Tomorrow the House Banking, Currency and Urban Affairs Committee begins debate on the so-called Safe Banking Bill, a broadly drawn regulatory reform measure that some skeptics predicted would never get out of subcommittee.
But earlier this month, when the bill was voted out of the subcommittee, it emerged largely intact, despite repeated forays by banking lobbyists who daily filled with hearing room.
A committee staff member now feels confident enough to predict that Congress will vote bank reform legislation in this session. And, he adds dramatically, the legislation that will emerge will bring "a new day in bank regulation."
The legislative package is composed of 16 different titles, each with trailing sections.
The proposed reforms range from limiting the borrowing by bank insiders and curbing the growth of bank holding companies to prohibiting interlocking boards of directors and putting a halt to the ease with which banks change hands.
A far milder bank reform measure was passed by the Senate last August. The Senate bill, called S-71, has been endorsed by the American Bankers Association, among other industry groups. During house committee hearings, lobbyists are expected to try to chip away at the tougher House version of the legislation to make it more like S-71.
The Safe Banking Bill is the creation of Rep. Fernand J. St. Germain (D-R.I.), the sometimes abrasive chairman of the financial institutions subcommittee.
St. Germain has inherited the mantel of the late Wright Pattman as the House's leading critic of financial institutions.
But St. Germain knows more about banking than did Pattman, say a number of those who have observed both, and he is more effective in urging his committee into action. Moreover, add these observers, St. Germain has gathered an experienced, aggressive staff to fashion his legislation.
Of course, the St. Germain legislation has been given a helping hand by the revelations about Bert Lance's banking practices. The hearings, investigations and press reports have raised questions both about some bankers and the effectiveness of agencies that regulate banks.
But Lance's dealings merely punctuated a series of banking scandals in recent years. During that time, several banks have failed, including three each with deposits totaling more than $1 billion.
In 1973, U.S. National Bank in San Diego collapsed under the weight of massive loans to business ventures of its chairman, C. Arnholdt Smith. With assets of $1 billion plus, U.S. National was the biggest bank failure until that time.
But not long after, in 1974, Franklin National Bank in New York went under. It has assets of $3.6 billion.
That same year, Security National Bank on Long Island (assets $1.9 billion) was saved from failure when authorities merged it into a healthy New York bank. Then, in 1976, Hamilton National Bank in Tennessee (assets: $336 million) folded, largely the victim of its real estate loan port-folio.
According to his staff, St. Germain "cut his teeth" on congressional hearings held in Texas on the causes of the collapse of the Sharpstown National Bank in 1971. Even today, references to the Sharpstown collapse find their way into speeches by St. Germain.
According to figures publised by the Federal Deposit Insurance Corp., about 60 percent of the bank failures were brought about by loans to insiders.
Title I of the Safe Banking Bill sharply limits the amount insiders can borrow for themselves, their businesses and their political campaigns. In the bill, insiders are defined as executive officers of the bank, bank directors and bank stockholders who own 10 percent of the shares.
Another title would curtail the expansive ways of the bank holding companies. The Federal Reserve Board says bank holding companies now control 70.8 percent of the domestic bank deposits.
The legislation would prohibit a bank holding company from expanding by acquisition if the takeover would give it assets exceeding 20 percent of the total assets held by all banks and bank holding companies in the state.
Bank holding campanies would also be limited to acquisitions that are so closely and directly related to banking as to be a proper and necessary incident thereof."
Other sections of the bill would:
Make it easier for authorities to remove a bank official who jeopardizes the safety and soundness of the bank.
Prohibit overdrafts by bank insiders.
Limit the access to private bank records by federal agencies.
Upgrade the National Credit Union Administration which supervises credit unions.
Provide for federal charters or mutual savings banks.