House bank panel backs Bush plan for commercial ownership of banks.

WASHINGTON -- In a significant victory for the Bush administration, the House Banking Committee yesterday voted to tear down the legal walls separating banking and commerce.

On a 32-to-20 vote, the committee rejected an amendment to the pending bank reform legislation that would have continued current prohibitions on banks being owned by commercial firms.

As it currently stands, the legislation also would repeal the Glass-Steagall Act of 1933, which generally separates investment and commercial banking activities.

The panel's vote on the banking and commerce question is important because it provides for a level playing field for investment firms and commercial banks after Glass-Steagall is eliminated.

The Bank Holding Company Act of 1956 currently prohibits commercial companies, such as manufacturers, from holding a controlling interest in banks.

Had the amendment, offered by Rep. Jim Leach, R-Iowa, been adopted, then some securities firms would have been precluded from affiliating with banks because they are owned by commercial enterprises.

For example, Kidder, Peabody & Co. is owned by General Electric. Under the Leach amendment, Kidder Peabody would have been unable to affiliate with a bank even if Glass-Steagall were repealed.

Reaction to the panel's vote was swift. Rep. John Dingell, D-Mich., whose panel will get to review the legislation after the banking committee finishes, said "of course" he still has "concerns" about mixing banking and commerce and eliminating Glass-Steagall barriers.

He said he will urge House Speaker Thomas Foley, D-Wash., to allow the House Energy and Commerce Committee to have the same amount of time to review the legislation that the banking panel did.

"If we have to deal with it in a slapjack fashion, I'm sure we'll get something no one can support," he said.

Representatives of small banks also expressed dissatisfaction with the vote.

"It's a terrible vote," said Gary J. Kohn, legislative counsel for the Independent Bankers Association of America. "The result is a blow to Main Street America and shows the power of Wall Street. Small businesses and small farmers will suffer as a result."

But representatives of larger banks expressed satisfaction with the committee's decision.

"It's a key vote," said Joe Belew, president of the Consumer Bankers Association. "It keeps the bill alive and holds it together."

Mr. Belew said that had the Leach amendment prevailed, industry support for the legislation would have withered.

The panel's action came after a spirited debate lasting more than an hour. Proponents of the amendment argued that eliminating the wall between banking and commerce would lead to unhealthy concentrations of economic power. They said that commercial ownership of banks would reduce credit availability.

"I think it would be playing with fire," Rep. Leach said.

But opponents of the amendment argued that allowing commercial ownership of banks would draw much-needed capital into the banking industry and reduce the need for taxpayer-financed bailout.

And Rep. Barney Frank, D-Mass., said concerns about commercial ownership had been overstated. "I don't want to sit around and debate whether Glass-Steagall is half empty or half full," he said. "I just don't believe that who owns a bank should be determinate of [industry] safety and soundness."

Rep. Peter Hoagland, D-Neb., capped off the debate by noting it is impossible to tell what effects commercial ownership will have on the industry.

"Life is uncertain," he said. "But I believe there is more risk in doing nothing."

In other action, the panel rejected another Leach amendment that would have required banking firms wishing to affiliate with securities firms to hold higher levels of capital than they would otherwise. The amendment was defeated on a voice vote.

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