October 25, 1999

                   Glass-Steagall Accord Reached
                   After Last-Minute Deal Making

                   By MICHAEL SCHROEDER
                   Staff Reporter of THE WALL STREET JOURNAL

                   WASHINGTON -- Lawmakers are poised to pass historic legislation that
                   would sweep away Depression-era banking laws and usher in a new era of
                   vast financial supermarkets.

                                        House and Senate conferees reached an
                                        agreement with the White House early Friday
                                        on a compromise bill to eliminate
                                        financial-services restrictions dating back to
                   the 1930s that have prevented banking, insurance and securities firms from
                   fully entering each other's businesses. The pact follows several failed efforts
                   to do away with the Glass-Steagall Act over more than two decades, and
                   came just hours after even top negotiators thought the talks would once
                   again collapse this year. Before the last-gasp negotiations began late
                   Thursday night, White House economic adviser Gene Sperling told
                   Treasury Secretary Lawrence Summers that the odds of a deal were just
                   one in three.

                   The logjam was broken with a post-midnight compromise between the
                   White House and Senate Banking Committee Chairman Phil Gramm, a
                   conservative Texas Republican, over community-lending requirements.
                   Furious lobbying and deal making by all sides in the debate preceded the
                   agreement. Rep. Jesse Jackson Jr. (D., Ill.) at one point sent an e-mail to
                   6,000 supporters warning that President Clinton might agree "to language
                   ... that would be devastating" to the law, and giving direct phone lines for
                   Mr. Summers and Mr. Sperling for community activists to call the chief
                   administration negotiators.

                                        Mr. Gramm, in turn, pressed industry lobbyists
                                        desperate for a deal to turn up the heat on the
                                        White House and wavering Democrats to give
                                        a little to him. Thursday afternoon, he phoned
                                        top executives from trade groups and the
                                        largest New York financial firms, including
                                        Citigroup, Morgan Stanley Dean Witter &
                                        Co. and Chubb Corp. At a Thursday night
                   meeting, Mr. Gramm told Citigroup lobbyist Roger Levy -- in a voice loud
                   enough for a nearby lobbyist to hear -- "You get [Citigroup Co-Chairman]
                   Sandy Weill on the phone right now. Tell him to call the White House and
                   get [them] moving or I'm going to shut this conference down."

                   Vote May Come This Week

                   The House and Senate could vote on the measure as soon as this week,
                   and President Clinton has signaled that he will sign it into law, pending a
                   review of final language.

                   "When this potentially historic agreement is finalized, it will strengthen the
                   economy and help consumers, communities and businesses across
                   America," Mr. Clinton said in a prepared statement.

                   The legislation would benefit the economy "by promoting financial
                   innovation, lower capital costs and greater international competitiveness,"
                   Mr. Summers said. It would also provide "a greater variety of financial
                   services for consumers at a cheaper price," said Mr. Gramm, one of the
                   bill's chief sponsors. Advocates say the legislation will give consumers the
                   opportunity to shop for almost any financial service -- from certificates of
                   deposit to life insurance to online stock trading -- in one place.

                   Like laws deregulating the rail, airline, utility and telecommunications
                   industries, the Financial Services Modernization Act of 1999 could result in
                   more megamergers as banks, insurers and securities firms seek to assure
                   their survival in an industry likely to be dominated by a few huge
                   companies. With the stroke of the president's pen, investment firms like
                   Merrill Lynch & Co. and banks like Bank of America Corp. are expected
                   to be on the prowl for acquisitions.

                   Consumer Groups Complain

                   But consumer groups that feel burned by the 1996 law deregulating the
                   telecommunications industry say the new financial behemoths are unlikely
                   to pass cost savings on to average customers. Critics also say the bill
                   doesn't go far enough to protect individuals' private financial information,
                   and they suspect that the new conglomerates will find ways to get around
                   provisions requiring minimum levels of lending in low- and middle-income

                   "Through this whole process, the average investor, depositor, taxpayer and
                   homeowner were at best a mere afterthought," said Michigan's John
                   Dingell, the ranking minority member of the House Commerce Committee.
                   "There's been a great rush to create financial institutions that are at the
                   same time too big to fail, too big to bother, and too big to care."

                   The overhaul would update and standardize rules governing financial
                   industries that were developed piecemeal by regulators over the years
                   while Congress repeatedly tried, and until now failed, to break down
                   barriers created by the 1933 Glass-Steagall Act. Regulators gradually
                   allowed banks to buy securities firms and insurers, with some restrictions
                   on lines of business permitted. The new legislation would remove those
                   restrictions and put brokerage firms and insurers on a par with banks by
                   allowing them to enter the full range of financial businesses.

                   Financial services are now a far cry from the simple separation of bankers
                   and brokers envisioned by the Glass-Steagall Act's chief sponsors, Sen.
                   Carter Glass of Virginia and Rep. Henry Steagall of Alabama. The most
                   striking example of that is Citigroup Inc., with more than 100 million
                   customers and over 4,000 offices worldwide, offering everything from
                   consumer banking and insurance to corporate finance and securities
                   underwriting. The creation of the company in last year's Citicorp-Travelers
                   Group Inc. merger was among the factors that propelled Congress to again
                   take up the industry-overhaul legislation. The bill will give Citigroup a freer
                   hand in operating the Travelers insurance business and its big brokerage
                   firm, Salomon Smith Barney.

                   Banks began agitating for such legislation in the late 1970s, but
                   deregulation wasn't widely embraced until President Bush's administration.
                   His effort to repeal restrictions faded amid the savings-and-loan crisis,
                   which threatened to wipe out some large banks, including Citicorp, in

                   But the battle lines had been clearly drawn: Banks wanted to get into the
                   securities and insurance businesses, but securities firms and insurance
                   companies wanted to keep banks out. Banking regulators -- the Federal
                   Reserve and the Treasury Department's Comptroller of the Currency --
                   issued interpretations of the laws that allowed banks to sell insurance
                   through subsidiaries and to trade and underwrite securities. Bank holding
                   companies, such as Citicorp, were allowed to have securities affiliates as
                   long as they produced no more than 25% of total revenue.

                   The biggest securities firms and insurers, fearful of being gobbled up by
                   banks, pushed overhaul efforts for the past two years. Banks also joined
                   with competing financial firms in lobbying Congress because they wanted
                   to obtain the power to underwrite insurance.

                   With widespread industry support, both the House and the Senate
                   approved a financial-services overhaul earlier this year -- the first time that
                   both chambers had done so. Last summer, a 66-member conference
                   committee was formed to reconcile the two significantly different bills. The
                   Senate version, sponsored by the strong-willed Mr. Gramm, had few of
                   the consumer protections the House had adopted, raising the specter of a

                   Approval of the compromise bill was set in motion 10 days ago when a
                   logjam was broken on the technical issue of who would regulate the
                   financial conglomerates. The committee adopted a deal worked out by
                   Fed Chairman Alan Greenspan and Mr. Summers that divided up
                   regulatory responsibilities.

                   The Fed and Treasury had sparred for months over which regulator should
                   have primary authority. They agreed on a framework that would allow
                   national banks to place certain activities, including securities underwriting,
                   in bank subsidiaries, which are regulated by the Treasury's Office of the
                   Comptroller of the Currency. Insurance underwriting and real-estate
                   development would be restricted to holding-company affiliates, which are
                   overseen by the Fed. The Treasury Department and the Fed agreed to
                   reconsider in five years whether merchant-banking activities can be
                   operated as a bank subsidiary, which isn't permitted now.

                   Community Lending Debate

                   As the conference committee bogged down on controversial consumer
                   issues, the administration signaled its eagerness to bargain. The toughest
                   sticking point was the treatment of the Community Reinvestment Act,
                   which requires banks to write loans in low- and moderate-income
                   neighborhoods. On Oct. 18, Mr. Summers and Mr. Sperling kicked off a
                   week of intense, on-again, off-again negotiations with Mr. Gramm to
                   thrash out a deal to preserve bank community-lending requirements.

                   The CRA debate was a showdown between the White House and Mr.
                   Gramm, who opposes letting the government tell banks how to lend
                   money. The White House objected that the bill would have reduced the
                   frequency of CRA-compliance examinations for rural and other small
                   banks with less than $250 million in assets, and that it didn't penalize
                   expansion-minded banks for having an unsatisfactory record on community

                   Prospects for a bill were dimming on Thursday when the White House
                   rejected Mr. Gramm's "final" offer after seven hours of talks. House
                   Banking Committee Chairman Jim Leach (R., Iowa.) and Mr. Gramm
                   were determined to complete a bill, even without White House agreement.

                   Assuming they could win approval from the full House and Senate, the
                   lawmakers' strategy was to force the president either to accept a
                   weakened CRA or veto the bill and face the political consequences. The
                   White House, meanwhile, was already preparing to kill the measure and
                   was lining up Democratic leaders to support a veto, an administration
                   official said.

                   The end-game began about 9 p.m. Thursday night, with Mr. Gramm
                   huddled in a packed private meeting room, leading negotiations along with
                   Democrats including Rep. John LaFalce of New York, Sen. Christopher
                   Dodd of Connecticut and New York Sen. Charles Schumer. Each
                   proposal was being vetted by Treasury Department Undersecretary Gary
                   Gensler, who, along with other aides, was in contact with Mr. Summers by
                   phone every 20 minutes, tracking progress from his home study.

                   The stickiest issue was requiring banks to maintain a satisfactory CRA
                   rating. The administration refused to back down until it won assurances
                   that banks with bad records on community lending couldn't get into new
                   financial businesses.

                   When Republicans yielded to that demand at about 12:30 a.m. Friday, the
                   final piece of the settlement was working out language requiring community
                   groups to disclose loans or grants from banks that were part of CRA
                   programs, which Mr. Gramm had sought. Mr. Leach announced a deal at
                   2:45 a.m.

                   Mr. Gramm's hard-line rhetoric gradually dissolved into compromises that,
                   one by one, removed the White House's objections. The conferees found
                   middle ground, for instance, on the emotional subject of privacy
                   protections for consumers' personal financial information. Pushed by a
                   bipartisan outcry for strengthening Mr. Gramm's tepid protections,
                   lawmakers managed to make incremental changes. The bill gives
                   customers the right to block financial institutions from selling personal
                   information to outside firms or sharing it with them, but not from doing such
                   things with affiliates. Financial firms also must disclose privacy policies and
                   practices for sharing information among banking, insurance and securities

                   But consumer groups and a bipartisan coalition led by Rep. Edward
                   Markey (D., Mass.) and Sens. Richard Shelby (R., Ala.) and Richard
                   Bryan (D., Nev.), said that the committee and the White House had caved
                   in to special interests. They vowed to push separate legislation beefing up
                   safeguards for consumers' financial information. "This is a travesty," said
                   Mr. Bryan. "The complete lack of adequate protections is simply

                   Mr. Gramm and the Republicans also were dealt a setback when banking
                   interests, led by the American Bankers Association and the Independent
                   Community Bankers of America, won a major battle to close a loophole
                   that allowed nonfinancial companies to get into the banking business
                   through the back door by buying or chartering a so-called unitary thrift
                   holding company.

                   Of the 650 unitary thrifts, or thrifts with just one office, 27 are currently
                   owned by nonfinancial firms. Critics, including the White House, argued
                   that such a mixing of banking and commerce could encourage risky
                   lending, lead to crony capitalism and create unfair competition.

                   A Wal-Mart Stores Inc. proposal in June to buy a small Oklahoma savings
                   and loan association sent shivers through small-town bankers, who feared
                   their fate could be similar to that of local mom-and-pop retailers unable to
                   compete with the retail juggernaut. The bill would prohibit Wal-Mart from
                   buying or chartering a thrift and operating Wal-Mart-brand banking
                   operations in any of its 1,725 stores nationwide.

                   The bill would allow nonfinancial companies to operate only thrifts for
                   which they had sought charters before May 4 and would prohibit
                   nonfinancial companies from chartering or buying thrifts in the future.