Banks to Fight Restrictions in House Bill

WASHINGTON —  The banking industry opened a determined campaign Thursday to defeat a wide-ranging House Banking Committee bill that would grant the industry new securities powers, but require banks to offer low cost, basic checking accounts and prohibit their entry into insurance and real estate.

After having fought hard for the right to enter new businesses, the bankers decided that the bill approved early Thursday morning after 17 hours of contentious debate was too high a price to pay for deregulation.

“The American Bankers Assn. must strongly oppose passage of the House Banking Committee’s bill,” said Charles Pistor, president of the ABA, a powerful trade association.

A similar attack on the bill came from the Consumer Bankers Assn., which represents many of the nation’s major banks and S&Ls; active in consumer and personal loans. “Many banks will decide it’s not worth this bill’s heavy burdens to get the power to enter the securities business,” said Fritz Elmendorf, spokesman for the CBA.

Chances Doomed

Bankers are particularly upset with a provision that makes it easier for community groups to challenge any expansion of bank branches or services. Banks would have to prove they were doing a good job of providing mortgages and investing money in local neighborhoods, and the resulting dispute between local groups and the banks would be mediated by the Federal Reserve Board. The result would be government “credit allocation,” Elmendorf said.

The committee bill was approved by a vote of 30 to 20, with the bill generally supported by the Democratic majority on the committee and opposed by the Republicans.

The banking industry’s fervent opposition virtually dooms the chances for a major banking bill to emerge from Congress this year. The Senate already has approved a bill supported by the bankers because it would allow them to enter the securities business. However, there isn’t enough time in the short election-year session for the bankers and their opponents to agree on an acceptable version of the House Banking Committee bill, to push it through the full House, and then to combine it with the Senate version in a final legislative compromise.

The House Banking Committee version of the bill now goes to an uncertain fate in the Energy and Commerce Committee, which has jurisdiction over the securities section of the legislation. Committee Chairman Rep. John Dingell (D-Mich.), whose father helped write some of the original New Deal legislation dealing with government regulation of stocks, has serious reservations about allowing banks to enter the securities arena.

The bankers have been fervent in their opposition to the consumer provisions of the bill, which require banks to offer lifeline services, including checking accounts that can be opened for $25 and have a balance of less than $1,000. The Federal Reserve would set the fee for this basic account, expected to cost consumers about $2 a month. Banks would be required to cash government checks for any customer with a lifeline account.

Before final passage Thursday of the committee bill, the banking industry had high hopes for legislation this year that would effectively dismantle the Depression-era laws that erected walls to separate the banking and securities businesses. The 1933 Glass-Steagall Act was a response to the stock market crash and the resulting collapse in value of investment trusts developed by banks and promoted eagerly to investors.

Bankers had hoped to persuade Congress that the 1980s world of high technology and fast-moving capital made it essential for them to get new powers.

The banks want to create and sell mutual funds and to underwrite corporate bonds and stocks. The big banks also see big potential profits in the sale of insurance and in real estate brokerage and direct real estate investment.

Under the House committee version approved Thursday, banks can create mutual funds and underwrite corporate bonds, two eagerly sought powers. “If things had ended at 4:30 Wednesday afternoon, it would have been a big victory for us,” said a banking industry official. But the passage of hours brought a barrage of amendments that turned the bankers’ enthusiasm into implacable hostility toward the bill.

One amendment would require banks to meet tough new international capital standards before they could enter the securities business. This measure could hurt some big money center banks troubled by shaky foreign loans and problem domestic loans in energy and real estate.

Another troublesome amendment for the banks would prevent them from using their own names for any subsidiary selling mutual funds and other securities. This could increase the cost of entering a new business and establishing an identity to appeal to prospective customers.

The real estate industry beat the bankers with the passage of an amendment preventing any entry into real estate brokerage or direct real estate investment.

And the insurance industry won a victory through amendments that would bar banks from underwriting insurance. And even in states where banks are allowed to sell insurance, a bank owned by an out-of-state holding company would be forbidden from marketing insurance.

BANKING BILL HIGHLIGHTS

New Powers

Banks are allowed to create and market mutual funds, and to sell corporate bonds. Securities subsidiaries, however, cannot have the same name or location as the bank.

Real Estate

A two-year moratorium is imposed on banks’ entry into real estate brokerage.

Insurance

Current restrictions on banks’ sale of insurance continue. A new curb is added: Banks belonging to a holding company based in another state cannot sell insurance.

Consumer Powers

Community Reinvestment Act is strengthened. Local groups can challenge a bank’s application to open new branches or offer new services. If a bank has a below-average rating from examiners for its investments in local areas, it must offer a detailed plan for improvement before being allowed to expand.

Banks must offer “lifeline” services--checking accounts that can be opened for $25 and permitted to have balances below $1,000. Federal Reserve Bank will set service charge, probably about $2 a month. Banks must agree to cash government checks for these lifeline customers.