D’AMATO HAS CONTRIBUTORS ON BOTH SIDES OF ISSUE: CAN SEN. POTHOLE FIX FINANCIAL SYSTEM?

With a short legislative calendar — and with Chairman Alfonse D’Amato and six more of its 18 members up for reelection this fall — the Senate Banking Committee belatedly starts hearings this week on a bill that would free securities firms, insurance companies and banks to get into each other’s businesses.

Yet many lobbyists and Capitol Hill staff members think Sen. D’Amato is merely going through the motions of a hearing to keep his financial industry contributors happy. Fifteen of the 20 largest contributors to his campaign are financial companies, according to the Washington campaign finance watchdog Center for Responsive Politics, and it’s easier to keep the money coming in if you keep the process moving without offending any particular segment.

The New York Republican, who has earned the sobriquet Sen. Pothole for his attention to local issues, would not comment for this article. But he has raised more than $9 million for his reelection campaign and his biggest contributors include companies on opposite sides of the debate — banks as well as such top securities firms as Bear Stearns & Co. and Goldman Sachs Group LP and major insurers like Equitable Cos. and Travelers Group.

With the Senate scheduled to adjourn in October, “the clock has pretty well run out,” says Kenneth Guenther, executive vice president of the Independent Bankers Association of America. “The bill is controversial. Chairman D’Amato is in a very tough reelection fight. He needs the time to run his reelection campaign rather than move a complicated bill through the Senate.”

turf battles

Sen. D’Amato’s rival in November is likely to be either former vice presidential candidate Geraldine Ferraro or Rep. Charles Schumer, a Democrat on the Banking Committee who supported the legislation passed last month.

In the past, Sen. D’Amato has approached financial services reform very differently than does the House version. Legislation he introduced last year would permit banks to own or to be owned by any kind of business, which the House would prohibit.

But Mr. Guenther sees one possibility for building a fire under the bill: resolution of differences between the Federal Reserve Board and the Treasury Department over how to regulate financial services offered by banks.

Federal Reserve Chairman Alan Greenspan wants to keep a provision, contained in the House version but not in Sen. D’Amato’s 1997 bill, calling for separate affiliates regulated by the Fed.

The Fed argues that keeping non-banking functions separate will guard the soundness of the banking system. The Treasury wants to keep regulation of operating subsidiaries under its jurisdiction, which has led to a classic Washington turf war.

The Treasury also wants national banks to be able to operate securities and insurance businesses as subsidiaries, rather than forcing them to set up more cumbersome separate affiliates as the House bill requires. It has thus aligned itself with the American Bankers Association and Bankers Roundtable, which represent large banks, in opposing the legislation.

While the independent bankers group opposes the legislation as a whole, it has come over to Mr. Greenspan’s position on subsidiaries in recent weeks. The bill would give state insurance regulators more say on insurance sales by banks and, Mr. Guenther says, could result in restrictions on bank sales of annuities.

Even the larger banks are not united in opposing the bill. Citicorp, NationsBank, Banc One, J.P. Morgan & Co., BankAmerica Corp., National City Corp. and U.S. Bancorp support it as being less restrictive than current regulation with regard to entering new businesses.

Banc One wants to buy an insurance company to build upon its own highly profitable insurance operations, says Annie Hall, director of public policy. Current law prevents such acquisitions. The Columbus, Ohio-based bank is merging with First Chicago NBD to create the nation’s fifth-largest bank with $240 billion in assets.

Ms. Hall says it would not be difficult either to bring the American Bankers Association on board or “at least move them to a neutral position.” Key to that would be changing the bill to ensure that state insurance commissioners could not make it more difficult for banks to sell insurance than for insurance companies. Further, the association’s intractable position against the legislation may go against it, she adds, as it did in the House.

But she’s not optimistic about passage. “I give it a poor chance of getting through the Banking Committee, a worse chance of getting through the Senate.”

Securities and insurance lobbyists are pegging their hopes for passage on Wednesday’s hearing. A good sign would be members’ sounding encouraged about compromise, says a Washington lobbyist with a large securities firm.

But a staff aide to a Democratic senator notes that few Republicans members have come forward to support the bill. “It’s not clear who the allies of the banks are,” he says. “The Republicans are in the majority. If Republicans are not behind this effort, I don’t think you can succeed.”

Democratic committee members up for reelection — Sens. Christopher Dodd of Connecticut, Barbara Boxer of California and Carol Moseley-Braun of Illinois — have not been highly visible in the debate, either. Nor have Sen. D’Amato’s fellow Republican campaigners: Lauch Faircloth of North Carolina, Richard Shelby of Alabama and Bob Bennett of Utah.

“The big question is, if they can’t resolve the issues with Treasury, then it’s all for naught at the end of the day,” says Michael Andrews, a director of Travelers Group subsidiary Salomon Smith Barney.

If Sen. D’Amato is able to get the bill out of committee and “there’s some floor time,” Mr. Andrews adds, passage is possible. “I think he’s going to give it a good effort.”