Though chances of enactment this year remain slim, the historic 214-to-213 vote on financial reform legislation in the House Wednesday tees up the issue for next year.
Urgency is expected to mount as more deals to merge huge financial firms such as Citicorp and Travelers Group are announced.
"There is a tremendous pressure in all sectors of the financial services community for the Congress to speak on this important policy matter," said Rep. John A. Boehner, the House Republican leadership's point man on financial reform. "I am very hopeful they (the Senate) will move on it quickly."
However, a host of other issues-from the tobacco settlement to the government's budget-are expected to swamp the Senate's agenda this year. And the Clinton administration remains vehemently opposed to a provision requiring banks to enter new businesses through holding companies.
"You can't say it doesn't have a chance, but it is a long shot," said Samuel J. Baptista, president of the Financial Services Council. He predicted "a full-court press in the coming weeks to try and get some interest in the Senate."
Senate Banking Committee Chairman Alfonse M. D'Amato said Thursday that he has already started negotiating with Treasury Secretary Robert E. Rubin.
"The committee will move forward and hold hearings on the House-passed bill to consider its strengths and how it can be improved," Sen. D'Amato said.
Though the Clinton administration and most of the banking industry oppose the bill, the Federal Reserve Board, the Securities and Exchange Commission, and the insurance and securities industries support it. (For details of the legislation, see story on page 3.)
"It will be difficult, if not impossible, to pass a bill that does not have the support of the banking industry and the administration," said an aide to Sen. Lauch Faircloth, R-N.C.
But just getting the measure through the House-albeit by one vote-is a major milestone in the decades-long effort to repeal Depression-era laws separating the banking, insurance, and securities industries. The Senate twice has passed financial reform bills in the past decade only to see the legislation stymied in the House.
"This is a historic step on the part of the House to move this bill after 20 years of acrimony and failure," said Rep. Boehner, R-Ohio. "After nine plus failures ... a one-vote victory looks like a landslide."
Sen. D'Amato agreed, calling the House vote "a major step forward." But he noted that the bill remains highly controversial.
"Everyone agrees on the need for financial modernization," he said. "It is the specific direction and framework that is contentious."
Supporters denied Senate action this year is unlikely.
"This bill wasn't supposed to have a chance in the House either," said Annie Hall, lobbyist for Banc One Corp., one of the few banking companies to endorse the bill. "We're going to do everything we can to get this through the entire Congress this year."
"It's critical that the modernization legislation passes as soon as possible," said Steve Judge, chief lobbyist for the Securities Industry Association. "Pressure will be intensified during summer and fall."
He warned that the securities industry soon will be dominated by banks if investment firms are not permitted to acquire depository institutions.
"It's easy for naysayers to argue that Senate approval won't happen," said Gary Hughes, general counsel for the American Council of Life Insurance. "But so much work has been done it's possible the they will have time. Who in the Senate wants to stand in the way?"
Robert R. Davis, government relations director for America's Community Bankers, said bankers must remain vigilant. "The starting point is going to be where the House left off."
Only Edward L. Yingling, said chief lobbyist for the American Bankers Association, predicted the Senate will start from scratch next year. "They don't just take bills that pass by one vote and say that's what we're doing next year," he said.
This session of Congress ends in October, when lawmakers return to their districts for the fall elections. That means the House and the Senate will have to approve financial reform next year.
Key components of the legislation are expected to be preserved, particularly agreements between the House Banking and Commerce Committees over rules governing insurance and securities sales by banks. Disputes between the two panels have been a major obstacle to previous House bills.
"The turf war between the Commerce and Banking Committees has been settled," said Robert A. Rusbuldt, lobbyist for the Independent Insurance Agents of America.
"A large number of issues have been exhaustively worked out," said David J. Pratt, lobbyist for the American Insurance Association. He predicted that a fragile compromise between the securities and insurance trade groups and some big banks over the powers of state and federal regulators would survive in future bills.
One stumbling block remains: whether new activities such as insurance underwriting may be done in bank subsidiaries or should be walled off in holding company units.
The banking industry and the Clinton administration lost their fight to gain broad powers for bank subsidiaries.
An amendment sponsored by Rep. Richard H. Baker, R-La., that would have let operating subsidiaries underwrite securities was defeated 281-140.
That loss followed the 306-115 defeat of an amendment sponsored by Rep. John J. LaFalce, D-N.Y., and Rep. Bruce F. Vento, D-Minn., that would have expanded operating subsidiary powers even further.
Mr. Rubin has vowed to recommend a veto if the final version of the bill does not permit banks to enter new business through direct subsidiaries.
Whether financial holding companies should be allowed to own commercial businesses is another thorny issue.
Opponents argue that letting financial institutions own commercial businesses or conduct risky activities within the bank would spark another savings and loan or Asian crisis.
"Do not replicate the follies of Korean, Japanese, and Thai banking," said Rep. John D. Dingell, D-Mich.
But Rep. Marge Roukema, R-N.J., said those comparisons are unfair because the U.S. financial system is much better regulated. "It would establish parity among banks, insurance companies, and securities firms," said Rep. Roukema, who failed in her bid to set the cap on nonfinancial activities at between 10% and 15% of gross revenues.
On a 218-204 vote, Rep. Leach successfully spearheaded the amendment that would prohibit financial holding companies from owning any commercial businesses.
On the entire package, House Republican leaders pulled out the slimmest of wins only after Speaker Newt Gingrich resorted to arm-twisting. The Georgia Republican entered the House chamber when the vote began and with checklist in hand, and strolled up and down the aisles for at least 30 minutes lobbying reluctant Republicans.
"You could hear bones cracking in the final moments," an observer said.
When time had expired, 206 lawmakers had voted against the bill and only 190 in favor. But Republican leaders kept the tally open long enough to turn the vote in their favor, prodding the undecided and getting several congressmen to switch their votes.
Three Republicans changed their "no" votes to "yes": House Ways and Means Chairman Bill Archer of Texas and two Floridians, Dan Miller and Clifford B. Stearns.