WASHINGTON - A provision that would bar the comptroller of the currency from expanding insurance powers for national banks passed the House Banking Committee on Wednesday, paving the way for passage of broad regulatory relief legislation.

The insurance measure, an amendment sponsored by Committee Chairman Jim Leach, was scaled back from a version the banking industry had vehemently opposed. The Iowa Republican called it "the fairest approach to the subject."

"This amendment ... has been worked out with the commercial banking industry and has also been largely accepted" by the insurance industry, Rep. Leach said.

Though bankers have been vehemently opposed to the insurance restrictions, the American Bankers Association indicated it is rethinking its position.

"We are still opposed to the OCC moratorium but will now review our overall position on this bill," said Edward L. Yingling, top lobbyist for the ABA.

The committee also approved, by a 37-to-12 vote, an amendment sponsored by Rep. Richard Baker, R-La., that would let banks affiliate with insurance companies in states that do not bar such relationships.

Bank lobbyists were optimistic Wednesday that the committee would approve the entire bill by the end of the day.

"It's going to go today," a bank lobbyist said. He praised the Leach amendment as a "definite improvement" because it would put limits on the authority of state insurance regulators to oversee bank sales of annuities.

Under the measure, state supervision of annuities would be limited to disclosure and licensing requirements. State regulators would not be able to limit bank lobby sales of annuities.

In addition, the bill would permit all banks to take advantage of an expected favorable decision in a case involving Florida's Barnett Banks Inc. In that case, Barnett purchased an insurance agency in a small town and was challenged by state regulators.

The original insurance amendment would have protected Barnett and three other banks with similar cases should they win. The new language would give the benefit of a court victory to the entire industry.

Rep. Bill McCollum, a senior Republican who was expected to oppose the bill because of the restraints on insurance powers, voted for the Leach amendment and is now expected to support the bill. His vote is important because a number of more junior Republicans are expected to follow his lead.

However, both the Independent Bankers Association of America and the Independent Insurance Agents of America said they would oppose oppose the bill because of the Baker "affiliations amendment."

The Clinton administration also blasted the Banking Committee bill for scaling back the Community Reinvestment Act. "I am strongly opposed to this evisceration of CRA," said Treasury Secretary Robert Rubin.

Some observers have speculated that President Clinton might veto the bill if it goes to far in attacking CRA and other consumer protection laws.

In an effort to ensure support from a majority of committee Democrats - as well as the White House, which has been threatening to veto the bill - Rep. Leach late Tuesday helped roll back a number of provisions in the bill that he said "have gone too far."

The panel approved a measure that reinstated the Justice Department's ability to use of statistics to prove "disparate impact," the idea that lending policies not intended to discriminate may have the effect of penalizing minority borrowers.

With the chairman's endorsement, Democrats were also able to remove provisions from the legislation that would have increased consumer liability in certain cases of debit and credit card losses.

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