WASHINGTON - Sen. Christopher J. Dodd, D-Conn., who has battled for years to limit bank insurance powers, said Tuesday he was seeking an inter-industry compromise on legislation addressing insurance and interstate branching.
Sen. Dodd believes a 1991 bill, which much of the banking industry opposed, reflects "the direction" in which he was trying to move. That bill authorized interstate branching, but set a number of restrictions on bank insurance activities.
"I'm trying to put together a compromise here that will achieve the desired results," said Sen. Dodd during a hearing. "In the absence of that, we are engaged in a wonderful dialogue here, but it's not going to go anywhere."
The Connecticut Democrat spoke as the Senate Banking Committee began hearings on interstate and insurance. The panel's chairman, Sen. Donald W. Riegle Jr. has said he plans to ask the committee to vote on a bill next month.
Several lawmakers said their views on interstate branching had been affected by the credit crunch.
Sen. Connie Mack, R-Fla., and Sen. Richard Bryan, D-Nev., both said that the lion's share of deposits in their state are controlled by a handful of banks, a situation they said exacerbated the credit crunch.
"With four banks controlling 75% of the deposits, it means that four people can wake up in the morning and decide not to make certain kinds of loans," said Sen. Mack, whose home state bankers have traditionally been wary of interstate.
"I'm beginning to have some concern about fewer and fewer people controlling a larger and larger share of the deposits," he added.
Federal Reserve Board governor John P. LaWare responded that banks have just passed through "a very traumatic period." Because of past loan losses, many were rethinking their lending strategy, he said.
Moreover, Mr. LaWare said, small banks have thrived even in highly concentrated markets. California, he noted, has more than 300 community banks, despite the presence of several large banks and a statewide branching law that has been on the books since 1927.
"We have not four banks, but two banks that make the lending decisions in my state," said Sen. Bryan. "There are other banks in the state, but because of their lending limit, we had a precipitous decline (in credit availability) when the two large banks withdrew from the market."
Both Mr. LaWare and acting Federal Deposit Insurance Corp. chairman Andrew C. Hove endorsed interstate and opposed limits on insurance powers. Comptroller of the Currency Eugene A. Ludwig also opposed insurance restrictions, but said his office still was studying interstate.
Edward L. Yingling, chief lobbyist for the American Bankers Association, said the ABA supports interstate, but will strongly oppose any bill that includes "insurance rollbacks."