Rekindling controversy, several key lawmakers want financial reform legislation to let banks and commercial businesses own each other.

The ban on mixing banking and commerce was one of the principal bipartisan compromises that helped propel reform legislation last year. But the bill's failure late in the session and the convening of a new Congress this month have given life to an issue that crosses party lines and divides industry players and regulators.

"The debate will be renewed," Rep. Marge Roukema, chairwoman of the House Banking Committee's financial institutions subcommittee, vowed in an interview Thursday. "I am going to make that my No. 1 priority," the New Jersey Republican said.

Yet supporters-who contend that commercial businesses would bolster, not threaten, the health of sister banks-fear the issue could jeopardize the broader bill to restructure the financial services industry.

"We support the broadest affiliations possible," said Samuel J. Baptista, president of the Financial Services Council. "Having said that, you also have to be pragmatic."

Senate Banking Committee Chairman Phil Gramm buoyed the hopes of proponents Tuesday when he announced that he favors letting commercial companies own banks or thrifts.

"If General Motors wants to own a bank charter, my guess is General Motors would be a stable owner and they've got substantial financial assets ... that could make deposits safer," the Texas Republican said.

The diversified income streams of commercial companies saved numerous troubled thrift subsidiaries in the 1980s, Sen. Gramm said.

Others back more modest alternatives. Both Rep. Roukema and Rep. John J. LaFalce, the ranking Democrat on House Banking, are in favor of allowing bank holding companies to gain a limited amount of revenue from nonfinancial activities.

Rep. Roukema has proposed a 10% to 15% revenue cap, provided the law also creates proper safety and soundness regulations. Without this leeway, she argued, banks will not be able to compete with unitary thrifts and foreign banks such as Deutsche Bank of Germany, which owns 12.1% of DaimlerChrysler A.G.

Rep. LaFalce circulated draft legislation this week that would cap nonfinancial activities at 15% of annual gross revenue. Bank holding companies could only buy nonfinancial firms with assets below $750 million under his plan.

These lawmakers are backed by the Treasury Department but face adamant opponents. Sen. Paul S. Sarbanes, Senate Banking's ranking Democrat, House Banking Committee Chairman Jim Leach, and Federal Reserve Board Chairman Alan Greenspan oppose such concentrations of economic power.

"That would be a killer issue for Sarbanes and a lot of other Democrats," a Capitol Hill source said.

Lobbyists noted Sen. Gramm's compromising tone and said he may be resurrecting the issue to use as a bargaining chip.

"There are other people who have very strong feelings on the other side of the issue," Sen. Gramm said. "I am going to sit down and listen to them and try to put together a bipartisan bill."

A spokesman for Rep. Leach said the Iowa Republican will fight hard to defend the ban, including barring the sale of unitary thrifts to commercial companies.

The small-bank lobby fervently backs Sen. Sarbanes and Rep. Leach. "The Asian crisis underscores that ownership ties between commercial firms and banks led to crony capitalism," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America. "We should learn our lessons from what happened in Asia."

But many large financial companies already own financial businesses, Mr. Baptista noted. For instance, American Express Co. would be forced to sell Food & Wine and Travel & Leisure magazines.

A compromise may lie in broadening the definition of financial activities to include complementary services, such as magazines for credit card customers, or new products created by technological advances, Mr. Baptista said.

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