Jim Leach is usually reserved, even cautious in his comments. But when the topic is financial reform, the House Banking Committee chairman lets loose.

In an interview last week Rep. Leach declared an "earthquake movement" has occurred in the banking industry's position on his bill to modernize financial laws.

"I'd be surprised if they oppose it," said the 11-term Iowa Republican.

That's a bold prediction, considering that all but a handful of large banks have steadfastly fought financial reform while securities and insurance firms have embraced it.

But Rep. Leach may be proved right. Ardent opponents like the Independent Bankers Association of America are reevaluating their position. Executive vice president Kenneth A. Guenther acknowledged that this may be IBAA members' last chance to prevent nonfinancial companies from buying banks.

"It would be good for the industry to get this done," agreed the American Bankers Association's chief lobbyist, Edward L. Yingling. But he quickly added, "We don't have to have a bill."

The bill's fate is now in the Senate, where Banking Committee Chairman Alfonse M. D'Amato is negotiating changes designed to win more support from bankers.

"The Senate is on a very forthright, careful track that could lead to near-consensus legislation," Rep. Leach assured. "I'm impressed by the degree of reappraisal that's under way" in the banking industry.

Rep. Leach's financial reform plan, known as HR 10, passed the House by a single vote on May 13. It was the first time-in nearly 20 years of attempts-that the House had voted to repeal the Glass-Steagall Act, which separates commercial and investment banking.

"This is very historical legislation," he said. "It is nothing less than stunning" that the House approved this bill over "the significant opposition of the banking industry."

It may have been historic, but it wasn't pretty.

House leaders first tried to bring the bill to the floor in March, but were forced to yank it just minutes before the scheduled vote. Confident they finally had enough support, they tried again in May. But when the time allotted for voting expired, "nays" outnumbered the "yeas."

Ignoring the clock, Speaker Newt Gingrich hit the House floor and started twisting arms. As soon as the tally board showed more lawmakers voting for the bill than against it, Speaker Gingrich closed the vote.

The principled Rep. Leach could be expected to frown on this sort of political chicanery. But in the interview, he returned to his understated self. "I am very appreciative of the constructive role the leaders played," he said.

One factor driving the industry's reappraisal, Rep. Leach said, is the likelihood that next year's bill would be even less palatable to bankers.

If not enacted this year, reform legislation could change drastically next year, Mr. Guenther agreed. At a minimum, he said, the 1999 version of financial reform is likely to let banks and commercial companies combine.

Rep. Leach has doggedly tried to keep banking and commerce separate. On the House floor, he unexpectedly won approval of an amendment to HR 10 that would wall banks off from nonfinancial companies. "The mixing of banking and commerce was a philosophical umbrage that needed to be fixed," he said.

Without that change, HR 10 would have had little chance of enactment this year, because Senate Banking's ranking Democrat, Paul Sarbanes of Maryland, has long opposed letting nonfinancial companies and banks merge.

With Sen. Sarbanes on board, Sen. D'Amato is trying to craft a compromise bill that would be supported by banks but would not alienate the insurance and securities industries.

"They are clearly trying to work in our direction in significant areas," said the ABA's Mr. Yingling.

At an "absolute minimum," he said, unitary thrift holding companies must be prohibited from selling their thrifts to a commercial company. As approved by the House, the bill would bar Microsoft from chartering a thrift, but the computer giant could buy one, he explained.

Mr. Guenther agreed, and added that the IBAA wants Congress to dump provisions allowing wholesale financial institutions to be created. The ABA and the IBAA also are both working to expand bank insurance powers under the bill.

Another big issue is where new bank powers could be conducted. Like the Clinton administration, banks want to decide for themselves, rather than be obliged to house new activities in a holding company unit.

Rep. Leach is pressing financial reform to help U.S. institutions remain competitive globally. "Within the next six years we have the capacity to establish semi-permanency of U.S. financial supremacy," he said.

But there is another reason: fairness. Rep. Leach said it is "blatantly unfair" for large companies to exploit loopholes in existing law.

Travelers Group's planned acquisition of Citicorp is "blatantly unfair unless all other companies can have the same opportunity," Rep. Leach said.

With Congress scheduled to adjourn in early October, Rep. Leach knows time is running out on his bill. But he remains optimistic financial reform will be enacted this year.

"The glass is more than half full," he said. "The possibility of bank modernization is real."

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