Thursday, April 29, 1999

Greenspan testifies on privacy

Fed chair discusses financial dilemma

The Associated Press

        WASHINGTON — Fed Chairman Alan Greenspan said financial privacy poses an increasingly difficult dilemma for regulators, who must balance individual rights against the importance of information in business.

        The Federal Reserve chairman, testifying Wednesday before a House panel, also reaffirmed his disagreement with the Clinton administration over the shape of legislation to rewrite financial services laws.

        Mr. Greenspan was asked about a proposal adopted by the House Banking Committee last month that would restrict the sharing of certain information among affiliated banks, brokerage firms and insurance companies.

        Under the provision, customers' transaction data, such as checking account history, still would be allowed to be shared among affiliated financial companies.

        Without commenting directly on the proposal, Mr. Greenspan said the issue of financial privacy “is going to become increasingly difficult for our whole regulatory structure.”

        “I'm conflicted on this question,” the central bank chief told the House Commerce subcommittee on finance. Mr. Greenspan said that as a libertarian, he understands the need to protect individual rights and privacy. Yet he said he recognizes the importance of information in the financial industry.

        The privacy proposal also would:

        • Require banks and thrifts to disclose their privacy policies to customers.

        • Make it a federal crime for anyone to misrepresent who he is for the purpose of obtaining someone's private financial data. One exception: licensed private investigators trying to locate the assets of fathers who owe child support.

        The provision was targeted at the practice of pretext calling, in which people, including so-called “information brokers,” phone employees at banks and other businesses and use Social Security numbers to get information about bank accounts and other financial data.

        The privacy proposal was part of legislation approved by the Banking Committee to lift Depression-era barriers separating banks, securities firms and insurance companies.

        The administration has expressed support for the bipartisan bill but has threatened to veto financial overhaul legislation pending in the Senate.

        In his testimony, Mr. Greenspan again put himself at odds with the administration's top economic policy maker, Treasury Secretary Robert Rubin, over the best approach to take to revamp the financial services laws.

        The administration wants to let banks diversify through subsidiaries of the bank itself, not just through affiliated companies within the same parent company. That arrangement would increase the power of the Treasury's Office of the Comptroller of the Currency.


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