Cbo Backs Proposal To Eliminate U.S. Thrifts Legislation Would Merge Bank And Thrift Industries, Provide Level Playing Field

The U.S. no longer needs a separate thrift industry, the Congressional Budget office concluded, providing fresh ammunition for a key element of legislation to overhaul the nation’s financial services industry.

“The supply of resources available for home mortgage lending has expanded significantly,” eliminating the need for thrifts, the CBO said.

Given existing market conditions, merging the bank and thrift industries “may be the most sensible approach.”

The legislation, to be considered today by the House Banking Committee, would “level the playing field for thrifts and banks,” the CBO said, by merging their federal charters. The bill, offered by committee Chairman Jim Leach, an Iowa Republican, would, among other things, abolish the federal thrift charter and treat statechartered thrifts, or savings and loans, as banks.

“This study bolsters my view that it is essential for the Congress to enact modernization legislation that is balanced and fair,” Leach said. “Indeed, since to the average customer there is little practical difference between a bank and an S&L, no longer is there a need for separate charters,” he said.

Leach’s bill would include much of the U.S. Treasury Department’s new proposal to revamp the financial industry.

Leach, the Clinton administration and other proponents of financial reform say that antiquated laws and regulations, some dating back to the Depression, are driving up costs and stifling competition.

With billions of dollars at stake, though, many in the industry are at odds over what needs to be done, splitting support on Capitol Hill and placing in doubt whether overhaul legislation will be enacted.

In addition to abolishing the thrift charter, Leach’s bill would:

Repeal 1933 restrictions on banks affiliating with securities firms, thereby allowing banking and investment to be combined.

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

Permit banking holding companies to engage in new financial activities, including securities, insurance, and merchant banking.

Create a new type of bank, a Wholesale Financial Institution.

Establish a Council on Financial Services, chaired by the secretary of the Treasury, to help oversee the industry.

Empower national banks to underwrite municipal revenue bonds.

Leach wants to have his banking committee finish action on his bill by the end of this week. It will then be referred for up to 30 days to the House Commerce Committee. Leach had initially hoped to win House passage of the measure by Fourth of July, but delays in finishing the bill pushed back that date to the end of July.

On the other side of the Capitol, a less than enthusiastic Senate Banking Committee Chairman Al D’Amato, a New York Republican, has yet to schedule a hearing on the topic. The American Council of Life Insurance has endorsed the Leach bill, but other trade groups in the industry have voiced complaints. Cory Strupp, a managing director with J.P. Morgan & Co., said, “This bill will certainly get out of the Banking Committee and Commerce Committee, but then it will be an open question how far it goes.”

Leach’s bill rejects a key provision of the administration measure that would provide new protection for banks against state insurance laws.

Like the administration’s measure, the chairman’s bill ducks a key issue: whether banks should be permitted to engage in a certain amount of non-financial activity, such as selling cars or farm equipment.