The Securities Industry and Financial Markets Association defended the use of industrial banks by regulated securities firms in U.S. Congressional testimony today.

SIFMA testified before the U.s. House Committee on Financial Services in a hearing to examine proposed new legislation that would alter the regulatory regime for owning these sorts of banks. At the hearing, SIFMA president and CEO Marc Lackritz said, “We support the ability of regulated securities firms to continue to own industrial banks the way they do under existing law.”

The proposed legislation would create a new holding company regime for the owners of industrial banks by expanding the existing authority of the Federal Deposit Insurance Corporation over the owners of these institutions. Bank and thrift holding companies that own industrial banks would be exempted from this regime, presumably because they are already subject to holding company oversight by the Federal Reserve Board or the Office of Thrift Supervisions. However, the bill fails to provide an exemption for industrial bank owners who are regulated by the Securities and Exchange Commission.

“Industrial banks do not pose any greater safety and soundness risks than other charter types and should not be subject to additional constraints beyond those imposed on other FDIC-insured institutions,” he added.

“We believe it is critical that [the bill] be amended to recognize the SEC’s regime,” said Lackritz. “The SEC is recognized worldwide as a consolidated regulator, and its regulatory requirements and procedures were carefully designed to comply with all standards for effective consolidated regulation in the U.S. and abroad. That stature should be reflected in this bill in order to ensure global securities firms are not damaged inadvertently,” he added.