House Republicans have agreed to weaken the thrift charter, merge the deposit insurance funds, and let financial services companies engage in limited commercial activities as part of an emerging financial reform compromise, sources said Thursday.
Disputes over bank subsidiary powers and the division of turf among banking, securities, and insurance regulators remained the principal sticking points, these sources added.
Most observers agreed that the deal represents a collection of grudging compromises that makes it very fragile.
"It is not decided until it is all decided," said Edward L. Yingling, chief lobbyist for the American Bankers Association. "Whether they will have it resolved here very quickly I don't know. It could go either way."
The House Banking and Commerce committees have overshot a March 4 deadline House Speaker Newt Gingrich imposed last week for the panels to resolve their conflicting versions of reform legislation.
House Republican leaders, who met Wednesday and were scheduled to meet again Thursday, have insisted that they are close to completing a deal that would allow the banking, insurance, and securities industries to merge. A consensus bill is expected next week, and the House leadership continues to aim for a floor vote before the two-week congressional recess begins April 2.
Though many of the industry's top lobbyists were having difficulty gleaning final details, a compromise picture started coming into focus Thursday that would generally satisfy securities firms and insurance agents but may divide banks and spark opposition from thrifts and insurance companies.
"I am very encouraged," said Bruce E. Thompson, government relations director for Merrill Lynch & Co. "They are going to have a bill in the next couple of days, and it is going to go to the floor, and it will pass."
House Republican Conference Chairman John A. Boehner told a group of about 15 financial services company executives during a conference call Wednesday that the deal preserves the thrift charter but limits its powers, according to sources who heard the call.
For instance, thrifts would have to satisfy a new minimum requirement that 10% of their assets be in home lending and the Federal Reserve would regulate unitary thrift holding companies.
Under the deal, financial services holding companies could own commercial businesses, but these enterprises could not exceed 5% of gross revenues. However, financial services companies that already have banking and commercial businesses would be grandfathered at 15%.
Sources predicted that House Banking Committee Chairman Jim Leach-who opposes the mixing of banking and commerce-will seek an amendment on the floor to kill this provision.
Rep. Boehner said that the bank and thrift insurance funds would be combined. He added that negotiators still have to define which future financial products would be overseen by bank regulators and which by securities regulators. Also, they have to decide the definition of savvy investors who would be excluded from consumer protection requirements.
Separately, two large banks and a trade group for insurance agents struck a deal Wednesday that envisions federal regulators overriding state insurance laws that interfere with bank insurance sales. However, under the compromise, agents could challenge the pre-emptions in court where federal bank regulators would be stripped of their current legal advantage over states. And, following the example of a model Illinois law that took effect last year, federal regulators could not override specific state consumer protection statutes.
Banc One Corp., NationsBank Corp., and the Independent Insurance Agents of America said they hope lawmakers will adopt their deal as the answer to the controversy over how to regulate insurance sales.
But large banks not involved in the deal are already grumbling, and insurance companies fear its implications on the regulation of insurance underwriting. The American Council of Life Insurance board voted unanimously Wednesday to oppose any compromise that extends the Comptroller of the Currency's ability to exempt bankers from state laws on insurance underwriting, said Allen R. Caskie, ACLI senior counsel.
Paul A. Schosberg, president of America's Community Bankers, said the thrift charter proposal was no more than a "trial balloon" that the industry will oppose. Mr. Yingling said the ABA would "certainly consider" the plan even though it does not combine the banking and thrift charters as the group has demanded.
Bankers are also concerned the deal may limit bank subsidiaries to insurance and securities sales, but bar underwriting. "That would be a very problematic provision for the industry and for the administration," Mr. Yingling said.