US must `reform outdated financial sector'

THE UNITED STATES must reform its financial sector or be outflanked by technology and foreign competition, Alan Greenspan said yesterday.

The Chairman of the Federal Reserve was pitching in to a tough argument over how the US should remove decades-old barriers that prevent banks, insurance companies and stockbrokers from combining. Though the goal is shared by the industry, Congress and the US administration, there are stark differences over how the new structures should be set up and regulated.

"The markets are demanding that we change outdated statutes," said Mr Greenspan in testimony to the Congress yesterday. Financial markets are at a "crossroads" where technology is outpacing the ability of regulators, he said. "Unless soon repealed, the archaic statutory barriers to efficiency could undermine the global dominance of American finance as well as the continued competitiveness of our financial institutions."

Limitations on financial sector mergers go back to the Depression-era Glass Steagall act. The US has been debating change to this and other measures since the early 1980s, while virtually every other country has moved towards a model where financial services can be combined under one roof.

The Federal Reserve supports a bill called HR10 after its legislative reference, but this approach is opposed by the US Treasury. Robert Rubin, US Treasury Secretary, said he was against the idea in testimony on Wednesday, and he backed an alternative bill. The crux of the issue for the Treasury is who would regulate the new financial supermarkets. The Treasury wants to maintain control, but HR10 would give the Federal Reserve greater weight.