Breaking a four-month stalemate, House lawmakers have struck a compromise on financial services reform that would let the banking, securities, and insurance industries merge.
The House Banking and Commerce committees were expected late Tuesday to unveil a 400-page bill after nearly two weeks of intense negotiations sparked by an edict from Speaker Newt Gingrich.
The bill would curb unitary thrift holding companies, allow limited mixing of banking and commerce, and merge the deposit insurance funds, according to an outline released by House leaders.
The deal could reach the floor as early as next week, a House Banking Committee spokesman said.
Adding a political twist to the already controversial bill, House leaders may attach legislation affecting credit unions. The outline of the compromise does not mention credit unions, but sources said an amendment could be added on the floor.
It also remains unclear whether House leaders will go for the bill backed by the industry-which would allow occupation-based credit unions to accept employees of unrelated companies - or something less favorable. The banking industry has been pushing an alternative bill that would force large credit unions to pay taxes and comply with the Community Reinvestment Act.
House Banking Committee Chairman Jim Leach reportedly favors adding a credit union component to the financial reform bill, but a decision is not expected until a committee hearing Wednesday.
Both Rep. Gingrich and House Republican Conference Chairman John A. Boehner have suggested linking the two issues as a means of propelling the financial reform bill.
According to the outline of the compromise, banks could sell insurance, underwrite municipal bonds, and provide financial advisory services. Banks could sell or underwrite securities and insurance through "affiliates," but the outline does not indicate whether that means holding company units or bank subsidiaries.
The Federal Reserve Board would regulate combined diversified holding companies, which would be allowed to earn up to 5% of revenues from commercial activities. The revenue cap for existing insurance and securities firms that already own commercial businesses would be 15%.
The thrift charter would be preserved, but thrifts would have to dedicate 10% of their assets to home mortgages. The Office of Thrift Supervision would be folded into the Office of the Comptroller of the Currency.
Thrifts and their holding companies would continue under current regulations until Jan. 1, 2000. Existing unitary thrift holding companies would be grandfathered, but after that date would be regulated by the Fed. Applications for thrift charters filed by nonbanks after Sept. 16 would be rejected.
Federal banking regulators could preempt state insurance laws that unfairly restrict bank insurance sales. But for the first time, states could challenge such actions in court on an equal footing with federal regulators.
Also, the Securities and Exchange Commission would define whether future banking products should be overseen by securities or banking regulators.
The legislation would create more efficient "one-stop shopping" that would save consumers $15 billion a year, lawmakers predicted.
"Reforming our financial services industry for the first time since the 1930s will bring new products to consumers and allow U.S. firms to compete more effectively abroad," Rep. Leach said.
"These historic reforms will mean far greater security and freedom for every American consumer, and greater innovation and competition for this vital sector of our nation's economy," according to Rep. Boehner.
Reaction to the deal was muted. Most sources had not seen the final details and were reluctant to comment.
However, officials of credit union trade groups said Tuesday that their issues should remain separate from financial reform legislation.
"We would like not to get tangled up with that," Kenneth L. Robinson, president of the National Association of Federal Credit Unions, said in an interview. "We hope they don't hook us up with some other bill that brings with it its own body of antagonists."
"There are other folks who want to attach our legislation to a bill that they think will create what we call around here a Christmas tree and the whole thing sinks of its own weight," said Daniel A. Mica, president of the Credit Union National Association.
Meanwhile, more credit union bills are expected to surface this week.
Rep. Joseph P. Kennedy 2d, D-Mass., plans to introduce a bill that would impose community reinvestment requirements on all credit unions with assets exceeding $25 million. His bill would not address who may join a credit union.
Rep. Robert L. Ehrlich Jr., R-Md., plans to introduce a bill this week that would create four categories of credit unions. Members would have to work for the same employer or belong to the same trade group, association, or a "well-defined" community of 15,000 people or less. Existing credit unions could retain any members accepted before Feb. 25.
