Bank-Friendly Compromise Keeps Reform Bill Breathing

A last-minute deal saved financial reform as the Senate Banking Committee on Friday voted 16 to 2 for legislation that would let banks, securities firms, and insurance companies combine.

Committee Chairman Alfonse M. D'Amato had been forced to cancel a vote early this month when Republicans balked at the bill's community reinvestment provisions. But a compromise reached late Thursday allowed the committee to rebound and approve the bill in a three-hour session.

Despite the wide margin, the bill's prospects for enactment remain tenuous, because the Senate is scheduled to adjourn in less than four weeks and the Clinton administration has threatened a veto.

Sen. D'Amato acknowledged that enactment this year would be difficult unless debate time can be limited and the bill kept free of amendments.

"The overwhelming vote ... now creates another impetus for us to continue to move forward," the New York Republican said. "By no means are we there, but I think it is good momentum ... and I continue to be hopeful."

The banking industry endorsed Senate Banking's changes-including increased protection from state laws for bank sales of insurance, limits on the sale of unitary thrift charters, and removal of the requirement that banks provide low-cost checking accounts.

"Based on what they did, we are prepared to work for a bill, but any final bill would have to include these amendments," said Edward L. Yingling, chief lobbyist for the American Bankers Association.

But the pro-bank changes alienated some of the legislation's staunchest supporters, including the Independent Insurance Agents of America.

"We have officially withdrawn our support," said Robert A. Rusbuldt, the group's executive vice president. "We think it's a proposal that is tilted heavily toward the banks and the Office of the Comptroller of the Currency. It guts the entire House bill. ... The banks got virtually everything they wanted."

The Senate Banking version of the bill strikes a provision in the House bill that would have let the Federal Reserve break up a financial services holding company if its banking units did not maintain a "satisfactory" Community Reinvestment Act rating. Banks would still need a satisfactory rating to merge with securities or insurance firms, and the Fed would retain broad enforcement powers.

The bill would extend CRA only to uninsured wholesale financial institutions that are affiliated with banks. (The House version would make all so-called "woofies" comply with CRA).

Sen. Phil Gramm, R-Texas, who touched off the CRA debate last week, withdrew two amendments on the subject when several fellow Republicans said they planned to support the compromise instead. He vowed to renew the CRA battle on the Senate floor and, along with Sen. Richard C. Shelby, voted against the legislation.

Bankers won several concessions.

Bank sales of insurance would be protected from any new state laws by the Supreme Court's landmark Barnett ruling and by an additional anti- discrimination clause. Existing state laws could be challenged in court under the Barnett decision, but the extra anti-discrimination protection would not apply. The benefit of the doubt that courts currently give rulings by bank regulators would be preserved in challenges to existing state laws but could not be used in lawsuits against new state laws.

The committee also decided that existing unitary thrift holding companies could not be sold to commercial companies, and unitaries formed after Sept. 3 would be barred from commercial activities. (The House had not set limits on transfer of owership but had banned new unitaries.)

On a 10-to-8 vote, Republicans killed a requirement in the House version that banks provide low-cost checking accounts. By an identical tally, they defeated an amendment from Sens. Paul S. Sarbanes and Christopher J. Dodd that would have forced banking and securities firms to get permission from new customers before disclosing confidential financial information. Instead, Sen. D'Amato successfully added a narrower measure that would make it a federal crime to trick a bank into divulging private customer data.

Sen. Jack Reed, D-R.I., withdrew an amendment that would have let direct operating subsidiaries of banks underwrite securities.

Fed Chairman Alan Greenspan, who met with Republican committee members before the vote, sent Sen. D'Amato a letter Thursday opposing the Reed amendment. Mr. Greenspan wants underwriting and other new bank powers housed exclusively in holding company affiliates.

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