The Internal Revenue Service may be the key to enacting financial modernization legislation. A small group of banks and insurance firms are working on a proposal that would rely on the U.S. tax code to determine which financial products will be regulated by state insurance commissioners and which will be overseen by federal banking regulators. This turf battle has been one of the major stumbling blocks to passage of a bill.
Under U.S. tax laws, the investment earnings of most insurance products are tax-exempt. Working with a few industry lobbyists, House Commerce Committee staff members are trying to draft a plan that would give state insurance officials authority over new products granted similar tax- deferred status by the IRS.
The "IRS solution" was the primary topic in talks last weekend between industry lobbyists and Commerce staff members. Sources familiar with the discussions said Rep. Michael Oxley, chairman of the panel's finance and hazardous materials subcommittee, hopes to persuade Banc One Corp., NationsBank Corp., Lincoln National Corp., and Nationwide Insurance to sign on.
The proposal was "worth pursuing," said Banc One lobbyist Annie Hall. "Rep. Oxley has been very open to making the bill better for banking."
Another bank lobbyist predicted the IRS proposal would fail. "It's an old idea that no one has taken seriously," countered one bank lobbyist.
The Commerce panel is trying to show enough progress toward an agreement that Republican leaders will keep up efforts to pass financial reform this year. House Republican Conference Chairman John Boehner is scheduled to meet with the heads of the Banking and Commerce committees Thursday to try to settle differences between their reform plans.
Norwest Corp. chairman Richard M. Kovacevich appears to have lost patience with the never-ending bickering over financial reform. His solution: Kick the lobbyists out and let the chief executives take charge.
In a Sept. 22 letter to House Commerce Committee Chairman Thomas Bliley, he argued there's no reason why a modernization bill can't pass this year.
"I believe a different process may be needed, however," he wrote. "CEOs from the bank and insurance industries need to talk with each other and not exclusively through lobbyists."
Norwest lobbyist Bill N. Kelly didn't take the boss' comment as a threat to his job security. "He wants the CEOs to enter negotiations because things have bogged down," Mr. Kelly said in an interview. "He doesn't want my job, and I don't want his either."
Electronic Payment Systems Inc., the Wilmington, Del.-based owner of the MAC automated teller machine network, has hired lobbyist James J. Butera to fight legislation pending in the Senate that would outlaw ATM surcharges . . . Joseph M. Kolar of law firm Goodwin, Procter & Hoar has been hired by the Mortgage Insurance Companies of America to lobby against legislation that would automatically terminate private mortgage insurance. . . The Credit Union National Association, which is pressing Congress to let credit unions serve employees of unrelated membership groups, has hired Maura McGilvray to beef up its lobbying team. Ms. McGilvray, 29, had been a banking staff member for Rep. Frank Lucas, R-Okla., since 1994.