WASHINGTON - House Banking Committee Chairman Jim Leach warned bankers last week that opposing his legislation granting the industry new securities powers and regulatory relief would backfire.
"I frankly wonder whether institutions such as yours really want to precipitate the defeat of landmark legislation to reform Glass-Steagall as well as the most comprehensive regulatory relief bill the banking industry has been provided in recent years," Rep. Leach wrote in a seven-page letter to banking executives.
On Oct. 11, CEOs from 36 large banks called the measure "anti-consumer,protectionist legislation" in a letter to House Speaker Newt Gingrich.
While they support repeal of the barriers between commercial and investment banking and are enthusiastic about any regulatory relief, the bankers are irked by a provision that would impose a five-year moratorium on the Comptroller of the Currency's ability to expand bank insurance powers. They also are unhappy that a deal fell through that would have allowed banks to affiliate with insurance companies in most states.
The executives' letter reportedly infuriated Rep. Leach, who seems convinced any change in the bill's compromise on insurance could spell disaster for banks.
"Unless this approach is adopted, the chairman of the Rules Committee has made clear that he will insist on an amendment substantially rolling back bank insurance powers," Rep. Leach wrote. "I would stress that the insurance industry has always prevailed on amendments on the House floor."
Rep. Leach defended the moratorium, noting that "very few serious attorneys ... believe that the Comptroller has much more discretion to authorize any new insurance powers."
In fact, Rep. Leach said, the moratorium would codify for the first time the banking industry's legal right to sell annuities. This power was won in January through the Supreme Court.
In the last lines of his letter, Rep. Leach also held out a potential, unrelated plum. If the industry supports his Glass-Steagall bill, he said, he may soften legislation bailing out the Savings Association Insurance Fund, which would require banks to pay 75% of the annual interest due on Financing Corp. bonds through 2017.
"I am greatly concerned ... the balance may not be right with regard to 'pain sharing' on Fico liabilities and this issue might have to be reviewed," Rep. Leach wrote.
Edward L. Yingling, chief lobbyist for the American Bankers Association, was encouraged.
"I think this is very positive," Mr. Yingling said. The letter overall is "very thoughtful and one the entire industry ought to read," he said.
Separately on Friday, ABA sent a one-page fax to its members titled, "$12 Billion for the S&Ls, Are You Mad Yet?" The fax urged bankers to contact their congressional representatives and oppose requiring the industry to pay any piece of the thrift fund rescue.
In their letter to Rep. Gingrich, the bankers also opposed plans to force their securities activities into holding company subsidiaries. But Rep. Leach said that deal has not been cut yet.
"I can only say I'm a bit nonplussed," he wrote. That part of the bill has "not been finalized and none of your banks have seen the draft we are working on."
He urged bankers to "withhold judgment" on the provisions determining which types of securities could be underwritten directly by bank units and which must be pushed out to subsidiaries. But lobbyists said withholding judgment also means withholding support.
While Rep. Leach said last Monday that he wanted to bring the legislation to the House floor for a vote on Tuesday, industry lobbyists doubt that is possible because provisions detailing the structure of bank securities activities are still in limbo.