Action on Legislation Financial Modernization The House Commerce finance subcommittee is expected to vote soon on financial reform so the full committee can approve the legislation by the end of the month. House Republican leaders had given the committee a May 14 deadline, but Committee Chairman Thomas J. Bliley Jr. has asked for an extension.

The Senate adopted reform legislation May 6 on a 54-to-44 vote that was mostly along party lines. President Clinton has threatened to veto it unless rollbacks of the Community Reinvestment Act are reversed, more reinvestment requirements are added, and direct bank subsidiaries are granted more powers.

The bill would let banks, insurance companies, and securities firms own each other without restrictions. It would also prevent banks from entering commercial businesses and bar nonfinancial companies from chartering or purchasing unitary thrifts.

Senate Banking Committee Chairman Phil Gramm triumphed on votes involving CRA-related provisions and powers for bank subsidiaries.

The bill exempts from CRA rural banks with less than $100 million of assets. Banks with "satisfactory" or better CRA ratings for three consecutive years would be shielded from community group protests of mergers on CRA grounds-unless there is substantial new evidence that the rating is invalid.

The bill would let banks with under $1 billion of assets underwrite securities and insurance as well as conduct merchant banking in direct subsidiaries. Banks above that size could conduct sales and other low-risk activities in direct subsidiaries but would have to use holding company units for everything else.

House Banking passed its reform bill by a 51-to-8 vote on March 11. It has tougher CRA requirements and grants broader powers to bank subsidiaries. House Commerce is expected to make extensive changes. Bankruptcy

The fight for bankruptcy reform shifts to the Senate after the House on May 6 overwhelmingly approved a bill 313 to 108.

The House bill, sponsored by Rep. George W. Gekas, R-Pa., would require those with high disposable incomes to repay some unsecured debt in Chapter 13, rather than eliminating it all in Chapter 7. The bill relies on Internal Revenue Service estimates of living expenses - bolstered with more funds for food, clothing, and education - to determine disposable income. Social Security income would not count toward this test. The White House has threatened a veto.

The Senate version, which should come to the floor early next month and is sponsored by Sen. Charles E. Grassley, R-Iowa, is expected to include many consumer protections favored by the White House and opposed by lenders. Year-2000 Problem

The House Judiciary Committee on May 4 approved legislation to curb frivolous year-2000 lawsuits. The full House on Wednesday began debate on the bill, which is sponsored by Rep. Thomas M. Davis 3d, R-Va.

The Senate started debating similar legislation but postponed action April 30 because of partisan disagreements over the details and unrelated issues. Debate could resume as early as next week on the bill, which was introduced by Sens. John McCain, R-Ariz., and Ron Wyden, D-Ore.

Though they differ in some ways, both bills would limit punitive damages, give potential defendants the chance to "cure" problems they caused, and encourage litigants to resolve their differences outside the courtroom. The White House has threatened to veto both versions. Among other things, the Clinton administration says it fears the legislation might decrease businesses' incentive to take preventive measures. New Legislation Regulatory Relief

Rep. Marge Roukema introduced regulatory relief legislation on April 27 that is nearly identical to a bill that passed the House last year but stalled in the Senate.

The bill would let banks earn interest on reserves held at the Federal Reserve. Also, banks and thrifts could pay interest on business checking accounts starting Oct. 1, 2004; 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.

House Banking's financial institutions subcommittee, led by Rep. Roukema, held hearings on the legislation yesterday. The Senate Banking Committee on Feb. 11 unanimously approved a similar bill offered by Sens. Richard C. Shelby, R-Ala., and Connie Mack, R-Fla. However, the Senate bill would let banks and thrifts pay interest on business checking accounts starting Jan. 1, 2001.

It is unclear when the full Senate will take up the bill, but Committee Chairman Gramm has vowed that it will become law. Tax Breaks for Small Banks

Sen. Wayne Allard, R-Colo., introduced legislation April 26 that would let more banks convert to tax-saving S corporations.

His bill would double the number of shareholders an S corporation may have, to 150, and reduce the share of stockholders who must approve a conversion to 90%. Several limits specifically for banks would be eased, including letting investors hold S corporation stock in individual retirement accounts and relaxing accounting requirements for bad-debt chargeoffs.

Rep. Marge Roukema, R-N.J., offered a companion bill in the House the following day, updating legislation that she introduced earlier this year.

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