Get ready for Round 2 of Greenspan versus Rubin.
This week's venue is the Senate Banking Committee, where Federal Reserve Chairman Alan Greenspan and Treasury Secretary Robert E. Rubin will again square off on an issue that lawmakers find increasingly frustrating.
In Mr. Rubin's eyes, legislation to overhaul the nation's outdated financial laws must be stopped unless banks are permitted to enter new businesses via direct subsidiaries. No surprise, the Treasury's empire includes national bank supervision.
To Mr. Greenspan, the only safe and fair way to expand bank powers is to house the new activities in bank holding company affiliates. The Fed, coincidentally, regulates holding companies.
Many people, including bankers, consider this issue peripheral to the larger debate over financial reform, but it is important. Its resolution will dictate how banks operate and which regulators will steer the industry's future.
With votes scheduled on financial reform in both the Senate and House next week, lawmakers want a deal, and they are leaning on Mr. Greenspan to compromise.
"Is the Federal Reserve open to discussing these issues with the Treasury?" House Banking Committee Chairman Jim Leach asked Mr. Greenspan during a Feb. 11 hearing. "Or do you think ... the Congress will just have to make these decisions on our own?"
These questions were posed the day after Mr. Rubin backed a compromise floated by House Banking's ranking Democrat, Rep. John J. LaFalce of New York. The Treasury agreed to limit bank subsidiaries to securities underwriting and merchant banking while walling off insurance underwriting and real estate development in holding company units.
Mr. Rubin said the Treasury would share authority with the Fed to define future banking products, and would give the Fed the sole power to define merchant banking. Mr. Rubin also supported a requirement that all large banks use holding companies, to assure that the Fed plays a regulatory role.
Mr. Rubin grudgingly agreed to these conditions, claiming that the Treasury was willing to sacrifice, to move financial reform legislation forward.
Though the Fed appears oddly intransigent, supporters insist Mr. Greenspan did offer to compromise during the House Banking hearing by agreeing to share power with the Treasury.
"We are more than willing to sit down with anybody and find a way to increase ... (the Treasury's) powers," Mr. Greenspan said. "And if it comes out of the turf of the Federal Reserve, so be it."
Senate Banking Committee Chairman Phil Gramm took another shot at finding some middle ground last week. Under the Texas Republican's plan, only national banks with less than $1 billion of assets could exercise new powers directly. Ironically, Mr. Greenspan reluctantly backed the deal, while Mr. Rubin objected.
But time is running out. Senate Banking is scheduled to vote on financial reform legislation March 3, with House Banking's tally to be taken the next day. Some line will be drawn, limiting what a bank may do directly by activity, asset size, or some combination of those factors.
What makes this fight, ongoing for at least two years, even more remarkable is the rapport between Mr. Greenspan and Mr. Rubin. They arguably have what may be the best working relationship of any set of predecessors.
Maybe a breakthrough is imminent: The two men spent the weekend together, flying to and from Bonn for a meeting of the world's leading economic policymakers.
