While action on financial modernization legislation is underway in both the House and Senate, the likelihood that such legislation will quickly pass the Congress is fading as more and more roadblocks pop up.

For example, Democrats in both the House and Senate are increasingly demanding that limits be placed on banks’ access to the financial information they have on their customers. Large institutions want to use such information to cross-sell non-banking products based on the income and assets of their banking customers. If major hurdles are placed on access to that information, large bank support for the bill will cease, and it is the large institutions that are primarily supporting the current versions of financial modernization legislation.

At the same time, small commercial banks are demanding that the unitary thrift loophole be closed as the primary price for their support of legislation that mainly benefits large institutions.

Currently, commercial banks can conduct financial businesses through unitary thrifts, but small banks find this unfair competition. Current bills would close this loophole. However, there is broad support in the Congress for the loophole because owners of these institutions are deep-pocketed campaign contributors. And, as the industry has consolidated, many large states, such as Texas, New York and California, see commercial institutions as the only source of capital for new banks in their states. Representatives of these states fear even greater losses of financial institutions if the loophole is closed.

Against that background, there is a belief that provisions in all current versions of the bill outlawing new unitary thrifts will somehow be deleted as the bill moves through the Congress. That would have the effect of having banking trade groups, such as the American Bankers Association and the Independent Community Bankers of America, withdraw support.

In a financial services bulletin last week, analysts at Schwab Capital Markets & Trading Group, based in Washington, warned clients that "congressional limits on thrifts are not certain."

Action will resume on the bill when Congress returns to work from the Easter recess. The Senate leadership has scheduled meetings for next week on how to break the logjam holding up the legislation in that body, and Senate Democrats have reintroduced last year’s bill as their alternative to the current version, which recently passed the Senate Banking Committee on a partisan vote.