WASHINGTON The imminent defection of Sen. James M. Jeffords from the Republican Party sent shock waves across Capitol Hill on Wednesday, and promised to upset what had been a smooth ride for banking lobbyists so far this year.
The Vermont senators switch to independent would give the Democrats a one-seat edge in the Senate. Lawmakers and industry officials said that small edge would improve the prospects of legislation on financial privacy, predatory lending, and deposit insurance reform.
The most immediate jolt would be the shift of power atop the Senate Banking Committee to consumer advocate Paul Sarbanes, D-Md., from free-market conservative Phil Gramm.
Sen. Richard C. Shelby, the second-ranking Republican on Senate Banking and a strong proponent of tightening privacy laws, said the agenda would shift to the left if the Democrats gained the majority.
If this whole shift were to occur, said Sen. Jon Corzine, the former Goldman Sachs Group co-chairman who now serves on Senate Banking, there would be a real interest in predatory lending making sure [Community Reinvestment Act] and housing issues in general would be more on the agenda.
However, the New Jersey Democrat said, a lot of what we do is nonpartisan, and we would work on that consistently.
Capitol Hill staff members were reeling from news reports about Sen. Jeffords intentions, with Democrats giddy yet cautious, and Republicans suddenly somber.
Sen. Sarbanes declined to comment except to say talk of his chairmanship was premature. The normally outspoken Sen. Gramm who just Tuesday elatedly told a group of bankers that Democrats were having a unhappy week in the fight over tax cuts and predicted partisan clashes over judgeships and other matters once President Bushs tax cut was passed was more conciliatory the next day.
Weve operated under the spirit of goodwill and cooperation in the past, and I am sure we will in the future, the Texas Republican told reporters Wednesday in response to questions about looming Democratic majority in the Senate.
House lawmakers also closely eyed the situation in their sister chamber. Rep. Richard Baker, R-La., chairman of the House Financial Services subcommittee on financial markets, said he has worked with Sen. Sarbanes in the past, and that their staffs have already met to discuss the future.
He would not talk about what effect the change of power would have on pending legislation such as his attempt to give Fannie Mae and Freddie Mac a new regulator. Sen. Sarbanes said recently that such legislation is unnecessary.
Sen. Jeffords is expected to announce today in his home state of Vermont that he will become an independent, thereby giving control of the Senate to Democrats. A spokeswoman for Minority Leader Thomas A. Daschle of South Dakota said that if that happens, all current ranking Democrats would automatically assume the chairmanships of their committees.
However, other questions, such as the proper ratios for all committees and how and when the transition would be made, were still unanswered as of Wednesday afternoon.
Eugene A. Ludwig, managing partner of Promontory Financial Group and a Comptroller of the Currency in the Clinton administration, said that President Bushs nominees for key financial positions would likely face tougher questions, specifically on topics such as the Community Reinvestment Act and predatory lending.
That could mean delays for prospective regulators, such as Texas banker Donald E. Powell, whose nomination as Federal Deposit Insurance Corp. chairman was formally sent to the Senate Tuesday.
There will be a significant change in the scrutiny of nominees, Mr. Ludwig said. Sen. Sarbanes will be quite fair and thoughtful, but at the same time he is going to have concerns in the consumer protection and community development areas that will be quite different than concerns that Sen. Gramm has.
It remains to be seen what effect the power shift would have on bankruptcy legislation, which passed both the House and the Senate this year but has been hung up in a technical debate over how many party members the Democrats can have in a conference committee.
Though some Capitol Hill sources speculated that Democrats could take back the Senate bill and reopen it for debate in the Judiciary Committee, Chairman Orrin G. Hatch of Utah said on Wednesday that is unlikely.
Indeed, sources said the party shift could help move the bill forward to a conference committee, though the end result would likely be closer to the Senate legislation, which the industry views as weaker than the House version.
I think it will make it easier to get to conference, but perhaps more difficult to get out, said Philip S. Corwin, a partner at the lobbying firm of Butera & Andrews. But if you look at the key facts 36 Senate Democrats voted for final passage, Sen. Daschle is sincerely committed to getting bankruptcy reform done and all the time we have left I have to be optimistic.
Sen. Hatch said in an interview Wednesday that the bill was still likely to pass. I think we can get the bankruptcy bill through. This makes it harder, but I think we can do it.
Government sources said they did not expect the shift to interfere with the enactment of President Bushs tax-cut package, which the Senate passed 62-to-38 on Wednesday without amending its core provisions.
Congressional leaders were scheduled Wednesday afternoon to begin negotiations to iron out the differences between the House and Senate versions of the bill. Republicans said they planned to send the measure to the White House by Friday.
Industry sources were upbeat, however, about the chances that the Senate might now at least look at deposit insurance reform, something Sen. Gramm has said his panel would probably not take up this year. But its prospects remain unclear, because Sen. Sarbanes has yet to take a public position on the issue.
Sen. Sarbanes plays things very close to the vest, said Kenneth A. Guenther, president and chief executive officer of the Independent Community Bankers of America. At least one very key member of the Democratic committee, Sen. Tim Johnson, has favored increasing deposit insurance levels Im sure that will have an impact on Sarbanes.
Overall, industry representatives and government sources agreed that the power shift would likely reinforce the stalemate that has dominated Senate activity this year.
The change is a prescription for even more gridlock, said Edward L. Yingling, chief lobbyist for the American Bankers Association. The Senate is easily gridlocked particularly when the White House is in the other hand. They were having a lot of trouble moving anything when Republicans controlled all three places. There will be even more gridlock if Democrats control one of the three.