Rough Road Likely for Bank Bill Despite OK From Senate Committee

Approval by a Senate committee of far-reaching banking legislation represents a major step toward giving banks the freedom to enter the securities business, but Congress will probably not give banks a final go-ahead this year.

Under a bill approved late Wednesday night by the Senate Banking Committee after two days of contentious but private debate, banks would be allowed to market bonds and mutual funds and could eventually gain authority to underwrite corporate stock issues.

“We are delighted that the Senate Banking Committee has approved this important bill,” Charles Pistor, president of the American Bankers Assn., said Thursday. Bankers look forward to breaking into the turf of their rivals, the securities firms that have spirited away deposits and customers since the advent of money market funds in the 1970s. “This was a major step, a recognition that the marketplace has changed and that these areas are safe for banks to become involved in,” said Alfred Pollard, senior vice president of Security Pacific Corp., the holding company for Security Pacific National Bank in Los Angeles.

However, he admitted, “We’ve got a long way to go” to achieve final legislative success.

House Prospects Uncertain

The strong bipartisan vote of 18 to 2 in the committee gives the bill momentum in the full Senate, but its prospects are gloomy in the House.

The bill will be the responsibility of not only the House Banking Committee but also the House Energy and Commerce Committee, which has jurisdiction over securities issues. The leadership of both committees is deeply skeptical of the wisdom of giving new powers to banks at a time of financial uncertainty.

Rep. Edward J. Markey (D-Mass.), chairman of the Energy and Commerce Committee’s subcommittee on telecommunications and finance, said the October stock market collapse demonstrated the need for a strong “regulatory structure that is in sync with marketplace reality.”

“It is essential that the Congress link the introduction of new powers to regulatory preparedness,” he said. Bank and securities activities should be carefully insulated from each other so that a future stock market crash does not threaten to bring banks down, Markey said.

Markey, indicating that he is in no rush to complete work on the legislation, said he plans intensive hearings on the issue over the next several months.

And even in the Senate, Sen. Timothy E. Wirth (D-Colo.), a Banking Committee member who voted for the legislation, said he would try to draft Senate floor amendments that would establish a “fire wall” between the banking and securities activities of banks.

The Securities Industry Assn., which does not want bankers moving into its business, will use the warning of October’s stock market plunge as its prime argument in trying to derail the bill. The SIA on Thursday blasted the Senate committee action, saying it “fails to take into appropriate consideration the warnings associated with the October market plummet.”

The securities industry lost more than a billion dollars in the fourth quarter of 1987, the group said. “The securities industry continues to be highly volatile and risk oriented,” the organization said, and banks should not be allowed to enter the business while the banking structure is “already strained by foreign loans and a weakened savings and loan system.”

Senate Provisions

Prospects for the bill in the House are “very iffy,” said David Silver, president of the Investment Company Institute, the trade association for mutual funds. The proposal will be “subject to a rigorous microscopic examination” by the Energy and Commerce Committee, he predicted.

The measure adopted by the Senate committee would provide banks with gradual access to the securities business. Six months after enactment of the bill, they would be allowed to offer issues of corporate bonds and mutual funds.

On April 1, 1991, Congress would vote on allowing banks to act as underwriters for corporate stock issues. Underwriters supply the money to the corporation and then make a profit by distributing the shares to the public.

Banks failed, however, to win approval to sell insurance. Sen. Christopher J. Dodd (D-Conn.) persuaded his colleagues to restrict sales of insurance to the comparatively small number of state-chartered banks already allowed to market insurance.

Dodd, whose state is home to some powerful insurance companies, said Thursday: “This is an important issue; this is hogs in Iowa to me.”

The American Bankers Assn. declared itself “very disappointed” with the bill’s insurance provisions and pledged to seek changes when the bill reaches the Senate floor.