Quick Take on the Senate Turnover

For a brief moment in early June, Texas Republican Sen. Phil Gramm held both positions of power on the Senate Banking Committee--the chairmanship and the ranking slot. Or so it seemed. Once Sen. James Jeffords of Vermont had officially switched parties on June 5, the turnover of power in the Senate had started. But if you looked at the Senate Banking Committee's website, around mid-day on June 6, the day after the Democrats officially gained control, Gramm appeared on the Chairman's for Senate Banking, as well as on the Ranking member's page. It wasn't until later that someone picked up on this and hurriedly substituted an message on the chairman's page, complete with the photo shown at right of a gavel and a nameplate for Sen. Paul Sarbanes (D.-Md.), the former ranking member and now the new chairman. That internet message is an apt preview of Sarbanes' legacy as chairman--it's still under construction and only experience will tell how much bankers' concerns will be justified or overblown. Profiles of the two key Senate Banking players appear in a special report beginning on page 22. However, based on interviews with experts in and about Washington, here's a preliminary take on what the changeover at the committee will mean for the banking industry, presented issue by issue. Deposit insurance reform: Initially, it will look like the pace has quickened substantially on this front, but that will be deceiving. Sen. Tim Johnson (D. -S.D.), third-ranking Democrat on the Senate Banking Committee and the likely new chairman of the Financial Institutions Subcommittee, has already introduced a bill that would hike deposit insurance coverage. This bill is expected to be the subject of hearings that would not have commenced as soon, if at all, under former Senate Banking chairman Phil Gramm and the Republicans. However, chances are that real movement will be no quicker than has been expected all along. More will depend on the banking industry coming to some consensus, rather than on the change in Senate leadership. As noted in the interview in the special report, ranking Sen. Gramm does not favor increasing federal deposit insurance coverage. Publicly, new Senate Banking Chairman Paul Sarbanes has not expressed an opinion on reform. He's just been listening, says one contact. Privately, however, he is said to be skeptical about raising the insurance ceiling. It may be that the failure of Maryland's state deposit insurance fund during the thrift crisis weighs on Sarbanes' mind. Even on the House side, where one hearing has been held on FDIC's reform blueprint, things may not move further at least until the new chairman of FDIC is confirmed, and that's up to Senate Banking, points out Bert Ely, the financial analyst. All told, says Ely, I'd be surprised if anything moves this year. Regulatory appointments: The year is almost half over and no Bush appointee sits at the head of any of the banking or thrift agencies, with the exception of the Treasury Department itself. The official nomination of Texas banker Don Powell (a friend of Phil Gramm) arrived in the Senate just as the Jeffords explosion hit. No names had been so much as mentioned (as of early June) for the posts of Comptroller, Office of Thrift Supervision Director, and FDIC vice-chairman, and there were only rumors about the two vacant positions on the Federal Reserve Board. There is also the chairman's position at the Securities and Exchange Commission to be filled; Harvey Pitt, securities attorney, is widely expected to be named to that post. Sarbanes, in a briefing following Jeffords' initial announcement about changing parties, promised expeditious action on the Powell nomination and said he would move on other nominations as they are received. (A week or so later, he scheduled a mid-June hearing on the renomination of Federal Reserve Board Governor Roger W. Ferguson, also vice-chairman, to a full term on the Fed board. …