Congress risks losing control over mergers of banks and commercial firms if lawmakers fail to set concrete rules soon, a senior Democratic lawmaker warned Tuesday.

Rep. Barney Frank said during a House Banking Committee hearing that cross-industry mergers are likely to continue no matter what Congress does and criticized the Clinton administration for not taking a firm stand.

"We may be creating more problems for ourselves 10 years down the road," the Massachusetts Democrat said.

Some other key lawmakers joined Rep. Frank in criticizing the administration's financial reform proposal, which was presented at the hearing by Treasury Secretary Robert E. Rubin.

The proposal, first aired last week, recommends full-scale integration of financial services companies and offers two choices for cross-industry mergers: allow all banks to invest in a limited amount of nonfinancial business or preserve the current system, which lets commercial firms enter banking only through unitary thrift holding companies.

Rep. Richard Baker, who wants to let banks merge with all but the most risky businesses, said the administration has shirked its responsibilities by not taking a firm stand on banking and commerce.

"We really need your leadership on this issue," the Louisiana Republican said.

Rep. Bruce Vento, D-Minn., called Treasury's approach "confusing."

"The multiple choice recommendations leave the impression that the Secretary of the Treasury has no position or view with regards to policy matters," he said.

Rep. Frank said companies will find loopholes to get around the current restrictions if Congress does nothing on banking and commerce.

"Obviously there were forces that led to the integration of securities and insurance with banks despite laws that appeared to say no," Rep. Frank said.

"There are real limits to the extent to which we could stop the market if we wanted to," he noted.

The industry will be saddled with "less sensible regulation" if Congress fails to recognize that nonfinancial firms also will find ways to affiliate with banks, he said.

Mr. Rubin declined to respond directly to the lawmakers' charges, saying Congress must decide whether to let banks and commercial firms combine.

"The issue of banking and commerce has important cultural and social implications that are best debated by Congress," he said.

Mr. Rubin noted that the administration bill would allow mergers among financial firms, which would benefit small banks. "This will allow them to offer more products and be more competitive," he said.

Rep. Doug Bereuter, R-Neb., questioned a proposal that would eliminate two of five board seats at the Federal Deposit Insurance Corp.

Under Treasury's plan, the Comptroller of the Currency would become the FDIC's vice chairman. That means the comptroller would become acting FDIC chairman when the agency's top seat is vacant.

"Would it be more sensible," Rep. Bereuter asked, "when there's an acting chairman, if the FDIC had an independent chair?"

Treasury Under Secretary John D. Hawke, also at the hearing, noted that before 1989 the comptroller served as acting FDIC chairman whenever there was a vacancy at the agency's helm.

Rep. Ken Bentsen, D-Texas, said a Treasury proposal to subject bank securities operations to more supervision by the Securities and Exchange Commission was too soft.

The Treasury plan would place all bank brokerage operations under SEC oversight, except for sales of municipal and U.S. government bonds.

"I have concerns that you're not bringing the SEC in enough," he said.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.