WASHINGTON — Monday's stock market crash, despite sending tremors through the nation's financial markets, will not stop efforts to give banks expanded powers to enter the securities business, congressional sources said Wednesday.
Senate Banking Committee Chairman William Proxmire (D-Wis.) will continue his push to revise the 50-year-old federal law that puts a barrier between banking and securities activities.
"Being in the securities industry is not as risky as some would have you believe," Kenneth A. McLean, staff director of the Banking Committee, said Wednesday. "The markets went through a wrenching week, but securities firms didn't collapse and go bankrupt.
"It's risky to be an investor, but not risky to be in the (securities) business itself," McLean added. "In fact, the events of this week strengthen the case for deregulation."
And in the House, the Banking Committee will begin major hearings next week on reforming the banking system and granting new powers to financial institutions.
Jake Lewis, a committee spokesman, said Chairman Fernand J. St Germain (D-R.I.) wants to "move the hearings as quickly as possible" and prepare legislation by March 1, the expiration date of a congressional moratorium on granting new powers to banks.
The market crash was "a sobering event," Lewis said, "and something members will have to consider when looking at the advisability of banks getting into the securities business."
The banking committee chairmen are pressing ahead despite the lobbying of the securities industry, which adamantly opposes any encroachment by banks into its territory.
"After a week such as this, one should ask oneself whether it makes sense to grant expanded powers," Edward O'Brien, president of the Securities Industry Assn., said in an interview.
"I've been in this industry for 33 years and I could not have predicted that this market would go down 508 points or reverse itself on Tuesday," O'Brien said. "You cannot convince me this is not both a highly risky and a cyclical industry. Is that something you want the banks to do?"
Bankers remain undaunted.
"People are not necessarily going to restrict what we can do," Thomas Rideout, president-elect of the American Bankers Assn., said at the ABA convention in Dallas this week. "If anything, people might want to be adding to what we can do. Strong institutions may be important for the years to come."
Federal Reserve Board Chairman Alan S. Greenspan, an advocate of new powers for banks, was scheduled to address the ABA meeting but canceled his speech, returning to Washington.
Another advocate of expanded powers, Comptroller of the Currency Robert L. Clarke, pointed out that banks are already involved in the securities business through their foreign affiliates.
The temporary moratorium on increased bank activities gives Congress a period in which to consider the best way to carry out deregulation, Clarke said.
"This may be one of the best opportunities in a long time for all the right factors to come together to result in change," he told the ABA meeting.