Senate Move On Reg Relief Should Be A Good Sign

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The Senate signaled its intentions last week to begin the process of crafting a regulatory relief bill with a solicitation to NCUA and the banking regulators for their recommendations on what should be included in such a package.

This is a good sign for the credit union lobby and the bankers who have been waiting for the Senate, as a separate version has been making its way through the House. Still, lobbyists are trying to divine the intentions of Senate Banking Committee Chairman Richard Shelby, the Alabama Republican whose support is critical to the regulatory relief initiative. While the Senate could have simply taken up the House's version of the bill and worked from that, it was widely assumed that Sen. Shelby and his colleagues would want to work with their own version.

Shelby has been a supporter of regulatory relief even prior to ascending to the committee chair upon last year's retirement of Phil Gramm of Texas. But Shelby has made it clear that he has other priorities, like enhancing protections on consumer privacy, which he may seek to include in a regulatory relief bill.

In a letter to NCUA Chairman Dennis Dollar, Shelby asked that NCUA provide him with a list of regulatory relief priorities by June 30. That means that Shelby's staff probably will not introduce a bill until September.

Meantime, the House version of the bill, which skated through easily in the last Congress, appears to be stuck over the issue of Industrial Loan Companies, the hybrid banks that have opened the door to banking for certain non-bank companies, like Sears, Volvo and Volkswagen, and have raised the specter of commercial giants like Wal-Mart entering the banking business (CU Journal, June 2).

Utah, where the controversy over credit unions continues to brew, has become the hotbed of ILCs, and more than 30 entities have obtained state ILC charters under the state's 1997 enabling legislation. Among them are financial services giants Bear Stearns, Morgan Stanley and Merrill Lynch, which claims an ILC with a staggering $63 billion in assets, almost four times the size of the largest credit union, Navy Federal. So many of these entities are of significant size and power to compete with traditional banks and credit unions.

Several members of the House Financial Services Committee made it clear during the committee's vote on the bill they will not support a final version when it gets to the floor of the House if it includes provisions expanding the ability of ILCs to branch interstate. One of the chief opponents is Rep. Jim Leach, who as chair of the House Banking Committee, helped ensure that the now-titled Gramm-Leach-Bliley Act included separations of commerce and banking.

Leach's position is backed by the Federal Reserve Board, which has no jurisdiction over ILCs, as it does over all other bank holding companies.

Because of the emergence of these so-called "back-door banks" as competitors in financial services, several lawmakers have sought to enlist the credit union lobby in an effort to rein them in, or at least oppose the initiatives to expand their powers. So far, the credit unions have been reluctant to join the opposition, concentrating instead on their own efforts to expand credit union powers through the reg relief bill.

To oppose provisions aiding other entities could come off as hypocritical, worry some credit union lobbyists.

The controversy is a good example of how the market reacts to congressional action, or, in some cases, inaction. Because Gramm-Leach-Bliley purported to continue the traditional ban on commercial entities entering into banking, clever companies were able to find ways to skirt the ban. This happens all the time, especially in an industry as dynamic as banking and financial services, which is usually far ahead of the slow-moving deliberations of Congress.

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