House defeats bank overhaul by big margin Move leaves FDIC nearly insolvent

compromise sought

November 05, 1991|By Karen Tumulty | Karen Tumulty,Los Angeles Times

WASHINGTON -- The House resoundingly defeated far-reaching banking overhaul legislation yesterday, dealing an apparent death blow to President Bush's efforts to rewrite the nation's Depression-era banking laws this year.

After three days of debate, the bill failed on a 324-89 vote. The margin of defeat was more lopsided than had been expected; strong majorities of both Democrats and Republicans voted against the measure.

Although the Bush administration had opposed the complex House bill, its defeat ensures that the House Banking Committee will have to start from scratch to develop a comprehensive banking measure.

Any legislation it eventually produces is expected to be far narrowerin scope than the rejected measure and fall well short of the kind of reform that the president originally envisioned.

Among the provisions considered likely to die are proposals to give banks new powers to do business across state lines and to sell securities and insurance.

Action of some sort is needed soon, because the Federal Deposit Insurance Corp.'s bank insurance fund is almost insolvent and will require a $30 billion line of credit from the Treasury to continue operating.

The insurance fund, which safeguards deposits up to $100,000 per account, is financed primarily through premiums paid by federally insured banks, but losses from bank failures have almost depleted it. Any measure that ultimately passes the House is likely to include little more than the additional borrowing authority, some relatively minor changes in deposit insurance, and new rules requiring the government to act more promptly when banks fall below safe capital levels.

Despite the vote, Secretary of the Treasury Nicholas F. Brady made another pitch for sweeping overhaul, warning in a statement that "a narrow recapitalization of the bank insurance fund will only delay the day of reckoning."

The goal of the reform effort is to shore up the nation's ailing banking system and prevent it from going the disastrous route that the savings and loan industry took in the 1980s.

The S&L bailout may ultimately cost taxpayers $130 billion, plus interest.

President Bush initially sought legislation that would expand banks' powers in many areas, including lifting old restrictions against crossing state lines and entering the insurance and securities businesses.

By diversifying, the president and his supporters argued, banks would be able to reduce their risks. Banks in New England, for example, would not find their fortunes tied only to that region's depressed real estate and high-technology industries. Moreover, they said, unless U.S. banks are freed from their current strictures, they will be unable to compete with giant foreign institutions.

Opponents, however, argued that loosening the reins on savings and loans in the early 1980s proved to be the industry's undoing, because many S&Ls used their new freedom to plunge headlong into highly risky and foolhardy ventures.

How the state's delegation voted

This is how Maryland's representatives voted on the 324-89 roll call yesterday by which the House defeated a bill replenishing the Federal Deposit Insurance Corp. and opening new business opportunities to banks.

Wayne T. Gilchrest, R-1st .. .. .. .. .. .. .. .. No

Helen Delich Bentley, R-2nd .. .. .. .. .. .. .. . No

Benjamin L. Cardin, D-3rd .. .. .. .. .. .. .. .. .No

Tom McMillen, D-4th .. .. .. .. .. .. .. .. .. .. .No

Steny H. Hoyer, D-5th .. .. .. .. .. .. .. .. .. .Yes

Beverly B. Byron, D-6th .. .. .. .. .. .. .. .. .. No

Kweisi Mfume, D-7th .. .. .. .. .. .. .. .. .. .. .No

Constance A. Morella, R-8th .. .. .. .. .. .. .. . No

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