WASHINGTON -- The House Banking Committee, moving toward final approval of a sweeping overhaul of the nation's financial system, yesterday voted to give the Federal Reserve Board broad authority over new securities powers for banking firms.
The panel by voice vote approved an amendment offered by committee Chairman Henry B. Gonzalez, D-Tex., that would allow the Fed to consider any factors it deems appropriate when reviewing applications from financial services holding companies to purchase insured banks.
Financial services holding companies, not currently in existence, would be established by financial firms wishing to offer banking and securities services.
The panel also voted to let the Fed consider whether granting approval for a bank to affiliate with a securities firm would yield greater public benefits than any possible adverse effects.
Moreover, the committee voted to require even those banking firms with high capital levels to receive prior approval from the Fed before affiliating with a securities firm. These banks -- so-called level one banks -- hold capital in excess of levels required by federal banking regulators.
Prior to adoption of the amendment, also advanced by Rep. Gonzales, the legislation would have allowed level one banks to affiliate with securities firms without prior Fed approval.
The legislation, which if approved would be the first major restructuring of the financial industry since 1933, would allow banks and securities firms to affiliate under a financial services holding company structure. Those affiliations would be subject to Fed scrutiny.
The bill also would allow, subject to Fed approval, commercial firms to own banks -- a dramatic departure from current law. Through the use of diversified holding companies, which also do not currently exist, commercial firms -- which means virtually any corporation in the United States -- could own a controlling interest in banks, securities firms, and insurance companies.
The House Banking Committee was expected to vote on final passage late last night or today.
Following action by the banking committee, at least four other panels -- the House Energy and Commerce Committee, the House Judiciary Committee, the House Ways and Means Committee, and the House Government Operations Committee -- may have to consider various portions of the legislation.
Review by the House Energy and Commerce Committee could be the most crucial sequential referral faced by the legislation. That panel, chaired by Rep. John Dingell, D-Mich., has been reluctant in the past to allow bank incursions into the securities industry, and Rep. Dingell has reiterated his concerns about such arrangements.
The banking panel, hoping to limit the jurisdiction of Rep. Dingell's committee, voted 34 to 14 to strip the legislation of provisions dealing with Securities and Exchange Commission regulation of bank securities activities. Rep. Gonzalez said the move could limit the amount of time and influence the committee could exert over the banking panel's work.
During the course of yesterday's deliberations, the committee approved an amendment that would allow civil and criminal penalties to be imposed on financial services holding companies and diversified holding companies for violations of rules limiting contacts between bank and securities affiliates.
The panel yesterday also defeated an amendment offered by Rep. Bruce Vento, D-Minn., that would have allowed banks located in towns with 5,000 residents or less to peddle insurance policies throughout their home states. The amendment was defeated 34 to 16.
But the committee by voice vote approved an amendment that would allow banks in such small towns to sell insurance in adjacent, rural areas.
The committee also approved an amendment that would require foreign banking firms operating in the United States to meet the same capital requirements as domestic firms before being allowed to undertake securities activities.