Democrats launched a counter-attack on financial reform Friday, setting up several key showdowns that will determine the fate of the long-sought and often-derailed legislation.
On the eve of a two-week recess, Senate Minority Leader Thomas A. Daschle and all nine Democrats on the Senate Banking Committee introduced an alternative to committee Chairman Phil Gramm's controversial bill.
Treasury Secretary Robert E. Rubin joined the Democrats' unified front at a hastily called news conference Friday with Sen. Daschle and Paul S. Sarbanes, the Banking Committee's ranking Democrat. Mr. Rubin repeated President Clinton's promise to veto the Gramm bill-which Senate Banking adopted March 4 on an 11-to-9, party-line vote-and endorsed the counterproposal.
"The message is very clear," said Sen. Daschle, of South Dakota. "We want financial modernization enacted this year ... (but) the Republican bill in its current form is going nowhere. It will not be signed into law."
The Democrats are on a collision course with Sen. Gramm, a Texas Republican, who last week said he is prepared to ram the bill through on a simple majority if necessary.
"The last two weeks in April when they get back from recess is going to be crucial," predicted Paul A. Schosberg, president of America's Community Bankers.
That is when Senate Majority Leader Trent Lott of Mississippi has said he wants to meet with Sen. Gramm, Sen. Sarbanes, and Sen. Daschle to hammer out a compromise. Work is also to start in the House Commerce Committee, which has until May 14 to vote on the bill.
Every version of the legislation would destroy the remaining barriers to bank mergers with insurance or securities companies.
Though the House Banking Committee approved the legislation 51 to 8 on March 11, the Commerce Committee might make significant changes. Democrats will play a pivotal role there, too.
For instance, Rep. Edward J. Markey, a Massachusetts Democrat on that panel, offered two financial privacy bills last week that he vowed to attach to financial reform. They would require banks and other financial companies to obtain written permission from customers before sharing private information among affiliates or selling it to outsiders.
Lobbyists are wondering whether Rep. John D. Dingell of Michigan, the ranking Democrat on Commerce, will support the legislation, as he did last year, or stall - hoping that his party will recapture control of the House in the 2000 elections.
Yet the sharpest partisan clashes are expected in the Senate.
Senate Democrats describe Sen. Gramm's bill as a violation of Republican pledges after the impeachment trial to seek bipartisan legislation. "Democrats reject brinksmanship," Sen. Daschle said. "It can't be 'take it or leave it.'"
Their alternative would toughen community reinvestment requirements on financial conglomerates, broaden powers for bank subsidiaries by letting them underwrite securities and engage in merchant banking, and impose stricter limits on unitary thrifts. Except for tougher curbs on thrifts and corporate investments, it strongly resembles the House Banking version.
The bill "is acceptable to industry groups across the board" as well as to community and civil rights groups, said Sen. Sarbanes, of Maryland. "It could be passed by the Congress by a very substantial vote and signed into law by the President."
Industry observers agree that the Democratic alternative could be more appealing.
"This is a bipartisan bill," said Kenneth A. Guenther, executive vice president of the Independent Community Bankers of America. "The leadership is in the hunt for a compromise bill.
Sen. Gramm's spokeswoman noted that the same proposal was defeated by Senate Banking this year.
"We are not familiar with a situation where a substitute offered by the minority party has been passed over a bill that has been approved by a full committee," she said. "We look forward to the debate on the floor."