With House Banking Committee Chairman Jim Leach's version of Glass- Steagall reform apparently going nowhere, some people on Capitol Hill believe Congress needs to try something much bolder.
"Now, given the fact that Rep. Leach's approach has failed, I think it's time to look again at breaking down the wall between banking and commerce," said Robert J. Giuffra Jr., chief counsel to the Senate Banking Committee. "Microsoft is trying to get into the financial services industry - why shouldn't they be able to own a bank?"
Mr. Giuffra's boss, Senate Banking Committee Chairman Alfonse M. D'Amato, introduced legislation early this year that would allow just that. But Sen. D'Amato, R-N.Y., has not pushed it, waiting instead for the House to finish its attempt at reforming the Depression-era laws that keep commercial banks out of the securities business.
The House version of Sen. D'Amato's bill, sponsored by Rep. Richard Baker, R-La., went nowhere this year. But Mr. Baker's top aide, who joined Mr. Giuffra on the panel of a Practising Law Institute conference in New York Monday, agreed that over the long run the barriers between banks and commerce must fall.
Such barriers are already disappearing in the "real world" of business, said Brian Gardner, Rep. Baker's staff director and counsel. "The question is, is Congress going to wake up and recognize that?"
The reform legislation sponsored by Rep. Leach, R-Iowa, would let banks into the securities business, but would not let them affiliate with insurance companies, manufacturers, or other businesses. The bill, which has cleared the Banking Committee but has not made it to the House floor, also would increase the supervisory role of the Federal Reserve System.
"The Fed wrote the Leach bill by and large," Mr. Gardner said. "You could go into the staff room of the Banking Committee any night in January and February ... and there would be senior counsel from the Federal Reserve Board in Mr. Leach's office writing the bill."
In fact, Fed Chairman Alan Greenspan weighed in Monday with strong support for the bill. "These are important and needed improvements in the federal banking laws," Mr. Greenspan wrote in a letter to Rep. Leach. "It is becoming ever more critical that Congress begin the process of implementing changes in the Glass-Steagall Act."
Some at the conference praised the Leach bill as well. "I was particularly enamored of the so-called Leach bill," said E. Gerald Corrigan, the former Federal Reserve Bank of New York president who is now chairman of the international advisors division of the securities firm Goldman, Sachs & Co. "I by and large thought that bill was one of the better bills that had come along in recent years."
Mr. Gardner said insurance agents, and their influence with House leaders such as Speaker Newt Gingrich, had been the main stumbling block to banking reform. But the agents' days are numbered, he declared.
"Technology is passing them by," Mr. Gardner said, describing how Rep. Baker is in the midst of shopping for an insurance policy over the Internet - bypassing agents and going directly to the underwriters. And while the insurance agents are able to muster large numbers to lobby Congress, he asserted, banks can have a similar impact if their employees and not just their presidents send letters to Capitol Hill.
More immediately, Mr. Gardner said, Rep. Gingrich's influence is waning: "He is not the invincible figure that he was at the beginning of this Congress."
Mr. Giuffra said a broader debate over bank powers may ensue when Congress gets around to deciding what to do with the federal thrift charter. "It's possible you could have Glass-Steagall reform through the back door of the charter conversion process," he said.
Mr. Gardner said his boss had received encouragement in his efforts to break down the limits on commercial banks from Mr. Greenspan. According to Mr. Gardner, Mr. Greenspan told Mr. Baker over breakfast recently that "it is only a matter of time" before the D'Amato-Baker approach prevails.
In his letter, Mr. Greenspan does hint that more could be accomplished than what's proposed by Rep. Leach. But the central banker said the current bill is a good start.
"While further changes in the banking laws may also be desirable, we should be careful not to make the very good a casualty of the search for the perfect," Mr. Greenspan wrote. "Further reforms can be made as the need arises and a consensus for action can be built."