Senate Banking Committee Chairman Phil Gramm is expected today to back off plans to let banks engage in commercial activities, industry and Capitol Hill sources said Friday.
He is also expected to abandon his proposal to make it a crime to pay or demand money for positive testimony about the Community Reinvestment Act record of a bank involved in a merger.
However, banks that earn a CRA rating of "satisfactory" or better would be shielded from community group protests for three years-unless a group had overwhelming evidence the bank's CRA performance had plummeted since its last exam.
These and other details emerged Friday as the Texas Republican prepared to release the bill. The Senate Banking panel is scheduled to vote on it Thursday.
Sen. Gramm had not decided Friday whether to impose limitations on unitary thrift holding companies, a committee source said. He is reportedly considering barring commercial firms from chartering new thrifts but letting them buy existing thrifts.
Sen. Gramm is expected to stick with previous plans that would let national banks with less than $1 billion of assets underwrite securities and insurance in operating subsidiaries. He would also extend for three years the requirement that thrifts pay a larger share of the interest due on Financing Corp. bonds, which were issued to help pay for the thrift industry's rescue.
Sen. Gramm will not budge on demands by insurance agents to put more restrictions on bank sales of insurance.
"We met with him for over two hours, and we could not reach agreement," said Robert A. Rusbuldt, executive vice president of the Independent Insurance Agents of America. "We couldn't work it out."
Sources said Sen. Gramm relented on mixing banking and commerce under pressure from community bankers, Democrats, and top federal regulators. Sen. Gramm had proposed letting bank holding companies earn as much as 25% of annual revenue from commercial activities within 10 years.
Instead, his bill would expand the definition of financial services to include some side activities, which the Federal Reserve Board would authorize on a case-by-case basis.
That would supposedly protect companies that already own commercial businesses and may want to affiliate with a bank-such as American Express Corp., which owns a magazine publishing company. It would also accommodate Internet and other new technological services.
The House Banking Committee is expected to adopt a similar approach to banking and commerce. The committee on Friday was also on the verge of releasing its final draft on financial reform.
House Banking is expected to widen the bill's definition of financial services to include what federal regulators deem "complementary" activities. The House Banking bill would also say that such complementary activities would have to remain "small," a term federal regulators would define.
Industry supporters of mixing banking and commerce said they could support the deal.
"We are being pragmatic in the process and trying to move forward to avoid fights," said Samuel J. Baptista, president of the Financial Services Council. "This will go a good ways toward accommodating the concerns" of nonbanks already engaged in commercial activities that want to affiliate with banks.
The House Banking Committee is tentatively scheduled to vote Thursday. Unitary thrifts and CRA will be among the most disputed issues.
Rep. Bill McCollum, R-Fla., is expected to introduce amendments that would strike any CRA requirements for banks that merge with insurance and securities companies. He may propose some reforms, such as an exemption from CRA for small banks.
Another amendment, expected from Reps. John J. LaFalce, D-N.Y., Edward Royce, R-Calif., and McCollum, would eliminate any restrictions on unitary thrifts, aides said.