Voters May Punish Democrats for Strangling Reform

Mr. Ashley, president of the Association of Bank Holding Companies, recently provided a commentary to its members on legislative developments in Washington. This is an edited version.

Complex political cross-currents have influenced the way Congress handled the administration's comprehensive banking reform package.

Protected financial intermediaries have been pitted against companies mired in product and geographic restrictions, small banks against their larger brethren, federal against state regulators, and federal against federal.

And always, of course, there has been the turf politics that marks the congressional committee system.

Political Limelight

Bank reform is in a position to become a high-profile public issue - for the first time since the 1930s - in next year's congressional and presidential elections.

My reasoning is simply this:

* The making of bank legislation, as of sausage, is an unseemly process, of interest mainly to those who are paid for their efforts. The average voter - or congressman, for that matter - does not really understand or care a lot about the intricacies of financial institution regulation.

* In the wake of the thrift disaster, however, and with the economy under stress, legislators and voters care a great deal about having a banking system that can assure deposit safety without taxpayer risk and can also provide a sufficient supply of credit to get the economy back on track.

A Program Destroyed

After the administration's broad-gauged reform package was proposed, in February, and substantially approved by the House Banking Committee, powerful special interests took control of the legislative process.

With the support of key Democratic committee chairmen in the House and Senate, reforms proposed by the White House were rejected in favor of new regulatory restrictions to protect the securities and insurance industries from bank competition.

The White House, though it cannot force Congress to accept structural reform based on a competitive marketplace, can reject Congress' protectionist alternative.

A Plus for the GOP

Furthermore, President Bush can use the "bully pulpit" of the presidency to take his case for reform to the American people.

At a time when the entire world is accepting the need for marketplace discipline, bank reform is a tailor-made issue for the President and Republicans in Congress.

Republicans will be able to argue that Democrats, in rejecting reforms, bowed to special interests and stood in the way of a return to a healthy economy.

There is an old saying that good policy makes good politics, and vice versa. If they aren't careful, Democrats on Capitol Hill may prove that bad policy can be good politics - for Republicans.

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