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House banking overhaul legislation is abandoned.

House Banking Committee Chair--James A.S. Leach (R-Iowa) announced that Congress would not repeal this year the Glass-Steagall Act of 1933. Leach was unable to garner the Banking Committee's support for the comprehensive bank industry modernization legislation, the Financial Services Competitiveness and Regulatory Relief Act of 1995 (HR 2520). Instead, the senator plans to move forward with legislation that will combine certain provisions of HR 1062, an earlier Glass-Steagall reform proposal, and HR 1858, which would reduce paperwork and other regulatory burdens for banks.

The Glass-Steagall Act was enacted during the Great Depression to protect banks and safeguard the financial system by separating commercial banking from investment banking, an arrangement Leach has long contested as "irrational." Leach put legislation to modernize the banking and securities industry at the top of the 1995-1996 House Banking Committee's agenda.

In a letter to Alan Greenspan, chairman of the board of governors of the Federal Reserve System, Leach said that even though Congress could not implement changes this year, modern markets would "continue to evolve, creating new products and blurring the distinctions between investment and commercial banking." He urged the Federal Reserve Board to use its authority to address these changes by increasing the 10% revenue limit on bank subsidiaries set up under section 20 of the Glass-Steagall Act. Currently, banks can own section 20 subsidiaries that underwrite and deal bank-ineligible securities as long as only 10% of the subsidiaries' revenue comes from securities activity. Leach is expected to ask Greenspan to raise the limit to 25% of revenue. The Treasury Department supports raising the limit on securities activities to ease the burdens on banks that are close to the 10% limit.

There has been no attempt in the Senate to combine Glass-Steagall reform with bank regulatory relief. A less ambitious bill, the Economic Growth and 1Regulatory Reduction Act (S 650), was introduced by Senator Richard C. Shelby (R-Ala.) in 1995 and was passed by the Senate Banking Committee in December.
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Publication:Journal of Accountancy
Article Type:Brief Article
Date:Aug 1, 1996
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