House Panel Clears Banking Bill Legislation Allows Banks, Commercial Companies To Combine

Over the opposition of its chairman, the House Banking Committee voted overwhelmingly Tuesday to adopt a sweeping measure that would allow banks to buy commercial companies, tearing down the traditional walls between the two arenas.

Federal Reserve Chairman Alan Greenspan had recently urged the panel to approve legislation allowing mergers of banks and other financial businesses but to postpone action on the more radical step of letting banks and commercial companies combine.

Rep. Jim Leach, R-Iowa, the committee’s chairman, warned before the 35-19 vote that adopting the provision could create “a liability for the U.S. taxpayer of enormous dimensions.”

Leach contended there was no economic rationale for the action, saying such a move could bring greater concentration of economic power and potential conflicts of interest by banks in making decisions on granting credit.

But proponents of the bipartisan amendment said the change was needed to catch up with the realities of the fast-changing financial world.

“We must be forward-thinking in our approach to (financial) modernization,” said Rep. Marge Roukema, R-N.J. She called the amendment “a small, incremental step to mixing banking and commerce.”

The amendment was attached to legislation that would sweep away the Depression-era restrictions on common ownership of banks and other financial businesses.

Depending on one’s viewpoint, the proposal would either usher in an era of efficient, one-stop financial shopping for Americans or foster an unprecedented concentration of financial power that could cost consumers money.

If enacted, it would be the most significant overhaul of the nation’s financial laws in 60 years. A range of groups representing consumers, the elderly, farmers, community groups and smaller banks already have raised concerns.

Under the amendment approved Tuesday, a bank-holding company would be allowed to invest up to 15 percent of its gross domestic revenues in a commercial company, which could range from a small grocery to a major industrial concern.

The committee’s senior Democrat, Rep. Henry Gonzalez of Texas, opposed the measure, calling it “so expansive that it’s tantamount to suggesting that you don’t need control rods in a nuclear power plant.”

Another opponent, Rep. Thomas Barrett, D-Wis., warned that attaching “this huge elephant” could bring the defeat of the overall legislation. “This bill is not going to go anywhere,” he said.

Earlier in the day, committee Democrats demanded such consumer protection measures as requiring banks to disclose which of their products are not insured be added to the overall bill.

Their leader, Rep. John LaFalce, D-N.Y., indicated the Democrats could withdraw support for the legislation if the protections aren’t included.

“The consumer must be protected,” he told a news conference.

But David Runkel, a spokesman for Leach and the committee, said, “There are some parts we can agree with and other parts we can’t.” While declining to give specifics, Runkel said some of the Democrats’ provisions were “very reasonable” while others “go too far and would infringe on” the financial restructuring process.

Under the Democrats’ consumer-protection proposal, banks would be:

Required to sell only products that are suitable for their customers’ financial circumstances. A similar rule applies to securities brokers.

Required to disclose to customers which of their financial products are not backed by the federal government, as deposits are. The banking legislation includes such a requirement.

Prohibited from soliciting customers to buy insurance while the customers have a pending loan application.

Prohibited from disclosing personal information regarding their customers’ financial affairs without getting permission.

In addition, consumers would be able to use a dispute resolution process, similar to that applied to securities brokers, to recover their losses if a bank violates the law.

Edward Yingling, chief lobbyist for the American Bankers Association, said his group supports the principle of disclosing whether financial products are federally guaranteed. But other provisions, he maintained, “are simply unworkable.”