WASHINGTON – While several critical regulatory reform issues remained in limbo late Wednesday, House and Senate conferees agreed to several key provisions, including one allowing banks to pay interest on business checking accounts.

Banks have sought the ability to pay interest on such accounts for years only to see the issue scuttled by concerns about industrial loan companies.

But both House and Senate conferees agreed that a provision removing the prohibition should be part of the final regulatory reform bill. Industry representatives hailed it as a victory – one of the few they are likely to get out of the legislation.

"In the current interest rate environment it's not particularly significant, but in the future it does allow banks to service small-business customers... more conveniently,” said Steve Verdier, the director of congressional relations for the Independent Community Bankers of America.

Even while the House conferees contemplated adding a new controversial idea to the mix – taxing banks to pay for the overall cost of the bill – the two sides made progress on other issues.

The committee agreed to grandfather existing trust-preferred securities for all firms with less than $15 billion of assets from a new measure that would eliminate their use as part of Tier 1 capital. Larger firms will face a phase-in, but the two sides were still divided late Wednesday on its length.

Community banks also appeared to make progress toward watering down a proposal that would have forced state banks to comply with federal limits governing loans to single customers.

The Senate proposed to exempt banks under $50 billion in assets from the provision while the House sought a blanket exemption. Ultimately, the two sides agreed to count derivatives as a credit exposure for the purposes of state lending laws, but it was unclear whether the derivatives standard would be applied on top of or in lieu of the $50 billion threshold.

Observers said the change would be significant.

"For those states that have higher lending limits than national banks, forcing the banks in those states to conform to a lower lending limit would basically gut the state law that the state believes is applicable to its banks,” said Frank Bonaventure, a principal at Ober Kaler and a former counsel at the Office of the Comptroller of the Currency. "If you have a dual banking system, there are going to be differences, and one of those differences can be differences in the lending limits.”

Verdier agreed. "The state lending limits are very important to community banks, particularly in rural states, so they can make loans to small business and farms above the national lending limit,” he said. "It does allow community banks to service those types of customers without having to participate those loans out to others.”

In an unexpected twist, House Financial Services Committee Chairman Barney Frank also offered a new idea late Wednesday, saying his members will soon propose to tax banks with more than $50 billion of assets to pay for the cost of the legislation and certain foreclosure-prevention programs.

According to the Congressional Budget Office, the bill is estimated to cost roughly $20 billion over the next 10 years. The foreclosure prevention and neighborhood stabilization projects are projected to cost an additional $2.5 billion.

Frank said an added tax on institutions made sense. "The assessments are going to pay for the whole bill,” he said. "It would be less than the bonus pool, which [banks] kept telling us didn't affect their customers.”

It was unclear whether the Senate conferees would agree to the tax, however. Dodd declined to take a position on the matter with reporters after the conference concluded for the day.

Conferees also agreed in principle to add a provision to the final bill that would allow the Federal Reserve Board to examine any holding company's nonbank subsidiaries that engage in "bank-permissible activities."

Dodd described the changes as "very technical,” saying that "the Federal Reserve here would be required to examine nonbank subsidiaries that engage in bank permissible activities. The Fed doesn't do this.”

Some observers said that would give the central bank significant new powers.

Kip Weissman, a partner at Luse Gorman Pomerenk & Schick, said the provision was "troubling.”

"You're introducing a bank regulator where in the past they really haven't been active at all,” he said. "No. 2, 'bank-permissible' activities is kind of broad.”

The House offer would also restrict a Senate provision aimed at preventing charter flipping in cases where a bank has received an enforcement order.

Under the Senate bill, a bank would have to halt any action to change charters if it received an enforcement order from its old regulator. But the House proposal would allow the charter change to continue if both the old regulator and new regulator sign off on it.

The Senate said it would agree to this proposal with some modifications to ensure that flipping was not done to avoid the enforcement of state attorneys general.

"We agree to permit the charter conversions of banks and savings associations that are subject to an enforcement order provided that conversion is not opposed by either the old or the new regulator of the institution," Dodd said. "Finally, we find that a state bank should not be allowed [to avoid]... a final enforcement action by a state AG by instantaneously converting itself to a national bank, so we've added a provision to prevent this from happening."

The Senate also agreed to take a House offer with modifications that would create intermediate holding companies for commerical parents that own grandfathered unitary thrifts. Under the provision, the Federal Reserve Board would oversee the special holding company intended to focus on the financial activities of an otherwise nonfinancial firm.

The two sides also agreed in principle to a provision that would allow companies that own credit card banks and ILCs to register as securities holding companies and voluntarily subject themselves to Fed supervision.

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