Gramm, Shelby delay D'Amato banking proposal

0 Comments | Insight on the News, Sept 28, 1998 | by James P. Lucier, | Eli Lehrer

The long-awaited banking-reform bill virtually collapsed in the Senate Banking Committee just before the congressional Labor Day recess. Chairman Alfonse D'Amato of New York announced that the "markup," or final agreement on the text of the bill, would be postponed for two weeks, but experts tell news alert! the bill is dead.

"We have not been able to resolve all of the differences," D'Amato said, but "we hope this can be done."

"I thought there was a reasonable chance of getting it out of committee," Bert Ely, a financial-services consultant in Alexandria, Va., told news alert/ "But now I think this delay is fatal. The bill is hung up on one issue which could force the bill to go to conference [between the House and Senate]. But it is an issue that the opposing factions say can't be compromised."

The proposed Financial Services Act, known as HR10, would have brought the most significant changes to the nation's financial institutions since the depression-era Glass Steagall and Bank Holding Company acts. For the first time in 60 years, banks would be able to get into businesses such as securities brokering and insurance. The recent mergers of financial institutions such as Citicorp and Travelers Group Inc. (worth $697.5 million) and Nationsbank/Bank of America (worth $524.7 million) are reflections of the way the financial markets have changed in 60 years.

A controversial balance of competing interest groups, HR10 passed the House of Representatives by one vote last May. D'Amato, whose constituency includes the banking center of the United States, believed he had the votes to ease the bill through committee in time to get it to the floor for passage this year. But up stepped Republican Sen. Phil Gramm of Texas, with the support of Republican Sen. Richard C. Shelby of Alabama, who announced their intention to offer an amendment to remove provisions broadening the Community Reinvestment Act, or CRA. One of the most controversial aspects of the bill, CRA requires banks to set aside funds specifically for investment in depressed neighborhoods. Although a weaker version of CRA already exists with regard to federally insured banks, the new provision would extend them for the first time to nonfederally insured institutions.

The Gramm threat was a real one. Earlier this year he offered a similar amendment to the Credit Union Act and succeeded in knocking out the CRA provisions for credit unions. Hill sources tell news alert! that Gramm has the support of all Republicans on the committee except D'Amato. That's why D'Amato postponed the mark-up.

Larry Neal, press secretary to Gramm, tells news alert!, "Gramm favors the underlying bill as much as he is opposed to the CRA provisions. They allow the proponents to accomplish some social engineering by using money other than public funds to do things they could never get through Congress. The odds are in our favor, because the logic is in our favor."