Warning that banks will become the dinosaurs of financial services if the Depression-era law is not repealed, [Alan Greenspan] said that the Fed believes banking can be tied to securities underwriting without subjecting federally insured deposits at banks to the risks inherent in the stock market.
The Fed favors allowing a parent holding company to own both banks and securities firms rather than allowing banks and securities firms to buy and own each other directly, Greenspan said. The holding company structure would be the best way to ensure that, if a securities firm fails, a court would not try to "pierce the corporate veil" by seeking to get at federally insured deposits in the bank subsidiary, he said.
Greenspan said the Fed is not yet ready to recommend how far banks should be allowed to expand into insurance and real estate. Instead, he said, he would welcome legislation from Congress that would give the Fed guidelines.
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