Frank Newman, the banker serving as Treasury undersecretary for domestic finance, still doesn't get it.

Mr. Newman remains under the impression that arguments supported by overwhelming logic will prevail inside the Beltway.

Thus, this relative newcomer to the District of Confrontation predicts that the administration's plan to consolidate four federal banking agencies into one to cut red tape and expenses for the industry will succeed.

Mr. Newman says this with a businessman's confidence in the face of attacks from the Federal Reserve that are more furious than the clawing of a 2-year-old defending a favorite toy.

Fight to the Death

The Fed is also enlisting allies. James Gilleran, chairman of the Conference of State Banking Commissioners, visted me Thursday and vowed by Spartacus-style to fight the administration proposal to the death.

Mr. Gillerman, who is California's banking commissioner, asserted, "The current Treasury proposal . . . will result in the destruction of the dual banking system."

I expect small banks represented by the Independent Bankers Association of America will join the fray on the side of the Fed as well, because they like the bedside manner of the Fed's examiners.

Mr. Newman is not cowed. He told me in the meeting that he requested to say that he's confident the plan will become law next year, because it mirrors proposals supported by House Banking Committee Chairman Henry B. Gonzalez, D-Tx.; Senate Banking Committee Chairman Donald Riegle, D-Mich.; Sen. Alfonse D'Amato, the ranking Republican on the Senate Banking Committee, and Bill Clinton.

"It's a pretty powerful combination," he said.

Mr. Clinton and Vice President Al Gore plan to speak out in favor of the plan, said Mr. Newman.

The Fed, meanwhile, has launched a public relations blitz worthy of old Ed Rollins in an all-out effort to sink the administration's plan.

The administration wants to establish a banking commission to do all the regulating that is now done by the Fed, Federal Deposit Insurance Corp., Office of the Comptroller of the Currency, and Office of Thrift Supervision.

Two-Regulator System

My sources (who are often reliable) say that the Fed envisions a system of two federal regulators. The Fed would examine state member banks and their holding companies. The banking commission would hold sway over national banks, state nonmember banks, and their holding companies. The Fed and the commission would jointly supervise the biggest banks.

I would surmise that the state-bank supervisors would go for this, because it seems to give banks a "real choice" between state and federal charters and regulatory systems, one of their big conditions for any restructuring.

Mr. Newman said the realized the Fed had some problems with the administration's plan, but was puzzled by the shrillness of its reaction.

The Real Battle

He said Treasury, before the consolidation plan was announced, had held a series of discussions with the Fed to discuss its concerns.

In the course of those talks, "We identified a number of alternatives," said Mr. Newman. "We literally had a range that went from the current structure all the way out to a consolidated regulatory structure that had very little role for the Fed," he said.

Mr. Newman said that Treasury tried to place some "genuinely good public policy provisions that we thought met the substantive concerns of the Fed."

What he failed to realize is that the real fight is over turf.

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