THEY’RE THE UNDEAD OF D.C.: BANK REFORM BILLS TAKE A LICKIN’, KEEP ON TICKIN’

It’s the bill that just won’t die. Despite a Perils of Pauline-like series of threats from banking, insurance and securities interests, legislation to modernize the nation’s financial services industry — 20-plus years in the making –just keeps plugging along.

Yet even with a strong bipartisan vote for a financial services deregulation bill by the Senate Banking Committee Sept. 11, there are plenty of dangers.

With President Clinton’s scandals and Congress rushing toward adjournment next month so that members can attend to election campaigns, the obstacles appear overwhelming against enactment of the Financial Services Act of 1998, which would repeal Depression-era laws that separate banking from other businesses. Indeed, it may be difficult just getting a vote on the bill on the Senate floor.

Senate Majority Leader Trent Lott, R-Miss., said last week that the bill could come up for a vote this week, but under Senate rules, any member can block consideration. Several senators are rumored to be threatening to do just that, although no one contacted would admit to planning to do so.

even more megamergers

Sens. Phil Gramm, R-Texas, and Richard Shelby, R-Ala., strongly oppose the legislation because it would, for the first time, subject financial institutions that don’t benefit from federal deposit insurance to the requirements of the Community Reinvestment Act, a law requiring banks to serve low-income people and minorities in their communities.

Sens. Paul Wellstone, D-Minn., Russ Feingold, D-Wisc., and Byron Dorgan, D-N.D., also want to look closely at the legislation. They penned a letter last summer attacking it as a vehicle that could spur even more of the financial services megamergers that continue to take place.

The senatorial delegation from Washington state, Republican Slade Gorton and Democrat Patty Murray, as well as the two Democrats from Hawaii, Daniel Inouye and Daniel Akaka, reportedly are upset over provisions in the bill that would prevent unitary thrift holding companies (a non-bank that can offer a range of bank-like services) from being sold to non-financial businesses. Not surprisingly, the nation’s largest unitary thrift is Seattle’s Washington Mutual Inc., while Hawaiian Electric Industries Inc. has been eying the non-bank bank business.

Then there’s the insurance industry, which has blocked banking deregulation in the past and appears to be on the warpath again.

Three associations representing agents sent Sen. Lott a letter last week opposing the bill on the grounds that it would pre-empt state regulators from overseeing insurance operations conducted by banks.

The American Council of Life Insurance, which represents underwriters, also is weighing in. Driven by Metropolitan Life Insurance Co. and New York Life Insurance Co., the council is threatening to withhold support for the bill unless a favored provision struck from the Senate version is restored (see related story).

And then there’s Bill Clinton. Even assuming a compromise version of a Senate bill can be hammered out with the House — which passed its own bill by a one-vote margin last May — impeachment proceedings could consume Congress in the coming weeks.

For its part, the administration has threatened to veto the bill because it would give the Federal Reserve Board greater oversight of the new financial services institutions, shifting it away from the Treasury Department.

Nevertheless, veteran lobbyists say they’re hopeful.

“This bill has been pronounced dead several times and it always rises up stronger than before,” says Steve Judge, senior vice president of government affairs for the Securities Industry Association, which has made the legislation its primary goal for the rest of the legislative year.

“The fact that it received such a large bipartisan vote in the committee demonstrates that there’s general recognition in the committee and in the Senate that such legislation is needed,” Mr. Judge says.

and about monica…

There are two schools of thought on whether the president’s troubles with special prosecutor Kenneth Starr will overwhelm Congress.

“One is that the government will be so consumed with the Starr report and subsequent activities that they will be able to do nothing else,” Mr. Judge explains.

Still, he holds to the other theory: “That Congress will spend considerable time and energy on the Starr report, but Congress still has to demonstrate that it is not paralyzed by it. This is probably the premier piece of economic legislation before the Congress.”

The differences between the House bill and the Senate committee version probably would not be overly difficult to work out in less scandal-obsessed times. Indeed, most key differences are not major:

* The Senate committee struck insurer-friendly provisions in the House bill requiring banks to conduct insurance and banking operations in separate facilities, along with House requirements that banks would have to buy existing insurance companies to get into that business. It also limits the areas where states can govern insurance sales by banks.

* The Senate version strips many of the Securities and Exchange Commission’s powers over regulating sales of financial products by banks and gives many of those powers to banking regulators.

* The Senate committee removed a requirement that banks offer low-cost “lifeline” checking accounts to low-income customers, a concession to banks. Also dropped was a House provision requiring that bank holding companies be broken up if their Community Reinvestment Act rating was less than satisfactory. Under the Senate committee bill, CRA requirements would be applied only to banking operations that are affiliated with insured banks.

* In a concession to insurance companies, the Senate bill makes it easier for them to apply to operate the unitary thrift holding companies that allow them to sell bank-like services.

Several lobbyists believe the Treasury and the Fed can work out their differences over the issue of who regulates banks’ new financial activities. Under both the House and Senate versions, the Fed would gain much of that power now exercised by the Treasury’s Office of the Comptroller of the Currency.

advise and consent

One solution, suggests Joel Wood of the Council of Insurance Agents and Brokers, would be to give the Treasury Department adviser-like recommendation power when the Fed considers financial mergers involving banks. A similar move with the Justice Department and the Federal Communications Commission helped end a bureaucratic turf war over telecom deregulation.

Others believe the antagonistic position staked out by the insurance agents is primarily a bargaining tactic to elicit more concessions in a conference committee between House and Senate members.

Whatever the case, supporters are maintaining their optimistic stance.

“It’s gathering a little momentum here,” says Larry LaRocco, managing director of the American Bankers Association’s securities unit. “The news that (Senate leadership is) looking at floor time for this is very encouraging.”

In addition, House Republican leaders badly want the bill passed, says Kenneth Guenther, executive vice president of the Independent Bankers Association of America, which supports the bill. “They thought it was a feather in their cap and consistent with Republican principles; it moves the world toward much more of a free market.”

Others pushing for the bill include Citicorp and Travelers Corp., which need the legislation to merge, and Alan Greenspan. The Fed chairman, according to Mr. Guenther, has been watching his agency lose regulatory ground over banks to the Comptroller’s office, which has been using its rule-making powers to allow banks greater freedom to enter the securities business.

But the biggest obstacle is time. The Senate is scheduled to adjourn Oct. 9 for the election campaign. As the insurance agents Mr. Wood observes: “It’s always easier to beat something than to pass it.”