Senate Panel Nears Accord On Nonbanks
WASHINGTON - The Senate Banking Committee appears to be nearing a consensus that would permit commercial and industrial companies to purchase failing banks, according to according to legislative sources and lobbyists.
The provision would not go so far as the Bush administration would like. It calls for dismantling of the Glass-Steagall Act and provisions in the Bank Holding Company Act that prevent ties between banks and industrial enterprises.
But the emerging Senate approach would result in a significant breach in the wall that separates banking and commerce.
Strong Riegle Opposition
The committee chairman, Sen. Donald W. Riegle, D-Mich., opposes loosening of the laws that prevent banks from affiliating with nonfinancial corporations. That resistance has been a principal reason he has delayed a committee vote on banking reform legislation.
"It's been very frustrating," said Sam Baptista, president of the Financial Services Council, which is pushing for an end to the ownership restrictions.
"The word we get is that a number of [senators] find it intriguing, but Sen. Riegle doesn't want to go forward if [the ownership provisions are] on the table," the lobbyist added.
Meanwhile, the House Energy and Commerce committee prepared to begin work on the bill following a decision earlier this week by Speaker Thomas S. Foley to give the panel a broad mandate to draft its own bill.
The House panel's telecommunications and finance subcommittee scheduled a hearing for Wednesday to hear Treasury Secretary Nicholas Brady testify, and will continue hearings the following day. The committee was given until Sept. 27 to complete work on the measure. After that, the full House will have to decide between the bills produced by Energy and Commerce and House Banking.
Three other House committees - Agriculture, Judiciary, and Ways and Means - were also given an opportunity to weigh in on the banking bill by Sept. 27.
Differences to Resolve
Mr. Reigle and his staff have been talking to other members of the Senate committee in an effort to narrow differences on the chairman's draft of a banking reform bill, which has aroused strong opposition.
The opposition is emerging to the strong firewalls Mr. Riegle proposed to safeguard insured deposits in banks that underwrite securities, and to a provision that would prohibit regulators from rescuing large institutions under the "too big to fail" doctrine.
A majority of the panel also appears to oppose a requirement for banks to rebuild the insurance fund to a level of reserves equal to $1.25 per $100 of deposits. It also opposes a provision that would require nonbank affiliates of a failed institution to reimburse the fund for losses.
Some Barriers Crumbling
Mr. Riegle appears most concerned about the banking and commerce issue, according to industry sources and staff aides.
Other lawmakers are willing to consider any step that reduces taxpayer exposure, said Senate aides. In addition, many lawmakers believe the banking and commerce barriers have already been breached. Any type of company can own a thrift, and a number of commercial and industrial concerns already own nonbank banks with limited-service charters.
"If you have a failing bank, and the best bid comes from an industrial firm, and you tell the FDIC it can't accept that, you are making the taxpayer pay to maintain a fiction that doesn't exist in the real world," said a senior Republican aide.