Expanded Powers for Depositary Financial Institutions and Discussions

One service the Hunt Commission has performed for us all has been to remind us how interrelated many aspects of the nation’s financial system are. I do not mean by that to suggest that each of its numerous recommendations must be adopted if any one. of them is, because this is manifestly not the case. I am suggesting that once the Commission made the basic policy decision that it. would seek to promote competition in the same market on substantially equal terms for all depositary institutions, the thrust of its basic recommendations, particularly those dealing with interest rate ceilings on deposits, operating powers, reserve requirements and taxation, could have been predicted. What must now be decided is whether the financial system proposed by the Commission compromises and all will serve the country significantly better than the system we now have a system one bankers has tagged as "balanced inequality." If we have doubts on that score, can the framework for reform suggested by the Commission be improved? The Commission was formed, as we know, after two relatively lengthy periods of tight money in which deposit institutions had lost a significant volume of funds because the ceiling rates allowed to be paid on deposits were well below market rates on long-term investments. This deposit outflow adversely affected the funds available for residential housing and smaller businesses throughout the country. It was not surprising, therefore, that the Commission was given a broad general mandate to recommend improvements in the nation’s financial system with more specific mandates in three areas: (i) mortgage financing, (ii) the role of interest rate ceilings, and (iii) the need for flexibility on the part of deposit institutions to permit a sensitive response to changing demands. While the Commission’s report includes a number of relatively minor reforms in mortgage lending practices that should be implemented regardless of what