Spurred by a Supreme Court decision this week, House Banking Committee Chairman Jim Leach says he now favors allowing banks and insurance companies to own each other.
Rep. Leach's position is an about-face from last summer. The Iowa Republican said the high court's ruling on Tuesday allowing national banks to sell insurance from small towns prompted him to change his mind.
"The rights and powers of industrial groups have shifted. House Banking Committee leadership concluded that it was appropriate to legislate ties between insurance and banking in more expansive ways," Rep. Leach said Wednesday.
Rep. Leach said attaching insurance provisions may soften opposition to his Glass-Steagall repeal bill, which also would bar the Office of the Comptroller of the Currency from expanding bank insurance powers. Rep. Leach said he is pressing for a vote by the full House next month.
But bank and insurance industry sources remain skeptical. Without the support of both industries, House leaders are expected to continue blocking a vote on the legislation.
The new gambit is Rep. Leach's second bold move in two weeks. Last week, he proposed rolling into one bill Glass-Steagall repeal, regulatory relief, the thrift insurance fund rescue, and a merger of the bank and thrift charters. That idea went nowhere and has been taken off the table.
Still, the new proposal includes regulatory relief and would require banks owning thrift deposits to help pay off bonds floated to finance the thrift industry's 1989 bailout.
House Speaker Newt Gingrich and other Republican leaders have not indicated whether they will support Rep. Leach's maneuver.
The Supreme Court's decision to allow Florida-based Barnett Banks to sell insurance from towns with fewer than 5,000 residents prompted Rep. Richard Baker, an ardent supporter of bank and insurance affiliation, to press Rep. Leach to resurrect the idea.
Even banks that favor common ownership may not drop their opposition to Rep. Leach's Glass-Steagall reform bill because of the limits on the Comptroller's Office.
Edward L. Yingling, chief lobbyist for the American Bankers Association, called the affiliation provision "a significant plus," but said the banking industry's biggest trade group isn't yet ready to drop its opposition to the Comptroller's Office moratorium.
But most small banks would vehemently oppose what they see as another threat from powerful financial conglomerates. "This would create new concentration of ownership of financial institutions the likes of which we've never seen," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America.
IBAA's board of directors will review the proposal this weekend before taking an official position. However, IBAA opposition to common ownership helped prompt House leaders to strip a similar plan from the Glass-Steagall bill last summer.
For many regional banks, the right to buy an insurance company is enticing. "Based on the short outline available, we can envision fair and equitable legislation," said Anne Hall, lobbyist for Columbus, Ohio-based Banc One Corp. "This is the first time we've ever detected the dimmest of lights at the end of the tunnel."
An official from Boston-based Fleet Financial Group said allowing common ownership of banks and insurance companies would make the Glass-Steagall bill "look attractive" and called Rep. Leach's new effort "encouraging."
A big question remains the insurance industry. While insurance underwriters covet access to banks' branch networks, independent insurance agents don't want the added competition and are expected to try to block the legislation.
A spokesman said the Independent Insurance Agents of America remains opposed to common ownership of bank and insurance companies, but might support a plan if it allows states to prohibit such affiliations.
All the trade groups will review the plan over the next two weeks while Congress is in recess. After that, the prospects for the plan will be clearer. Republican leaders want to make sure big segments of both industries support the bill, so lawmakers won't have to favor one major source of campaign contributions over another.
"My sense is the House leadership wants to test reactions," said Samuel J. Baptista, president of the Financial Services Council. "They want to prevent the bloodbath they've been afraid of. It's possible they have found the right combination to do just that."
