Much Narrower Bank Bill Goes to House Floor : Banking: A key committee approves a proposal to pump $70 billion into the deposit insurance fund. The vote may dash the Administration’s hopes for sweeping reform this year.

The House Banking Committee abandoned efforts Tuesday to pass a major bank reform bill measure and instead approved a limited bill to provide $70 billion in new borrowing authority for the troubled deposit insurance fund.

The committee, battered by two prior defeats on the House floor, brushed aside amendments and voted overwhelmingly, 44 to 7, to send a narrow bill to the full House for passage before Congress adjourns next week.

The vote spells the end in the House for efforts this year by the Bush Administration and the banking industry to repeal Great Depression-era laws, and replace them with a broad grant of powers allowing banks to move into new businesses and expand across state lines.

The action came against the backdrop of the renewal of another contentious debate over providing $80 billion more for the cleanup of insolvent thrifts. The committee voted Tuesday to require that part of the cleanup be paid from the federal budget, not from borrowed money.

In the debate on the banking measure, committee Chairman Henry B. Gonzalez (D-Tex.) said there was no alternative but to pass a limited bill.

“No one--on either side--doubts that we will be required in the end to vote the funds necessary to refinance the Bank Insurance Fund,” Gonzalez said with a sense of inevitability. “There is no dodging that duty.”

Speaking for the committee Republicans and the Administration, Rep. Chalmers Wylie (R-Ohio) said, “I regret we were unable to get more comprehensive legislation this year.”

The bill adopted by the committee “does not (have) one provision to help banking profitability,” Wylie said. “We will continue to work next year for a broader bill with true financial modernization.”

The Senate, meanwhile, stripped from its version of the banking bill a controversial section that would require banks to offer low-cost services to people earning less than $20,000 a year. Banks would have been be required to make available inexpensive checking accounts and guaranteed cashing of government checks up to $1,500.

Sen. Frank Murkowski (R-Alaska) warned that banks could suffer substantial losses through fraud if they are forced to cash the government checks. “It’s more and more government, and for what purposes?” Murkowski asked. His amendment to delete a section of the bill containing the basic banking service, and requirements for greater disclosure to consumers on home equity loans and on banks’ investments in local communities, was rejected by the Senate on a 55-42 vote.

However, another amendment by Sen. Thad Cochran (R-Miss.) deleting only the basic banking provision was adopted on a voice vote. The bill still contains the new disclosure requirements on home equity loans and local investments.

The last remaining major area of controversy in the Senate bill is the 14% cap on credit card interest rates, adopted last week as a surprise amendment. Congressional leaders are repudiating the idea of a credit card cap because it has stirred considerable fear in the banking community and among stock market investors. It is virtually certain to be deleted from the bill before final passage.

The Administration originally had sought a bill giving banks full access to the businesses of securities and insurance, and permitting them to move without restrictions across state lines. However, small community banks fought interstate branching, while insurance agents lobbied successfully to prevent an expansion of banks into their business.

The outcome on the House floor was a stalemate in which two versions of the bill were easily defeated.

Many of the weary combatants from various commercial interests finally agreed to a truce, sending members of Congress a letter on Tuesday calling for a “very narrow bill.” The letter, signed by 41 firms and organizations--including banks, securities companies, the U.S. Chamber of Commerce and the National Assn. of Manufacturers--said Congress “should reject any legislation and any amendments that go beyond” the rebuilding of the deposit insurance fund, which protects savings up to $100,000.

After approving the narrowly drawn banking bill, the House Banking Committee turned to another hotly contested subject, the need to provide additional funds for the cleanup of insolvent savings and loan associations.

The Resolution Trust Corp., which has spent $80 billion, is asking Congress for $80 billion more. The money “will be used to pay off depositors, complete various deals, meet legal bills, maintain unsold properties and pay staff, other overhead expenses and contracts,” Gonzalez said.

However, the bill before the full committee would provide only $20 billion. It calls on the Administration and Congress to find a “pay as you go” method to finance the other $60 billion without borrowing. An amendment approved Tuesday would forbid the use of new taxes to finance the RTC funding.