Rep. Dingell Attacks Bid To Broaden Bank Powers
WASHINGTON - Launching a vigorous attack on the Bush administration's banking bill, Rep. John D. Dingell on Wednesday warned that dangerous conflicts of interest will result if commercial banks are allowed into investment banking and other businesses.
Mr. Dingell, a Michigan Democrat who is chairman of the powerful House Energy and Commerce Committee, signaled that his committee will be a major obstacle to the wide-ranging reform bill.
Inherent Conflicts Cited
He used a hearing on the investment practices of Miami-based BankAtlantic Financial Corp. to dramatize his contention that there are inherent conflicts of interest when banking activities mix with commercial concerns.
"Should the federal government loosen regulatory controls on banks and allow them to enter into other financial fields like real estate, investment banking, and insurance, and allow the officers and owners to have entangled fiduciary duties?" Mr. Dingell asked.
"The best and simplest answer is no."
Mr. Dingell previously hinted he would oppose key aspects of the reform plan, using the Energy and Commerce Committee's jurisdiction over the securities and insurance industries as leverage.
Although the panel is unlikely to kill the bill outright, bankers fear it could saddle the legislation with so many restrictions on the use of new powers as to make them unworkable.
While Mr. Dingell's hearing focused on Bank Atlantic, a thrift that ran into problems with sophisticated real estate investments, another Energy and Commerce subcommittee heard from witnesses who warned that the changes the administration's reform proposals are too sweeping.
Comptroller General Charles Bowsher, head of the General Accounting Office of Congress, told the telecommunications and finance subcommittee that Congress should beef up the regulation and supervision of financial institutions before banks are given new powers.
Stephen Pizzo, a journalist who wrote a book on the thrift crisis, called the Treasury proposal "nonsense." Current arguments for banking deregulation, he said, are the same as those made a decade ago by thrifts, and will lead to the same type of crisis.
Mr. Dingell, who attended both hearings, ridiculed Treasury Secretary Nicholas Brady's contention that passage of the reform bill will avert a bailout of the banking industry. Mr. Dingell also indicated he is willing to play hardball with the Bush administration, saying said he will not let the bill move unless Mr. Brady testifies before his committee.
Mr. Dingell said the Treasury Secretary had not yet agreed to a hearing date. It was not possible to obtain comment from the Treasury Department.
Bailout Called Necessary
After hearing Mr. Bowsher say that a bailout is already necessary, Mr. Dingell said the Treasury Secretary was being "disengenuous."
"Their answer is to give the same scoundrels and bunglers additional powers so that they can impose on the taxpayers additional burdens," he said of Treasury's proposal for the banking industry.
Rep. Edward J. Markey, D-Mass., chairman of the subcommittee, also expressed concerns about wider bank powers.
"The BCCI case gives us real reason to pause," he said. The scandal surrounding the collapse of BCCI Holdings exposes "gaps in the regulatory structure that do not allay my fears in any way."
But while Mr. Dingell, Mr. Markey, and a number of other Democrats expressed skepticism about the reforms, their Republican colleagues indicated considerably more sympathy for the Treasury position.
Rep. Matthew Rinaldo, R-N.J., said the experience of banks with limited securities affiliates - the so-called Section 20 subsidiaries - has been over-whelmingly favorable. "There is pretty strong evidence that when a bank is able to choose where it will use its capital, it can earn healthy profits," he said.
Rep. Don Ritter, R-Pa., said the panel should recognize that combinations of banks, thrifts, and nonfinancial companies already exist. The panel should authorize new bank powers, he said, and not nullify their usefulness with overly burdensome "firewalls."
Republicans are hopelessly outnumbered in the House, however, and even if they unite behind the Treasury bill on the Energy and Commerce Committee, they would need much Democratic support to form a majority. Almost all of the panel's Democrats are seen as likely to follow Mr. Dingell's lead on this issue.
Meanwhile, both the House and Senate banking committees continued work on their separate versions of the banking bill.
House Banking Chairman Henry B. Gonzalez, D-Tex., argued in a letter to House Speaker Thomas S. Foley that the bill reported out by his committee falls solely within the jurisdiction of his panel. He urged the Speaker to refuse Mr. Dingell's request for time to review the measure.
It is widely assumed that Energy and Commerce will be given until at least early September to act on the bill.
The senior Republican on the Senate panel, Jake Garn of Utah, said Chairman Donald Riegle, D-Mich., had agreed to include in the broad banking bill a measure that would limit lender liability for environmental cleanup.
At the same time, the panel appeared to be wrapping up work on its version of interstate branching. It would delay interstate branching for three years and permit each state to decide within that time whether to permit out-of-state banks to branch within their borders.