CONGRESS / MAN IN THE MIDDLE : Riegle Pushes Bank Reform Amid Ethics Inquiry on Link to Keating

Donald W. Riegle Jr., the senior senator from Michigan with the rumpled, hangdog look, is the man in the middle of the banking crisis in Washington--in more ways than one.

In one Senate hearing room, Riegle, the 52-year-old Democratic chairman of the Senate Banking, Housing and Urban Affairs Committee, can be seen on full public view, dominating the discussions as his committee tries to lead the congressional charge toward reform of the nation’s creaking, crisis-ridden banking industry. He has just introduced a major legislative package designed to restructure the federal deposit insurance system and alter the way the federal government regulates the nation’s commercial banks.

Not far away, in another Senate committee room, Riegle’s other role in the crisis is under discussion as well. But this discussion, at the Senate Ethics Committee, is behind closed doors. Here, Riegle is under investigation as a member of the “Keating Five,” the group of senators who accepted large campaign contributions from former Lincoln Savings & Loan owner Charles H. Keating Jr., who has been indicted for his role in Lincoln’s collapse.

The Ethics Committee is investigating whether in 1987 the five senators--Riegle, John Glenn (D-Ohio), Alan Cranston (D-Calif.), Dennis DeConcini (D-Ariz.) and John McCain (R-Ariz.)--tried to use their political influence on Keating’s behalf to get federal regulators to ease their enforcement efforts involving Lincoln.

In fact, Riegle is being forced to take time out from herding banking reform legislation through the Senate in order to sit before his colleagues on the Ethics Committee to explain his role in one of the worst scandals to hit the American financial industry.

A lengthy Ethics Committee investigation would almost certainly be a major distraction for Riegle--and harmful to the Senate’s efforts to restructure the financial industry--at a time when he seems poised to assume the role of the Senate’s prime champion of banking reform.

“The bill he just introduced on deposit insurance reform is a pretty intelligent piece of work,” one banking industry source said. “But he still has to show leadership.”

Already, the scandal has forced Riegle to jettison his closest aide on the banking panel, former committee staff director Kevin Gottlieb, who was publicly linked with Riegle’s involvement in the Keating case. Some banking industry experts in Washington say Riegle’s effectiveness in dealing with banking issues has been damaged by Gottlieb’s departure.

“He really misses Gottlieb,” one banking industry source in Washington said. “Now, Riegle just bounces from issue to issue. Gottlieb gave him some direction.”

Some skeptics are wondering aloud whether Riegle would be quite as zealous as he now appears in his efforts to push banking reform through the Senate if he was not under the shadow of the ethics investigation at the same time.

“Riegle is running scared . . . “ one source familiar with Riegle’s banking committee said. “It’s got to be a distraction for him.”

Still, Riegle and congressional staffers close to him insist that he has been able to retain his effectiveness in the drive for banking reform, despite the ongoing ethics investigation.

Riegle refused to comment directly on the ethics investigation, but a Riegle spokeswoman said the senator believes “that he has a strong record that speaks for itself” on the reform of the banking and thrift industries.

Other observers also say that Riegle is determined to deal with the crisis in the banking and thrift industries and that his push on banking legislation is not just an effort to distract attention from his Ethics Committee problems.

“There is a lot of sincerity on Riegle’s part,” one banking industry source said. “It may be good politics for him to put distance between himself and the scandal, but I also think that there is genuine concern on his part about this crisis.”