WASHINGTON (AP) -- The new law eliminating barriers that separated banks, investment firms and insurance companies for more than 60 years will be a boon for consumers, offering them greater choices, Federal Reserve Chairman Alan Greenspan said today.
But Greenspan warned that financial regulators at the federal and state level will now have to cooperate more closely and be especially alert to deal with "tensions" created by overlapping jurisdictions.Greenspan hailed the legislation, which President Clinton signed into law Friday, as offering the prospect of a wider array of financial services plus one-stop shopping for consumers.
"It is clear that the consumer will benefit from the wider permissible scope of activities by, and the more equal competition among, financial entities," Greenspan said. "Management now will be given greatly enhanced flexibility to determine the best way to deliver its services to the market place and the market will judge the correctness of that choice."
The legislation, which supporters had tried to get through Congress for more than two decades, eliminates the barriers imposed by the Depression-era Glass-Steagall Act, which prohibited banks, investment firms and insurance companies from engaging in each other's businesses.
The new law opens the way for creation of financial supermarkets that sell loans, investments and insurance all under one roof. Proponents say the changes will save consumers $15 billion a year, offering them greater choice and convenience and spurring competition. At stake in the battle is the estimated $350 billion that Americans spend annually on fees and commissions for banking, brokerage and insurance services.
Greenspan in his speech made no mention of a charge by opponents that the legislation will jeopardize consumers' financial privacy. Clinton, in signing the bill, expressed his own reservations that the bill's privacy protections did not go far enough. He directed his economic advisers to study the issue and recommend additional legislation in this area next year.
Greenspan also made no mention in his speech about the performance of the overall economy. Fed policy-makers will meet Tuesday to decide what to do about interest rates. Economists are split over whether the central bank will see a need to boost rates for a third time this year or will leave rates unchanged.
Greenspan tried to allay concerns about how the Fed will handle its new regulatory powers to oversee bank-holding companies that expand into selling securities or insurance.
He said the Fed's main concern is to safeguard the safety of the corporation's banking operation. He said that on issues of insurance and securities sales, the Fed will defer to other regulators.
But Greenspan conceded there will be an adjustment period as regulators at the federal and state level learn to administer the new law.
"There will understandably be some tensions as we all move up the learning curve," Greenspan said. "But the Federal Reserve is committed to working with the functional regulators to make this system a cooperative and effective one."
"The Congress has placed real and effective limits on the Federal Reserve's authority to supervise and regulate" under the new law, Greenspan said.