The House Commerce Committee has proposed sweeping revisions to pending financial modernization legislation, all but ensuring that the controversial measure will not be enacted this year.

The changes would eliminate the Office of the Comptroller of the Currency's edge in legal fights with state insurance regulators, rein in bank operating subsidiaries, and squash efforts to let banks merge with nonfinancial organizations.

House Republican leaders indicated Wednesday that the revised bill would be too contentious to make its way to the House floor for a vote anytime soon.

"Lawmakers haven't had time to focus on this and it's still too controversial," said a congressional source, who asked not to be identified.

The revisions also were criticized by Treasury Under Secretary John D. Hawke Jr., who said Wednesday that maintaining the barrier between banks and commercial firms is "illogical." He also faulted restrictions on operating subsidiaries. "Banks should have freedom of choice for the way they do business," he said.

Insurance industry lobbyists launched a vigorous campaign against the bill, which was unveiled Tuesday afternoon. Critical advertisements began appearing on Washington radio stations and in newspapers Wednesday.

Rep. John Dingell, the Commerce Committee's ranking Democrat, also is opposing the revised bill, which was drafted by Rep. Michael Oxley, chairman of the panel's finance and hazardous materials subcommittee. Rep. Dingell is preparing an amendment that would give state regulators more say over bank insurance operations.

A subcommittee vote is planned for Sept. 23 and the full committee is expected to tackle the bill two days later, according to congressional sources.

The revised bill maintains the separation between banking and commerce. The House Banking Committee had proposed allowing bank holding companies to own a limited "basket" of nonfinancial businesses.

The only exception in the Commerce bill is for firms that derive 85% or more of their domestic revenues from financial businesses. They would be permitted to retain existing commercial activities if they acquire banks.

In other major revisions:

*Activities forbidden to banks would also be off-limits to their operating subsidiaries. The Banking Committee plan outlawed only insurance underwriting and merchant banking.

*Low-cost lifeline accounts would not be required of banks that merge with insurance or securities companies.

*To launch insurance operations in a new state, a bank would have to purchase an insurance agency in existence for two years or more.

*The banking industry's exemptions from Securities and Exchange Commission registration rules would be curtailed.

American Bankers Association chief lobbyist Edward L. Yingling described the 340-page proposal as a "mixed bag" for the industry. He praised the decision to drop new powers for state insurance commissioners but criticized the curtailment of operating subsidiaries.

"The restrictions on operating subsidiaries will clearly be a problem," Mr. Yingling said.

Endorsing Rep. Oxley's proposal, Annie Hall, lobbyist for Columbus, Ohio-based Banc One Corp., said, "He gave the banking industry a fair chance when dealing with the 50 insurance commissioners."

Insurance industry groups, however, are united in opposition, because Rep. Oxley dropped plans to specify what products would be off-limits to banks. "This proposal would continue the ambiguity and uncertainty that's now gripping the financial marketplace," said Jeffrey A. Myers, spokesman for the Independent Insurance Agents of America.

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