WASHINGTON - Rep. Richard Baker plans to offer legislation that directly challenges House Banking Committee Chairman Jim Leach's staunch opposition to mingling banking and commerce.

The Louisiana Republican's amendment to the chairman's Glass-Steagall bill would allow a firm to become a bank holding company if 60% of its business is derived from financial services. That means up to 40% of the company's business could come from other areas - auto manufacturing, for example, or computer software.

Rep. Baker's amendment represents an end run around obstacles to a stand-alone measure he had proposed but that has attracted scant support.

"The amendment does violence to one area that Chairman Leach has defined as an area of principle for him - maintaining the separation between banking and commerce," said Kenneth A. Guenther, executive vice president of the Independent Bankers Association of America.

The Iowa Republican has said that allowing banking and commerce to mix could lead to massive conglomerations of economic power.

The Baker amendment also aims to broaden the definition of "financial services" in Rep. Leach's bill by adding insurance companies, among other things, to the list of firms that may affiliate with insured banks under a holding company.

Under the Leach bill, which is set to be marked up starting May 9, bank holding companies would be able to set up only securities affiliates.

Rep. Leach has argued that the Glass-Steagall bill would be doomed to failure if the committee broadened it to include insurance provisions.

"I have been advised by (House Rules Committee Chairman) Gerry Solomon and (House Commerce Committee Chairman) Tom Blilely that if the Committee reports an expansive approach they will have a countervailing amendment that would roll back already existing insurance powers for commercial banks," the Iowa Republican wrote.

"This is a critical reason why HR 1062 is neutral on insurance issues," Rep. Leach added.

The countervailing amendment Rep. Leach referred to could come in the form of a bill introduced by Rep. Blilely, R-Va., which would allow state insurance regulators to limit bank insurance sales. Bank trade associations such as the ABA have vowed to block any Glass-Steagall reform legislation that contains the Blilely bill.

The Baker amendment could get some key support from high-ranking banking committee Democrats, who may view their help as a sort of bargaining chip.

"It could get some substantial Democratic support since Glass-Steagall is a relatively bipartisan issue," said one Democratic House Banking aide. "Some Democrats feel they could possibly have some of their concerns addressed by Baker in return."

An aide in Rep. Baker's office named Rep. Barney Frank of Massachusetts and Rep. John J. LaFalce Rep. Charles E. Schumer, both of New York, as Democrats who may be "philosophically behind" the Baker amendment.

The Baker amendment would expand the definition of financial services to broker-dealers, trust companies, and any other business that the Federal Reserve chooses to include.

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