The opening salvo in the 1985 banking deregulation battle was fired yesterday by Rep. Fernand St Germain (D-R.I.), who introduced a bill to ban what he called "back-alley, half-a-bank schemes" retroactive to July 1, 1983.
His targets are the so-called nonbank banks. More than 100 have been authorized since St Germain, chairman of the House Banking Committee, halted legislation on the issue last fall by declaring it futile to continue, given the differences separating the House and Senate. Nearly 400 more nonbank bank applications are pending, although a lawsuit filed by the Independent Bankers Association of America has halted approvals by the Comptroller of the Currency until Feb. 11.
St Germain called nonbank banks "the single overriding emergency in the banking industry at the moment" and said there was a "broad consensus in the House to close this loophole" in the Bank Holding Company Act. The loophole allows banks and other companies to acquire institutions in other states and make them limited-service banks, thus circumventing rules against interstate banking.
At the same time, the committee's minority leader, Rep. Chalmers P. Wylie (R-Ohio), introduced a different version of legislation that also would effectively outlaw nonbank banks. However, Wylie's bill would exempt state-chartered savings banks that do not use federal services and would "grandfather" all nonbank banks acquired before Jan. 3, 1985.
St Germain prefers a stricter approach: divestiture within two years of all nonbank banks established after July 1, 1983, and immediate divestiture of those set up after May 24, 1984.
After ending the nonbank bank emergency, St Germain would proceed cautiously to other changes in banking laws, he said. However, the tone of his remarks yesterday indicated that he is skeptical about further deregulation and more powers for banks. "The financial industry has the ability to shoot itself in the foot," he warned. "If, in the process of assuring more for itself, it attempts to provide less for the public, this whole package may end up in the ash heap -- shot dead by the industry itself."
Wylie, on the other hand, proposed in his bill measures that he said "recognize the new competitive realities between financial services providers, and permit that competition to increase in the future while retaining safety as the watchword." His bill would give banks and thrifts the power to underwrite mortgage-backed securities and engage in other approved activities through subsidiaries, but would prohibit them henceforth from underwriting securities or affiliating with securities firms. Interstate banking would be phased in over a five-year period.