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Rush to all-purpose financial firms faces no early rein-in

Congress won't be stopping the rush to build financial supermarkets yet. The Reagan administration and some federal agencies have proposed various plans to halt or change some of the rules for the mixing of the banking, brokerage, and insurance businesses. But it looks as if Congress will not be able to complete action on the various proposals this year, and perhaps not even next year. So market forces will prevail for the time being, anyway.

Comprehensive legislation ''runs into a lot of controversy,'' notes James B. Benda, counsel of the Independent Bankers Association. ''It steps on the toes of very influential special-interest groups.'' In addition, any congressional desire to expand bank powers has been diminished by recent battles over withholding on interest payments and support for the International Monetary Fund (IMF).

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The financial services industry used to resemble a row of individual shops on an early 1900s main street, with one store offering banking, another providing brokerage, and a third selling insurance.

But now many companies are moving to build financial supermarkets that can offer consumers one-stop shopping and a smorgasbord of services. So each branch of the industry is looking for ways to enter the others' businesses. As a result , traditional regulatory walls between the various sectors are crumbling.

Last month, for instance, the American Express Company, which currently owns a brokerage firm, an insurance company, and an international bank, announced plans to acquire a mutual fund and steel producer.

Other major financial firms have also been blurring boundaries. For example, the Prudential Insurance Company has purchased one of the nation's largest brokerage firms and a bank. Merrill Lynch offers a brokerage account giving customers free checking and has applied for a bank charter. Meanwhile BankAmerica Corporation, the parent of the largest United States bank, now has a discount brokerage firm.

Adding to the ferment is an influx of companies from outside the traditional financial fraternity. Both National Steel and Sears, Roebuck & Co. have acquired savings-and-loan institutions, for instance.

The competitive free-for-all means consumers will receive new services, greater convenience, and, at least in theory, better prices.

''Clearly consumers are reaping major benefits from financial deregulation and innovation,'' Treasury Secretary Donald T. Regan told Congress recently.

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There is no question that the upheaval in financial services is a regulatory nightmare. Led by South Dakota, individual states are in a bidding war to lure financial services firms by writing new rules that let banks offer services, like insurance, forbidden to federally regulated banks.

Congress should not allow state action ''to circumvent the very clear intention of Congress for 50 years and expressed again in 1982 in the Garn-St Germain Act,'' contends William W. Suttle, senior vice-president of the American Insurance Association.

And companies outside the banking industry are using a loophole in federal regulations that lets them buy a bank, get federal deposit insurance, but avoid federal banking regulations under the Bank Holding Company Act.

''Inequities abound in the current statutory framework,'' said the chairman of the Federal Deposit Insurance Corporation (FDIC), William M. Isaac, in a letter July 25 to Senate Banking Committee chairman Jake Garn (R) of Utah. He adds that ''the regulatory system is in a state of disarray.''

There is a spate of government activity aimed at reining in the turmoil. When Congress returns from its Labor Day recess, the Senate Banking Committee will resume hearings on various proposals to change the rule book for financial firms.

Also this fall the Task Group on Regulation of Financial Services, headed by Vice-President George Bush, will suggest ways to streamline federal regulation of financial institutions, a chore currently divided among five agencies. At the moment, however, prospects for final congressional action are uncertain, and so competitive maneuvering is likely to continue.

Chances for action are greatest in the Senate. Senator Garn plans to resume hearings Sept. 12 on legislation proposed by the administration, the Federal Reserve Board, and the FDIC.

The administration bill would give banks the power to set up mutual funds, underwrite insurance, and engage in real estate investment, development, and brokerage, as well as own thrift institutions. The bill would also close the loophole that allows a nonbanking institution to buy a bank and qualify for federal insurance without being subject to Bank Holding Company Act regulations.

The Fed seeks a moratorium until Dec. 31 on financial acquisitions and mergers. The FDIC plan would stop nondepository companies from taking over banks and thrifts and would require divestiture of banks and thrifts already purchased if Congress does not act on financial institution regulatory reform by next summer.

''There is a real possibility of Senate Banking Committee consideration (of a comprehensive bill) and if so of full Senate consideration,'' says M. Danny Wall , the committee's staff director. ''The House is very problematical.''

House Banking Committee chairman Fernand J. St Germain (D) of Rhode Island has proposed a moratorium of his own but ''has not at this point directed the staff to set up hearings'' on banking regulation, a member of the panel's majority staff says.

The committee has been concentrating on IMF funding and a housing authorization bill and probably could not take up banking regulation until late fall. ''That is a short period of time'' for action, the staff member notes.

Overall ''there is no chance (of comprehensive legislation) by the end of this year. And chances by the end of this Congress are not terribly good,'' concludes William Bosies, an attorney with the American Bankers Association.

The consequences of delayed action are in dispute. Treasury Secretary Regan contends the situation is urgent, adding, ''If Congress is going to have any impact on the future structure of this industry, it must act quickly and decisively.''

The absence of quick action ''will not be cataclysmic,'' Mr. Bosies says, although the competitive position of banks will erode. ''It will be gradual and not an immediate disaster.''

''I am not aware of any substantial concern expressed by members'' on this, the House Banking Committee source says.

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