The prospect for further deregulation of financial services during the 99th Congress is unclear. But there is considerable movement -- both pro and con -- elsewhere in the agencies, the courts, the industries and trade groups.
Although publicly pledged to cooperate with each other to produce legislation, the powerful chairmen of the House and Senate banking committees appear to be where they quit last fall: at loggerheads. Rep. Fernand St Germain (D-R.I.) will not accept a bill to stop the spread of hybrid, "nonbank banks" if the bill also permits banks to conduct new kinds of financial operations. And Sen. Jake Garn (R-Utah) won't accept a bill that doesn't give banks new powers.
On the first day of the new session, St Germain, who called off the battle in October without trying to get a bill passed, rushed to introduce a limited emergency measure to end new and many existing nonbank banks. These "back alley, half-banks," in his parlance, are limited-purpose banks created by financial institutions to evade the law prohibiting interstate banking and allow businesses other than bank holding companies to own banks.
He denounced deregulation as "little more than a synonym for industry wish list" and warned that Congress would be "foolish if it did not demand some quid pro quo for the American consumer, small business and others often left on the sidelines when the big decisions are made about financial services." He called for exhaustive hearings before any action is taken.
On the other side of the Capitol, Garn, whose comprehensive banking bill passed in September, said he plans to introduce a similar bill, with perhaps some deletions, before February and hold abbreviated hearings. New issues, like changing the deposit insurance system and realigning regulation of financial institutions, will be handled in separate legislation.
"I don't intend to walk away from an 89-5 victory," said he, referring to the September vote and his triumph over the filibuster staged by big-bank supporters to protest his support for regional banking compacts that exclude big banks. The Senate legislation also granted a number of new powers to banks, including the ability to underwrite and deal in municipal revenue bonds, commercial paper and mortgage-backed securities. It also closed the so-called South Dakota loophole, which enables banks to get into insurance through the back door, as well as the nonbank bank loophole.
To date, the only common point of agreement between the legislators is July 1, 1983, as the cut-off date for nonbank banks. Any established after that would have to be sold by their parent companies.
With each side seemingly entrenched at this juncture, there is little public talk of compromise or accommodation. Some suggest separating out for early action the easy, noncontroversial things, like those provisions dealing with the Securities and Exchange Commission. But that would leave the hard issues.
Rep. Chalmers O. Wylie of Ohio, the ranking Republican on the Banking Committee, has introduced a diluted version of Garn's bill that Wylie says "recognizes the new competitive realities between financial-services providers and permits that competition to increase in the future while retaining safety as the watchword in our nation's financial system." Wylie calls for consumer protection, limited new power for banks, a grandfathering of existing nonbank banks, increased control by the federal insurance funds and a five-year phase-in of interstate banking.
Comptroller of the Currency C. Todd Conover, who last week announced his intention to resign, expressed the frustration felt by many in the financial community over congressional inaction.
"They've fooled around for three years now," he said. "I don't know what kind of crisis has to occur to get those people to act. We've certainly had our share of crises in that time."
Garn himself has noted that the last two banking bills were passed only when disaster loomed. Despite record bank failures last year, including the fiasco of Continental Illinois National Bank, there was no air of crisis in the banking committees. However, according to Federal Deposit Insurance Corp. Chairman William Isaac, two factors could provide the catalyst: the expiration of the regulatory agencies' authority to prop up ailing savings and loans with paper capital infusions and to arrange interstate takeovers of failing banks.
When Isaac, who also has signaled his desire to leave office, was asked if he thought there would be a banking bill this year, he replied, "I'd rather try to predict the Dow Jones average." He noted what seems to be a groundswell for no legislation by those who fear it will go too far, and others, not far enough.
A fearful National Federation of Independent Businessmen wants to keep the status quo to curb the big banks, while the Association of Bank Holding Companies -- representing the big banks -- vows to oppose any attempts to close legal loopholes.
Consumer organizations, while still split on the benefits of deregulation thus far, met last week in Phoenix to discuss solutions to the perceived problems of confusion caused by a profusion of products, high service fees charged by banks, and threats to privacy of computerized data.
Stephen Brobeck, executive director of the Consumer Federation of America, called for voluntary or legislated incentives to banks to provide "lifeline" services at nominal cost for low-income customers.
Also difficult to assess at this time is the effect top personnel changes would have on deregulation -- namely Isaac's and Conover's departures and the switch of jobs by Treasury Secretary Donald T. Regan and White House chief of staff James A. Baker III.
Proponents say Regan, the administration's deregulation architect, will have a chance to catch the president's ear, although banking likely will take a back seat to the budget and tax reform. Opponents respond that Baker, who becomes chief economic spokesman, holds more moderate opinions, particularly on regional banking.
There may not exist sufficient pressure on Congress to produce a banking bill this year, but the pressure of events elsewhere is affecting the course of financial-services deregulation.
The Supreme Court has agreed to hear a case that will make or break regional banking. The fact that the justices agreed to review an appeals court decision that allowed states to form pacts excluding other states (and their money center banks) leads some to believe the high court will rule these discriminatory arrangements unconstitutional, thereby killing regional banking. In addition, there are other court cases pending on various aspects of deregulation.
If this is the year of the courts, 1984 was the year of the agencies. The comptroller began wholesale approval of nonbank banks.
The FDIC proposed to let state chartered banks underwrite securities and federally insured banks enter insurance, real estate, securities and other businesses through subsidiaries. Should banks get these powers through regulatory fiat, Congress would be faced with ratifying a fait accompli.
While some deregulation-minded supervisors are expanding the limits with one hand, with the other they are trying through increased examination and capital adequacy requirements to ensure that weak institutions are barred from the new game in order to protect the banking system.
Then, there is action at the state level. Nine states have made reciprocal banking accords and 20 others are due to consider them. Should these develop and the courts concur, there would be little left for Congress to do on interstate banking. New York and California have given state-chartered institutions the power to invest in commercial real estate, and New York has proposed to allow its banks into the insurance business.
Moreover, Citicorp announced recently that it planned to take advantage of another legal loophole to underwrite corporate debt. It seems that the Glass-Steagall Act, which separates commercial from investment banking, allows some otherwise prohibited underwriting by subsidiaries, so long as it is not their principal business.
If some of the nation's largest banks were to expand into real estate and insurance and underwriting securities, in addition to discount brokerage, Congress could well be in the position of shutting the proverbial stable door after the horse has bolted.