1. Financial Services Deregulation
Historical Developments
Glass-Steagall Act of 1933
Initial Financial Services Integration
Gramm-Leach-Bliley Financial Services Modernization Act – 1999 (Senate Bill 900)
Future Integration of Banks and Insurance

2. Historical Developments
National Banking Act – 1864
Separated banks from other forms of commerce
Bank Failures in the Depression
Glass-Steagall Act of 1933
Blocked banks, insurers and securities dealers from affiliating or engaging in each other’s business
Rationale for Keeping Banks out of Insurance
Limit the financial impact of a bank failure
Avoid pressure to buy insurnance from bank
Who Benefits from Restrictions?

3. Initial Financial Services Integration
Exceptions to rule separating banking and insurance:
Credit life and health
Can operate insurance agencies in communities with less than 5000 people
Banks can use this exception to market insurance nationwide
Nonbank full service financial conglomerates
Sears, Roebuck in the 1980s
American Express
Merrill Lynch
Prudential
Megamerger
Travelers and Citibank – 1998
Insurance companies forming banks

4. Banks Insurance Activity
Selling coverage for another company
Lines written
Credit life (most of market)
Mortgage insurance (most of market)
Annuities (25% of market)
Life insurance (5% of market)
Automobile and homeowners insurance (3% of market)

5. Gramm-Leach-Bliley Financial Services Modernization Act – 1999 (Senate Bill 900)
Signed into law November 12, 1999
Repeals Glass-Steagall Act
Allows banks, insurers and securities dealers to affiliate
Promotes uniformity in agent/broker licensing
Includes some consumer privacy protection

6. Future Integration of Banks and Insurance
Banks likely to expand writings in auto and homeowners insurance
Projected to increase market share from 3% to 12% by 2002
More bank-insurance company merger activity
Insurance companies offering banking services
State Farm’s bank
No-fee ATM in every agent’s office?
State Farm on-line banking (20-25% of consumers?)
Premium discount or claim benefit for automatic deposit?
Federal regulation of insurance?