U.S. Senate Passes Bill Allowing Banks, Brokers and
Insurers to Merge
By John Rega and Rob Wells
U.S. Senate Passes Bill to Let Financial Firms Merge (Update2)
(Adds status in House, Greenspan at party. For a special
report on the bank bill, Type EXTRA .)
Washington, Nov. 4 (Bloomberg) -- The U.S. Senate voted 90-8
to approve legislation permitting new marriages of banks with
insurers and securities firms, handing the financial services
industry a victory it sought for more than two decades.
The House of Representatives was expected to give final
approval possibly tonight, which would send the measure to
President Bill Clinton, whose aides say he will sign it into law.
Enactment of the measure, which overturns 66 years of U.S.
banking law, will give Congress a major achievement to point to
in what has otherwise been a year of gridlock. ''When the history
is written of this session of Congress, it will probably identify
this piece of legislation as the single biggest achievement,''
said Senate Republican Leader Trent Lott of Mississippi.
Citigroup Inc., Merrill Lynch & Co., Aetna Inc. and dozens
of other firms have lobbied for years for repeal of the 1933
Glass-Steagall Act and the 1956 Bank Holding Company Act, which
restrict affiliations of banks, insurers, and securities firms.
The three industries poured almost $200 million into politicians'
coffers over the past decade, according to Common Cause, which
monitors campaign donations.
Timing for House action on the bill was unclear this evening
as legislators and the White House tried to work out an agreement
on a separate foreign operations spending bill. If there is no
agreement this evening the bank bill vote will be pushed to
Friday, House Banking Committee aides said.
The possible delay didn't prevent House Banking Committee
Chairman Jim Leach from throwing a party to celebrate the bill's
passage in the committee hearing rooms with ice cream, champagne,
and a cake decorated with the words: ''Glass-Steagall, R.I.P,
1933-1999.'' Federal Reserve Chairman Alan Greenspan, Treasury
Secretary Lawrence Summers, committee members, aides and
lobbyists attended the event.
More Flexibility
''If you're a bank, thrift, brokerage company, you just have
more flexibility today than you did yesterday in terms of
partnering,'' said Thomas Theurkauf, a bank analyst at Keefe,
Bruyette & Woods. ''We could see the formation of very large
diversified companies.''
Allowing one-stop shopping for checking accounts, annuities,
mutual funds, and stocks would also benefit consumers, Treasury
Secretary Lawrence Summers said. Consumers spend $350 billion per
year in fees and commissions for insurance, brokerage and
financial services. That means, if the bill offers a 5 percent
savings to consumers, they will reap $18 billion in savings
annually, Summers said.
''The future of America's dominance as the center of the
financial world is at stake,'' said Democratic Senator Charles
Schumer of New York, whose state is home to many of the companies
that would benefit from the measure.
Restoring Logic
Senate Banking Chairman Phil Gramm of Texas said the Glass-
Steagall Act was hailed in 1933 by President Franklin Roosevelt
as ''the most important and far-reaching legislation ever enacted
by the American Congress.
''We came here to change the defining law of the 20th
Century,'' Gramm said. ''We came here to bring logic back to the
financial sector.''
Innovative companies have already managed to cross the Glass-
Steagall barriers to enter each other's business, Gramm said.
They've worn the walls between banking and other financial
activities down to ''very thin slices of Swiss cheese,'' he said,
adding that the legislation is catching up with the marketplace.
Gramm predicted industry innovation would continue, and the
barriers next to fall would be between banks and commercial
companies, such as retailers or automakers. ''I think in 10 years
we will have commerce and banking in America,'' Gramm said.
Senator Paul Sarbanes of Maryland, the Banking Committee's
senior Democrat, warned against that. He cited Greenspan and
other economists who ''have expressed strong concerns about the
mixing of banking and commerce.''
Though support for the bill in the Senate was overwhelming,
there were critics. Senator Paul Wellstone, Democrat from
Minnesota, said the measure is a ''Santa's wish list for the big
banks,'' and argued it is unwise to permit new financial
conglomerates. ''It encourages the concentration of more and more
economic power in the hands of fewer and fewer people.''
Bill Highlights
The wide-ranging bill contains dozens of provisions that
affect specific companies or groups of companies. J.P. Morgan &
Co. and other swap dealers won language saying bank regulators,
not the Securities and Exchange Commission, will oversee swaps
booked within a bank. Life insurance companies such as ReliaStar
Financial Corp. and Lincoln National Corp. become attractive
takeover targets because the bill allows banks to sell insurance
products at bank branches.
Major provisions of the bill include:
-- Financial holding companies. Firms can create these new
entities, supervised by the Federal Reserve, which can engage in
traditional banking, insurance underwriting, securities
underwriting, investment brokerage, and merchant banking.
-- Streamlined regulation. The major regulatory agreement is
between the Fed and the Treasury Department. The riskiest
activities, such as insurance underwriting and real estate
development, will be conducted in financial holding companies,
supervised by the Fed. Securities underwriting can occur, with
some limits, in operating subsidiaries of national banks,
supervised by the Comptroller of the Currency, an arm of the
Treasury.
-- Insurance sales by banks. A carefully balanced compromise
involving state regulation of bank sales of insurance provides
guidance to courts on how to resolve federal and state regulatory
disputes on bank insurance sales. The pact tracks a 1996 Supreme
Court decision involving Barnett Bank, concerning when federal
bank regulators can overrule state insurance laws when those laws
discriminate against banks.
-- Privacy. The bill lets consumers block banks from sharing
their personal information with outside firms but contains
exceptions for marketing of financial products. Critics contend
these provisions don't go far enough.
-- Thrifts. The bill prevents the Office of Thrift
Supervision from granting a type of savings and loan charter
known as a ''unitary thrift'' to commercial companies after May
4, 1999. This would block a pending application by Wal-Mart
Stores Inc. to acquire a thrift. Only financial firms could buy
unitary thrifts going forward, and S&Ls argue this could hurt the
value of their franchises by shrinking the pool of potential
buyers. A unitary thrift is a type of savings and loan that up to
this point could be owned by commercial businesses. Banks can't
be owned by commercial businesses.
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