Destroying a bipartisan compromise on regulatory relief, Republicans pushed through a House subcommittee an amendment that would exempt 83% of the industry from the Community Reinvestment Act.

The measure, adopted 11 to 8 by House Banking's financial institutions subcommittee, would exempt from the reinvestment act the 8,970 banks with less than $250 million of assets. Regulators would still examine these institutions for compliance with fair-lending laws.

The amendment was added to a broad bill that would let banks pay interest on corporate checking, authorize the Federal Reserve to pay interest on required reserves, and ease capital requirements for mortgage servicing rights. The overall bill was adopted 15 to 7.

Rep. Bill McCollum, R-Fla., sponsor of the CRA amendment, said the reinvestment requirements are unnecessary for small banks because they must serve their communities to survive.

Rep. Doug Bereuter, R-Neb., agreed. "These institutions do an extraordinary job putting money back in their communities," he said. "If they don't, they go out of business."

The amendment drew howls of protest from Democrats. "This is a poison pill," said Rep. Bruce F. Vento, D-Minn. "It will kill this bill."

"All this provision does," said Rep. Melvin Watt, D-N.C., "is turn a bipartisan bill agreed to by both sides of the aisle into a partisan battle."

An administration official declined to comment directly on the vote, but noted that the White House threatened a veto last month after Senate Republicans tried to add a similar CRA provision to the credit union bill. That effort failed on the Senate floor last week.

The bill now goes to the House Banking Committee, which is expected to vote on the measure in early September. A committee official, however, said the addition of the CRA provision may cause the committee to drop the bill but attach uncontroversial regulatory relief provisions to the pending financial reform bill.

Besides CRA, the subcommittee voted to eliminate a requirement that the Federal Deposit Insurance Corp. establish a special reserve for the Savings Association Insurance Fund. Without legislation, the FDIC on Jan. 1 would remove all funds in SAIF that exceed $1.25 in reserves for each $100 in insured deposits. The funds-expected to exceed $700 million-would be available to the FDIC only if the thrift fund fell below 62.5 cents for every $100 in insured deposits.

The subcommittee dropped several controversial amendments. One would have made it easier for directors and officers of failed banks to defend themselves against lawsuits. Another would have required banks to cap at $50 a consumer's losses from a stolen debit card if the card can be used without inputting a personal identification number.

Industry officials said they were hopeful that a regulatory relief bill could still be enacted. "There is more than enough good in this bill to drive toward a successful conclusion," said Robert R. Davis, director of government relations for America's Community Bankers.

The subcommittee spent almost no time debating the guts of the bill, which would let banks pay interest as of Oct. 1, 2001, on corporate checking. In the interim, the bill would expand sweep accounts by letting corporations make up to 24 withdrawals per month from money market deposit accounts. Currently, only six withdrawals per month are permitted.

The bill would let the Fed pay interest on required and excess reserves, though the rate could not exceed "the general level of short-term interest rates." It also would permit banks to count 100% of purchased mortgage servicing rights as capital; current law has a 90% limit.

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