The axiom that "the enemy of my enemy is my friend" best explains the sudden detente between the Treasury Department and Sen. Paul S. Sarbanes.

Six months ago, amid a tense standoff on financial reform legislation, agency officials and the Senate Banking Committee's top Democrat were at each other's throats.

Treasury Secretary Robert E. Rubin was leading the White House's charge against the reform bill backed by Sen. Sarbanes in the waning days of the congressional session. Sen. Sarbanes was blocking the nomination of Treasury Under Secretary John D. Hawke Jr. for comptroller of the currency.

Fast-forward to a March 26 news conference: Sen. Sarbanes heavily praised Mr. Rubin, and the two men presented a united front on reform legislation against Republicans.

Sen. Sarbanes lauded the Treasury for compromising on its turf war with the Federal Reserve Board and credited Mr. Rubin as a principal architect of the "unprecedented prosperity" currently enjoyed by Americans. "He has done an absolutely spectacular job in helping to guide the economy." What prompted this turnaround? The elevation of Sen. Phil Gramm to Banking Committee chairman after the reelection loss of Sen. Alfonse M. D'Amato.

"People at Treasury realized that with a chairman who has more extreme views on many issues than Chairman D'Amato, they needed a strong and reliable ally in the ranking Democrat on the committee," said Victoria P. Rostow, a banking lawyer with Gibson, Dunn, & Crutcher here and a former Treasury official.

Sen. Gramm and the Treasury opposed the reform bill last year. But the Texas Republican this year spearheaded a new version that attacks one of the Democrats' sacred cows - the Community Reinvestment Act-and tilts toward the Fed in the debate over powers for bank subsidiaries.

The thaw with Sen. Sarbanes began when Treasury officials, trying to jump-start the Hawke nomination, responded to the Maryland Democrat's complaints that an agency plan to deliver federal benefit payments electronically would not adequately protect poor and elderly recipients from high fees. The agency in January proposed regulating or banning partnerships between banks and check cashers or other third parties who might charge high fees.

But it was the threat to the CRA that really broke the ice. All nine Senate Banking Democrats last month voted against Sen. Gramm's bill. President Clinton provided political cover by threatening to veto the Gramm bill even before the committee approved it March 4.

Minority Leader Thomas A. Daschle and Sen. Sarbanes two weeks ago introduced a Democratic alternative that Mr. Rubin endorsed at the news conference. Sen. Daschle has asked Majority Leader Trent Lott to preside over compromise talks.

The counteroffer includes major concessions on each side. Mr. Rubin supported prohibitions on commercial firms chartering new thrifts or buying existing ones, and he endorsed the ban on cross-ownership of banks and nonfinancial firms.

In return, Sen. Sarbanes gave in on new powers for bank subsidiaries. The Treasury had long called for full powers for subsidiaries, but Sen. Sarbanes favored the narrow provisions in last year's reform bill because broader powers could put the parent bank at risk. But he agreed to support a Treasury-endorsed middle ground that would let national banks underwrite securities and conduct merchant banking activities through subsidiaries but not underwrite insurance or develop real estate.

A spokeswoman for Sen. Gramm accused Democrats of using his CRA proposals as an excuse. "It has illustrated that it doesn't look like President Clinton wants a bill," she said. "There are two pieces of our current legislation that deal with CRA. That shouldn't be enough to incite the kind of reaction we are getting from the administration."

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