Nonbanking interests in favor of cross-industry affiliations turned up the volume at a congressional hearing Wednesday.
In the face of opposition from key lawmakers, the securities and insurance industry officials are mounting a desperate effort to gain support for sweeping reform legislation.
The nonbank financial organizations don't want to be covered by the same restrictions that prohibit banks from affiliating with other types of commercial enterprises. They don't want to have to divest commercial affiliates as a condition for merging with banks.
"This is a choice that securities and insurance companies should not be required to make," Marc E. Lackritz, president of the Securities Industry Association, told the House Banking Committee. "Securities firms and insurance companies have never been limited in their ability to affiliate with commercial companies."
Attempting to answer concerns about unfettered crossovers between banking and commerce, he added, "Congress can develop appropriate safeguards to protect the insured deposits of a bank from the financial fortunes of its commercial affiliates."
Protecting their commercial affiliations has become a priority for major diversified financial firms. They contend that while banks are entering their businesses, securities and insurance firms are blocked from buying banks.
For example, Merrill Lynch wants to keep its investment in Bloomberg LP, the financial news operation. Many insurance companies would be prohibited from buying banks because they are owned by nonfinancial corporations.
Mr. Lackritz rejected arguments by House Banking Committee Chairman Jim Leach, Senate Minority Leader Tom Daschle, and Sen. Paul Sarbanes that cross-industry mergers would lead to domination of financial services by conglomerates.
"There is no reason to prevent a bank from affiliating with a commercial enterprise when that affiliation does not present anti-competitive concerns," Mr. Lackritz said at the House Banking Committee hearing.
Jeffrey A. Tassey, senior vice president of the American Financial Services Association, called worries about mixing commerce and banking "an overblown philosophical issue."
Mr. Tassey said individuals may own both banks and commercial firms and pose no apparent risk to the financial system. "It is difficult to understand why individuals should not be subject to the same restrictions as corporate owners," he said.
Christine A. Edwards, general counsel of Dean Witter, Discover & Co., said Congress need look no further than the handful of unitary thrift holding companies and limited-purpose banks with commercial affiliations to erase doubts about cross-industry combinations.
"The record is clear," she said. "They have done this without endangering the deposit insurance or payment systems, generating systemic risk, or creating massive conglomerates."
"Restrictions on the mixing of banking and commerce should not apply to insurance companies or their affiliates," said Craig A. Berrington, general counsel of the American Insurance Association.
Affiliation with commercial entities helps insurance companies diversify risks and reduce earnings volatility, he added.
Also at the hearing Wednesday, former Federal Reserve Board Chairman Paul A. Volcker reiterated his long-standing opposition to mixing banking and commerce. Mr. Volcker said lawmakers should not ease restrictions just to please industry groups.
"No one is proposing that those financial firms with commercial ties lose any option they now have," he said. "What they could not do is associate with both a bank and a commercial firm-none of their competitors could either."
Five insurance industry representatives attacked the Office of the Comptroller of the Currency for giving banks a competitive edge.
Brent Larsen, director of government affairs for Grinnell Mutual Reinsurance Company in Iowa, asked lawmakers to "eliminate the comptroller's ability to determine what insurance activities are permissible for national banks."
That would amount to a reversal of the Supreme Court's 1996 Barnett decision.
Testifying for the National Association of Mutual Insurance Companies, Mr. Larsen said banks ought to be regulated by state insurance commissioners and comply with state laws.