Pending Legislation Finanicial Modernization

Rep. John J. LaFalce, the ranking Democrat on the House Banking Committee, introduced a streamlined reform bill Wednesday that would permit banking, insurance, and securities firms to own each other. Treasury Secretary Robert E. Rubin endorsed the plan, which would let operating subsidiaries of national banks underwrite securities and conduct merchant banking activities but bar them from insurance underwriting and real estate development.

It also would let holding companies derive 15% of annual revenue from commercial activities, preserve current law on unitary thrift holding companies, create consumer protections for sales of investment products, and require banks that affiliate with insurance or securities entities to have-and maintain-a "satisfactory" or better community reinvestment rating.

Banking Committee Chairman Jim Leach introduced a financial reform bill Jan. 6 that would also permit broad affiliations. But it would bar banking organizations-except unitary thrift holding companies that are grandfathered under the bill-from owning nonfinancial businesses. Commercial companies could not buy unitary thrift holding companies. Bank operating subsidiaries would be barred from underwriting activities, merchant banking, or real estate development.

On the Senate side, Banking Committee Chairman Phil Gramm is developing a draft bill that could be released as early as this week. It is expected to eliminate community reinvestment requirements that were included in last year's bill, permit insurance and securities underwriting in the operating subsidiaries of smaller banks, keep unitary thrift holding companies intact, and let bank holding companies conduct a limited amount of commercial activities. Rep. Bill McCollum Republican of Florida Community Reinvestment Act

Rep. Bill McCollum, R-Fla., introduced two Community Reinvestment Act reform bills Jan. 6. One would exempt from the law any bank with less than $500 million of assets. Banks still subject to the law would self-certify that they are in compliance. Consumers could challenge the self- certification, and regulators could use their enforcement powers against violators but could not reject mergers on CRA grounds.

The second bill would amend fair-lending law to explicitly bar banks from refusing to extend credit because of the race or ethnicity of a neighborhood. S Corporations Rep. Marge Roukema Republican of New Jersey

Rep. Marge Roukema, R-N.J., introduced legislation Jan. 6 that would make it easier for small banks to convert to so-called S corporations. The bill would let a company qualify for S corporation status if it had no more than 150 shareholders (double the current limit of 75). It would also let investors hold S corporation stock in individual retirement accounts, exempt investments that banks maintain for supervisory and liquidity purposes from limits on S corporations' passive income, and clarify the treatment of stock that bank directors are required by regulators to hold. New Legislation Regulatory Relief

The Senate Banking Committee is expected to approve today a bill offered by Sens. Richard C. Shelby, R-Ala., and Connie Mack, R-Fla., that would let banks earn interest on reserves held at the Federal Reserve. Also, banks and thrifts could pay interest on business checking accounts starting Jan. 1, 2001; in the interim, the legislation would expand the number of withdrawals that commercial customers could make from money market deposit accounts, to 24 per month from the current limit of six.

Besides rolling back more than 40 reporting and other minor rules, it would eliminate the special reserve account of the Savings Association Insurance Fund.

Meanwhile, Sens. Chuck Hagel, R-Neb., and Jack Reed, D-R.I., introduced legislation Feb. 3 that would let banks pay interest on business checking accounts. And Sens. Michael Enzi, R-Wyo., and Tim Johnson, D-S.D., offered a bill Feb. 4 that would repeal the $1.05 billion SAIF special reserve. Privacy Sen. Paul S. Sarbanes Rep. Jim Leach

Sens. Paul S. Sarbanes, D-Md., and Christopher J. Dodd, D-Conn., introduced legislation Jan. 19 that would require federal regulators to issue rules that limit the use of consumer data. It would bar disclosure of account balances and other routine transactional data as well as require banks to get permission from customers before selling confidential information to, or sharing it with, an unaffiliated third party. Banks could continue sharing a customer's information among affiliates unless the person objects. They would also have to disclose how their information is used and let customers verify the data's accuracy.

Rep. Leach introduced legislation Jan. 6 that would make it a federal crime to trick banks, or try to trick them, into divulging private customer data. It would also make it illegal for someone to ask another person to obtain customer information if he knows that fraud will be used to get it. Know Your Customer Rep. Ron E. Paul Rep. Richard H. Baker

House Republicans unveiled four bills in the last two weeks that would block a proposed know-your-customer rule because, they said, it would invade the privacy of bank customers. Rep. Ron E. Paul, R-Tex., and nine co-sponsors introduced a bill Feb. 3 that would prevent adoption of the anti-money-laundering proposal. Rep. Richard H. Baker, R-La., introduced a similar bill Feb. 4 that would nullify the regulation before it takes effect. The other bills' lead authors are Reps. Bob Barr, R-Ga., and Van Hilleary, R-Tenn.

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