WASHINGTON -- With little fanfare, the Senate yesterday killed the provisions of the pending bank reform legislation that would have allowed banks into the securities business.
The action, which came on a voice vote while only two members were present on the Senate floor, virtually ensures no action will be taken this year to break down Glass-Steagall Act barriers between investment and commercial banking.
Sen. Jake Garn of Utah, the ranking Republican on the Senate Banking Committee, joined with committee Chairman Donald W. Riegle Jr., D-Mich., in offering the amendment.
Both senators expressed disappointment with the vote, but, as Sen. Garn put it, "We're simply recognizing reality."
Many lawmakers have said it is folly to expand bank powers at a time when many banks are failing because they cannot handle existing responsibilities.
One of the major elements of the pending legislation is a recapitalization of the Federal Deposit Insurance Corp.'s Bank Insurance Fund.
The legislation would allow the insurance fund to borrow $70 billion, $30 billion of which would be used to cover losses at failed banks.
The remainder of the money would be used as working capital, which is needed to maintain and hold assets acquired from failed banks until they can be sold back into the private sector.
"In the future, this body will be dealing with additional bailouts," said Sen. Garn, a leading proponent of granting banks braoder powers. "We'll have to come up with more money wheather we like it or not. But the way to minimize the cost is to pass a comprehensive reform bill."
Sen. Garn said that, rather than protecting banks and taxpayers from failures, Congress only will exacerbate the banking industry's woes becasue of its inability to overhaul the financial services industry.
Noting that he has labored on bank reform legislation for the 17 years he has been in the Senate, Sen. Garn said that the industry's current problems are "the price [that must be paid] for the failure of Congress" to deal with the issue.
"It's a sad commentary on Congress," he said. "Once again, the Congress of the United States will fail to responsibly conduct public policy."
Sen. Riegle said it "may well be" that Congress will return to the Glass-Steagall issue before the end of 1992.
"It's hard to say," he said. "But there will come a time when we have to deal with this issue."
The Michigan Democraft said Glass-Steagall's prohibitions on bank involvement in the securities business have been breached already.
For example, the Federal Reserve Board since 1987 has allowed about 30 banks to establish subsidiaries empowered to underwrite, to a limited extent, bank-ineligible securities.
Sen. Riegle said that because of the Fed's action, it is essential that Congress establish a regulatory framework that ensures that bank will be insulated adequately from the risks of securities underwriting.