Supporters of financial reform legislation won two cru- cial early victories, but final passage of the measure allowing mergers among banks, securities, and insurance firms was still in doubt late Wed- nesday.

The House rejected an amendment by Reps. John J. LaFalce, D-N.Y., and Bruce Vento, D-Minn., that would have expanded the range of activities banks could conduct in operating subsidiaries.

The amendment, designed to soften opposition from the banking industry and the Clinton administration, was defeated on a 306-115 vote.

House Commerce Committee Chairman Thomas Bliley warned that adopting the so-called LaFalce-Vento amendment would have "radically" altered the bill and could have resulted in another thrift crisis, because banks would abuse the power.

"Why in the devil do something like that again?" he asked. "The expansion of the federal subsidiary is anti-competitive and bad for consumers."

But Democrats, who were supported by the Treasury Department, argued that the amendment would strengthen the Community Reinvestment Act by ensuring new activities occur in the bank, rather in holding company units exempt from the reinvestment law. "If we reject this amendment, we mandate that future activities are outside CRA," Rep. LaFalce said.

Also, Rep. Barney Frank, D-Mass., argued that the operating-subsidiary amendment would benefit small banks by making it easier for them to offer new products without incurring the cost of creating a holding company.

By not adopting the amendment, lawmakers are telling "smaller banks that none of these new powers are available to you," Rep. Frank said.

During the daylong debate, the House voted 407 to 11 to strengthen the bill's consumer protections and antitrust oversight. That amendment would require federal regulators to review their rules on consumer fee disclosures. State consumer protection laws could be preempted if federal safeguards are tougher.

Rep. John D. Dingell, D-Mich., said the amendment also would protect consumers from being misled about which products are guaranteed by federal deposit insurance.

In the wake of huge merger announcements, Republican leaders backed off earlier plans to speed antitrust reviews.

The Federal Reserve Board's power to evaluate the antitrust implications of a merger deal would be preserved, while the bill also clarifies that law enforcement authorities may review bank acquisitions of insurance and securities companies.

The amendment also preserves state insurance laws unless they "prevent or significantly interfere" with bank activities.

A key issue of early debate turned on which agency would be the better regulator of the financial system of the future.

The bill's supporters favored the Fed, while opponents fought to save the Office of the Comptroller of the Currency's authority. House Banking Committee Chairman Jim Leach said the bill would establish "functional regulation with a little bit of tilt toward the Federal Reserve." The Iowa Republican said the Fed deserved to be the top regulator of financial holding companies because it has experience supervising bank holding companies, has access to funds in a crisis, and is historically nonpartisan.

But Rep. LaFalce said preserving the comptroller's powers was vital to maintaining the executive branch's ability to influence economic policy. He said the bill would weaken the national bank charter by limiting operating subsidiary powers and the comptroller's ability to override state insurance laws.

"It would reduce competition by reducing the traditional tension between different bank charters and different regulators," he said. "This is not a slight tilt in the Federal Reserve's direction, this is a massive shift."

Unless the bill is approved by a wide margin, the Senate is unlikely to take the issue up this year.

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