WASHINGTON -- After years of inaction and false starts, Congress appears poised to enact broad legislation restructuring the financial services industry.

The House Rules Committee is expected to meet today, and possibly tomorrow, to set the terms for debate on the bill, clearing the way for action later this week on the most sweeping bank reform measure to hit the House floor in decades.

But for many bankers, it is the wrong legislation.

"From our standpoint, this is an unmitigated disaster," said Sam Baptista, president of the Financial Services Council, a group of diversified firms that wants Congress to break down legal barriers governing bank affiliations and ownership.

The source of Mr. Baptista's dismay is a compromise hammered out by House Banking Committee Chairman Henry B. Gonzalez, D-Tex., and House Energy and Commerce Committee Chairman John D. Dingell, D-Mitch. The two chairmen have sparred for months over the jurisdictional bounds of their respective panels, and finally reached an accord late last week.

Under the compromise, the Glass-Steagall Act of 1933 -- the law that separates the investment and commercial banking industries -- would be repealed, a long-cherished goal of the banking industry's largest players. But in its place, the agreement erects "Chinese Walls" between banks and their securities affiliates, reducing the attractiveness of securities underwriting to commercial bankers.

Among other things, the plan would require banking firms to move all existing securities activities, with the exception of municipal general obligation bonds, out of insured banks and into bank subsidiaries or holding company affiliates.

The compromise was necessary because the banking and the energy and commerce panels this summer approved vastly different versions of reform legislation. The banking committee version would repeal Glass-Steagall and allow manufacturers and retailers to own banks, while the energy and commerce bill set out strict firewalls between banks and securities firms and would prohibit commercial ownership of banks.

Rep. Gonzalez and other banking committee members feared if Rep. Dingell's version received approval on the House floor, the House Banking Committee's jurisdiction would permanently and significantly be curtailed.

But the result, which squashes the securities ambitions of some banks and eliminates the prospects to expand insurance activities for all banks, is being viewed with alarm by the Bush administration.

Asserting that the United States "needs a comprehensive overhaul of its banking system that will strengthen our economy and allow us to compete effectively internationally," Treasury Secretary Nicholas F. Brady said last week the Gonzalez-Dingell compromise "turns back the clock, restricts competition, and protects special interests."

Rep. Gonzalez yesterday blasted the Treasury Department and bank lobbyists. In a floor statement, Rep. Gonzalez said Treasury officials and the American Bankers Association have lobbied heavily for a broad bill all year. Now that it appears they are not going to get exactly what they want, they want Congress to back off, he said. He added that the compromise legislation will ensure the nation does not see a repeat of the thrift debacle.

A House Banking Committee aide said the Gonzalez-Dingell accord puts the Treasury Department in a bind. Treasury officials have urged Congress to enact comprehensive legislation that both expands bank powers and recapitalizes the ailing Bank Insurance Fund.

Now that Congress appears ready to do just that, albeit on terms some bankers find unfavorable, the Treasury is besieged by upset bankers who are now pushing for a narrower bill that would allow interstate banking and recapitalize the insurance fund.

But some bank lobbyists say the industry is to blame for the current state of affairs. "Big banks have finally seen the light," said Gary Kohn, a lobbyist for the Independent Bankers Association of America, a trade group that has opposed broad new banking powers. "But they've come to dance when the last card had already been passed out."

He said the bill "has gained a real head of steam" and may be difficult to stop. Consequently, his trade group is girding itself for a battle to remove the interstate banking provisions from the bill and hopes to head off an expected onslaught against continued insurance coverage for multiple bank accounts.

Taking a minority view, one lobbyist said the compromise "is not as bad as it seems on its face." He said that although the agreement left towering barriers between banks and their securities affiliates, the deal did ensure the Securities and Exchange Commission would not become a de facto bank regulator.

"The only thing the SEC can do is regulate the securities subsidiary," the lobbyist said. "How can we object to that? We've been asking for years for functional regulation." The lobbyist added that most of the substantive issues raised by the legislation will have to be addressed by a House-Senate conference, where President Bush could bring his veto power to play.

Recalling the debate over the thrift bailout legislation in 1989, the lobbyist said the big question was whether the borrowing needed to fund the thrift rescue would be recorded on-budget or would be handled with off-budget borrowing. "Bush wrote a letter and said that if was not off-budget, the bill would get a big fat veto," the lobbyist said.

Others are less sanguine. "I think that at this point, if things stay on the track they're on, it will just get worse as it moves through conference," Mr. Baptista said.

Mr. Baptista said he is particularly concerned about the timing of congressional action. He said an expected conference between House and Senate negotiators may not complete action until the last week of the congressional session. "Then they'd write the conference report and just vote on it and people wouldn't know what's in it," he said.

Though there are more questions than answers at this point, one thing appears clear: With House action expected this week, and a vote possible on companion legislation in the Senate, Congress appears serious about resolving the bank powers issue.

"There'll be a lot of tricks, but I don't know how many treats," summed up Mr. Kohn.

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