Despite lawmakers' promises, it may be impossible to revive the financial reform bill that nearly passed the House this year.

By the time Congress reconvenes Jan. 27, very different legislation may be needed.

"The market is going to change dramatically while we are out," said Rep. Richard Baker, R-La. "I want to start over with a fresh look, and I don't feel bound by the negotiations of recent weeks."

"Mergers and innovative regulatory decisions will make the pending bills seem very distant from reality," agreed Karen Shaw Petrou, president of ISD/Shaw Inc. "That will make it very hard for lawmakers to pick up where they left off."

Over the next few months, action by Congress could become less important as regulators let banks enter new businesses and allow large insurance and securities firms to charter federal thrifts.

First in a recent wave of insurance companies seeking thrift charters, Principal Group got the nod from Office of Thrift Supervision late Friday. Travelers Group is expected to get its thrift charter as early as this week.

Meanwhile the Office of the Comptroller of the Currency is mulling requests from NationsBank Corp. and Zions Bancorp., Salt Lake City, to develop real estate and underwrite municipal revenue bonds in direct subsidiaries. The legislation under consideration in the House would have required new businesses to be housed in holding company units.

"Most of the applications pending are going to create a market that is more intertwined and convoluted," Rep. Baker said.

A Supreme Court decision on federal credit union membership, which could occur as early as Nov. 20, also could complicate efforts to pass legislation.

If the court prohibits occupation-based credit unions from accepting members from more than one company, Congress could include a remedy in financial modernization legislation-a move sure to fuel opposition from banks.

"We would be obligated to provide them (credit unions) with relief," said Rep. Bruce Vento, D-Minn. "Just as banks need modernization, credit unions can't be held to outdated membership rules."

Finally, the chance that this year's work can be resuscitated is also hurt by way talks between the Banking and Commerce committees broke down. Hard feelings among senior lawmakers and their staffs may make them reluctant to resume negotiations.

Financial reform passed House Banking on June 20. House Commerce adopted another version of the bill on Oct. 30. While House leaders pressed the two committees to come up with a consensus bill, no middle ground could be found on bank operating subsidiaries, holding company regulation, or restrictions on banks' securities and insurance operations.

Fed up, lawmakers are already floating new plans.

Rep. David Dreier, a member of the powerful Rules Committee, has introduced a bare-bones modernization bill that would allow banks to affiliate with securities and insurance firms.

Unlike the massive Banking and Commerce committee proposals, Rep. Dreier's four-page plan does not spell out how bank insurance and securities businesses would be regulated. It includes no holding company rules or consumer protections.

"We can accomplish key objectives without saddling already highly regulated companies with new and costly layers of regulation which could seriously undermine their ability to create innovative products and services," he said in a Nov. 8 written statement.

A staff member for Rep. Dreier conceded that the plan faces long odds, but said the California Republican wants "fresh ideas" brought into the debate.

Treasury Under Secretary John D. Hawke Jr. dismissed the idea. "If there was a simple way to do this, people would have found it already," he said.

Further progress, Mr. Hawke said, depends on the House Republican leadership's willingness to force the Banking and Commerce committees to end their bickering. "You can't expect different industry segments to work out their disputes if the two congressional committees can't settle theirs," he said.

But Banking Committee leaders are miffed that their Commerce Committee counterparts did not show up for a scheduled Nov. 8 meeting with Rep. John Boehner, who heads the GOP working group on financial reform.

Because lawmakers expected to adjourn the next day (Congress actually ended the 1997 session on Nov. 13), Rep. Boehner decided there was not enough time to reschedule, and delayed further negotiations until next year.

Since the talks collapsed, staff members for both panels have given conflicting accounts of the botched meeting. Rep. Jim Leach, according to staff members, suspects Commerce Committee Chairman Thomas Bliley of delaying talks in hopes that Banking Committee members would be so desperate for legislation that they would accept the Commerce plan.

Commerce Committee staff members deny any such scheme. Instead, they claim that last-minute battles over trade legislation and spending bills forced Rep. Bliley and Rep. Michael Oxley, a Commerce subcommittee chairman, to back out of the meeting at the last minute.

In an interview Monday, Rep. Leach dismissed any suggestions that current proposals cannot pass the House, and he said he expects negotiations to resume soon after Congress reconvenes. "I doubt there will be much change in the situation before the new year," he said.

He rejected arguments that regulators will render current proposals obsolete by expanding bank powers. The industry will warm up to current plans as financial giants open thrifts, he said.

"Up to this time banks found that regulators have been making decisions entirely in their direction," he said. "But as time goes on, banks will find the regulatory environment has changed."

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