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A watershed moment

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Clinton signs banking overhaul measure

November 12, 1999

WASHINGTON (CNN) — The biggest change in the nation’s banking system since the Great Depression became law Friday, when President Bill Clinton signed a measure overhauling federal rules governing the way financial institutions operate.

“This legislation is truly historic and it indicates what can happen when Republicans and Democrats work together in a spirit of genuine cooperation,” Clinton said at a White House signing ceremony. The event brought together the president and several Republican members of Congress who have been among Clinton’s sternest critics — a sign of the bipartisan support that eventually developed for the package.

Congress passed the bipartisan measure November 5, opening the way for a blossoming of financial “supermarkets” selling loans, investments and insurance. Proponents had pushed the legislation in Congress for two decades, and Wall Street and the banking and insurance industries had poured millions of dollars into lobbying for it in the past few years.

“The world changes, and Congress and the laws have to change with it,” said Senate Banking Committee Chairman Phil Gramm (R-Texas), who has fought for years for the overhaul. Gramm said the bill would improve banking competition and stability.

“This is a bill that is bipartisan, bicameral and tri-institutional,” said Rep. Jim Leach (R-Iowa), chairman of the House Banking and Financial Services Committee. He noted that the House, Senate and White House had worked together on the compromise that became law.

Clinton said the measure will “save consumers billions of dollars a year through enhanced competition.” He said it also would protect consumers’ rights and require banks to expand the availability of funds for community development.

At stake is an estimated $350 billion that Americans spend annually on fees and commissions for banking, brokerage and insurance services. Proponents say the legislation will save consumers some $15 billion each year, offering them greater choice and convenience and spurring competition. Consumer groups and other opponents maintain it will bring higher prices and jeopardize consumers’ financial privacy.

The overhaul measure is one of the few major pieces of bipartisan legislation to emerge from the Republican-controlled Congress this year.

Clinton’s support for the legislation comes despite warnings from Democratic critics and consumer activists that it could lead to price-gouging of consumers and the erosion of their privacy by newly formed financial conglomerates that are too big and powerful.

“The bill is anti-consumer and anti-community,” advocate Ralph Nader declared. “It will mean higher prices and fewer choices for low-, moderate- and middle-income families across the nation.”

In addition, he said, “Personal privacy will be virtually eliminated” under provisions allowing affiliated businesses of the newly merged companies to share customers’ personal financial data as they offer one-stop shopping.

And up until a few weeks ago, the Clinton Administration itself had threatened a veto of the legislation as it took various forms that raised a series of White House objections. In recent months, the administration objected most sharply to the issue of rules requiring that banks make loans in minority and low-income communities where they operate.

Gramm, an outspoken conservative who opposes the rules, last year managed to kill a similar bill that would have overhauled the community lending laws. The White House insisted that banks be required to have a strong track record in local loan-making as a condition for being allowed to expand into other financial activities.

The big breakthrough came in the wee hours of October 22 when administration officials — including Treasury Secretary Lawrence Summers — and key Republican lawmakers reached a compromise after negotiating for days behind closed doors. The White House then lifted its longstanding veto threat.

“It was sweaty, it was tense, but it had momentum,” Sen. Charles Schumer (D-New York) said of the final bargaining session. He and Sen. Christopher Dodd (D-Connecticut) whose states are home to Wall Street and the banking industry (New York) and the insurance industry (Connecticut), helped broker the agreement.

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