House Banking Committee Chairman Jim Leach on Thursday said he is optimistic that a version of financial reform legislation acceptable to bankers will be enacted in 1999.

Financial modernization will be his committee's "top priority" in the coming session, he said. Rep. Leach said he will introduce a bill early and said he expects it to move in tandem with a similar version in the Senate.

"I'm hopeful that this Congress will have a pro-bank slant," the Iowa Republican said.

Speaking at an Illinois Bankers Association meeting in Chicago, Rep. Leach urged community bankers to support the effort.

A provision in the bill would let banks with less than $500 million of assets finance local economic development projects with Federal Home Loan Bank advances. "Community bankers will be able to offer more products and bring more choice to their customers," Rep. Leach said.

He told the roughly 50 bankers and state legislators that he wants to improve access to the Federal Home Loan banks so that commercial banks have a source of cheaper funds to lend to their customers. Many rural banks do not have enough local deposits to keep up with loan demand, and most face stiff price competition from large banks and the government-sponsored Farm Credit System, he said.

"Main Street is suffering" as large banking and other financial services companies use sophisticated products and services to move capital out of small towns, Rep. Leach said. "Community banks have never been at greater risk."

However, a panel of lobbyists at a National Conference of State Legislatures meeting here said financial reform legislation faces mounting obstacles.

Phil Gramm, the new Senate Banking Committee chairman, could foil Rep. Leach's plans for speedy action on financial reform, they said.

The Texas Republican has said that, unlike Rep. Leach, he will not reintroduce the same version of the reform bill that failed to pass this year. Sen. Gramm blocked that bill, complaining that it expanded the Community Reinvestment Act.

"We believe he is going to build a new bill from the ground up," said David J. Pratt, senior vice president of federal affairs for the American Insurance Association. "As he does that, the House bill may well change."

The resignation of House Speaker Newt Gingrich and the departure of other key allies also hurts the bill's chances, the lobbyists said. And the fragile coalition of the banking, insurance, and securities industries could be fractured by lawsuits or any controversial action by new Comptroller of the Currency John D. Hawke Jr.

Yet megamergers and other deals may force Congress to act anyway. "The market is taking over," said Marty Farmer, lobbyist for the Independent Bankers Association of America. "My hunch is that the Congress will realize what has occurred out there, and the differences will diminish, and they will pass a modernization bill" by early 2000.

Indeed, Rep. Leach warned bankers that unitary thrift holding companies and other nonbanks will keep competitive advantages if the legislation fails.

"Bankers have every reason to be apprehensive about legislative change," Rep. Leach said in his prepared text, "but they should be downright fearful about maintaining the status quo. Banking associations might want to think through whether their tactics of delay and irresolution have allowed more unitary thrifts to be formed and played into the hands of rival interests."

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.