Senate Banking Committee Chairman Alfonse M. D'Amato said Wednesday that he wants to enact financial reform this year, and he urged Federal Reserve Board Chairman Alan Greenspan and Treasury Secretary Robert E. Rubin to settle their differences.
"It is really unacceptable to think that two of the world's premier experts in this area cannot come together and forge a compromise based upon what is best for the economic health of this nation," Sen. D'Amato, R-N.Y., said at the committee's initial hearing on the controversial bill.
Seizing the offensive, Mr. Greenspan said the time to act is now because a consensus on legislation to eliminate the legal barriers between banks, insurance, and securities firms has never been so close. Without modernization, he said, "the financial clout of the United States is going to gradually erode."
Sen. D'Amato agreed, noting the "historic" 214-to-213 House vote last month for a sweeping financial reform bill. The Senate must try to enact a bill this year despite heavy opposition from the Treasury and bankers. "It is not going to be any easier next year," the New York Republican said.
But Mr. Rubin warned lawmakers against rushing, saying no crisis exists that demands action this year. "We should work to develop broad-based support for what is, in effect, the regulatory constitution of the financial services industry for many years to come," he said.
Sen. D'Amato leaned on Mr. Rubin to negotiate. "The administration has an obligation to come forward in a constructive way to bridge those differences," Sen. D'Amato said.
Eventually, both Mr. Rubin and Mr. Greenspan agreed to consider a plan under which the Fed and Treasury would share some oversight and information. "I don't think there is any reason we should have sole authority," Mr. Greenspan said. However, no details were agreed upon.
Democrats and Republicans on the committee agreed legislation should be enacted quickly, pointing to the megamerger frenzy and the threat of international competition to U.S. financial institutions.
But they admitted the dwindling number of workdays before adjournment in October and the policy impasse between the Fed and Treasury is a significant barrier. "It would be optimistic of us to suggest we can get this done," said Sen. Christopher Dodd, D-Conn., but "we have to try."
Treasury opposes the bill primarily because it would force banks to enter new businesses through holding company units instead of bank operating subsidiaries. Mr. Rubin said banks ought to be able to conduct all financial activities in an operating subsidiary including insurance and securities underwriting.
The Fed supports the bill because permitting riskier financial activities inside the bank would jeopardize the deposit insurance fund, Mr. Greenspan said.
And, even though Mr. Rubin proposed numerous protections to guarantee the safety of operating subsidiaries, Mr. Greenspan said bank operating units have a competitive advantage over nonbanks because the federal safety net lowers their capital costs.
The question is largely a matter of turf: Treasury regulates national banks through the Office of the Comptroller of the Currency while the Fed oversees bank holding companies.
At one point, the regulators engaged in a nearly 30-minute debate on bank structures and subsidies without any questions from committee members.
During a tense moment in the exchange, Mr. Greenspan brushed aside Mr. Rubin's argument that the private sector should decide whether to use operating subsidiaries or holding company structures. "The issue of choice is a phony issue," Mr. Greenspan said, explaining that executives would always select the operating subsidiary because it is federally subsidized.
Committee hearings on the bill are scheduled to continue Thursday with testimony from 10 executives and trade group leaders including Norwest Corp. chairman Richard M. Kovacevich and John Heimann, chairman, global financial institutions, Merrill Lynch & Co.