A chorus of critics is knocking the proposed National Council on Financial Services as bureaucratic, toothless, and inherently biased.

The financial reform bill passed last week by the House Banking Committee calls for creation of the 10-member council, an umbrella group led by the secretary of the Treasury that is intended to harmonize the activities of financial services regulators.

Although backed by the Treasury Department and House Banking, the council has few fans in the banking and insurance industries.

Bankers contend that what was conceived as a coordinating committee has been given too much power, said Edward L. Yingling, chief lobbyist at the American Bankers Association. "It was originally thought of as a slick racehorse," he said, "but at this point it has become a huge, three-humped camel."

Some government officials have doubts, too.

House Banking Chairman Jim Leach, R-Iowa, questioned whether regulators need the council, which could be cumbersome and confusing.

"I have reservations about the council and would try to remove this from the bill on the House floor," Mr. Leach said.

Securities and Exchange Commission Chairman Arthur Levitt, who would sit on the council, told Congress in May that such a body "removes decision- making from the hands of the expert regulator and slows down the decision- making process."

But the Securities Industry Association believes the committee could play a valuable role as the equalizer among regulators, preventing the Federal Reserve Board from exercising too much control over financial services holding companies, association lobbyist Steve Judge said.

Rep. Marge Roukema, R-N.J., a Banking Committee member, defended the council as an essential bridge between the Fed as the lead regulator of holding companies and functional securities and insurance regulators.

"It is necessary if you are going to try to relate the different aspects of regulation," she said.

Under the legislation, the council would define which activities are financial and the method for calculating gross revenues-both important in enforcing limits on mixing banking and commerce.

To protect consumers, the council could impose additional restrictions between banks and their affiliates and subsidiaries. For instance, the council might bar a bank from making a loan to a company at the same time a securities affiliate underwrites debt issued by that company.

Bankers balk at the proposed council's authority to determine which activities or products are banking and which are insurance. Bankers argue that authority would rob the Office of the Comptroller of the Currency of its ability to expand national bank powers and to determine which products banks may sell.

Under a two-step process, state insurance regulators could challenge the comptroller's rulings made after Jan. 1. The Fed would screen for substantive complaints, and the council would decide whether the specified product is insurance. Decisions could be appealed to the federal courts.

Gary E. Hughes, chief counsel of the American Council of Life Insurance, called the bankers' protests "much ado about nothing." The council could not bar banks from the insurance field but would decide when they must comply with state insurance regulation, he said. "We don't think it is going to be used very often," Mr. Hughes added.

The OCC, according to a June 24 memo prepared for Comptroller Eugene A. Ludwig, believes the council would "severely undercut" its governing of national banks. (See story, page 2.)

The National Association of Insurance Commissioners, in a June 17 letter to House Banking members, complained that states also would cede too much power to the council.

Delegating to the council "almost carte blanche authority" to preempt state insurance laws "is of great concern," George Nichols 2d, Kentucky's commissioner of insurance, wrote on NAIC's behalf.

Whether the council can adequately enforce its decisions is uncertain. Rep. Roukema said the bill clearly states the council's actions would be binding on the agencies. Others contend too many disputes will end up in federal courts.

"It doesn't appear to me that it has any power more than moral suasion," said Edward E. Furash, chief executive of the financial services consulting firm Furash & Co.

The composition of the council has raised charges of unfairness from many quarters.

It would be composed of six federal and four state regulators. The Treasury secretary would head the group, with the Fed chairman serving as vice chairman.

The other federal regulators would be the chairmen of the Federal Deposit Insurance Corp., the SEC, the Commodities Futures Trading Commission, and the comptroller.

Two state insurance regulators, a state securities regulator, and a state bank supervisor-or people with prior experience in these jobs-would be appointed by the president to round out the council.

"We still think it's too weighted toward the banks," said National Association of Mutual Insurance Companies spokesman Chuck Chamness.

The Independent Bankers Association of America is concerned the council would be too political, lobbyist Ronald K. Ence said.

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