The Senate started debating financial reform Tuesday, and early indications are that the legislation will be approved as early as Thursday.

The vote is expected to follow party lines, with the Republican majority defeating the bill's Democratic opponents.

Banking Committee Chairman Phil Gramm and Sen. Paul S. Sarbanes, the panel's ranking Democrat, staked out their opposing positions on powers for bank operating subsidiaries and community reinvestment requirements.

The Clinton administration renewed its threat to veto unless Sen. Gramm agrees to toughen community reinvestment requirements on financial conglomerates, abandon proposed rollbacks of the Community Reinvestment Act - such as an exemption for small banks - and let banks conduct broad powers through direct subsidiaries.

The White House also demanded more consumer protections and tougher limits on the Federal Home Loan Bank System.

"Because of crucial flaws in the bill, the President has stated that if the bill were presented to him in its current form, he would veto it," an administration statement released late Monday said.

In an open letter to senators, Minority Leader Thomas A. Daschle and all nine Democrats on Senate Banking brandished the veto threat in calling for a pro-CRA amendment.

"Failure to proceed on a bipartisan basis will, at best, result in a veto and waste the Senate's time," the letter said.

But Sen. Gramm dug in. He accused President Clinton of expanding his list of demands, and questioned the Administration's interest in any legislation. "It is better to have no bill than a bad bill," Sen. Gramm said.

Sen. Gramm said that, if necessary, he would push the bill through by a slim majority and seek a compromise when the House and Senate versions are blended in a conference committee.

Speaking to reporters, Sen. Gramm said he would not back down on CRA and would withdraw the legislation if the provision limiting bank subsidiary powers are changed.

Votes on amendments were expected to be postponed until today, because four Republican senators from Oklahoma and Kansas were absent because of the tornado disaster in their states.

Despite the clashes, efforts at bipartisan compromise were being made behind the scenes.

Republican Sen. Richard C. Shelby and Democratic Sens. Daschle and Jack Reed plan to introduce an amendment as early as today on bank powers. Modeled on the House version of the legislation, it would let national banks underwrite securities and conduct merchant banking through direct subsidiaries, but prohibit underwriting insurance or developing real estate through them.

Observers said Sen. Gramm opposes the move because it could be used as a bargaining chip when he starts negotiating in the House. But the Texas Republican insisted he objects because Federal Reserve Board Chairman Alan Greenspan opposes new powers in bank subsidiaries.

"He is going to oppose this bill outright, and the bill will die in the Senate if we lose this vote," Sen. Gramm told reporters. Another deal could be reached in conference committee, he said, but "the concerns of Greenspan have got to be dealt with."

Mr. Greenspan met with Senate Republicans during lunch at the Capitol while Treasury Secretary Robert E. Rubin lobbied for the bank subsidiary in a separate lunch with Democrats.

Meanwhile, Sen. Gramm said he was working with Sen. Sarbanes to develop a catch-all amendment that would solve some of their differences on less controversial issues. For instance, he said, he would seek to include privacy protections favored by Sen. Sarbanes as a "good-will gesture."

Sen. Gramm might also agree to strike a measure requiring thrifts to pay higher government assessments than banks for paying off interest on Financing Corp. bonds that paid for the thrift bailout.

After failures last week, party leaders late Monday reached a procedural agreement designed to guarantee that the bill will not get bogged down by a filibuster or irrelevant amendments.

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