Reform Bill Snagged on Lack of CRA Compromise

The fate of the financial reform bill hung in the balance Tuesday as Clinton administration officials and key lawmakers emerged from hours of closed-door negotiations without a deal on the controversial community reinvestment provisions.

Both sides agreed to return to the bargaining table today. Changes to the Community Reinvestment Act of 1977 are the last unresolved issues facing the 66-member House-Senate conference committee crafting the legislation's final form.

Treasury Secretary Lawrence Summers led a delegation of administration officials to Capitol Hill on Monday night in search of a deal on CRA. Those meetings adjourned around midnight and reconvened Tuesday morning. A second session commenced at midday, forcing lawmakers to cancel a meeting of the conference committee. By late afternoon, the meeting broke up. Though Mr. Summers and other administration officials left without saying much, Senate Banking Committee Chairman Phil Gramm insisted he had made his best offer.

"I'm willing to compromise; I am not willing to be run over," the Texas Republican said Tuesday. "The key question is does this administration want a bill."

If Wednesday morning's meeting does not yield a breakthrough, Sen. Gramm said, the conference committee would settle the CRA issue itself and send the legislation back to the House and Senate floor for final votes. It would then be up to President Clinton to sign or veto the bill. The President has repeatedly threatened to kill the measure if Congress tries to dilute CRA.

Sen. Gramm pointed to two specific sticking points. First is whether the bill requires banks merging with other firms to have and maintain a "satisfactory" CRA rating. Such a change would be a "dramatic change in law" that Senate Republicans would never approve, he said.

A second key dispute involves disclosure of payments that banks make to community groups.

"I want a real, full-fledged sunshine provision -- no if, ands, or buts," Sen. Gramm said. The administration has argued against such disclosures.

Sen. Gramm was asked why CRA is so important to him when the American Bankers Association is not pushing for the changes he advocates. "I'm not claiming the ABA is my constituency," he said. "Right is my constituency.

"I'm looking at CRA reform not from the point of view of bankers but from the view of consumers."

Tuesday's action highlighted the swift changes in momentum that have marked financial reform.

On Monday, enactment seemed certain as the administration and Congress cut a deal on the bill's privacy provisions.

On Monday, the conference committee's third day of voting on the bill, lawmakers spent several hours debating more than a dozen amendments before finally agreeing on a privacy package that closely resembled the bill passed by the House in early July.

Under the agreement, financial institutions would have to establish written privacy policies, disclose those policies to new customers up-front and annually thereafter, and let customers block the bank from sharing personal financial data with unaffiliated third parties. Regulators would have to issue corresponding rules within six months.

To many observers the basic contours of the privacy agreement were no surprise. The White House had already made it clear that the House language was the least it would accept in terms of privacy provisions, and industry trade groups threatened to oppose the bill if the conferees went beyond the House bill.

On Tuesday, Presidential spokesman Joe Lockhart called the vote "an important victory for the administration. ... We're moving in the right direction here, but we still have some concerns and we're trying to work them out."

The privacy amendment, adopted by fairly wide margins by both senators and representatives, offered several new components over the House-passed version.

The amendment would require each federal financial agency to devise its own privacy rules for the institutions it regulates. It would exempt the Farm Credit Administration, the Commodity Futures Trade Commission, Fannie Mae, and Freddie Mac from the new privacy requirements. And to satisfy concerns expressed by state attorneys general, the agreement would be eclipsed by state privacy laws if those laws were tougher.

As was the case Friday, when the Rev. Jesse Jackson made a surprise visit to the committee meeting, the real drama of the evening involved CRA.

Minutes before 10 p.m., Rep. Jim Leach, the conference committee's chairman, announced that Mr. Summers had arrived and was going to convene separate, private 15-minute meetings with the three ranking Democrats and three top Republicans to discuss the community reinvestment issue.

While the rest of the conferees wrangled over less weighty issues, Mr. Summers and his entourage -- which included Gene Sperling and Sarah Rosen of the White House's National Economic Council, Treasury Undersecretary for Domestic Affairs Gary Gensler, Treasury lobbyist Linda Robertson, and Treasury official Greg Baer -- trudged upstairs to the Capitol's third floor to meet with the three Democrats -- Rep. John J. LaFalce, D-N.Y., Rep. John D. Dingell, D-Mich., and Sen. Paul S. Sarbanes, D-Md.

By 10:30 p.m., the entire group left the room to join the Republican leaders -- Rep. Leach, Sen. Gramm, and Rep. Thomas J. Bliley Jr., R-Va. Ninety minutes later, the senior lawmakers emerged, but without a deal.

They met again Tuesday for roughly four hours. At a midday break, Sen. Gramm told reporters that he should not be blamed if the bill is derailed at the eleventh hour.

"I will not kill this bill. I do not have the power to kill this bill," he said. "The President can kill this bill."

Sen. Gramm single-handedly stopped financial reform in the Senate last year, claiming it would unduly expand the CRA. This year, for the first time, the legislation was approved by both the House and the Senate. Over the last 20 years, financial reform was approved by one or the other chamber, but not both.

Clearly, Sen. Gramm does not want to be labeled as the man who stopped financial reform twice. But that does not mean he won't. "It may be, in the end, we will have to wait 15 months for George W. Bush to write a new bill," Sen. Gramm said.

Portions of this article first appeared on American Banker Online.

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