House Banking Committee's Report On Reg Relief Bill Stirs New Debate

WASHINGTON - The House Banking Committee finished voting on the regulatory relief bill more than three weeks ago, but the report it issued this week has stirred up new debate.

Democrats' hackles were raised by the report's discussion of an amendment that would let national banks sell insurance within "empowerment zones" - areas considered to be in "economic distress."

The committee report, released Tuesday night, contains language that Democrats say amounts to a subtle rewrite of the provision, which was sponsored by Rep. Floyd Flake, D-N.Y.

Democrats say the report's language subjects the Flake provision to a "much more complicated " framework of when and how state insurance regulations apply to national banks selling insurance in empowerment zones, according to a senior Democratic aide.

"This is a substantive change to the Flake amendment," said the aide. "The Flake amendment has a simpler way of stating when state laws apply."

Nevertheless, Rep. Flake said he was content simply with the fact that his amendment remained intact in the report.

"While it leaves a lot more to interpretation than I would have wanted, the fact that the amendment is in as we wrote it means that we stand a chance of being able to do what we wanted to do with the bill," Rep. Flake said in an interview Wednesday.

Banking Committee observers noticed a few other interesting twists in the report, which serves to explain and clarify the banking panel's deliberations on the regulatory relief bill.

Only two sentences were devoted to a significant amendment, added by Rep. Richard Baker, R-La., that would allow banks and insurance companies to affiliate under a holding company in accordance with state laws.

"Given the importance of this amendment, the fact that it wasn't expanded upon is surprising," said Karen Shaw Petrou, president of ISD/Shaw Inc., which tracks bank legislation and regulations. "The short shrift it was given reinforces the fact that the chairman was opposed to it."

However, the document did go to some length to clarify other insurance- related provisions that had some in the banking industry worried, Ms. Petrou said. The report explicitly said that the committee did not intend for states to regulate national banks' sales of products such as commodity futures or option contracts.

"The report language goes a long way to alleviating some of the fears that things like swaps and other bank products might be swept into the insurance category," Ms. Petrou said.

The report language also took what was described by one source as a "potshot" at the Office of the Comptroller of the Currency, which is not held in particularly high esteem by House Banking Committee Chairman Jim Leach.

In order to restrict state insurance regulators from defining traditional banking products as insurance, an amendment was added to the bill that retains the authority of the Comptroller's office to define the "business of banking."

But the authors of the report also stressed that they didn't want the offcie to push that definition too far.

"The committee wishes to make clear, however, that this language does not permit the Comptroller to engage in definitional 'games,'" the report said.

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