Orphan of Invention: Why the Gramm-Leach-Bliley Act Was Unnecessary

Keith R. Fisher

Document Type

Article

Publication Title

Oregon Law Review

Abstract

This Article argues that the Gramm-Leach-Bliley Act (GLEBA), was, in fact, unnecessary for the banking industry because the so-called "financial modernization" wrought thereby was already available to the vast majority of commercial banking organizations without incurring the social costs that are invariably the statutory "price tag" accompanying congressional grants of new powers to regulated industries. If necessity is the mother of invention, then that which is unnecessary is merely an unwanted offspring, or, to coin a phrase parallel to (but the opposite of) the metaphor in the proverb, an "orphan of invention." GLEBA putatively lifted existing "barriers" to bank entry into the securities and insurance businesses. This Article will demonstrate that those barriers were illusory and that GLEBA is largely an orphan of the invention, responsive to the diversification needs of the banking industry, that had gone before. Two broad regulatory principles inform this analysis. The first is functional equivalence; the second is affiliation. Each of these represents a fundamental theme-an Urlinie, to borrow an analogy from music theory-from which basic tenets of financial services regulation unfold. The thesis of this Article is that application of these two principles (or, in the case of the latter, its obverse, which we shall call "disaffiliation") to banking law and regulation, as they had evolved to the point in 1999 when GLEBA was enacted, would have allowed commercial banking organizations9 to engage as full competitors in the securities and insurance businesses, thereby obviating the need for financial services legislation, which exacts so high a price tag from the industries affected (and possibly for the economy as a whole). Part I of this Article will briefly introduce and define the two principles; Part II will review the progress of commercial banking organizations' penetration of the insurance business and demonstrate how the Comptroller of the Currency's application of the principle of "functional equivalence" had, by 1999, already positioned commercial banking organizations to be full competitors with insurance providers; Part III will apply principles of "affiliation" to demonstrate that commercial banking organizations, even under the Glass-Steagall Act" regime, could avail themselves of utterly unfettered access to the wholesale securities business; and Part IV will briefly summarize the key changes wrought by GLEBA and the price exacted from the industry.

First Page

1301

Last Page

1422

Publication Date

Winter 2001

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