WASHINGTON - With a key vote on Glass-Steagall legislation only a week away, the House Banking Committee's plans to keep insurance issues out of the bill may be in jeopardy.
An aide to House Commerce Committee Chairman Thomas J. Blilely told lobbyists last Friday that the Virginia Republican has not made a deal with Banking Committee Chairman Jim Leach to have both panels steer clear of insurance.
Instead, the aide said, the Commerce Committee plans to convene hearings in mid-May on legislation that would permit states to limit bank insurance powers.
Insurance is emerging as one of the most complex and divisive issues in the Glass-Steagall debate. Though members of the banking committee would like to expand bank insurance powers, the commerce panel has in the past sought to limit such activities.
In addition, many securities firms that would like to get into banking after Glass-Steagall repeal might be barred because of their extensive insurance operations. As a result, they say, Glass-Steagall repeal could be a one-way street that only benefits banks.
In a caucus with Republican banking committee members three weeks ago, Rep. Leach cited his deal with Rep. Blilely and warned that any effort to address insurance in the Glass-Steagall package could jeopardize the bill, given the difficulty of reconciling the two panels' views.
Rep. Leach has warned privately that he will rule that insurance amendments are not germane to the Glass-Steagall bill. If so, the panel will not be given an opportunity to vote on insurance.
However, the Blilely aide told lobbyists Friday that the commerce chairman is prepared to deal with the issue if the banking committee does not. Once Banking finishes its work, the bill goes to the Commerce Committee for 30 days.
"If this is indeed the case, then it makes it all the more important to work out some type of agreement among all of the parties involved," said Sam Baptista, president of the Financial Services Council.
"We need to ensure that the ability of banks and insurance companies to affiliate is squarely on the table," added Mr. Baptista, whose group represents large banks, diversified financial services companies, and nonfinancial firms with an interest in banking.
Meanwhile, Rep. Leach is set to unveil a new version of his Glass- Steagall bill that would make it easier for securities firms with merchant banking activities to own a bank.
The current bill permits such affiliations if securities firms' involvement in insurance and nonfinancial activities do not represent more than 10% of capital. Rep. Leach is expected to focus on assets instead of capital and set the permissible level at about 5%. That would be a much easier test to meet.
In addition, the Iowa Republican apparently has decided to drop language that would end the special powers of unitary thrift holding companies, a clear victory for the Association of Financial Services Holding Companies.
"For our members, this is a core issue," said Patrick Forte, president of the group, which represents thrift holding companies. The original Leach language, "would have been very damaging to us."
Rep. Leach had already compromised, by offering to exempt existing unitaries from the bill's restrictions.