Sen. Phil Gramm won Round 1 with the White House on financial reform, but he faces a presidential knockout punch later in the fight unless a compromise is reached.
The Senate adopted the reform bill late Thursday on a 54-to-44 vote that was largely along party lines.
"We have taken a major step toward changing the fundamental structure of financial services in America," Sen. Gramm told reporters. "We have taken a step that will greatly increase the variety of financial services that will be available to people all over America." And "they will be cheaper," he added.
Attention now shifts to the House Commerce Committee, which has been given a May 14 deadline to vote on reform legislation.
"We have to move it quickly to the (House) floor," Rep. Marge Roukema, R-N.J., said in an interview Friday. "It's got to be early June" because the federal budget will occupy members' attention this summer.
The Senate bill would let banks, insurance companies, and securities firms own each other without restrictions. It would also prevent banks from entering commercial businesses and bar nonfinancial companies from chartering or purchasing unitary thrifts.
President Clinton has promised to veto the bill, primarily because of two of Sen. Gramm's prized accomplishments: a rollback of the Community Reinvestment Act and limits on powers for national bank subsidiaries.
Sen. Gramm said he is optimistic that an accommodation can be reached. "I am going to do everything in my power to put together a good bill that the President can sign," said the Texas Republican and Banking Committee chairman.
Democrats failed in their attempt to make banks maintain "satisfactory" or better CRA ratings if they are to merge with securities and insurance companies.
The bill exempts from the CRA rural banks with less than $100 million of assets. Also, banks with "satisfactory" or better ratings for three consecutive years would be shielded from community group protests of mergers on CRA grounds-unless there is substantial new evidence that the rating is invalid.
Democrats also were unsuccessful in attempts to kill these provisions.
Both parties agreed to an amendment that would require banks to disclose cash payments to community groups and other details of CRA agreements.
Democrats seemed confident that the President's veto threat remains their ace in the hole.
But Sen. Gramm got exactly what he sought-legislation that would give him leverage to kill provisions in the House bill that expand the CRA and national bank operating subsidiaries.
Edward L. Yingling, chief lobbyist for the American Bankers Association, said Sen. Gramm "purposely gave up potential Democratic votes so that he could have a strong hand to play" when House and Senate versions must be reconciled in a conference committee.
Banking industry officials generally were pleased with the Senate bill because it protects insurance sales, clamps down on unitary thrifts, and provides CRA breaks for small banks.
The bill teetered on the brink of failure until the last vote was tallied on a controversial amendment offered by Sen. Richard C. Shelby, R- Ala. Set aside on a 53-to-46 vote, the amendment would have let banks underwrite securities and conduct merchant banking activities in direct subsidiaries. Other nonbank activities would have been forced into holding company units.
Sen. Shelby said the bipartisan amendment would give U.S. banks the same powers that the Federal Reserve Board permits foreign banks to conduct through subsidiaries in this country. Forcing securities underwriting and other nonbanking powers exclusively into holding company units would be particularly costly for small banks, he said.
But Sen. Gramm successfully defended his bill, which would let banks with under $1 billion of assets underwrite securities and insurance as well as conduct merchant banking activities in direct subsidiaries.
Banks above that size threshold could conduct sales and other low-risk activities in direct subsidiaries. They must use bank holding company units for everything else.
Sen. Gramm-who had threatened to withdraw the bill if the Shelby amendment passed-credited his victory to the argument that the Clinton administration wanted to steer more powers to Treasury-regulated bank subsidiaries to increase its political influence. Sticking with his proposal would give the Federal Reserve more oversight power.
Lobbying was intense on the Senate floor and, reportedly, behind the scenes. Sen. Gramm pressed lawmakers openly on the chamber floor. He failed to sway Sen. Orrin G. Hatch, R-Utah, but he pumped his arm in celebration after speaking with Sen. Ted Stevens, R-Alaska.
Sen. Gramm clasped his hands and seemed to offer a prayer of thanks to the heavens after Sen. Robert C. Byrd, D-W.Va., voted with him. Sen. Gramm was also aided by votes from New York Democrats Charles E. Schumer and Daniel Patrick Moynihan.
House Commerce, which may ask for a short extension of its May 14 deadline, is expected to lean toward the Senate version on operating subsidiaries. And it may toughen restrictions on bank sales of insurance and securities. The full committee probably would vote after a finance subcommittee tally.