Action on Legislation

Year-2000 Computer Problem

Rep. Jim Leach

Republican of Iowa The House Banking Committee approved a bill Feb. 5 that would give thrift and credit union regulators more power to address year-2000 computer problems. The measure, sponsored by Banking Committee Chairman Jim Leach, would let the Office of Thrift Supervision and the National Credit Union Administration examine vendors that supply software and data processing services. Bank regulators already have this power.

An amendment sponsored by Reps. Richard Baker, R-La., and Spencer Bachus, R-Ala., would strip the NCUA of this authority on Dec. 31, 2001. The OTS would retain the added examination power.

Pending Legislation

Financial Modernization

Rep. John A. Boehner

Republican of Ohio

Trying to resolve their differences on financial reform legislation, the House Banking and Commerce committees started circulating counterproposals after Congress got back to work in January.

The Commerce Committee on Feb. 4 offered to add several pro-bank provisions to its bill. Proposals included letting banks underwrite municipal revenue bonds, lifting some restrictions on fee income, and keeping the thrift charter. The Banking Committee's initial response was lukewarm.

Meanwhile, Banking Committee officials floated a compromise on the fate of the thrift charter, which would be eliminated by both committee bills. Under the proposal, the thrift charter would be preserved but its powers limited. The Office of Thrift Supervision would become a department of the Office of the Comptroller of the Currency, and the Federal Reserve Board would regulate unitary thrift holding companies. Commercial firms could not own or start unitary thrift holding companies.

Major differences remain between the committees' versions of financial reform. They include the amount of nonfinancial business that bank holding companies would be permitted to own and limits on bank operating subsidiaries.

At a meeting in New York in late January, House Republican Conference Chairman John A. Boehner, R-Ohio, and Rep. Michael G. Oxley, R-Ohio, chairman of Commerce's finance subcommittee, rallied support for reform legislation from the heads of some of the nation's largest financial services companies.

House Majority Whip Thomas D. DeLay said last week getting a bill passed will be tough. Senate Majority Leader Trent Lott, R-Miss., and Senate Banking Committee Chairman Alfonse M. D'Amato, R-N.Y., said they would not take up the legislation until the House approves it. The Senate leaders were not optimistic. Private Mortgage Insurance Sen. Alfonse M. D'Amato Republican of New York Lawmakers still must work out substantial differences between House and Senate versions of bills that would require lenders to automatically cancel private mortgage insurance.

The Senate plan, approved Nov. 9, would require lenders to automatically cancel private mortgage insurance when a borrower's equity in a home reaches 22%. The legislation passed after seven months of negotiations between Senate Banking Committee Chairman Alfonse M. D'Amato and Sen. Lauch Faircloth, R-N.C.

The plan also would allow borrowers to demand that mortgage insurance be terminated when their equity reaches 20%, as long as they kept up with payments in the preceding two years. For high-risk borrowers, however, lenders could require that insurance remain in place for half the life of a mortgage.

The House bill, passed in April, would terminate insurance when equity reaches 25% and gives lenders no slack for high-risk loans. Also in contrast to the Senate plan, the House bill would apply to home equity loans and would permit states to impose tougher cancellation standards on lenders.

New Legislation

Derivatives Accounting

Rep. Richard Baker

Republican of Louisiana

Prompted by debate over proposed changes to derivatives rules, Rep. Richard Baker, R-La., introduced a bill Feb. 5 to let corporations challenge new accounting standards in court.

The Financial Accounting Fairness Act also would require the Securities and Exchange Commission to approve formally all rules promulgated by the Financial Accounting Standards Board. The SEC would first have to publish the proposal and solicit comments.

The agency would also be required to consult banking regulators if the proposal would affect banks.

The FASB is expected to approve next month a controversial proposal that would require companies to adjust their quarterly statements to account for changes in the market value of derivatives.

Sen. Lauch Faircloth introduced legislation in November that would exempt banks from the rule if banking regulators determine it would distort earnings or impede risk-management efforts.

Bankruptcy

Rep. George W. Gekas

Republican of Pennsylvania

The debate of bankruptcy reform split along party lines last week with introduction of competing bills by members of House Judiciary's commercial and administrative law subcommittee.

Rep. George W. Gekas, who chairs the subcommittee, unveiled a pro- creditor, needs-based bankruptcy plan that would prevent high-income borrowers from eliminating their debts. But Rep. Jerrold Nadler, the panel's ranking Democrat, offered a debtor-friendly bill that would punish lenders who extend credit to consumers who already have significant debt.

Rep. Gekas said he plans to hold five hearings on the legislation in March and wants the House to vote by the end of July.

On the Senate side, Sen. Charles Grassley, R-Iowa, introduced a bill in October that would give judges authority to force high-income borrowers to repay their debts.

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