Few bankers will look back on 1996 as a banner year on Capitol Hill. After all, that was the year lawmakers socked banks with a $12 billion tab to help shore up the thrift deposit insurance fund.

However, the thrift fund rescue cleared the way for a wide-open debate in this Congress on merging the bank and thrift industries and expanding industry powers.

House Banking Committee Chairman Jim Leach has pledged to revive his financial modernization plan, which would create one federal charter and allow banks to affiliate with other financial services firms.

But this year the Republican from Iowa will have to compete with even broader proposals expected from Senate Banking Committee Chairman Alfonse M. D'Amato and Treasury Secretary Robert E. Rubin. Both have pledged to draft legislation permitting commercial firms to own banks.

Treasury Under Secretary John D. Hawke Jr. said he sees growing acceptance for broad reform from most sectors of the financial services industry.

The dominant insurance trade groups, the American Council of Life Insurance and the Independent Insurance Agents of America, last year dropped their long-standing opposition to affiliation of banks and insurance firms, Mr. Hawke noted.

"There is a growing awareness that the market demands an end to the old artificial rules keeping people in corralled areas of business," he said. "That's not the way users of financial services are acting today, and the laws are just not meeting the needs of the marketplace."

Gary Hughes, chief counsel of the insurers group, conceded that recent court and regulatory decisions favoring banks forced his industry's hand. Last year the Supreme Court ruled that banks may sell insurance from small towns, and the Office of the Comptroller of the Currency announced it would allow banks to conduct many new activities from operating subsidiaries.

Given the new momentum, financial reform may have finally "matured," just as sweeping telecommunications legislation did in 1996, said thrift industry lobbyist Richard F. Hohlt. "Court actions, election dynamics, and capitalization of the thrift fund are all pressuring Congress to get something done."

One indication: Reelected lawmakers gave up their banking committee seats only if they landed spots on high-powered panels such as National Security. "They are staying on the Banking Committee because they think they can do something important," Mr. Hohlt said.

Still, progress could halt if the bank and insurance industries can't reach agreement on the authority of state insurance commissioners to regulate bank insurance sales.

"Banks have received so much through administrative and court actions, we worry out loud: Is there really much they (still) want?" Mr. Hughes said. "We expect banks to be fairly reluctant players if things don't go exactly the way they want."

Another possible roadblock could be disputes over letting commercial firms own banks. While most financial industry trade groups are pushing for the broader plans, some bankers, led by the Independent Bankers of Association of America, will oppose the idea.

If commercial companies are allowed to buy banks, financial services would be dominated by behemoth corporations, said Kenneth A. Guenther, IBAA executive vice president. "The question has to be asked: Why is massive centralization necessary when the Germans and Japanese are saying, 'My God, we're too concentrated'"?

Though Rep. Leach also has vowed to fight Senate Banking and the Treasury on the issue, Mr. Hawke said financial laws must be updated to keep pace with the market.

"General Electric is one of the largest financial firms in the world and engages in many aspects of banking," he said. "How can we talk about breaking down barriers and not acknowledge that there are commercial firms participating in financial services in a very big way?"

While that debate will undoubtedly dominate the House and Senate banking committees, lawmakers will tackle a host of other issues including legislation to bar ATM surcharges, reform the Federal Home Loan banks, revamp bankruptcy laws, and overhaul credit union membership rules.

As these issues move forward, bank and thrift groups appear more united than ever.

"For the first time, all segments of the banking industry have been brought together," said Robert R. Davis, director of government relations at America's Community Bankers, the thrift trade group. "By removing arguments within the industry, this sets us on course to a serious look at modernization of the banking charters."

"By and large we are glad to have (the SAIF bailout) behind us so we can get on to things in the future," said Peter L. Blocklin, a lobbyist for the American Bankers Association.

That's not to say many aren't still grumbling over the new law, which forces banks to help pay off Financing Corp. bonds used to fund the 1980s S&L bailout. Through 1999 the industry will pay $322 million of the bonds' $720 million annual cost. In 2000, banks will assume the bulk of the payments, or $608 million annually through 2017.

But Mr. Blocklin doesn't view the law as a defeat for the industry. Hard lobbying by ABA and other groups cut the industry's portion of the cleanup tab and won important regulatory relief.

"Does this add up to $12 billion? No. But if you take that aside, it was a very productive year," Mr. Blocklin said.

New securities reform, tax, and federal housing laws also provided big benefits to the industry.

Rep. Leach said the industry is beginning to recognize those improvements. "With each passing day, there appears to be greater appreciation within the financial services community for the achievement of the last Congress," he said in a speech last month.

Among the topics of pro-bank legislation passed in 1996:

Environmental liability. Lenders were freed from responsibility for environmental clean up costs on borrowers' real estate unless the banks participated in the property's management.

Fair-credit reporting. Bank holding company affiliates now are allowed to share consumer credit information.

Small-bank examinations. Healthy institutions with $250 million of assets or less must undergo regulatory examinations every 18 months rather than annually.

Fasits. Credit card debt and other nonmortgage debt may be bundled and sold as a new type of instrument called "financial asset securitization investment trusts."

Common-trust conversion. Bank customers may convert assets held in common trusts into mutual funds without paying capital gains taxes.

In addition to rescuing their insurance fund, Congress allowed thrifts to make more small-business and consumer loans. Also, lawmakers eliminated $3 billion in tax liabilities for savings associations that convert to banks.

"Last year was a watershed year," Mr. Davis at America's Community Bankers said.

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