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Congress Fails to Reach Accord on Banking Bill

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TIMES STAFF WRITER

The House and Senate played a game of political chicken Monday over a vital bill to provide $70 billion in financial aid for the ailing federal deposit insurance fund, while a key bank regulator pleaded with Congress to approve the funding.

“The message must be, ‘We need the money, we need this money now, it is an absolute priority,’ ” William Taylor, chairman of the Federal Deposit Insurance Corp., told the Senate Banking Committee.

The insurance fund, which protects deposits up to $100,000, will soon be exhausted, with regulators unable to shut troubled banks, Taylor said. This warning was often delivered before by Taylor’s predecessor, L. William Seidman, but the rhetoric took on a new intensity Monday because of Congress’ impending adjournment for the year.

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Despite Taylor’s appeal, which he has conveyed repeatedly to members of Congress and the Bush Administration, there were no signs of compromise as a House-Senate conference opened discussions Monday night.

The House and Senate bills would expand the borrowing authority of the FDIC by $70 billion to manage the shutdown of insolvent banks, but they diverge sharply on other issues.

The House bill is narrowly drawn, limited to the new funding authority for the FDIC and an expansion of powers to permit regulators to intervene more quickly when a bank encounters financial difficulty. The Senate bill, by contrast, includes one of the cherished goals of the Bush Administration and major banks: permission for banks to move across state lines.

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Neither side showed any inclination to compromise. Senate Banking Committee Chairman Donald W. Riegle Jr. (D-Mich.) warned the conference that “failure to enact a broad, more comprehensive bill will yield a major series of losses in the banking system.”

Earlier, Riegle sent a letter to President Bush, urging him “in the strongest possible terms” to intervene personally with members of Congress to try to save a comprehensive reform bill that would allow banks to move across state lines and to expand into the securities and insurance business.

“More muscle has to be applied” to reach a compromise, “and the biggest muscle in town is presidential,” Riegle told reporters. “We need the President himself to get involved.”

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However, the House showed no willingness to bend. It voted 398 to 3 Monday for a resolution instructing members at the conference meeting with the Senate to hold firm to the House bill.

A broad reform bill simply won’t pass the House, Rep. Chalmers Wylie (R-Ohio) told the conference meeting with the members of the Senate. “We all wanted a more comprehensive bill . . . (but) we got beat. We’ve lost twice by significant margins.”

House members are wary of a broad bill because they had defeated two versions of the bill in recent weeks after contentious debates and arguments over the desirability of new powers for the banks. The legislation was imperiled when small banks fought against interstate banking, and the insurance industry moved aggressively to block efforts for banks to expand into the sales and underwriting of insurance.

The conferees agreed only to send staff members to a closed-door meeting to discuss the language of possible compromises.

All players in the delicate game of bluff and counter-bluff in the waning hours of Congress agree that the legislators won’t go home without voting for the $70 billion for the insurance fund. Beyond that, the content of the bill--particularly the fate of interstate banking--is still undecided.

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