WASHINGTON -- An alliance of liberal Democrats and conservative Republicans threw prospects for broad bank deregulatory legislation into confusion yesterday by amending a related bill so as to allow banks to merge with insurers, an idea that had previously been squelched.
The amendment vote on the House Banking Committee was driven by a variety of motives. Conservatives were seeking a broad dismantling of barriers in the financial industry.
Liberals hoped that the amendment would be a "poison pill," killing the bill it was added to, which would repeal a number of laws meant to ensure that people in poor neighborhoods can get loans. Many banks object to the laws, contending they require too much paperwork.
But the poison-pill amendment could also kill broader banking legislation that, under the current plans of the House Republican leadership, will be coupled with yesterday's bill before going to the House floor for a vote.
Yesterday's amendment shattered the delicate coalition of industries and politicians favoring the elimination of the barriers that have separated commercial banks from other financial services industries since the Great Depression.
Lobbyists for small banks, insurance agents and insurance companies, who previously advocated or were neutral on the bills now heading for the House floor, moved toward outright opposition.
The Clinton administration, big banks and securities firms with insurance affiliates pushed for the amendment. But the administration and big banks already object to the bill for other reasons.
Rep. Jim Leach, the Iowa Republican who is the panel's chairman, voted against allowing mergers of banks and insurers and urged his colleagues to do the same. But a majority of his own party's committee members defied Mr. Leach and the House Republican leadership in voting for the amendment, which they hailed as fulfilling their party's goal of deregulating U.S. business.
The vote in the committee was 36-12, as 17 Republicans voted against Mr. Leach.
Democrats joined conservative Republicans in supporting the amendment for various reasons. Some Democrats agreed with the Clinton administration that bank mergers with insurers will create a more efficient financial industry in the United States.
But other Democrats were eager to support the highly controversial amendment so as to reduce the odds that yesterday's bill would ever become law and roll back consumer protection laws and low-income lending rules.
Insurance agents, the most potent lobbying force among financial services industries, had blocked until now all efforts to allow mergers of insurers and banks. They feared that banks would sell insurance at their branches, driving the insurance agents out of business.