Brady bids proud goodbye, offers hope for bankers.

WASHINGTON - Treasury Secretary Nicholas Brady still believes comprehensive banking reform is around the corner.

"It hit the rocks in Congress last year," he said. "But that doesn't mean it's a bad idea or it can't happen."

In an interview last week with the American Banker, the departing official advised bankers that if they want to win on Capitol Hill, they ought to pull together, closing the rifts that divided small and large banks during last year's unsuccessful lobbying frenzy.

Mr. Brady, you'll recall, tried to persuade Congress to overhaul the banking system in one fell swoop. But the plan met stiff resistance from lawmakers representing other interests. In the end, the bag of goodies that the administration sought was replaced with a lump of regulatory coal - the Federal Deposit Insurance Corporation Improvement Act of 1991.

Mr. Brady had been warned from the outset not to seek too much change at one time. "Every bit of conventional wisdom in this town said, Don't do it, you won't get it done," Mr. Brady recalled last week as he prepared to step down from the post he's held since Sept. 15. 1988.

Bank lobbyists argued that it made more sense to ask Congress for some table scraps over time rather than the entire roast. In retrospect, it appears they were correct. But the Treasury secretary isn't willing to make that admission.

"I'm convinced that the frontal assault we made on the problem will bear fruit in the very near future. So the fact that it didn't happen doesn't to me mean it was a failure," Mr. Brady said.

A Tough Sell in Congress

Persistence is required to win Congress over to a good cause, though bank reform is taking longer than he would have expected.

"I have a specific example for you," he said. "We proposed in 1988, after I chaired a commission on the stock market crash, four or five measures that we thought were necessary to bring our markets back into harmony.

"Immediately, Congress ignored them. So we kept hammering away at them. And as of the CFRC [Commodity Futures Trading Commission] reauthorization bill this year, all of the things we suggested are in place. So we live in a reactive democracy where things take time."

The 1991 bank reforms "died right in Speaker Tom Foley's office" when rival House committees started fighting over the direction the policy should take, Mr. Brady recalled.

That's when Michigan Democrat John Dingell, head of the House Energy and Commerce Committee, offered the administration this trade: Full interstate branching for a rollback of existing bank security and agency powers. The administration refused the compromise, viewing it as regressive.

The outcome, bitter as it is for bankers saddled with new "regulatory burdens," wasn't a complete disaster, Mr. Brady said.

"Certainly the banking system is in a much stronger position," he said. "Capital has been restored. Banks are as profitable as they've ever been, and the table is set for the banking industry to finance the continuing recovery."

Taming the 1991 Law

For that to happen, though, Congress and the Clinton administration should pass a Bush bill sent to the Hill this year that would eliminate some of the 1991 law's more restrictive provisions, Mr. Brady said.

Bankers, he added, must get into the fray.

"Now is the time to go to Congress to ask them to enact the deregulation bill quickly.

"As president-elect Clinton said, banks are not making the loans they should to spur the economy. If you want to cure that problem, pass the deregulation bill, pass it fast," Mr. Brady said. "Congress can cure the problem, they created it."

|Overregulation' Seen

Noting that the economic recovery is being dampened by banks' reluctance to lend in the face of the 1991 banking law, he added, "You are now seeing the effects of overregulation."

Mr. Brady was quick to note that Congress can be a tough nut to crack. Indeed, speaking of the demise of the Bush administration's banking bill last year, he blamed "bureaucratic congressional rivalries ... the insistence by congressional committees that they get into warfare with one another."

He suggested that having as many as three congressional committees regulating banking contributed to the deadlock.

Other Brady observations:

* The economy can grow at a 3% or slightly higher rate without expanding the deficit or creating inflation. Job creation will be difficult, but Mr. Clinton could succeed by expanding exports and implementing a "very vigorous small-business program."

* The Fed postponed the recovery one year by being too restrictive with monetary policy. "There's a difference between prudence and timidity." Mr. Brady groused.

* Bankers should protect their franchise by making more loans. Otherwise, Congress might take away deposit insurance. "Why give banks a government guarantee to invest in Treasury securities?" he said.

* Bankers should also protect their lead in derivatives, swaps, and international settlements by ensuring the markets are safe.

Concern over Spending

Though generally upbeat about the economy, Mr. Brady is concerned that Congress may yet spend the country into deep trouble. Particularly worrisome is the possibility that Congress might tamper with the Gramm-Rudman-Hollings Act, which restricts government spending.

Said Mr. Brady, "I feel the absolute single most important reason for the 1987 stock market crash was the fact that Gramm-Rudman-Hollings discipline was abandoned" in the middle of that year as Congress raised the government debt ceiling and eased the impact of automatic spending cuts.

Mr. Brady, who came to Treasury after a long career on Wall Street, brought a pragmatism that didn't always sit well with the powers on Capitol Hill. But he refuses to entertain the notion that more artful politicking might have helped pass banking reform last year.

"I just do the job and let the chips fall where they may," he said.

It can be argued that this straightforward approach led to the highly successful Brady plan for Third World debt. It also led to stock market reforms, including "circuit breakers" that restrain one-day price fluctuations before they get out of hand.

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