Senate Banking Committee Chairman Alfonse M. D'Amato Wednesday criticized Comptroller of the Currency Eugene A. Ludwig's decision to let banks enter new businesses through subsidiaries.
"In addition to being unwise, the comptroller's action is ill-timed," he said in a prepared statement. The decision will detract from the "emerging consensus in favor of comprehensive reform," he said, and "can only lead to controversy and protracted litigation."
Sen. D'Amato's warning was echoed by insurance and securities trade groups, which complained that banks now wouldn't need to support reform legislation next year.
"Why in the world would banks want to come to Congress and ask for change?" asked Phil Anderson, director of federal affairs for the Independent Insurance Agents of America.
Marc Lackritz, a lobbyist for the Securities Industry Association agreed. "What do the banks need anymore?"
Treasury Under Secretary John D. Hawke Jr. countered that worries about the new rule were a "serious misjudgment." Rather than hurting bank competitors, the rule will generate support for a broader bill that would let securities and insurance firms own banks, he said.
James D. McLaughlin, director of regulatory and trust affairs for the American Bankers Association, denied that the industry would try to block financial modernization legislation. "This does not reduce the banking industry's ardor for getting legislation passed," he said.
"The Glass-Steagall Act still prohibits banks from being affiliated with firms engaged principally in underwriting of securities," he said. "That still restricts the industry."
Sen. D'Amato declared that financial modernization is now more urgent than ever because deposit insurance funds are at greater risk.
"I am deeply troubled and concerned that the Comptroller of the Currency's action may subject federally insured banks to excessive risks," he said. "Congress can never forget the lessons of the savings and loan crisis."
Rep. Charles Schumer, D-N.Y., of the House Banking Committee said the Comptroller's Office had overstepped its bounds. "These are issues that only the Congress should decide in the full light of open debate," he said.
House Banking Committee Chairman Jim Leach, on the other hand, was surprisingly moderate in his response. He pledged "an open mind" when reviewing the agency decision. The Iowa Republican said it is too early to tell whether the plan would retard more comprehensive legislation.