The Commerce Committee, the next stop for financial services modernization legislation in the House, is likely to change the bill to require banks to conduct securities activities in holding company affiliates under total Securities and Exchange Commission oversight, according to officials and lobbyists.

And, in the Senate, where the Senate Banking Committee passed a similar bill, but without bipartisan support, Sen. Phil Gramm, R-Texas, the panel chairman, said he also hopes to put the bill on the Senate floor in early May.

However, big obstacles remain for passage this year. For example, the Commerce panel is seen as likely–under pressure from the securities industry–to toughen privacy provisions now contained in the bill that would limit banks’ ability to use their existing customer database to market investment products. Representatives of major money-center banks made clear last week at a meeting of banking industry lobbyists in Washington that if the privacy provisions are toughened they will drop support of the entire bill. And unitary thrift holding company provisions in both the House and Senate bills are under heavy fire from bank trade groups and the Federal Reserve Board.

Both changes, plus amendments to the bill passed by the House Banking Committee March 11, are likely to reduce banking industry support for the measure, which is already eroding.

The bill that passed the House Banking Committee by a huge margin repeals the Glass-Steagall Act and allows banks to conduct most non-banking activities in either an affiliate of the bank or an operating subsidiary. In general, both bills allow banks to conduct insurance, securities underwriting and merchant banking activities, but only under the oversight of existing regulators.

However, the bills differ in the areas of permissible operating subsidiary activities and Community Reinvestment Act requirements.

The Commerce panel has oversight over the SEC and is seen as unwilling to give up oversight of securities activities.