Legislation approved by the Senate Banking Committee late Wednesday grants banks broad new securities powers and, in other provisions, offers a mixed bag for users of financial services.
The bill, passed on an 18-2 vote, substantially repeals the 1933 Glass-Steagall Act, which separated banking from the securities business in the aftermath of the 1929 financial crash.
If eventually signed into law, it would grant banks immediate power to underwrite mortgage-backed securities, commercial paper and municipal revenue bonds. Banks would be able to deal in mutual funds and corporate bonds six months after enactment.
In a concession to the securities industry, the bill withholds power from banks to underwrite corporate stock -- viewed by senators as the riskiest securities area -- unless Congress authorizes that in a separate vote by April 1991.
Sen. William Proxmire (D-Wis.), chairman of the committee and the bill's sponsor, said competition from banks likely will result in lower underwriting fees paid by businesses and state and local governments.
Mutual fund fees could edge down for individual investors and more competition in the underwriting of securities backed by home mortgages could save home buyers as much as $1,000 on a $100,000 mortgage, Proxmire said.
Consumer groups also hailed a section of the bill sponsored by Sen. Christopher Dodd (D-Conn.) that provides new safeguards on home equity loans. But they said limits on bank involvement in insurance, also sponsored by Dodd, could reduce competition in that field.
Michelle Meier, an attorney for Consumer's Union, said she was disappointed in the insurance limits. She and five other consumer activists had argued in a letter to committee members that allowing banks into insurance "could reduce the cost of insurance and force the insurance industry to become more efficient."
Dodd acknowledged that his interest in limiting bank involvement in insurance stems from the concentration of insurance companies in Connecticut.
"This is like hogs in Iowa. To me it's important," Dodd told reporters. But he added that there are sound arguments for being cautious about letting banks take on the risk of insurance underwriting.
And, he said, "There's plenty of competition. I defy you to go out to any hamlet or borough in America and not find insurance agents competing against each other."
The home equity loan provision of the bill requires lenders to disclose the interest rate on loans in a clear and uniform manner as well as closing costs and repayment terms. It also would prohibit lenders from unilaterally changing the terms of a home equity line of credit after the contract is signed.
Meier and Leslie Gainer of U.S. PIRG, a group associated with consumer activist Ralph Nader, said in a statement that the Senate version is an improvement over a similar home equity bill in the House.
Another section would make it easier for consumers to shop for a place to put their money by requiring banks and mutual funds to advertise in a uniform manner the interest rate paid on deposits and money market accounts.
Proxmire, Dodd and others predicted that the lopsided committee vote would ease passage of the legislation through the Senate. But similar bills in the House face more uncertain prospects, where jurisdiction over the issue is shared by the Energy and Commerce and the Banking committees.