Antibank Sentiment Sweeps Capital, Clouds '92 Outlook

With Congress weighing legislation that could provide up to $150 billion for the Bank Insurance Fund and the thrift bailout, antibank sentiment is busting out all over Washington.

Many observers are wondering if that mood will spill over into next year's elections, giving politicians an opportunity to run against "greedy bankers" in much the way that President Bush made an example of the infamous Massachusetts felon Willie Horton.

Bank-bashing "is a populist issue, and those are the best ones," said lobbyist Richard F. Hohlt. "In the current state of the economy, it's a very powerful issue."

Given the size of the problems weighing on the banking industry, and their impact on the economy, many bankers are already bracing for a public flogging in next year's campaigns. But it is by no means certain which party will be holding the whip.

Democrats' Attack Foreseen

Most observers assume Democrats, with their historical affinity for economic and pocketbook issues, would delight in attacking banks.

"Sure, it's easy for them," said Thomas L. Ashley, a former Democratic congressman who now heads the Association of Bank Holding Companies. Democrats would particularly enjoy attacking the money-center banks, he said.

But what has most surprised industry observers is the role of the Republican party in general, and President Bush in particular, in the spate of attacks.

With Mr. Bush's popularity dropping, apparently, because of the flagging economy, many observers wonder if he will attempt to shift the blame to the nation's banks.

It was Mr. Bush's comment about high credit card rates last week that started a rate-capping bandwagon in Congress.

Occasion for Ups and Downs

While bankers were in an uproar about a potential 14% interest rate ceiling, some card issuers tried to make hay. AT&T moved up by a month a planned percentage-point drop on its Universal MasterCard and Visa cards, to 16.4%. Wachovia Corp. led the bank card industry down to 10.4% on a card tied to the prime.

The administration was in the awkward position of praising lower rates while arguing against making them mandatory.

Mr. Bush began the year not by trumpeting the need for financial industry modernization, as many had hoped, but by urging banks to lower interest rates.

Can't Win for Losing

Antibank speeches offer Mr. Bush the opportunity to counter his elitist, country-club image, said Karen Shaw, president of the Institute for Strategy Development in Washington. "But he is going to have to be careful," because he runs the risk "of alienating a core Republican constituency."

But bankers face a potential no-win situation.

"If the election becomes an issue of who hates banks the most, the industry is in real trouble," Ms. Shaw warned.

In the Democrat-controlled Congress, antibank sentiment is in full flower. Bank bills have been voted down twice in the House, in large part because members view the proposed $70 billion insurance fund recapitalization as a bailout for big banks that want taxpayers to pay for their bad loans.

But it is the credit card cap proposal - which easily passed the Senate last Wednesday and may get a House vote early this week - that best demonstrates that there is political mileage to be gained in taking on the banks.

An interest ceiling "certainly has the effect of helping people in the middle class, the middle income bracket, who are faced with very high interest rates on credit cards when interest rates are declining generally in other areas of credit," said House Speaker Thomas Foley.

Bush Set Ball Rolling

Still, it was the GOP, the traditional friend of the banking industry, that gave political life to the credit card issue, beginning with Mr. Bush's remarks and culminating in the Senate ratecap amendment sponsored by Alfonse M. D'Amato, R-N.Y.

One Republican insider with close ties to the White House called the vote "a wake-up call" for the banking industry. "Banks got greedy and brought this on themselves."

Joseph Belew, president of the Consumer Bankers Association, said he doesn't believe the president is running against the banking industry. But he said he is concerned that the White House may giving tacit support to the credit card cap.

"They're not coming out swinging," he said. "Rumors are that the White House is giving the proposals a wink and a nod. If it's true, that's very disturbing."

Closer Look at Cap

One long-time Bush adviser, Securities and Exchange Commission chairman Richard Breeden, said the White House is not lining up behind a rate cap.

"I don't think that's the President's proposal," he said. "There's a big difference between urging banks to look at their rates and proposing a cap."

Rep. Jim Leach, a moderate Republican who may be a good indicator of GOP sentiment, offered bankers little comfort. Credit card rates, he said, "are close to usurious by historical standards." But Rep. Leach said he hasn't made up his mind yet on the issue of a cap.

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