House Pulls Plug on Glass-Steagall Bill, Ending Hopes of ’96 Bank Reform

Attempts to sweep away a Depression-era law that restricts banking activities collapsed in Congress on Tuesday, ending any hope for major reform before the November elections.

House Banking Committee Chairman Jim Leach (R-Iowa) pulled the plug on the Glass-Steagall reform bill, acknowledging that opposition was too great for it to move ahead this year.

“In this setting, it would appear that comprehensive bank modernization legislation cannot move forward this year,” Leach said.

That ended months of numerous revisions to the bill as Leach tried to achieve consensus among squabbling industry groups.

The Glass-Steagall reform bill would have allowed banks to affiliate with securities and insurance firms. The details of how to accomplish that sparked disagreements between the banking and insurance industries, and opposition from the Clinton administration.

Leach, who had maintained public optimism about the chances for the legislation in the face of opposition, announced the decision at a “markup,” where committee members were to vote on amendments to the bill. About 80 amendments had been offered, mostly by Democrats on the committee.

Efforts to break down barriers imposed by the Glass-Steagall law, which separates commercial and investment banking, have picked up in the last decade but failed to get through Congress.

Senate Banking Committee Chairman Alfonse M. D’Amato (R-N.Y.) at the outset said his committee would not undertake Glass-Steagall until it passed the House, because previous efforts had died in that chamber.

Part of the pressures on the legislation was that time was running out in this Congress because of the upcoming elections for the Senate to act on the bill even if the House passed it.

“This is the third major attempt in this decade; this is the third time that the bill actually really was run up in either the Senate or the House and didn’t make it,” said Ed Yingling, executive director of the American Bankers Assn.

The banking trade group had opposed the latest version of the bill because it viewed some insurance-related provisions as too restrictive for banks.

Yingling said the efforts on the bill had forced industry groups to get together and try to work out their differences and would set the base for legislation in the next Congress.

“The process has been a real catalyst to force the industries to deal with the issues and come together,” Yingling said.

“The work that was done in this Congress really will set the stage for action in the next Congress,” he continued, saying, “It will be like a telecommunications bill--the time will be right.”

Leach said he would propose that two bills previously passed by the House Banking Committee be combined, but stripped of some of the provisions that sparked opposition.

The proposal would combine a regulatory relief bill and a previous version of Glass-Steagall reform, but would not allow banks to affiliate with insurance or securities firms.

“While not as comprehensive an approach as I would prefer on insurance and securities, this legislation will still advance modernization of the financial services industry,” Leach said.

The proposed new approach would allow bank holding companies to increase their activities in the financial services arena by allowing banks to own businesses that engage in financial technology, such as software companies that develop technology used in banks, a committee aide said.