As the Senate prepared to debate financial reform, Sen. Richard C. Shelby said Friday that he is crafting a bipartisan compromise on new powers for bank subsidiaries.

The Alabama Republican said he is working with Treasury Department officials, Senate Banking's ranking Democrat Paul S. Sarbanes, and Treasury ally Sen. Jack Reed, D-R.I., to resolve one of the bill's key sticking points.

"I am committed to offering an operating subsidiary amendment on the floor," Sen. Shelby said in a statement, but he gave no details.

Sources said the plan, which mimics the House Banking Committee bill, would permit banks to underwrite securities and conduct merchant banking through direct operating subsidiaries. Insurance underwriting, real estate development, and other new powers would be confined to holding company affiliates.

Reportedly, Banking Committee Chairman Phil Gramm told lobbyists late Thursday that he would withdraw the legislation if its stricter limits on bank subsidiaries are eased. However, the Texas Republican's office denied he made that comment. Sen. Gramm did offer to compromise on another key dispute: the bill's Community Reinvestment Act provisions. In a statement, Sen. Gramm said he would consider making it easier for community groups to challenge a bank's merger on CRA grounds.

He also suggested that banks be required to disclose details of any CRA agreements with community groups.

Democrats dismissed the offer as insufficient and are planning a slew of amendments. They are expected to try and remove the bill's CRA exemption for small, rural banks and its protections for banks from CRA protests. Democrats also want to add a requirement that banks merging with securities or insurance firms have and maintain "satisfactory" or better CRA ratings. Finally, Democrats are expected to try and prevent commercial firms from purchasing existing unitary thrifts.

Majority Leader Trent Lott planned to start work on the bill Monday, but debate on the Kosovo crisis and other issues could prevent a final vote this week.

Compounding the uncertainty, Senate leaders have not agreed on procedural issues such as how long to debate the bill. Meanwhile, banks, insurance commissioners, and community groups have all scheduled lobbying blitzes on the bill for early this week.

The American Bankers Association is flying in 120 bankers and state trade group executives on Tuesday and Wednesday to urge lawmakers to approve the bill. But the National Association for the Advancement of Colored People and other civil rights groups will hold a press conference Tuesday attacking the bill, as will the National Association of Insurance Commissioners.

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