Comment: Partisanship Imperils Financial Reform

Article excerpt

It took Congress more than a month after the House passed HR 10 to organize itself -- if that's the word -- for the conference committee deliberations on financial modernization.

An initial meeting took place Aug. 3 at which the 62 conferees dealt with the tough questions: where will all the members sit, whose paper will be the basis for discussion, and similar matters.

It may take a while before this conference holds a roll call vote on when to return from a lunch break, as was required in a memorable banking conference a few years ago. Still, hopes for a speedy conclusion are slim, given the unwieldy number of conferees and the complexity of the process.

Process is perhaps the first of the financial modernization bill's problems. S 900 -- as the legislation is now numbered -- also faces policy and political problems. Though bills confronting similarly stiff odds have surmounted them in the past, optimism about this one must be tempered by careful consideration of the hurdles it must clear on its way into the legal code.

When the 62 conferees finally agree on the shape of their table, they will sit down to hammer out an agreement on legislation that weighs in at 400 or so pages. Though the House and Senate bills are about the same length, they differ dramatically on issues big and small.

The hard bargaining on relatively minor provisions will generally be left to staff members, though individual legislators will certainly work on issues of particular personal, political, or constituent interest. The biggest differences between the two bills will, however, have to be handled by the conference itself.

First, who is in charge?

Financial modernization legislation did not fail in the past because Congresses were too idle to get around to passing it. The issues involved are genuinely intractable, raising tough problems of structure and control over the reformed industry.

If earlier Congresses could have settled the dispute between the Treasury Department and the Federal Reserve over whether new activities should be in operating subsidiaries or holding company affiliates, they would have. The current Congress has come closest to an accord because the Treasury has compromised its position more than ever before. The Fed and the Treasury are still far apart, however, on what structure financial holding companies should take. The conference lineup seems sure to favor the Fed, setting the stage either for capitulation by the Treasury or a veto by President Clinton.

Last year Sen. Phil Gramm, now Senate Banking's chairman, threw himself bodily before a financial modernization bill that then seemed to have good prospects for passage. At the time he unequivocally stated his strong opposition to language requiring financial holding company bank affiliates to have "satisfactory" or better Community Reinvestment Act ratings or face divestiture.

That same language is in this year's House bill, and Sen. Gramm remains as opposed to it as ever. He has also added several other CRA-related provisos to S 900, including a small-bank exception, that are anathema to CRA fans. …