Broad changes expected today from a House subcommittee would certainly turn the industry and the White House against the financial reform bill.
The House Commerce subcommittee on finance is expected to scale back powers for direct subsidiaries of banks, force more bank securities activities into holding company affiliates, and tighten restrictions on bank sales of insurance.
Lawmakers are also weighing tough consumer privacy protections that would force financial companies to lobby against the legislation.
"Based on those changes, we would oppose it," said Edward L. Yingling, chief lobbyist for the American Bankers Association. "I think that would be a consensus within the industry."
The banking, securities, and insurance industries have rallied around the compromise bill adopted March 11 by the House Banking Committee on a 51-to-8 vote. (Most financial firms also support the different version that the Senate adopted May 6 on a 54-to-44 vote.)
But the Commerce subcommittee is expected to reverse a deal House Banking brokered on bank subsidiaries. While the original bill would let banks underwrite securities and do merchant banking directly, House Commerce is expected to force these activities into holding company units.
President Clinton has threatened to veto any legislation curbing bank subsidiary powers.
On securities issues, the subcommittee is expected to force banks to move some derivative products sales and most private placement services to holding company units. The Securities and Exchange Commission would get more authority to define which new financial products are classified as securities for regulatory purposes.
On insurance sales, the subcommittee may further trim the legal bias toward federal regulators in court disputes with state insurance commissioners. Bank lobbyists also fear other measures shielding banks from state laws could be weakened.
Most of these anticipated changes are unsurprising, given the harsh criticism Commerce members have leveled against the Banking Committee bill. Industry lobbyists have vowed to try and reverse the panel's actions in the Rules Committee or on the House floor.
Privacy has become one of the bill's thorniest issues. Lawmakers increasingly worry that the diversified conglomerates envisioned under the bill would misuse private customer data.
Industry officials spent Wednesday lobbying hard against a tough amendment spearheaded by Rep. Edward J. Markey, D-Mass.
Under the Markey plan, financial services companies would have to get permission from customers before disclosing data to outside entities. Information could be shared among affiliates if customers are given a chance to opt out.
Six trade groups representing banking, insurance, and securities companies endorsed a watered-down alternative developed by the subcommittee's chairman, Rep. Michael G. Oxley, R-Ohio.
The Oxley plan would require financial firms to establish uniform policies governing the confidentiality and security of customer data and make them disclose their policies to consumers.
"Any efforts to go beyond the new and significant privacy protections of the Oxley amendment will have unintended consequences and will be strongly opposed," the groups wrote in a letter to Rep. Oxley on Wednesday.
The letter was signed by the Securities Industry Association, the American Council of Life Insurance, the Financial Services Council, the Investment Company Institute, the American Insurance Association, and the ABA.