WASHINGTON -- The battle next year over modernization of the financial services industry through reform of the Glass-Steagall Act will be philosophical rather than partisan, congressional aides with both parties said Friday.
There "aren't differences between Democrats and Republicans" as such over Glass-Steagall reform, said Mike Radway, a Democratic aide on the House Banking Committee's subcommittee on economic growth and credit formation.
Rather, differences over reform have "to do with each member's philosophy" and how they view banking from the perspective of their state or district, he said at a briefing sponsored by the banking and finance task force of Women in Government Relations.
The act was passed in 1933 to limit bank participation in the municipal bond and other securities markets.
Liberal Democrats and conservative Republicans are just as likely to jointly sponsor Glass-Steagall reform legislation as oppose it, according to Radway.
Passage of interstate branching and other banking legislation this session was possible because of bipartisan co-operation, House and Senate banking committee aides agreed at the briefing. This kind of support also could lead to legislative action on Glass-Steagall, two Senate aides and a House Republican aide said.
But Radway disagreed with the other aides that Glass-Steagall reform can pass in the next Congress because he does not think a consensus is possible yet among the many interests involved in the debate.
Those interests include the powerful insurance industry, which strongly opposes banks' attempts to cut into their business. Bipartisan legislation introduced in mid-August by leaders of the House Banking Committee's subcommittee on financial institutions would amend the act, as well as other banking laws, opening the doors to bank participation in both the securities and insurance markets.
Under Glass-Steagall, banks can underwrite general obligation bonds but they cannot directly underwrite more lucrative revenue bonds. About 28 banks have set up subsidiaries under Section 20 of the act to underwrite such bonds, but most banks cannot do so because of regulatory constraints imposed by the Federal Reserve Board.
While there are likely to be "lots of hearings and maybe some action" on financial modernization bills, the issue in the next Congress will be the "equivalent of regulatory consolidation in this Congress," Radway predicted.
The issue of consolidating bank regulatory authority bogged down in this Congress despite "a lot of talk," and is not likely to move in the next Congress until the administration and the Federal Reserve agree on how to resolve the issues, Radway said.
But Joseph Seidel, a Republican aide on the House Banking Committee, said he is more "optimistic" that the next Congress will act on Glass-Steagall.
Seidel cautioned that Glass-Steagall issues traditionally have been caught in a tug of war between the House Energy and Commerce Committee and the banking panel.
"It takes a very brave individual" to enter that "chasm," another aide said at the briefing.
However, Seidel said a "driving force" that could overcome this jurisdictional hurdle could come in the from of legislation to regulate bank sales of mutual funds, especially if bank abuses continue to be highlighted. The chairmen of the banking and energy panels each sponsored different versions of such legislation in this Congress.
Also significant to the Glass-Steagall debate will be regulatory and legal developments on attempts by banks to offer annuity products, said Radway and Mitchell Feuer, a Democratic aide on the Senate Banking Committee.
Feuer said that the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp. have objected to the offering by Blackfeet National Bank of a retirement certificate of deposit product on an Indian reservation in Montana. The CD, which has features "that look like an annuity," is "a major policy issue," he said.
Feuer said there is Concern on the committee that this development might bring together all the annuity dollars, which are an "enormous piece" of the financial services industry, under the FDIC insurance umbrella. "If that's so, we need to think about the implications of that," he said.
Laura Unger, a Republican aide on the Senate Banking Committee, said there will be hearings on this issue next year.
A "big issue" with implications for the Glass-Steagall debate is a pending Supreme Court case, NationsBank of Noah Carolina v. Variable Annuity Life Insurance, Radway said.
The case involves NationsBank's attempt through a subsidiary to sell fixed- and variable-rate annuities. Annuities, and whether they should be characterized as an insurance or securities product, "is clearly an emerging issue," he said. Radway said he did not know how Congress would react to a court ruling.
The legislative outlook for banking issues next year depends largely on the November elections, House and Senate staff members said. Also, Feuer said, "there might be a pause from the administration" on banking priorities with the recent appointment of Frank Newman as deputy Treasury secretary and confirmation of Ricki Tigert as the new chair of the FDIC.
A "top priority" early in the next Congress will be to pass legislation reauthorizing dozens of housing programs, Radway said. The House this year passed a bill containing provisions that would have let cities move forward with stalled bond-financed projects, and changed the Section 8 rent subsidy program in a way that would have given participating multifamily housing project owners a more reliable stream of payments and thus better credit rating on their tax-exempt debt.
