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FINANCIAL SERVICES ACT OF 1999
(House of Representatives - July 01, 1999)
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H5291]
FINANCIAL SERVICES ACT OF 1999
The SPEAKER pro tempore (Mr. LaHood). Pursuant to House Resolution
235 and rule XVIII, the Chair declares the House in the Committee of
the Whole House on the State of the Union for the consideration of the
bill,
H.R. 10.
{time} 1638
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(
H.R. 10) to enhance competition in the financial services industry by
providing a prudential framework for the affiliation of banks,
securities firms, and other financial service providers, and for other
purposes, with Mrs. Emerson in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Iowa (Mr. Leach), the gentleman
from New York (Mr. LaFalce), the gentleman from Virginia (Mr. Bliley),
and the gentleman from Michigan (Mr. Dingell) each will control 22\1/2\
minutes.
The Chair recognizes the gentleman from Iowa (Mr. Leach).
Mr. LEACH. Madam Chairman, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Madam Chairman, I realize that feelings are imperfect with relation
to the rule debate. For all the frustration on the minority side, it is
more than matched by this Member whose advice was disregarded by the
Rules Committee on key amendments. Nonetheless the big picture is that
this is a good bill, good for individual citizens and the economy at
large. I ask all my colleagues to vote on the quality of the end
product, not the process of consideration which I acknowledge has been
imperfect.
In this regard, let me stress that the big picture is that financial
modernization legislation will save the public approximately $15
billion a year. It will provide increased services to individuals and
firms, particularly those in less comprehensively served parts of the
country. It will also allow U.S. financial companies to compete more
fully abroad.
The economy on a global basis is changing and we must be prepared to
lead market developments, rather than lose market share. In this
effort, the fundamental precept of the bill is to end the arbitrary
constraints on commerce implicit in the 65-year-old Glass-Steagall law.
Competition is the American way and enhanced competition is the
underlying precept of this bill.
In this regard, I'd like to address the issues of bigness and of
privacy. With regard to conglomeration which is proceeding at a pace
with which I am
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deeply uncomfortable, it should be understood that the big are getting
bigger from the top down, utilizing regulatory fiat. What this bill
does is provide a modern regulation framework for change. It empowers
all equally. Smaller institutions will be provided the same competitive
tools that currently are only available to a few. Indeed, in a David
and Goliath world,
H.R. 10 is the community bankers and independent
insurance agents' slingshot.
Finally, with regard to privacy, let me stress no financial services
bill in modern history has gone to this floor with stronger privacy
provisions. Importantly, pretext calling--the idea that someone can
call a financial institution and obtain your financial information--is
now effectively outlawed; medical records are protected; and
individuals are given powerful new rights to prevent financial
institutions from transferring or selling information to third parties.
Here, let me stress, if Congress subsequently passes more
comprehensive medical records provisions, they will be allowed to
bolster or supercede these safeguards and if HHS promulgates
regulations in this area they would augment the provisions of this
bill. Nothing in this act is intended to shackle Executive Branch
actions in this area.
In conclusion, I would like to thank my Democratic colleagues on the
Banking Committee and, in particular, John LaFalce and Bruce Vento, and
John Dingell of the Commerce Committee, whose support I have been
appreciative in the past and whose dissent I respect today; also my
friends Tom Bliley, Mike Oxley, David Dreier, John Boehner and so many
others, like Marge Roukema, Sue Kelly, Pat Toomey and Rick Lazio, whose
leadership has been so important to bringing this bill to the floor.
The legislation before the House is historic win-win-win legislation,
updating America's financial services system for the 21st Century.
It's a win for consumers who will benefit from more convenient and
less expensive financial services, from major consumer protection
provisions and from the strongest financial and medical privacy
protections ever considered by the Congress.
It's a win for the American economy by modernizing the financial
services industry and savings an estimated $15 billion in unnecessary
costs.
And, it's a win for America's international competition position by
allowing U.S. companies to compete more effectively for business around
the world and create more financial services jobs for Americans.
It would be an understatement to say that this has not been an easy,
nor a quickly-produced piece of legislation to bring before the House.
For many of the 66 years since the Congress enacted the Glass-
Steagall Act in 1933 to separate commercial banking from investment
banking, there have been proposals to repeal the act. The Senate has
thrice passed repeal legislation and last year the House approved the
105th Congress version of
H.R. 10.
But, this year it appears that we may be closer than ever before to
final passage. The bill before us today is the result of months and
months of tough negotiation and compromise; among different
congressional committees, different political parties, different
industrial groupings and different regulators. No single individual or
group got all--or even most--of what it wanted. Equity and the public
interest have prevailed.
It should be remembered that while the work of Congress inevitably
involves adjudicating regulatory turf battles or refereeing industrial
groups fighting for their piece of the pie, the principal work of
Congress is the work of the people--to ensure that citizens have access
to the widest range of products at the lowest possible price; that
taxpayers are not put at risk; that large institutions are able to
compete against their larger international rivals; and that small
institutions can compete effectively against big ones.
We address this legislation in the shadow of major, ongoing changes
in the financial services sector, largely the result of decisions by
the courts and regulators, who have stepped forward in place of
Congress. Many of us have concern about certain trends in finance.
Whether one likes or dislikes what is happening in the marketplace, the
key is to ensure that there is fair competition among industry groups
and protection for consumers. In this regard, this bill provides for
functional regulation with state and federal bank regulators overseeing
banking activities, state and federal securities regulators governing
securities activities and the state insurance commissioners looking
over the operations of insurance companies and sales.
The benefits to consumers in this bill cannot be stressed more.
First, they will gain in improved convenience. This bill allows for
one-stop shopping for financial services with banking, insurance and
securities activities being available under one roof.
Second, consumers will benefit from increased competition and the
price advantages that competition produces.
Third, there are increased protections on insurance and securities
sales, a required disclosure on ATM machines and screens of bank fees
and a requirement that the Federal Reserve Board hold public hearings
on large financial services merger proposals.
Fourth, the Federal Home Loan Bank reform provisions expand the
availability of credit to farmers and small businesses and for rural
and low-income community economic development projects.
Fifth, the bill also contains major consumer privacy protections
making so-called pretext calling, in which a person uses fraudulent
means to obtain private financial information of another person, a
federal crime punishable by up to five years in jail and a fine of up
to $250,000; would wall off the medical records held by insurance
companies from transfer to any other party; and requires banks to
disclose their privacy policies to customers.
A bipartisan amendment developed by members of the Banking, Commerce
and Rules Committee will further enhance these protections and I urge
its adoption.
In closing, I'd like to emphasize again the philosophic underpinnings
of this legislation. Americans have long held concerns about bigness in
the economy. As we have seen in other countries, concentration of
economic power does not automatically lead to increased competition,
innovation or customer service.
But the solution to the problem of concentration of economic power is
to empower our smaller financial institutions to compete against large
institutions, combining the new powers granted in this legislation with
their personal service and local knowledge in order to maintain and
increase their market share.
For many communities, retaining their local, independent bank depends
upon granting that bank the power to compete against mega-giants which
are being formed under the current regulatory and legal framework.
H.R. 10 provides community banks with the tools to compete, not only
against large mega-banks but also against new technologies such as
Internet banking. Banks which stick with offering the same old accounts
and services in the same old ways will find their viability threatened.
Those that innovate and adapt under the provisions of this bill will be
extraordinarily well positioned to grow and serve their customer base.
Large financial institutions can already offer a variety of services.
But community banks are usually not large enough to utilize legal
loopholes like Section 20 affiliates or the creation of a unitary
thrift holding company to which large financial institutions--
commercial as well as financial--have turned.
By bolstering the viability of community-based institutions and
providing greater flexibility to them,
H.R. 10 increases the percentage
of dollars retained in local communities. Community institutions are
further protected by a small, but important provision that prohibits
banks from setting up ``deposit production offices'' which gather up
deposits in communities without lending out money to people in the
community.
Additionally, the bill before us strengthens the Community
Reinvestment Act by making compliance with the act a condition for a
bank to affiliate with a securities firm or securities company. CRA is
also expanded to a newly created entity called Wholesale Financial
Institutions.
One of the most controversial provisions in
H.R. 10 is the provision
in Title IV which prohibits commercial entities from establishing
thrifts in the future. Under current law, commercial entities are
already prohibited from buying or owning commercial banks. This
restriction between commercial banking and commerce is not only
maintained in
H.R. 10 but extended to restrict future commercial
affiliations with savings associations.
The reason this restriction on commerce and banking is being expanded
is several fold. First, savings associations that once were exclusively
devoted to providing housing loans, have become more like banks,
devoting more of their assets to consumer and commercial loans. Hence
the appropriateness for comparability between the commercial bank and
thrift charter is self-evident.
Second, this provision must be viewed with the history of past
legislative efforts affecting the banking and thrift industries. The
S industry has tapped the U.S. Treasury for $140 billion to clean up
the 1980s S crisis. In 1996, savings associations received a multi-
billion dollar tax break to facilitate their conversion to a bank
charter. Also, in 1996, the S tapped the banking industry for $6 to
$7 billion to help pay over the next 30 years for
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their FICO obligations, that part of the S bailout costs that
remained with the thrift industry.
During this time period, Congress has liberalized the qualified
thrift lending test and the restrictions on the Federal savings
association charter. These legislative changes are in addition to the
numerous advantages that the industry has historically enjoyed, such as
the broad preemption rights over state laws and more liberal branching
laws.
H.R. 10 continues the Congressional grant of benefits to the thrift
industry by repealing the SAIF special reserve, providing voluntary
membership by Federal savings associations in the Federal Home Loan
Bank System, allowing state thrifts to keep the term ``Federal'' in
their names, and allowing mutual S holding companies to engage in the
same activities as stock S holding companies.
Opponents of this provision correctly argue that commercial companies
that have acquired thrifts (so-called unitary thrift holding companies)
before and after the S debacles of the 1980s have not, for the most
part, caused taxpayer losses. However, the Federal deposit insurance
fund that was bailed out by the taxpayers applied to the entire thrift
industry including the unitary thrift holding companies. Three years
ago some $6 billion to $7 billion in thrift industry liabilities left
over from cleaning up the S were transferred to the commercial
banking industry with the understanding that sharing liabilities would
be matched by ending special provisions. This is another reason to
provide comparable regulation.
It is with this history and the assumption that decisions in this
bill are made in the context of a legislative continuum that the
provision in the bill was added to not only restrict the establishment
of new unitary thrift holding companies, but also to require that
commercial entities may not buy a thrift from an existing grandfathered
company without first getting Federal Reserve Board approval.
As we all know, there are complex issues involved in this
legislation, and there will be differing judgments by Members. One
thing we all may agree upon, however, is that Congress needs to
reassert its Constitutional role in determining what should be the laws
governing financial services, instead of allowing the regulators and
courts to usurp this responsibility.
If Congress turns its back on financial services modernization, we
should not fool ourselves that rapid evolution in the fields of
banking, securities and insurance will cease. It will not. Financial
services modernization will take place with or without Congressional
approval. Without this legislation, however, changes in financial
services will continue unabated, but they will take place in an ad hoc
manner through the courts and through regulatory fiat, and will not be
subject to the safeguards and prudential parameters established in this
legislation.
Now is the time for Congress, to step up to the challenge of
modernizing our nation's financial services sector for the 21st
century, to ensure that it remains competitive internationally, that it
is stable and poses the least possible threat to the taxpayer, and that
it provides quality service to all our citizens and communities.
Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I yield myself 3 minutes.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Madam Chairman, first, I want to thank the Chairman of
the Committee on Banking and Financial Services, the gentleman from
Iowa (Mr. Leach), for working collegially with so many of us on the
Democratic side of the aisle in order to produce a bipartisan bill out
of the Committee on Banking and Financial Services that could be signed
by the President and enacted into law. Each side had to give and take,
each side had to make tremendous amount of concessions, but we did in
order to advance the public interest and financial services
modernization.
{time} 1645
We produced a bill with a 51-8 vote, 21-6 on the Democratic side of
the aisle. The Democrats voted for it, however, in large part because
we were able to retain the strongest community reinvestment provisions,
because we were able to have strong consumer protection before and
beyond that, most especially provisions regarding redlining in the
insurance industry. Once that eroded, so too did a lot of the
Democratic support. And that is unfortunate. It is unfortunate.
There are other provisions that we are concerned about, too, and that
is the medical privacy language of the gentleman from Iowa (Mr.
Ganske). I am hopeful that if this bill passes those concerns that we
have can be dealt with in conference, and I look forward to a colloquy
with the gentleman from Iowa (Mr. Ganske) regarding his disposition on
that.
There are some amendments that have been offered that I do not think
should have been allowed that would create severe difficulties for me,
in particular, the amendment of the gentleman from Texas (Mr. Paul)
which would eviscerate the ability of law enforcement agencies to
enforce our anti-money-laundering statutes. The FBI is adamantly
opposed to that.
I also am adamantly opposed to the Bliley amendment that would be a
rip-off for the officers of mutual insurance companies at the expense
of policyholders. It would be a Federal intrusion on State law. It
would say to insurance officers, disregard your policyholders if they
want to convert. They are entitled to all the money, not their
policyholders. We must defeat the Bliley amendment if this bill is to
advance the way I would like it to advance.
I am hopeful that, at the conclusion of debate and at the conclusion
of the amendment process, we could advance to conference and then deal
with whatever problems are left in conference. But that remains to be
seen.
Mr. LaFALCE. Madam Chairman, I reserve the balance of my time.
Mr. BLILEY. Madam Chairman, I yield 5 minutes to the gentleman from
Ohio (Mr. Oxley), chairman of the Subcommittee on Finance and Hazardous
Material, the coach of our successful baseball team.
(Mr. OXLEY asked and was given permission to revise and extend his
remarks.)
Mr. OXLEY. Madam Chairman, I rise in support of
H.R. 10, the
Financial Services Act of 1999.
This is indeed an historic occasion, something that many of us have
worked on for a number of years. As a matter of fact, this is by my
count the 10th time in the last 20 years that we have sought to bring
our financial laws into the modern world as we enter the 21st century.
So here is hoping that number 11 is the charm.
Building on the progress we made last year through the help of many
people that I see here on the floor, including our good friend, the
gentleman from Ohio (Mr. Boehner), the gentleman from Virginia
(Chairman Bliley), the gentleman from Iowa (Chairman Leach), the
gentleman from Michigan (Mr. Dingell), the gentleman from New York (Mr.
Towns) and others, that we passed this bill by one vote in the House.
I suspect this year it will be far different and it will be a large
vote, because the time has come for financial services modernization in
this Congress and indeed in this country.
We have arrived at a point where just about everybody, including
those on the opposite side of specific issues on the op-sub issue, for
example, agree that the country's financial regulations crafted during
the Depression years of the 1930s need to be brought up to date.
The Glass-Steagall Act has outlived its useful purpose. It now serves
only as the cause of inefficiency in the markets as our markets change
dramatically.
Madam Chairman, we have had a series of hearings, for example, in my
committee about what is going on with the securities industry and how
on-line brokerage has now become the most growing part of the
securities industry. That shows how things have changed in technology
and in markets and in consumer preference. And yet we continue to rely
on a 1930 statute known as Glass-Steagall that simply has outlived its
usefulness.
That means legislation that will provide for fair competition among
all players. And it also means not only modernizing the marketplace and
treating the consumer as the one who makes those kinds of decisions in
the marketplace to provide that consumer with a new array of services
and products, some products we probably have not even thought of or
that financial service institutions have not even thought of yet today
will be offered more and more to the consuming public and they are
going to be able to one-stop shop as they go into this financial
institution.
And ultimately it will not make any difference what it says on the
door because they are going to be able to buy
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a wide variety of products in that area. And, yes, those functions will
be regulated by the regulators who know what that is all about. It is
called functional regulation. Or as chairman of the SEC Arthur Levitt
says, commonsense regulation in our marketplace is to protect the
consumer but not to constrict the marketplace so that people do not
have the ability to make decisions based on what is in their long-term
economic interest. It means legislation that will promote, not
jeopardize, the long-term stability of U.S. financial markets and the
interests of American taxpayers.
Americans are becoming increasingly active participants in our
booming securities markets and going on-line and investing, sometimes
around the clock, for their families' future, investing for their
education, for their children's education, investing for the future
that we have tried to encourage.
One of the frustrations, I guess, in our country over the years has
been that our savings rate has been far too low compared to some of our
other competing nations. This will give people the ability to make
long-term plans, to work with a financial institution that has the
ability for them to buy their banking products, to get their
securities, their 401(k), their savings, their insurance needs, all of
those, under one roof dealing with professionals that they trust and
that they know can provide them with the kind of economic security that
they have come to expect.
The change already taking place in the marketplace may make it
impossible for us to try Glass-Steagall reform a 12th time, and I would
implore the Members to understand that this may be our last really good
shot at bringing our laws up-to-date with what is happening in the
marketplace and what is happening with technology, and all of those
forces are now moving us so inextricably in that direction.
Because of the leadership of the gentleman from Iowa (Mr. Leach),
chairman of the Committee on Banking and Financial Services, because of
the leadership of the gentleman from Virginia (Mr. Bliley) chairman of
the Committee on Commerce, because of participation on the other side
of the aisle, it brings us here today.
Let us move forward. Let us support
H.R. 10. Let us provide the kind
of modern financial institutions that all of us have come to expect.
Mr. DINGELL. Madam Chairman, I yield myself 4 minutes.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Madam Chairman, this is a bad bill. We consider it under
a bad rule.
George Santayana said something which I thought was very interesting.
He said, ``He who does not learn from history is doomed to repeat it.''
It looks like this Congress is setting out to create exactly the same
situation which caused the 1929 crash. It looks like this Congress is
setting out to create the situation that caused the collapse of the
banks in Japan and Thailand by setting up op-subs and by setting up
monstrous conglomerates which will expose the American taxpayers and
American investors to all manner of mischief and to the most assured
economic calamity.
The bill is considered under a rule which does not afford either an
opportunity to offer all the amendments or to have adequate debate
thereof. But what does the bill do, among other things?
First all, it allows megamergers to create monstrous institutions
which could engage in almost any sort of financial action. It sets up
essentially, devices like the banks in Japan, which are in a state of
collapse at this time, banks in Korea and Thailand, which are in a
state of collapse, or banks in the United States, which could do
anything and which did anything and contributed in a massive way to the
economic collapse of this country in 1929 which was only cleared and
cured by World War II.
Some of the special abuses of this particular legislation need to be
noted. The Committee on Rules has stripped out an anti-redlining
provision which had been in the law and which is valuable, and it is
brazen and outrageous discrimination against women and minorities and
it sanctifies such actions by insurance companies and others within the
banks' financial holding companies which will be set up hereunder.
It attacks the privacy of American citizens. It allows unauthorized
dissemination of their personal financial information and records. It
guts the current protections for medical information now under State
law. And it hampers the ability of the Secretary of Health and Human
Services to adopt meaningful protections.
Every single health group in the United States and the AFL-CIO oppose
this provision because it guts the rights of Americans to know that
what they tell their doctor and what their doctor tells them is secure.
If we want to protect the security of our own financial records, we
should tremble at this bill. It contains laughable financial privacy
protections that tell a bank that it only has to disclose its privacy
policy if it happens to have one. In other words, if they are going to
give them the shaft, they should tell them. But they can do anything
they want in terms of the financial information which they give them
and which can be used to hurt them in their personal affairs.
The bill wipes out more than 1,700 essential State insurance laws
across the country. It creates no Federal regulator to fill the void.
So, as a result, their protections when they buy insurance are stripped
away.
Alan Greenspan, the chairman of the Federal Reserve, is properly
worried, and that should count for a lot. Let me read to my colleagues
what he said to the Committee on Commerce this year.
``I and my colleagues are firmly of the view that the long-term
stability of U.S. financial markets and the interests of the American
taxpayer would be better served by no financial modernization bill
rather than one that allows the proposed new activities to be conducted
by the bank.'' And he goes on to state that he and his colleagues
``believe strongly that the operating subsidiary approach would damage
competition in and the vitality of our financial services industry and
poses serious risks for the American taxpayer.''
He noted that it creates a situation where banks and other financial
activities will be made too big to fail and that the taxpayers then
will be compelled to come in and bail them out.
So if my colleagues enjoyed the outrage of what the Committee on
Banking and Financial Services did to us on the savings and loan
reform, this, they should know, is a perfection of that. That cost us
about $500 billion. This, my colleagues can be assured, will cost us a
lot more.
I urge my colleagues to vote against this abominable legislation.
In case my colleagues have any questions about my views, I want to
clearly state for the record that I rise to condemn this bill. It is a
terrible piece of legislation and should cause Americans to quake at
the prospect of its passing.
If you value your civil rights, you should worry about this bill. The
Rules Committee stripped out an anti-redlining provision, offered by
our colleague Ms. Lee and agreed to by the Banking Committee. This
brazen act allows discrimination against women and minorities by
insurance companies within the bill's financial holding companies.
If you have had cancer or diabetes or depression or any other medical
condition that could affect your employment or lead to discrimination
against you, you should fear this bill. It contains a medical privacy
provision that actually sanctifies the unauthorized dissemination of
your personal medical information records. It guts many current
protections for medical information and hampers the ability of the
Secretary of Health and Human Services to adopt meaningful protections.
Legions of groups oppose this provision from the American Medical
Association to the AFL-CIO.
If you want to protect the privacy of your own personal financial
records, you should tremble at the prospect of this bill. The bill
contains laughable financial privacy protections that tell a bank to
disclose its privacy policy--if it has one. This bill deprives you of
the right to say no.
If you own insurance, you should worry if you bought it from a bank.
This bill wipes out more than 1,700 essential state insurance laws
across the country, with no federal regulator to fill the void.
If you are a taxpayer, you should recoil in horror at this bill. No
less an august person than Alan Greenspan is worried, and usually that
counts for a lot. Let me read to you what he said before the Commerce
Committee in April of this year:
I and my colleagues are firmly of the view that the long-
term stability of U.S. financial
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markets and the interests of the American taxpayer would be
better served by no financial modernization bill rather than
one that allows the proposed new activities to be conducted
by the bank.
He reiterated these views to me on June 28 in a letter which I intend
to put into the Record, but I want to read just one part:
I and my colleagues on the Board believe strongly that the
operating subsidiary approach would damage competition in and
the vitality of our financial services industry and poses
serious risks for the American taxpayer. We have no doubt
that the holding company approach, adopted by the house last
year, passed by the Senate this year, and supported by each
previous Treasury and Administration for nearly 20 years, is
the prudent and safest way to modernize our financial
affiliation laws and does not sacrifice any of the benefits
of financial reform.
This bill greatly expands the authority of political appointees and
bureaucrats over banking and monetary policy. That worries Alan
Greenspan. It should worry all Americans.
In the earlier debate on the rule, several of my Republican
colleagues labeled our concerns as ``partisan.'' So be it! If the
Republicans want to accuse Democrats of caring about equal rights and
protection from discrimination under the Constitution, I'll proudly
stand with my Democratic colleagues. If the Republicans want to accuse
Democrats of standing for full and fair protection of Americans'
privacy rights, I'll proudly stand under that banner as well.
What I won't stand for is this abominable legislation. I support
responsible financial modernization. I do not support this bill. It is
a terrible piece of legislation and I urge the House to defeat it so we
can go back to the drawing board and write a good bill.
In closing, I would like to address an important technical matter and
explain the purpose of the Section 303 ``Functional Regulation of
Insurance'' reference to Section 13 of the Federal Reserve Act. That
reference is included to ensure that everyone that engages in the
business of insurance--including national banks selling insurance as
agents under the small-town sales provision commonly known as ``Section
92''--are subject to state regulation of those activities.
Some have argued that this reference is not meant to overrule the
Supreme Court's ruling in the Barnett Bank case. I want to make clear
that that statement is correct to the extent that the Commerce
Committee intended that all state functional regulation of the
insurance activities of financial institutions would be subject to the
preemption rules set forth in Section 104. Indeed, that is why there is
a specific reference to Section 104 at the end of Section 303. And
Section 104 incorporates the preemption standard articulated by the
Supreme Court in the Barnett Bank case and even specifically cites that
case.
The statement, however, is incorrect to the extent that it implies
that the Comptroller of the Currency remains free to issue his own set
of rules and regulations to govern small-town national bank insurance
sales activities. Although--as the Barnett Bank opinion recognizes--
Section 92 specifically authorizes the Comptroller to issue such
regulations, Section 303 makes clear that States are now the paramount
authority in the regulation of small-town national bank insurance sales
activities. Under Section 303, all state regulations of insurance sales
activities apply to small-town national bank insurance sales activities
under Section 92 unless those regulations are prohibited under the
Section 104 preemption standard.
Organizations Opposed to The Medical Records Provisions in
H.R. 10
Physician Organizations
American Medical Association
American Psychiatric Association
American College of Surgeons
American College of Physicians/American Society of Internal
Medicine
American Academy of Family Physicians
American Psychological Association
Nurses Organizations
American Nurses Association
American Association of Occupational Health Nurses
Patient Organizations
National Breast Cancer Coalition
Consortium for Citizens with Disabilities/Privacy Working
Group
National Association of People with AIDS
AIDS Action
National Organization for Rare Disorders
National Mental Health Association
Myositis Association
Infectious Disease Society
Privacy/Civil Rights Organizations
Consumer Coalition for Health Privacy
American Civil Liberties Union
Center for Democracy and Technology
Bazwlon Center for Mental Health Law
Labor Organizations
AFL-CIO
American Federation of State, County and Municipal
Employees
Service Employees International Union
Senior and Family Organizations
American Association of Retired Persons
National Senior Citizens Law Center Planned Parenthood
Federation of America, Inc.
National Partnership for Women and Families
American Family Foundation
Other Organizations
American Association for Psychosocial Rehabilitation
American Counseling Association
American Lung Association
American Occupational Therapy Association
American Osteopathic Association
American Psychoanalytic Association
American Society of Cataract and Refractive Surgery
American Society of Clinical Psychopharmacology
American Society for Gastrointestinal Endoscopy
American Society of Plastic and Reconstructive Surgeons
American Thoracic Society
Anxiety Disorders Association of America
Association for the Advancement of Psychology
Association for Ambulatory Behavioral Health
Center for Women Policy Studies
Children & Adults with Attention-Deficit/Hyperactivity
Disorder
Corporation for the Advancement of Psychiatry
Federation of Behavioral, Psychological and Cognitive
Sciences
Intenational Association of Psychosocial Rehabilitation
Services
Legal Action Center
National Association of Alcoholism And Drug Abuse
Counselors
National Association of Developmental Disabilities Councils
National Association of Psychiatric Treatment Centers for
Children
National Association of Social Workers
National Council for Community Behavioral Healthcare
National Depressive and Manic Depressive Association
National Foundation for Depressive Illness
Renal Physicians Association
Additional Views
During the consideration of
H.R. 10, an amendment was
offered to add a new section 351, entitled ``Confidentiality
of Health and Medical Information.'' While we support
increased protection for medical information, we opposed this
provision, because, unfortunately, the provision weakens
existing protections for medical confidentiality, and
establishes a number of poor precedents for private medical
information disclosure.
While the provision at first blush appears to place limits
on the disclosure of medical information, the lengthy list of
exceptions to these limits leaves the consumer with little,
if any protection. In fact, the provisions ends up
authorizing disclosure of information rather than limiting
it.
In medicine, the first principle is ``Do no harm.'' In
crafting a Federal medical privacy law, this principle
requires that state laws providing a greater level of
protection be left in place. Yet section 351 could preempt
the laws of 21 states that have enacted medical privacy laws.
While we agree that genetic information should also be
protected--in fact, should deserve a higher level of
protection--this provision could also preempt 36 state laws
which protect the confidentiality of genetic information.
The provision also lacks any right for the individual to
inspect and correct one's medical records. As a result, an
individual has greater rights to inspect and correct credit
information than medical records.
There is no requirement that the customer even be told that
his medical information is being provided to a third party.
Thus there is no way that the customer could prevent the
records from being disseminated if the customer believed that
statutory rights were being violated.
An individual has no right to seek redress if the rights
under this provision are violated. In fact, the customer is
unlikely to even know that the rights were violated. The only
enforcement authority is given to the states. If the
individual is unlikely to have knowledge of the transfer of
confidential medical records, it is hard to understand how
the state Attorney General would know to bring an action as
provided in subsection (b) of the provision. Even if the
state brings an action, it can only enjoin further
disclosures. The customer has no right to seek damages.
The provision places absolutely no restrictions on the
subsequent disclosure of medical records by anyone receiving
the records. Once the records are out the door for any of the
myriad exceptions in this provision, they are fair game for
anyone.
We agree that information should be disclosed only with the
consent of the customer, as provided in (a)(1), but this
right is rendered meaningless with the extensive laundry list
of exceptions that swallows this simple rule. We shall only
discuss a few of these exceptions.
The provision allows financial institutions to provide
medical records, including genetic information, for purposes
of underwriting. As a result, customers could find themselves
being uninsurable, or facing whopping rate increases for
health insurance, based upon their genetic information, or
health records. In addition, the information may be
inaccurate, but the customer cannot correct it.
The provision allows financial institutions to provide
medical records for ``research
[[Page
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projects.'' This term is undefined, and could include
marketing research, or nearly anything else. For example, a
customer's prescription drug information could be provided to
a drug company doing marketing research on candidates for a
new related drug.
Moreover, the provision establishes no research protections
for individually identifiable records. The majority of human
subject research studies conducted in this country are
subject to the Common Rule, a set of requirements for
federally-funded research. Analogous requirements apply to
clinical trials conducted pursuant to the FDA's product
approval procedures. The Common Rule dictates that a study
must be approved by an entity that specifically examines
whether the potential benefits of the study outweigh the
potential intrusion into an individual's private records and
whether the study includes strong safeguards to protect the
confidentiality of those records. Two weeks ago at a hearing
before the Health and Environment Subcommittee, witnesses
from the National Breast Cancer Coalition and the National
Organization for Rare Disorders testified that these Federal
standards should be extended to all research using
individually-identifiable medical records. Extending these
protections would strengthen confidence in the integrity of
the research community and encourage more individuals to
participate in studies. Because this provision establishes no
protections for individually-identifiable records, it could
actually stifle research.
The provision allows the disclosure of confidential medical
records ``in connection with'' a laundry list of
transactions, most of which have nothing to do with medical
records. The provision does not define who can receive the
records, but instead allows disclosure to anyone, so long as
it is ``in connection with'' a transaction. There was no
explanation at the markup why medical records should be
disclosed in connection with ``the transfer of receivables,
accounts, or interest therein.'' There is no definition of
``fraud protection'' or ``risk control'' for which the
provision also authorizes disclosure. The provision gives
carte blanche to financial institutions to disclose
confidential medical records for ``account administration''
or for ``reporting, investigating, or preventing fraud.''
Reporting to whom? An investigation by whom?
While most laws protecting medical records provide for
disclosure in compliance with criminal investigations, those
laws provide safeguards to permit the individual the
opportunity to raise legal issues. This provision does not.
In fact, as is the case with all other disclosures in this
provision, the consumer would not even be informed that the
information has been disclosed. Thus, a customer's medical
records could be disclosed to an opponent in a civil action
without the customer even knowing it.
Within hours of passage of this provision, we began
learning from patient groups and others who have fought to
improve the privacy rights of individuals that this provision
is seriously flawed. These concerns demonstrate why Congress
needs to deal comprehensively with the issue of medical
confidentiality, not in a slapdash amendment that has
received no scrutiny. The Health and Environment Subcommittee
of the Commerce Committee has already held a hearing on
medical privacy, and a Senate committee has held multiple
hearings on the subject. We look forward to enacting real
medical information privacy provisions that will truly
protect individuals. Unfortunately, this premature move by
the Committee will actually set back the health and medical
information privacy rights of all Americans.
John D. Dingell, Henry A. Waxman, Edward J. Markey, Rick
Boucher, Edolphus Towns, Frank Pallone, Jr., Sherrod
Brown, Bart Gordon, Peter Deutsch, Bobby L. Rush, Ron
Klink, Bart Stupak, Tom Sawyer, Albert R. Wynn, Gene
Green, Ted Strickland, Diana DeGette, Thomas M.
Barrett, and Lois Capps.
The Version of
HR 10 Released by the House Rules Committee Sweeps Away
1,781 Essential State Insurance Laws Across the Country
State governments are solely responsible for regulating the
business of insurance in the United States.
The States regulate insurance in order to protect consumers
and supervise the solvency and stability of insurers and
agents.
The version of
HR 10 released by the House Rules Committee
on June 24, 1999 will likely preempt many State consumer
protection and solvency laws needed to regulate the insurance
activities of banks and their affiliates.
------------------------------------------------------------------------
Number of
State laws
likely
preempted
State by the
House Rules
Committee
version of
H.R. 10
------------------------------------------------------------------------
Alabama.................................................... 33
Alaska..................................................... 30
Arizona.................................................... 35
Arkansas................................................... 41
California................................................. 43
Colorado................................................... 35
Connecticut................................................ 36
Delaware................................................... 32
Florida.................................................... 40
Georgia.................................................... 38
Hawaii..................................................... 28
Idaho...................................................... 31
Illinois................................................... 41
Indiana.................................................... 33
Iowa....................................................... 39
Kansas..................................................... 41
Kentucky................................................... 36
Louisiana.................................................. 37
Maine...................................................... 37
Maryland................................................... 36
Massachusetts.............................................. 32
Michigan................................................... 33
Minnesota.................................................. 36
Mississippi................................................ 32
Missouri................................................... 37
Montana.................................................... 36
Nebraska................................................... 36
Nevada..................................................... 36
New Hampshire.............................................. 28
New Jersey................................................. 41
New Mexico................................................. 31
New York................................................... 37
North Carolina............................................. 46
North Dakota............................................... 34
Ohio....................................................... 38
Oklahoma................................................... 31
Oregon..................................................... 39
Pennsylvania............................................... 35
Rhode Island............................................... 35
South Carolina............................................. 34
South Dakota............................................... 37
Tennessee.................................................. 37
Texas...................................................... 42
Utah....................................................... 34
Vermont.................................................... 32
Virginia................................................... 36
Washington................................................. 36
West Virginia.............................................. 34
Wisconsin.................................................. 33
Wyoming.................................................... 31
------------
Total................................................ 1,781
------------------------------------------------------------------------
Source: National Association of Insurance Commissioners
Board of Governors of the
Federal Reserve System,
Washington, DC, June 28, 1999.
Hon. John D. Dingell,
Ranking Minority Member, Committee on Commerce, House of
Representatives, Washington, DC.
Dear Mr. Dingell: This is in response to your request for
the Board's views on the operating subsidiary approach to
financial modernization contained in
H.R. 10. As I have
testified, I, and my colleagues on the Board believe strongly
that the operating subsidiary approach would damage
competition in and the vitality of our financial services
industry and poses serious risks for the American taxpayer.
We have no doubt that the holding company approach, adopted
by the House last year, passed by the Senate this year, and
supported by each previous Treasury and Administration for
nearly 20 years, is the prudent and safest way to modernize
our financial affiliation laws and does not sacrifice any of
the benefits of financial reform.
The structure adopted by Congress for financial
modernization will prove decisive to the shape of our
financial system, the long term health of our economy, and
the level of protection afforded the American taxpayer long
into the next century. Thus, this decision on banking
structure is a policy matter of national importance. Allowing
national banks to engage through operating subsidiaries in
merchant banking, securities underwriting, and other newly
authorized financial activities is likely to have as profound
an impact on our entire financial sector as the 1982
legislation regarding the thrift industry.
The problem with the operating subsidiary approach is that
insured banks are supported by the U.S. Government and,
consequently, are able to raise funds at a materially lower
cost, which is equivalent to approximately half of the
interest spread on an investment grade loan. This subsidized
ability to raise lower cost funds provides banks and their
operating subsidiaries a decisive advantage over independent
securities, insurance and financial services firms. This
advantage will inevitably reduce competition and innovation
in and between these industries as it has in other countries
that have adopted the universal banking approach. In
addition, the experiences in Asia demonstrate that linking
financial markets more tightly to the health of the banking
system--as is inevitable under the operating subsidiary
approach--makes the economy more vulnerable to crises that
affect banks and makes the broader financial markets more
dependent on the protection and advantages of the federal
safety net.
The operating subsidiary approach also poses substantial
risks to the safety and soundness of our banking system and
to the American taxpayer. This derives from the fact that an
operating subsidiary of a bank is consolidated with, and
controlled by, the bank and the fate of the bank and its
subsidiary are inextricably interdependent. The measures
contained in
H.R. 10 to address these risks are not adequate.
These measures are based on creating a regulatory accounting
system that is different from market accounting and on the
hope that operating subsidiaries can be quickly divested
before problems spread to the parent bank. We have learned
from the thrift crisis of the 1980s that regulatory
accounting can give a dangerously false sense of security
that only masks real problems. In addition, experience with
other subsidiaries of national banks illustrates that banks
can lose far more than they invest in an operating
subsidiary, that those losses can occur quickly and before
regulators have an opportunity to act, and that banks feel
forced to support their subsidiaries through capital
injections and liberal interpretations of the law. Troubled
operating subsidiaries are also very difficult to sell and
can result in prolonged exposure and expense to the parent
bank. In the heat of a crisis, the taxpayer cannot be
confident that regulatory constraints will prove entirely
effective.
In a world where mega-mergers are increasing the size of
banks on a stand-alone basis, the operating subsidiary
structure allows banks to increase their balance sheets in
even more dramatic fashion. This, on its own, may not be a
problem. However, the operating subsidiary structure focuses
all
[[Page
H5222]]
losses from new activities--as well as the risks from the
bank's direct activities--on the bank itself. Thus, the
operating subsidiary structure leads to precisely the type of
organization that inspires too-big-to-fail concerns.
Some argue that
H.R. 10 does nothing more than preserve
freedom of choice of management. However, this is not a
matter of choice for private enterprise. Rational management
will inevitably choose the operating subsidiary because it
allows the maximum exploitation of the cheaper funding
ability of the bank. Because this so-called ``choice''
involves the use of the sovereign credit of the United
States, it is a decision that should rest exclusively with
Congress.
It is also noteworthy that the holding company approach
does not in any way diminish the powers or attractiveness of
the national bank charter. The national bank charter has
flourished in recent years even though national banks are not
authorized today to conduct through operating subsidiaries
the broad new powers permitted in
H.R. 10. Nor does the
holding company approach diminish the influence of the
Treasury over bank policy. Treasury continues to play a
significant and appropriate role through its oversight of all
national banks and thrifts.
On the other hand, the operating subsidiary approach would
damage the Federal Reserve's ability to address systemic
concerns in our financial system. This will occur as the
holding company structure atrophies because of the funding
advantage the operating subsidiary derives from the federal
safety net.
I and my colleagues are especially concerned because there
is no reason to take the risks associated with the operating
subsidiary approach. The holding company framework achieves
all the public and consumer benefits contemplated by
H.R. 10
without the dangers of the operating subsidiary approach.
The Board has been a strong supporter of financial
modernization legislation for nearly 20 years. We are
seriously concerned, however, about the destructive effects
of the operating subsidiary approach for the long-term health
of the national economy and the taxpayer.
Sincerely,
Alan Greenspan.
Madam Chairman, I reserve the balance of my time.
Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentlewoman from
New Jersey (Mrs. Roukema) the distinguished chairperson of the
Subcommittee on Financial Institutions, whose work on this bill is the
most important of any Member of this body, and I very very much
appreciate her friendship and leadership.
Mrs. ROUKEMA. Madam Chairman, I thank the chairman for yielding me
the time.
I certainly rise in support, strong support, of
H.R. 10 and associate
myself with the commentary of the chairman at the beginning of this
discussion and completely disagree with the gentleman we just heard.
I have worked on this issue for a long time, and really it is very
clear. We are going beyond the 1930 laws, Glass-Steagall, far out-of-
date. Technology and market forces have broken down the barriers here,
and over the years we have just been letting the regulators and the
courts and creative industries deal with this.
It is now the time for us to catch up with the modern financial world
both domestically and globally and do what the Constitution requires us
to do and not abrogate our responsibility to the courts and other
Federal regulators.
I am most intent on saying that, is it a perfect bill? No. Can it be
after all these years of negotiation? Maybe not. Maybe. But, on the
other hand, only not perfect because we cannot get all these industries
to agree on every single thing. But we have compromises represented
here that strongly protect the fundamental principles that we should
have, and that is preserving the safety and soundness of the financial
system.
They are protected here. The Federal deposit system and the rest of
the Federal safety net. If we abandon this now, we are just saying it
is just going to evolve as the regulators or the courts would like them
to, without any statutory responsibility.
Do we provide for fair and equal competition? I believe we do in the
real world of financial institutions.
{time} 1700
I believe strongly that we have protected the consumers and enhanced
their choices in this bill. The new holding company structure that is
in this bill will be overseen by the Federal Reserve Board.
H.R. 10
includes new consumer privacy. There will be an amendment on the floor
that will increase the consumer privacy that is in this bill and close
any of the loopholes that we can see.
I urge strong support for this bill.
Madam Chairman, I rise in strong support of
H.R. 10, the Financial
Services Act and associate myself with the commentary of our Chairman,
Representative Leach, and urge my Colleagues to support this landmark
legislation.
Major Actions:
All articles in House section
FINANCIAL SERVICES ACT OF 1999
(House of Representatives - July 01, 1999)
Text of this article available as:
TXT
PDF
[Pages H5216-
H5291]
FINANCIAL SERVICES ACT OF 1999
The SPEAKER pro tempore (Mr. LaHood). Pursuant to House Resolution
235 and rule XVIII, the Chair declares the House in the Committee of
the Whole House on the State of the Union for the consideration of the
bill,
H.R. 10.
{time} 1638
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(
H.R. 10) to enhance competition in the financial services industry by
providing a prudential framework for the affiliation of banks,
securities firms, and other financial service providers, and for other
purposes, with Mrs. Emerson in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Iowa (Mr. Leach), the gentleman
from New York (Mr. LaFalce), the gentleman from Virginia (Mr. Bliley),
and the gentleman from Michigan (Mr. Dingell) each will control 22\1/2\
minutes.
The Chair recognizes the gentleman from Iowa (Mr. Leach).
Mr. LEACH. Madam Chairman, I yield myself such time as I may consume.
(Mr. LEACH asked and was given permission to revise and extend his
remarks.)
Madam Chairman, I realize that feelings are imperfect with relation
to the rule debate. For all the frustration on the minority side, it is
more than matched by this Member whose advice was disregarded by the
Rules Committee on key amendments. Nonetheless the big picture is that
this is a good bill, good for individual citizens and the economy at
large. I ask all my colleagues to vote on the quality of the end
product, not the process of consideration which I acknowledge has been
imperfect.
In this regard, let me stress that the big picture is that financial
modernization legislation will save the public approximately $15
billion a year. It will provide increased services to individuals and
firms, particularly those in less comprehensively served parts of the
country. It will also allow U.S. financial companies to compete more
fully abroad.
The economy on a global basis is changing and we must be prepared to
lead market developments, rather than lose market share. In this
effort, the fundamental precept of the bill is to end the arbitrary
constraints on commerce implicit in the 65-year-old Glass-Steagall law.
Competition is the American way and enhanced competition is the
underlying precept of this bill.
In this regard, I'd like to address the issues of bigness and of
privacy. With regard to conglomeration which is proceeding at a pace
with which I am
[[Page
H5217]]
deeply uncomfortable, it should be understood that the big are getting
bigger from the top down, utilizing regulatory fiat. What this bill
does is provide a modern regulation framework for change. It empowers
all equally. Smaller institutions will be provided the same competitive
tools that currently are only available to a few. Indeed, in a David
and Goliath world,
H.R. 10 is the community bankers and independent
insurance agents' slingshot.
Finally, with regard to privacy, let me stress no financial services
bill in modern history has gone to this floor with stronger privacy
provisions. Importantly, pretext calling--the idea that someone can
call a financial institution and obtain your financial information--is
now effectively outlawed; medical records are protected; and
individuals are given powerful new rights to prevent financial
institutions from transferring or selling information to third parties.
Here, let me stress, if Congress subsequently passes more
comprehensive medical records provisions, they will be allowed to
bolster or supercede these safeguards and if HHS promulgates
regulations in this area they would augment the provisions of this
bill. Nothing in this act is intended to shackle Executive Branch
actions in this area.
In conclusion, I would like to thank my Democratic colleagues on the
Banking Committee and, in particular, John LaFalce and Bruce Vento, and
John Dingell of the Commerce Committee, whose support I have been
appreciative in the past and whose dissent I respect today; also my
friends Tom Bliley, Mike Oxley, David Dreier, John Boehner and so many
others, like Marge Roukema, Sue Kelly, Pat Toomey and Rick Lazio, whose
leadership has been so important to bringing this bill to the floor.
The legislation before the House is historic win-win-win legislation,
updating America's financial services system for the 21st Century.
It's a win for consumers who will benefit from more convenient and
less expensive financial services, from major consumer protection
provisions and from the strongest financial and medical privacy
protections ever considered by the Congress.
It's a win for the American economy by modernizing the financial
services industry and savings an estimated $15 billion in unnecessary
costs.
And, it's a win for America's international competition position by
allowing U.S. companies to compete more effectively for business around
the world and create more financial services jobs for Americans.
It would be an understatement to say that this has not been an easy,
nor a quickly-produced piece of legislation to bring before the House.
For many of the 66 years since the Congress enacted the Glass-
Steagall Act in 1933 to separate commercial banking from investment
banking, there have been proposals to repeal the act. The Senate has
thrice passed repeal legislation and last year the House approved the
105th Congress version of
H.R. 10.
But, this year it appears that we may be closer than ever before to
final passage. The bill before us today is the result of months and
months of tough negotiation and compromise; among different
congressional committees, different political parties, different
industrial groupings and different regulators. No single individual or
group got all--or even most--of what it wanted. Equity and the public
interest have prevailed.
It should be remembered that while the work of Congress inevitably
involves adjudicating regulatory turf battles or refereeing industrial
groups fighting for their piece of the pie, the principal work of
Congress is the work of the people--to ensure that citizens have access
to the widest range of products at the lowest possible price; that
taxpayers are not put at risk; that large institutions are able to
compete against their larger international rivals; and that small
institutions can compete effectively against big ones.
We address this legislation in the shadow of major, ongoing changes
in the financial services sector, largely the result of decisions by
the courts and regulators, who have stepped forward in place of
Congress. Many of us have concern about certain trends in finance.
Whether one likes or dislikes what is happening in the marketplace, the
key is to ensure that there is fair competition among industry groups
and protection for consumers. In this regard, this bill provides for
functional regulation with state and federal bank regulators overseeing
banking activities, state and federal securities regulators governing
securities activities and the state insurance commissioners looking
over the operations of insurance companies and sales.
The benefits to consumers in this bill cannot be stressed more.
First, they will gain in improved convenience. This bill allows for
one-stop shopping for financial services with banking, insurance and
securities activities being available under one roof.
Second, consumers will benefit from increased competition and the
price advantages that competition produces.
Third, there are increased protections on insurance and securities
sales, a required disclosure on ATM machines and screens of bank fees
and a requirement that the Federal Reserve Board hold public hearings
on large financial services merger proposals.
Fourth, the Federal Home Loan Bank reform provisions expand the
availability of credit to farmers and small businesses and for rural
and low-income community economic development projects.
Fifth, the bill also contains major consumer privacy protections
making so-called pretext calling, in which a person uses fraudulent
means to obtain private financial information of another person, a
federal crime punishable by up to five years in jail and a fine of up
to $250,000; would wall off the medical records held by insurance
companies from transfer to any other party; and requires banks to
disclose their privacy policies to customers.
A bipartisan amendment developed by members of the Banking, Commerce
and Rules Committee will further enhance these protections and I urge
its adoption.
In closing, I'd like to emphasize again the philosophic underpinnings
of this legislation. Americans have long held concerns about bigness in
the economy. As we have seen in other countries, concentration of
economic power does not automatically lead to increased competition,
innovation or customer service.
But the solution to the problem of concentration of economic power is
to empower our smaller financial institutions to compete against large
institutions, combining the new powers granted in this legislation with
their personal service and local knowledge in order to maintain and
increase their market share.
For many communities, retaining their local, independent bank depends
upon granting that bank the power to compete against mega-giants which
are being formed under the current regulatory and legal framework.
H.R. 10 provides community banks with the tools to compete, not only
against large mega-banks but also against new technologies such as
Internet banking. Banks which stick with offering the same old accounts
and services in the same old ways will find their viability threatened.
Those that innovate and adapt under the provisions of this bill will be
extraordinarily well positioned to grow and serve their customer base.
Large financial institutions can already offer a variety of services.
But community banks are usually not large enough to utilize legal
loopholes like Section 20 affiliates or the creation of a unitary
thrift holding company to which large financial institutions--
commercial as well as financial--have turned.
By bolstering the viability of community-based institutions and
providing greater flexibility to them,
H.R. 10 increases the percentage
of dollars retained in local communities. Community institutions are
further protected by a small, but important provision that prohibits
banks from setting up ``deposit production offices'' which gather up
deposits in communities without lending out money to people in the
community.
Additionally, the bill before us strengthens the Community
Reinvestment Act by making compliance with the act a condition for a
bank to affiliate with a securities firm or securities company. CRA is
also expanded to a newly created entity called Wholesale Financial
Institutions.
One of the most controversial provisions in
H.R. 10 is the provision
in Title IV which prohibits commercial entities from establishing
thrifts in the future. Under current law, commercial entities are
already prohibited from buying or owning commercial banks. This
restriction between commercial banking and commerce is not only
maintained in
H.R. 10 but extended to restrict future commercial
affiliations with savings associations.
The reason this restriction on commerce and banking is being expanded
is several fold. First, savings associations that once were exclusively
devoted to providing housing loans, have become more like banks,
devoting more of their assets to consumer and commercial loans. Hence
the appropriateness for comparability between the commercial bank and
thrift charter is self-evident.
Second, this provision must be viewed with the history of past
legislative efforts affecting the banking and thrift industries. The
S industry has tapped the U.S. Treasury for $140 billion to clean up
the 1980s S crisis. In 1996, savings associations received a multi-
billion dollar tax break to facilitate their conversion to a bank
charter. Also, in 1996, the S tapped the banking industry for $6 to
$7 billion to help pay over the next 30 years for
[[Page
H5218]]
their FICO obligations, that part of the S bailout costs that
remained with the thrift industry.
During this time period, Congress has liberalized the qualified
thrift lending test and the restrictions on the Federal savings
association charter. These legislative changes are in addition to the
numerous advantages that the industry has historically enjoyed, such as
the broad preemption rights over state laws and more liberal branching
laws.
H.R. 10 continues the Congressional grant of benefits to the thrift
industry by repealing the SAIF special reserve, providing voluntary
membership by Federal savings associations in the Federal Home Loan
Bank System, allowing state thrifts to keep the term ``Federal'' in
their names, and allowing mutual S holding companies to engage in the
same activities as stock S holding companies.
Opponents of this provision correctly argue that commercial companies
that have acquired thrifts (so-called unitary thrift holding companies)
before and after the S debacles of the 1980s have not, for the most
part, caused taxpayer losses. However, the Federal deposit insurance
fund that was bailed out by the taxpayers applied to the entire thrift
industry including the unitary thrift holding companies. Three years
ago some $6 billion to $7 billion in thrift industry liabilities left
over from cleaning up the S were transferred to the commercial
banking industry with the understanding that sharing liabilities would
be matched by ending special provisions. This is another reason to
provide comparable regulation.
It is with this history and the assumption that decisions in this
bill are made in the context of a legislative continuum that the
provision in the bill was added to not only restrict the establishment
of new unitary thrift holding companies, but also to require that
commercial entities may not buy a thrift from an existing grandfathered
company without first getting Federal Reserve Board approval.
As we all know, there are complex issues involved in this
legislation, and there will be differing judgments by Members. One
thing we all may agree upon, however, is that Congress needs to
reassert its Constitutional role in determining what should be the laws
governing financial services, instead of allowing the regulators and
courts to usurp this responsibility.
If Congress turns its back on financial services modernization, we
should not fool ourselves that rapid evolution in the fields of
banking, securities and insurance will cease. It will not. Financial
services modernization will take place with or without Congressional
approval. Without this legislation, however, changes in financial
services will continue unabated, but they will take place in an ad hoc
manner through the courts and through regulatory fiat, and will not be
subject to the safeguards and prudential parameters established in this
legislation.
Now is the time for Congress, to step up to the challenge of
modernizing our nation's financial services sector for the 21st
century, to ensure that it remains competitive internationally, that it
is stable and poses the least possible threat to the taxpayer, and that
it provides quality service to all our citizens and communities.
Madam Chairman, I reserve the balance of my time.
Mr. LaFALCE. Madam Chairman, I yield myself 3 minutes.
(Mr. LaFALCE asked and was given permission to revise and extend his
remarks.)
Mr. LaFALCE. Madam Chairman, first, I want to thank the Chairman of
the Committee on Banking and Financial Services, the gentleman from
Iowa (Mr. Leach), for working collegially with so many of us on the
Democratic side of the aisle in order to produce a bipartisan bill out
of the Committee on Banking and Financial Services that could be signed
by the President and enacted into law. Each side had to give and take,
each side had to make tremendous amount of concessions, but we did in
order to advance the public interest and financial services
modernization.
{time} 1645
We produced a bill with a 51-8 vote, 21-6 on the Democratic side of
the aisle. The Democrats voted for it, however, in large part because
we were able to retain the strongest community reinvestment provisions,
because we were able to have strong consumer protection before and
beyond that, most especially provisions regarding redlining in the
insurance industry. Once that eroded, so too did a lot of the
Democratic support. And that is unfortunate. It is unfortunate.
There are other provisions that we are concerned about, too, and that
is the medical privacy language of the gentleman from Iowa (Mr.
Ganske). I am hopeful that if this bill passes those concerns that we
have can be dealt with in conference, and I look forward to a colloquy
with the gentleman from Iowa (Mr. Ganske) regarding his disposition on
that.
There are some amendments that have been offered that I do not think
should have been allowed that would create severe difficulties for me,
in particular, the amendment of the gentleman from Texas (Mr. Paul)
which would eviscerate the ability of law enforcement agencies to
enforce our anti-money-laundering statutes. The FBI is adamantly
opposed to that.
I also am adamantly opposed to the Bliley amendment that would be a
rip-off for the officers of mutual insurance companies at the expense
of policyholders. It would be a Federal intrusion on State law. It
would say to insurance officers, disregard your policyholders if they
want to convert. They are entitled to all the money, not their
policyholders. We must defeat the Bliley amendment if this bill is to
advance the way I would like it to advance.
I am hopeful that, at the conclusion of debate and at the conclusion
of the amendment process, we could advance to conference and then deal
with whatever problems are left in conference. But that remains to be
seen.
Mr. LaFALCE. Madam Chairman, I reserve the balance of my time.
Mr. BLILEY. Madam Chairman, I yield 5 minutes to the gentleman from
Ohio (Mr. Oxley), chairman of the Subcommittee on Finance and Hazardous
Material, the coach of our successful baseball team.
(Mr. OXLEY asked and was given permission to revise and extend his
remarks.)
Mr. OXLEY. Madam Chairman, I rise in support of
H.R. 10, the
Financial Services Act of 1999.
This is indeed an historic occasion, something that many of us have
worked on for a number of years. As a matter of fact, this is by my
count the 10th time in the last 20 years that we have sought to bring
our financial laws into the modern world as we enter the 21st century.
So here is hoping that number 11 is the charm.
Building on the progress we made last year through the help of many
people that I see here on the floor, including our good friend, the
gentleman from Ohio (Mr. Boehner), the gentleman from Virginia
(Chairman Bliley), the gentleman from Iowa (Chairman Leach), the
gentleman from Michigan (Mr. Dingell), the gentleman from New York (Mr.
Towns) and others, that we passed this bill by one vote in the House.
I suspect this year it will be far different and it will be a large
vote, because the time has come for financial services modernization in
this Congress and indeed in this country.
We have arrived at a point where just about everybody, including
those on the opposite side of specific issues on the op-sub issue, for
example, agree that the country's financial regulations crafted during
the Depression years of the 1930s need to be brought up to date.
The Glass-Steagall Act has outlived its useful purpose. It now serves
only as the cause of inefficiency in the markets as our markets change
dramatically.
Madam Chairman, we have had a series of hearings, for example, in my
committee about what is going on with the securities industry and how
on-line brokerage has now become the most growing part of the
securities industry. That shows how things have changed in technology
and in markets and in consumer preference. And yet we continue to rely
on a 1930 statute known as Glass-Steagall that simply has outlived its
usefulness.
That means legislation that will provide for fair competition among
all players. And it also means not only modernizing the marketplace and
treating the consumer as the one who makes those kinds of decisions in
the marketplace to provide that consumer with a new array of services
and products, some products we probably have not even thought of or
that financial service institutions have not even thought of yet today
will be offered more and more to the consuming public and they are
going to be able to one-stop shop as they go into this financial
institution.
And ultimately it will not make any difference what it says on the
door because they are going to be able to buy
[[Page
H5219]]
a wide variety of products in that area. And, yes, those functions will
be regulated by the regulators who know what that is all about. It is
called functional regulation. Or as chairman of the SEC Arthur Levitt
says, commonsense regulation in our marketplace is to protect the
consumer but not to constrict the marketplace so that people do not
have the ability to make decisions based on what is in their long-term
economic interest. It means legislation that will promote, not
jeopardize, the long-term stability of U.S. financial markets and the
interests of American taxpayers.
Americans are becoming increasingly active participants in our
booming securities markets and going on-line and investing, sometimes
around the clock, for their families' future, investing for their
education, for their children's education, investing for the future
that we have tried to encourage.
One of the frustrations, I guess, in our country over the years has
been that our savings rate has been far too low compared to some of our
other competing nations. This will give people the ability to make
long-term plans, to work with a financial institution that has the
ability for them to buy their banking products, to get their
securities, their 401(k), their savings, their insurance needs, all of
those, under one roof dealing with professionals that they trust and
that they know can provide them with the kind of economic security that
they have come to expect.
The change already taking place in the marketplace may make it
impossible for us to try Glass-Steagall reform a 12th time, and I would
implore the Members to understand that this may be our last really good
shot at bringing our laws up-to-date with what is happening in the
marketplace and what is happening with technology, and all of those
forces are now moving us so inextricably in that direction.
Because of the leadership of the gentleman from Iowa (Mr. Leach),
chairman of the Committee on Banking and Financial Services, because of
the leadership of the gentleman from Virginia (Mr. Bliley) chairman of
the Committee on Commerce, because of participation on the other side
of the aisle, it brings us here today.
Let us move forward. Let us support
H.R. 10. Let us provide the kind
of modern financial institutions that all of us have come to expect.
Mr. DINGELL. Madam Chairman, I yield myself 4 minutes.
(Mr. DINGELL asked and was given permission to revise and extend his
remarks.)
Mr. DINGELL. Madam Chairman, this is a bad bill. We consider it under
a bad rule.
George Santayana said something which I thought was very interesting.
He said, ``He who does not learn from history is doomed to repeat it.''
It looks like this Congress is setting out to create exactly the same
situation which caused the 1929 crash. It looks like this Congress is
setting out to create the situation that caused the collapse of the
banks in Japan and Thailand by setting up op-subs and by setting up
monstrous conglomerates which will expose the American taxpayers and
American investors to all manner of mischief and to the most assured
economic calamity.
The bill is considered under a rule which does not afford either an
opportunity to offer all the amendments or to have adequate debate
thereof. But what does the bill do, among other things?
First all, it allows megamergers to create monstrous institutions
which could engage in almost any sort of financial action. It sets up
essentially, devices like the banks in Japan, which are in a state of
collapse at this time, banks in Korea and Thailand, which are in a
state of collapse, or banks in the United States, which could do
anything and which did anything and contributed in a massive way to the
economic collapse of this country in 1929 which was only cleared and
cured by World War II.
Some of the special abuses of this particular legislation need to be
noted. The Committee on Rules has stripped out an anti-redlining
provision which had been in the law and which is valuable, and it is
brazen and outrageous discrimination against women and minorities and
it sanctifies such actions by insurance companies and others within the
banks' financial holding companies which will be set up hereunder.
It attacks the privacy of American citizens. It allows unauthorized
dissemination of their personal financial information and records. It
guts the current protections for medical information now under State
law. And it hampers the ability of the Secretary of Health and Human
Services to adopt meaningful protections.
Every single health group in the United States and the AFL-CIO oppose
this provision because it guts the rights of Americans to know that
what they tell their doctor and what their doctor tells them is secure.
If we want to protect the security of our own financial records, we
should tremble at this bill. It contains laughable financial privacy
protections that tell a bank that it only has to disclose its privacy
policy if it happens to have one. In other words, if they are going to
give them the shaft, they should tell them. But they can do anything
they want in terms of the financial information which they give them
and which can be used to hurt them in their personal affairs.
The bill wipes out more than 1,700 essential State insurance laws
across the country. It creates no Federal regulator to fill the void.
So, as a result, their protections when they buy insurance are stripped
away.
Alan Greenspan, the chairman of the Federal Reserve, is properly
worried, and that should count for a lot. Let me read to my colleagues
what he said to the Committee on Commerce this year.
``I and my colleagues are firmly of the view that the long-term
stability of U.S. financial markets and the interests of the American
taxpayer would be better served by no financial modernization bill
rather than one that allows the proposed new activities to be conducted
by the bank.'' And he goes on to state that he and his colleagues
``believe strongly that the operating subsidiary approach would damage
competition in and the vitality of our financial services industry and
poses serious risks for the American taxpayer.''
He noted that it creates a situation where banks and other financial
activities will be made too big to fail and that the taxpayers then
will be compelled to come in and bail them out.
So if my colleagues enjoyed the outrage of what the Committee on
Banking and Financial Services did to us on the savings and loan
reform, this, they should know, is a perfection of that. That cost us
about $500 billion. This, my colleagues can be assured, will cost us a
lot more.
I urge my colleagues to vote against this abominable legislation.
In case my colleagues have any questions about my views, I want to
clearly state for the record that I rise to condemn this bill. It is a
terrible piece of legislation and should cause Americans to quake at
the prospect of its passing.
If you value your civil rights, you should worry about this bill. The
Rules Committee stripped out an anti-redlining provision, offered by
our colleague Ms. Lee and agreed to by the Banking Committee. This
brazen act allows discrimination against women and minorities by
insurance companies within the bill's financial holding companies.
If you have had cancer or diabetes or depression or any other medical
condition that could affect your employment or lead to discrimination
against you, you should fear this bill. It contains a medical privacy
provision that actually sanctifies the unauthorized dissemination of
your personal medical information records. It guts many current
protections for medical information and hampers the ability of the
Secretary of Health and Human Services to adopt meaningful protections.
Legions of groups oppose this provision from the American Medical
Association to the AFL-CIO.
If you want to protect the privacy of your own personal financial
records, you should tremble at the prospect of this bill. The bill
contains laughable financial privacy protections that tell a bank to
disclose its privacy policy--if it has one. This bill deprives you of
the right to say no.
If you own insurance, you should worry if you bought it from a bank.
This bill wipes out more than 1,700 essential state insurance laws
across the country, with no federal regulator to fill the void.
If you are a taxpayer, you should recoil in horror at this bill. No
less an august person than Alan Greenspan is worried, and usually that
counts for a lot. Let me read to you what he said before the Commerce
Committee in April of this year:
I and my colleagues are firmly of the view that the long-
term stability of U.S. financial
[[Page
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markets and the interests of the American taxpayer would be
better served by no financial modernization bill rather than
one that allows the proposed new activities to be conducted
by the bank.
He reiterated these views to me on June 28 in a letter which I intend
to put into the Record, but I want to read just one part:
I and my colleagues on the Board believe strongly that the
operating subsidiary approach would damage competition in and
the vitality of our financial services industry and poses
serious risks for the American taxpayer. We have no doubt
that the holding company approach, adopted by the house last
year, passed by the Senate this year, and supported by each
previous Treasury and Administration for nearly 20 years, is
the prudent and safest way to modernize our financial
affiliation laws and does not sacrifice any of the benefits
of financial reform.
This bill greatly expands the authority of political appointees and
bureaucrats over banking and monetary policy. That worries Alan
Greenspan. It should worry all Americans.
In the earlier debate on the rule, several of my Republican
colleagues labeled our concerns as ``partisan.'' So be it! If the
Republicans want to accuse Democrats of caring about equal rights and
protection from discrimination under the Constitution, I'll proudly
stand with my Democratic colleagues. If the Republicans want to accuse
Democrats of standing for full and fair protection of Americans'
privacy rights, I'll proudly stand under that banner as well.
What I won't stand for is this abominable legislation. I support
responsible financial modernization. I do not support this bill. It is
a terrible piece of legislation and I urge the House to defeat it so we
can go back to the drawing board and write a good bill.
In closing, I would like to address an important technical matter and
explain the purpose of the Section 303 ``Functional Regulation of
Insurance'' reference to Section 13 of the Federal Reserve Act. That
reference is included to ensure that everyone that engages in the
business of insurance--including national banks selling insurance as
agents under the small-town sales provision commonly known as ``Section
92''--are subject to state regulation of those activities.
Some have argued that this reference is not meant to overrule the
Supreme Court's ruling in the Barnett Bank case. I want to make clear
that that statement is correct to the extent that the Commerce
Committee intended that all state functional regulation of the
insurance activities of financial institutions would be subject to the
preemption rules set forth in Section 104. Indeed, that is why there is
a specific reference to Section 104 at the end of Section 303. And
Section 104 incorporates the preemption standard articulated by the
Supreme Court in the Barnett Bank case and even specifically cites that
case.
The statement, however, is incorrect to the extent that it implies
that the Comptroller of the Currency remains free to issue his own set
of rules and regulations to govern small-town national bank insurance
sales activities. Although--as the Barnett Bank opinion recognizes--
Section 92 specifically authorizes the Comptroller to issue such
regulations, Section 303 makes clear that States are now the paramount
authority in the regulation of small-town national bank insurance sales
activities. Under Section 303, all state regulations of insurance sales
activities apply to small-town national bank insurance sales activities
under Section 92 unless those regulations are prohibited under the
Section 104 preemption standard.
Organizations Opposed to The Medical Records Provisions in
H.R. 10
Physician Organizations
American Medical Association
American Psychiatric Association
American College of Surgeons
American College of Physicians/American Society of Internal
Medicine
American Academy of Family Physicians
American Psychological Association
Nurses Organizations
American Nurses Association
American Association of Occupational Health Nurses
Patient Organizations
National Breast Cancer Coalition
Consortium for Citizens with Disabilities/Privacy Working
Group
National Association of People with AIDS
AIDS Action
National Organization for Rare Disorders
National Mental Health Association
Myositis Association
Infectious Disease Society
Privacy/Civil Rights Organizations
Consumer Coalition for Health Privacy
American Civil Liberties Union
Center for Democracy and Technology
Bazwlon Center for Mental Health Law
Labor Organizations
AFL-CIO
American Federation of State, County and Municipal
Employees
Service Employees International Union
Senior and Family Organizations
American Association of Retired Persons
National Senior Citizens Law Center Planned Parenthood
Federation of America, Inc.
National Partnership for Women and Families
American Family Foundation
Other Organizations
American Association for Psychosocial Rehabilitation
American Counseling Association
American Lung Association
American Occupational Therapy Association
American Osteopathic Association
American Psychoanalytic Association
American Society of Cataract and Refractive Surgery
American Society of Clinical Psychopharmacology
American Society for Gastrointestinal Endoscopy
American Society of Plastic and Reconstructive Surgeons
American Thoracic Society
Anxiety Disorders Association of America
Association for the Advancement of Psychology
Association for Ambulatory Behavioral Health
Center for Women Policy Studies
Children & Adults with Attention-Deficit/Hyperactivity
Disorder
Corporation for the Advancement of Psychiatry
Federation of Behavioral, Psychological and Cognitive
Sciences
Intenational Association of Psychosocial Rehabilitation
Services
Legal Action Center
National Association of Alcoholism And Drug Abuse
Counselors
National Association of Developmental Disabilities Councils
National Association of Psychiatric Treatment Centers for
Children
National Association of Social Workers
National Council for Community Behavioral Healthcare
National Depressive and Manic Depressive Association
National Foundation for Depressive Illness
Renal Physicians Association
Additional Views
During the consideration of
H.R. 10, an amendment was
offered to add a new section 351, entitled ``Confidentiality
of Health and Medical Information.'' While we support
increased protection for medical information, we opposed this
provision, because, unfortunately, the provision weakens
existing protections for medical confidentiality, and
establishes a number of poor precedents for private medical
information disclosure.
While the provision at first blush appears to place limits
on the disclosure of medical information, the lengthy list of
exceptions to these limits leaves the consumer with little,
if any protection. In fact, the provisions ends up
authorizing disclosure of information rather than limiting
it.
In medicine, the first principle is ``Do no harm.'' In
crafting a Federal medical privacy law, this principle
requires that state laws providing a greater level of
protection be left in place. Yet section 351 could preempt
the laws of 21 states that have enacted medical privacy laws.
While we agree that genetic information should also be
protected--in fact, should deserve a higher level of
protection--this provision could also preempt 36 state laws
which protect the confidentiality of genetic information.
The provision also lacks any right for the individual to
inspect and correct one's medical records. As a result, an
individual has greater rights to inspect and correct credit
information than medical records.
There is no requirement that the customer even be told that
his medical information is being provided to a third party.
Thus there is no way that the customer could prevent the
records from being disseminated if the customer believed that
statutory rights were being violated.
An individual has no right to seek redress if the rights
under this provision are violated. In fact, the customer is
unlikely to even know that the rights were violated. The only
enforcement authority is given to the states. If the
individual is unlikely to have knowledge of the transfer of
confidential medical records, it is hard to understand how
the state Attorney General would know to bring an action as
provided in subsection (b) of the provision. Even if the
state brings an action, it can only enjoin further
disclosures. The customer has no right to seek damages.
The provision places absolutely no restrictions on the
subsequent disclosure of medical records by anyone receiving
the records. Once the records are out the door for any of the
myriad exceptions in this provision, they are fair game for
anyone.
We agree that information should be disclosed only with the
consent of the customer, as provided in (a)(1), but this
right is rendered meaningless with the extensive laundry list
of exceptions that swallows this simple rule. We shall only
discuss a few of these exceptions.
The provision allows financial institutions to provide
medical records, including genetic information, for purposes
of underwriting. As a result, customers could find themselves
being uninsurable, or facing whopping rate increases for
health insurance, based upon their genetic information, or
health records. In addition, the information may be
inaccurate, but the customer cannot correct it.
The provision allows financial institutions to provide
medical records for ``research
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projects.'' This term is undefined, and could include
marketing research, or nearly anything else. For example, a
customer's prescription drug information could be provided to
a drug company doing marketing research on candidates for a
new related drug.
Moreover, the provision establishes no research protections
for individually identifiable records. The majority of human
subject research studies conducted in this country are
subject to the Common Rule, a set of requirements for
federally-funded research. Analogous requirements apply to
clinical trials conducted pursuant to the FDA's product
approval procedures. The Common Rule dictates that a study
must be approved by an entity that specifically examines
whether the potential benefits of the study outweigh the
potential intrusion into an individual's private records and
whether the study includes strong safeguards to protect the
confidentiality of those records. Two weeks ago at a hearing
before the Health and Environment Subcommittee, witnesses
from the National Breast Cancer Coalition and the National
Organization for Rare Disorders testified that these Federal
standards should be extended to all research using
individually-identifiable medical records. Extending these
protections would strengthen confidence in the integrity of
the research community and encourage more individuals to
participate in studies. Because this provision establishes no
protections for individually-identifiable records, it could
actually stifle research.
The provision allows the disclosure of confidential medical
records ``in connection with'' a laundry list of
transactions, most of which have nothing to do with medical
records. The provision does not define who can receive the
records, but instead allows disclosure to anyone, so long as
it is ``in connection with'' a transaction. There was no
explanation at the markup why medical records should be
disclosed in connection with ``the transfer of receivables,
accounts, or interest therein.'' There is no definition of
``fraud protection'' or ``risk control'' for which the
provision also authorizes disclosure. The provision gives
carte blanche to financial institutions to disclose
confidential medical records for ``account administration''
or for ``reporting, investigating, or preventing fraud.''
Reporting to whom? An investigation by whom?
While most laws protecting medical records provide for
disclosure in compliance with criminal investigations, those
laws provide safeguards to permit the individual the
opportunity to raise legal issues. This provision does not.
In fact, as is the case with all other disclosures in this
provision, the consumer would not even be informed that the
information has been disclosed. Thus, a customer's medical
records could be disclosed to an opponent in a civil action
without the customer even knowing it.
Within hours of passage of this provision, we began
learning from patient groups and others who have fought to
improve the privacy rights of individuals that this provision
is seriously flawed. These concerns demonstrate why Congress
needs to deal comprehensively with the issue of medical
confidentiality, not in a slapdash amendment that has
received no scrutiny. The Health and Environment Subcommittee
of the Commerce Committee has already held a hearing on
medical privacy, and a Senate committee has held multiple
hearings on the subject. We look forward to enacting real
medical information privacy provisions that will truly
protect individuals. Unfortunately, this premature move by
the Committee will actually set back the health and medical
information privacy rights of all Americans.
John D. Dingell, Henry A. Waxman, Edward J. Markey, Rick
Boucher, Edolphus Towns, Frank Pallone, Jr., Sherrod
Brown, Bart Gordon, Peter Deutsch, Bobby L. Rush, Ron
Klink, Bart Stupak, Tom Sawyer, Albert R. Wynn, Gene
Green, Ted Strickland, Diana DeGette, Thomas M.
Barrett, and Lois Capps.
The Version of
HR 10 Released by the House Rules Committee Sweeps Away
1,781 Essential State Insurance Laws Across the Country
State governments are solely responsible for regulating the
business of insurance in the United States.
The States regulate insurance in order to protect consumers
and supervise the solvency and stability of insurers and
agents.
The version of
HR 10 released by the House Rules Committee
on June 24, 1999 will likely preempt many State consumer
protection and solvency laws needed to regulate the insurance
activities of banks and their affiliates.
------------------------------------------------------------------------
Number of
State laws
likely
preempted
State by the
House Rules
Committee
version of
H.R. 10
------------------------------------------------------------------------
Alabama.................................................... 33
Alaska..................................................... 30
Arizona.................................................... 35
Arkansas................................................... 41
California................................................. 43
Colorado................................................... 35
Connecticut................................................ 36
Delaware................................................... 32
Florida.................................................... 40
Georgia.................................................... 38
Hawaii..................................................... 28
Idaho...................................................... 31
Illinois................................................... 41
Indiana.................................................... 33
Iowa....................................................... 39
Kansas..................................................... 41
Kentucky................................................... 36
Louisiana.................................................. 37
Maine...................................................... 37
Maryland................................................... 36
Massachusetts.............................................. 32
Michigan................................................... 33
Minnesota.................................................. 36
Mississippi................................................ 32
Missouri................................................... 37
Montana.................................................... 36
Nebraska................................................... 36
Nevada..................................................... 36
New Hampshire.............................................. 28
New Jersey................................................. 41
New Mexico................................................. 31
New York................................................... 37
North Carolina............................................. 46
North Dakota............................................... 34
Ohio....................................................... 38
Oklahoma................................................... 31
Oregon..................................................... 39
Pennsylvania............................................... 35
Rhode Island............................................... 35
South Carolina............................................. 34
South Dakota............................................... 37
Tennessee.................................................. 37
Texas...................................................... 42
Utah....................................................... 34
Vermont.................................................... 32
Virginia................................................... 36
Washington................................................. 36
West Virginia.............................................. 34
Wisconsin.................................................. 33
Wyoming.................................................... 31
------------
Total................................................ 1,781
------------------------------------------------------------------------
Source: National Association of Insurance Commissioners
Board of Governors of the
Federal Reserve System,
Washington, DC, June 28, 1999.
Hon. John D. Dingell,
Ranking Minority Member, Committee on Commerce, House of
Representatives, Washington, DC.
Dear Mr. Dingell: This is in response to your request for
the Board's views on the operating subsidiary approach to
financial modernization contained in
H.R. 10. As I have
testified, I, and my colleagues on the Board believe strongly
that the operating subsidiary approach would damage
competition in and the vitality of our financial services
industry and poses serious risks for the American taxpayer.
We have no doubt that the holding company approach, adopted
by the House last year, passed by the Senate this year, and
supported by each previous Treasury and Administration for
nearly 20 years, is the prudent and safest way to modernize
our financial affiliation laws and does not sacrifice any of
the benefits of financial reform.
The structure adopted by Congress for financial
modernization will prove decisive to the shape of our
financial system, the long term health of our economy, and
the level of protection afforded the American taxpayer long
into the next century. Thus, this decision on banking
structure is a policy matter of national importance. Allowing
national banks to engage through operating subsidiaries in
merchant banking, securities underwriting, and other newly
authorized financial activities is likely to have as profound
an impact on our entire financial sector as the 1982
legislation regarding the thrift industry.
The problem with the operating subsidiary approach is that
insured banks are supported by the U.S. Government and,
consequently, are able to raise funds at a materially lower
cost, which is equivalent to approximately half of the
interest spread on an investment grade loan. This subsidized
ability to raise lower cost funds provides banks and their
operating subsidiaries a decisive advantage over independent
securities, insurance and financial services firms. This
advantage will inevitably reduce competition and innovation
in and between these industries as it has in other countries
that have adopted the universal banking approach. In
addition, the experiences in Asia demonstrate that linking
financial markets more tightly to the health of the banking
system--as is inevitable under the operating subsidiary
approach--makes the economy more vulnerable to crises that
affect banks and makes the broader financial markets more
dependent on the protection and advantages of the federal
safety net.
The operating subsidiary approach also poses substantial
risks to the safety and soundness of our banking system and
to the American taxpayer. This derives from the fact that an
operating subsidiary of a bank is consolidated with, and
controlled by, the bank and the fate of the bank and its
subsidiary are inextricably interdependent. The measures
contained in
H.R. 10 to address these risks are not adequate.
These measures are based on creating a regulatory accounting
system that is different from market accounting and on the
hope that operating subsidiaries can be quickly divested
before problems spread to the parent bank. We have learned
from the thrift crisis of the 1980s that regulatory
accounting can give a dangerously false sense of security
that only masks real problems. In addition, experience with
other subsidiaries of national banks illustrates that banks
can lose far more than they invest in an operating
subsidiary, that those losses can occur quickly and before
regulators have an opportunity to act, and that banks feel
forced to support their subsidiaries through capital
injections and liberal interpretations of the law. Troubled
operating subsidiaries are also very difficult to sell and
can result in prolonged exposure and expense to the parent
bank. In the heat of a crisis, the taxpayer cannot be
confident that regulatory constraints will prove entirely
effective.
In a world where mega-mergers are increasing the size of
banks on a stand-alone basis, the operating subsidiary
structure allows banks to increase their balance sheets in
even more dramatic fashion. This, on its own, may not be a
problem. However, the operating subsidiary structure focuses
all
[[Page
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losses from new activities--as well as the risks from the
bank's direct activities--on the bank itself. Thus, the
operating subsidiary structure leads to precisely the type of
organization that inspires too-big-to-fail concerns.
Some argue that
H.R. 10 does nothing more than preserve
freedom of choice of management. However, this is not a
matter of choice for private enterprise. Rational management
will inevitably choose the operating subsidiary because it
allows the maximum exploitation of the cheaper funding
ability of the bank. Because this so-called ``choice''
involves the use of the sovereign credit of the United
States, it is a decision that should rest exclusively with
Congress.
It is also noteworthy that the holding company approach
does not in any way diminish the powers or attractiveness of
the national bank charter. The national bank charter has
flourished in recent years even though national banks are not
authorized today to conduct through operating subsidiaries
the broad new powers permitted in
H.R. 10. Nor does the
holding company approach diminish the influence of the
Treasury over bank policy. Treasury continues to play a
significant and appropriate role through its oversight of all
national banks and thrifts.
On the other hand, the operating subsidiary approach would
damage the Federal Reserve's ability to address systemic
concerns in our financial system. This will occur as the
holding company structure atrophies because of the funding
advantage the operating subsidiary derives from the federal
safety net.
I and my colleagues are especially concerned because there
is no reason to take the risks associated with the operating
subsidiary approach. The holding company framework achieves
all the public and consumer benefits contemplated by
H.R. 10
without the dangers of the operating subsidiary approach.
The Board has been a strong supporter of financial
modernization legislation for nearly 20 years. We are
seriously concerned, however, about the destructive effects
of the operating subsidiary approach for the long-term health
of the national economy and the taxpayer.
Sincerely,
Alan Greenspan.
Madam Chairman, I reserve the balance of my time.
Mr. LEACH. Madam Chairman, I yield 2 minutes to the gentlewoman from
New Jersey (Mrs. Roukema) the distinguished chairperson of the
Subcommittee on Financial Institutions, whose work on this bill is the
most important of any Member of this body, and I very very much
appreciate her friendship and leadership.
Mrs. ROUKEMA. Madam Chairman, I thank the chairman for yielding me
the time.
I certainly rise in support, strong support, of
H.R. 10 and associate
myself with the commentary of the chairman at the beginning of this
discussion and completely disagree with the gentleman we just heard.
I have worked on this issue for a long time, and really it is very
clear. We are going beyond the 1930 laws, Glass-Steagall, far out-of-
date. Technology and market forces have broken down the barriers here,
and over the years we have just been letting the regulators and the
courts and creative industries deal with this.
It is now the time for us to catch up with the modern financial world
both domestically and globally and do what the Constitution requires us
to do and not abrogate our responsibility to the courts and other
Federal regulators.
I am most intent on saying that, is it a perfect bill? No. Can it be
after all these years of negotiation? Maybe not. Maybe. But, on the
other hand, only not perfect because we cannot get all these industries
to agree on every single thing. But we have compromises represented
here that strongly protect the fundamental principles that we should
have, and that is preserving the safety and soundness of the financial
system.
They are protected here. The Federal deposit system and the rest of
the Federal safety net. If we abandon this now, we are just saying it
is just going to evolve as the regulators or the courts would like them
to, without any statutory responsibility.
Do we provide for fair and equal competition? I believe we do in the
real world of financial institutions.
{time} 1700
I believe strongly that we have protected the consumers and enhanced
their choices in this bill. The new holding company structure that is
in this bill will be overseen by the Federal Reserve Board.
H.R. 10
includes new consumer privacy. There will be an amendment on the floor
that will increase the consumer privacy that is in this bill and close
any of the loopholes that we can see.
I urge strong support for this bill.
Madam Chairman, I rise in strong support of
H.R. 10, the Financial
Services Act and associate myself with the commentary of our Chairman,
Representative Leach, and urge my Colleagues to support this landmark
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