WASHINGTON - House Banking Committee Chairman Jim Leach warned members of his panel that any effort to permit mergers between banks and insurance companies would backfire on the House floor.

The House Banking Committee is currently considering legislation that would repeal the Glass-Steagall Act. The Clinton administration and some members of the banking committee want to expand that measure to permit affiliations between banks and insurance companies.

However, Rep. Leach said in a memo to banking committee Republicans that action on insurance would invite the House Commerce Committee to offer a floor amendment authorizing states to limit bank insurance powers.

The amendment, Rep. Leach said, would likely be adopted by the House. If so, the banking industry would oppose the Glass-Steagall Act. Most bank lobbyists think the industry can defeat a bill it opposes.

"Accordingly, it is my view that the most credible way to get a bill modernizing the banking industry through the House is to remain neutral on insurance," Rep. Leach said.

The Leach memo suggests that the commerce committee, which has jurisdiction over insurance and securities legislation, may be willing to let its amendment drop if the banking bill does not address insurance.

Some bank lobbyists share that view, believing that Commerce Committee Chairman Thomas Bliley introduced legislation incorporating the insurance amendment only as a warning to the banking committee.

In a recent letter to the Virginia Bankers Association, Rep. Bliley fueled that speculation by suggesting that he still has an open mind on the issue.

"It is important that you understand I have not committed myself to any specific course of policy action by introducing this legislation," he said.

In his April 6 memo, Rep. Leach also warned committee Republicans that the thrift insurance fund may present them with a choice "in which all options are lousy and the committee in the end may have to opt for what the majority believes is the least lousy option."

Thrift executives argue that the industry will face a crisis when the insurance premiums paid by banks drop to 4.5 cents for each $100 of insured deposits, while thrift rates remain mired at 24 cents.

Rep. Leach said Congress has three choices: merge the bank and thrift insurance funds, use taxpayer money left over from the thrift bailout or impose a sizable, one-time assessment on thrifts.

Staffers familiar with Rep. Leach's thinking said the banking committee chairman regards the use of taxpayer dollars as a last resort.

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