July 2, 1999
 
 
 

                   House Approves Landmark Bill
                   To Revamp Financial Services

                   By MICHAEL SCHROEDER
                   Staff Reporter of THE WALL STREET JOURNAL

                   WASHINGTON -- In a 343-86 vote, the House passed a landmark bill
                   that would eliminate many of the Depression-era barriers separating banks,
                   brokerage firms and insurers.

                   The House approval marks the first time a financial-services overhaul bill
                   has passed both chambers, creating optimism that legislation may be sent
                   to President Clinton for his signature by the end of the summer. Before that
                   happens, the bill must be reconciled with a Senate version, which passed in
                   May. The House and Senate then must approve the combined version,
                   which almost always happens.

                                        Still significant differences between the Senate
                                        and House versions on requirements for
                                        lending in low-income areas and on regulatory
                                        and privacy issues must be worked out.
                                        Although the administration said Mr. Clinton
                                        supports the House bill, he has threatened to
                                        veto the final legislation if it doesn't satisfy his
                                        positions on those issues.

                   "It's going to be a hot July, but we're confident that this will get done
                   before Congress goes home on break in August," said Phil Anderson, chief
                   lobbyist at the American Council of Life Insurance.

                   Reworking Glass-Steagall

                   The overhaul would update and standardize rules governing financial
                   industries that have evolved piecemeal for several years. For instance,
                   regulators have made key rulings allowing banks to buy securities firms and
                   insurers, with some restrictions on banks entering certain lines of business.
                   To bring competing industries on par with banks, the legislation would
                   allow brokerage firms and insurers to enter the full range of financial
                   businesses. The upshot: a raft of major mergers as firms position
                   themselves as one-stop financial companies offering customers virtually any
                   insurance, banking or investment product.

                   As Congress has failed repeatedly to break down barriers created by the
                   Glass-Steagall Act over the past few decades, the world has changed
                   around it. The most striking example was last year's Citicorp-Travelers
                   Group Inc. deal, which gave Congress impetus to move the bill. The
                   resulting Citigroup Inc. represented the future of financial services, with
                   more than 100 million customers and more than 4,000 offices world-wide,
                   offering everything from consumer banking and insurance to corporate
                   finance and securities underwriting. For Citigroup, the legislation would
                   give it a freer hand to operate the Travelers insurance business and its big
                   brokerage firm, Salomon Smith Barney.

                   Banking overhaul has been a lucrative sinecure for lawmakers. In the last
                   session of Congress, when the bill passed the House but not the Senate,
                   the financial industries enriched the coffers of Democrat and Republican
                   lawmakers and their national political committees by $86 million, according
                   to the Center for Responsive Politics, a research group.

                   "With the passage by both houses, the bill has tremendous momentum,"
                   said Ed Yingling, chief lobbyist for the American Bankers Association.

                   Sen. Gramm's Role

                   As the legislation enters its next phase, Senate Banking Committee
                   Chairman Phil Gramm of Texas will play a key role in shaping the
                   combined bill. "With the House vote, we now have it within our grasp to
                   pass a good bill, and that's my objective," he said. Although he has been at
                   odds with the administration on several issues, lobbyists believe he and the
                   White House are prepared to compromise.

                   For instance, Mr. Gramm said the Federal Reserve Board should be the
                   primary regulator of new financial conglomerates. But the House bill
                   endorses the administration's position that the Treasury Department should
                   have significant oversight authority. Lobbyists believe a power-sharing
                   arrangement between the Fed and Treasury can be worked out.

                   Consumer issues have been the most contentious. The Senate version
                   contains Gramm-sponsored provisions that water down the 1977
                   Community Reinvestment Act, which requires banks to make loans in
                   low-income and minority neighborhoods. The Senate bill would exempt
                   small rural banks from the community-lending law and make it harder for
                   the government to use satisfactory community-lending ratings as a
                   requirement for banks being allowed to expand.

                   On the other hand, the House bill extends CRA compliance to the holding
                   companies as a way for regulators to block mergers if bank units don't
                   have satisfactory records of low-income lending. The only middle ground
                   likely would be leaving CRA untouched -- neither cutting back nor
                   extending its reach.

                   The issue of protecting consumer financial information recently surfaced as
                   a potential spoiler. While the Senate doesn't address the issue, the House
                   added provisions that would give customers the right to block financial
                   institutions from sharing personal information with outside firms. The bill
                   also reinforces privacy protections for customers' medical information.

                   Consumer groups and many Democrats are furious that the bill doesn't go
                   further in protecting customer information. They want restrictions on
                   financial firms' sharing data with affiliates for the purpose of cross-selling to
                   customers. Consumer polls show such overwhelming support for
                   protecting financial and medical information that lawmakers aren't likely to
                   weaken the House privacy provisions.