OK of Compromise Moves State Nearer Nationwide Banking

Landmark legislation that would open California to full nationwide banking by 1991 took a big step toward passage Tuesday when a key Senate committee endorsed a compromise designed to end nearly a decade of protectionist battles by the state’s financial giants.

The compromise measure, which supporters say would greatly increase banking competition and lead to a host of consumer benefits, was crafted in closed-door meetings late last week between representatives of the banking and savings and loan industries.

The bill, sponsored by Assemblyman Charles M. Calderon (D-Alhambra), was sent to the Senate floor on a 7-2 vote of the Banking and Commerce Committee after the leadership of the upper house signaled its support for the compromise by granting rule waivers paving the way for consideration of the previously stalled measure.

Must Offer Same Deal

Under the accord, banks from New York and other Eastern states would be allowed to acquire financial institutions in California beginning in 1991 so long as the eastern states allow California banks and savings and loans to do business on the East Coast. An estimated 38 states already have some form of interstate banking.

As a further incentive to California institutions that have traditionally fought interstate banking, the measure would take effect only on approval of a companion bill allowing the California banks and thrifts to expand into 11 Western states beginning next July and gird for the competitive battle ahead.

But the companion measure, sponsored by Sen. Alan Robbins (D-Van Nuys), faces procedural problems in the Assembly, where both bills must go for a final vote.

Calderon said he is optimistic but concerned that “we might run up against the deadline” as the Legislature moves toward adjournment this week.

Calderon and supporters of his interstate banking bill have promised that the entry of such Eastern banking titans as Chase Manhattan and Citicorp would touch off an “interest rate war” that would enable California consumers, in the nation’s most deposit-rich state, to obtain lower interest on loans and higher rates on deposits.

Consumer Groups Opposed

But consumer groups continued to oppose the compromise, calling it “woefully inadequate” and predicting that it would lead to the failure of small savings and loans that finance construction of low-income housing.

“There were claims that the public would be protected by this but we fail to see how this is the case,” said Sylvia Martinez, president of a Northern California housing group.

Provisions that would have required incoming banks to make low-income and agricultural loans and to cash government checks for the public at no cost were stripped from the bill at the insistence of California banks that were concerned about similar provisions being required of them as they move across state lines.

Calderon said that he shares the concerns of the consumer groups but “we cannot cure all the ills of society in this bill.”

At one point Tuesday, the delicately balanced compromise showed signs of strain as a dispute broke out over who should get credit for the apparently successful negotiations.

Robbins, ironically one of the chief opponents of full interstate banking until he recently joined in the compromise, demanded that Calderon’s name be removed from the title of the measure.

“Some of the tactics you used were among the crudest I have ever seen in my 14 years in the California Legislature,” Robbins told Calderon during a hearing on the bill. “It’s tacky for you to, in effect, claim credit as author of a bill that was primarily the result of Sen. (Rose Ann) Vuich (who chairs the Senate Banking and Commerce Committee) and myself.”

Calderon said he found Robbins’ outburst “particularly amusing,” and added that “these distasteful arguments naturally arise when you start talking about putting a legislator’s name on a bill.”

Ultimately, it was decided that the bill would carry no lawmaker’s name and be known merely as the California Interstate Banking Act of 1986.

The compromise version of the bill is not radically different from the version endorsed last February by the major banks in California and New York. The main difference is that California institutions will have one more year of regional banking before full interstate banking is allowed in 1991.

Representatives of the savings and loan industry, who strongly opposed the earlier measure as likely to cause many California institutions to fail, appeared unable to explain to members of the Banking and Commerce Committee why they changed their position.

“It was the best compromise we could strike under the environment in which we were negotiating,” said David Milton, lobbyist for the California League of Savings Institutions.

Another source close to the savings and loan industry, who asked not to be identified, said “there was a lot of pressure from the leadership” of the Legislature to approve the bill and that “commitments were made” to New York banks that nationwide banking legislation would be passed this year.

The fight over interstate banking sparked an intense lobbying effort that has fueled the campaign coffers of dozens of legislators.