The Senate Banking Committee last night approved a bill granting banks broad new securities powers but limiting their ability to expand into the insurance business.
The 18-2 vote late in the evening came after two days of wrangling behind closed doors among senators advancing the competing interests of banks, securities firms and insurance companies.
"I held you up for two days," acknowledged Sen. Christopher Dodd, a Democrat from Connecticut, where insurance companies are important employers. " ... And that's not an easy thing to do to your colleagues." He promised that their cooperation "will not be forgotten."
The legislation adopted would substantially revise the 1933 Glass-Steagall Act, which separates commercial and investment banking.
Bank holding companies would be permitted to underwrite and sell mortgage-backed securities, commercial paper and municipal revenue bonds immediately after enactment of the bill. They would be allowed to underwrite and sell corporate bonds and mutual funds six months after enactment.
However, a separate vote by Congress by April 1, 1991, would be required before banks could deal in corporate stocks.
Under a compromise reached on insurance business, state authorities could permit independent state-chartered banks to underwrite and sell insurance within that state. Banks owned by holding companies also headquartered in the same state could enter the insurance business. But subsidiary banks owned by out-of-state holding companies would be barred from the insurance business.
A loophole that had permitted some national banks to deal in insurance would be closed and banks dealing in insurance would not be able to sell it outside the state where they are located.
The committee left to the Senate as a whole a decision on whether a state could join with another state to allow each others' banks to engage in insurance activities across state borders.
The legislation, as originally proposed by Sen. William Proxmire (D-Wis.), the committee chairman, and Sen. Jake Garn of Utah, the panel's senior Republican, addressed only securities powers.
As early as Tuesday afternoon, the senators had settled on a compromise balancing the interests of banks and securities firms. But they were kept at the table for hours by Dodd's insistence on closing several loopholes that have permitted some banks to enter the insurance business in states where that is permitted.
Dodd said he did not obtain everything he wanted on blocking expansion of banks into insurance, but Paul A. Equale, a lobbyist for the Independent Insurance Agents of America, said, "We think Chris Dodd did a terrific job."
The Glass-Steagall Act was passed in the wake of the 1929 stock market crash to preserve the safety of the banking system during future market downturns. But banks have argued that the internationalization of financial markets and the development of new securities products have made the Glass-Steagall barriers outdated.
Proxmire, who had fought for full-blown securities powers for banks, said the compromise was worth it because it avoided legislation supported by only a narrow majority of the committee.
"It means a good strong bill will not only pass the Senate but will survive in conference," he said.
Voting for the compromise bill were Sens. Proxmire; Garn; Dodd; Alan Cranston (D-Calif.); Donald W. Riegle (D-Mich.); Paul Sarbanes (D-Md.); Alan Dixon (D-Ill.); James Sasser (D-Tenn.); Terry Sanford (D-N.C.); Richard Shelby (D-Ala.); Bob Graham (D-Fla.); Timothy E. Wirth (D-Colo.); John Heinz (R-Pa.); William Armstrong (R-Colo.); Chic Hecht (R-Nev.); Christopher Bond (R-Mo.); John Chaffee (R-R.I.) and David Karnes (R-Neb.).
Voting against the bill were Sens. Alfonse D'Amato (R-N.Y.) and Phil Gramm (R-Tex.).