Politics & Policy

Bank Revamp Fails to Pass, but Succeeds
As Congressional Campaign Fund-Raiser

By PHIL KUNTZ
Staff Reporter of THE WALL STREET JOURNAL

WASHINGTON -- Congress's perennial effort to revamp the nation's
Depression-era banking laws looks like Lucy holding the football for Charlie
Brown. Every two years, lawmakers appear ready to let proponents kick the
bill down Pennsylvania Avenue to the president's desk, but then they yank it
away.

Ever-gullible, Charlie Brown ends up on his back, and Lucy walks off with the
football. In Congress, the financial regulatory system ends up as antiquated as
ever -- and politicians walk off flush with campaign cash.
 
 

                    Financiers' Donations

Top congressional recipients of campaign donations from PACs and individuals in the
banking, securities and insurance industries so far in the 1997-98 cycle:

 1
   Sen. Alfonse D'Amato
   (R., N.Y.)
                                  $1,179,890
 2
   Rep. Charles Schumer
   (D., N.Y.)
                                  $1,157,892
 3
   Sen. Christopher Dodd
   (D., Conn.)
                                    $613,408
 4
   Sen. Lauch Faircloth
   (R., N.C.)
                                    $452,069
 5
   Sen. Christopher Bond
   (R., Mo.)
                                    $398,619
 

Source: The Center for Responsive Politics
 
 

With Congress finally expected to adjourn this week, this time was no different:
Bankers, securities brokers and insurance agents contributed $30 million to
federal campaigns so far in the 1997-98 cycle, according to the Center for
Responsive Politics. The industry gave millions more to the national parties.

As for the banking bill, it progressed further than ever, but still fell short when it
was blocked in the Senate by a filibuster threat.

A Cynic's View

"For 20 years, the financial-services issue has been an effective fund-raising
tool. ... A cynic would say that that's all it's been," says Paul Equale, top
lobbyist for the Independent Insurance Agents of America. "It's a little like
dating the beautiful cheerleader: Why marry her when you can continue dating
her? ... But the truth is that there are a lot of people on Capitol Hill who want to
see this thing get across the finish line for public-policy reasons."

Nevertheless, the result is always the same: Fat-cat industry players shower
lawmakers with campaign dough while vying for an edge in a bill that never
passes.

That's because so much is at stake -- the future fortunes of three very powerful
multibillion-dollar businesses: banking, securities and insurance. All three are
regulated under two laws -- the Glass-Steagall Act of 1933, which is supposed
to keep banks and securities firms out of each other's affairs, and the Bank
Holding Company Act of 1956, which erected a barrier between banking and
insurance. Congress has been trying to lower the barriers since the 1970s.

'Lobby-Lock'

But one industry or the other always feels its ox would be unfairly gored and
lobbies the bill to death amid a torrent of donations from all three affected
sectors -- a total of well over $100 million in the past six years alone.

"This is not gridlock -- that's ideological; this is a classic example of
lobby-lock," says business consultant Wayne Berman, a longtime fund-raiser
for Senate Banking Committee Chairman Alfonse D'Amato, a New York
Republican.

This year was to be different. Major finance-industry mergers emphasized just
how far behind the times the laws had become, most notably the marriage of
Citicorp and Travelers Group Inc. And the House, a graveyard for past
banking bills, finally passed one in May -- albeit by only one vote.

A Mid-June Change of Tune

It was a major step forward but didn't meet the prerequisite dictated by Sen.
D'Amato. Representing the world's finance capital, the chairman is a longtime
proponent of a banking overhaul, but he had said he wouldn't move a bill
without a strong bipartisan House vote. His stance, however, later shifted. By
mid-June, he was gung-ho: "I think we can do it."

Why the switch?

Aides say the senator was besieged with requests to act from a bipartisan
cross-section of government officials, including Treasury Secretary Robert
Rubin, Federal Reserve Chairman Alan Greenspan and senior members of both
parties.

Other forces were also at work. Sen. D'Amato is facing a tough re-election
fight this year.

"He obviously had a desire to bring this to the altar," so he could "collect
wedding gifts along the way," says Robert Litan, a former administration official
who tracked the bill at the Brookings Institution.

D'Amato, Schumer, Nobody Else

Indeed, finance-industry players also lobbied Mr. D'Amato. Historically, the
industry has been the biggest source of all federal campaign contributions. And
so far this cycle, Mr. D'Amato has raked in nearly $1.2 million from the three
sectors most affected by the bill -- more than any other member of Congress,
the Center for Responsive Politics says. Trailing by only $22,000 is Mr.
D'Amato's opponent in the New York Senate race, Democratic Rep. Charles
Schumer, himself a senior member of the House Banking Committee. Nobody
else comes close.

Among those lobbying Mr. D'Amato the hardest was a longtime supporter,
Sanford Weill, the chairman of Travelers until he became co-chairman of
Citigroup Inc., the Citicorp/Travelers Group successor. Travelers officials
were Mr. D'Amato's fourth-biggest source of campaign funds (behind three
other finance-industry companies), the Center for Responsive Politics says.
Citigroup wants the bill enacted because current regulations could eventually
force it to shed a major revenue source -- insurance underwriting. The day after
meeting with Mr. Weill and other industry leaders in May, Mr. D'Amato
announced that he would hold hearings on the bill.

Some in the industry speculate privately that Mr. D'Amato kept the bill alive to
maintain fund-raising leverage over his eventual opponent, Mr. Schumer, who is
known to be an effective finance-industry fund-raiser. One lobbyist says the
word was put out that the chairman wouldn't look kindly on industry types who
deigned to support Mr. Schumer. A spokesman for Mr. D'Amato responds,
"That's absolutely absurd."

One of Mr. D'Amato's top fund-raisers, Mr. Berman, adds: "Would it surprise
me if people claiming to be speaking for the senator said that? No. ... But it's
impossible for me to imagine people who are actually close to D'Amato would
say that."

Kill the Bill

By September, Mr. D'Amato had pressured warring industry factions to
compromise. The Senate Banking Committee approved the bill, 16-2. "Now
it's a money tree for 100 senators, instead of just 18," banking-industry
consultant Bert Ely joked at the time.

Getting it to a final floor vote was another matter, however. GOP Sen. Phil
Gramm of Texas was bent on scuttling the bill in opposition to a provision that
few in the industry were willing to kill the bill over. The bill strengthens the
Community Reinvestment Act, which requires lenders to make sure poor
neighborhoods have access to credit. Sen. Gramm long has railed against the
act as "legalized extortion," so he used a filibuster threat to block the bill. There
was grumbling that Sen. Gramm merely wanted to put off action until next year
because, if Sen. D'Amato loses in November, Mr. Gramm would become the
Banking Committee's chairman and control the bill. His spokesman denies such
motives.

Sen. D'Amato and other proponents kept pushing, but their efforts proved
fruitless. On another front, however, the chairman had more luck. Early this
month, he took a break from legislating to attend a fund-raising breakfast at the
Plaza Hotel in New York. It was co-hosted by Citigroup's Mr. Weill. "The
fund-raiser did not have any direct tie to the bill," says Citigroup spokesman
Jack Morris.

Says insurance-industry lobbyist Robert Rusbuldt: "We're all going to be back
at the table next year, and there will be fund-raisers, and all the bankers,
insurance agents and securities brokers will be at those fund-raisers."