Setting up a political showdown with the banking industry, House Republican leaders have decided to merge the financial reform and credit union membership bills for a vote on the combined package Tuesday.

Speaker Newt Gingrich and others concluded that the credit union bill passed last Thursday by the House Banking Committee-which would allow these nonprofit institutions to serve an unlimited number of small companies- would draw votes to the controversial financial reform bill, Capitol Hill sources said.

The situation remains in flux, however, because the bills can be officially merged only during a scheduled Rules Committee hearing tonight or on the House floor Tuesday.

A Rules Committee spokesman said Friday that the panel expects to add the credit union bill to the financial reform legislation.

Also, industry lobbyists have been told by Republican leaders that they plan to link the proposals.

"All signals are that is the plan," said Edward L. Yingling, chief lobbyist for the American Bankers Association, which opposes both bills.

Passage is not assured. Democrats were rallying opposition Friday. They have complained that they were excluded from drafting the reform bill, which would let the banking, insurance, and securities industries merge.

Rep. John J. LaFalce, the House Banking panel's ranking Democrat, said Republican leaders would be "making a big mistake" to combine the bills. Rep. LaFalce said that unless Republicans back down, his party would bog down all legislation on the floor next week.

The Democrats, however, may not be unified. A spokesman for Rep. John D. Dingell, D-Mich., the influential ranking minority member of the House Commerce Committee, said he would support the bill if his consumer protection amendments were added. Those amendments would extend investor protection rules to trustee services and stock purchase plans managed by banks and require regulators to study the need for improved fee disclosures.

House Republican leaders want to complete credit union and financial reform legislation by Thursday, the start of a two-week congressional recess.

The banking industry is expected to kick its opposition into high gear over the next two days.

The ABA plans to fly 40 bankers and state banking trade group executives in tonight for a lobbying blitz. Bankers are also being asked to call their Washington representatives to complain about both bills, Mr. Yingling said.

A group of 44 state banking associations sent a letter Thursday to House Speaker Gingrich strongly opposing the financial reform bill because it would gut bank operating subsidiaries, curtail national bank sales of title insurance, and give insurance and securities regulators more authority to oversee banks.

The final shape of the financial reform section of the combined bill is in doubt. The Rules Committee has received 40 proposed amendments from lawmakers that could reshape that part of the legislation.

Several amendments are aimed at deflating thrift industry opposition. Rep. LaFalce and others have proposed striking the entire section of the bill that would curb the thrift charter and ban new unitary thrift holding companies.

Rep. LaFalce and Rep. Bruce Vento, D-Minn., would restore more powers to bank operating subsidiaries but still bar them from insurance underwriting, merchant banking, and real estate development. Rep. LaFalce also wants to preserve the legal precedent that requires judges to defer to federal banking regulators in clashes with state officials.

Meanwhile, Rep. David T. Dreier, R-Calif., vice chairman of the Rules Committee, and other Republicans want to substitute a scaled-down bill that removes the legal barriers between commercial and investment banking and lets all types of financial service organizations affiliate with each other.

The credit union bill passed the House Banking Committee last week under the watchful eye of Rep. Gingrich and other Republican leaders. They had warned lawmakers not to tamper with a fragile bipartisan compromise agreed to earlier in the week.

The credit union bill would overturn the Supreme Court's AT&T Family Federal Credit Union ruling by letting occupation-based credit unions expand beyond a single, common bond. But the bill bars them from adding companies with more than 3,000 employees. The limitation could be waived to prevent insolvencies.

Credit unions could continue serving existing members and add members from groups they already serve.

As an enticement to banks, the Federal Reserve Board would pay interest on required reserves.

The National Credit Union Administration would have to create community reinvestment rules and compliance requirements for credit unions to serve moderate- and low-income people within their fields of membership.

The NCUA would also have to develop new capital requirements, implement a prompt-corrective-action doctrine, and impose other bank-like regulations.

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