In a dramatic move Tuesday, House Banking Committee Chairman Jim Leach abandoned his yearlong effort to enact a sweeping financial modernization bill and instead announced he will push for modest reforms.
Rep. Leach conceded that he could not overcome widespread opposition to his bill, despite months of negotiations with the banking and insurance industries. "Unfortunately, while many different approaches to gaining consensus have been suggested ... comprehensive bank modernization legislation cannot move forward this year," the Iowa Republican said.
Instead, Rep. Leach said he would ask House leaders to allow a vote on stripped-down versions of his Glass-Steagall repeal and regulatory relief bills.
Under Rep. Leach's new plan, regulators would have more authority to expand powers for bank holding companies, but banks would be prohibited from affiliating with securities firms or insurance companies.
Holding companies would be allowed to offer any product or service deemed "financial in nature or incidental to such financial activities." This test would replace the current, more narrow test that requires new activities to be "closely related or incidental to banking."
Rep. Leach also wants to eliminate the 7% cap on nonbank banks' annual asset growth.
Rep. Leach gave Federal Reserve Board Chairman Alan Greenspan the green light Tuesday to expand bank securities underwriting activities through "section 20" affiliates, calling the agency's authority "clear and unquestionable."
Disputes over insurance restrictions, not securities powers, ultimately sank the original bill. Limits on bank insurance powers were tacked on to the regulatory relief bill at the insistence of House leaders last year. Rep. Leach tried to quell the banking industry's opposition by combining regulatory relief and Glass-Steagall repeal, but the industry refused to endorse the legislation.
After canceling Tuesday's planned committee vote on his bill, Rep. Leach said he will ask the House Rules Committee to approve the simplified bill, which does not contain provisions weakening the Community Reinvestment Act or the Truth-in-Savings Act.
Rep. Leach said he believes the new plan removes contentious provisions that have stalled banking legislation this year. "The approach represents a significant, do-able step," he said.
Nevertheless, Rep. Leach said he is disappointed that staunch opposition from many bankers and regulators doomed his effort to enact significant reform.
"Let there be no misunderstanding, the marketplace will ensure that the broader issues will not go away," he said.
Treasury Under Secretary John D. Hawke, a staunch opponent of Rep. Leach's Glass-Steagall repeal plan, said he was pleased with the Iowa Republican's decision. "The problem with these bills has been that the insurance provisions were not modernization at all," he said. "We continue to believe that comprehensive and real financial modernization is a matter of high priority."
Lawmakers and industry lobbyists said Tuesday Rep. Leach had little choice but to drop his original legislation.
"Pulling the bill was the only thing Mr. Leach could do. I hope that this at least moves us toward modernization," said Rep. Henry Gonzalez, the banking panel's ranking Democrat.
Kenneth Guenther, executive vice president of the Independent Bankers Association of America, said he's glad Rep. Leach continues to push for legislation cutting red tape. "This remains the overwhelming priority of banks," he said.
