A Banking-Reform Law, at Long Last?
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Fed Chairman Alan Greenspan and Treasury Secretary Lawrence H. Summers have broken a major logjam holding up an overhaul of U.S. financial services. The result: After 25 years of trying, Congress will likely enact banking-reform legislation this year. Late on Oct. 13, the Federal Reserve and Treasury chiefs cut a deal on how banks involved in the securities, insurance, and real-estate businesses will be regulated. That cleared the biggest hurdle facing House and Senate negotiators, who are determined to settle their remaining differences and push the bill forward. If they finish by Oct. 15, as expected, final passage and President Clinton’s signature are almost certain in November. The breakthrough: Summers and Greenspan agreed to let banks run their securities business — underwriting stocks and bonds for companies — out of bank subsidiaries. Treasury wanted to empower these “operating subsidiaries,” which would be regulated by Summers’ department. The Fed had insisted that investment banking be kept separate from commercial banking — operating as affiliated companies under the umbrella of a holding company, which the Fed would regulate. But while the Treasury won the turf fight, the Fed managed to plant so many hedges around the new subsidiaries that few banks are likely to want to operate them. SHOWDOWN AVERTED. Summers and Greenspan also agreed to postpone for five years creation of subsidiaries to engage in merchant banking, in which banks take an ownership stake in the companies they finance. Treasury had already agreed that two other financial businesses — insurance underwriting and real-estate development — would have to operate under holding companies, not as bank subsidiaries. The deal headed off a showdown between Congress and Clinton, who had threatened to veto the bill. On Oct. 12, Hill Republicans put forward a regulatory scheme that strongly favored the Fed. GOP leaders figured that enough Democrats would side with the widely respected Greenspan that they could dare Clinton to veto. As long as the Fed and Treasury were at odds, lawmakers could squabble over other issues. No more. Both Greenspan and Summers want the legislation to pass this year — so they broke the logjam. The hottest remaining issue is consumer privacy. GOP leaders have already agreed that consumers should have the right to bar new financial conglomerates from selling data on their finances to outside marketers. But Democrats want to tighten privacy restrictions even further, requiring customers’ approval for banks, brokers, and insurers to share data with their own corporate affiliates. That’s facing stiff opposition from the financial industries and could spark a floor fight over the final compromise bill. But House and Senate conferees have no excuse anymore for a stalemate, and chances for passage have never been better. |