on financial reform gave way to chaos Friday, leaving the bill's fate in limbo for at least a few more days.
To be sure, the 66-member panel resolved several major sticking points last week. On Friday it approved the long-sought compromise between the Federal Reserve Board and the Treasury Department over powers for bank subsidiaries. It also agreed to some compromises on bank securities powers, prompting Securities and Exchange Commission Chairman Arthur Levitt to endorse the legislation.
The committee late Thursday handed the banking industry a big victory on unitary thrift holding companies. Existing unitaries and companies that had filed charter applications by May 4 could continue to operate, but they may not be sold to commercial firms.
Battles over the Community Reinvestment Act -- in which the Rev. Jesse Jackson intervened -- and consumer privacy protections have only begun to heat up. These will be the first order of business today.
The chairmen of the House and Senate Banking committees, Rep. Jim Leach and Sen. Phil Gramm, had hoped to finish the bill Friday but decided to adjourn for the weekend while negotiations continued on the remaining issues. They vowed to hold the final vote Monday so that the bill can go to the full House and Senate on Oct. 20, as Republican leaders have requested.
The decision to delay final action followed a surprise visit by Mr. Jackson, who came to remind lawmakers that President Clinton would veto the legislation unless its community reinvestment requirements are strengthened and provisions diluting current CRA law are removed.
Mr. Jackson's appearance created a stir among those jammed into the crowded conference room, as lobbyists crowding the hallways strained to get a peak of the proceedings.
Rep. Leach tried to defuse the situation with humor. Noting the irony of Rev. Jackson's choosing to sit behind the two major opponents of the CRA -- Sen. Gramm and Sen. Richard C. Shelby -- he asked: "Does Mr. Shelby want to introduce his new staff member?"
But events turned serious as Sen. Gramm and Mr. Jackson retreated to an adjacent utility closet for a nearly 30-minute powwow. Sen. Gramm could be overheard trying to convince the civil rights leader that the bill actually expands the CRA because it requires a bank to have a "satisfactory" or better CRA rating before merging with an insurance or securities company.
After caucusing with Democrats, Mr. Jackson told reporters that he considered it a positive sign that Sen. Gramm had agreed to meet with him and leaders of community groups before the bill's CRA issues are settled. He also criticized as extreme the CRA advocates who had trampled Sen. Gramm's yard during a protest and may have threatened his family.
Sen. Gramm sounded diplomatic. "I have had a lot of discussions today on CRA that I think hopefully are moving toward producing a consensus," he said.
Republicans have fought hard on CRA and prevailed so far. Besides defeating a Democratic amendment to require banks to maintain at least "satisfactory" ratings after merging with an insurance or securities company, Republicans restored the uninsured, wholesale financial institutions that had been created in the House bill. Republicans prevented CRA from being extended to these so-called "woofies," arguing that it does not belong on nonretail operations with no federal insurance.
Mr. Jackson said he intervened because some Republicans are not taking the White House veto threat seriously, now that the administration's concerns about bank powers have been resolved and because bankers, many of whom publicly praise CRA as profitable, were unwilling to defend it to get the reform legislation enacted. He and his allies are pressuring some major bankers to speak out in favor of the 1977 law.
"We want to make certain that CRA is not a sacrificial lamb," said Mr. Jackson, who added that National Economic Council Chairman Gene Sperling said Friday that the White House would not trade away the CRA.
"We want a strong bill, but it must be one that keeps the strength of the CRA clear and solid," Mr. Sperling told reporters. "For us to have a bill that this president can sign, it must keep the CRA strong."
Democrats said they would refuse to accept onerous requirements to disclose bank payments to community groups because they would have "a chilling effect" on such contributions. They demanded CRA for woofies and elimination of the provision that would extend the period between CRA exams for rural and small, urban banks. And they vowed to renew the fight to extend reinvestment requirements to financial conglomerates after their formation.
On securities, the conference committee passed an amendment that would impose some additional limits on bank activities. Banks could continue offering trust services without registering as broker-dealers provided they do not publicly solicit brokerage business and are chiefly paid for those services with annual fees, a percentage of assets under management, or a flat processing fee. Banks without broker-dealers could not handle private placement offerings that exceed 25% of their capital. And the definition of a qualified investor eligible for such services was changed to someone who owns or invests $25 million, up from $10 million in the bill.
On privacy, the Senate delegation, as expected, rejected 14-to-6 an amendment proposed by Sen. Shelby that would have toughened the bill's requirements by preventing banks from sharing confidential information with affiliates or third parties unless they get customer permission. (Both the House and Senate delegations have to approve amendments; if either one rejects them, they fail.)
The committee's vote to limit the sale of unitary thrifts to commercial companies was a major victory for the commercial banking industry.
The American Bankers Association and Independent Community Bankers of America had made the issue their top priority, successfully backing an amendment sponsored by Rep. Leach, Sen. Tim Johnson, D-S.D., and Rep. Steve Largent, R-Okla.
"It is a historic day for community banking," said John H. Hanley, ICBA's director of legislative strategy. "The conferees definitively voted for the wall separating banking and commerce and shutting down the back door represented by the unitary thrift loophole."
Thrift industry officials credited heavy grassroots lobbying by the ABA and ICBA members for turning the tide on a close vote. "It appears that today the majority of bankers thought their interests were best served by restricting competition rather than seeking new opportunities," said Robert R. Davis, government relations director of America's Community Bankers.
Critics of unitary thrifts argued that mixing banking and commerce would encourage risky lending, create conflicts of interest, and put the U.S. economy on the road to the kind of "crony capitalism" that helped cause the Asian economic crisis.
But defenders argued that reducing the potential pool of buyers for unitary thrifts would unfairly lower their market values. "Whether we like it or don't like it, unitary thrifts exist," Senate Banking Committee Chairman Gramm said. "We are taking billions of dollars of private investment made in good faith."