WASHINGTON -- A key House subcommittee voted Monday to maintain sizeable restrictions on commercial bank involvement in the securities industry, following a debate colored by recent bank and government securities scandals.
Working into the early evening, the House Energy and Commerce Committee's telecommunications and finance subcommittee approved by voice vote legislation that would repeal the 1933 Glass-Steagall Act. But panel members close to erect stringent firewalls that some detractors said would diminish any perceived benefits of the act's repeal.
The subcommittee's action, which was expected, portends a battle on the House floor over the scope of new bank powers and how they should be administered.
Subcommittee members said they were motivated to erect the firewalls -- designed to insulate insured banks from the risks of securities underwriting and to prevent banks from engaging in financial mischief -- by recent financial scandals, such as that involving Salomon Brothers Inc.
Subcommittee Chairman Edward J. Markey, D-Mass., set the tone for the day's deliberations when he noted that, less than two weeks ago, "Warren Buffett, perhaps the preeminent investor in this country, sat before this subcommittee and personally apologized for the shameful fraud perpetrated by former Salomon Brothers employees upon the government securities market."
Rep. Jim Slattery, D-Kan., said a bank reform plan approved by the House Banking Committee earlier this summer was "absolute nonsense," adding, "All the players are on the field for a repeat of the savings and loan scandal."
While most panel members noted recent events in their disavowal of the sweeping bank reforms sought by the Treasury Department, Rep. John Dingell, D-Mich., reached back 60 years to buttress his case against the plan, which was approved in large part by the banking committee.
"My old dad told me once that there is no educational benefit in the second kick of a mule," said Rep. Dingell, the chairman of the House Energy and Commerce Committee. Recounting tales of what he termed the "rascality" that prompted Congress to enact Glass-Steagall, Rep. Dingell said he thought his father's admonition was correct.
To prevent a repeat of the financial skulduggery that characterized the 1920s and early 1030s, the bill approved by the subcommittee would:
* Retain current law prohibitions on ownership of banks by commercial firms, such as manufacturers or retailers;
* Prevent banks from providing credit to their securities affiliates;
* Prohibit banks from issuing letters of credit or insurance to or for the benefit of their securities affiliates;
* Forbid banks from purchasing for their own accounts securities underwritten wholly or in part by their securities affiliates; and
* Prohibit banks from extending credit to the issuer of securities when the banks' securities affiliates are involved in the underwriting.
The bill now moves to the full energy and commerce panel, which could begin action as early as next week.