IBAA Evolving Toward Glass-Steagall Repeal

HONOLULU - As recently as two years ago, nobody could have imagined the Independent Bankers Association of America endorsing legislation to repeal the Glass-Steagall Act.

But times change. Two years ago, who could have imagined that deposit insurance premiums would be ready to drop from their peak average of 24.5 cents for each $100 of insured deposits to a mere 4 cents - and that the IBAA would be fighting for a still lower rate?

As the community bank trade group concludes its annual convention, both of those once-improbable scenarios have entered the realm of the plausible: The IBAA is calling for premiums as low as 2 cents, and it is edging ever closer to endorsing legislation that would permit securities firms and banks into each other's business.

Together, Glass-Steagall repeal and deposit insurance premiums top the group's political agenda for the year, though it is difficult to say which issue will cause its leaders more grief.

Glass-Steagall has historically been one of the IBAA's great causes. Alone among the industry's trade groups, it has opposed repeal since former Senate Banking Committee Chairman William Proxmire first put it to a vote in 1988.

The group was concerned that brokerage firms with nationwide branch systems would become strong new competitors.

This year, though, the IBAA is motivated in part by loyalty to House Banking Committee Chairman Jim Leach, who has introduced legislation to repeal the Depression-era law, and in part by fear that the alternatives could be worse.

"Jim Leach understands community bankers, and he understands agriculture," said Kenneth A. Guenther, the trade group's executive vice president. "So we want to work with him."

Mr. Guenther said the organization is still wrestling with the issue. But he made it clear that the group is edging close to an endorsement of the Leach bill, which he described as narrowly crafted.

By contrast, the IBAA is deeply concerned about legislation being sponsored by Rep. Richard Baker, R-La., that would not only repeal Glass- Steagall but also break down the barriers between banking and commerce.

"We went out Friday with a letter to all members of Congress urging them to oppose the Baker bill," Mr. Guenther said. The IBAA was worried that Rep. Baker has been picking up support from the banking committee's freshman Republicans while Rep. Leach was busy dealing with the Mexican peso crisis.

"Baker has made enormous progress," said the trade group leader.

Mr. Guenther acknowledged the danger in supporting Rep. Leach. "If Leach gets it going, will he be able to control the process?" the trade group executive asked.

That is, if the Banking Committee passes a narrowly drawn Glass-Steagall bill, will the Commerce Committee, which also has jurisdiction, transform it into legislation that also breaks down the walls separating banking from commerce?

Until this year, the Commerce Committee was the IBAA's key ally in the fight to preserve Glass-Steagall. Rep. John D. Dingell, D-Mich., the panel's longtime chairman, defended the law with near-religious fervor, and Rep. Dingell was one of the most powerful chairmen in the House.

"We're always more effective when we can rally behind a general," Mr. Guenther said.

While the IBAA is still working out its position on Glass-Steagall, it is unambiguous in its feelings on deposit insurance premiums. Sunday, its board of directors voted to ask that premiums be set as low as 2 cents for each $100 of insured deposits for the nation's best banks and up to 31 cents for the worst.

"There's no economic justification for 4 cents," Mr. Guenther said. The trade group executive expressed optimism that the Federal Deposit Insurance Corp. might opt for lower rates.

However, an additional insurance premium issue lurks in the background. Mr. Guenther worries that the administration will ask the banking industry to share the cost of rebuilding the thrift industry's insurance fund.

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