Leach Claims Victory on Glass-Steagall, But Bank Groups Say No Deal Has

Rep. Jim Leach declared victory Friday, announcing banking and insurance industry support for his bill to eliminate Glass-Steagall and pare burdensome regulations.

But banking leaders reached Friday denied that any deal had been cut.

Wrangling over insurance provisions has stalled the House Banking Committee chairman's financial modernization bill for months. This stalemate has forced Rep. Leach to continually revise his legislation. The latest version:

*Scraps a controversial moratorium on the Comptroller of the Currency's authority to expand bank insurance powers.

*Permits banks and insurance companies to affiliate as of Jan. 1, 1999.

*Adopts the standard set in the Supreme Court's recent Barnett decision, which prevents states from prohibiting bank insurance sales from small towns.

*Requires the courts to consider the views of state insurance regulators when deciding if a new insurance power is incidental to banking and thus permitted under the Bank Holding Company Act.

"We are very optimistic that it will receive credible industry support," Rep. Leach said in an interview. "I'm optimistic the Bankers Roundtable, the insurance agents, and the insurance companies will endorse, and I am hopeful the American Bankers Association will endorse."

But Roundtable executive director Anthony T. Cluff and Edward L. Yingling, the ABA's executive director of government relations, said Rep. Leach has jumped the gun.

"No deal has been struck," Mr. Cluff said. "We just got the latest draft and have not analyzed it yet," Mr. Yingling added.

Robert Rusbuldt, vice president of federal affairs at the Independent Insurance Agents of America, said his group could swallow Rep. Leach's latest offer. "It does give all the players ... a little more certainty than the chaos that exists out there today," he said.

Rep. Leach made his remarks at a Federal Reserve Bank of Chicago conference.

"The compromise approach we have developed represents a consensus package that has a very decent prospect of receiving significant industry endorsements and wide support in the House," Rep. Leach told 600 industry officials at the conference.

Speaking to reporters, Rep. Leach said he may try to replace a housing bill scheduled for House consideration on Thursday with the Glass- Steagall bill. If his bill is not ready in time, Rep. Leach said he would bring it to the House floor next week.

The Office of the Comptroller of the Currency still opposes the legislation, claiming the moratorium in effect still stands because some restrictive state laws would supersede the agency's regulations.

Beyond the insurance provisions, the Iowa Republican's bill would require a bank to conduct its securities powers in a separately capitalized affiliate of a holding company. The Federal Reserve Board would regulate the parent company, although the Securities and Exchanges Commission would supervise the securities affiliate.

Rep. Leach told the bankers that Congress prefers this structure to Comptroller Eugene Ludwig's model, which allows a bank to operate a securities affiliate directly.

"The OCC may prefer that Congress pass a bill that makes it the exclusive federal regulator of banking," Rep. Leach said. "This simply has not been the position of this or any prior Congress in modern times."

The bill also eliminates Community Reinvestment Act reform from the regulatory relief package. Rep. Leach said he had to strip out those changes - which would have protected banks with high grades on the Community Reinvestment Act from community groups' protests - to avoid a presidential veto.

For reprint and licensing requests for this article, click here.
MORE FROM AMERICAN BANKER