Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: TUESDAY, May 9, 1995 TAG: 9505090113
SECTION: BUSINESS PAGE: B-6 EDITION: METRO
SOURCE: Associated Press
DATELINE: WASHINGTON LENGTH: Medium
``There is some chance for a compromise, but it looks like it's going to be very, very difficult,'' said Sam Leaman, banking expert for Natwest Washington Analysis, the research arm of Natwest Securities.
The House Banking Committee was scheduled to take up a major reform bill today sponsored by the panel's chairman, Rep. James Leach, R-Iowa. Rep. Richard Baker, R-La., sponsor of a broader bill, was trying to craft a compromise Monday that would permit banks greater entry into the insurance business.
The heart of Leach's bill, called the Financial Services Competitiveness Act, would loosen the 60-year-old Glass-Steagall Act which forbids banks from engaging in investment banking.
Congress erected the barrier between Wall Street and commercial banking following bank failures in the Depression, reasoning that the securities business was too risky for banks entrusted with federally insured deposits. That view now is widely challenged by banking experts and academics.
The Leach bill also would greatly simplify the approval process a healthy, well-capitalized bank would have to undergo to expand into riskier, nonbanking activities.
And it would create new financial-services holding companies which could own a bank, brokerage firm and insurance company. Financial regulation would be changed, with the Securities and Exchange Commission supervising the securities dealings of these companies, while banking regulators oversaw bank activities.
The Republican takeover of Congress, coupled with the Clinton administration's support for expanded banking powers, led to considerable optimism earlier this year that major bank reform could win passage.
Little was said at the time about the battle by banks to sell insurance, a dispute largely blamed for killing the last bank reform measure in 1991.
Insurance agents, led by the politically powerful Independent Insurance Agents of America, have fiercely opposed banks' entry into their business, saying banks would gain an unfair advantage that would harm consumers and small businesses.
Banks want to sell insurance as part of an overall effort to diversify their revenues into other financial-services businesses. Banks won a major victory in January, when the Supreme Court ruled that banks should be allowed to sell annuities because the investment products are not a type of insurance.
Baker was drafting an amendment to Leach's bill that would permit nationally chartered banks to sell insurance products, other than annuities, but not in bank lobbies. Another key provision would permit financial-services holding companies to own commercial banks, securities firms and insurance companies, but it wouldn't permit industrial firms such as General Motors to own banks, a Baker spokesman said.
by CNB