Riegle's Bill Likely to Draw Opposition from Big Banks

WASHINGTON - Senate Banking Committee Chairman Donald W. Riegle proposed Tuesday a broad restructuring of the U.S. financial system that is likely to disappoint big banks and diversified financial services companies.

Unlike the measure passed last month by the House Banking Committee, the Riegle bill would not permit affiliations between banks and nonfinancial companies.

The Michigan Democrat's draft bill calls for repeal of the Glass-Steagall Act and promises full interstate branching within three years - but sets limits on both events.

Insurance Restricted

In addition, the measure would restrict bank insurance activities and mandate a number of new consumer services, including low-cost transaction accounts for the poor.

"There seems to be something in the bill for everyone to hate," said Samuel Baptista, president of the Financial Services Council, an active supporter of the less restrictive House package.

As a result, many observers believe the Riegle draft - the "committee print" - is likely to be only a starting point for private talks among Senate Banking Committee members.

ABA to Seek Changes

Edward L. Yingling, director of government relations for the American Bankers Association said his group would "seek significant changes in the print."

In particular, he said, bankers would work to limit the consumer provisions and ease the firewalls, or restrictions on the use of new securities powers. Bankers are also concerned about "cross-guarantee" provisions that require affiliates of a failed bank to reimburse the deposit insurance fund for losses.

The Independent Bankers Association of America cheered provisions in the bill that maintain existing levels of deposit insurance.

Listening to Main Street

"Chairman Riegle, unlike President Bush, has been sensitive to the concerns of Main Street America," said Kenneth Guenther, executive vice president of the independent-bank lobby.

The Riegle proposal would permit full interstate bank branching within three years, except in states that choose to opt out. But it sets concentration limits that could prevent institutions with interstate networks from converting banks into branches.

A banking concern with more than 30% of any state's deposits would be able to branch only de novo, that is, by establishing new offices.

The Riegle print would also merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency into a single independent agency housed outside the Treasury.

In a major departure from past practice, the bill would impose a special assessment on foreign branch deposits and other uninsured liabilities to pay for the first $10 billion in borrowing by the Bank Insurance Fund.

Bankers Trust New York Co., Morgan Guaranty Trust Co., Citicorp and others that depend heavily on foreign branch deposits would be especially hard hit by that provision.

Sen. Riegle would also require the agency to establish a schedule that would lead to the establishment of reserves equal to 1.25% of insured deposits within 10 years.

The Riegle print also would permit national banks to sell insurance in states that authorize such activities for state-chartered banks.

However, both state and national banks would be barred from affiliating with insurance underwriters.

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