House Banking Committee Chairman Jim Leach is frustrated. Too few people, he says, understand the impact he is having on efforts to overhaul the country's financial laws.
In an interview Friday, the Iowa Republican said his consistent objection to banks' merging with nonfinancial companies has deflated the idea.
"It's pretty clear now that commerce and banking as a full blown proposition is dead," Rep. Leach said. "It's pretty clear that large baskets are increasingly unlikely."
Some proposals would let bank holding companies own large portfolios, or baskets, of nonfinancial companies. Under legislation sponsored by Rep. Marge Roukema, 25% of a holding company's "business" could be nonfinancial in nature.
That's way too much for Rep. Leach, but he surprised industry leaders last month by agreeing to let banks invest up to 10% of their capital in commercial companies.
Rep. Leach also is upset that politicians and interest groups are pushing legislation that, in his judgment, does not benefit the public.
"For people to advocate an idea (mixing banking and commerce) to appeal to a shockingly few number of Americans and a small number of corporate interests is in the final measure astonishing," he said.
What follows are edited excerpts of the interview.
Where do you think the debate over commerce and banking is today?
LEACH: I think the momentum has really shifted for a more and more restrained approach, although that could include in the final measure some breach of commerce and banking.
I am simply trying to dampen that to the maximum extent I may be able to. But I am in the final measure a single vote and I don't presume to be anything else.
Industry leaders listening to your comments over the last couple weeks think you're ready to compromise. Are they right?
LEACH: There's a lot of misunderstanding about basic issues before the committee. The principal issue on the table is integration of commercial banking with investment banking with insurance affiliation. The commerce and banking issue is separate. There is no public support for intertwining commerce and banking. There is no economic case.
But is there a political case?
LEACH: There is an interest group case. What you have is a capital city listening to a small number of interest groups.
What I have put out over the last three or four months is my profound dismay at the precipitation of a political, economic movement that I believe is very dangerous for the country and very unlikely to last if it were adopted.
But it's not just interest groups. It's Reps. Marge Roukema and Richard Baker, Sen. Alfonse D'Amato, and Treasury Department officials.
LEACH: You've referenced political figures. You haven't referenced the public. I readily acknowledge that there is a number of people on Capitol Hill who have a different perspective than I do.
What you're dealing with is some people feeling they have to accommodate certain interest groups to achieve certain other objectives and that they rather like what these interest groups are advocating. I don't.
The driving force behind it has been companies associated with the Financial Services Council such as GE and certain insurance companies that have corporate owners. It has found some attraction in other parties if done in given ways. Large banks are attracted to the concept of discretion if it isn't two-way vulnerability, that is if they aren't put in play. If they are put in play, they have less appetite.
The administration has believed they needed this to get support of three or four of the major securities companies for passage of the bill.
Now having said that, last fall it looked as if commerce and banking would be adopted. Last month it looked like we were going to have huge baskets.
As I have very carefully laid out, I am in a damage-control mode. I am trying to draw this down to as low a level as I possibly can. I make no guarantees that I will prevail against any commerce and banking. I am just very hopeful that it will not be too great a breach if it occurs.
It's pretty clear now that commerce and banking as a full blown proposition is dead. It's pretty clear that large baskets are increasingly unlikely.
Why do you think that?
LEACH: For two reasons. One reason is that there is no public support. The second reason is that the vested interest of some of the parties is being reassessed.
The banking community got its clock cleaned by its competitors when they identified with commerce and banking. And I pointed out, every bank in America would have a "for sale" sign and commercial firms would snap up commercial banks. Very few commercial banks have that as a vested interest, to be put in play.
Large banks will in the end support very modest baskets and that is a very different circumstance than two to five months ago.
Also, I as chairman of the Banking Committee, have been trying to underscore the national import of a Federal Reserve oversight role, particularly with regard to the payments system.
Six months ago there was a huge movement a foot to knock the Fed out of the regulatory box. That is no longer a likely circumstance. It isn't accidental that is no longer a circumstance. A lot of effort has gone in to bringing people to their senses.
What are you hearing from Treasury?
LEACH: Somewhat surprisingly, we agree on many issues. The main difference of opinion comes on commerce and banking, and here we are coming closer together.
Do you think financial modernization legislation can pass this year?
LEACH: I think there is a good chance of a bill. It's not an absolute necessity that legislation come to fruition and therefore you may have various parties pull out of it-and by that I mean people on Capitol Hill-if they or the people they listen to if they dislike one approach or another. That would include me.
I think that this is a perfect time to pass responsible legislation and I'm personally a bit dismayed at the degree to which some parties believe they're entitled to certain things that I think if one takes a public interest perspective don't appear overwhelmingly compelling.