WASHINGTON -- Abandoning an effort to broadly rewrite the rules that have separated banks from the rest of the nation's financial systems, the chairman of the House Commerce Committee said yesterday that he had been unable to broker a compromise to allow mergers between banks and insurance companies.
The decision by the chairman, Rep. Thomas J. Bliley Jr. of Virginia, represents a setback for big insurers and banks, and for the many House Republicans whose deregulatory zeal led them to call for a dismantling of the legal barriers that have fragmented the American financial system for six decades.
Led by Rep. Richard H. Baker, a three-term Republican from Louisiana, advocates of broad deregulation had initially sought to let banks merge with securities firms, insurers and even industrial companies like General Motors Corp.
And the Clinton administration has proposed legislation that would allow the merger of banks with securities firms and insurers.
But the bill that now seems headed for passage in the House is the narrowest under consideration, removing only the barriers erected in the Glass-Steagall Act of 1933 that have separated the banking and securities industries since the Depression.
Yesterday's decision represents a victory for insurance agents, who feared that large-scale insurance sales in bank branches would deprive them of their livelihood. The agents have influence beyond their numbers on Capitol Hill because so many of them are involved in local politics and on finance committees for Congressional campaigns.
But the lack of a compromise on the insurance issue could hurt the bill's long-term prospects for passage.
The Securities Industry Association will decide whether to support the bill in light of Mr. Bliley's decision, said Marc Lackritz, the president of the trade group.
"We're very disappointed at that development," he said.
"Unfortunately, it means it would foreclose a significant part of the securities industry already affiliated with insurance companies from participating in banking markets."
Mr. Bliley said at a hearing yesterday morning that there were not enough votes to approve mergers of banks and insurance companies.
"It has become apparent to me that an affiliation approach is unworkable at this time," he said. "The parties are too far apart, and their commitment to their respective positions too firmly held, for such an approach to succeed at present."
Mr. Bliley added that, "to pursue the insurance-affiliation issues further, it is now clear, would only jeopardize this window of opportunity to enact historic legislation modernizing our financial-services industries."
The Senate has not yet taken up the issue of financial deregulation, Sen. Alfonse D'Amato, R-N.Y., the chairman of the Banking Committee, has been waiting to see what the House would do.