Senate Republicans and Democrats clashed Wednesday over community reinvestment requirements in the financial reform bill, legislation that could be adopted as early as today.

Meanwhile, key regulators sparred over reform legislation in testimony before House Commerce's finance subcommittee.

Treasury Secretary Robert E. Rubin defended the House version as a bipartisan compromise, but Securities and Exchange Commission Chairman Arthur Levitt Jr. insisted it would shield bank securities activities from his agency's oversight.

The bill "runs the risk of dramatically undermining investor protection as well as the integrity of our capital markets," he argued.

In the Senate, Republicans killed the Democrats' counterproposal by setting it aside on a 54-to-43 vote along party lines.

Democrats responded by offering a slimmed-down version of their alternative, targeting just community reinvestment issues. It would eliminate any rollbacks of the Community Reinvestment Act, such as the legislation's exemption for small banks. A vote on that amendment was scheduled for Wednesday night. (For coverage of late votes visit our Web site at www.americanbanker.com.)

Senate Minority Leader Thomas A. Daschle said Democrats were united behind the CRA fix and predicted the amendment would draw enough Republican support to pass. If not, he said, President Clinton will veto the legislation.

"At the very least, we have got to restore the Community Reinvestment Act or this bill will be vetoed," Sen. Daschle told reporters. "I have said it before. I just need to say it again for emphasis: This bill will not become law unless we restore CRA."

But Senate Banking Committee Chairman Phil Gramm, who has hammered the Democratic CRA proposals since debate began Tuesday, argued that the Democrats are trying to greatly expand the CRA's reach. Current law, Sen. Gramm said, requires banks to meet CRA requirements when they merge with other banks-not when they conduct insurance and securities activities.

"I have never seen such massive regulatory overkill as in these provisions," Sen. Gramm said. "We are talking about the largest, most massive expansion of CRA in its history."

Sen. Daschle denied the criticism. "We are not going to expand the requirements of CRA, but we would ensure that the scope is consistent regardless of what kind of enterprise the financial institution may be involved in."

Drawing from the House version, Sen. Richard Bryan and other Democrats proposed an amendment that would require banks merging with insurance or securities companies to have and maintain a "satisfactory" or better CRA rating. However, it said that regulators could not force the bank to divest these new activities based on its CRA rating alone.

It would also strike out the proposed exemption of small banks from the CRA and a measure shielding from CRA protests banks that have had a "satisfactory" or better CRA rating for the preceding three years.

That amendment is expected to fail, said Edward L. Yingling, chief lobbyist for the American Bankers Association. But parts of it could be adopted separately, he added.

Showdowns are expected Thursday on unitary thrifts and powers for banks' direct operating subsidiaries.

Sen. Daschle said that he and Sen. Richard C. Shelby, R-Ala., would offer an amendment that would grant broad powers to direct subsidiaries of banks. Sen. Daschle said that a large majority of Democrats-possibly all- would vote for the proposal and that more Republican allies were being sought.

When asked whether Sen. Gramm would carry out his threat to withdraw the legislation if that happens, Sen. Daschle said, "It depends on how badly Sen. Gramm wants a bill."

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