A Democratic alternative to House Banking Committee Chairman Jim Leach's financial reform proposal emerged this week.
Rep. John J. LaFalce, the committee's ranking Democrat, is circulating a 45-page draft that would repeal the Glass-Steagall Act separating investment and commercial banking and would amend the Bank Holding Company Act to permit cross-ownership of banks and insurance underwriters. It calls for functional regulation and consumer protections such as anti-tying provisions and disclosures about the risks of uninsured bank products.
The LaFalce plan dodges some sticky issues, such as financial powers for bank operating subsidiaries, insurance sales rules, and the thrift charter's future. Unlike Rep. Leach's 300-plus page bill, it would let a holding company own commercial businesses, provided they produce no more than 15% of annual revenue.
The New York Democrat is expected to introduce his plan as early as next week, but changes are still possible. For instance, a senior staff member said Rep. LaFalce will require a bank seeking to affiliate with an insurance or securities firm to have-and maintain-a "satisfactory" or better Community Reinvestment Act rating.
Raves are expected from quarters that prefer scaled-down legislation. "It would be a very positive bill, except that it doesn't deal with the unitary thrifts," said Edward L. Yingling, chief lobbyist for the American Bankers Association.
Securities firms probably will object that it does not force banks to transfer some sophisticated securities activities to holding company units subject to more federal securities oversight. Insurance lobbyists may complain about lack of protection for state laws and sufficient legal avenues to challenge rulings by banking regulators.
Lobbyists are also interested in the reaction of new House Rules Committee Chairman David Dreier. Rep. LaFalce's plan has been dubbed "Dreier plus," because it is similar to a bare-bones bill the California Republican introduced last year. As Rules chairman, Rep. Dreier decides which bills get to the House floor for a vote.
Observers expect Rep. Dreier to lie low for now, because as a House Republican leader he cannot appear to interfere with committee activities. But if Rep. LaFalce draws support from key committee Republicans such as Reps. Bill McCollum of Florida or Richard H. Baker of Louisiana, Rep. Dreier might put his weight behind the bill. "Chairman Dreier has some strong views on the subject, but we also want to respect the committee process," a Dreier aide said.
The Bankers Roundtable has asked former Rep. Steve Bartlett to be its next executive director, sources here said this week. The trade group had to switch to plan B last week after front-runner former Rep. Bill Paxon joined Akin, Gump, Strauss, Hauer & Feld law firm here.
Though Mr. Bartlett, a former House Banking Committee member who more recently served as mayor of Dallas, refused to comment directly, he talked like someone who plans to strengthen the Roundtable's image on Capitol Hill. "Whether it is me or someone else, what needs to happen is an enlightenment of the policymakers of the profound, beneficial role the large banks have in the American economy," Mr. Bartlett said. "Large banks in particular have allowed themselves to become targets instead of tooting their own horns."
House Banking Committee Republicans selected subcommittee chairmen last week. Rep. Spencer Bachus of Alabama becomes chairman of the domestic and international monetary policy panel. Rep. Peter King of New York will head oversight and investigations. Rep. Marge Roukema of New Jersey will lead the financial institutions subcommittee again, and Rep. Baker keeps capital markets and securities subcommittee. Rep. Rick Lazio of New York remains the chairman of the housing panel.
