Rep. Jim Leach is endangering the delicate deal, struck July 25, that would rescue the thrift insurance fund and repeal some industry regulations.
He is once again insisting that bank powers be included in any legislation that comes out of his House Banking Committee.
"Financial modernization" has bogged down House Banking all year, and it now threatens to kill the one piece of legislation that has a chance of enactment.
After finally persuading the banking industry to sign on, Rep. Leach added two powers provisions to the deal rescuing the insurance fund and providing regulatory relief.
One would create wholesale uninsured financial institutions, or "woofies." The other would allow all bank holding companies to make venture capital investments through merchant banking subsidiaries.
Banking lobbyists are concerned that Rep. Leach is opening the door to other amendments, which could kill the bill. Rep. Leach's move could invite another attempt to bar the comptroller of the currency from expanding bank insurance powers.
"We have a very focused fix to a major public policy problem. The more you add onto that, the more controversial it becomes," said Peter Kravitz, lobbyist for the Independent Bankers Association of America.
Rep. Leach's two provisions are controversial, and lawmakers will have less than a month to pass legislation when they return from the presidential conventions in September.
"Woofies in particular have significant public policy implications that have never been thrashed out," said Bert Ely, president of Ely & Co., a bank consulting firm in Alexandria, Va. "At this late hour, any controversy is potentially a killer."
On July 17, Congress did solidly defeat House Rules Committee Chairman Gerald Solomon's attempt to place restrictions on the comptroller. Rep. Leach, according to his staff, feels the comptroller's moratorium is dead.
"Solomon is in a much weaker position today than he was anytime before that vote," said a spokesman for Rep. Leach.
The American Bankers Association, which supports creation of woofies, also is unfazed by the insurance industry threat, said lobbyist Floyd Stoner.
"They've had their vote and lost," he said.
In Rep. Leach's view, creating wholesale banks and expanding merchant banking powers would actually help chances for the thrift fund fix by bringing the securities industry on board.
Now that the Federal Reserve has proposed raising the underwriting limits on banks' section 20 securities affiliates, the securities industry is demanding a two-way street that would let it get into banking.
But in his effort to get securities industry support, Rep. Leach may split the banking industry. The IBAA opposes allowing banks to affiliate with wholesale banks; without affiliation, the ABA opposes woofies.
The IBAA, which represents only community banks, argues that federal deposit insurance funds would be put at risk if banks were allowed to affiliate with woofies.
America's Community Bankers, the thrift trade group that has lobbied furiously for a fund rescue, is taking a pragmatic stand on Rep. Leach's move to expand bank powers.
"We want a bill that can pass," said lobbyist Steve Verdier. "If adding bank powers helps, we favor adding powers. If subtracting powers helps, we favor subtracting powers."