House Banking Committee Chairman Jim Leach added some weight to "Leach Lite" last week by tacking new bank powers to his scaled- down financial modernization bill.
Rep. Leach resurrected his plan to create uninsured wholesale financial institutions, or "woofies." A new provision would allow all bank holding companies to make venture capital investments through subsidiaries.
These proposals are part of a combined bill providing bank regulatory relief and capitalizing the thrift insurance fund. Rep. Leach is pushing for a House vote on the package in September.
Last week's move expands the Iowa Republican's drive for modest financial modernization, despite the failure of his more comprehensive bill in June. Rep. Leach said he is not content to settle for a thrift fund fix and regulatory relief. "I believe that it's important for Congress to deal with all three issues," he said.
Banking trade groups have endorsed Rep. Leach's plan to marry his so- called "Leach Lite" plan with the thrift fund fix, but they have not taken a stand on his new woofie/merchant banking provisions.
Deposits at woofies, which could be chartered by banks or securities firms, would not be covered by federal deposit insurance and would be limited to accounts of $100,000 or more. Expanding into wholesale banking is a key objective of Morgan Guaranty Corp. and several other big, money- center banks looking to offer higher rates to institutional customers, sources said.
Merchant banking, on the other hand, would allow banks to make venture capital investments in nonfinancial companies. Currently, only bank holding companies with so-called "Section 20" affiliates may conduct merchant banking.
One lobbyist speculated that Rep. Leach added the provisions to gain support for his overall plan from Senate Banking Committee Chairman Alfonse M. D'Amato. The new powers would benefit many of the big financial institutions based in New York, Sen. D'Amato's home state.
But House Rules Committee Chairman Gerald Solomon could torpedo the bill. Rep. Leach may have trouble fending off Rep. Solomon's efforts to limit bank insurance powers if the bill provides too many new activities, said Peter Kravitz, a lobbyist for the Independent Bankers of America Association.