Clinton Veto of Gramm Bank Bill Threatened

President Clinton on Wednesday threatened to veto financial overhaul legislation proposed by Senate Banking Committee Chairman Phil Gramm, saying it fails to fully protect consumers and would hurt community lending laws.

At the same time, Treasury Secretary Robert E. Rubin expressed the administration’s “strong support” for a compromise bill introduced in the House on Monday by Banking Committee Chairman Rep. James A. Leach (R-Iowa) and Rep. John J. LaFalce (D-N.Y.).

The Clinton administration supports in principle legislation to lift the Depression-era barriers between banks, securities firms and insurance companies. But the White House has threatened to veto several versions in recent years that took an approach it rejected.

The proposal drafted by Gramm (R-Texas) is more in line with the views of Federal Reserve Chairman Alan Greenspan than those of the administration. The bill calls for most new financial activities to be conducted by affiliated companies within bank holding companies.

In a letter to Gramm, Clinton said his proposal would “undermine the effectiveness of the Community Reinvestment Act . . . a law that has helped to build homes, create jobs and restore hope in communities across America.”

The 1977 law requires banks and thrifts to lend to the poor and minorities in their neighborhoods.

In his letter, dated Tuesday and released Wednesday, Clinton also said the bill would “provide inadequate consumer protection,” but he did not elaborate on that point.

An administration official cited as an example a provision in the compromise House bill, but absent from Gramm’s, that would require banks selling securities to make sure they are appropriate for a consumer’s circumstances. The official spoke on condition of anonymity.

Both House and Senate banking committees are due to meet today to discuss and vote on their proposals.