Banks scored big last week, stopping legislation in the House that they argued would give other financial services companies a competitive edge in the next century.
But the cheers turned to jeers when the House approved a bill easing credit union membership limits by an overwhelming 411-to-8 vote.
Bankers hope to avenge that bitter loss by diluting the credit union measure in the Senate. And while House Republican leaders have vowed to retool the financial reform bill and bring it up for another vote in May, most observers said a variety of factors came together last week to end any chance of enactment in 1998.
Intense last-minute lobbying by bankers foiled Republican leaders' plans to slide the controversial reform bill through the House by attaching it to the sure-win credit union bill.
And while its united assault was critical, the industry got plenty of help from Democratic lawmakers who felt cut out of the debate over reform. Also critical: a timely veto threat from the Clinton administration; defections by several key Republicans; and the collapse of some behind-the- scenes deals.
Leaders of the four major banking trade groups-the American Bankers Association, the Independent Bankers Association of America, America's Community Bankers, and the Bankers Roundtable - decided at a March 27 meeting to defeat the reform bill by getting lawmakers to vote against the rule, or the procedure, the House would use to set up a vote on reform. That rule would tie financial reform to the credit union measure.
"The decision was made to go all-out to kill the rule," said Kenneth A. Guenther, IBAA executive vice president.
Some observers dismissed the strategy as foolhardy because rules are rarely defeated. But bankers concluded that defeating the rule was their only hope: lawmakers would vote yes on any bill that included the popular credit union provisions. To kill the reform bill, bankers had to make sure it was not attached to the credit union bill.
"If the rule had been approved the legislation would have passed," said Michael P. Smith, president of the New York Bankers Association, who joined in the lobbying effort on Capitol Hill. "We fully understood it would be a long shot to defeat the rule ... It was the only alternative."
Top Democrats also urged their colleagues to vote against the rule because they felt Republican leaders had shut them out of the debate over financial reform and had refused to let them offer important amendments.
In a letter delivered on the day of the vote, Rep. John J. LaFalce of New York, House Banking's top Democrat, and other committee Democrats said linking the pressing credit union bill to the disputed reform bill was "like buying the credit unions a ticket on the Titanic."
Key credit union ally Rep. Paul E. Kanjorski, D-Pa., also signed the letter, showing Democrats they could vote against the rule without angering the powerful credit union lobby.
"I think it was persuasive," Rep. LaFalce said.
The primary goal of linking the two bills was to draw Democratic support to financial reform, which would permit the convergence of the banking, insurance, and securities industries. But a Republican staffer admitted the Democrats "saw through that."
The Treasury Department's strong opposition to the bill also held the Democrats together, sources said. Treasury has repeatedly contended the legislation would weaken the national bank charter, the thrift charter, and the Community Reinvestment Act.
Treasury Secretary Robert E. Rubin issued a statement the day of the vote saying he would recommend a presidential veto if the reform bill made it to the president's desk unchanged.
Rep. John A. Boehner of Ohio, the Republicans' point man on financial reform, tried to cut deals with influential Democrats. He seemed guaranteed to gain a block of Democratic swing votes when Rep. John D. Dingell, D- Mich., announced he would back the bill.
However, Rep. Dingell, the ranking Democrat on the Commerce Committee, abruptly withdrew his support the night before the vote. He thought Republican leaders had agreed to incorporate two of his self-styled consumer protection amendments into the bill but later discovered they meant only to let them be debated on the floor.
Meanwhile, the Republican ranks were fracturing.
Reps. Bill McCollum of Florida and Richard Baker of Louisiana came out against linking the two bills. Along with Rep. David Dreier of California- vice chairman of the Rules Committee, which was responsible for joining the bills-they issued a statement the night before the vote. They criticized the reform measure for damaging national bank and thrift powers and failing to merge the insurance funds.
Trade group executives from 34 states and many bankers lobbied their congressmen hard Tuesday morning, emphasizing the administration and Democratic opposition as well as the surprising credit union apathy.
Republican leaders had counted on credit unions for help. But credit unions tempered their lobbying efforts for the rule because they feared a combined bill would have less chance of passing the Senate, a credit union source said.
Republican leaders realized by the time the floor debate started late Tuesday afternoon that they were at least 15 to 30 GOP votes short. They called a break to try to stir up more votes. House Banking Committee Chairman Jim Leach and other Republican leaders met with about 25 GOP lawmakers who were balking under bank lobbying pressure.
"The message was the banks were angry they were being whipsawed because of the inclusion of the credit union bill," the Iowa Republican said. "We concluded we didn't have the votes on the rule."
House Republican leaders called the ABA late in the afternoon offering a compromise, sources on both sides said, but a deal could not be worked out on such short notice.
"It did not look to us like we could go ahead with bank modernization," Rep. Leach said, so the rule was pulled Tuesday and the credit union provisions were passed the next day on their own.
