House Lawmakers Vow to Rewrite Banking Panel's Reform Legislation

House Commerce Committee members complained Thursday that pending financial reform legislation would lead to overlapping bureaucracy and confuse consumers.

Rep. Thomas Bliley, the committee's chairman, and a host of other lawmakers pledged to rewrite key parts of a bill passed June 20 by the House Banking Committee that gives the Securities and Exchange Commission and state insurance regulators more say over bank operations.

At a hearing of the panel's finance and hazardous materials subcommittee, lawmakers also promised to eliminate the National Council on Financial Services, which would be created under House Banking's bill in order to resolve disputes between financial regulators.

Testifying before the Commerce subcommittee were 10 federal and state financial regulators.

Rep. Bliley said the Banking Committee plan is "detrimental to consumers" because it allows banks to escape more thorough customer protections provided by the SEC and state regulators.

"It makes no sense," he added.

Rep. John Dingell, D-Mich., said the plan also puts federal dollars at risk by expanding bank powers without adequate supervision of new activities.

"Absent significant changes to protect investors, consumers, depositors, and taxpayers, I will be compelled to oppose it with every bit of strength I have," he said.

Securities and Exchange Commission Chairman Arthur Levitt argued that bank sales of asset-backed securities, annuities, and derivatives should be placed under SEC supervision. "These are areas of significant market growth that raise real investor protection concerns," he said.

Treasury Under Secretary John D. Hawke Jr. said the Clinton administration also wants more SEC oversight of bank securities sales than the current bill requires.

"Unlike our proposal, the bill would not transfer oversight of bank- issued securities from the banking agencies to the SEC," he said. "We see no justification for continuing the present system of overlapping and duplicative functions."

Mr. Levitt agreed with Commerce members critical of the National Council.

The panel would be used as "an excuse to avoid tough decisions," the SEC chief said. Regulators should work out their differences informally, he said.

Federal Reserve Board Chairman Alan Greenspan agreed, calling the council "huge overkill."

But Mr. Hawke defended the council, saying it would need to step in only on the most difficult questions. "This will not preoccupy the attention of regulators," he said.

In his testimony, Mr. Greenspan said the Banking Committee went further than needed in allowing banks and nonfinancial firms to merge.

The narrowly approved provision would allow banks to derive 15% of their revenue from commercial activities; commercial firms could get 15% of their revenue from banking.

The bill "goes well beyond what both commercial banks and nonfinancial firms need to meet the requirements of today, as well as in the foreseeable future," Mr. Greenspan said.

Mr. Greenspan repeated his opposition to allowing banks to conduct nonbanking activities in direct subsidiaries. The Fed wants these operations housed in holding company units.

Mr. Hawke and Comptroller of the Currency Eugene A. Ludwig disagreed.

Banks won't be able to grow if they can't enter new business directly, Mr. Ludwig said. "What will result is a destabilized, hollow bank that is less safe and sound," he said.

Mr. Ludwig, whose efforts to expand bank powers have been criticized by many Commerce Committee members, came under surprisingly little fire during his testimony.

Rep. Michael Oxley, R-Ohio, who was the only lawmaker in the room much of the time, tried to coax Mr. Ludwig into a trade: lawmakers would eliminate the proposed National Council if the OCC relinquished to the courts the power to decide whether products are banking or insurance.

Mr. Ludwig declined to accept the deal outright, but he appeared at least partially to support it. "Allowing courts to decide is a fair way to go about it," he said, adding that he would expand upon his answer in writing.

Kentucky Insurance Commissioner George Nichols 3d urged lawmakers to eliminate the comptroller's authority to preempt state laws on bank insurance sales.

"When it comes to protecting insurance consumers, this bill is inadequate," he said.

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