House Committee Votes to Allow Banks to Acquire Insurance Firms

In a surprise move, the House Banking Committee backed an amendment to a bank deregulation bill Wednesday that would let banks buy insurance companies. The vote infuriated insurance lobbyists, who saw it as a move by Democrats to kill the bill.

By a 36-12 vote, the panel agreed to let bank holding companies affiliate with insurance firms, subject to state law.

The development, if it survives subsequent House and Senate action, could lead to a radical overhaul of the nation’s financial services industry. Banks could grow dramatically by purchasing insurance companies, a practice currently prohibited as too risky. Through a separate House bill, banks may also win powers to enter the securities business.

The committee’s vote was ripe with political overtones.

Insurance lobbyists said the measure would “tilt the playing field in favor of big business and away from small-business owners” by making it easier for big banks to buy small insurance companies, according to Robert Rusbuldt, vice president of federal affairs for the Independent Insurance Agents of America. His group issued a statement formally opposing the bill.

Rusbuldt and other insurance lobbyists charged that the panel’s Democrats backed the insurance affiliation amendment as a clever gambit to kill the bill.

The move came a day after the committee approved major changes to the Community Reinvestment Act, a key fair-lending law. Democrats vigorously opposed those changes and accused the GOP of gutting the act. The Clinton Administration has threatened a veto if the revisions remain.

“Democrats voted in lock-step for affiliations because they knew the entire insurance industry would oppose the bill,” Rusbuldt said. “And that’s exactly what they got.”

House Banking Chairman Jim Leach (R-Iowa) and the bill’s author, Rep. Doug Bereuter (R-Neb.), both opposed the insurance amendment. The proposal was sponsored by Rep. Richard Baker (R-La.), author of a bill that would allow broad affiliations between banks, Wall Street brokerages, insurance companies and industrial firms.

The vote came as the committee plodded ahead for a fourth day on the bill. A final vote wasn’t in sight by late Wednesday.

Aside from the major changes to the Community Reinvestment Act, the bill would revise consumer laws such as the Truth in Lending Act, the Truth in Savings Act, the Equal Credit Opportunity Act and the Real Estate Settlement Procedures Act. Bereuter said the bill makes a necessary streamlining of financial services regulations that have arisen in recent years, particularly after the savings and loan debacle.

Atty. Gen. Janet Reno has sharply criticized the bill for cutting the Justice Department’s ability to initiate lending discrimination cases under the Fair Housing Act. Treasury Secretary Robert Rubin opposes the Community Reinvestment Act revisions, among other items.