Action on Legislation Financial Modernization
The Senate Banking Committee approved financial reform legislation March 4 on an 11-to-9 party-line vote. The bill, already beset by controversy, was complicated further when the panel agreed to exempt small, rural banks from the Community Reinvestment Act. Committee Chairman Phil Gramm has admitted he will have to compromise with Democrats to win Senate approval.
The legislation would repeal the separation of commercial and investment banking and let banks and insurance companies own each other. It would shield merging banks from CRA protests, provided they had a "satisfactory" or better community reinvestment rating for the previous three years.
Banks could not enter nonfinancial businesses but could engage in broad merchant banking activities. Commercial companies could not form new unitary thrifts but could purchase existing ones. National banks under $1 billion of assets could underwrite securities and insurance in operating subsidiaries. It also includes restrictions on bank sales of insurance that banking and insurance industry groups had agreed to last fall.
The House Banking Committee entered its second day of debate on financial reform Wednesday. (See story page 1).
On March 4 the committee began considering a bill that blends proposals by House Banking Chairman Jim Leach and ranking Democrat John J. LaFalce. Like the Senate Banking bill, it would let banks, insurance companies, and securities firms own each other and would ban the mixing of banking and commerce. However, it includes tougher CRA requirements, stricter limits on unitary thrift holding companies and operating subsidiaries, and more restraints on merchant banking.
House Banking defeated amendments last week that would have required banks to offer affordable accounts to low-income customers and extended CRA to nonbanks. Regulatory Relief
The Senate Banking Committee on Feb. 11 unanimously approved a bill offered by Sens. Richard C. Shelby, R-Ala., and Connie Mack, R-Fla., that would let banks earn interest on reserves held at the Federal Reserve. Also, banks and thrifts could pay interest on business checking accounts starting Jan. 1, 2001; in the interim, the legislation would expand the number of withdrawals that commercial customers could make from money market deposit accounts, to 24 per month from the current limit of six.
The Financial Regulatory Relief and Economic Efficiency Act also would roll back 37 reporting and other minor rules, including the requirement that thrifts keep 4% to 6% of total demand deposits in liquid assets. It would eliminate the special reserve account of the Savings Association Insurance Fund. Year-2000 Problem
The Senate on March 2 voted 99-to-0 for legislation that would let the Small Business Administration guarantee loans financial institutions make to small businesses to fix-or recover from-year-2000 computer glitches. The House Small Business Committee has scheduled a hearing on the bill for March 12.
Meanwhile, the Senate Commerce Committee approved a bill March 3 that would cap damages in lawsuits stemming from year-2000 problems. The bill, sponsored by Chairman John McCain, R-Ariz., would limit punitive damages to $250,000, or three times actual damages, whichever is larger.
On the House side, Banking Committee member Donald A. Manzullo, R-Ill., has introduced a bill that would require most year-2000 disputes to be settled by arbitration. Reps. Thomas M. Davis 3d, R-Va., David Dreier, R- Calif., and others have proposed legislation to cap punitive damages and attorneys fees. New Legislation Bankruptcy Reform
Rep. George W. Gekas, R-Pa., introduced consumer bankruptcy reform legislation Feb. 24 that closely resembles a compromise that House lawmakers overwhelmingly approved last year. Chairman of the House Judiciary subcommittee handling bankruptcy, Rep. Gekas has predicted the House will pass the legislation by mid-April.
The bill would require bankruptcy trustees to inform the court if a consumer trying to eliminate debts in Chapter 7 earns more than the median national income and could afford to repay either $5,000 or 25% of unsecured debt over five years. The judge then would require the consumer to repay some debts in Chapter 13. The bill also would let lenders ask the judge to force a consumer into Chapter 13 and give the court some discretion to let debtors use Chapter 7 even if they have high incomes. Federal Home Loan Bank Reform
Sen. Chuck Grassley, the Iowa Republican who heads the Senate Judiciary Committee's subcommittee on the courts, is expected to introduce a bill by the end of the week that significantly differs from Rep. Gekas' legislation. The Senate is divided on the issue.
However, Sen. Grassley and Rep. Gekas have taken the unusual step of scheduling a joint hearing for today.
Sens. Chuck Hagel, R-Neb., and Evan Bayh, D-Ind., introduced legislation Feb. 24 to revamp the Federal Home Loan Bank System. Reps. Richard H. Baker, R-La., and Paul E. Kanjorksi, D-Pa., offered an identical House bill the same day.
The legislation would make thrift membership in the system voluntary as well as waive membership requirements and scale back collateral requirements for small banks with under $500 million of assets. Small banks could borrow against agricultural, small-business, and community development loans in addition to housing loans.
It would also alter the way the system is capitalized by making banks contribute capital based on the riskiness of their Home Loan Bank portfolios rather than on members' asset sizes and creating three classes of Home Loan Bank stock. Both the House and Senate Banking Committee versions of financial reform include pared-down versions of home loan bank reform.