It's probably safe to say that bank executives are overwhelmingly Republican. It's also safe to say they are appalled, understandably so, by the recent behavior of the Republican leadership in the House of Representatives.

The Republican takeover of Congress was a seismic event that sent waves of hope through the banking industry. The Clinton administration had already been espousing procompetitive reforms of the financial system. With the Republicans winning the Congress by pledging to reduce the intrusiveness of government, it seemed relief was just around the corner.

Things began on a positive note. The administration proposed significant deregulation of the financial industry. Sen. Alfonse D'Amato, chairman of the Senate Banking Committee, proposed even more sweeping reforms, including repeal of the Bank Holding Company Act.

Rep. Jim Leach, chairman of the House Banking Committee, while much more tentative, was willing to proceed with partial repeal of the Depression-era Glass-Steagall Act. Moreover, he was willing to move forward with separate legislation to curtail a variety of exceedingly burdensome regulations imposed on banks.

The Leach Glass-Steagall bill did not include language breaking down the barriers between the banking and insurance industries. Rep. Leach had cut a deal with Rep. Tom Bliley, chairman of the House Commerce Committee, that the bill would be neutral on insurance issues.

Rep. Leach's Glass-Steagall bill was approved by the House Banking Committee.

At this point, Rep. Leach and Rep. Bliley received a "helping hand" from Rep. Gerald Solomon, chairman of the Rules Committee and a former insurance agent, and House Speaker Newt Gingrich.

They devised a strategy to circumvent the deal Leach and Bliley had cut to keep the Glass-Steagall bill neutral on insurance issues. They would attach to the regulatory relief bill a provision limiting the ability of the Comptroller of the Currency to authorize new insurance activities for national banks. Then they would merge the Glass-Steagall and regulatory relief bills when they came to the floor.

I assumed, naively it appears, that when the Republicans won control of the Congress the game would change in Washington, not just the names of the players. The Republicans campaigned on a platform to restore credibility to government. Instead, they made a deal to keep Glass-Steagall neutral on insurance issues and then attempted a backroom maneuver to sprinkle favors on the insurance agents at the expense of the banks and the public.

The Republicans campaigned on a platform to get government off the backs of the American people. Presented the opportunity to enact two very significant bills to do just that, they opted instead to benefit a special interest group.

They tried, to be sure, to make their backroom deal sound principled. They talked about returning to the states the authority to regulate bank insurance activities. One problem with their argument is that national banks were given their authority by the party of Lincoln in 1863, not by the Democrats in 1963.

The other problem with their argument is that they don't mean it. Rep. Richard Baker, one of the smartest and most intellectually honest members of the House, offered an amendment to allow banks and insurance companies to affiliate in any state that permits such affiliations. The amendment was approved by the House Banking Committee to the extreme annoyance of the Republican leaders, who apparently want the states to have only certain rights.

The two bills in the House - Glass-Steagall reform and regulatory relief - represent much-needed, long-overdue reforms. Together, they will relieve some of the excessive government regulation on an over-burdened industry. They will serve the public interest by lowering costs and promoting competition.

These bills, absent the shenanigans of the Republican leadership, have nothing to do with the insurance industry. They neither encroach on nor enlarge its turf.

If the insurance agents want to take on the banking industry, let them do it in a straight-up, one-on-one battle. Let each side tell its story, and see who comes out the winner. Whatever the outcome, the real winners will be the American people.

Mr. Isaac, a former chairman of the Federal Deposit Insurance Corp., is chairman and chief executive officer of Secura Group, a financial services consulting firm based in Washington.

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.