Stage Set For Financial Overhaul Administration Urges Congress To Eliminate Limits On Banks, Insurers, Brokerages

The administration asked Congress Wednesday to sweep away Depressionera restrictions keeping banks, insurance companies and brokerages out of each other’s businesses.

Depending on one’s viewpoint, the proposal would either usher in an era of efficient, one-stop financial shopping for Americans or foster an unprecedented concentration of financial power that could cost consumers money.

For instance, a bank might be tempted into pressuring auto loan customers into buying its auto insurance - unless Congress adopts stricter safeguards than the administration is proposing, consumer activists warn.

Treasury Secretary Robert Rubin, who outlined the proposal in a luncheon speech, said that through increased efficiency, financial modernization could save consumers as much as $15 billion of the nearly $300 billion a year they spend on financial services.

“The goal should be to give consumers more choice, bring down the cost of financial services and make them more convenient for customers,” he said.

If enacted, it would be the most significant overhaul of the nation’s financial laws in 60 years. But in the past, even more ambitious plans, offered by the Bush and Reagan administrations, have failed to make it past the fierce lobbying of competing industries struggling for advantage.

Already, a range of organizations representing consumers, the elderly, farmers, community groups and smaller banks have raised concerns. They’ve focused on an option in the administration plan that would permit holding companies to own both a federally insured bank and commercial businesses such as a chain of travel agencies or a real estate development company.

Under the Treasury proposal, banks, securities firms and insurance companies would be able to own one another. Secondly, federally insured banks would be permitted to offer insurance and securities services they now provide only through a complex holding company structure or under other restrictions curbing their involvement.

For months, the administration also had floated a plan breaching the historic wall between banking and commerce. But it ran into a barrage of criticism, and Rubin offered it as one of two options.

He urged further debate before Congress settles on a final plan.

Under the first option, Congress could permit bank holding companies “some modest measure of nonfinancial activity,” but banks would be prohibited from owning the nation’s 1,000 largest commercial companies.

Also, the banking and savings institution industries effectively would be merged, and the Treasury Department’s two financial regulators - the Office of the Comptroller of the Currency and the Office of Thrift Supervision - would be combined.

Under the second approach, the traditional barrier between commerce and banking would be maintained. And the S&L industry, which has more freedom to engage in commercial activities than banks, would remain separate from banking, retaining its own charter and regulator.