loans and
investment spurred by a preserved and strengthened Community
Reinvestment Act (CRA).
Individual privacy will be better protected by new limitations on
the sharing of personal financial information.
The economy will grow stronger as competition lowers the cost of
capital for American businesses -- spurring growth.
UPDATING THE LAWS GOVERNING FINANCIAL SERVICES FOR THE NEW ECONOMY
Technological change is revolutionizing how financial products are
delivered to consumers and how firms manage financial risks. But our
financial services firms are still governed by depression-era laws that
limit competition and place unnecessary barriers between banks,
securities firms, and insurance companies. This new legislation will:
Repeal the 1933 Glass-Steagall Act, which has separated banks
from other financial firms, and other laws separating banking and
Permit the creation of new, more efficient financial holding
companies, which can offer banking, insurance, securities, and other
financial products to consumers;
Allow banks to choose the corporate structure for many new
activities that best meets their customers' needs -- either a
financial subsidiary or a bank holding company affiliate;
Regulate banking, securities, and insurance activities along
functional lines, with each activity overseen by the regulators that
know them best;
Protect the safety and soundness of our banking system by
requiring that non-banking activities be conducted separately within an
organization, subject to funding limitations; and
Maintain the separation of banking and commercial activities, so
that loans are made on merit, not relationship, avoiding risks that have
caused trouble for some banking systems around the world.
PRESERVING AND STRENGTHENING THE COMMUNITY REINVESTMENT ACT
President Clinton insisted that the legislation not weaken CRA or allow
banks with an unsatisfactory CRA record to take advantage of the new
The bill establishes an important prospective principle: banking
organizations seeking to conduct new non-banking activities, or to merge
with or acquire a firm engaged in such activities, must demonstrate a
satisfactory record of meeting the credit needs of all the communities
that they serve.
Each and every time a bank or holding company commences a new
activity, such as securities, insurance underwriting, or merchant
banking, or acquires a company in these new areas, all of its banks and
thrifts must have a satisfactory CRA rating. Thousands of transactions
involving securities activities and other non-banking activities,
previously exempt from CRA, will now be covered.
CRA continues to apply as it has to all banks and thrifts,
without exception; existing procedures for public comment on
applications to acquire or merge with banks or thrifts remain in effect.
The CRA examination cycle for small banks and thrifts with
outstanding or satisfactory ratings is extended, but the bill preserves
the ability to regulators to examine at any time for reasonable cause or
in connection with an application.
Harmful exemptions from CRA were eliminated in conference, as was
a provision that would have blocked community comments on most bank's
To spur community investment, the bill also authorizes a new
program, known as PRIME, to provide technical assistance to low- and
NEW FINANCIAL PRIVACY AND OTHER CONSUMER PROTECTIONS
Under current law, a financial institution can share with or sell to
anyone, including telemarketers and nonfinancial firms, information on
everything from account balances to credit card transactions, without a
customer's knowledge or consent. On May 4th, President Clinton proposed
strong and enforceable Federal privacy protections for consumers'
financial information. The bill includes a number of these provisions.
Financial institutions must clearly disclose their privacy
polices up front and annually, allowing consumers to make informed
choices about privacy protection. Consumers will know if their bank,
insurance, or securities firm intends to share or sell their financial
data, within the corporate family or to third parties.
Consumers will be able to "opt-out" of information sharing with
unaffiliated third parties.
These restrictions have teeth. Regulators have full authority to
enforce these protections and new rulemaking authority under existing
Fair Credit Reporting Act requirements.
New penalties are available to prevent pretext calling -- when
someone uses trickery or impersonation to discover the consumer's
These protections represent an important step forward, but they are not
enough. Legislation that the President is signing today requires the
Treasury to study the privacy practices of the financial services
industry and recommend further legislative steps.
President Clinton will today direct the National Economic Council
to work with the Treasury and OMB to complete a legislative proposal by
early next year. He is committed to ensuring that consumers have
choices about how their financial information is shared between
different affiliated companies.
The bill includes other important consumer protections.
Banking agencies are directed to adopt consumer protections to
govern bank sales of insurance products, including: clear and
conspicuous disclosure that insurance is not FDIC-insured; prohibitions
on tying credit to insurance products; and other protections against
coercive sales practices. Consumer protections for bank sale of
securities products are also strengthened.
Important State consumer protection laws governing insurance
sales are preserved.
Banks are required to make full and conspicuous disclosure of
fees on ATM machines.