NEW LEGISLATION

Thrift fund rescue

Rep. Floyd Flake

D-N.Y.

Sen. Alfonse M. D'Amato

R-N.Y.

The House Banking Committee's push for comprehensive legislation to fix the thrift insurance fund became a bipartisan effort last month when Rep. Floyd H. Flake introduced his own rescue plan, HR 2123.

The New York Democrat's bill looks a lot like one introduced by Rep. Bill McCollum, R-Fla. Both plans would create a single charter for thrifts and banks, and both would extend the availability of Resolution Trust Corp. funds to cover thrift failures. Each plan would also spread the interest tab for thrift bailout bonds between banks and thrifts.

However, unlike the McCollum bill, Rep. Flake's aims to recapitalize the funds with a one-time charge to thrifts of about 85-basis-points.

In the Senate, Banking Committee Chairman Alfonse M. D'Amato endorsed a $6 billion rescue for the thrift fund that calls for banks to pay the bulk of interest due on bonds authorized in 1987 in an unsuccessful effort to rescue the old Federal Savings and Loan Insurance Corp.

The plan, unveiled before his panel by the administration last month, would also have thrifts pay a one time fee based on deposits, and would merge the bank and thrift insurance funds.

However, Sen. D'Amato wants to fold the thrift fund fix into a budget reconciliation bill. This has caused concern in the banking industry, which opposes merging the funds without also combining the bank and thrift charters.

Action on any of these plans is unlikely before September, when Congress returns from its summer break.

Student loan audits

Banks that make student loans scored a victory on Aug. 3, when the House approved a measure that would drop the audit requirement for banks with student loan portfolios of $5 million or less.

The bill, which was tucked into a larger appropriations measure, was introduced by Rep. Thomas Ewing, R-Ill., and Rep. Ron Lewis, R-Kan.

Under a 1992 law, banks must hire independent auditors by Sept. 30 of this year to review their compliance with the Department of Education's student lending rules.

Bankers say that the audits, which could cost upwards of $20,000, are expensive enough to make student lending unprofitable for those with small loan portfolios.

Flat tax

Sen. Richard C. Shelby

R-Ala.

Sen. Richard C. Shelby, R-Ala., introduced legislation last month that would replace the mortgage interest deduction - and nearly every other writeoff - with a 17% flat tax.

The lawmaker also released a survey showing that new home buyers are willing to relinquish the interest deduction in exchange for lower taxes.

Sen. Shelby said his bill, S 1050, would encourage savings, spur economic growth by reducing marginal tax rates, and eliminate the tax penalty for married couples.

UPDATE ON PENDING BILLS

Federal Home Loan Bank System

Rep. Richard Baker

R-La.

Rep. Richard Baker, R-La., canceled a July 13 vote on his bill to modernize the Federal Home Loan Bank system when the bank presidents objected to various changes in the measure, including one that would retain the cap on commercial bank membership in the system.

The lawmaker said the presidents expressed "stringent opposition to reform." However, the Home Loan bank presidents said they simply needed time to examine the 80-odd pages added to the bill two days before the vote.

An aide to Rep. Baker said the lawmaker does not intend to bring HR 1487 back up, but will hold system oversight hearings on Sept. 27 and 28.

The hearings, which will take place before the House Banking subcommittee on capital markets, are expected to delve into topics such as system management.

Regulatory relief

Rep. Jim Leach

R-Iowa

The industry's top legislative priority cleared a major hurdle in June when it was approved by the House Banking Committee, but it still faces an uncertain future.

The major stumbling block is a section containing two insurance provisions. One, added by Banking Committee Chairman Jim Leach and opposed by most banks, would bar the comptroller of the currency from expanding national bank powers.

A second provision, permitting banks to affiliate with insurance companies, was added by an unlikely coalition of Deomocrats and conservative Republicans. The amendment, sponsored by Rep. Baker, is supported by many large banks, but opposed by the Independent Bankers Association of America and the Independent Insurance Agents of America.

In a series of memos sent to House Speaker Newt Gingrich last month, Rep. Leach offered a number of options for bringing up the two insurance provisions on the House floor.

One of the options was to join the provisions at the hip and subject them to an "all or nothing" vote on the House floor as a single amendment.

The Iowa Republican also suggested attaching regulatory relief and Glass-Steagall to the budget reconciliation bill - a top priority for House leaders because it implements the Republican budget reduction plan.

If the insurance issues can be dealt with, the bill would be a major plum for banks. It would make a number of laws, from the Community Reinvestment Act to Truth-in-Lending, easier to live with, and would limit the reach of the Rodash court decision, which allows borrowers to repudiate mortgage contracts if errors are found.

The bill also would allow financial institutions to share customer information among affiliates and subsidiaries. It would also transfer nearly all rulemaking authority for the Real Estate Settlement Procedures Act from the Department of Housing and Urban Development to the Federal Reserve.

The Senate is considering a companion bill, S 650.

Credit unions

The Senate Banking Committee in June approved by voice vote a bill that would increase the federal government's power over state-chartered credit unions.

The Credit Union Reform and Enhancement Act would limit the lending and investment powers of federally insured state-chartered credit unions, as well as allowing the National Credit Union Administration to tighten oversight of corporate credit unions.

Legislative sources said the bill, S 883, is likely to be taken up by the full Senate later this month.

Individual retirement accounts

A budget agreement reached by House and Senate GOP leaders in June aims to expand individual retirement accounts. Though congressional tax committees will have to hammer out exactly what sort of IRA expansion will be included in the budget, lawmakers are expected to include a tax-free account for nonworking spouses.

Banks would benefit handsomely from expanded IRAs, which represent long-term core deposits.

Sen. William V. Roth, R-Del., and Sen. John Breaux, D-La., cosponsored a measure earlier in this Congress that would make IRA contributions fully deductible. A similar measure was introduced in the House by Rep. Bill Thomas, R-Calif.

Tax-free savings

In April, Sens. Pete V. Domenici, R-N.M., and Sam Nunn, D-Ga., introduced a tax bill that would exempt from federal income tax net increases in bank accounts, among other investments.

By focusing on new savings, the Unlimited Savings Allowance Tax Act attempts to end a widespread practice in which individuals fund retirement accounts by moving money from existing accounts - thus gaining the tax advantage without creating new savings.

Fair-Credit Reporting

A bill introduced by Sen. Christopher S. Bond, R-Mo., that would revamp credit reporting laws presents lenders a mixed bag of pros and cons.

The measure, S 709, would make compliance easier and less expensive by replacing a patchwork of state credit reporting requirements with a uniform federal statute. The federal preemption would last eight years after the bill is enacted.

However, some industry sources say the preemption would not go far enough because it does not cover state laws that hold banks liable for mistakes on credit reports.

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