The fate of financial reform legislation was hanging by a thread in the Senate on Thursday evening.
Lawmakers were preparing to vote on which powers to grant to direct subsidiaries of banks as American Banker went to press.
At issue was a bipartisan amendment spearheaded by Sen. Richard C. Shelby that would let banks underwrite securities and conduct merchant banking activities in direct subsidiaries. Other nonbanking activities would be housed in holding company units.
If Sen. Shelby's amendment lost, the bill was expected to be approved late Thursday on a party-line vote. But Senate Banking Committee Chairman Phil Gramm said that if the amendment prevailed, he would withdraw the bill.
The likely outcome was too close to call at deadline. Voting was scheduled to begin after 6:30 p.m. (For updated coverage, visit www.americanbanker.com.)
Throughout the afternoon, senators killed time on the floor with long speeches and small amendments while negotiations occurred behind the scenes.
Meanwhile, industry lobbyists were keeping tabs on the Shelby amendment. Edward L. Yingling, chief lobbyist for the American Bankers Association, said the Alabama Republican appeared to have enough votes to win, but added, "There's a lot more arm-twisting and discussion to go."
Before the showdown, the Senate adopted on a voice vote an amendment requiring ATM operators that impose surcharges to advertise the fees with signs on machines and messages on screens.
The Senate also approved, 66 to 32, an amendment by Sen. Tim Johnson, D- S.D., barring commercial firms from buying unitary thrifts. Banks had lobbied hard for the provision, which the thrift industry opposed.
Sen. Johnson argued that without the amendment, companies would be able to circumvent the ban on bank ownership by nonfinancial firms.
Sen. Gramm countered that Congress begged commercial firms to rescue troubled thrifts in the late 1980s to avoid taxpayer bailouts. Limiting the sale of unitary thrifts would illegally lessen their value 10% to 15%, he said.
"This is a constitutional issue," the Texas Republican said. "This is about private property...Whether you like the idea of a commercial company owning a thrift...do you think you have right to steal their property?"
The Senate adopted 95 to 2 an amendment proposed by Sen. Gramm and Sen. Paul S. Sarbanes, D.-Md., that would require banks and thrifts to pay the same assessments on Financing Corp. bonds. Thrifts currently pay about five times more per dollar of insured deposits than banks.
Sen. Gramm had proposed extending the rate differential for three more years because he said it would force Congress to readdress the issue as part of a wider effort to merge the bank and thrift deposit insurance funds.
However, Sen. Sarbanes and the Federal Deposit Insurance Corp. objected on grounds that maintaining the rate differential would violate a pact with the banking and thrift industries. Sen. Sarbanes said the move could also prompt thrifts to shift deposits to bank affiliates to save on expenses and thus endanger the thrift fund.
That amendment also contained consumer protections that would make it illegal to trick, or attempt to trick, a bank into divulging private customer information. Violators would face criminal fines, prison time, and civil lawsuits. Banking regulators would also be instructed to develop grievance procedures for consumers who claim that their personal data has been stolen.
Sen. Sarbanes welcomed the anti-fraud provisions but said, "They do not begin to address the larger issues of financial privacy." Sen. Gramm replied that he would hold committee hearings on the topic.
Late Wednesday, Senate Democrats failed to toughen community reinvestment requirements in the financial reform bill. On a 52-to-45 vote, the Senate set aside a Democratic amendment that would have required banks to maintain a "satisfactory" or better rating under the Community Reinvestment Act. It also would have dropped a new exemption from CRA for small banks and it would have eliminated measures making it harder for community groups to protest mergers.
Sen. Sarbanes later told reporters that President Clinton would make good on his threat to veto the bill unless the CRA-related and other disputed provisions are changed.
"It is pretty clear that there are the votes in the Senate to sustain the veto," Sen. Sarbanes said. "There won't be a bill if it is not at some point along the way crafted to satisfy the President."
Sen. Santorum on Thursday offered, but then withdrew, an amendment that would have absolved banks and thrifts of their Fico-related assessments.
Federal Deposit Insurance Corp. Chairman Donna A. Tanoue opposed the amendment.
