In the movie "Groundhog's Day," Bill Murray was doomed to repeat the same sorry day over and over. As a former member of the House Banking Committee, that's the way I've begun to feel as I watch the same anticompetitive amendment by the insurance agents block yet another very fine banking bill.
Although never passed into law, similar amendments stopped ground- breaking Glass-Steagall bills in 1984, 1988, and 1991, as well as interstate branching bills in 1991 and 1992.
From my current vantage point as managing director of the ABA Securities Association - representing banking companies active in the securities business - this time around it's a particular shame. Why? Because the Glass-Steagall provisions in HR 2520, House Banking Chairman Jim Leach's recently introduced banking bill, constitute a dramatic improvement over the archaic restrictions of current law, and the most thoughtful and best- balanced Glass-Steagall bill ever to pass a congressional committee.
Chairman Leach is deserving of congratulations and thanks for steering a bipartisan bill through a mine field. That's not to say it's perfect, because it isn't, but it's a far better bill than many recent comments would suggest. Let me explain why.
*The bill would permit any bank securities affiliate to underwrite or deal in any type of security without any limits on the amount of such activities. That's far better than the arbitrary and unworkable 10% limit on "ineligible" securities that currently applies under regulatory interpretation of Section 20 of Glass-Steagall.
It also would mean that at least some types of banks and securities firms could become partners in one holding company.
*The bill also imposes specific "firewall" restrictions on transactions between a bank and its securities affiliate. But these firewalls, while rigorous, are much more reasonable and workable than those imposed by either the Federal Reserve under existing law or previous Glass-Steagall bills.
*Unlike current law and all previous Glass-Steagall proposals, this bill would permit companies affiliated with banks to engage in the type of merchant banking venture capital activities that are currently engaged in by all truly full-service investment banks.
*Today banks can affiliate only with companies engaged in activities that are "closely related to banking." The bill would permit bank holding companies to engage in all financial and incidental activities (except insurance, of course). That's a big change, especially since the bill specifically directs the Federal Reserve to take into account changes in the technology for the delivery of financial services - permitting much broader affiliations with telecommunications and information delivery companies.
All of these provisions in the bill are extremely positive. And although there are other provisions that impose new costs, for the most part the current proposal has been much better tailored than previous efforts to avoid the real-world problems caused by overly broad restrictions. As a result, these costs are more than outweighed by the benefits described above.
For example, previous bills somewhat arbitrarily pushed out a number of banking activities to the new securities affiliate, all in the name of "functional regulation." The new Leach bill does provide that certain securities activities should only be conducted in the new securities affiliate, but it also recognizes that many banking activities that may have some securities characteristics are most appropriately conducted in banks.
I believe these new provisions, although they could be improved (by permitting municipal revenue bond underwriting in the bank, for instance), represent a much more thoughtful, balanced, and two-sided view of "functional regulation."
Another criticism of the bill is that subsidiaries of banks would have far less power to engage in new securities activities than holding company affiliates of banks, thereby reducing business flexibility.
That's certainly true, and all things being equal, banking companies would like to have their flexibility. But all things are not equal. Subsidiaries of banks are extremely limited in the securities activities they can conduct today, and no previous bill granted substantial new securities powers to subsidiaries of banks.
It doesn't take a rocket scientist to know which is better for the financial services industry - no bill, or a bill that authorizes the full range of securities activities, but only in a holding company affiliate.
Finally, some have suggested that the bill does not go far enough to permit affiliations between banks and companies offering other financial services. True enough, but that's really part of the insurance problem I mentioned at the outset.
After all, it was the insurance agents who fought to strip out the provision in the bill (the so-called Baker amendment) that would have permitted broader affiliations with insurance and diversified companies. I believe that if you solve the insurance agent problem, you also go a long way toward solving the affiliation problem.
It's worth remembering that members of Congress finally decided last year that a compromise interstate banking bill was too important to our financial system to be held hostage by anticompetitive, protectionist insurance amendments. Glass-Steagall reform and financial services modernization is absolutely vital, so maybe this hostage crisis will soon be over too.
I hope so, because in the meantime, we're all still stuck in Groundhog's Day.
Mr. LaRocco, a former member of Congress and the House Banking Committee, is managing director of the ABA Securities Association.
