Banking bill suffers setback in House

By Mike Dorning
Chicago Tribune

Published in The Orlando Sentinel, April 1, 1998

WASHINGTON -- Efforts to overhaul the nation's Depression Era banking laws suffered a possibly fatal setback in the House of Representatives Tuesday evening.

And though the banking industry generally detests the restrictive laws and has fought for at three decades for their removal, it was a lobbying campaign by banks that stopped an overhaul of the 65-year-old Glass-Steagall Act.

A visibly angry Rep. Gerald Solomon, R-N.Y., withdrew the legislative package after it became clear there were insufficient votes to pass a procedural motion to bring the measure to the House floor.

In pulling the bill, Solomon attributed the lack of support to a ``lobbying effort I've never seen before in my life.''

``Your friendly neighborhood banker has been on the phone all day,'' he said after what was clearly a defeat for the majority Republicans who had championed the legislation.

Were it to be enacted, the banking legislation would speed up changes in the financial industry that already have blurred the distinctions among banks, stock brokerages and insurance companies. Many of the remaining legal barriers separating those businesses would be removed.

Proponents of the measure envision it moving the nation closer to ``one-stop'' financial shopping, with brokerages such as Merrill Lynch competing head-on with banks such as NBD-First Chicago Corp. and offering the same panoply of services: everything from life insurance to mutual funds to checking accounts.

But federal regulators and the Supreme Court already have been chipping away bit by bit at banking law restrictions in recent years.

Bankers, chafing at some of the restrictions included in the House legislation, ultimately reasoned they could do better by working through regulators to circumvent existing restrictions.

They were joined in their opposition by the Clinton administration. The White House threatened a veto and complained the measure would disadvantage small banks with ``needless costs'' and would undermine regulations intended to steer investment into poorer communities.

Congressional leaders said they planned to bring up the legislation again in May, and Banking Committee Chairman James Leach, R-Iowa, said he expected to reconsider some of the more contentious provisions in the bill.

But any delay cuts the chances the measure will gain passage by both chambers before Congress adjourns this fall.

The Senate Banking Committee has not yet acted on the legislation. Its chairman, Sen. Alfonse D'Amato, R-N.Y., has said he will not take up the package unless the House passes it with both broad and bipartisan support.

Solomon, the powerful chairman of the House Rules Committee, also left the debate embittered.

A member of the committee quoted him as telling colleagues on the panel, ``You'll never see that bill again. The bankers are so greedy.''

The defeat was an embarrassment for Republican leaders, who had pushed hard for its passage and highlighted the legislation as a priority by making it one of the first 10 bills introduced this Congress.

Sensing weak support, the GOP leadership sought to bolster the measure's chances by attaching a politically popular measure protecting credit unions from a recent unfavorable Supreme Court decision.

But backing for the bill crumbled. Three key Republicans, Reps. Bill McCollum of Florida, Richard Baker of Louisiana and David Dreier of California, announced their opposition in a letter arguing language in the bill ``places significant new burdens on financial services firms to the detriment of their customers.''

Rep. John Dingell of Michigan, the House Commerce Committee's top Democrat, also came out against the measure after Republican leaders rejected a series of consumer protection measures he favored. He took with him any hope of substantial support from Democrats.

The legislation was opposed by consumer groups, who argued it would lead to a further concentration of economic power. Groups such as the Consumers Union also contended that provisions loosening restrictions on bank ownership of unrelated commercial businesses could put insured deposits at risk.

The package did receive strong support from insurance companies and brokerage houses and from Federal Reserve Chairman Alan Greenspan.

But all the while, bankers were on the phone, relaying their opposition to their congressional representatives.

``I have a lot of small banks in my district. I've been hearing from all of them,'' said Peoria's Rep. Ray LaHood, R-Ill.

``People just had too much heartburn,'' LaHood added.

Ed Yingling, a lobbyist for the American Bankers Association, said the industry's chief concerns with the package included a provision allowing state insurance regulators to override the decisions of national banking authorities, as long as a court did not find the regulations actively discriminated against banks. Each regulator tends to be more friendly to its own industry.

Also high among the industry's concerns was a requirement that banks provide low-cost ``life-line checking'' to poorer customers, he said.

Smaller banks generally considered too costly a holding company structure they would have to create to take advantage of some of the new powers available to them.

[Posted 04/01/98 12:54 AM EST]