Banking : Bush’s Plea on Bank Reform Is Rejected : Legislation: Influential Democrats in the House are unmoved by the President’s call to give banks new powers.

Despite a personal appeal Tuesday from President Bush, key House Democrats refused to drop their determined opposition to plans for giving banks broad new powers in the insurance and securities business.

One angry Democrat, powerful Rep. John Dingell (D-Mich.), said after leaving a White House meeting with the President that theAdministration’s bank reform proposal opening ownership of banks to commercial and industrial firms would permit failing corporations, “the Soviet national bank, Saddam Hussein or the Chinese People’s Republic” to buy American banks.

But a Treasury spokesman, dismissing Dingell’s criticism, said in response: “Right now, foreign banks and foreigners can buy American banks. What our bill does is allow American banks to draw on American capital rather than being forced to go overseas for it.”

Dingell, chairman of the House Energy and Commerce Committee, remained a seemingly immovable object to the Administration plan despite the President’s plea for help in achieving its quick passage. The Administration wants the bill approved by the House before the August congressional recess.

House Speaker Thomas S. Foley (D-Wash.), who also attended the bipartisan session, said the President appealed for cooperation and was given a respectful hearing.

The Administration’s plan won easy approval last month from a House Banking, Finance and Urban Affairs subcommittee, with only modest changes. It now faces stiffer opposition as it moves to the full Banking Committee and to Dingell’s committee, which has jurisdiction over securities legislation.

Along with Dingell, Rep. Henry B. Gonzalez (D-Tex.), chairman of the Banking Committee, opposes many aspects of the broad Bush plan. He would prefer a narrower effort aimed at replenishing the depleted bank deposit insurance fund.

The legislation has not yet come up in the Senate.

Dingell holds the same suburban Detroit congressional seat as his father, who played a key role in New Deal legislation that constructed barriers between banking and the securities business. Those laws remain on the books today, and Dingell remains deeply skeptical of the idea of banks being permitted both banking and commerce functions.

“The minute a (firm) is owned by a bank” it can easily borrow money from the Federal Reserve system, Dingell said. He raised the specter of a trading firm owned by a Communist country buying a bank, or a failing American corporation buying a bank, and then requiring a federal bailout.

Rep. Edward Markey (D-Mass.), chairman of the Energy and Commerce telecommunications and finance subcommittee, which will handle the securities provisions of the bill, said the Drexel Burnham brokerage firm, once a prime marketer of junk bonds, could have tried to get federal help to avert bankruptcy if it had been owned by a bank.

Rep. Matthew Rinaldo (R-N.J.), the ranking Republican on the subcommittee, agreed that any efforts to give banks added powers to deal in securities and insurance will be “very hotly debated issues.”

Meanwhile, Federal Reserve Board Chairman Alan Greenspan and senior Bush Administration officials called for stronger federal controls over foreign banks operating in the United States, following charges of money laundering and fraud by a Luxembourg-based bank that allegedly developed secret ties to two American banks, including one in Encino.

But Greenspan and the White House were sharply split over just what kinds of new regulations are needed to rein in the rapidly growing foreign banks, which now hold roughly 21% of the assets of the U.S. banking industry.

The debate over foreign bank regulation comes in the wake of the widespread publicity surrounding the case of the Bank of Credit & Commerce International and its alleged secret acquisition of two U.S. banks, First American Bankshares in Washington and Independence Bank in Encino.

Federal Reserve officials previously have testified before Congress that they were unable to track down rumors that BCCI had covertly acquired First American because of a lack of access to bank records and concealment of information by BCCI officials. The Fed finally obtained enough information last December to order BCCI to sell its First American stake and to stop doing business in this country. It subsequently ordered BCCI to divest any secret interest in Independence Bank.

Greenspan told the House Banking Committee on Tuesday that lax regulatory procedures aid the development of problems such as BCCI. Many foreign bank offices here are simply branch offices of foreign parent companies and are regulated primarily by state banking offices rather than by federal examiners. Many lack any U.S.-based parent banking company that can be closely monitored by Washington.

Greenspan called for new rules that would require all foreign banks to meet minimum federal standards before opening offices in this country.