Securities analysts and representatives of the banking and insurance underwriting industries are saying that the legislation pushed through by Senate Banking Committee Chairman Phil Gramm, R-Texas, is a positive despite the threat of a presidential veto. The bill was voted out of the committee last week under a narrow 11-9 final vote along party lines (see p. 6-7 to compare competing bills).

However, an analyst said that the banking industry must be concerned about a trend toward passage of legislation that reduces the industry’s powers, and, at the same time, the insurance agents industry says it is neutral at best over provisions that extend the "significantly prevent or interfere" standard established by the Supreme Court in the Barnett case in 1996. The insurance agency provisions in the Senate bill were taken at the last minute from those contained in last year’s H.R. 10 as it was re-drafted after being reported out by the Senate Banking Committee.

A bill generally supported by the banking industry and the Clinton administration is being marked up in the House Banking Committee. The panel dealt with Title 1, which concerns the rules for affiliations between insurance companies, securities firms and banks, last Thursday. The panel plans to renew work this Wednesday.

Steven Blumenthal, an analyst with Schwab Capital Markets & Trading Group in Washington, saw the Senate action as a positive. "To a degree that Schwab Washington Research Group has never seen, the elected representatives working on financial services reform legislation are trying to reach agreement and pass a bill," wrote Blumenthal in a memo to clients obtained by Financial Modernization Report.

But he called it a "measured step forward. The compromises reached in the Senate on insurance issues are almost certainly going to cost the bill some support in the banking industry." He added that the product of the House Banking panel is almost certainly going to be rewritten in the House Commerce Committee. "That is not likely to be a result that favors banks. Combined with the Senate developments on insurance, the reasons for the major portion of the banking industry to support the bill are disappearing."

Dean Sackett, vice president of government affairs for the Professional Insurance Agents of America, said the agents industry will be merely neutral to the Senate Banking bill and will seek changes.

The American Bankers Association voiced support for the Senate bill, which will allow banks to affiliate with securities and insurance companies, but does allow for a definition of insurance that would reduce the ability of banks to underwrite hybrid products, such as annuities. It does establish a system of functional regulation that will allow state regulators as well securities regulators to oversee those activities when conducted by banks.