The notion of financial reform got a bit narrower last week when the Clinton administration decided to sidestep the most controversial question: should banking companies be allowed to own nonfinancial assets.

Treasury Secretary Robert E. Rubin said Congress should make that call, announcing Wednesday: "I'm not arguing for either side."

Maybe not, but Mr. Rubin's stated neutrality had a quick impact. Federal Reserve Board Chairman Alan Greenspan on Thursday backtracked on banking and commerce.

Before the House Banking Committee, Mr. Greenspan said the Fed has been studying the kinds of combinations that could occur if cross-industry mergers were permitted.

"As we have done so, the problems exposed have led us to a more cautious position," Mr. Greenspan told lawmakers. "Any wider authorization of banking and commerce should be postponed while we focus on financial modernization."

In other words, Congress should permit affiliations among banks, securities firms, and insurance companies and see how that works before taking the next step.

We asked sources from various segments of the financial services world to make sense of last week's events and put odds on the legislation's chances of passing in 1997.

David J. Pratt, lobbyist for the American Insurance Association, predicted financial modernization has a mere 30% chance this year. But the prospects climb to 60% in 1998, he said.

In his view, opposition in the Senate will make it tough for Banking Committee Chairman Alfonse M. D'Amato to move quickly.

"There's a good chance the House will pass it in 1997, but I think Chairman Alfonse is going to wait," he said.

Sen. D'Amato faces a tough battle because Minority Leader Tom Daschle and Sen. Paul Sarbanes, the Banking Committee's top Democrat, have vowed to oppose any mixing of banking and commerce. "Given the dynamics of the Senate, they won't begin to solve this until next year," he said.

Edward L. Yingling, chief lobbyist for the American Bankers Association, is slightly more optimistic, putting odds of passage at 51%.

"The key thing is the House Banking Committee markup (in mid-June)," Mr. Yingling said. "If House Banking can produce a bill that has bipartisan support I think it would put some real momentum behind it."

Steve Judge, a Securities Industry Association lobbyist, is hopeful as well. "I think there's a 55% chance that we'll get a bill during the next two years-maybe not this year, but definitely something before Congress adjourns" in 1998, Mr. Judge said.

Over at America's Community Bankers, lobbyist Bob Davis noted: "My job is not to quote the odds, but influence the odds." Pressed for a prediction, Mr. Davis said the administration's decision to punt has made "the tough choices even tougher. The odds now appear to be less than fifty- fifty it will be enacted this year."

While he's pessimistic, too, Consumers Bankers Association president Joe Belew said, "It's important to realize just how far we've come. It's now a fundamental assumption we're going to allow (affiliation of) banking, insurance, and securities."

Jeffrey A. Tassey, lobbyist for the American Financial Services Association, gave passage of financial modernization legislation this year a grim 30% chance.

"Even that is probably generous, but I don't want to sound too pessimistic," Mr. Tassey said. "There are just too many unanswered questions: Is the industry really willing to put in a good faith effort for a bill? What kind of resources are House leaders going to devote? What kind of leadership is the Treasury going to provide?"

Allen Caskie, senior counsel to the American Council of Life Insurers, put the odds of 1997 enactment at 25% and at 50% for next year. "The bill is going to have to be broad to get the necessary support from the financial services industry," he said.

Neil Milner, president of the Conference of State Bank Supervisors, was in the same ballpark: 20% chance of passing this year; 40% in 1998.

Mary Griffin, insurance counsel at Consumers Union, agreed with those odds. "It may pass out of the House, but I don't think there is enough time for it to pass out of the Senate, which hasn't even held hearings yet."

Kenneth A. Guenther, as executive vice president of the Independent Bankers Association of America, is leading the opposition.

He gave financial reform zero chance of passing this year. "It's too controversial in the Senate," he said.

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