The House of Representatives has passed legislation to repeal the Glass-Steagall Act which barred cross-holdings between banks, securities firms, and insurance companies.

The Citicorp merger has forced Congress to act

The Senate has already approved the measure, and it is broadly backed by the Clinton administration.

"The fundamental precept of this bill is that it will end the artificial restraints on commerce embodied in 65 years of law," said Republican James Leach, chairman of the House Banking Committee.

And Republican Senator Phil Gramm said he was hopeful that Congress would now pass a final bill.

"With the House vote, we now have it within our grasp to pass a good bill, and that's my objective," he said.

Merger wave

During the past years, a wave of banking mergers has swept through the United States, creating some of the world's biggest financial companies, like Citigroup and BankAmerica.

But the new legislation could unleash some of the major powers on Wall Street, such as Merrill Lynch and Goldman Sachs, who might be tempted to move into retail banking.

It could also lead to major link-ups between insurance companies and banks, who would be able to cross-sell each other's products.

But small, local banks could be vulnerable to takeovers as the barriers to competition come down.

"We don't want to have any strategic option foreclosed as we attempt to compete on a global basis and in an industry seeing substantial consolidation," said James Wiggins of Merrill Lynch, which has lobbied hard for the legislation.

Controversy over community help

The Bill did attract the opposition of some Democrats, who were worried that it would weaken some of the obligations now placed on banks to carry out activities in poor communities.

Banks already have obligations under the Community Re-investment Act to provide information about their pattern of mortgage lending, but the House refused to extend the same provisions to insurance companies.

"We do a good job in fostering conditions in which our capitalist system can flourish and it's in our interest that our capitalist system flourish," said Democrat Barney Frank.

"But can we try to do a little bit for those who are being left behind. This is an inappropriate continuation of a pattern of helping those who need a benefit but ignoring those who are left behind."

Consumer groups also fear that customers will ultimately lose out, facing higher fees from the huge new conglomerates.

Turf war with the Fed

The legislation also marked a rare defeat for the US central bank, the Federal Reserve. It had wanted to have the power to regulate the new holding companies that might emerge in the financial services sector.

But the House rejected a Senate version that would have made that change, and instead structured the regulations in such a way that the US Department of the Treasury would have the ultimate regulatory authority.

The two versions will have to be reconciled in a Conference Committee before reaching final approval.