House rejects amendment on bank bill that would have kept banks from bonds.

WASHINGTON -- The House of Representatives yesterday rejected an amendment that would have stripped the comprehensive bank reform legislation of provisions allowing banks to enter the securities business.

The vote was a blow to the Bush administration and large banks, which believe the current securities provisions of the banking bill are overly restrictive and would stifle competition.

The House defeated the amendment, offered by Rep. Doug Barnard, D-Ga., on a 216-200 vote. Two members voted "present."

Rep. Barnard, a leading advocate of granting banks more powers, offered the amendment because of his concern the legislation is too restrictive. He was supported by the Bush administration, the American Bankers Association, and the Consumer Bankers Association, which also oppose the bill's approach to letting banks into the securities business.

Though the legislation would repeal the 1933 Glass-Steagall Act, the law separating investment and commercial banking, it would erect in its place high "firewalls," provisions intended to limit bank exposure to the risks of securities underwriting. Opponents contend the firewalls would reduce the attractiveness and viability of securities powers for banks.

The provisions that would repeal Glass-Steagall grew out of an accord between House Banking Committee Chairman Henry B. Gonzalez, D-Tex., and House Energy and Commerce Committee Chairman John D. Dingell, D-Mich. Under the agreement, most securities powers would have to be conducted in bank affiliates and would be subject to regulation by the Securities and Exchange Commission.

Action on the Barnard amendment came shortly after the bill narrowly survived a key test vote. Voting 210 to 208, the House approved rules for consideration of amendments to the legislation.

Because it has 435 members, the House votes on legislation only after agreeing on rules for debate. Had the House rejected the guidelines for the banking bill, the legislation effectively would have led the House ultimately to consider a narrow banking bill confined largely to recapitalizing the Bank Insurance Fund.

The legislation currently before the House would expand bank securities powers, shore up the Bank Insurance Fund, and allow banks to branch interstate. In other action on the bank bill yesterday, the House:

* Rejected an amendment offered by Rep. Charles Schumer, D-N.Y. that would subject banks and thrifts receiving federal deposit insurance to limits on the interest rates they can pay depositors and on the amount they can lend to any one borrower; and

* Approved an amendment offered by Rep. Barney Frank, D-Mass., that would establish an affordable housing program under which properties inherited by the Federal Deposit Insurance Corp. from dead banks could be sold to low-income families or state and local housing agencies.

The Frank amendment, in effect, would establish a program similar to one already in existence for properties taken over by the Resolution Trust Corp., the agency that handles thrift failures.

A final vote on the bill could come as early as today, but is more likely Monday.

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