FDIG NEWS RELEASE
FEDERAL DEPOSIT INSURANCE COIPORATIOl'II
FOR IMMEDIATE RELEASE
THE FUTURE OF U.S. BANK SUPERVISION
An Address By
L. WILLIAM SEIDMAN, CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
Before
The David Hume Institute
CONFERENCE ON FINANCIAL DEREGULATION
Edinburgh, Scotland
May 2, 1986
PR-60-86 (5-2-86)
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-6996
FEDERAL DEPOSIT INSURANCE COIPORATIOl'II
FOR IMMEDIATE RELEASE
THE FUTURE OF U.S. BANK SUPERVISION
An Address By
L. WILLIAM SEIDMAN, CHAIRMAN
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C.
Before
The David Hume Institute
CONFERENCE ON FINANCIAL DEREGULATION
Edinburgh, Scotland
May 2, 1986
PR-60-86 (5-2-86)
FEDERAL DEPOSIT INSURANCE CORPORATION, 550 Seventeenth St., N.W., Washington, D.C. 20429 • 202-898-6996
THE FUTURE OF U.S. BANK SUPERVISION
I am honored to serve as the American ambassador to this distinguished
gathering. Being on Scottish soil, I am reminded of Dr. Johnson's observation
that "if one man in Scotland gets possession of two thousand pounds, what
remains for the rest of the nation?" Fortunately, Dr. Johnson's assessment
clearly was not "on the money," as is evidenced by the thriving banking and
financial community centered around Charlotte Square. What better vantage
point could a United States bank supervisor choose for contemplating the new
wave of competition in his own country's financial services industry than the
exciting deregulatory scene dramatically unfolding in the United Kingdom?
I am particularly encouraged to see a handful of U.S. banks positioning
themselves as active competitors in the British market. Your dismantling of
all restrictions against ownership of stock exchange firms just two months ago
and the anticipated elimination of barriers between securities dealers and
underwriters should reshape the British financial services sector. The
fortuitous circumstance of having a few U.S. banks participating in the
British experience is going to focus attention on how well American bank
managers can handle the risk5 of new products and delivery systems. This is
going to give U.S. supervisors a jump on the situation and make us better
prepared for the widespread deregulation that is bound to take hold eventually
in the States.
I feel confident that in due time the United States will take steps comparable
to the far reaching deregulatory initiatives adopted in the United Kingdom.
This will present greater challenges to the ability of supervisors to measure
risk and maintain the safety and soundness of the financial system. In light
of these challenges, I would like to explain some aspects of U.S. bank
supervision, describe major changes we are making in the supervisory process,
and note some of the major issues that still must be resolved.
HISTORICAL BACKGROUND
To put our supervisory challenge in proper perspective, a short lesson in
modern American banking industry is in order. Let me start in the Roaring
Twenties, when American bankers were a rather freewheeling lot. Banks offered
a variety of financial products, underwrote securities, and participated in
business ventures. They had a substantial amount of discretion to price their
products as they saw fit.
Banks also had substantial authority to operate where they wished. State
chartering agencies' geographic restrictions on the scope of in-state bank
operations did not apply to federally-chartered banks until 1927. Moreover,
banking entrepreneurs operated across state lines by establishing holding
companies. Banks were, of course, subject to safety and soundness
regulations and supervision. But, to a significant degree, they were free to
carry on their affairs as they saw fit.
I am honored to serve as the American ambassador to this distinguished
gathering. Being on Scottish soil, I am reminded of Dr. Johnson's observation
that "if one man in Scotland gets possession of two thousand pounds, what
remains for the rest of the nation?" Fortunately, Dr. Johnson's assessment
clearly was not "on the money," as is evidenced by the thriving banking and
financial community centered around Charlotte Square. What better vantage
point could a United States bank supervisor choose for contemplating the new
wave of competition in his own country's financial services industry than the
exciting deregulatory scene dramatically unfolding in the United Kingdom?
I am particularly encouraged to see a handful of U.S. banks positioning
themselves as active competitors in the British market. Your dismantling of
all restrictions against ownership of stock exchange firms just two months ago
and the anticipated elimination of barriers between securities dealers and
underwriters should reshape the British financial services sector. The
fortuitous circumstance of having a few U.S. banks participating in the
British experience is going to focus attention on how well American bank
managers can handle the risk5 of new products and delivery systems. This is
going to give U.S. supervisors a jump on the situation and make us better
prepared for the widespread deregulation that is bound to take hold eventually
in the States.
I feel confident that in due time the United States will take steps comparable
to the far reaching deregulatory initiatives adopted in the United Kingdom.
This will present greater challenges to the ability of supervisors to measure
risk and maintain the safety and soundness of the financial system. In light
of these challenges, I would like to explain some aspects of U.S. bank
supervision, describe major changes we are making in the supervisory process,
and note some of the major issues that still must be resolved.
HISTORICAL BACKGROUND
To put our supervisory challenge in proper perspective, a short lesson in
modern American banking industry is in order. Let me start in the Roaring
Twenties, when American bankers were a rather freewheeling lot. Banks offered
a variety of financial products, underwrote securities, and participated in
business ventures. They had a substantial amount of discretion to price their
products as they saw fit.
Banks also had substantial authority to operate where they wished. State
chartering agencies' geographic restrictions on the scope of in-state bank
operations did not apply to federally-chartered banks until 1927. Moreover,
banking entrepreneurs operated across state lines by establishing holding
companies. Banks were, of course, subject to safety and soundness
regulations and supervision. But, to a significant degree, they were free to
carry on their affairs as they saw fit.