WASHINGTON -- After decades of effort, Congress gave final approval last night to a sweeping overhaul of financial laws, giving banks broad new power to expand into the insurance and securities industries.
The Senate set the bipartisan tone, voting 90-8 earlier yesterday in favor of the measure, which industry analysts describe as the most important financial legislation to pass in at least 60 years. The House followed late last night with a similarly lopsided vote, 362-57.
President Clinton is eager to sign the measure, which the administration says will allow the United States to maintain its edge in an increasingly competitive global economy.
"This means thousands of high-paying jobs -- not just on Wall Street, but it affects every business in America and benefits every consumer in America when we lead the world," said Sen. Phil Gramm, a Texas Republican who is chairman of the Senate Banking, Housing and Urban Affairs Committee and who has been a tireless advocate for the measure.
Critics, however, expressed fear about an erosion of consumer rights and choices as financial services become concentrated among a few giant conglomerates.
"Marylanders used to have savings accounts with local banks where the teller knew their name and their family," said Barbara A. Mikulski, a Maryland Democrat who was one of the few senators -- seven Democrats and one Republican -- to vote against the bill.
"We have already seen the trend toward mega-mergers, accompanied by higher fees, a decline in service, and the loss of neighborhood financial institutions," Mikulski added. "This bill accelerates that trend."
Even some supporters of the bill complained about what they say are inadequate safeguards to prevent financial companies from sharing -- or even selling -- personal information about their customers to marketers. Under the legislation, the financial companies will remain free to share such personal data with telemarketers that are their corporate partners -- without consumers' permission.
"I can assure you these large financial conglomerates will have more information on you than the IRS," said Sen. Richard C. Shelby, an Alabama Republican who led the opposition in the Senate. "We are going to pay a high price indeed for this legislation."
All eight members of the Maryland House delegation voted in favor of the bill.
By breaking down the barriers separating the banking, insurance and securities industries, the legislation repeals key provisions of the Depression-era Glass-Steagall Act. That law was passed, in the wake of widespread bank failures, to separate commercial banking from more risky investment activities.
For years, as more and more banks have merged with other financial entities, federal regulators have granted exceptions to the law. Insurance companies and brokerage houses have also found their way around the law by offering services similar to those provided by commercial banks.
The bill passed yesterday, after more than 20 years of failed attempts by past Congresses, is designed to bring the federal law into concert with the reality of the global marketplace.
"Those who look at this endeavor and say we don't want to allow any of this affiliation to take place need to appreciate and understand, it has been happening in a significant way," said Sen. Paul S. Sarbanes of Maryland, who as the senior Democrat on the banking committee was the lead negotiator for his party on the bill. He backed the legislation only after securing several concessions.
"This blurring of the lines among bank, securities and insurance products has been taking place since at least the mid-1970s," Sarbanes added. "We are trying to provide a statutory framework."
At the same time, the enactment of the legislation is expected to touch off a flood of mergers as financial entities scramble to compete domestically and abroad by providing the widest possible array of services.
Customers would be able to handle all their financial business through one institution -- maintain checking and savings accounts; obtain home loans, consumer credit and credit cards; buy life, auto, homeowners and title insurance; and invest in stocks, bonds, mutual funds and commodities.
Sen. Michael B. Enzi, a Wyoming Republican, said he envisions financial conglomerates that would serve "as a sort of shopping mall for financial needs."
Federal prohibitions against such combining of services have become "antiquated," said Sen. Charles E. Schumer, a New York Democrat who argued that U.S. companies would move out of the country if such "one-stop shop" services were not available here.
"The future of America's domination as the financial center of the world is at stake," said Schumer, who warned that New York could be eclipsed by London, Frankfurt or Shanghai.
The U.S. financial industry lobbied heavily for the bill's passage.
But consumer groups largely opposed the measure, complaining that only large-scale bank customers would benefit from the economies of scale and that customers with small accounts might end up paying more. "This is a great idea for the banks, but not an especially good one for most consumers," said David Butler of the Consumers Union.
Perhaps the leading consumer concern raised by critics related to the broader sharing of personal financial information that the bill would allow.
For the first time, the legislation sets one privacy requirement: that bank customers be given the chance to request that details about their accounts be withheld from anyone who is not affiliated with the bank.
But critics complained that this provision left a "gaping loophole" because of the broad sharing it would allow within the organizations that may be only loosely connected.
Shelby suggested that a bank might pass along a tip about a customer who had just received a sizable insurance payment to an affiliated company that is marketing investment opportunities.
An effort to broaden the privacy protections was vehemently resisted by the banking lobby, which argued that efforts to limit information sharing would be cumbersome and would inhibit the offering of valuable services, such as one monthly statement that includes all the accounts of a single customer.
The enactment of the banking bill had been held up for months by a dispute over a requirement in current law that is intended to encourage banks to make loans in low-income neighborhoods.
Gramm had proposed to scale back that requirement, which he contended has been abused by community groups seeking to extract favors from banks. Sarbanes and the Clinton administration successfully resisted the attempt but made some concessions to Gramm.
For example, under a provision pushed by Gramm, many smaller banks would be subject to less frequent reviews of their record of lending in low-income areas. Larger banks were willing to accept continued community lending requirements in exchange for their new privileges.