CMC, Heller, Hunt, FIA, FRA, and FINE: The Neglected Aspect of Financial Reform

Abstract

My assigned topic in these discussion papers is a comparison of the FINE report and the proposed Financial Reform Act with earlier reform proposals. This is not difficult. From CMC, through the Heller report, through the Hunt Commission report, the Senate-passed Financial Institutions Act, the Financial Reform Act pressed by the House Banking and Currency Committee, and the FINE report, there has been virtual unanimity that the thrift institutions be granted broader asset powers, that the thrifts be permitted to engage in third-party payments services, that the prohibition of interest payments on transactions balances be eliminated, that Regulation Q be phased out, that branching laws be changed to enhance intraand inter-industry competition and that regulatory reform at the federal level was necessary. The several reform proposals concerning the regulatory agencies are not in such agreement. But the salient point is that the homeostatic characteristics of the existing agencies and divisions between and among members of the House and the Senate have not only made organizational reform impossible to achieve; the same characteristics and divisions have prevented action on substantive policy issues that are of much greater consequence than organizational reform itself. Unhappily, the characteristics and divisions have also caused what might be called benign neglect to a fundamental technological change that is certain to alter both the private sectors of financial institutions and their regulators in the coming decade. The neglect, of course, is the lack of attention to the impact of computers and the evolution of electronic funds transfers. It is possible to say that those who worked on the reports of the Commission on Money and Credit and the Heller report should be forgiven for this oversight. While some were fretting about the burden of paper funds transfers and planning for magnetically encoded checks at the time, EFT would have to be regarded as something