Bankers Blast Reform BillA pproved in Subcommittee

Beating long odds, a key House Commerce subcommittee on Friday approved legislation that would overhaul the nation's financial laws.

The bill, which would allow mergers among banks and securities and insurance firms, is slated for a House Commerce Committee vote Wednesday. While committee approval is expected, chances are slim that the measure can make it to the House floor before Congress' scheduled adjournment Nov. 7.

The insurance and securities lobbies continued to back the bill Friday while the banking industry blasted it. Top among bankers' concerns: Federal regulators would be stripped of their power to preempt state insurance rules.

The industry also objects to provisions limiting bank operating subsidiaries, restricting securities work by trust departments, and exempting rivals from Federal Reserve Board supervision.

Rep. Michael Oxley, chairman of the Commerce Committee's finance subcommittee, told reporters after the 23-to-2 vote that lawmakers want to work out a deal with the banking industry.

"The banks are going to end up fine," he said. "They just need to be a little patient."

Independent lobbyist Richard F. Hohlt said banks and thrifts must turn up the heat to prevail over the securities and insurance industries. "Somebody in the Republican leadership needs be convinced there's going to be a war if they bring this to the floor," he said.

But American Bankers Association lobbyist Edward L. Yingling predicted "the odds are significantly against" the bill.

Only two amendments to Rep. Oxley's plan were approved Friday.

First, the panel stripped out provisions that would have allowed Federal Home Loan Bank members to use advances for small-business, economic development, and agricultural loans.

Lawmakers argued that the system's lending capabilities should not be expanded as long as securities issued by the Home Loan banks are exempt from registration with the Securities and Exchange Commission.

The Independent Bankers Association of America bitterly criticized the move. "The Federal Home Loan Bank reforms are one of few things in the bill we strongly supported," said IBAA lobbyist Ron Ence. "Taking those provisions out makes our opposition even stronger."

The second amendment would let bank holding companies add insurance, investment advisory, securities underwriting, and travel agency affiliates without Federal Reserve approval.

Reaction to Friday's votes varied wildly.

House Banking Committee Chairman Jim Leach, who has aggressively pressed for House passage this year, praised Rep. Oxley for keeping the bill alive. "While I differ with several of the substantive approaches taken, I am pleased that the process is moving forward," the Iowa Republican said.

Treasury Under Secretary John D. Hawke Jr. also praised Commerce Committee members for passing the legislation, but complained that plans to eliminate the thrift charter and forbid mergers between banks and nonfinancial firms are "unacceptable and inconsistent with modernization."

Paul A. Schosberg, president of America's Community Bankers, the thrift trade group, echoed that argument. "This bill is a step backward for the entire banking industry," he said. "Any resemblance between this bill and financial modernization is accidental."

However, David J. Pratt, lobbyist for the American Insurance Association, called the bill "fundamentally sound."

And in a joint statement, Merrill Lynch & Co. chairman David H. Komansky and president and chief operating officer Herbert M. Allison Jr. called the vote a "critical step" in keeping the United States competitive in world markets.

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