WASHINGTON - Eight years after Congress put the brakes on banking activities by nonbanks, the mood on Capitol Hill may be changing.
Legislation recently approved by the House and Senate banking committees contains provisions that would allow nonbanks to grow more quickly and offer new credit card products.
The changes would relieve 23 nonbank banks of restrictions imposed by the Competitive Equality Banking Act. That 1987 law brought the 23 institutions under the Bank Holding Company Act and limited the growth of their banking assets to 7% a year. It also barred the creation of new nonbank banks.
The 23, known as "CEBA banks" or limited-purpose banks, include institutions owned by Prudential-Bache, Merrill Lynch & Co., and Dean Witter, Discover & Co.
The House version of Glass-Steagall repeal includes an amendment by Rep. Michael Castle, R-Del., to remove the cap. Similar language was included in the Senate Banking Committee's regulatory relief bill at the request of Chairman Alfonse M. D'Amato.
"These companies by nature are used to being innovative and fast growing," said Jeff Tassey, senior vice president of government and legal affairs for the American Financial Services Association, whose members include limited-purpose banks.
Many of the companies have circumvented the growth restrictions by securitizing loans, but that practice cuts into earnings, Mr. Tassey said. "They have securitized a lot of assets they otherwise would have held."
Bankers, however, remain opposed to encroachment into their businesses.
"We worked very hard to close the nonbank loophole and we've always fought against lifting the growth cap," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America.
Mr. Tassey countered that the growth cap was never intended to be a permanent restriction. "This was supposed to be temporary, but it's lasted eight years," he said.
Despite the backing from growth cap repeal is receiving from Rep. Castle and Sen. D'Amato, not all congressional leaders are behind it. Key opponents include House Banking Committee Chairman Jim Leach and the Senate Banking Committee's ranking Democrat, Paul S. Sarbanes of Maryland.
Pending bills include other provisions on behalf of limited-purpose banks. The House Banking Committee's Glass-Steagall package allows CEBA banks with credit card operations to offer cards to corporate customers. Also, the Senate Banking Committee's regulatory relief bill allows them to accept deposits of less than $100,000, solely for the purpose of offering secured credit cards.
Though the banking industry is opposed to lifting those restrictions as well, limited-purpose-bank credit card issuers argue that the new measures are consistent with the intent of existing law. "The idea was not to prevent people from doing corporate credit cards. The idea was to keep them from financing corporate activities," said Bill Binzel, vice president of government relations for MasterCard International.
