Reg Council Reconsidered

While House Commerce Finance Subcommittee members remain divided over the merits of the financial services modernization bill reported by the House Banking Committee in June, a majority of them seem to concur that the regulatory council envisioned in the House Banking bill either should be abolished or its powers diluted.

As defined in the House Banking bill, the National Council on Financial Services could impose regulations on diversified financial services organizations and non-bank subsidiaries and could regulate transactions between banks and non-bank affiliates. It also would resolve disputes over whether a new or hybrid financial product was a banking or insurance product.

Critics say the council would add an unnecessary layer of bureaucracy, is stacked in favor of banks and would be politically influenced because it would be headed by the Treasury secretary. And, said one Commerce GOP source, "It would be bound over time to keep growing in terms of regulatory powers and responsibilities."

The Commerce Committee, which has until September 15 to act on the legislation, must grapple with the question of how to replace the proposed council--particularly its dispute resolution authority--and sources say the leading alternative is a new standard of review in federal court.

Under the Chevron doctrine, named for the Supreme Court's 1984 Chevron v. Natural Resources Defense Council decision, the courts are required to defer to "reasonable" interpretations of federal law by federal agencies--which means state regulators have almost no hope of winning legal challenges of agency rulings.

The Independent Insurance Agents of America wants that standard changed so equal deference is given to state and federal regulators and court cases are decided on the merits. "[A new standard] is clearly preferable to the council and preferable to the status quo," said Robert Rusbuldt of the IIAA.

Commerce aides said that many members currently seem to favor changing the standard of review--but that they must decide whether the new standard should be equal deference or no deference. Also, if the Commerce Committee legislates a new review standard, the House Judiciary Committee could then request a referral, which could push floor action on the bill into next year.