Congress is considering proposals that mix the publicly insured banking system not only with other financial firms such as insurance and securities but also with commercial interests. That raises many of the same concerns that were part of the S&L debacle.
Under the name of "financial modernization," Congress and the Clinton administration are even considering permitting retail and industrial corporations to buy federally insured banks, breaking the long-standing rule that banks, which provide financing for businesses, not be allowed to own those businesses. That means that Wal-Mart down the street could also own most of the banks in your neighborhood.
Leaving aside the weighty problems associated with letting GM gobble up Citicorp, what are banks promising consumers if they are allowed to expand into all types of financial services? They promise a bigger world of "one-stop" shopping in which you can buy car insurance, invest in mutual funds and make a deposit at the same place. With the added competition, they promise, better deals are just around the corner.
What they don't tell you is that as your lender, your bank may make it difficult to get a car loan unless you buy its insurance. While anxiously awaiting a mortgage approval, you can expect a call from the bank pressuring you to buy its homeowners insurance. Never mind that the insurance they're selling is not what you need and is overpriced because of the high commissions they get from the sale. Or your bank may put the money you thought was in a safe investment into a high-risk mutual fund. You can expect calls at home from bank salespeople, who, after combing through your bank records--including recent big deposits--push some insurance product you have never heard of or a "safe" investment promising "huge" returns.
Can banks get away with such tactics in the one-stop-shopping world they seek? They can because there are no legal restrictions to prevent them. While the banks talk about modernizing the laws so they can expand their powers, what is really needed is modernization of rules that protect consumers from unfair pressure tactics and invasions of privacy.
While it is not clear that consumers will benefit from an expansion of banks into new markets in the absence of strong consumer protections, it is clear that the industries lobbying for such changes will. But it is consumers and taxpayers who are at risk.
