Throwing his political clout behind it, Federal Reserve Board Chairman Alan Greenspan on Tuesday said he "strongly supports" the compromise financial reform plan.
"The Federal Reserve believes that enactment of this compromise would be an historic achievement that would update the increasingly antiquated laws that constrain the development and competitiveness of our financial system," Mr. Greenspan wrote House leaders.
House Republican Conference Chairman John Boehner trumpeted Mr. Greenspan's endorsement, which came a day after Treasury Secretary Robert Rubin called the bill detrimental to national banks and thrifts.
"Chairman Greenspan's support makes it critical that the White House works with Congress to complete these long-overdue reforms," Mr. Boehner said in a prepared statement. "We're closer to real reform than at any time in modern history."
However, House Majority Whip Thomas DeLay warned that Mr. Greenspan's support does not ensure passage. Lawmakers still must satisfy objections by the banking and thrift industries, he said.
"If we can work together, we can come out eventually with a bill that we send to the President that is much better than the current situation in our financial institutions," he told the American Land Title Association.
The March 10 compromise would sharply restrict bank operating subsidiaries, allow a limited mixing of banking and commerce, and permit mergers among banking, insurance, and securities companies.
Industry lobbyists downplayed the letter. Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America, said Mr. Greenspan is supporting the bill because it would make the Fed-and not the Comptroller of the Currency-the regulator of new activities.
"It won't produce a sea change," said Edward L. Yingling, chief lobbyist at the American Bankers Association. "You still have a logjam of where the interest groups are at the moment."
In his letter, Mr. Greenspan praised lawmakers for requiring nonbanking activities to be conducted in holding company subsidiaries rather than in direct operating subsidiaries.
This will prevent the unintended expansion of the federal safety net to insurance underwriting and other nonbanking activities, he said. He also supported changing the law to prevent commercial firms from buying unitary thrifts.