In a landmark vote, the House approved the Financial Services Act of 1998 by a 214-to-213 margin Wednesday. Key provisions of the roughly 300- page bill would:

Repeal the 65-year-old Glass-Steagall Act that separates commercial and investment banking.

Eliminate Bank Holding Company Act restrictions on banks affiliating with insurance companies.

Override state laws preventing affiliations.

Require diversified financial services firms that own banks to form holding companies that would be overseen by the Federal Reserve Board under a streamlined system.

Provide for functional regulation of financial activities.

Nonfinancial Activities

Bar financial holding companies from conducting nonfinancial activities.

Grandfather nonfinancial activities of existing firms at 15% of annual gross revenues for 10 years, with the possibility of a five-year extension by the Federal Reserve Board.

Let grandfathered thrift holding companies continue their current nonfinancial activities without limitations.

Bank Powers

Preserve state laws governing insurance and securities sales unless they "prevent or significantly interfere" with national bank activities.

Strip the comptroller of the currency of "deference," or legal advantage, in court disputes with state insurance regulators.

Permit banks to own operating subsidiaries that conduct insurance, securities, travel agency, and other sales activities.

Bar operating subsidiaries from underwriting activities, merchant banking, or real estate development.

End banks' exemption from federal securities laws except in a dozen categories including government securities, sweep accounts, and some trust and fiduciary services.

Let national banks underwrite municipal revenue bonds directly.


Preserve the thrift charter.

Bar formation of unitary thrift holding companies that had not applied for charter by March 31.

Grandfather existing unitary thrift holding companies, permit them to change owners, and retain all powers.

Keep the bank and thrift deposit insurance funds separate.

Home Loan Bank Reform

Lift requirement that 10% of total assets be in residential mortgages or mortgage-backed securities for federally insured institutions with less than $500 million of assets that want to join the Federal Home Loan Banking System.

Let Home Loan bank members receive advances for funding small-business, agricultural, and community development loans.

Consumer Protections

Require banks to tell consumers which products are not federally insured.

Require banks to separate deposit and loan services from insurance or other nondeposit sales activities.

Mandate financial holding companies to supply low-cost banking accounts.

Mandate federal regulators to review their rules on consumer fee disclosures.

Other Create a new type of bank-the wholesale financial institution-that would provide securities and insurance firms with access to the Fed's discount window.

Studies to be Done

By the Treasury Department to determine whether adequate services are being provided under the Community Reinvestment Act.

By the Federal Trade Commission on privacy issues.

By the Federal Deposit Insurance Corp. on the need to merge the bank and thrift funds.

By the Office of the Comptroller of the Currency on the impact of the legislation small banks and, separately, on bank fees.

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