WASHINGTON -- The Bush administration's plan to overhaul the banking industry is supposed to provide a road map to the promised land of new powers and services.
But as analysts and lobbyists eyeball the proposal and weigh its chance of becoming law, they are beginning to ask if the risks outweigh the potential rewards.
The Treasury Department's bill, as issued last month, would create a new type of holding company structure that would allow banks to affiliate with securities firms, insurance companies and even commercial and industrial concerns. But it also contemplates some restrictions on bank activities.
As the legislative process unfolds, the expanded powers could be dropped from the bill while more burdensome elements remain, said Karen Shaw, president of the Institute for Strategy Development, a research and consulting firm that tracks banking legislation and regulation.
Ironically, banks may find themselves unable to exercise insurance powers they have already gained.
"The whole bill is premised on getting the financial services holding company," the vehicle for the expanded powers and non-banking affiliations, Shaw said. With that structure, "everything else in the bill makes sense."
But if Congress rejects that concept, the bill would close a loophole in the law that the Office of the Comptroller of the Currency has interpreted to permit banks to market insurance nationwide from towns with fewer than 5,000 people. Another Comptroller decision, permitting banks to securitize assets they originate, would be invalidated.
Deposits in the form of bank insurance contracts, investment accounts marketed to pension funds and companies that sponsor employee savings programs, would no longer be covered by the Bank Insurance Fund. And brokered deposits, a source of funds for some banks, would also lose insurance coverage.
The Securities and Exchange Commission would be given regulatory oversight over bank securities that are now the province of the Comptroller of the Currency.