HOUSE TURNS DOWN BANKING OVERHAUL BY 324-TO-89 VOTE
By Stephen Labaton
Acceding to the White House and the nation's largest banks, the House of Representatives today overwhelmingly rejected legislation to overhaul the nation's banking laws. The measure, defeated on a 324-to-89 vote, would have made it more difficult than the Bush Administration wanted for banks to expand into the securities and insurance businesses. Treasury Secretary Nicholas F. Brady said after the vote that the House "must now craft new comprehensive legislation to address the real problems of the banking system." The Senate is expected to take up its version of the legislation this week, perhaps as early as Wednesday. Chances Dim for Legislation Although the defeat of the legislation was widely viewed as a victory for the Administration, both Democrats and Republicans said the lopsided vote indicated a clear lack of consensus and therefore further limited the political chances of broad banking legislation this year. Today's action thus makes it less likely that many of the White House's banking proposals will be enacted. The bill was hammered out as a compromise agreement reached last week by two key Democrats who asserted that the Administration's proposal would have unwisely deregulated the banking industry. Disagreements between the two Democratic committee chairmen, Henry B. Gonzalez of Texas and John D. Dingell of Michigan, had blocked legislation for years. The defeat came after intense lobbying against the legislation by senior Administration officials, including Mr. Brady, who joined forces with representatives of the nation's largest financial institutions, including American Express, Citicorp and J. P. Morgan. A grass-roots campaign against the measure had also been waged by the American Bankers Association, whose members hold more than 90 percent of the industry's assets. 'A Giant Step Backward' "Congress wisely put this version of the banking bill out of its misery today," the association said. The defeated measure, it said, was "laden with massive restrictions on banks' ability to diversify their earnings" and "threatened to force banks to take a giant step backward." Voting for the measure were 83 Democrats and 6 Republicans, while 170 Democrats, 153 Republicans and the House's one Independent, Representative Bernard Sanders of Vermont, voted against it. Earlier today, as the House prepared for its fourth day of debate on the measure, Mr. Brady met with about a dozen Democrats, many of them members of the House Banking Committee. They have been unhappy since their chairman, Mr. Gonzalez, agreed with Mr. Dingell, the chairman of the Energy and Commerce Committee, to seek restraints on bank expansion that would be tougher than those the Banking Committee had originally approved. After meeting with the Treasury Secretary, the Banking Committee Democrats marshaled an opposition flank to their own leadership, which was working hard to find supporters for the legislation. The margin was expected to be considerably closer, but about 20 seconds after the voting began the electronic tally boards showed more than 140 "no" votes. Democrats who had reluctantly lined up for the measure switched sides, deciding it was not worth supporting a lost cause. Mr. Gonzalez said in an interview this evening that he would soon introduce a measure that would provide more money for the rapidly depleting fund that insures bank deposits. The fund is expected to run out of money next year. This new legislation would require regulators to close down ailing banks sooner and tighten accounting standards by requiring accountants to tell regulators of wrongdoing at banks. It would not address interstate banking or the ability of banks to enter new businesses. The Administration has said it will veto any measure that does not ease restrictions on interstate banking. Plight of Insurance Fund The Bush Administration proposed a comprehensive banking bill in February, and Congress began considering it this summer as the deteriorating condition of the bank insurance fund became apparent. The fund insures more than $2 trillion in deposits and has been battered by the increasing number of large and small bank failures over the last few years. Its plight has put intense political pressure on the lawmakers to complete banking legislation before they go into recess in the next few weeks. Like the House bill, the Senate Banking Committee measure would eliminate many existing restrictions on interstate banking. It would repeal outright the Glass-Steagall Act of 1933, which prohibits mergers between banks and securities firms. But the barriers it would erect to those mergers, and to affiliations between banks and insurance companies, are not as high as those in the House bill. In his statement tonight, Secretary Brady said, "We will also continue to work for genuine comprehensive reform in the Senate," adding, "Narrow recapitalization of the bank insurance fund will only delay the day of reckoning." The Administration's response to the banking crisis has been to propose the elimination of decades of restrictions on the theory that the industry would become more profitable if it were permitted to expand more easily -- both across state lines and also into the insurance and securities businesses. It has also sought to attract new investors to the industry by its proposal to permit banks to be owned by industrial enterprises, like General Motors and I.B.M. The legislation the House rejected today would have permitted banks to open new branches and banks in other states, as the Administration had wanted. But the Gonzalez-Dingell agreement, like the Depression-era laws on the books, would have imposed barriers to new businesses. The banks argued that these barriers would have made it unrealistically expensive for them to expand into other areas. Like the Senate measure, the House legislation also rejected the proposal on industrial ownership of banks. Again today, lobbyists from banking, insurance, securities and real estate interests swarmed over the Capitol. The most visible lobbyists have been those for the insurance industry, which has fared the best in the debate so far. Banks have been prevented from making significant inroads into the insurance industry, and the regulation of insurance has been left to the states. "At this door alone, we've got eight lobbyists," said Paul Equale of the Independent Insurance Agents of America, standing near one of the entrances to the House chamber. "We've also got all our state associations writing letters and making phone calls. We do anything we have to. We are here to talk to the members of Congress. It's like selling insurance. We have to be where our customers are." Representative Charles E. Schumer, Democrat of Brooklyn, said he was visited this morning by six representatives from Citibank, who had taken the 6:30 A.M. shuttle from New York. But they appeared not to have succeeded in persuading him, as he voted for the legislation. Action on Expansion Before it voted down the entire package, the House overwhelmingly rejected an effort to delete from the legislation the provision that would have made it easier for banks to expand across state lines. By a vote of 264 to 153, the House rejected an amendment that would have imposed modest limits on the coverage of deposit insurance. The proposal was for insurance to be limited to $100,000 an individual, plus another $100,000 for retirement accounts, per bank. Under current law, individuals may hold multiple accounts insured up to $100,000. Although the vote appears to make it considerably less likely that a broad banking overhaul bill will pass during this session of Congress, the Administration pointed to the defeat of the House bill as a sign that its original plan could still be enacted. The Adminstration strategy is now to push hard in the Senate for a more palatable bill, which would then have to be reconciled with whatever emerges from the House. Representative Joe Moakley, the Massachusetts Democrat who is chairman of the House Rules Committee, and other senior Democrats predicted that the House was likely to consider new banking legislation soon that would include all of the pieces of today's legislation except the provision allowing banks to enter new businesses. Democrats and Republicans attributed the measure's overwhelming defeat to a coalition motivated by a variety of reasons. One is the fact that the lawmakers will have to vote shortly on a financing measure, in addition to the $80 billion that Congress has already appropriated for the savings-and-loan debacle. "It was an unholy alliance formed by those who believe the bill is the legislative equivalent of giving blood thinner to a hemophiliac and those members uncomfortable with voting for any kind of a bank bill at all," said Representative Thomas R. Carper, Democrat of Delaware, who voted against on the measure. Mr. Moakley said, "People just don't want to vote for the funding." Representative Chalmers P. Wylie of Ohio, the ranking Republican on the House Banking Committee and one of the Administration's point men on the legislation, said, "There is much good in this bill," adding, "The bill has been dragged down by what I regard as an ill-conceived agreement by two powerful chairmen." At a news conference after the final vote, Mr. Gonzalez and Mr. Dingell attributed the defeat to the intensive lobbying of bankers and to the campaign waged by the nation's largest financial institutions. They contended that misinformation was deliberately spread. Shortly before the final vote, the House majority leader, Representative Richard A. Gephardt, Democrat of Missouri, agreed. "We hear a lot about what this lobby wants and what that lobby wants," he said. "Let's forget the lobbies and start worrying about the American people and the American taxpayers for a change."
