The House Banking Committee passed legislation March 11 that would repeal the Glass-Steagall Act and allow banks, insurance companies and securities firms to affiliate.

A similar bill was reported out March 4 by the Senate Banking Committee, but the Senate panel’s vote on the measure was more partisan because it would roll back commitments for banks under the Community Reinvestment Act. That bill was passed by an 11-9 vote and was believed to have an uncertain future.

The next step for the House bill is the House Commerce Committee, which is expected to impose much more restrictive rules on bank securities activities than that imposed in the banking panel version of the legislation. Specifically, the Commerce panel, which oversees the Securities and Exchange Commission and the activities of securities firms, is expected to revise the bill to require banks to "push out" their securities activities completely under SEC scrutiny. Commerce is expected to get a one-month referral on the legislation.

The House leadership wants to put the financial modernization bill on the floor the week of May 11. In comments several weeks ago, Rep. David Dreier, R-Calif., chairman of the House Rules Committee, said it is likely he would be in the unenviable position of refereeing between the Banking and Commerce panels’ versions of the bill.

Sen. Phil Gramm, R-Texas, chairman of the Senate panel, has said he hopes to have a bill on the floor the first week of April. However, Gramm appears committed to rolling back banks’ CRA responsibilities, so it is unlikely the bill will get to the floor under such a quick schedule. Indeed, there are doubts that the differences on the Senate bill can be reconciled by summer, at best.

The industry groups which put together the basics of the bill want it to be enacted by the July 4th congressional break. But congressional staffers and administration officials believe that such a fast track is unlikely.

The pattern in both the House and Senate banking proposals is to pass bills containing provisions sought by all lobbying groups, and to pay tribute to functional regulation, which calls for specific activities to be regulated by their current regulators. However, because of the compromises crafted to keep all special-interest groups happy, it is seen as unlikely that the bill will work in practice. Effectively, the bill is likely to lead to endless litigation and conflict between regulators seeking to protect their turf, and the turf of the industries they regulate, sources said.

The Obama Administration has already sent out a veto letter on the Gramm/Republican/Senate version of the bill. Besides CRA, it has controversial provisions such as safe harbors designed to protect current state laws restricting bank insurance sales; a definition of insurance; and the end of deference to federal regulators in determining whether a product is banking or insurance. All of these provisions could prompt a presidential veto.