WASHINGTON The House Banking Committee is not going to let party differences get in the way-of its work on derivatives legislation, reform of the Glass-Steagall Act, and other top issues, said Rep. Jim Leach, the Iowa Republican who is expected to be the cornmittee's next chairman.
"I would like to steer away from ideological demagoguery in this commitee," he said. 'Most of the isaues are extremely professional and I would expect distinct differences in judgement but I think they can be resolved in a decent way."
In an interview on Tuesday, Leach said he thinks "the vast majority of legislative issues before the House Banking Committee are of judgmental, rather than partisan, nature."
The lawmaker said he plans to take a cautious approach toward any changes.
"As possible chairman of the commAttee, I have a very powerful bias towards insuring that on all subjects there is wide perspective of input received," Leach said.
"There will be no one-sided hearings. I would expect if anything that the side that feels most disadvantaged will get the most chance to make its perspective heard," he said.
Derivatives legislation is an important item on the agenda for the banking committee, but the congressional panel will take its time in passing any measure, Leach said.
"Another committee priority will be reform of the Glass-Steagall Act, but like
derivatives, the issue "is not on the 100-day agenda" of the new controlling party of Congress,"said Leach.
However, he said, the Federal Reserve Board has "capacities" to move further than it has m eliminate the barriers erected by the 1933 act between commercial and investment banking.
The Fed since the mid- 1980s has allowed about 30 banks to underwrite securities., including municipal revenue bonds, through affiliates under Section 20 of the act, but it imposed a 5% cap on revenues that could be derived from such business. The Fed raised the limit to 10% in 1987.
Leach said he supports as a policy matter raising the 10% limit to as high as 49%.
In the municipal bond sector, GlassSteagall allows banks to underwrite general obhgation bonds, but not more lucrative revenue bonds.
Meanwhile, Leach said he plank to reintroduce derivatives legislation that would bring oversight of derivatives under an inter-agency commission. He emphasittd, however, that the Banking Committee won't act quickly in passing such legislation.
"It will be one of the legislative initiatives coming from the Banking Committee, but I would stress that derivatives would not be a short-order consideration," Leach said. "I would look for at least a full year of consideration."
Because of industry concerns and regulatory efforts now underway, Leach said the Banking Committee will proceed with caution.
"Out whole approach to derivatives is very restrained in that there will be no hasty efforts to do anything," he said. "Legslation will be out for everyone to comment upon for lots of input."
The lawmaker said there will be only modest changes in his legislation. "We are not going to go beyond the administration's appropriateness standthis," he said. "I stress that because there is apprehension within the financial institutions .in that area."
However, Leach is still calling for uniform standards in overseeing the instruments.
"I do think it important that you establish accountability in the executive branch and that you have a level playing field, which can only be established with an approach that makes it clear that the are cross-industry standards, not simply standards to apply to one industry and notto another," he said.
Rumored committee clumges that could result in the transfer of securities jurisdiction to the House Banking Committee from the House Energy and Commerce Committee would probably make passage of derivatives legislation possible, Leach said.
"In terms of cohesiveness, it might," Leach said. "One of the goals of the Republicans is to diminish cross-jurisdiction and referrals."
Banking reform, including changes to Glass-Steagall, could also be eased without the jurisdictional dispute. Leach emphasized the importance of personal "working relationships" and he praised members of the Energy and Commerce Committee. If the energy panel retains securities oversight, "we hope to deal on a constructive basis withe the committee," he said.
With respect to Glass-Steagall reform, "the Banking Committee will make no rash judgments and we will be very open to any perspective the securities industry wants to suggest," Leach said.
"Simply on the merits, it's an issue that is ripe for review and... is something that should be carefully reviewed, and should be the subject of substantive hearings," Leach said.
Leach said be is "leaning in thedirection of... ending the distinctions between investment and commercial banking," but an important caveat is that insurance must remain "a stateregulated function."
Congress should "recognize by staute" what already has occurred in the private-sector landscape with regard to "an increasing assimilation of functions" of the commercial and investment banking sectors, Leach said.
This assimilation is based on changes in many areas, including technology, state law, national failed bank legislation, and regulatory policy, particularly at the Fed, be said. Leach said he expects Congress to "accelerate" those changes.
The banking industry, as well as the Justice Depagtment in a 1985 letter to the Fed, has argued that the act authorizes the Fed to raise the revenue limit on bank underwriting of securities to as high as 49% without new legislation, said Melanie I-ein, an attorney of the firm Arnold & Potter here.
Fein, who specializes in bank securities activities, was a senior counsel to the Federal Reserve's board of governors in the 1980s and was involved in opening the way for greater bank participation activities in securities- moves that have been upheld by the courts.
But the securities industry, including the Securities Industry Association oppeses any interpretation of the law that would allow the 10% revenue limited to be raised without congressional approval.
Leach said he was "not suggesting that [the Fed] defer one way or another to Congress on Glass-Steagall, but he emphasized that the Fed should "just stay within the law." However, Leach said he could not comment on the legal question of whether the act now provide authority to the Fed to raise the revenue limit.
Leach's comments on Glass-Steagallreform are "extremely encouraging," said Fein. She said a group of 30 bank holding companies and foreign banking organizations have asked the Fed to raise the 10% revenue limit to 25%. The Secruities Industry Association told the Fed in September that it opposed that request.
Instead or raising the limit, the Fed is considering proposals it made last July to give banks more flexibility under the current limit by letting banks apply the 10% limit to assets, sales, or revenues.
Fein said the proposal does not go far enough, nor does it match the rhetoric of Fed chairman Alan Greenspan's recently renewed call for Glass-Stengall reform. Several governors on the Federal Reserve Board said in 1987 when they approved raising the revenue limit from 5% to 10% that they would support increasing the threshold even further. But Greenspan did not express an opinion at the time, said Fein.
Leach's comments may put more pressure on Greenspan to raise the revenue limit, one source said.
One key difference between Leach and the current committee chairman, Rep. Henry Gonzalez, D-Tex., is in their approach to the Fed. Gonzalez "and I come frotn opposite perspectives on visceral "attitudes towards the Federal Reserve Board. I am a very strong believer in the Fed, I think it's one of the model instruments of governance in the 20th century," Leach said.
Gonzalez "is a skeptic of that" he said.