Swaps bill headed for key vote in House bank panel next week.

WASHINGTON -- A key panel of the House Banking Committee is slated to vote next week on derivatives legislation that is roundly opposed by big banks and regulators.

The action could raise the stakes considerably in the growing debate over banks' use of derivatives. Although the bill isn't expected to win approval this year, it is likely to be the starting point for talks in 1995.

Some industry lobbyists and executives are urging the banking industry to take the legislation seriously and to begin lobbying against the measure.

Mark C. Brickell, vice president of derivatives marketing at Morgan Guaranty Trust Company of New York, called the bill troubling.

"The provisions in the bill, if implemented, would create new obstacles to derivatives use," said Mr. Brickell, who is also vice chairman of the International Swap Dealers Association.

"That is troubling when every one of the reports - by regulators, the Group of 30, and the General Accounting Office - has said that these are important risk management tools," he said.

Bipartisan Support

Bank lobbyists are concerned in part because of the legislative firepower behind the bill. The measure was introduced by Rep. Henry B. Gonzalez, D-Tex., and Rep. Jim Leach, R-Iowa, the chairman and ranking Republican, respectively, of the House Banking Committee.

In addition, the bill is cosponsored by Rep. Stephen L. Neal, D-N.C., chairman of the Banking subcommittee on financial institutions, which that will mark up the measure.

Nevertheless, the legislation is likely to run into the same jurisdictional roadblocks that have killed other bank securities bills in the past. The House Energy and Commerce Committee has jurisdiction over the securities and insurance industries, two major users of derivatives.

Although the bill was crafted to apply only to banks, thrifts, and other insured financial institutions, one expert said the bill covers much broader ground.

"It also applies to any company that is affiliated with an insured depository institution," said Karen Shaw, president of the Institute for Strategy Development.

That would include major nonfinancial companies such as General Motors Co., Sears, Roebuck & Co., and General Electric Corp. - companies whose activities fall within the jurisdiction of Energy and Commerce.

The likely clash between the two panels will probably doom the bill, she said.

However, the bill's bleak outlook is also one reason it is likely to pass the full banking committee, Ms. Shaw said.

One complaint bankers have expressed about the legislation is that it attempts to regulate their industry, while leaving others untouched.

Mr. Brickell also said he is concerned about "suitability standards," the idea that banks selling derivatives should determine that they are appropriate for their clients.

'Undesirable Element'

"That introduces an undesirable element into the banker-client relationship," he said. "It is not a part of the relationship today and it has the potential to create new forms of legal liability for banks"

Mr. Brickell expressed concern that banks could become liable for every derivatives contract that loses money. The bill's requirements for stronger capital requirements for end users is also a problem, he said.

"Derivatives, by reducing the possibility a client will encounter financial distress, can serve as a supplement to capital," he said. "So the bill will deny the benefits of derivatives to capital-constrained institutions that need them the most."

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