Banking, securities, and insurance industry executives clashed before a Senate panel Thursday, raising doubt whether their positions could be reconciled in time to enact financial reform legislation this year.
Bankers representing three major trade groups reminded the Senate Banking Committee that their objections to the bill go beyond the regulatory turf war between the Treasury Department and the Federal Reserve Board.
Bankers emphasized that the legislation-which the House approved May 13 by a single vote-contains confusing insurance provisions, fails to muzzle unitary thrift charters, and imposes unworkable low-cost banking accounts.
"These fundamental problems need to be fixed" before the industry can support the bill, American Bankers Association president William T. McConnell said. "They could not be fixed simply by tinkering around the edges."
Supporters of the bill from the insurance and securities industries responded that compromises on insurance regulation and other controversies will create fair competition.
"This regulatory structure is far superior to today's archaic and often counterproductive system," said Jim Higgins, president of Morgan Stanley, Dean Witter & Co. "Increased competition between financial services firms will reduce costs and give consumers more choices."
But even witnesses who were generally supportive of the legislation called for changes.
Matthew P. Fink, president of the Investment Company Institute, complained that the legislation would force "scores" of mutual funds to divest their commercial businesses. And he argued that tapping the Fed as umbrella regulator would extend bank-like capital and supervisory requirements to nonbanks.
"It would be like taking the laws that currently govern the automobile industry and applying them slapdash to the aircraft industry and assuming that they are going to work because the aircraft industry, like the automobile industry, is engaged in transportation," Mr. Fink said.
A coalition of consumer advocates, including the Greenlining Institute and Ralph Nader, circulated at the hearing a letter that urged committee Chairman Alfonse M. D'Amato to oppose the "fundamentally flawed" bill.
The consumer groups said the legislation would let banks dodge the Community Reinvestment Act by shifting assets to nonbank affiliates, promote the rise of financial conglomerates, and fail to protect minorities from unfair business practices.
Sen. D'Amato was frustrated by the squabbling industries. "We cannot make you all happy," the New York Republican said. "We have to do what is best so that we can be the preeminent financial services community in the world."
Sen. D'Amato criticized bankers most sharply, interrupting Mr. McConnell's testimony that the bill would preserve unitary thrifts and thus permit "unfettered" combinations of banking and commercial firms. The committee chairman accused the ABA of exaggerating the damaging economic effects of commercial ownership of banks and of an unwillingness to negotiate.
"It is crying wolf," Sen. D'Amato said. "I have not seen this great collapse take place .... That is a tremendous, incredible overstatement."
Thursday was the second day of Senate Banking's hearings on the House financial reform bill, which would permit cross-ownership of banks, securities, and insurance firms. Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert E. Rubin squared off Wednesday in a contentious debate whether new financial powers should be housed in bank holding companies or operating subsidiaries.
Norwest Corp. chairman Richard M. Kovacevich recommended the Senate adopt a scaled-down reform bill that would dodge the Fed-Treasury turf fight and federal-state conflicts over bank sales of insurance.
Echoing a bare-bones approach that has been championed by Rep. David Dreier, R-Calif., the Norwest chief said lawmakers should simply repeal the Glass-Steagall Act separating commercial and investment banks and permit bank holding companies to own insurance firms. New bank powers would be governed by existing federal law and legal precedents.
"Decisions to change regulatory jurisdiction will be better decisions after we have gained experience with affiliation," said Mr. Kovacevich, the Bankers Roundtable president.
However, John G. Heimann, chairman of global financial institutions for Merrill Lynch & Co. and former comptroller of the currency, said banking supervision should be tilted toward the Fed because it is an independent agency.
Sen. D'Amato said the committee would vote on the bill this summer. Two more days of hearings are scheduled for June 24 and June 25. Consumer advocates, as well as bank, securities, and insurance regulators are expected to testify. The Senate has roughly 40 working days left in this session.