WASHINGTON -- As the Senate Banking Committee picked up the pace to complete action on bank reform legislation Friday, it still managed to squeeze in a provision designed to throw a lifeline to bond investors harmed by a recent Supreme Court ruling.
But the measure, which would overturn a recent Supreme Court ruling that slashed the amount of time investors have to file fraud suits, may be delayed indefinitely. The sweeping bank reform package it is attached to faces an uphill climb on Capitol Hill.
Just before passing the overall bill on a narrow 12-to-9 vote, the panel approved by voice vote an amendment offered by Sen. Richard Bryan, D-Nev., that would nullify the Supreme Court's ruling in Lampf Pleva Lipkind Prupis & Petigrow v. Gilbertson.
Under the Bryan amendment, investors would be able to sue under the Securities and Exchange Commission's Rule 10b-5 for up to two years after learning of possible bond fraud, as long as that discovery came within five years of the violation.
The high court in Lampf Pleva shortened the statute of limitations for filing private actions to one year from discovery of fraud -- so long as it is not more than three years after the violation.
Previously, investors had made use of more liberal state limitations, many of which allowed investors up to six years to file suits after discovering possible fraud in bond deals.
Sen. Bryan said the amendment was necessary because fraud cases were being dismissed throughout the country as a result of the Supreme Court's ruling. His amendment would reinstate the cases that have been dismissed.
"This is an urgent matter," he told colleagues.
But Sen. Jake Garn, R-Utah, said even though he had "no problem" with the amendment, the bank reform package may not be the most "appropriate" vehicle for the measure. He noted that if the Lampf Pleva situation is truly urgent, then another piece of legislation may prove better because of the bank bill's uncertain future.
The controversial legislation includes provisions that would repeal the Glass-Steagall Act of 1933, which separates investment and commercial banking, as well as usher in a host of regulatory and deposit insurance reforms.
The House version of the bill, approved by the House Banking Committee in late June, also would allow commercial firms, such as manufacturers, to own banks. But it does not include a provision similar to the Bryan amendment.
The bill currently is being reviewed by four House committees, including the House Energy and Commerce Committee, which traditionally has been hostile to proposals to tinker with Glass-Steagall or the ban on mixing banking and commerce.
The house committees have until the end of September to vote on the bills and amend them, which means the legislation will not be cleared for floor action at least until October.
In the Senate, the narrowness of the banking committee vote suggests the bill will face a tough time on the Senate floor, where members will attempt to put more stringent safeguards in place to protect insured commercial banks from the risks of the securities business.
Bank lobbyists said that despite the roadblocks, the measure still could be approved this year because of the pressing needs facing the Bank Insurance Fund. The legislation would provide up to $70 billion to the fund, which government analysts have said will be broke by the year's end.
However, the Resolution Trust Corp. -- which is in the process of closing insolvent savings and loans -- will need about $80 billion this fall, a request that may persuade lawmakers against moving rapidly on legislation that would allow banks into new fields. Some analysts believe the thrift industry collapsed because of deregulation.