House Republican leaders have reached a compromise that is expected to clear the way for passage next week of financial reform legislation.
The deal would grant broad powers to direct bank subsidiaries, let the Federal Reserve Board decide whether commercial firms may buy unitary thrifts, make some concessions to insurance agents, and give the Securities and Exchange Commission more oversight of bank securities activities.
Many details remain murky-particularly on the controversial issue of privacy-but most banking, insurance, and securities lobbyists were upbeat about the legislation's being back on track.
"We are cautiously optimistic that this bill could go to the floor, we could support it, and it would pass," said Edward L. Yingling, chief lobbyist for the American Bankers Association.
The House Rules Committee is expected to bless the compromise, crafted by the chairmen of the Banking and Commerce committees, and make further refinements early next week before sending it to the full House by Thursday.
To avoid a presidential veto, the bill would let direct bank subsidiaries underwrite securities and do merchant banking. But Commerce Chairman Thomas J. Bliley Jr. and Rep. John D. Dingell, the panel's ranking Democrat, are expected to offer an amendment that would require these activities to be conducted in holding company affiliates.
On privacy, House Republican leaders appear to be leaning toward the financial services industry's position.
Rep. Martin Frost, D-Texas, and Rep. Deborah Pryce, R-Ohio, were reportedly close to a deal that would let customers block information from being shared with a third party for marketing purposes. Financial companies would be banned from giving account numbers to a telemarketer, but they could freely exchange information among affiliates.
Banking and other lobbyists have balked at stricter measures sought by Rep. Edward J. Markey that would let customers block most information- sharing with third parties or affiliates. A spokesman for the Massachusetts Democrat said he objects to such a deal and fears that House Republicans will bar any tougher privacy amendments.
"We think what they are proposing provides no meaningful privacy protection and that it is a sham and a fig leaf," the Markey spokesman said. "We will continue the fight. We would strongly oppose a gag rule that would prevent a meaningful debate on privacy."
The privacy deal also is expected to include uncontroversial measures such as mandatory disclosure of privacy policies, confidentiality of medical records unless customers approve their release, and criminal penalties for fraudulently obtaining customer information from a bank.
To quell another controversy, House Banking Chairman Jim Leach offered to let the Federal Reserve decide whether commercial companies such as Microsoft Corp. could purchase grandfathered unitary thrifts.
Kenneth A. Guenther, executive vice president of the Independent Community Bankers of America, called the Leach proposal "a qualified victory for the banking lobby," which favored an outright ban. But ABA's Mr. Yingling and thrift lobbyists withheld final judgment because questions remain on the details.
Rep. Leach also made some concessions to insurance agents, but only grudgingly, under pressure from the House leadership.
In a letter Wednesday to executive vice president Robert A. Rusbuldt of the Independent Insurance Agents of America, the Iowa Republican blasted that association for making excessive demands, breaking its word on a previous deal, and exaggerating the threat from banks.
"It appears you are attempting to re-ignite a fire which common sense indicates should be allowed quietly to die out and which legislative principle assumes has been resolved in past negotiations," Rep. Leach wrote.
The compromise clarifies that state insurance commissioners would have authority over bank sales of insurance from towns with populations below 5,000.
Wary bank lobbyists are trying to figure out the significance of that addition. "We oppose that language because it looks like an attempted end- run on the Barnett (Supreme Court) decision" that opened up bank insurance sales, said Larry LaRocco, managing director of the ABA Insurance Association.
The deal also preserves a Commerce Committee provision that would let state insurance commissioners review the acquisition of insurance companies if questions arise about solvency or management.
On securities, the SEC could decide whether new financial products are securities, but would have to consult with bank regulators. Banks would have to sell these securities products through SEC-regulated holding company units.