Been there, done that

U.S. politicians may be looking enviously at Great Britain, where in a swift stroke Tony Blair restructured the functioning of the central bank. Yes, we will give you back the powers to set interest rates, was the message one day. Then came the big change: You will no longer have regulatory functions.

Like it or not, the change was swift and smooth-not at all like the drama being played out once again in House Banking Committee Hearings.

When Paul Volcker, former Federal Reserve Board chairman, took the witness chair last month he commented that he had delivered almost identical testimony in 1991.

Current Federal Reserve Board Chairman Alan Greenspan in his appearance before the committee framed proposed changes in terms of "safety and soundness" issues.

This month, Treasury Secretary Robert Rubin spelled out to the House Banking Committee the long-awaited Clinton Administration financial modernization proposals, with its five key elements. Four were clear cut.

1. Permit affiliations among banks, security firms and insurance companies.

2. Permit companies to organize financial activities either as a bank subsidiary or holding company affiliate.

3. Creation of a new wholesale financial institution which would accept only wholesale uninsured deposits but would be considered banks for the purpose of holding company regulation.

4. Regulation by function.

The fifth recommendation was an "either-or" with Rubin providing two possible alternative legislative proposals for the combination of "banking and commerce." In one alternative, some modest measure of non-financial activity for bank holding companies would be permitted. In the second, Congress could relax limits on non-financial activities of firms affiliated with banks, while permitting bank holding companies and bank subsidiaries to engage in the broad range of financial activities.

There are forces lined up on opposing sides. And in this banking legislative issue the credit unions, which have their own ongoing turf war with banking, are weighing in on the issue.

Daniel A. Mica, president Credit Union National Association, has said that his organization will educate and inform more than 70 million credit union members to lobby their Congressional representatives about the need for consumer protections in the proposals.

Does it seem like we have been here before? Congress has passed banking legislation but often when disagreement persists the result is delay.

And the scenario becomes one in which market forces continue their movement and changes occur unformed and unchecked.

When interstate banking-not branching-was an issue years ago, Kansas banker Ben Craig often noted in his appearances as a Kansas Bankers Association officer that he could go within a mile of his institution in then unitbanking-state Kansas and see signs for out-of-state financial units: all competing with his institution and not regulated by the then-current laws.

When such market forces are in play, Congress then is forced into a catch-up mode in legislative issues and not really directing policy-an ineffective recipe for legislative sausage.