Although support for aggressive financial reform is evaporating, Rep. Richard Baker isn't giving up.

In an interview last week, the Louisiana Republican laid out his new strategy. Rather than unrestricted affiliations among banking and nonfinancial firms, Rep. Baker plans to introduce legislation allowing regulators to block such mergers on a case-by-case basis.

With that safeguard, he said there is little reason to forbid broad cross-industry acquisitions.

Along with Senate Banking Committee Chairman Alfonse M. D'Amato, Rep. Baker already has sponsored legislation to remove all barriers between banks and commercial firms.

Like the original proposal, his new plan would place no specific limits on mergers. But the new bill would boost regulators' authority by giving power to halt individual acquisitions that pose a risk to the financial system or create unacceptable concentration of assets.

"There would be a regulatory system to approve acquisitions and activities on a case-by-case basis," he said. "The responsibility of preventing systemic risk and concentration of assets would be in regulators' hands."

For instance, officials could forbid banks from merging with firms in poor financial condition or with specific types of firms, such as casinos, he said.

Rep. Baker said he expects to unveil the new plan in late April.

Rep. Baker, who chairs House Banking's capital markets subcommittee, said he has not decided whether supervision of cross-industry mergers should be left to one "umbrella" regulator such as the Federal Reserve Board or spread among various agencies.

"There is no clean rule to say what the regulatory structure should look like," he said.

Rep. Baker said his revised bill gives regulators too much power, but complained more aggressive reform is impossible without support from the Clinton administration.

It's unclear where the administration will come out on banking and commerce, however, officials appear to be backing off the ambitious proposals outlined by Treasury Under Secretary John D. Hawke Jr.

While administration officials continue to debate how diversified financial institutions would be regulated, the Treasury plan is expected to allow banking companies to invest in a limited amount of nonfinancial businesses.

Treasury officials failed to meet a March 31 deadline set by Congress and have given no indication when the proposal will be ready.

"I have to fault Treasury for being very weak-kneed," Rep. Baker said. "It's really a disservice to the Banking Committee and Congress that we can't have the nation's leading financial adviser take a position on what is probably the singular most important financial issue in this decade."

Rep. Baker said banks would be denied an important source of financial backing if mergers with larger commercial firms remain forbidden.

"The reason for allowing affiliations in the first place is to have a flow of capital into the financial marketplace," he said. "I would see it as very advisable to allow banks to affiliate with larger entities."

To get regulator's input, Rep. Baker said he will provide a copy of his plan to the Fed by Friday.

The proposal received a mixed reaction from industry trade groups.

David J. Pratt, lobbyist for the American Insurance Association, called Rep. Baker's latest suggestion "very positive."

"The insurance industry already has an extensive regulatory system where companies' actions are looked at on a case-by-case basis," he said. "It sounds like Rep. Baker is trying for the same formula."

Edward L. Yingling, chief lobbyist for the American Bankers Association, said his group supports the limited approach likely to be offered by the Treasury Department. A similar plan also has been introduced by Rep. Marge Roukema, R-N.J.

"Our position is for a limited 'basket,' " on nonfinancial business, he said. "We think there is growing support from a lot of parties."

Securities Industry Association spokesman James Spellman said the group has not weighed in on the new plan, but is pushing for unrestricted affiliation between banks and nonfinancial firms.

Opposition to Rep. Baker's latest approach can be expected from House Banking Committee Chairman Jim Leach, who is pushing to keep cross-industry mergers to a minimum. Also fighting aggressive reform is the Independent Bankers Association of America, which represents small banks.

Rep. Baker insists, however, that his bill will have sufficient power to head off the type of rapid industry consolidation feared by Rep. Leach and the IBAA.

"Putting responsibility into the hands of regulators would prevent the headlong rush that many people fear," he said.

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