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Senate Votes to Ban Non-Bank Banks in Future : No New Ones Would Be OKd; Seeks to Curb Some Dealings, Fund FSLIC

March 28, 1987|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — The Senate easily passed sweeping legislation Friday to ban future "non-bank banks," limit expansion of banks into financial services and authorize an urgently needed $7.5 billion for the Federal Savings and Loan Insurance Corp., which has been depleted by recent failures of thrift institutions.

The bill--sent to the House on a 79-11 vote--would bar retailers, securities traders and other non-banking companies from entering the banking business by offering limited banking services. But it would allow the continuation on a "grandfather" clause of 166 such "non-bank banks" in existence before March 6 of this year.

Approval of the measure by a large bipartisan majority was virtually assured Thursday when a compromise was reached that eased a proposed one-year moratorium on granting banks new securities, insurance and real estate powers.

Garn Effort Fails

Before the final vote Friday, Sen. Jake Garn (R-Utah), ranking minority member of the Senate Banking, Housing and Urban Affairs Committee, attempted to strip the bill of all its regulatory provisions and preserve it exclusively as a vehicle for refinancing the FSLIC, which oversees the nation's savings institutions.

Despite a veiled threat by the Treasury Department to oppose the bill if it contained new banking controls, the Garn amendment failed 54 to 35, with several Republicans voting with the majority.

Garn had argued that attempts to deal with non-bank and other issues in the bill would merely complicate matters and delay the needed aid for FSLIC. The General Accounting Office has estimated that the agency ended 1986 with a deficit as high as $3.8 billion.

A Garn-sponsored bill to recapitalize FSLIC by $15 billion passed the Senate last year, when he chaired the Banking Committee, but it failed in the House. "The problem is far, far worse this year," he warned Friday, "yet now the bill is more complicated."

But Sen. William Proxmire (D-Wis.), the current Banking Committee chairman and chief advocate of the bill's regulatory sections, said the FSLIC bailout would be enhanced by being twinned with efforts to "close the non-bank loophole" and slow the movement of banks into other financial services.

Exceptions to the Rule

The Senate adopted by voice vote a Garn amendment that would permit the "grandfathered" non-bank banks or their corporate owners to acquire failing savings and loan associations, subject to state laws.

The bill now goes to the House, where legislation to refinance the FSLIC is before its Banking, Finance and Urban Affairs Committee. But since the House bill, in its present form, contains no sections on non-bank banks and banking powers, the package that the Senate passed Friday may face further challenges when the bill enters a House-Senate conference later this year.

Another section of the Senate bill requires that banks no longer hold a customer's check for more than six days before releasing the funds. Extended "floats" or "check holds" have become a widespread consumer complaint.

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