Last year begain with promise for advocates of fundamental reform of the nation's banking laws. The Treasury Department unveiled a proposal that would have shattered the Glass-Steagall Act, the law separating investment and commercial banking.

Shepherded in large part by Rep. Doug Barnard, D-Ga., the measure made it through the House Banking Committee with most of its reform provisions left intact. But the bill lost steam in Congress and died. Congress passed a narrower bill containing regulatory reforms, but lacking any new powers for financial firms.

A leading advocate of overhauling the nation's banking laws since being elected to the House of Representatives in 1976, Rep. Barnard has urged a comprehensive approach to financial reform that would break down barriers between commercial banks, investment banks, and insurance companies. He says this is needed to ensure the continued viability of the banking industry.

But Congress, stung by criticism that deregulation exacerbated the thrift crisis and added billions to the government's cost in closing failed savings and loans, has proven unwilling to go along with Rep. Barnard's approach.

Rep. Barnard, who is 70 years old, will not seek reelection. He recently talked with staff reporter Geoffrey A. Campbell about financial reform and what it will take to get Congress to ratify fundamental changes in how financial firms do business.

Q: You've championed reforms for years. How long will it take Congress to enact the kind of changes you have envisioned?

A: We learned a lot from last year's experience, and while I would like to be more optimistic that we will have some changes in the very near future, I'm really not expecting that to take place.

We really tried to do too much last year, and as a result we didn't get anything done. But there has got to be a systematic approach to financial reform. And it has to begin with deposit insurance reform. I cannot see any restructuring or any additional bank powers coming down the line until such time as we reduce the dependency of banks on government-guaranteed taxpayers' insurance.

And that's going to be a learning process. The banks last year fought hard to retain deposit insurance coverage just like it was before and just like it is now. And as long as that insurance coverage is as it is, bank holding companies and banks are going to have a hard time getting into the area of investments such as underwriting commercial paper, underwriting corporate debt, even mutual funds.

And so consequently, that's the first thing that's got to be done. And I really think that's got to come from the banks more so than it is the [Bush] administration or the FDIC. If the banks or bank holding companies want to get into the full range of financial services, something is going to have to be done about cutting back their dependency on deposit insurance. Going hand in hand with that, bank customers likewise have got to realize that we've carried deposit insurance far too far, and there's got to be a scaling back of that insurance to something that's much more realistic.

Q: Has deposit insurance been the biggest impediment to banking law reform?

A: Bank insurance is always the most popular reason for the investment community not to want banks to be their competitors. They have a very legitimate argument. Why should their risks not be covered by government guarantees, while bank risks are? And even though we're talking about separately incorporated entities under the holding company, there's still that relationship with deposit insurance. It's just intertwined to such a degree that it will always be an excuse that banks should not be able to compete with brokers in their area of finance.

Q: Will the market "modernize" itself before Congress gets around to it?

A: I think the market is already there. The Federal Reserve has [liberalized provisions of Section 20 of Glass-Steagall], permitting bank holding companies to get into some underwriting and...into mutual funds and things like that. That to me indicates that the market is there. There is a market for banks being involved in these services, but we really ought to change Glass-Steagall and liberalize the Bank Holding Company Act and enable them to do that.

Q: What advice do you have for those banks that want to see Congress revamp federal banking law?

A: This might be somewhat repetitious, but the banks have got to realize that there has to be less dependence on the taxpayer as far as guaranteeing deposit insurance. Some risk-based premiums should be developed, or risk-based capital, but something has got to be done to wean the banks away from deposit insurance. And the banks themselves have got to come forth with a plan. Because when you come to Congress and you have the independent bankers fighting the regional bankers, the regional bankers fighting the money center bankers, it's hard for Congress to reach a decision. That to me has been one of the major impediments of bank reform.

Q: What's next for you?

A: Next for me will be a lot less strain and stress from the standpoint of getting reelected every two years. I've enjoyed my work in the Congress. None of us in Congress, though, enjoys the stress that has been on us, just as being members. But also the matter of getting reelected every two years, the tremendous amount of money you have to raise to run, that's one stress I won't have to worry about. I'm weighing some options. I don't necessarily want to hang it up, but we'll see how it works out.

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