WASHINGTON - When it comes to easing red tape for financial services companies, Sen. Mike Crapo has his sights set far beyond a deregulatory bill the House passed in March.
The Idaho Republican is eyeing a wide range of regulations as candidates for legislation Senate Banking Committee Richard Shelby has appointed him to write.
His measure, which likely will be unveiled next month, could cover areas such as community reinvestment, financial privacy, money laundering, and mortgage lending. It may even include so-called netting provisions that would make it easier for companies to reconcile derivatives contracts if a party becomes insolvent.
"I'm looking at trying to expand the focus of the legislation ... to the broader issue area of regulatory burdens that are not helpful to safety and soundness or some other specific purpose, but which create a financial burden on the industry and then ultimately a cost to the consumer," Sen. Crapo said in an interview Wednesday.
His comments came two weeks before a hearing scheduled for June 22 where lawmakers, regulators, and industry representatives will formally give the Senate Banking Committee their wish lists of outdated or ineffective regulations they want weeded out.
The hearing will be the last step in Sen. Crapo's research and discussion process, which began this year. When that process is over, he said, he will "move immediately into a very aggressive drafting mode," and "hopefully within a couple of weeks" after the hearing "we'll have a piece of legislation to put out for comment."
After that, "it's a big question mark," he conceded.
To be enacted this year, a bill would have to overcome many hurdles, including a short congressional session, possible procedural or partisan battles, and, most ominously, strong differences of opinion among key Senate Banking members about what industrial loan companies should be able to do.
"We're going to have to make some decisions after the hearing as to whether to expand the focus beyond that which the House has already identified and, if so, whether to do it in one bill or do part of it this year and then start with a broader effort next year," he said.
If Sen. Crapo decides to write a far-reaching bill, he make it even more far-reaching than the House one, which focuses on balancing many of the inequities between bank, thrift, and credit union charters, such as letting thrifts boost auto, commercial, and small-business lending.
"One area which the House bill focused on quite extensively is the ... relationship of the various charters - between entities like banks and credit unions, thrifts, and the like," he said. "The House bill doesn't really have much at all in terms of community bank ... and pure regulatory relief provisions."
He is turning for ideas to the Federal Deposit Insurance Corp.'s project to find and eliminate outdated, unnecessary regulations as required by the Economic Growth and Regulatory Paperwork Reduction Act of 1996.
"The Egrpra process identifies more what might come to mind if you just think of regulatory reform," Sen. Crapo said. "That is the regulatory burdens that financial institutions face. In particular, that process is focused quite heavily on community banks."
The project identifies areas for change, including requirements set out by the Community Reinvestment Act, the Gramm-Leach-Bliley Act, the USA Patriot Act, and the Bank Secrecy Act. FDIC officials are expected to offer specific suggestions at the June 22 hearing.
Sen. Crapo also said he is "toying" with the idea of taking popular netting provisions from a long-stalled bankruptcy reform bill and "putting that into the regulatory relief bill, introducing a separate bill, or both."
The biggest obstacle facing any deregulatory bill is whether to give industrial loan companies the power to expand across state lines or offer interest-bearing NOW accounts to businesses.
Those issues plagued the House bill for months and still divide influential Senate Banking members. Sen. Robert Bennett, R-Utah, who chairs the financial institutions subcommittee, is a strong advocate for the companies. Sen. Paul Sarbanes of Maryland, the full committee's ranking Democrat, and Sen. Tim Johnson of South Dakota, the subcommittee's ranking Democrat, are concerned that the companies' growth poses regulatory risks and breaches the legal barrier between banking and commercial activities.
"While I have always strongly supported efforts to reduce unnecessary regulatory burdens on financial institutions, I am not willing to do so at the expense of safety and soundness," Sen. Johnson said through a spokeswoman Wednesday. "I would hope that the committee can work out some agreement that sets aside further mixing of banking and commerce so we can address the current needs of thousands of banks, thrifts, and credit unions that do so much to promote the economies of our communities."
Sen. Bennett's spokeswoman did not respond to messages left requesting comment.
According to Sen. Crapo, "there are ways to narrow the issue, but at this point there is not support at the member level for any of these compromises" made in the House. One granted interstate branching powers only to industrial loan companies that were established before Oct. 1, 2003, and are owned by companies that derive 85% or more of their revenue from financial services.
"I'm not saying it cannot be solved," he said. "I'm saying this is a really tough nut to crack, and it may be we have to have the hearing and get the rest of the bill moving before we resolve that issue."
Sen. Crapo's motivation for pushing for as sweeping a bill as possible is practical.
"We need to make sure we get enough reform so the cost of changing to a new system isn't a burden in and of itself," he said. "If banks have to change their entire operations to ease just one little regulatory problem, that may not be worth it. But if there are six or seven or eight that we can fix so that they really have a reduced burden, then they can justify the cost of going in and making all the changes at once."
