The target date for legislation to amend the Gramm-Leach-Bliley Act to permit some bank cross-marketing under GLBA's merchant banking provisions is shortly after Labor Day, industry sources said last week. The competitive handicap the current cross-marketing provisions give banks versus rival insurance companies has some members of the industry resolved to try for Capitol Hill action, even though there is a risk of it backfiring if lawmakers start to make other changes in GLBA that banks don't want.
Part of the post-Labor Day timing, the sources said, was dictated by the intentions of House Financial Services Committee Chairman Michael Oxley (R-O.). Oxley has said he plans to hold hearings in the fall looking at whether regulators deviated from Congress' intentions when they implemented the modernization statute. The industry's problems with cross-marketing do not arise from the way the law was implemented but from the language in the statute itself. Nonetheless, industry sources said, the Oxley hearings seem likely to provide the best venue for advocating changes in GLBA.
Another reason for holding off introduction of a bill until fall, industry sources pointed out, is a desire to take some time now for discussions with the Federal Reserve. Any move to seek legislation on this subject is expected to trigger, early on, a request from the Hill for a Fed reaction to making the proposed changes in GLBA. A negative reaction by the central bank could be fatal to chances for moving legislation.
GLBA, as it stands, permits insurance companies to cross market. But it does not let banks do so because they are covered by government deposit insurance. Meanwhile, banks are finding that potential portfolio companies for their merchant banking affiliates are reluctant to accept investment unless products of the bank may be shown on the portfolio company's web site. Industry sources said recently Fed General Counsel Virgil Mattingly has indicated sympathy with changing the law to allow such cross-marketing, providing there is no bank control over the portfolio company. What is being sought now is a Fed commitment to stand by that viewpoint if Congress asks. A call to a Fed spokeswoman about Mattingly's position was not returned by press time.