House Panel at Square One On Key Finance Reform Issues

When the House Banking Committee meets Tuesday to start voting on financial reform, expect chaos.

Although committee Chairman Jim Leach vowed to create a consensus bill that would require few amendments, the legislation he released Wednesday dodges two of the toughest issues.

Rep. Leach has left it to the committee's 56 members to decide at next week's markup whether nonfinancial firms should be allowed to enter banking and how bank insurance sales should be regulated.

"We're right back to where we left off last year," one Democratic staffer complained. "The way things are shaping up, he won't be able to get the bill out of the committee."

"People are going to try to take it apart from many different angles," predicted Karen Shaw Petrou, president of ISD/Shaw, Washington. "I think it will be significantly amended."

Ms. Petrou estimated that more than 200 amendments will be filed, dealing with everything from the thrift charter to consumer issues.

But a spokesman for Rep. Leach said crafting a consensus bill proved impossible. So the Iowa Republican decided the next best answer was putting the most difficult aspects of financial reform to a committee vote.

The draft that will serve as the starting point for Tuesday's vote does have some new provisions.

Rep. Leach wants to establish a self-regulating organization to set uniform licensing standards for insurance agents. By registering with the National Association of Registered Agents and Brokers, agents could avoid duplicate license filings.

Under the Leach bill, the association would be created three years after financial reform is enacted if the majority of states still had conflicting and redundant licensing requirements.

"It's a very positive thing," said David J. Pratt, lobbyist for the American Insurance Association. "Compliance with state laws has been very complicated and this is a way to make that more uniform."

Even banking groups liked the idea.

"This better allows financial institutions to have national licensing capability," said E. Kenneth Reynolds, executive director of the Association of Banks in Insurance.

Rep. Leach's bill does not address the thorniest insurance issue: how to split supervision of bank insurance sales between federal and state regulators.

Insurers welcomed Rep. Leach's bill, because it does not contain the restrictive language proposed by the Clinton administration last month.

"We see this plan as an improvement over the Treasury's proposal, but we still have concerns," said Kenneth Vest, a spokesman for the American Council of Life Insurance.

American Bankers Association chief lobbyist Edward L. Yingling complained Wednesday that without a change in current law, national banks will be stuck selling insurance from small towns.

Under Rep. Leach's bill, bank powers would be greatly expanded, with banks, securities firms, and insurance companies affiliating freely.

In a twist on earlier proposals, Rep. Leach suggested creating a National Council on Financial Services, comprising the Treasury and Commerce secretaries, bank and securities regulators, and two state insurance representatives.

The council could authorize new financial activities for bank holding companies and order new safeguards between banks and their nonbank affiliates. The council would define what is banking and what is insurance.

On the critical question of banking and commerce, Rep. Leach stuck to his long-standing position. The legislation he unveiled Wednesday would permit no mingling of banks and nonfinancial companies. It also would close the existing link between banking and commerce by abolishing the thrift charter.

Robert R. Davis, government relations director for America's Community Bankers, said the Leach proposal would be a disaster. "It has failed the test of true modernization, which is taking the best elements from each charter and making it available to others," he said.

Three key GOP members of House Banking are expected to offer amendments to ease Rep. Leach's bill.

Rep. Marge Roukema, R-N.J., wants to let banks invest in a limited "basket" of nonfinancial business, possibly capped at 25% of their total business. Reps. Richard Baker, R-La., and Bill McCollum, R-Fla., are planning to propose a so-called "reverse basket" that allows nonfinancial firms to own a limited amount of banking assets.

Rep. Baker said he is confident the committee will vote to breach the wall between banking and commerce.

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