WASHINGTON - House Banking Chairman Jim Leach this week finally unveiled a new version of his bill to grant banks new securities powers and relieve the industry of some regulatory burdens.
But the legislation's chances remain iffy, banking industry sources said. Rep. Leach was scheduled to meet with House Speaker Newt Gingrich Wednesday night, and sources speculated that the Speaker would demand that Rep. Leach drop his last-ditch efforts to drum up support for his Glass-Steagall bill.
Banking Committee Republicans also vehemently opposed Rep. Leach's plan in a closed meeting Tuesday.
Last week, the Iowa Republican proposed altering separate legislation to rebuild the thrift insurance fund by shifting the planned annual interest payments on long-term bonds from banks to Freddie Mac and Fannie Mae.
The new Glass-Steagall bill may do little to foster more bank industry support. That's because the deal Rep. Leach had to strike with House Commerce Committee Chairman Thomas J. Bliley Jr., R-Va., is worse than bankers expected.
A key provision of Rep. Leach's compromise with Rep. Bliley would allow banks to underwrite municipal revenue bonds, but only through tightly regulated "Section 10" holding-company units that would be created by the bill.
"Having to push municipal bond underwriting business into a Section 10 essentially keeps community banks out of that market," said Peter Kravitz, a lobbyist for the Independent Bankers Association of America, a trade group that represents small banks.
House Banking staff members last week said they expected Rep. Bliley would allow small banks to underwrite municipal revenue bonds directly in subsidiaries, which would be less tightly regulated than Section 10 affiliates. A Commerce Committee staffer said that would be too risky because banks' core operations have the "implicit" guarantee of federal deposit insurance.
Edward L. Yingling, chief lobbyist for the American Bankers Association, said that this "push out" provision is a disappointment. "For some banks, particularly midsize banks, that change is going to be a big negative," he said.
The compromise, however, would not require banks to move existing securities activities to holding-company subsidiaries.
Other provisions of the agreement between Rep. Leach and Rep. Bliley include:
*The Federal Reserve Board, not the Securities and Exchange Commission, would decide which securities are "bank eligible."
*Private placements could be done within a bank.
*Banks without Section 10 affiliates could underwrite asset-backed securities within the bank itself, but those with the affiliates would have to move all such business to the Section 10.
Many bankers, led by the ABA, also continue to oppose the bill's freeze on the Comptroller of the Currency's ability to grant new insurance powers for five years.
The Independent Bankers group is supporting the bill because its members want the regulatory relief it offers. The Independent Insurance Agents and the American Council on Life Insurance expressed support for the new bill Wednesday.