Recipe for Modernization

As the banking industry looks towards the return of the House and Senate in late january, it is hearing all kinds of handicapping regarding the chances that some version of H.R. 10, the pending financial services modernization legislation, will pass the House and move on to the Senate. The problem isn't the handicapping. The industry's problem is deciding which side of the bet to be on. Simple start, tricky middle At the outset of this Congress, ABA and many elements of the banking industry favored passage of comprehensive financial services legislation. Many banks wanted expanded product and services authorities and there was unfinished business from the past: the anticipated elimination of the federal thrift charter, with the concurrent chartering up of the national bank charter. Things didn't go smoothly after that, and, as Congress adjourned its first session, ABA and others applauded the decision of the House leadership and the senior members of the House Banking and Financial Services Committee and the House Commerce Committee to put the legislation aside until the second session. This was in hopes that allowing more time for negotiation between the congressional players and all the interested parties would produce something acceptable to the banking industry. As passed by the House Banking Committee, H.R. 10 was deemed unacceptable, but ABA continued to take part in the negotiations and deliberations as the legislation moved on to the House Commerce Committee under sequential referral -- the Commerce Committee's chance to revise or rewrite the bill to address its own turf, which includes the securities and insurance businesses. As ABA officials have pointed out, to merely attack the House Banking version of the bill and not continue to be a player might make for headlines, but not do much for improving the chances for decent legislation. In the end, the product of Commerce's work didn't please bankers any more than Banking's. In many ways, the Commerce version of H.R. 10 was far worse, and a bloody floor fight loomed. The nation's thrifts began to attack the legislation's elimination of the thrift charter -- seen by banks as a quid pro quo for their contribution to shoring up the last of the thrift industry cleanup expenses. Insurance interests sought to erode bank gains in that field. And so on. At first glance, it seemed, banks were in the position to sit tight-insisting on helpful legislation or no legislation at all. But the advisability of opting for no action rather than bad action no longer looks wise. Bankers have found that, in the absence of legislation like H.R. 10, unitary thrifts -- potentially dangerous competitors-will blossom. …