As Congress returns today for its last few weeks of work, consumer bankruptcy reform is the banking bill with the best shot at enactment.
Other banking legislation with good odds this year are a subsidy for bankers to help pay for cuts in student loan rates, an increase in FHA loan limits, and a crackdown on people who trick banks into divulging private customer data.
Financial restructuring, regulatory relief, and Federal Home Loan Bank reform legislation face uphill battles.
Lawmakers are expected to be distracted by independent counsel Kenneth W. Starr's hotly anticipated report on whether President Clinton broke the law in the Monica S. Lewinsky matter. Political priorities such as spending bills and patients' rights also could leave little time for significant banking legislation.
"Everything that is banking-related will have to compete for floor time with all those issues," said Bert Ely, a financial services industry consultant in Alexandria, Va.
"You already had a jammed schedule particularly on the Senate side," said Edward L. Yingling, chief lobbyist for the American Bankers Association. "You add the Clinton situation to it and everything is most uncertain."
The Senate reconvenes today; the House gets back to work on Sept. 9. Both chambers are scheduled to adjourn Oct. 9. The Senate is slated to tackle two complex bills immediately: consumer bankruptcy reform and financial services industry restructuring.
On Friday, the Senate is expected to begin debating a consumer bankruptcy bill sponsored by Sen. Charles E. Grassley that would make it tougher for consumers to eliminate unsecured debts in bankruptcy. A final vote is not expected until next week.
The Iowa Republican's plan would give judges more authority to force debtors to repay at least some unsecured borrowings in Chapter 13 rather than discharging these debts in Chapter 7. The House version, which was passed on a 306-to-118 vote June 10, instead would rely on a formula based on income and living expenses to determine whether a debtor files for Chapter 13 or Chapter 7. Lenders generally prefer the House version.
"There seems to be a fairly strong bipartisan sense to do some kind of bankruptcy reform," said Paul A. Schosberg, president of America's Community Bankers. "I would rank that the banking-related bill with the best prospects."
However, it could be bogged down by controversial amendments. For instance, Sen. Alfonse M. D'Amato has threatened to offer his ban on surcharging customers of automated teller machines; it is expected to lose.
The ABA, the Bankers Roundtable, and the Commercial Finance Association urged Senate leaders in both parties late last week to resist efforts to incorporate a controversial business bankruptcy bill. "We are deeply concerned that inadequately considered business bankruptcy issues may be injected into this debate," the groups' Aug. 26 letter said.
The Starr report looms large over the bankruptcy debate because it would be sent to the House Judiciary Committee, which would have to negotiate any final legislation with the Senate. "This would be a significant drain on attention," said Philip S. Corwin, a banking lobbyist who represents the ABA on bankruptcy issues.
On Thursday, Sen. D'Amato has scheduled a Banking Committee vote on the highly controversial financial modernization bill, which would permit cross-ownership of banking, insurance, and securities firms. The House approved a financial reform bill May 13 by a single vote.
Though the Senate committee is expected to approve the bill, its passage remain uncertain, because the Clinton administration has threatened a veto and the banking industry opposes it.
Financial industry negotiators last week concluded compromise talks that some hailed as a breakthrough. "It was very encouraging progress," House Banking Committee Chairman Jim Leach said in a phone interview. "The disagreements that remain are as psychological as they are substantive."
Though a tentative agreement on permissible state consumer protections for bank sales of insurance and on other matters was reached, final language has not been drafted. And the two sides still disagree on whether measures that would let bank regulators override laws biased against banks should apply to existing laws.
Meanwhile, the Federal Reserve Board and Treasury Department remain at odds on whether bank operating subsidiaries should be granted insurance underwriting and other broad financial powers. Treasury Secretary Robert E. Rubin has been invited to meet with Senate Republicans to discuss the matter Wednesday, but global financial crises have prevented him from accepting yet. As a result, some observers predicted that the committee vote would be postponed at least a week.
Another variable: Seven of Senate Banking's 18 members are up for reelection, including Sen. D'Amato. If the bill failed, many sources said, Congress might impose a moratorium on federal approval of unitary thrift charters, operating subsidiary powers, or section 20 units of bank holding companies.
Regulatory relief legislation was supposed to be lawmakers' payback to bankers for voting against them on the credit union membership bill. The bill would let banks pay interest on corporate checking, authorize the Fed to pay interest on required reserves, and cut red tape.
But Republicans on House Banking's financial institutions subcommittee angered Democrats when they added an exemption from the Community Reinvestment Act for banks with less than $250 million of assets. President Clinton has threatened to veto similar measures before.
Rep. Leach said last week that he has not determined whether the full committee will vote on the bill. "It depends on whether people are serious about making legislation or political points," he said. "There is no reason to bring a bill to the floor that is certain to be vetoed."
The best chance for any kind of regulatory relief is a stripped-down version that could be attached to other bills, observers said.
The prospects for Federal Home Loan Bank reform were endangered when Sen. Chuck Hagel, R-Neb., backed off plans to attach his proposal to regulatory relief or credit union legislation. His bill would broaden community bank access to the system for small-business and agricultural loans, but the Treasury Department opposes its wider investment powers for Home Loan banks.
Also facing long odds is a tax relief bill introduced in the House and Senate in July that would make it easier for community banks to convert to so-called S corporations. Supporters had hoped to attach the tax breaks to an expected tax bill, but Kenneth A. Guenther, executive director of the Independent Bankers Association of America, said he now fears Republicans are backing off plans for a tax bill.
On a positive note for bankers, congressional negotiators will meet in September to work out final legislation that would soften the blow of interest rate cuts on student loans. A federal law that took effect July 1 cut the interest rate students may be charged by 80 basis points.
The House and Senate have already approved a 50-basis-point subsidy as part of a higher education bill, but negotiators must still reconcile differences between other parts of the legislation. President Clinton opposes the subsidy, which would take effect in October, but the provision is expected to survive.
The cap on mortgage loans insured by the Department of Housing and Urban Development's FHA program is expected to be approved. The cap would be $197,000 in high-cost areas and about $109,000 in the cheapest housing markets. President Clinton has threatened to veto the spending bill to which the increase is attached, but observers said they expect a compromise to be struck.
Finally, lawmakers are expected to make it a federal crime to trick or try to trick a bank into revealing private customer data. The House Banking Committee on Aug. 5 approved the bill, which was sponsored by Rep. Leach; Sen. D'Amato has vowed to push similar legislation.