The Clinton administration's attempt to steamroll the Federal Reserve on regulatory reform has backfired big time.
The central bank has enlisted so many allies to oppose the plan that the Clinton team's month-old, single-regulator effort appears to be headed for the junk heap.
And there's more bad news for the Clinton team. Because the Treasury Department tried to roll the Fed on regulatory restructuring, the central bank is going to smash Treasury's proposal for CRA reform.
If all this sounds like a legislative version of a demolition derby, that's because it is. Treasury rammed the Fed, and the Fed smashed it back. Now, the Treasury is smoking and wheezing like a car with a busted radiator.
This is really amazing. Treasury has all the political pros. Former Senate Finance Committee member Lloyd Bentsen is Secretary of the Treasury, and Richard Carnell, a former top aide to Senate Banking Committee Chairman Donald Riegle is an assistant secretary.
United Opposition
Yet so far, the Fed, led by Chairman Alan Greenspan, Vice Chairman David Mullins, and Governor John LaWare, has run circles around them.
One of the Fed's masterstrokes was getting both big banks and small banks, which usually mix about as well as Somali war lords, to join in opposing the Treasury plan.
The Fed dislikes the administration's proposal because the central bank no longer would examine and regulate banks. Mr. Greenspan has argued that the Fed can't effectively administer monetary policy unless it has firsthand knowledge of banking activities.
I've heard that the Fed warned bankers a single regulator would pave the way for this and subsequent administrations to shove onerous rules and policies down their throats.
The Taint of CRA Policy
Big banks are particularly susceptible to such an argument because, right now, they are facing an administration policy on community reinvestment that smells like a politically motivated credit allocation scheme.
The proposal, which is mostly the work of closet social engineer Eugene Ludwig, the Comptroller of the Currency, would require banks with $250 million or more of assets to make a certain percentage of loans in poor neighborhoods in order to get a good CRA rating. Big banks also fear the proposal would increase their paperwork burden.
The Fed endeared itself to the big banks Dec. 10, when some of its members declared they would sink the CRA plan. if banks expressed their disapproval during the current comment period.
"I'm perfectly willing to tear it up, throw it into the fireplace, and go back and start all over again," said Fed Governor Lawrence Lindsey.
Calling In Debts
Some bankers tell me that the Fed, in enlisting them to oppose the administration's regulatory reform, cited that Dec. 10 meeting and suggested it was time for banks to return the favor.
Small banks oppose a single regulator because most believe it would threaten their state charters.
There's still life in the administration bill. Key Congressmen support the plan, and both the President and Vice President plan to reiterate their support. But the view from the peanut gallery is that one more good hit from the Fed will put the plan out of commission.
