Politics & Policy

Sen. Gramm's Takeover of D'Amato Panel
May Slow Drive to Rewrite Banking Laws

By DAVID WESSEL and LAURIE MCGINLEY
Staff Reporters of THE WALL STREET JOURNAL

WASHINGTON -- Just when the nation's financial firms thought they were
about to succeed in their quest to rewrite Depression-era laws governing their
businesses, voters in New York fired Sen. Al D'Amato, a move that puts Sen.
Phil Gramm (R., Texas) in charge of the Senate Banking Committee.

                      The change in the committee's leadership is likely
                      to slow efforts to dismantle some of the legal
                      barriers between the banking, insurance and
                      securities businesses -- and it threatens the fragile
                      coalition that Sen. D'Amato assembled.

"The D'Amato defeat does not bode well for prompt enactment of
financial-restructuring legislation," said Kenneth Guenther of the Independent
Bankers Association of America.

Community-Investment Issues

Sen. Gramm, whom colleagues regard as more of an obstacle to passing bills
than a coalition builder, blocked Senate passage of the financial legislation this
year. He objected to provisions, crucial to Democratic support, that would
have strengthened financial-institution obligations to invest in poor communities.

In an interview Wednesday, Sen. Gramm said he hasn't changed his mind on
community-reinvestment issues, but stopped short of vowing to continue to
insist on dropping the provisions. Sen. Gramm, a Ph.D. economist who has
written and taught about money and banking, emphasized his desire to pass a
bill soon. "We need to modernize the financial laws of this country that were
written at a time when the level of economic enlightenment in the Congress and
the country was at an all-time low," he said.

The defeat of GOP Sen. D'Amato probably will have more far-reaching
consequences for business than anything else the voters decided this week.

Congress remains in Republican hands, though liberal, labor-backed
Democrats have strengthened their position slightly. John Sweeney, president of
the AFL-CIO, celebrated a "not just spectacularly successful, but historic"
victory. But business interests insisted not much had changed. "It's the same
playing field," said Bruce Josten, lobbyist for the U.S. Chamber of Commerce.
The Business Roundtable, a group of big-company chief executive officers, said
it was gratified that "free trade was not a negative for most of the members."
About the only vocal free-trade advocate defeated was Rep. Vince
Snowbarger (R., Kan.), a Roundtable spokeswoman said.

Bright Spots for HMOs

For the managed-care industry, the election was disquieting despite a few bright
spots. Emboldened by their success, Democrats plan to pursue their "quality of
life" agenda, which includes reining in managed-care companies. But attacking
health-maintenance organizations didn't prove to be the silver bullet that
Democrats had hoped. Several HMO-bashing Democrats lost, including Scotty
Baesler, a congressman running for an open Senate seat in Kentucky, and
Lydia Spottswood and Gail Riecken, who were running for House seats in
Wisconsin and Indiana, respectively. "The HMO issue, despite all its vaunted
political punch, has failed on Capitol Hill, and now we see it's failed in the
elections as well," said Mark Merritt, a vice president for the American
Association of Health Plans. Exit polls showed that voters ranked health care
well below concerns such as education, ethics and the economy, he noted.

But in many contests, HMOs weren't a pivotal issue. Democrats often backed
tougher patient rights' legislation than Republicans, but that was lost in campaign
generalities. "Both of the parties were talking about it in ways that the average
voter probably couldn't differentiate," said Chip Kahn, president-designate of
the Health Insurance Association of America. Some high-profile Democratic
HMO critics won, including Dennis Moore, who beat Rep. Snowbarger;
Shelley Berkley, who won an open House seat in Nevada, and John Edwards,
who beat GOP Sen. Lauch Faircloth of North Carolina.

Important for Citigroup

A financial-reform bill passed the House by a one-vote margin last year. The
Senate Banking Committee passed another version by 16-2 after intense
behind-the-scenes negotiating by Sen. D'Amato; Sen. Gramm voted against it
in committee. The Fed favors the bill, but the Clinton administration opposes it
because it would weaken the Treasury's role in bank regulation. Sen. Gramm
said he plans to talk soon with Fed Chairman Alan Greenspan and Treasury
Secretary Robert Rubin about "the possibility of them reaching some degree of
accommodation."

The fate of the financial-modernization bill is important to Citigroup Inc.,
formed by the merger of Citicorp and Travelers Group Inc., which needs a new
law within five years to remain in the insurance-underwriting business. Citigroup
spokesman Jack Morris said the company viewed the Gramm chairmanship as
"neither a problem nor an opportunity." He said financial-services reform "is
likely to be acted on quickly ... because there is so much support and
recognition on both sides of the aisle in both chambers that we have a system
that needs fixing."

Some other financial-industry lobbyists also publicly put an optimistic spin on
Sen. Gramm's ascension, but all were trying to decide whether his new role
would alter his style and ideological approach. "He may well want to reopen
some of the issues that people thought might have been closed," said Ed
Yingling, lobbyist for the American Bankers Association. "Some people read
this as very negative for the chances for financial modernization. I don't."
 

-- Matt Murray contributed to this article.