WASHINGTON -- The Senate Banking Committee by a narrow 12-9 vote Friday approved sweeping bank reform legislation that would shatter the 1933 Glass-Stegall Act by allowing banks and securities firms to affiliate.

The panel, which had moved slowly Wednesday and Thursday, picked up its pace Friday in an attempt to finish work on the bill before the Senate adjourned for a monthlong recess at the end of the day.

The committee, on a close 11-10 vote, rejected an attempt by Sen. Richard Bryan, D-Nev., that would have erected tough "firewalls" between banks and their securities affiliates.

The Bryan amendment, which would have imposed stringent limits on bank lending to securities affiliates, was beaten back by senators who argued the provision would have reduced the viability and workability of new bank securities activities, such as municipal revenue bond underwriting.

But the committee did approve a Bryan amendment that would nullify a recent Supreme Court decision that threatened to harm defrauded bond investors. The amendment would provide investors with the ability to file suits in bond fraud cases up to three years after discovery of the alleged fraud and no more than five years after the alleged fraud was committed. The Supreme Court had limited the statute of limitations to one year after discovery and no more than three years from the time of the alleged fraud.

The committee also approved an amendment by Sen. Nancy Kassebaum, R-Kan., that would allow the creation of "wholesale banks," Wholesale banks, which do not accept retail deposits, would not be covered by federal deposit insurance and could freely affiliate with securities firms.

Also approved on was an amendment that would allow securities firms to access the Federal Reserve Board's discount window in times of national economic stress.

In addition, the panel reversed an action it took late Thursday, when it voted Friday to allow the Fed to continue making fully collateralized discount window loans. Under this compromise brokered by Sen. Phil Gramm. R-Tex., the Fed would have to reimburse the Federal Deposit Insurance Corp. if it lends to banks that fail and those loans inadvertently lead to higher resolution costs.

But the Fed's liability would be limited to any profits it may have made on the collateralized loans.

On Thursday, the panel had voted to require the Fed to issue only uncollateralized loans to significantly undercapitalizing banks. The rationale was to make the Fed, and not the FDIC, absorb the costs of bank failures.

But Sen. Gramm said Thursday's action would result in a taxpayer loss, not a Fed loss, because any profits the Fed makes are turned over to the Treasury Department.

In other action Friday, the committee by voice vote approved an amendment offered by Sen. Alfonse D'Amato, R-N.Y., that would limit -- but not prohibit outright -- the use of brokered funds by the best-run banks, as determined by federal regulators.

Under this plan, well-managed banks would be allowed to solicit brokered deposits unless they propose interest rates that significantly exceed the national average.

The committee also approved another D'Amato amendment that could place bondholders and shareholders of failed banks at the back of the creditor line in lawsuits aimed at directors and officers of the failed institutions. The provision would give federal regulators priority in claim against the officers and directors.

Sen. D'Amato said the provision could save taxpayers $100 million by ensuring the judgments are paid to the Federal Deposit Insurance Corp. instead of to private investors.

The committee also:

* Approved provisions that would require deposits with an excess of $100,000 in a failed bank to take a "haircut," bu limiting their recovery to no more than 90% of the money in excess of the insured limit; and

* Defeated, on a 14-7 vote, an attempt to strip the comprehensive package of consumer-related provisions.

As Friday's session began, committee Chairman Donald W. Riegle, D-Mich., reiterated his desire to finish work on the that day, rather than wait until the Senate returns to work in September. Sen. Riegle has stressed that the committee has full plate of issues facing it upon its return in September, and has repeatedly said the panel has an obligation to replenish the Bank Insurance Fund before the end of September. Government officials estimate the fund will go broke by the end of the year.

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