Treasury Official Says U.S. Might Compromise On 5%-Ownership Rule

WASHINGTON - Deputy Treasury Secretary Frank Newman said the administration may be willing to compromise on how large a stake a financial company can hold in an industrial concern while still qualifying to own a bank.

During a speech before the Institute of International Bankers, Mr. Newman reiterated the administration's opposition to completely dropping the barriers to combining commerce and banking.

However, he said afterward that the administration is still willing to discuss how large an investment a financial company can have in a commercial or industrial concern under the proposed law. The administration has recommended limiting such investments to 5% of a financial company's assets.

"That is one of those things that ought to be discussed in a larger context," he said, suggesting the administration is open to negotiations.

"That is a perfectly legitimate question to raise," he added in reference to whether the limit may be too low.

The banking and commerce question is one of the most delicate issues in the debate over legislation to repeal the Glass-Steagall Act. Senate Banking Committee chairman Alfonse M. D'Amato, R-N.Y., would drop the barriers altogether and permit banks to affiliate with any kind of company.

However, House Banking Committee chairman Jim Leach is strongly opposed to any lowering of the banking and commerce barriers. The administration takes a middle road, though its position appears closer to that of Rep. Leach than that of Sen. D'Amato.

Rep. Leach, who also spoke before the international banking group, agreed with Mr. Newman, saying that the three proposals forwarded in the Glass-Steagall debate are "in agreement on 80%-85% of the major points."

However, Rep. Leach reiterated his belief that there is no public support for proposals to intermingle commerce and banking.

"The United States has always been a nation with grave doubts about the concentration of financial power and a preference for the decentralized delivery of financial services," Rep. Leach said. "Ours is also a nation that historically does not approve of the idea of commercial enterprises controlling banks and vice versa."

Rep. Leach also called for the development of an international organization that would insulate taxpayers from financial disasters such as the devaluation of the Mexican peso.

"There is a growing doubt that the United States . . . is willing to become a liquidity backstop," Rep. Leach said, referring to the $52 billion rescue package supplied to Mexico.

"Now is the time to seriously think of the possibility of developing an international bankruptcy regime in which the public is taken off the hook for mistakes of foreign governments," Rep. Leach added.

The Iowa Republican suggested that the International Monetary Fund and the World Bank could be incorporated to deal with liquidity problems such as those experienced by Mexico.

In his talk before the trade group, Mr. Newman pledged that the administration would work for "national treatment" - guarantees that foreign banks will be treated on equal footing with U.S. institutions.

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