Riegle Opposes Letting Firms Buy Banks

WASHINGTON —  The Bush Administration’s banking reform proposal ran into a major roadblock Tuesday when Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) came out strongly against a broad expansion of powers for commercial banks. Riegle offered a narrowly crafted reform bill that emphasizes interstate banking and renewal of the bank deposit insurance fund, while firmly rejecting the Administration’s wide-ranging proposals for commercial and industrial companies to buy banks.

“Mixing banking and commerce is risky business,” said Riegle, making public the basic draft bill his committee will consider. “Now--when our banks are in the worst shape since the Depression--is no time to invite trouble or add to the difficult challenges our regulators face already.”

In the House, meanwhile, intramural fighting over jurisdiction of the legislation is intensifying as a dispute between two powerful committee chairmen threatens to become a full-blown feud.

House Energy and Commerce Committee Chairman John Dingell (D-Mich.), who fervently opposes new powers for banks, is trying to get jurisdiction over sections of the bill that would grant banks the authority to fully enter into the insurance and securities businesses.

In a slap at the House Banking Committee, Dingell has asked the General Accounting Office to audit the bill passed by the banking committee in search of provisions tailored to help individual firms or financial institutions.

House Banking Committee Chairman Henry B. Gonzalez (D-Tex.) accused Dingell of being unfair and said in a letter, “If you want to make ethical complaints, there is an appropriate forum.” In the July 11 letter obtained by The Times on Tuesday, Gonzalez warned Dingell in a handwritten footnote, “You are the first to unsheath the two-edged sword.”

In a July 15 reply, Dingell suggested that Gonzalez might be ignorant of special benefits slipped into the written bill. Because of the committee’s rapid schedule, “You might not, given such haste, have the information in any event,” said Dingell in the letter made available on Tuesday. The tone is sure to anger Gonzalez, a man long proud of his detailed grasp of banking issues and the nuances of the legislation before his committee.

House Speaker Tom Foley (D-Wash.) must choose between two of his influential colleagues in deciding whether to send the Gonzalez committee version to the House floor for debate, or give Dingell a chance to consider, and thereby delay, the legislation.

These complications, combined with Riegle’s position outlined Tuesday, create serious problems for the Administration’s hopes to bolster banking profits by giving the industry new powers. The Treasury was pleased with the House Banking Committee final version, which would give banks permission to expand their activities in securities and insurance, and would allow big industrial and commercial firms to own banks. It would also permit banks to expand across state lines.

By contrast, Riegle’s plan focuses on two key elements:

* Allowing full nationwide interstate banking.

* Providing $70 billion in borrowing authority for the bank deposit insurance fund, with the money to be repaid by premiums on the banking industry.

Riegle’s plan rejects the notion that commercial and industrial firms should be allowed to own banks. He would allow some additional activity in the securities area, but with strict controls to prevent a bank from rescuing a troubled securities affiliate. Riegle also offered a consumer section--not found in the House Banking Committee bill or the Administration plan--requiring all banks to offer low-cost, basic check-writing and check-cashing services. This would be designed to help large numbers of poor people who do not have bank checking accounts, and are forced to rely on costly, store-front check-cashing services.

The banking industry has traditionally been fiercely opposed to any government mandate for services and will fight hard against the Riegle plan.

Riegle said he has discussed his version of the bill with Democratic and Republican colleagues and expects general support for his plan to retain “the historic wall between banking and commerce.”