Democrats’ Bill Could Derail Bush Bank-Reform Plan : Finance: It would prohibit commercial corporations from owning banks and not allow banks to enter the insurance business.

WASHINGTON —  The House Energy and Commerce Committee on Wednesday released draft legislation that, if adopted, could scuttle the Bush Administration’s plan to restructure the banking system.

The bill, proposed by Democratic Reps. John D. Dingell of Michigan and Edward J. Markey of Massachusetts, would block the Administration’s proposal to allow commercial companies such as General Motors Corp. and Sears, Roebuck & Co. to own banks. It also would bar banks’ expansion into insurance.

Dingell is chairman of the committee and Markey of its Finance and Telecommunications subcommittee, which is scheduled Monday to start considering amendments to the draft bill.

As the Administration urged, Dingell and Markey would repeal the Glass-Steagall Act of 1933, which separated banking from the securities industry in response to abuses before the 1929 stock market crash.

However, they would place stringent restrictions on dealings between affiliated banks and securities firms. The restrictions, called “fire walls,” may make the new securities powers worthless, many bankers say.

Also, Dingell and Markey would expand the regulatory power of the Securities and Exchange Commission, an agency their panels oversee.

The banking committees in both the House and Senate have passed versions of the banking legislation repealing Glass-Steagall. However, only the House version opens bank ownership to commercial firms.

The Energy and Commerce bill, if it emerges from the full committee by the Sept. 27 deadline set by House Speaker Thomas Foley (D-Wash.), would serve as a rival version in the House.

In the Senate, the banking committee has sole jurisdiction over the bill--so the key elements of its version, which are more acceptable to the banking industry, likely will emerge from the full chamber.

Meanwhile, Administration officials sought to reassure rural legislators who fear that President Bush’s banking reform proposal will choke off credit to farmers and small-town business people.

“I’m worried about Congress rushing in a knee-jerk fashion to banking reform . . . that will have an adverse effect on rural and small-town America,” Rep. Pat Roberts (R-Kan.) said.

He was one of half a dozen members of the House Agriculture Committee--Democrats and Republicans--from such farm states as Wisconsin, Missouri, Oregon and Oklahoma who said provisions in the bill permitting banks to establish branches across state lines could result in rural and small-town deposits being invested in big cities.

Roberts predicted that branch bank lending decisions would be made by “a 26-year-old with a laptop computer” instead of experienced country bankers.

Treasury Under Secretary Robert R. Glauber told the committee that the Administration proposal would help banks by allowing them to diversify their loan portfolios, giving them the strength to lend in both good times and bad.

He said community banks would continue to prosper because they know their customers better than an out-of-town bank would.

Agriculture Assistant Secretary Bruce L. Gardner predicted that the Administration’s plan would increase the number of banks operating in rural areas.

“From a rural community’s perspective, being served by both large banks, with their greater array of financial products, and small independent banks, with their greater knowledge of local conditions, is desirable,” he said.