WASHINGTON - With Congress returning to work next week, the banking panels are locking their sights on last month's failure of $2.3 billion-asset Superior Bank FSB and its implications for deposit insurance reform and regulatory overhaul.
"It's the overriding issue they are going to be focusing on," said Lisa S. McGreevy, director of government affairs for the Financial Services Roundtable.
However, with a legislative fix on the complex deposit insurance question far from imminent, financial services lobbyists are setting their own sights on more immediate priorities, like bankruptcy reform and corporate tax relief. "Congress has, from the financial services industry perspective, a lot of unfinished business," Ms. McGreevy said.
First on the list is the enactment of bankruptcy reform legislation, versions of which passed both the House and Senate in March and now await a conference committee to iron out the differences.
The primary hot-button issues are whether to supersede state "homestead" laws, which let wealthy debtors thwart creditors by buying expensive homes that are exempt from foreclosure, and whether to prohibit people convicted of violent crimes from filing for bankruptcy to avoid paying court-ordered fines.
Proponents of the industry-backed bill, which is meant to relieve creditors from shouldering much of the debt of bankrupt Americans, had hoped these key differences could be resolved by staffers during this month's congressional recess to avoid a lengthy formal conference this fall.
That did not happen. Instead, when they met early this month, staffers discussed merely procedural matters, including a series of technical corrections to the legislation that are expected to be the topic of a staff meeting Thursday and the committee's first order of business next month.
A series of things - including an almost 25% increase in bankruptcy filings during the second quarter and adamant opposition from the Bush administration to preempting state homestead laws - could make reconciling the bills tougher. What's more, negotiations could bog down if Senate Judiciary Committee Chairman Patrick Leahy, D-Vt., tries to add more consumer protections like limits on credit card marketing practices.
Both large and small financial firms are pushing for action by yearend on certain tax issues. Of primary concern to the giant institutions is making permanent - or at least extending - a tax code provision that exempts corporations from paying U.S. taxes on overseas earnings that are taxed by foreign governments.
While lobbyists like Ms. McGreevy say securing an extension is "critical" to keep American financial companies competitive, their fight is an uphill one.
The Bush administration has recommended only a one-year extension, which the industry calls unacceptable, and the smaller-than-expected budget surplus is making it tough for the government to turn down potential sources of new revenue.
Smaller banks are looking for a legislative vehicle to expand the number eligible to become S corporations, which pay no corporate taxes and pass their profits directly to shareholders, whose income is taxed.
Such a vehicle could be found if Senate Democrats move legislation to increase the minimum wage. In order to make the wage increase more palatable to small businesses, lawmakers could include the S corporation provision, as well as legislation to allow banks to pay interest on corporate checking accounts.
Beyond legislation, both the Senate Banking and House Financial Services Committees are planning a marathon of autumn hearings, with the most high-profile ones on the failure of Superior and deposit insurance reform.
Senate Banking, which has been investigating the July 27 shutdown of the Hinsdale, Ill., thrift, that followed the collapse of its recapitalization plan, is expected to hold a hearing Sept. 11 featuring Office of Thrift Supervision Director Ellen Seidman and a representative of the Federal Deposit Insurance Corp.
House Financial Services staff are expected to see what comes out of the Senate hearings before determining if they will hold their own.
Senate Banking Committee Chairman Paul Sarbanes is expected to focus on whether the failure reveals shortcomings of "prompt corrective action" - a series of rules mandated by the FDIC Improvement Act of 1991 that require regulators to take increasingly severe actions against an institution as its capital declines. The failure also may revive calls to give the FDIC more authority to examine any bank at any time.
The push on deposit insurance is expected to include hearings in October by the Senate Banking financial institutions subcommittee, whose chairman, Tim Johnson, is expected to invite several former regulators to testify.
The effort on the House side is being led by Rep. Spencer Bachus, R-Ala., chairman of the Financial Services subcommittee. The panel, which has been waiting for Donald E. Powell to be sworn in as FDIC chairman, plans to get his views on deposit insurance reform at its second round of hearings on the matter, a spokeswoman said. [Mr. Powell was sworn in Tuesday.]
Sen. Johnson and Rep. Bachus are both crafting deposit insurance overhaul legislation that could be introduced in the House as early as next month and in the Senate as early as yearend.
Sen. Sarbanes is expected to continue his crusade against predatory lending by introducing comprehensive legislation he outlined in the spring and holding more hearings. Topics that are said to be under consideration include payday lending and practices by credit card companies that consumer advocates deem abusive, such as extending large amounts of credit to college students and giving customers incentives to hold larger balances.
A Senate Banking hearing on money laundering is also in the works and is expected to be held Sept. 12. Among those expected to testify is Treasury Under Secretary for Enforcement Jimmy Gurule.
Sen. Sarbanes has said he plans to examine financial privacy this fall, but has yet to schedule hearings. The issue could become a priority for Congress, where a wide range of privacy bills are pending, if California enacts far-reaching privacy legislation.
"Financial institutions would then be rushing to Congress and saying, 'We need a federal preemption,' " said Lendell W. Porterfield, a vice president of the Washington consulting firm Van Scoyoc Associates Inc.
Over in the House, Financial Services Chairman Michael Oxley has been soliciting ideas from both industry sources and regulators about a catch-all regulatory relief measure. He is expected to hold hearings on such a bill and the implementation of the Gramm-Leach-Bliley Act of 1999.
"There's some cat-and-dog issues out there that could be rolled into a catch-all bill, but I don't think any one of them is earthshaking or will change the direction of banking," said J. Mark Leggett, Bank of America Corp.'s lead lobbyist. Even if such a measure is put together, final action is far from imminent, he said. "If it comes out of the House this year, I think the Senate would save it for next year."
Rep. Oxley is expected to schedule votes this month on legislation sponsored by former House Banking Committee Chairman Jim Leach that would prohibit credit card and other financial companies from settling transactions involving illegal Internet gambling operations.
Sources say the panel might examine the banking portions of legislation Rep. Bob Goodlatte is preparing that would require Internet providers to block access to gambling sites.
Rep. Richard Baker, who chairs the House Financial Services subcommittee with jurisdiction over the government-sponsored enterprises, expects to get the Bush administration's position on overhauling the supervision of Fannie Mae and Freddie Mac at a hearing late next month, a Baker spokesman said.
Pundits are speculating that the next step in the series of hearings Rep. Baker has been holding on the independence of analysts may be into conflicts of interest between investment bankers who raise money for initial public offerings and their clients.