The White House on Friday made its first direct threat to veto financial reform legislation.

In a letter to Senate Banking Committee Chairman Alfonse M. D'Amato, White House Chief of Staff Erskine B. Bowles vowed that the President would reject the bill unless restrictions on bank operating subsidiaries are removed.

"The President will veto the bill if it is passed in this form," Mr. Bowles wrote.

The legislation would "stifle innovation and efficiency in the national banking system, and impose needless costs on small banks," he wrote. "In addition, the administration believes that the bill would materially weaken the national banking system by depriving national banks of the powers they now have, and would erode the ability of the executive branch in formulating and implementing financial institution policy."

Though it was the first veto threat made by a White House official, Treasury Secretary Robert E. Rubin has repeatedly stated that he would urge President Clinton to block the bill unless bank operating subsidiaries are allowed the same powers as bank holding company affiliates.

The White House threat comes as lawmakers supporting the bill and industry negotiators appear close to settling other disputes over the bill. Sen. D'Amato has tentatively scheduled a vote on the legislation in Senate Banking for Sept. 3.

Rep. John Boehner, who shepherded financial reform through the House, urged the administration to negotiate rather than make threats. "The White House's half-hearted announcement comes too late in the game to delay this historic process," he said in a written statement.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.