As resistance crumbles in the House, Sen. Paul Sarbanes is the key remaining opponent to legislation allowing mergers between banks and nonfinancial firms.
Just one day after Rep. Jim Leach said he would accept a limited amount of cross-industry merger, the Senate Banking Committee's top Democrat pledged to block any attempts to lift current restrictions.
"I'm opposed to mixing banking and commerce," Sen. Sarbanes said in a speech to community activists Thursday. He warned that mergers between banks and commercial giants such as Microsoft or General Motors would lead to industry conglomeration and conflicts of interest between lenders and their nonfinancial affiliates.
Also, he predicted that megamergers would choke off credit for minorities and the poor.
"I don't think financial-industrial conglomerates are going to be sensitive to underserved and minority communities," he told the National Community Reinvestment Coalition.
Legislation to allow broad mergers has been introduced by Senate Banking Committee Chairman Alfonse M. D'Amato and Rep. Richard Baker, R-La.
But Sen. Sarbanes said he also would oppose a less ambitious plan introduced by Rep. Marge Roukema that would allow banking companies to invest to a limited extent in nonfinancial businesses. House Banking Committee Chairman Leach, long opposed to mixing banking and commerce, grudgingly endorsed that approach Wednesday.
"The fight now clearly rests in the Senate," said Kenneth Guenther, executive vice president of the Independent Bankers Association of America, whose group opposes mergers between banks and nonfinancial companies.
The GOP only has a 10-vote margin in the Senate, so Democrats could delay the legislation with a filibuster, according to Sen. Sarbanes.
Several Democratic senators, including Sens. Byron Dorgan, Kent Conrad, Robert Kerry, John Rockefeller, and Russell Feingold, have already joined Sen. Sarbanes in opposing broad affiliations between banks and commercial firms.
Sen. Sarbanes' staunch opposition has created an awkward dilemma for the Clinton administration, which signaled late last year that it would propose lifting all barriers between banking and commerce.
By forging ahead, the White House would be siding with Sen. D'Amato, the administration's chief nemesis in last year's Whitewater investigation, while opposing one of its closest allies.
The Maryland Democrat's aggressive lobbying has apparently persuaded the administration to back off. In the last few days, Treasury Department officials drafting the administration's financial reform plan have hinted they won't lift all barriers between the industries.
"People who say we're trying to pave the way for industrial firms to buy banks have not been paying attention to what we've been saying," Treasury Under Secretary John D. Hawke said Friday.
Sen. Sarbanes said he would support legislation allowing mergers between banks and other financial firms. "I'm prepared to accept reasonable and sensible restructuring within the financial services industry," he said.
But Mr. Hawke said broader affiliation must be allowed.
"We can't break down barriers to competition in the financial services industry without taking in account that a lot of financial firms have nonfinancial activities," said Mr. Hawke.
