BANKING OVERHAUL; DEAL WOULD ALLOW MERGING OF FINANCIAL SERVICES.

Byline: David Hess Knight Ridder Newspapers

Banks, insurance companies and stock brokerages could merge with one another to form giant new financial firms offering one-stop shopping under a deal reached Friday by congressional Republicans and the White House.

If the agreement is approved, as expected, by the House and Senate and signed by President Clinton, it would cap a 30-year effort by the banking industry to remove Depression-era walls that barred cross-ownership among banks, insurance companies and brokerage houses.

The president lauded the agreement, saying it would ``bring lower costs, more choices and better protections for consumers. At the same time, it will promote continued investment in America's communities and new opportunities for our financial institutions to compete in the global marketplace.''

The compromise would eliminate the final barriers preventing consumers from opening a checking account, buying life insurance and investing in stocks at the same financial institution.

Many of those barriers already have fallen as banks and other financial firms found ways around the 1933 Glass-Steagall Act and a 1956 law. Advocates of the legislation said it will mean lower prices in the long run by allowing a more efficient financial services industry.

The industry has long argued that it needs the changes to compete with foreign companies, whose governments permit the consolidation of banks with insurance companies and brokerages.

Some consumer advocates respond, however, that the agreement doesn't adequately protect individual privacy and will allow companies too much leeway to share personal financial information.

Bank of America spokeswoman Sharon Tucker said that although bank officials have not seen the compromise language, they are ``hopeful,'' because reform ``levels the playing field, and it certainly helps us in terms of global competitiveness.''

David H. Komansky, chairman and chief executive officer of Merrill Lynch, said the compromise will give banks the tools ``to compete and win in the global marketplace.''

The agreement was not greeted with enthusiasm, however, by some consumer lobbies.

``This deal legalizes Orwellian surveillance and intrusion into people's lives, while its proponents use Orwellian doublespeak to claim it protects people's privacy,'' said Edmund Mierzwinski, of USPIRG, a nonprofit consumer group.

He said it would permit banks, in many cases, to share a customer's private financial information with outside parties.

The bill's chief sponsors, Sen. Phil Gramm, R-Texas, and Rep. James Leach, R-Iowa, said privacy concerns are adequately covered in their proposal - and that customers could ``opt out'' of any sharing pact their banks forged with third parties.

In addition, they said, the legislation requires banks to disclose fully to customers their information-sharing policies.

Gramm said the compromise ``will make an array of financial services available to every American consumer and will provide lower prices and one-stop shopping at financial supermarkets in every city and town in the country.''

Besides the dispute over privacy, the bill was snagged for months by a fight between Gramm and Clinton over the senator's opposition to rolling the Community Reinvestment Act into the legislation. Under the CRA, local banks that accept deposits from customers in low-income areas also must provide loans and other services to qualified borrowers and depositors from those neighborhoods.

Under the agreement, the CRA requirements would remain largely intact, as the president insisted, but banks with less than $250 million in assets would not have to undergo CRA compliance tests more often than once every five years if they got outstanding ratings on their most recent screenings.

The president said he could ``not accept any bill that would weaken (CRA) and undermine our commitment to promoting more investments in underserved communities. That's why I insisted that no bank that fails to meet the needs of communities should be able to profit from the new insurance and securities powers that this legislation provides.''

John Hanley, the director of legislative strategy for the Independent Community Bankers of America, said the regulatory relief, along with a new prohibition against commercial ownership of savings and loans, sealed the ICBA's support for the bill.

``We wanted to keep the Wal-Marts out of the banking business,'' he said.

But the National Community Reinvestment Coalition opposed the relaxation for small banks, saying it would lead to fewer loans to American Indians, small farmers and low-income rural borrowers.

Besides the merger, privacy and CRA provisions, the legislation:

Empowers states, if they choose, to enact stronger privacy protection laws than the federal statutes.

Pre-empts state laws that bar mergers.

Splits regulatory oversight of any new conglomerates between the Treasury Department and the Federal Reserve. Under this procedure, banks would have to set up operating subsidiaries to manage newly acquired securities companies and Treasury would regulate those operations. Any insurance and real estate firms acquired by banks would have to be held in holding companies and would be regulated by the Fed.