House Panel Votes to End Bank Ownership Barriers
WASHINGTON -- The House Banking Committee voted decisively on Wednesday to repeal the laws that prevent banks from owning or affiliating with commercial and industrial companies.
If the measure is adopted, it will mark a historic break from the seperation of banking and other lines of commerce - an industry structure forged by the Depression-era Glass-Steagall Act and Bank Holding Company Act of 1956.
Banks Could Diversify
Industrial giants like General Motors Corp. and International Business Machines Corp. would be able to acquire banks, and commercial banks, in turn, would be able to reorganize their parent companies to diversify into any business they choose.
The committee's 32-to-20 vote was a major victory for the Bush administration, which fought a hard, uphill battle to include the repeal of ownership restrictions in its comprehensive reform proposal. The idea was widely proclaimed "dead on arrival" earlier this year when the Treasury Department floated it.
Several lawmakers who voted for it agreed with the Treasury's argument that eliminating the restrictions would bring badly needed capital into the industry.
However, the proposal still faces difficult tests. The Senate Banking Committee is believed to be more skeptical than its House counterpart. And the House Energy and Commerce Committee, which is expected to review the measure before it goes to the floor, is likely to opposed it.
A Bargaining Chip
The Treasury could use its victory as a bargaining chip with the Energy and Commerce committee, said Kenneth Guenther, executive vice president of the Independent Bankers Association of America, which wants to maintain the separation between banking and commerce. The treasury may now have leverage to influence other provisions, such as the terms under which banks would be permitted to underwrite and sell securities.
Mr. Guenther added that House Speaker Thomas S. Foley, in meeting with IBAA representatives Tuesday, said he intended to let many of the more important controversies be decided on the House floor.
A congressman who sits on both the Banking and the Energy and Commerce panels - Rep. Jim Slattery, D-Kan. - denounced the proposal before Wednesday's vote, warning that bank regulators are not equal to the task of dealing with the large, complicated organizations that the bill would spawn.
Capital Need Questioned
Mr. Slattery also disputed proponents' argument about the need for capital. "There is not a capital shortage when you are talking about good, well-managed banks," he said. "There is a capital shortage when you talk about the deadbeats."
Rep. John D. Dingell, the Michigan Democrat who chairs Energy and Commerce, declined to comment on Wednesday's vote but said he expects the House leadership to give him as much time to work with the legislation as the banking committee was given.
The timing issue is important, because pressure is likely to build toward th end of the summer to split off measures recapitalizing the Bank Insurance Fund from the rest of the bill. The Treasury is concerned that without the BIF measure, Congress will feel no pressure to move on the broader package.
Some Converts Made
But the Treasury has shown itself capable of moving votes even on difficult issues. On the repeal of cross-ownership restrictions, the administration gained support from members who previously expressed opposition, including Rep. Chalmers Wylie, R-Ohio, and Rep. Bill McCollum, R-Fla.
Wednesday's vote came on an amendment offered by Rep. Jim Leach, R-Iowa, to strike the Treasury's language from the bill. He saw it as "an open invitation for every foreign enterprises to buy into American banks." If enacted, he said, it would encourage "Toyota and Nissan to buy into the American banking system."
Treasury's supporters argued that the banking-commerce barrier was breached long ago. Nonfinancial concerns such as Ford Motor Co. amd Sears, Roebuck and Co. have acquired companies active banking-related fields.
"AT&T wants me to have a credit card - not to charge telephone calls, but to charge anything," said Rep. Thomas R. Carper, D-Del. "Sears wants me to Discover America," he added, alluding to the retailer's general-purpose credit card.
Edward L. Yingling, chief lobbyist for the American Bankers Association, said the ABA urged the House Banking Committee to drop the administration provision from the bill, fearing it would add too much weight for the legislative package to carry.
Skeptical od Survival
"When I look at Energy and Commerce, and look at the Senate Banking Committee, its hard to believe this will survive," he added.
Also on Wednesday, the banking committee also ratified a compromise worked out with the Federal Reserve to limit access to the discount window.
Under the compromise, the Fed would be exposed to losses if it continued to lend to an unfercapitalized institution for more than 60 days.
The risk of losses is expected to prevent the Fed from using its discount window to keep weak institutions afloat, as critics charge it has done.