Administration Fails to Kill Its Banking Bill : * Legislation: In heavy political jockeying, House Democrats keep the reform bill alive. It bears little resemblance to what President Bush originally proposed.

House Democrats on Friday blocked the Bush Administration’s efforts to scuttle its own banking reform bill, which economics and politics have transformed into legislation that is almost exactly the opposite of what the White House wants.

After losing a series of important votes in the House, the Administration and the big banks are now a weekend away from a stunning defeat for the massive revision of banking laws they drafted 10 months ago.

Unless the White House and its banking allies can sway a crucial bloc of congressional votes by Monday, the House is likely to pass legislation that meets few if any of the Administration’s original goals.

Instead of giving the banks a green light to diversify into the securities and insurance businesses and open branches all over the nation, the banking bill now under consideration will wave a red flag, restricting the operations of weak banks and giving regulators new authority to crack down on banks that are in financial trouble.

The Bush Administration’s efforts have gone so far awry that its strategy now is to try to kill the very bill it conceived. But the White House and its allies in the banking industry managed to prevail on only one of several key votes in the past two days.

Joining the banking debate for the first time, House Majority Leader Richard Gephardt (D-Mo.) Friday led efforts to keep the bill alive but admitted that few in Congress have any enthusiasm for a measure that includes a $70-billion taxpayer loan to the Federal Deposit Insurance Corp.

In the last few weeks, some congressional Democrats apparently have decided that there are political gains to be made by laying these problems at the feet of the Bush Administration and using the banking bill as the vehicle to put them there.

Smaller banks have lined up against the Administration’s plan because they aren’t interested in turning themselves into financial supermarkets and don’t want to have to compete with banks that do so. To fight the competition, the small banks formed alliances with Wall Street stockbrokers, insurance companies and thousands of independent insurance agents.

When the banking bill was working its way through congressional committees earlier this year, the disputes were often arm-wrestling matches between the special interests that lavish huge political contributions on friendly banking committee members.

The banks wanted to sell insurance in their lobbies; the insurance agents didn’t want them to. The big banks wanted nationwide banking; the little banks didn’t. Some banks wanted to sell stocks and bonds; most brokers didn’t want that to happen.

But when the bill reached the House floor this week, broader interests and partisan politics began to take over. That put most House Republicans and the considerable number of Democrats supporting the Administration bill in the awkward position of being labeled the representatives of the big banks. And it played into the hands of Reps. John Dingell (D-Mich.), Ed Markey (D-Mass.) and Henry Gonzalez (D-Tex.).

The three Democrats narrowly protected their tough bill Thursday. And then, when House Minority Leader Bob Michel (R-Ill.) tried to kill the entire bill Friday morning, the dispute became a partisan fight and the Democrats won by a 243-158 vote.