House Panel Approves Glass-Steagall Repeal But Firewalls Could Diminish Some Benefits
WASHINGTON - The House Energy and Commerce Committee yesterday approved legislation to dismantle the 1933 Glass-Steagall Act but put in place barriers that could reduce the attractiveness of mixing investment and commercial banking activities in one financial firm.
The panel approved the measure on a 29-to-12 vote, with only three Republican members voting in favor of the bill.
Before approving the measure, the panel weakened one provision that would have prevented banks from making loans to debt issuers if the banks' securities affiliates were underwriting the issuers' stocks or bonds.
Instead of an absolute ban, the committee voted to allow banks to make the loans if they are fully documented.
The rationale behind the amendment is to prevent banks from requiring issuers to take out loans as a precondition to using services of their securities affiliates. The documentation would provide a "paper trail" of the transaction that later could be used to determine whether an illegal tying arrangement existed.
Unlike a measure approved earlier this summer by the House Banking Committee, the House Energy and Commerce Committee's bill would not allow commercial firms to own banks or banking firms to underwrite insurance products. The legislation approved yesterday more closely tracks a bill approved during the summer by the Senate Banking Committee that also bars affiliations between banks and commercial firms.
In other action, the House Energy and Commerce Committee rejected an amendment offered by Rep. Matthew Rinaldo, R-N.J., that would have allowed commercial companies - such as retailers or manufacturers - to purchase failed or failing banks. The amendment was defeated on a 26-to-15 vote, which was along strict party lines; no Democrats voted, for it, but all the Republicans did.
Rep. Norman Lent, R-N.Y., said before the vote that a number of Democrats on the committee had told him "they think this is a heck of an amendment and would like to vote for it if they were freed up."
The remark was an apparent reference to the influence wielded by the panel's chairman, Rep. John Dingell, D-Mich., who opposed the amendment.
The final package adopted yesterday clearly bears Rep. Dingell's mark, including about 15 provisions known popularly as fire walls, designed either to prevent the risks of securities activities from sinking insured commercial banks or to prohibit banks from using securities affiliates for financial mischief.
Rep. Dingell has often said in the past that he would not support the dismantling of the Glass-Steagall Act without adequate safeguards.
But some detractors believe the fire walls go beyond being safeguards and diminish any benefits of Glass-Steagall's repeal.
Rep. Jim Cooper, D-Tenn., said, "This is the greatest committee in Congress, bar none - on other issues. This is a sad day for those interested in improving the strength of the financial industry."
The bill now moves to the full House where debate is expected to begin in October.