Banks Move to Salvage Interstate Branching

But Impetus Grows for Narrow Bill

WASHINGTON -- Following the resounding defeat of comprehensive banking legislation in the House, the American Bankers Association and large banks continued to hold out hope Tuesday that a measure permitting interstate branching could be salvaged.

But momentum appeared to be building for a narrow bill that would do little more than recapitalize the deposit insurance fund.

Insurers Are Wild Card

Interstate branching is on the border line of being included in a narrow measure. The wild card is the role of the insurance lobby. As a tradeoff for backing branching, the insurance industry will insist on a rollback of the current powers banks have to sell insurance. Most observers believe Congress will listen to them.

"The bogey is interstate banking," said Marty Farmer, a lobbyist for Barnett Banks Inc., Jacksonville, Fla. "If interstate is in, the insurance agents get to play."

However, most banks would probably be unwilling to surrender insurance powers in order to gain branching rights.

In wake of the House's stunning 324-to-89 vote Monday rejecting comprehensive legislation, Banking Committee Chairman Henry B. Gonzalez, D-Tex., planned to begin work this morning on a narrow bill passed by a subcommittee last spring.

That bill, which was held back in case a broad package collapsed, would provide the insurance fund with $25 billion in new borrowing authority to deal with failed banks, and another $45 billion in working capital. It would also require early closure of troubled banks and least-cost resolutions of failed institutions.

Meanwhile the Senate was scheduled to take up a broad measure similar to the administration's proposal in the afternoon. However, a number of close observers said they expect the comprehensive package to bog down quickly.

"In general, a lot of senators have objections to the bill," said Gary Kohn, the Senate lobbyist for the Independent Bankers Association of America. "Some are concerned about the branching, some are concerned about mergers, antitrust implications, or tax issues. Some are opposed to lender liability provisions."

Of the roadblocks that lay ahead for the bill, the most critical was a vote scheduled for late Tuesday evening on a motion by Senate Majority Leader George Mitchell to limit debate. If the motion was rejected, Mr. Mitchell was expected to pull the banking bill.

Time Constraints

But even if the motion passed, the 30 hours of debate that would be in order would delay a final vote until next week, only two weeks before the likely adjournment day. With so little time, and with the strong negative vote in the House, many on Captiol Hill believe Congress will go for a small package out of necessity.

"Everyone was surprised and shocked" at how lopsided the vote was Monday, said J. Denis O'Toole, lobbyist for the U.S. League of Savings Institutions.

The atmosphere for banking legislation, he said, has been poisoned by the need to recapitalize the insurance fund. The banking industry, he said, "should back off its game plan for new products and services until the present environment improves."

In the House, one key player, Energy and Commerce Committee Chairman John D. Dingell, D-Mich., said after Monday evening's vote that he will not raise any objection to a narrow bill. But if the package gets into the area of bank powers, he said, his panel will insist on protections to ensure that "banks behave responsibly."

Any push for interstate branching will require dealing with the insurance lobby.

"The insurance industry showed enough clout to indicate they will have to be accommodated," said Rep. Barney Frank, a Massachusetts Democrat who voted against the bill Monday because he thought it imposed too many restrictions on banks.

Edward L. Yingling, chief lobbyist for the American Bankers Association, said he still believes it is possible to obtain a bill in the Senate that provides for interstate branching without insurance restrictions.

The ABA will work to strip out sections of the Senate bill that limit bank insurance and securities powers and set new requirements for banks to provide services to the poor.

If that can be done, he said, the ABA will support the rest of the bill, which contains authority for interstate branching. Bank of America, NCNB Corp., Chemical Bank, and Norwest Corp. were said to be lobbying heavily for that position.

Rep. Thomas R. Carper, D-Del., said he planned to sit down with the Independent Insurance Agents of America in hopes of reaching a compromise that would make it possible for banks to continue to market insurance products from his state.

His proposal, he said, follows the "opt out" compromise the House incorporated in an amendment on interstate branching. States that chose would be able to bar banks from marketing insurance within their borders from Delaware. In addition, Mr. Carper would prohibit banks from linking credit and insurance products.

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