Members of the Senate Banking Committee tentatively agreed last night to give banks limited authority to expand into the securities business, including the right to underwrite corporate debt issues, but the committee put off a final vote until today because of a dispute over other provisions in the reform proposal.
In reaching yesterday's tentative agreement, senators set aside the issue of whether banks should be allowed to underwrite corporate stocks, promising to give the full Senate the opportunity to vote on the question in April.
The committee met behind closed doors for more than two hours and had tentatively struck a deal that would have provided banks with new securities powers but would have restricted banks' ability to expand into the insurance field, according to Senate aides and lobbyists.
However, a final agreement was delayed when senators realized they had a differing understanding of the agreement covering insurance powers, the aides said.
Sen. William Proxmire (D-Wis.), the committee chairman, said the panel would meet again today for another try.
The legislation, sponsored by Proxmire and Sen. Jake Garn (R-Utah), the committee's senior Republican, would repeal the Depression-era Glass-Steagall Act, which forbids commercial banks from the relatively riskier activities of underwriting and selling securities, because of fears for the safety of the banking system.
It would permit banks and securities firms to affiliate under the same holding company. The affiliates would be allowed immediately to begin underwriting mortgage-backed securities, commercial paper, municipal revenue bonds and securities backed by consumer loans.
Power to underwrite corporate debt would be postponed until Jan. 1 and corporate stock underwriting by bank affiliates would begin in 1990.
Sen. Donald W. Riegle Jr. (D-Mich.), chairman of the securities subcommittee, was pushing more restrictive legislation that would have required separate congressional votes in 1989, 1990 and 1991 before bank affiliates could underwrite corporate bonds, stocks and mutual funds.
The tentative compromise, according to the aides, would have automatically phased in power over corporate bonds and mutual funds and required a separate vote in the future only on stock underwriting.
Sen. Christopher Dodd (D-Conn.), from a state where insurance companies are important employers, was pushing an amendment that would prohibit state-chartered banks owned by holding companies from further expansion into insurance.
One version of the compromise on insurance, as described by the aides, would have allowed a state to permit its banks to underwrite insurance within the state even if the holding company that owned the bank was headquartered out of state. However, banks would not be allowed to locate in a state with permissive laws and then "export" insurance to other states through its branches.
A second, more restrictive, version of the compromise would require both the bank and its parent company to be located within a state before state officials could authorize it to underwrite insurance.
Proxmire and Garn opened the all-day session with a plea to fellow senators to ignore pressure from special interest lobbyists.
"We are not here to merely broker a compromise between the various providers of financial services," Proxmire said.
Garn, looking at a hearing room packed with lobbyists, said, "It's time to forget all of you and your special interests and your greed."
The Proxmire-Garn bill has been endorsed by the heads of all the relevant regulatory agencies and by President Reagan, but it faces substantial hurdles even beyond the Senate committee before it can be enacted.
Reps. John Dingell (D-Mich.), and Fernand St Germain (D-R.I.), who will have jurisdiction over the issue in the House, have expressed considerable reluctance about broadening bank powers too much.