Conferees Prepare Bill Giving FDIC $70 Billion

WASHINGTON - As the final hours of the congressional session dwindled away Tuesday, a House-Senate conference committee appeared ready to approve scaled-back legislation that would recapitalize the Bank Insurance Fund.

But with negotiations expected to last into the night, it was unclear whether the conferees would agree to tighten regulation of foreign banks, reform the deposit insurance system, or overhaul the qualified-thriftlender test.

Brady Decries Narrow Bill

Treasury Secretary Nicholas Brady said the narrow measure being considered "is wholly inadequate to the task at hand."

In a letter to Senate Banking Committee Chairman Donald Riegle, D-Mich., Mr. Brady said: "Fundamental reform of our banking laws, already delayed, is not a |we can get to it later' issue. Continued congressional inaction is a recipe for disaster."

Nevertheless, time was running out for further negotiations, and the only question remaining Tuesday afternoon was how narrow the resulting legislation would be.

With Congress set to adjourn by Thanksgiving Day, Sen. Jake Garn, R-Utah, said the conference committee should focus attention on only a small portion of the five-title House bill, which is being used as the basis for negotiations.

The key step would be to provide a $70 billion line of credit to the deposit insurance fund.

"It's impossible for us to draft legislation without mistakes," Sen. Garn said, noting that the Senate had proposed to the House a compromise that contained serious errors in wording. As the Senate Banking Committee's senior Republican, he said he would urge the Senate to vote against the banking legislation rather than accept a measure that could be riddled with mistakes.

However, Sen. Garn's counterpart on the House Banking Committee, Rep. Chalmers Wylie, R-Ohio, was still pushing for the full House measure, which would also prohibit state-chartered banks from underwriting insurance, give banks incentives to make loans in low-income communities, limit the use of brokered deposits, and expand the authority of regulators to supervise foreign banks operating in the United States.

The Senate conferees appeared to be purposely delaying the conference in an effort to force action on a stripped-down bill, said Rep. Wylie, "I think they're stalling us," he said.

In talks Monday that lasted until after midnight, the Senate negotiators appeared to concede that several major elements of their proposal were no longer in play. For example, most members of the Senate delegation appeared ready to give up on including interstate branching authority in the bill.

Cap on Card Rates

If interstate branching is dropped from the measure, a number of Senate provisions on bank insurance powers would also likely be dropped. However, a provision in the House bill that bars state-chartered banks from underwriting insurance is likely to survive the conference unless the talks end with a one-title bill.

Also, Sen. Alfonse M. D'Amato, R-N.Y., acknowledged that a floating-rate ceiling on credit-card interest charges lacked support on both sides of the table. But he said he would

The conferees appeared to be making slow progress Tuesday on proposals to retain large sections of the House bill. The two sides met only briefly in the morning and scheduled talks for later in the day.

Should the conference ultimately decide to go with a one-title bill, the House version appears most likely to win acceptance. The Senate has accepted the House's first title with few changes.

That version is a far cry from the ambitious package adopted by the House Banking Committee in June - or even the so-called "narrow bill" that passed the House this month. But it would still be a significant - and costly - bill for the banking industry.

The measure would give the Bank Insurance Fund up to $70 billion, which the industry is supposed to repay, partly through insurance premiums. It would also require new reports and set new audit requirements.

The title would also require regulators to move promptly to close troubled institutions. Banks and thrifts would be classified at one of five levels, depending upon their capital adequacy.

Regulators would have less flexibility to deal with institutions as they declined through the rankings. Institutions with core capital of less than 2% of assets generally would have to be placed in conservatorship or receivership after 120 days.

Strictures on FDIC

The title also would require the insurance fund to chose the "least-cost" method of dealing with bank failures. Starting in 1995, the Federal Deposit Insurance Corp. would be unable to do anything to protect uninsured depositors if that would cause a loss to the BIF.

The measure also would limit the Federal Reserve's ability to extend credit to troubled institutions through its discount window.

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