Congress moved closer Thursday to letting the Postal Service create a for-profit subsidiary that some banks fear could become a financial services competitor.

On a voice vote, House Government Reform's Postal Service subcommittee approved a bill that would let the agency form USPS Corp.

The company could offer a virtually unlimited array of nontraditional products, including financial services.

Supporters of the legislation have been trying to allay bankers' fears.

Thomas J. Edwards, chief government liaison at the Postal Service, said the agency does not expect the new firm to expand beyond its existing bank- like services, which include money orders and bill remittance.

John M. McHugh, R-N.Y., chairman of the subcommittee and the bill's sponsor, said the legislation would offer banks more protection from Postal Service competition, not less.

In a letter to the American Bankers Association this week, Rep. McHugh said the Postal Service is using "its government status and $60 billion revenue stream" to subsidize nonpostal products. Under the bill, he wrote, such products would be housed in a private subsidiary cut off from government funding.

Despite such reassurances, bank trade groups and some lawmakers remain alarmed. At least one subcommittee member, Rep. Steven C. LaTourette, R- Ohio, is planning to offer an amendment that would delete all references to the for-profit subsidiary. He expects to introduce the amendment when the full committee begins debating the bill, possibly in May or June.

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