Financial Services Forum Examines Convergence Among Banks, Insurance Companies and Investment Firms - Experts Caution Against Enron-Inspired "Witch Hunt"

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Washington, D.C. - The Enron disaster, coming soon after the September 11 terrorist attacks, shows the U.S. economy's improved ability to withstand unforeseen economic shocks, a panel of economic and financial experts said yesterday

The Financial Services Roundtable (www.fsround.org) and the Insurance Information Institute (www.iii.org) sponsored the event in Washington, D.C.

The gradual convergence of the insurance, banking and securities sectors into a financial services industry has strengthened the U.S. financial structure, according to the panelists. Corrective actions are needed in light of Enron, the panelists said, both within the still evolving financial services industry and government. However, excessive regulation in response to Enron is not appropriate, as it will impede further progress.

The forum also served to introduce The 2002 Financial Services Fact Book, a resource with up-to-date statistics on consumer financial trends and the impact of the financial services industry upon the U.S. economy.

Steve Bartlett, president of The Financial Services Roundtable, and Gordon Stewart, president of the Insurance Information Institute, moderated the panel of experts. H. Rodgin Cohen, partner at Sullivan & Cromwell; Charles W. Calomiris, scholar at the American Enterprise Institute; and Cantwell F. Muckenfuss, partner at Gibson, Dunn & Crutcher, served as panelists.

The speakers agreed that the Enron debacle exposed weaknesses in the financial regulatory system, although they cautioned public policy makers against overreacting with new financial services laws and regulations.

"It (the collapse of Enron) has resulted in a virtual corporate witch-hunt, with an eerie similarity to 17th Century Salem," said Cohen. "I fear that in a number of cases, the approach is quite similar to that used in Salem: accuse, convict and then ask questions."

Within the context of Enron, much of the discussion focused on the strength of the financial services industry, largely a result of the Gramm-Leach-Bliley Act passed in 1999. The legislation helped bring about the convergence among banks, insurance companies and investment firms.

"One example (of a corporate witch-hunt) is the suggestion that Gramm-Leach-Bliley should be repealed, because it was somehow partly responsible for Enron's collapse, or that pre-GLB barriers need to be restored to protect financial institutions from Enron type losses," Cohen said. "Indeed, interestingly enough, Enron has demonstrated the value of Gramm-Leach-Bliley."

Calomiris pointed out that while some financial institutions have and will continue to grow larger, there is still room for smaller, niche players. "I think one of the things that was predictable, and that we've seen happen?is integrated large, global financial enterprises are going to dominate the industry," he said. "But what I didn't and wouldn't have predicted ten years ago was the barbell shape of the industry and the continuing interest in the chartering of very small institutions."

Muckenfuss emphasized the benefits of the financial services convergence. "There's a high degree of resiliency, flexibility and strength built into the system," said Muckenfuss. "And it is a consequence, in no small part, of the integration that's occurred."

A complete transcript of yesterday's event and The 2002 Financial Services Fact Book are available on each organization's website and at www.financialservicesfacts.org. The Fact Book will be regularly updated online as new information is compiled.

The Financial Services Roundtable represents 100 of the largest integrated financial services companies providing banking, insurance, and investment products and services to the American consumer. Member companies participate through the Chief Executive Officer and other senior executives nominated by the CEO.

The Insurance Information Institute (www.iii.org) is a primary source for information, analysis and referral for the media, governments, regulatory organizations, universities and the public regarding insurance subjects and trends.