Bush Bill Passes Test, But Margin Only 3 to 2

WASHINGTON - The House Banking Committee voted Friday to approve the Bush administration's broad-ranging banking reform bill - but by a surprisingly narrow margin that suggested that at least some aspects of the legislation face further survival tests in Congress.

The committee supported the bill by 31 to 20, with 19 Democrats and 12 Republicans in favor. Twelve Democrats, seven Republicans, and Rep. Bernard Sanders, the Vermont independent, voted against it.

|The Bill Is Vulnerable'

"On the big issues, the bill is vulnerable," said Rep. Jim Leach, of Iowa, one of the Republicans who broke with the Bush administration to vote against the bill. Rep. Leach said provisions that would permit nonfinancial companies to own banks and allow banks to underwrite securities are particularly vulnerable.

"Any banking legislation with the word |deregulation' attached to its name has a lot of [members of Congress] wondering if it's going to come back in four or five years to bite them," said J. Denis O'Toole, chief lobbyist for the U.S. League of Savings Institutions.

Jerome Powell, assistant Treasury secretary for domestic finance, said he was pleased with the vote but declined to comment further.

Proponent Satisfied

Samuel Baptista, president of the Financial Services Council, a coalition of banks and other financial service companies that are among the bill's strongest proponents, said the three-to-two proportion of support is sufficient to maintain the bill's momentum.

The next stop for the measure will be the House Energy and Commerce Committee, where it is expected to get a tough and critical review. The panel's chairman, Rep. John D. Dingell, D-Mich., and a key subcommittee chairman, Rep. Edward J. Markey, D-Mass., have made clear they have serious misgivings about letting banks affiliate with investment banks and non-financial companies.

A key question is how the Energy and Commerce Committee's jurisdiction will be defined and how much time it will be given to consider the measure. Rep. Dingell is pressing for a lengthy review with few limits on what sections of the bill his panel can examine, and there is a growing belief he will get his way.

Rep. Markey has already scheduled a July 10 hearing on the measure for his telecommunications and finance subcommittee.

Restructuring Deferred

In its rush to approve the legislative package before a weeklong holiday break, the banking panel decided to defer action on restructuring the federal banking and thrift regulatory agencies. Before Friday, the committee had already voted for provisions allowing interstate banking insurance powers for banks, and ownership of banks by industrial and commercial enterprises.

In votes late Thursday and Friday, the panel agreed to maintain the existing system of deposit insurance for individuals. By 33-16, the committee defeated an amendment to restrict insurance to one $100,000 account per person per institution. And it voted down a two-account-per-institution limit by 29-20. The votes preserved a hard-fought subcommittee victory won by Rep. Carroll Hubbard, D-Ky.

The panel also Friday approved a measure sponsored by Rep. Mary Rose Oakar, D-Ohio, that continues pass-through insurance coverage for individuals on large accounts opened by pension funds.

On a vote particularly significant for the savings and loan industry, the panel agreed to broaden the qualified thrift lender test to include a larger basket of consumer loans, credit for Federal Home Loan Bank stock, and expanded credit for cash equivalent.

Thrift Standard

The QTL test enacted in the 1989 thrift-bailout law is to take effect today; it requires thrifts to hold 70% of assets in qualified loans: at least 55% in home mortgages and related loans and 15% in loans to consumers, hospitals, nursing homes, and similar facilities.

Under Friday's action, up to two-thirds of the 15% basket can be consumer loans, and liquid assets can be counted toward 10% of the QTL test.

"Since 1989, examiners have been saying to S&Ls that they want more liquidity," said the U.S. League's Mr. O'Toole. In addition, he said, thrifts believe they should not be penalized for holdings of Federal Home Loan Bank stock, which they are required to own and which is used to fund housing loans.

The industry was divided Friday on the impact of the bill passed by the banking panel.

Edward L. Yingling, chief lobbyist for the American Bankers Association, said his organization is "by and large pleased ... especially on the issue of deposit insurance reform." The Independent Bankers Association of America, often an ABA rival, also applauded the deposit insurance outcome.

On deposit insurance, Mr. Yingling said, the bill closely resembles the recommendations of an ABA task force, which urged Congress to end the too-big-to-fail doctrine and to shield the deposit insurance fund from the costs of large bank bailouts undertaken to avoid risk to the financial system.

But Kenneth Guenther, executive vice president of the IBAA, said, "There is nothing in this bill that helps community banks meet customer needs or continue to make a profit. There is a great deal in this bill that enhances the value of big banks, however."

Mr. Guenther, who opposed interstate branching authority and a number of other provisions, said he is confident both the House Energy and Commerce panel and the Senate Banking Committee will scale back the bill.

Lost Ground on Insurance

Bankers lost some ground on power to offer insurance products, both in small towns where federal law permits national banks to sell insurance, and through states like Delaware, which have laws permitting banks to open offices and market insurance nationwide.

"Our battle with the insurance agents is like World War I," said Mr. Yingling.

PHOTO : Rep. Mary Rose Oakar Kept pass-through coverage

PHOTO : Rep. Carroll Hubbard Preserved deposit insurance

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