WASHINGTON -- Congressional leaders on bank issues are supporting the Bush administration's proposal to remove the remaining barriers to interstate banking, a central goal of the banking industry.
But there is resistance among some key lawmakers to parts of the plan that would expand the powers of banks by allowing them to deal in securities, insurance and mutual funds and parts that would allow industrial companies such as Ford Motor Co. or Exxon Inc. to buy banks.
In the wake of the savings and loan fiasco, lawmakers are wary of letting banks, even through separate affiliates, get involved in risky ventures.
Extensive hearings and debate are expected on the new administration proposal, and that could push enactment of the controversial legislation into next year. Its prospects also are clouded by what is widely regarded as weak political leadership both at the Treasury Department and in the Senate and House banking committees.
The plan's future also could be hurt by deep divisions among bankers.
Large banks favor removing the restraints, which date to the Depression, but community banks fear that would put them at a competitive disadvantage.
Treasury Secretary Nicholas F. Brady, in television interviews yesterday, tried to dispel some of those concerns, including those regarding parts of the plan that would allow banks to operate nationwide branches and gain increased powers.
"The difference between the banking industry and the S&Ls is the difference between chalk and cheese," he said, noting that banks hold $200 billion in capital backing their deposits, compared with $10 billion at savings and loans at the time the crisis began.
Of interstate banking, Mr. Brady said, "If a bank had its money spread over the United States, it wouldn't be so hard-pressed when a region got into trouble."
In the face of criticism from consumer groups that depressed states would be ignored by the credit policies of large money-center banks, Mr. Brady argued that letting banks operate nationwide would make for "a stronger banking system and more funds available for the [weaker] regions because the regional bank is stronger." Sen. Donald W. Riegle Jr., D-Mich., chairman of the Senate Banking Committee, praised the administration for its "bold proposal" to break down barriers to interstate banking.
The same view was expressed by a key member of the House Banking Committee, Charles E. Schumer, D.-N.Y., who said that "the removal of outdated restrictions on interstate banking and branching will help do away with the fragmented banking system that has stultified banks' ability to grow and compete."
Under the administration proposal, "interstate banking," the authority to open branches in any state, would be allowed in three years. Also, institutions that operate banks in several states would be allowed to turn those operations into branches.
Under current law, a bank parent company that opens a bank in another state must set up separate banks, boards of directors and other operations in that state. And some states bar out-of-state banking companies.
Banking companies that now have separate institutions across a wide area of the country would especially benefit from the proposal by being able to operate more efficiently, administration officials said. Mr. Brady estimated that banks could save $5 billion to $10 billion in the first five years. But Michelle Meier, counsel for Consumers Union, warned that "when local banks become part of a regional or national banking organization, they are less sensitive to local credit conditions and less responsive to local credit opportunities."
Representative Henry B. Gonzalez, D.-Texas, chairman of the House Banking Committee, objected to granting banks additional powers until after Congress approves greater supervision of banks and restrictions on deposit insurance.
"This is the same cart-before-horse mentality which plagued the deregulation of the savings and loan industry in the early 1980s," he said.
Mr. Riegle said he, too favors tightening regulatory supervision of banks before broading bank powers.
Representative John D. Dingell, D.-Mich., chairman of the House Energy and Commerce Committee and a powerful voice on bank issues, said the administration's program "is sufficiently similar to the savings and loan deregulation" that it would be "poison for the American public."
Mr. Dingell expressed concern that foreign companies would take control of the nation's banks if provisions were approved allowing industries to purchase banks. U.S. companies, he said, are too loaded with debt to enter banking.
However, three senior Democrats on the House Banking Committee -- Mr. Schumer, John J. LaFalce of New York and Doug Barnard Jr. of Georgia -- said they supported the plan.
"We cannot hope to put the banking industry on a solid basis if we offer it no prospect of increased profitability," Mr. LaFalce said.