Conceding his goal of keeping banks and commercial firms separate "isn't politically realistic," Rep. Jim Leach tried Wednesday to at least limit cross-industry mergers.
The House Banking Committee chairman suggested restricting banks' ability to buy nonfinancial companies to a small percentage of book equity or stock market value.
This was a step in the direction of a compromise bill offered by Rep. Marge Roukema that would let banking companies derive 25% of their revenues from nonfinancial activities.
In an interview, Rep. Roukema said she was pleased that Rep. Leach is grudgingly coming to accept the basket approach.
"I think we're making progress," she said.
Nevertheless, the New Jersey Republican said Rep. Leach is demanding too many limits on the nonfinancial basket. "At first blush I would say his definition is too restrictive," she said.
Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., said in a speech Wednesday that he is willing to compromise, too.
Speaking to the New York Bankers Association here, Sen. D'Amato said his plan to eliminate all barriers between banking and commerce is a "starting point" for debate.
"My purpose is not to sell you on the D'Amato approach to modernization," he said. "I see no need to diminish or criticize any of the alternatives that have been advanced."
Sen. D'Amato said he expects the Clinton administration to lead the discussions once the Treasury Department unveils its financial reform proposals.
"The real key to our success will be the administration's legislative proposals as well as their commitment to its passage," he said. Treasury Secretary Robert Rubin "must not only be part of debate, in my view he must lead the charge," the senator said.
"If the administration submits a forward-looking proposal and rolls up its sleeves to work with Congress," said Sen. D'Amato, "I believe we can establish a modern legal framework for the financial services industry."
Treasury Under Secretary John D. Hawke Jr. told the same group Wednesday that the Clinton administration would release its plan soon.
In testimony to the House Banking Committee's capital markets subcommittee, Rep. Leach stopped far short of endorsing 25% as the appropriate size of any nonfinancial basket. He said such a high threshold would allow mergers between giant corporations and the country's biggest banks.
For instance, at 25% of stock market value, the largest bank holding company, Chase Manhattan Corp., could acquire Nabisco Holdings, the country's 113th-largest industrial corporation, according to Federal Reserve calculations presented by the Iowa Republican.
And by that measure, Rep. Leach said, Archer-Daniels Midland Co. could buy Bank of America.
But even that limit would be "less market distorting" than a basket comprising 25% of assets, another possible measure, he said. That definition would let Chase acquire Philip Morris, the sixth-largest corporation, he said.
"Various basket tests make clear that our largest as well as smallest banks remain vulnerable to takeover by various commercial enterprises," he said.
But Mr. Hawke said megamergers are not the goal of financial reform.
"Neither we nor anybody else ... is looking for a way to facilitate the acquisition of banking organizations by large commercial firms," he said. "Our objective is to find a way ... to take down the barriers to competition in the financial services industry."
