A Capital Hill hearing to be held Wednesday will provide a vent for remaining discontents about the regulators' merchant banking rules and one witness will use the occasion to suggest Congress modify the Gramm-Leach-Bliley Act to relax the ban on merchant banking cross-marketing. A committee aide confirmed that the capital markets subcommittee of the House Financial Services Committee will hold the hearing, taking testimony from both regulators and industry witnesses. Attorney Robert Kabel, who will testify on behalf of the Bank Private Equity Coalition, said last week he would propose amending GLBA.
Heavy criticism of the regulators' proposal a year ago to impose a 50% capital requirement on merchant banking activities was followed at the start of 2001 by the agencies offering a less onerous capital requirement as a substitute and that quieted much of the objections on that score. But concerns remained in some quarters. Kabel said GLBA did not deal equally with insurance firms and commercial banks when it came to financial holding companies doing cross-marketing. Under the law, he said, insurance companies may cross-market with affiliates using statement-stuffers or e-mails. Banks may not. This, he said, was a problem arising in the statute itself, not in the agencies' implementing regulations. "I think the Federal Reserve was right in its reading of the statute," he said.
Any opening of GLBA to amendment could prompt a lot of other proposals. Other witnesses at the hearing will include Federal Reserve Governor Laurence Meyer and Comptroller of the Currency John Hawke on the first panel and a trio of industry witnesses on the second. Besides Kabel, the latter will include John Whaley of Norwest Venture Partners on behalf of the ABA Securities Association and David DeNunzio of Credit Suisse First Boston on behalf of both the Securities Industry Association and the Financial Services Roundtable. In January SIA attacked the final capital rule as not permitting a "two-way street" that would allow investment bankers into commercial banking.