WASHINGTON - Two key House leaders have agreed that banks should not be required to move existing securities activities to holding company subsidiaries if the Glass-Steagall Act is repealed, industry sources said Wednesday.
Though negotiations between the banking committee and the commerce panel continued Wednesday, the major points of a deal governing bank securities activities appeared to have been nailed down.
The deal would clear the way for a House floor vote on the Glass- Steagall bill, perhaps as early as Oct. 26. The package being assembled by House Banking Committee Chairman Jim Leach also includes a major regulatory relief initiative.
Bank lobbyists greeted news of the deal between Rep. Leach and Commerce Committee Chairman Thomas J. Bliley with relief. One said it "minimizes the damage" that Wall Street's allies attempted to inflict in an effort to keep banks out of the securities business.
Many bankers feared they would be forced to move their underwriting activities to a holding company affiliate totally separate from the insured bank, increasing the cost of doing business.
Midsize regional banks were particularly worried, bank lobbyists said, because those institutions are interested in adding only a few classes of securities. Without a large base of securities products to sell, a new subsidiary would be too expensive to create and maintain.
The Bliley-Leach compromise eliminates the "separately identifiable department or division" structure that was approved as part of the House Banking Committee's initial Glass-Steagall repeal package in May.
Instead, banks would conduct their securities business from nonbank subsidiaries currently allowed under the Bank Holding Company Act, or from new "section 10" subsidiaries that would be created by the bill.
The Leach-Bliley compromise was expected to be completed late Wednesday or today. Its major provisions would:
*Allow securities activities that are now "bank eligible" to remain within the banks themselves.
*Permit municipal revenue bond underwriting to be conducted from existing nonbank subsidiaries rather than the more tightly regulated section 10 subsidiaries that would be created by the Glass-Steagall bill.
*Authorize banks without holding companies to underwrite municipal revenue bonds from general operating subsidiaries.
*Require the Federal Reserve Board to decide which securities are "bank eligible."
*Force bank holding companies that establish section 10 subsidiaries to underwrite non-bank-eligible securities to conduct municipal revenue bond business in that subsidiary as well.
*Allow private placement financing within the bank itself.
Still under negotiation Wednesday were rules governing sales of asset- backed securities and language defining the extent of Securities and Exchange Commission regulation of bank securities business.
Lobbyists characterized the deal as one that "banks can live with" and that makes the Glass-Steagall portion of the House Banking Committee's legislation positive for the industry.
Overall, however, many banks oppose the combined Glass- Steagall/regulatory relief package because of a provision prohibiting the Office of the Comptroller of the Currency from granting banks new insurance powers.