SPEAKING OF RESTRAINTS on trade, there is the vigorous campaign by the securities industry to keep the banks out of the rich market in revenue bonds. It's a classic example of a certain kind of Capitol Hill politics. Because of changes in financial practices, a law enacted a generation ago has come to provide the securities brokers with a market exclusively their own. As you might imagine, they have not welcomed the idea of making it a little less exclusive. But a lot of state and local governements thinks that the interest rates on their revenue bonds would be lower if the market were broader.
Rep. Gladys Spellman (D-Md.), who learned about the bond market as a Prince George's County commissioner, has been trying to get this restriction removed ever since she arrived in Congress five years ago. A bill to that effect has passed the Senate twice. The block is the House subcommittee on financial institutions, chaired by Rep. Fernand St. Germain (D-R.I.), which refused even to consider it until this year. But at last Mr. St. Germain has been persuaded to hold hearings, and they are currently under way.
When Congress passed the Glass-Steagall Banking Act in 1933, it wanted to keep the banks away from the speculative securities that had been the undoing of some of them. It said that banks could deal only in public bonds backed by taxing powers.At the time there was hardly any other kind of public bond. The revenue bond -- backed by the earnings of, for example, a toll bridge -- was almost unknown. But today revenue bonds are nearly two-thirds of all new municipal debt. If commercial banks were able to sell them, it would mean a much larger market reaching many more potential customers.
That would presumably mean more competition for issues, driving down interest costs. An economic study supported by the American Bankers Association suggests that it would save state and local governments between $150 million and $300 million a year. Perhaps that's too high, as the bill's opponents in the securities industry claim. Perhaps it's too low. But there's a good way to find out. Now that Mr. St. Germain and his subcommittee have finally taken up the bill, they have an obligation to keep going, report it and let the House vote on it.