Garn Reaches Accord with Riegle; Senate Panel Vote Likely This Week
WASHINGTON - Jake Garn, the Senate Banking Committee's senior Republican, has agreed to support Chairman Donald W. Riegle's efforts to keep nonbanking companies from purchasing banks.
The compromise - which amounts to a break with the administration by Sen. Garn - paves the way for a committee vote Wednesday on the banking reform bill.
Sen. Riegle, a Michigan Democrat, had been delaying a mark-up of the bill because he adamantly opposed the lifting of bank-ownership restrictions.
As ranking Republican, Sen. Garn was crucial to the outcome of the debate. His decision prompted Sen. Riegle to move quickly to a markup this Wednesday, giving the administration and its supporters little time to mount a campaign to reinstate its banking-and-commerce provision.
A Packed Day's Work
The committee deliberations are not expected to take longer than a day. Once past the committee, the bill goes to the Senate floor and then on to a conference committee, where it will have to be reconciled with a House bill that, in its current form, contains the banking-and-commerce provision sought by the Bush administration.
The agreement between Sen. Garn and Sen. Riegle would also loosen the current qualified-thrift-lender test, continue much of the existing favorable treatment for foreign banks operating in the United States, and limit the reach of the firewalls Sen. Riegle proposed for banks that underwrite securities.
The compromise, which was hammered out at a session that started late Thursday night and ran past midnight, adds some momentum to this year's effort to pass comprehensive banking legislation.
A Treasury Department spokeswoman hailed the accord as evidence that "the process is moving forward." She declined further comment.
Key Questions to Resolve
The momentum has slowed in the House. Until Sen. Riegle's agreement with his Republican counterpart, it appeared that the Senate Banking Committee would not even take up the measure until mid-September.
While there is no guarantee that the full committee will accept every point in the agreement, the combined political muscle of Sen. Riegle and Sen. Garn is likely to prove sufficient to prevail on most issues.
However, a number of key questions in Sen. Riegle's version of the bill were left unresolved and may not be settled until the vote on Wednesday.
Among them is a proposal by Sen. Riegle to set deposit-insurance premiums high enough to bring insurance fund reserves up to $1.25 for each $100 of assets, within 13 years. By charging the premium on assets, the measure would have the controversial effect of bringing foreign branch deposits into the insurance assessment base.
States' Rights Issues
The two sides are also negotiating over Sen. Riegle's effort to limit the ability of states to authorize bank activities not permissible for national banks. Also up in the air is whether Sen. Garn will support a Riegle bid to merge the Office of Thrift Supervision and the Office of the Comptroller of the Currency into a new, independent agency.
One other issue important to banks, that is not likely to be settled prior to the committee vote, is a pair of provisions proposed by Sen. Riegle that would require banks to cash government checks or offer low-cost transaction accounts to the poor.
The breakthrough that led to the scheduling of Wednesday's committee session was Sen. Garn's decision to support Sen. Riegle on the banking and commerce issue. Among his own concessions, Sen. Riegle reportedly agreed to ease restrictions on industrial banks, which are important to Sen. Garn's home state of Utah.
As a result, the movement to permit commercial and industrial firms to buy failing banks appears to have been shattered. Sen. Phil Gramm, R-Tex., still plans to offer an amendment to permit such affiliations, but most observers predicted that it will fail.
"It makes it a hell of a lot more difficult," said Sam Baptista, president of the Financial Services Council, which has lobbied long and hard for banking and commerce affiliations. "Now we have to hold at least seven Republicans and pick up four Democrats" on the 21-member committee.
"It doesn't look good," he added.
Aides to Sen. Riegle did not return calls for comment on Friday, and many details of the pact were not available. But a number of industry sources and Senate aides familiar with the talks cited several major areas in which agreement had been reached:
* The qualified-thrift-lender test will be relaxed so that an institution need keep only 65% of its assets in qualifying loans, rather than 70% under existing law. The definition of qualifying assets would also be expanded to include Federal Home Loan Bank stock, which thrifts are required to own.
* The Federal Reserve would be given more authority than Sen. Riegle originally proposed to grant waivers from the firewalls that apply to banks with affiliates that underwrite securities.
* A relaxation of the cross-guarantee provisions Sen. Riegle had proposed.
PHOTO : Sen. Jake Garn Republican with a compromise
PHOTO : Sen. Donald W. Riegle Getting boost from GOP side