Congress Missed Rare Chance For Meaningful Reform
Although IIAA was officially neutral on the final Senate proposal, the Association felt Congress should enact it in order to position all financial services players, including independent agents, for an integrated marketplace and to set up a rationale regulatory structure.
"While it's true that Congress has tried repeatedly over the last 20-plus years to reform the nation's financial services industry, this year marked the first time ever that the usually warring groups—the insurance, banking and securities industries—were in unanimous agreement on legislation to rewrite the antiquated laws," says Equale. "This year was unique because through the hard work and determination of congressional leaders and affected industries there was a consensus that legislation should have been enacted.
"Let's hope the coalition that coalesced around the legislation can be recreated in 1999 when the next Congress begins its efforts to modernize the nation's financial services industry," says Equale. "But that industry unity could be undermined if unelected bureaucrats in Washington start to preempt state insurance laws before Congress has the chance to address the financial services reform issue next year."
Senate Majority Leader Trent Lott (R-MS) recommitted The Financial Services Competition Act (H.R. 10) to the Banking Committee last Friday after Sens. Phil Gramm (R-TX) and Richard Shelby (R-AL) engaged in stalling tactics to protest provisions in the bill that would expand the Community Reinvestment Act (CRA) requirements to the new financial services companies that would have been formed through the legislation. CRA requires banks to provide credit and reinvest in low-income areas, particularly inner-city communities. Lott's move, in effect, marked the end of the modernization effort in the 105th Congress.
Weekend efforts to attach H.R. 10 to an omnibus spending bill that would fund numerous government agencies throughout the remainder of the fiscal year also failed, primarily because the Administration opposed the reform bill and Republican leaders did not want to jeopardize the wide-ranging spending measure by tacking on the controversial proposal.
IIAA is most concerned that the Office of the Comptroller of the Currency (OCC) could preempt a number of state insurance laws before the reform issue is taken up again by the next Congress. IIAA Executive Vice President Robert A. Rusbuldt says such a move could pull apart the loose financial services coalition that supported the Senate's version of H.R. 10—a development that would greatly hamper the prospects for legislation in 1999.
"This year's failed effort could be looked back on as the truly last, best opportunity for cross-industry supported financial services reform, especially if the OCC issues orders that preempt state laws or other opinions that would declare insurance products incidental to banking," says Rusbuldt. "Preserving the status quo on bank-insurance regulation is critical to IIAA's continued support of financial services modernization on Capitol Hill in the next Congress.
"Any OCC action in the insurance area will necessitate a direct response by Congress in order to keep this tenuous, loose-knit coalition together," explains Rusbuldt. To maintain the status quo, preserve the cross-industry support and bolster prospects for reform legislation, Rusbuldt says the OCC and state insurance regulators should work together to create the proper regulatory environment for both insurance agents and banks at this critical juncture.
"Members of Congress, other financial services groups, and Capitol Hill insiders already are pointing to next year as the end-game of the financial services reform debate," says Rusbuldt. "Let's keep everybody on the same page by not undercutting the interests of an important segment of the financial services industry while Congress is out of session."