Effort to Overhaul Banking Laws
                   Stalls Over Community Lending

                   By MICHAEL SCHROEDER and JOHN SIMONS
                   Staff Reporters of THE WALL STREET JOURNAL

                   WASHINGTON -- The White House rejected a "final" proposal from
                   congressional negotiators on community-lending provisions, seriously
                   setting back an effort to conclude a two-decade effort to overhaul
                   Depression-era banking laws.

                   Administration negotiators told Republican leaders late Wednesday night
                   that no agreement had been reached. "No proposal has been put forward
                   the president can accept," a Treasury spokesman said.

                   If the administration doesn't give its blessing to a deal, the historic overhaul
                   legislation faces a veto. House and Senate negotiators are set to meet at 2
                   p.m. Thursday to smooth out differences between versions of the bill
                   passed by the two chambers, even without an agreement with the
                   administration.

                                        Earlier Wednesday night, negotiators said
                                        progress had been made in talks with the
                                        administration but conceded significant
                                        differences remained on four provisions in the
                                        bill dealing with banks' compliance with the
                                        1977 Community Reinvestment Act. That law
                                        requires that banks extend credit to low- and
                                        moderate-income neighborhoods.

                                        After trying for more than two decades to
                                        rewrite the Glass-Steagall financial-services
                                        law adopted in the 1930s, the House and
                                        Senate could vote soon to enact a measure
                   that would eliminate restrictions that have kept banking, insurance and
                   securities firms from fully entering each others' businesses. But President
                   Clinton's decision to sign -- or veto -- the measure depends on the
                   outcome of the negotiations over community lending.

                   U.S. Treasury Secretary Lawrence Summers met with Senate Banking
                   Committee Chairman Phil Gramm behind closed doors for more than
                   seven hours Wednesday, emerging in the early evening only to report that
                   talks had generated "positive proposals" but that "significant unresolved
                   issues" remained. Mr. Summers declined to elaborate on the details of
                   those disagreements.

                   Mr. Gramm told reporters afterward that he gave Mr. Summers a "final"
                   proposal on changes to the CRA, but that if the administration signals a
                   willingness to compromise he would continue talking.

                   The Texas Republican scrapped plans to brief the full conference
                   committee Wednesday night. Still, he expressed hope that a bill could be
                   completed. "The bottom line is, it is time for us to write a bill," he said.

                   The toughest sticking point is whether banks should be required to get --
                   and maintain -- a satisfactory lending record.

                   "While there remain a number of serious issues, the main issue is that there
                   has not been a proposal that would prohibit a bank with an unsatisfactory
                   CRA rating from taking advantage of the new powers provided under the
                   bill," a Treasury spokesman said.

                   Some progress was made on Mr. Gramm's wish to lengthen the frequency
                   of CRA examinations to five years for all rural and other small banks with
                   less than $250 million in assets. One proposal was that only small banks
                   with an excellent CRA rating would be examined every five years, instead
                   of all banks in the category. Banks with satisfactory ratings might be
                   examined every three or four years.

                   Another issue involves a new financial business called wholesale financial
                   institutions, which can only take deposits of more than $100,000. The
                   administration wants these so-called woofies to be covered by the CRA.

                   Mr. Gramm also highlighted disagreements with the Clinton administration
                   over a "sunshine" proposal -- an issue considered irrelevant by almost
                   every interest group in the wide-ranging debate, but which Mr. Gramm has
                   made into a central sticking point affecting the future of the American
                   financial industry.

                   Mr. Gramm wants banks and community groups to disclose previously
                   private agreements regarding the CRA. He has complained that the CRA
                   has led to what he calls a form of extortion. Community groups, which can
                   delay bank mergers with regulatory challenges, can wield enormous power
                   over banks with poor histories of lending in underserved communities, he
                   has said. Because delays on mergers can be expensive, many banks cave
                   in to the pressure and strike generous deals with the groups, he said.

                   Because those deals generally are kept private, Mr. Gramm has fought for
                   a provision that would require community organizations and banks to
                   reveal them to federal regulators. Mr. Summers argued that the provision
                   would create a burden for community organizations.

                   The long-awaited legislation would open the door for a new round of
                   mergers linking securities firms, commercial banks and insurance
                   companies. But there already are so many financial-service firms, led by
                   Citigroup Inc., that have slipped through the cracks that some specialists
                   say the ultimate impact could be anticlimactic.

                   Indeed, the $72 billion megamerger last year that created Citigroup and
                   combined all three types of businesses was completed in anticipation that
                   the laws separating banking and securities underwriting would be dropped.
                   Meanwhile, U.S. banks have been able to buy securities firms for more
                   than two years (though not the other way around).

                   The new law, for the first time, would pave the way for securities firms to
                   buy commercial banks, and for banks to buy insurance companies. Large
                   financial institutions say the package would be a boon for consumers.
                   Through more mergers or alliances, these institutions plan to offer
                   "one-stop financial shopping," as one banker put it, allowing customers to
                   bank, invest, apply for loans and credit cards, and insure themselves all
                   through the same financial institution.

                   But consumer groups worry that financial institutions would have access to
                   far too much information. These groups are concerned with the prospect of
                   telemarketing companies calling up during the dinner hour, armed with
                   extremely detailed information about disposable assets and credit history.

                   The biggest concern, however, is that customers would end up paying
                   higher prices. The interstate banking laws of 1994 caused a consolidation
                   wave in banking that consumer groups say resulted in higher fees on
                   everything from automated-teller machines to checking accounts. Now, the
                   fear is that a deal would spur a consolidation wave that concentrates
                   power even further, allowing an even smaller number of players to drive up
                   prices on all financial services.

                   -- Randall Smith in New York contributed to this article.