ABA May Pull Support For a Major Overhaul

WASHINGTON - The Senate Banking Committee's version of comprehensive banking legislation is giving the American Bankers Association second thoughts on whether to support a legislative overhaul of the financial services industry.

Banking's largest trade group may withdraw its support for sweeping legislation following the panel's approval Friday of a bill that would not only restrict the insurance activities of banks but also require them to offer new services to the poor.

The ABA considers that measure far less satisfactory than one passed last month by the House Banking Committee.

Edward L. Yingling, the ABA's director of government relations, said that the bill's negative points may now outweigh the positives ones.

"If we are going to end up with [new] securities powers with tough firewalls and negatives on insurance in the House and Senate, then I believe bankers will say we are better off without a bill," Mr. Yingling said Monday.

He added that the ABA's leadership will begin assessing its position on the banking bill in the coming weeks, and will weigh carefully whether the gains on securities underwriting offset curbs on insurance activities and new regulatory burdens.

The industry's second-largest trade group, the Independent Bankers Association of America, already opposes comprehensive legislation.

The ABA may decide it has a better chance of meeting its objectives by continuing to seek changes in government regulations and state law, Mr. Yingling said.

Because of that alternative, the industry is unwilling to accept the same high price tags that it might have signed off on in the past to gain securities powers. In 1988, for example, the ABA supported a Senate bail that restricted insurance powers but expanded securities underwriting. That bill ultimately died.

Mounting Nonbank Support

Even if the ABA decides to oppose comprehensive legislation, a number of other powerful interest groups - including a number of insurance industry trade associations - are lining up behind the effort.

"We want the bill and we need a bill," said Paul Equale, chief lobbyist for the politically powerful Independent Insurance Agents of America.

Other groups, such as the U.S. League of Savings Institutions, were able to win on enough issues to have a stake in comprehensive legislation.

J. Denis O'Toole, the league's senior lobbyist, said the organization is pleased with the more liberal qualified thrift-lender test, language permitting charter conversions and the likely easing of treatment on purchased mortgage-servicing rights.

Thrift Industry Placated

"From the S&L's perspective, we received basically what we wanted," said Mr. O'Toole. "But a lot depends now on what the ABA does. We have to be prepared for the contingency that the ABA will want a narrow bill," and that the bank group has sufficient muscle to force Congress to scale back the bill.

The close votes in both the House and Senate Banking Committees - the bill cleared the Senate panel by a slim 12-9 margin - suggests that deep divisions exist on major issues.

And those differences are likely to become more pronounced when the bills hit the House and Senate floors, where members have serious misgivings about voting billions of dollars in loans to rescue the Bank Insurance Fund.

Floor Debates Due in Fall

The full Senate could take up the legislation in mid-September, while the House is unlikely to begin debate until October, after the Energy and Commerce Committee and other panels finish work.

On the committee, a number of members who voted against the bill argued that the legislation had become too permissive, that it "contains within it the seeds of its own destruction," as Sen. Paul Sarbanes, D-Md., said at the end of the three-day committee session.

Others, including Sen. Phil Gramm, R-Tex., voted against the bill because it did not go far enough. Mr. Gramm opposed restrictions on insurance activities and wanted to permit commercial and industrial firms to own banks.

Far-Reaching Legislation

While bankers were disappointed with the Senate bill, it would constitute the most far-reaching banking legislation in years - perhaps since the Depression - if it were enacted into law.

Treasury Secretary Nicholas Brady applauded the Senate action in reporting out comprehensive legislation, but said he was disappointed that the measure restricts "the existing authority of banks to engage in profitable, low-risk financial activities."

The measure reported out by the Senate panel provides $70 billion in borrowing authority to rescue the Federal Deposit Insurance Corp.'s Bank Insurance Fund, limits the too-big-to-fail doctrine and bars the FDIC, in most circumstances, from paying off foreign branch deposits.

Branching Provisions

It would also permit interstate bank branching, except in those states that choose to "opt out," and repeals the Glass-Steagall Act's separation of commercial and investment banking.

The bill also requires banks to offer low-income consumers a choice between government check-cashing services or limited feature "lifeline" accounts that could be used for bill paying and other purposes.

In addition, it includes the Truth in Savings Act, which sets uniform standards for disclosing terms and conditions of savings accounts, and the Fair Lending Enforcement Act, which is intended to combat mortgage loan discrimination.

The insurance provisions, however, are likely to arouse the most controversy within the banking industry.

Insurance Right Endangered

The panel, working from a draft bill proposed by banking committee Chairman Donald W. Riegle Jr., rejected on a 13-8 vote an amendment sponsored by Sen. William Roth, R-Del., that would have protected the right of Citicorp, Chase Manhattan Bank, and others, to underwrite and market insurance nationwide from his state.

Going further, the panel added a measure sponsored by Sen. Christopher Dodd, D-Conn., that would bar insurance companies affiliated with banks from marketing insurance in any state that does not permit banks to sell insurance directly.

Mr. Dodd, who has been the insurance industry's most reliable ally in the Senate, argued againt the Roth amendment by warning that insurance underwriting is a risky business in which the banks have no track record of experience.

"We have had 12 weeks of experience with banks underwriting insurance," he said, referring to the time that has passed since the courts ruled against a challenge to the Delaware law on bank insurance activities.

But Sen. Jake Garn disagreed.

"New England Savings Banks have been underwriting insurance for a long time and there's been no risk," he said. "This is just another example of the insurance industry being afraid of competition again."

Mr. Garn, a former independent insurance agent himself, said he has instructed his staff to begin drafting legislation that woudl repeal the McCarran-Ferguson Act the federal law responsible for the system of state regulation of insurance.

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