FINANCIAL SERVICES MODERNIZATION ACT OF 1999
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FINANCIAL SERVICES MODERNIZATION ACT OF 1999
(Senate - May 06, 1999)
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FINANCIAL SERVICES MODERNIZATION ACT OF 1999
The Senate continued with the consideration of the bill.
The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson,
has 3 minutes.
Amendment No. 309, As Modified
Mr. JOHNSON. Mr. President, I have a modification of my amendment at
the desk and I ask unanimous consent that it be so modified.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:
On page 149, strike line 12 and all that follows through
page 150, line 21 and insert the following:
SEC. 601. PREVENTION OF CREATION OF NEW S HOLDING COMPANIES
WITH COMMERCIAL AFFILIATES.
(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Prevention of new affiliations between s holding
companies and commercial firms.--
``(A) In general.--Notwithstanding paragraph (3), no
company may directly or indirectly, including through any
merger, consolidation, or other type of business combination,
acquire control of a savings association after May 4, 1999,
unless the company is engaged, directly or indirectly
(including through a subsidiary other than a savings
association), only in activities that are permitted--
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``(i) under paragraph (1)(C) or (2) of this subsection; or
``(ii) for financial holding companies under section 4(k)
of the Bank Holding Company Act of 1956.
``(B) Prevention of new commercial affiliations.--
Notwithstanding paragraph (3), no savings and loan holding
company may engage directly or indirectly (including through
a subsidiary other than a savings association) in any
activity other than as described in clauses (i) and (ii) of
subparagraph (A).
``(C) Preservation of authority of existing unitary s
holding companies.--Subparagraphs (A) and (B) do not apply
with respect to any company that was a savings and loan
holding company on May 4, 1999, or that becomes a savings and
loan holding company pursuant to an application pending
before the Office on or before that date, and that--
``(i) meets and continues to meet the requirements of
paragraph (3); and
``(ii) continues to control not fewer than 1 savings
association that it controlled on May 4, 1999, or that it
acquired pursuant to an application pending before the Office
on or before that date, or the successor to such savings
association.
``(D) Corporate reorganizations permitted.--This paragraph
does not prevent a transaction that--
``(i) involves solely a company under common control with a
savings and loan holding company from acquiring, directly or
indirectly, control of the savings and loan holding company
or any savings association that is already a subsidiary of
the savings and loan holding company; or
``(ii) involves solely a merger, consolidation, or other
type of business combination as a result of which a company
under common control with the savings and loan holding
company acquires, directly or indirectly, control of the
savings and loan holding company or any savings association
that is already a subsidiary of the savings and loan holding
company.
``(E) Authority to prevent evasions.--The Director may
issue interpretations, regulations, or orders that the
Director determines necessary to administer and carry out the
purpose and prevent evasions of this paragraph, including a
determination that, notwithstanding the form of a
transaction, the transaction would in substance result in a
company acquiring control of a savings association.
``(F) Preservation of authority for family trusts.--
Subparagraphs (A) and (B) do not apply with respect to any
trust that becomes a savings and loan holding company with
respect to a savings association, if--
``(i) not less than 85 percent of the beneficial ownership
interests in the trust are continuously owned, directly or
indirectly, by or for the benefit of members of the same
family, or their spouses, who are lineal descendants of
common ancestors who controlled, directly or indirectly, such
savings association on May 4, 1999, or a subsequent date,
pursuant to an application pending before the Office on or
before May 4, 1999; and
``(ii) at the time at which such trust becomes a savings
and loan holding company, such ancestors or lineal
descendants, or spouses of such descendants, have directly or
indirectly controlled the savings association continuously
since March 4, 1999, or a subsequent date, pursuant to an
application pending before the Office on or before May 4,
1999.''.
(b) Conforming Amendment.--Section 10(o)(5)(E) of the Home
Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by
striking ``, except subparagraph (B)'' and inserting ``or
(c)(9)(A)(ii)''.
Mr. JOHNSON. Mr. President, financial modernization should go forward
but without mixing financial services and commerce. Preserving the
unitary thrift loophole should not be allowed. Who believes this should
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary
Rubin, and banking and consumer organizations. There is bipartisan and,
frankly, overwhelming support for loophole closure. I think there is a
sense we do not want to go down the road of financial services and
commerce mixing at this particular juncture. Allowing financial
modernization to go forward should occur, but allowing unitary thrifts
to merge with other financial institutions is the road to go rather
than allowing merger with commerce at large.
I think we need to heed the urgent warnings of our Nation's leading
economic minds. We appreciate that this issue is arcane in the minds of
many in this body, no doubt. But when we have the support for closure
of this loophole coming from the chairman of the House Banking
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that
ought to be compelling support for taking this step to make sure, in
fact, we get a financial modernization bill out of this body that will,
in fact, be signed by the President and will serve this country in good
stead.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
Mr. GORTON. Mr. President, financial modernization should be about
expanding chartering options and choices for consumers, not about
stripping away the fundamental characteristics of consumer-oriented
institutions. It is a paradox that the banks that are here seeking more
powers wish to restrict the powers of their competitors in the same
bill and are using this amendment to do so.
Proponents of this amendment contend that the unitary thrift charter
is a ``loophole'' that allows for the mixing of banking and commerce.
Those concerns are both misplaced and impossible under the very
conditions of charter.
Federal law now expressly prohibits a unitarian thrift from lending
to a commercial affiliate. By law, a thrift must focus on providing
mortgage, consumer, and small business credit, and its commercial
lending is severely restricted.
The thrift charter is unique. Martin Mayer, who is a guest scholar at
the Brookings Institution and a foe of mixing banking and commerce,
supports the commercial ownership of thrifts because of their unique
lending focus on consumers and small businesses. In the more than 3
decades that unitary thrift charters have existed, there is a total
absence of any evidence that unitary thrifts' commercial affiliations
have either led to a concentration of economic power or posed a risk to
the consumer or the taxpayer. To the contrary, the FDIC has testified
that limits such as those proposed in this amendment would restrict ``a
vehicle that has enhanced financial modernization without causing
significant safety-and-soundness problems.''
The issue under debate is not the creation of a banking-commerce
Frankenstein. It is, rather, about the proper treatment of longstanding
institutions focused on serving local communities. Congress should not
limit the authorities of existing consumer-oriented companies without a
compelling reason. To do so would be anticompetitive and anticonsumer.
I am adamantly opposed to any initiative that eviscerates the unitary
thrift charter and urge Senators to oppose the Johnson amendment as a
serious step backwards in our efforts to modernize our Nation's
financial services laws.
I yield back the remainder of my time, and I move to table the
Johnson amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table amendment No. 309. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 32, nays 67, as follows:
[Rollcall Vote No. 103 Leg.]
YEAS--32
Akaka
Allard
Bennett
Breaux
Bunning
Campbell
Chafee
Cochran
Coverdell
Dodd
Domenici
Enzi
Gorton
Gramm
Hagel
Inouye
Kyl
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Murray
Nickles
Reed
Robb
Roth
Smith (NH)
Smith (OR)
Stevens
Warner
NAYS--67
Abraham
Ashcroft
Baucus
Bayh
Biden
Bingaman
Bond
Boxer
Brownback
Bryan
Burns
Byrd
Cleland
Collins
Conrad
Craig
Crapo
Daschle
DeWine
Dorgan
Durbin
Edwards
Feingold
Feinstein
Frist
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lincoln
Mikulski
Moynihan
Murkowski
Reid
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Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Snowe
Specter
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
The motion was rejected.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the
order for the yeas and nays.
The PRESIDING OFFICER. Without objection, it is so ordered.
The question is on agreeing to the amendment.
The amendment (No. 309), as modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. SHELBY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 315
Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
The legislative assistant read as follows:
The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr.
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu,
proposes an amendment numbered 315.
Mr. SHELBY. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
Redesignate sections 123, 124, and 125 as sections 125,
126, and 127 respectively, strike section 122, and insert the
following:
SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.
Chapter one of title LXII of the revised statutes of United
States (12 U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A (12 U.S.C. 25a) as
section 5136B; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:
``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
``(a) Activities Permissible.--
``(1) In general.--A subsidiary of a national bank may--
``(A) engage in any activity that is permissible for the
parent national bank;
``(B) engage in any activity authorized under section 25 or
25A of the Federal Reserve Act, the Bank Service Company Act,
or any other Federal statute that expressly by its terms
authorizes national banks to own or control subsidiaries
(other than this section); and
``(C) engage in any activity permissible for a bank holding
company under any provision of section 4(k) of the Bank
Holding Company Act of 1956 other than--
``(i) paragraph (4)(B) of such section (relating to
insurance activities) insofar as such paragraph permits a
bank holding company to engage as principal in insuring,
guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or to engage as principal in
providing or issuing annuities; and
``(ii) paragraph (4)(I) of such section (relating to
insurance company investments).
``(2) Limitations.--A subsidiary of a national bank--
``(A) may not, pursuant to subparagraph (C) of paragraph
(1)--
``(i) underwrite insurance other than credit-related
insurance;
``(ii) engage in real estate investment or development
activities (except to the extent that a Federal statute
expressly authorizes a national bank to engage directly in
such an activity); and
``(B) may not engage in any activity not permissible under
paragraph (1).
``(b) Requirements Applicable to National Banks With
Financial Subsidiaries.--
``(1) In general.--A financial subsidiary of a national
bank may engage in activities pursuant to subsection
(a)(1)(C) only if--
``(A) the national bank meets the requirements, as
determined by the Comptroller of the Currency, of Section
(4)(l)(1) of the Bank Holding Company Act of 1956 (other than
subparagraph (C));
``(B) each insured depository institution affiliate of the
national bank meet the requirements, as determined by the
Comptroller of the Currency, of Section (4)(l)(1) of the Bank
Holding Company Act of 1956 (other than subparagraph (C));
and
``(C) the national bank has received the approval of the
Comptroller of the Currency by regulation or order.
``(2) Corrective Procedures.--
``(A) In general.--The Comptroller of the Currency shall,
by regulation prescribe procedures to enforce paragraph (1).
``(B) Stringency.--The regulation prescribed under
subparagraph (A) shall be no less stringent than the
corresponding restrictions and requirements of section 4(m)
of the Bank Holding Company Act of 1956.
``(c) Definitions.--For purpose of this section, the
following definitions shall apply;
``(1) Affiliate.--The term `affiliate' has the same meaning
as in section 3 of the Federal Deposit Insurance Act.
``(2) Financial Subsidiary.--The term `financial
subsidiary' means a company that--
``(A) is a subsidiary of an insured bank; and
``(B) is engaged as principal in any financial activity
that is not permissible under subparagraph (A) or (B) of
subsection (a)(1) of this section.
``(3) Subsidiary.--The term `subsidiary' has the same
meaning as in section 2 of the Bank Holding Company Act of
1956.
``(4) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act.
``(5) Well managed.--The term `well managed' means--
``(A) in the case of an insured depository institution that
has been examined, the achievement of--
``(i) a composite rating of 1 or 2 under the Uniform
Financial Instutitions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the insured
depository institution; and
``(ii) at least a rating of 2 for management, if that
rating is given; or
``(B) in the case of an insured depository institution that
has not been examined, the existence and use of managerial
resources that the appropriate Federal banking agency
determines are satisfactory.''.
SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND
THEIR FINANCIAL SUBSIDIARIES.
(a) Purposes.--The purposes of this section are--
(1) to protect the safety and soundness of any insured bank
that has a financial subsidiary;
(2) to apply to any transaction between the bank and the
financial subsidiary (including a loan, extension of credit,
guarantee, or purchase of assets), other than an equity
investment, the same restrictions and requirements as would
apply if the financial subsidiary were a subsidiary of a bank
holding company having control of the bank; and
(3) to apply to any equity investment of the bank in the
financial subsidiary restrictions and requirements equivalent
to those that would apply if--
(A) the bank paid a dividend in the same dollar amount to a
bank holding company having control of the bank; and
(B) the bank holding company used the proceeds of the
dividend to make an equity investment in a subsidiary that
was engaged in the same activities a the financial subsidiary
of the bank.
(b) Safety and Soundness Firewalls Applicable to
Subsidiaries of Banks.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:
``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO
SUBSIDIARIES OF BANKS.
``(a) Limiting the Equity Investment of a Bank in a
Subsidiary.--
``(1) Capital deduction.--In determining whether an insured
bank complies with applicable regulatory capital standards--
``(A) the appropriate Federal banking agency shall deduct
from the assets and tangible equity of the bank the aggregate
amount of the outstanding equity investments of the bank in
financial subsidiaries of the bank; and
``(B) the assets and liabilities of such financial
subsidiaries shall not be consolidated with those of the
bank.
``(2) Investment limitation.--An insured bank shall not,
without the prior approval of the appropriate Federal banking
agency, make any equity investment in a financial subsidiary
of the bank if that investment would, when made, exceed the
amount that the bank could pay as a dividend without
obtaining prior regulatory approval.
``(b) Operational and Financial Safeguards for the Bank.--
An insured bank that has a financial subsidiary shall
maintain procedures for identifying and managing any
financial and operational risks posed by the financial
subsidiary.
``(c) Maintenance of Separate Corporate Identity and
Separate Legal Status.--
``(1) In general.--Each insured bank shall ensure that the
bank maintains and complies with reasonable policies and
procedures to preserve the separate corporate identity and
legal status of the bank and any financial subsidiary or
affiliate of the bank.
``(2) Examinations.--The appropriate Federal banking
agency, as part of each examination, shall review whether an
insured
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bank is observing the separate corporate identity and
separate legal status of any subsidiaries and affiliates of
the bank.
``(d) Financial Subsidiary Defined.--For purposes of this
section, the term `financial subsidiary' has the same meaning
as section 5136A(c)(2) of the Revised Statutes of the United
States.
``(e) Regulations.--The appropriate Federal banking
agencies shall jointly prescribe regulations implementing
this section.''.
(c) Limiting a Bank's Credit Exposure to a Financial
Subsidiary to the Amount of Permissible Credit Exposure to an
Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C.
371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary' has
the same meaning as section 5136A(c)(2) of the revised
statutes of the United States.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
that is not a financial subsidiary), and notwithstanding
subsection (b)(2) and section 23B(d)(1)--
``(A) the financial subsidiary of the bank--
``(i) shall be deemed to be an affiliate of the bank and of
any other subsidiary of the bank that is not a financial
subsidiary; and
``(ii) shall not be deemed a subsidiary of the bank; and
``(B) a purchase of or investment in equity securities
issued by the financial subsidiary shall not be deemed to be
a covered transaction,
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary (that
is not a subsidiary of a bank) shall not be deemed to be a
transaction between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or section 23B of
this Act.
``(B) Certain affiliates excluded.--For purposes of this
paragraph, the term `affiliate' shall not include a bank, or
a subsidiary of a bank that is engaged exclusively in
activities permissible for a national bank to engage in
directly or authorized for a subsidiary of a national bank
under any federal statute other than section 5136A of the
Revised Statutes of the United States.''.
SEC. 124. FUNCTIONAL REGULATION.
(a) Purpose.--The purpose of this section is to ensure
that--
(1) securities activities conducted in a subsidiary of a
bank are functionally regulated by the Securities and
Exchange Commission to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company; and
(2) insurance agency and brokerage activities conducted in
a subsidiary of a bank are functionally regulated by a State
insurance authority to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company.
(b) Functional Regulation of Financial Subsidiaries.--The
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is
amended by inserting after section 45 (as added by section
123 of this subtitle) the following new section:
``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES
AND INSURANCE AGENCY SUBSIDIARIES OF INSURED
DEPOSITORY INSTITUTIONS.
``(a) Broker or Dealer Subsidiary.--A broker or dealer that
is a subsidiary of an insured depository institution shall be
subject to regulation under the Securities Exchange Act of
1934 in the same manner and to the same extent as a broker or
dealer that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(b) Insurance Agency Subsidiary.--Subject to Section 104
of the Act, an insurance agency or brokerage that is a
subsidiary of an insured depository institution shall be
subject to regulation by a State insurance authority in the
same manner and to the same extent as an insurance agency or
brokerage that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(c) Definitions.--For purposes of this section, the terms
`broker' and `dealer' have the same meanings as in section 3
of the Securities Exchange Act of 1934.''.
Mr. SHELBY. Mr. President, I rise today to offer this amendment,
entitled the American Bank Fairness Amendment, to
S. 900, the pending
bill.
This amendment, which, as I have said, is cosponsored by Senator
Daschle, the minority leader, and Senators Grams, Reed, Bennett,
Edwards, Hagel, and Landrieu, would permit national banks to conduct
equity securities underwriting and merchant banking activities in an
operating subsidiary, much as their foreign bank competitors that are
allowed to conduct such activities in the United States today. I note
that six of the seven sponsors of this amendment are members of the
Banking Committee.
We are talking this afternoon about defining a fair and an efficient
framework to allow all--yes, all--financial institutions to better
provide service to their customers in America. This country needs
financial modernization. I support national modernization.
I have great respect for the chairman, the Senator from Texas, Mr.
Gramm, and I supported the chairman in the committee. He helped to get
this bill to the floor.
Unfortunately, this bill does more for the institutions in the top
world financial centers--New York, Hong Kong, London--than it does for
the average bank that serves the average person in America. That is the
issue at hand.
I know many of my colleagues have made up their mind on this issue.
Besides, in all honesty, the chairman of the Federal Reserve, Alan
Greenspan, may not even be the Chairman of the Federal Reserve after
next year, although I wish that he would continue. It is often reported
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant
will be the next person President Clinton nominates to the Federal
Reserve Board. Therefore, I do not believe it is fair for the issues of
this debate to revolve around any one individual, although it is an
individual I hold in great respect.
The truth is, we are here today to write the laws that will determine
the future of the American financial system for the next 60 years. We
are talking about the issues of banking law, corporate law, industrial
organization.
Senators Grams, Reed, and Bennett have been the lead proponents of
the operating subsidiary for several years and they should be commended
for their deep understanding of the issue and the banking expertise
they bring to the Senate Banking Committee.
Let me say from the very beginning, this debate is not about Chairman
Alan Greenspan. It should never be. As I said, I have a deep respect
for Chairman Greenspan. I hold him in very high regard. He is a
tremendous central banker. I am not here to dispute that in any way.
The operating subsidiary amendment is not about monetary policy. Let
me repeat, the operating subsidiary amendment is not about monetary
policy. It is not about inflation, the money supply, or even the
unemployment rate. I plead with Senators to listen to the facts. The
key banking committee Senators supporting this amendment are not from
big cities. They are not doing this for Citigroup or Merrill Lynch,
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial
institutions want a bill so badly, they have forced their associations
to oppose this amendment based on press reports that this bill will be
pulled if it passes. We all know it is the multibillion-dollar
financial institutions that control the associations, and they are the
ones pushing this bill.
I just do not believe that, in passing a financial modernization
bill, we should forget about the smaller, midsized, and regional banks
that serve our local communities and our States. Those banks--the
smaller, midsized, and regional banks--are the ones that are not being
heard on this issue. They are being shut out and they have been
discounted.
I am sorry, but I do not believe financial modernization should be
only for the folks on Wall Street. I do not understand why this body
would knowingly pass a financial modernization bill that would
intentionally discriminate against domestic banks in favor of foreign
banks.
If you want to talk about competition, free markets, and fair and
equal treatment under the law, Senators should seriously consider the
amendment that is before the Senate. The Shelby-Daschle and others
amendment would provide more fair and equitable treatment of our
national banks in comparison with our foreign competitors.
The American Bank Fairness Amendment, as we called it, would ensure
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that foreign banks receive no competitive advantage over our banks here
in America.
S. 900, at the moment, as it is written, discriminates against
domestic banks. Ask yourself, Why are we even here in the first place?
Why are we even considering financial modernization, if it is to be
globally competitive? Is it to ensure that our banks can compete on an
international scale?
I received a letter from John Reed and Sanford Weill, cochairmen of
Citigroup, this morning. They wrote to inform me that passage of
financial modernization is imperative.
They said,
As our financial services firms contort to comply with the
current legal and regulatory structure, we become much less
competitive with our non-U.S. counterparts. Our country's
competitive position as the world's leader in financial
services is at risk of being lost if we don't act now.
So, according to our friends at Citigroup, it appears we have become
less competitive with our foreign competitors, and that our position as
a world leader is at risk.
I received a similar letter from Phil Purcell, chairman of Morgan
Stanley Dean Witter & Co. He said that Congress needs to pass this bill
because:
Financial modernization legislation is critical to the
maintenance of the preeminence of American financial firms in
global markets.
American preeminence, Mr. President? Is that the reason we are
considering this legislation? If these are, indeed, the reasons, I must
confess I am really confused. The reason for my confusion is
S. 900,
the bill we are debating today actually discriminates against domestic
banks in favor of foreign banks. Simply put, national banks are not
allowed to conduct merchant banking activities or equity underwriting
activities in an operating subsidiary. Foreign banks, however, can
conduct those activities today, and will actually expand their range of
activities to include insurance underwriting, if this bill becomes law.
I actually have some charts to share with you to help demonstrate the
blatant discriminatory treatment of our own national banks versus those
of foreign banks' operating subsidiaries in America. Under current law,
national bank subsidiaries are not permitted to conduct merchant
banking activities. Merchant banking basically means that banks are
permitted to make investments in a company subject to conditions
designed to maintain the separation between banking and commerce.
Foreign subsidiaries operating today in America can, however. Under
current law, national bank subsidiaries are not permitted to underwrite
any deal in equity securities. However, foreign bank subsidiaries can.
The last row under the ``current law'' is blank. That is, neither
foreign bank subsidiaries nor national bank subsidiaries may underwrite
noncredit-related insurance.
Let's look at a chart of permitted subsidiary activities that I have
here if this financial modernization bill were enacted into law. Please
notice that under the first column, here, national bank subsidiaries
still will not enjoy the ability to conduct merchant banking activities
or conduct equity securities underwriting. Foreign bank subsidiaries
will not only be allowed to conduct those activities--merchant banking,
underwriting and dealing in equity securities and insurance
underwriting, as shown on the chart--but
S. 900, as currently written,
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole
rationale for the bill.
That is the major flaw with this bill. How can the supporters of this
bill say this will help our national banks compete when they are
clearly put at a disadvantage by their own Federal Government? How can
we in good conscience support a bill that discriminates against our own
national banks?
Senator Gramm and Chairman Greenspan say if national banks are
allowed to conduct such activities in an operating subsidiary, these
banks would have a funding advantage over their competitors because of
an alleged ``subsidy.''
However, neither Senator Gramm nor Chairman Greenspan can reconcile
this argument with the competitive advantage of foreign bank
subsidiaries. Since 1990, the Federal Reserve Board has issued
approvals for 18 foreign banks to own subsidiaries that engage in
securities underwriting activities in the United States. In fact, the
size of these subsidiaries exceeds $450 billion in assets. The Federal
Reserve admits that foreign banks may enjoy a ``home country'' subsidy.
In approving the section 20 subsidiary application for the Canadian
Imperial Bank of Commerce in 1990, the Federal Reserve noted:
Although as banks, applicants [that is foreign banks] are
not supported to any significant extent by the U.S. federal
safety net, they have access to any benefits that are
associated with their respective home country safety nets,
from which they may derive some competitive advantage over
U.S. bank holding companies operating under the section 20
framework or other U.S. securities firms.
Not only does the board basically admit there may be home country
advantages, they also admit:
. . . a foreign bank may establish and fund a section 20
subsidiary, while a U.S. bank may not.
Further, in their 1992 joint report on foreign bank operations
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board
and the Department of Treasury agreed that, ``. . . subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice. The right of a
foreign bank to determine whether to establish a branch or a subsidiary
is consistent with competitive equity, national treatment and equality
of competitive opportunity.''
Why is investor choice the guiding principle for foreign banks but
not for our domestic banks? Why do foreign banks have the right to
choose their own corporate structure but domestic banks do not?
The Federal Reserve Board stated that while a subsidy for foreign
banks may exist:
[T]he Board believes that any advantage would not be
significant in light of the effect on them of the overall
section 20 framework and the circumstances of these cases,
and should not preclude foreign bank ownership of section 20
subsidiaries.
Basically, that means the rules and the regulations that apply to
foreign section 20 subsidiaries should contain any possible subsidy.
Why do the rules and regulations in place contain any possible
subsidy for foreign banks but not domestic banks, our banks? Why should
any alleged subsidy preclude operating subsidiaries for U.S. banks but
not for foreign subsidiaries? Fundamental fairness would suggest that
foreign banks not be allowed to have a competitive advantage over
domestic banks. It just makes no sense. Fundamental fairness suggests
domestic banks should also have the choice of an operating subsidiary
that our foreign banks have.
Critics of the operating subsidiary have voiced concerns about safety
and soundness. But this is a red herring, I believe, and really no
issue at all. Even Chairman Greenspan testified that safety and
soundness is really not the issue with regard to operating
subsidiaries, when asked by Congressman Bentsen in the House. I will
quote the chairman:
My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Non-bank holding companies or other institutions do
not have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.
The amendment before us, the operating subsidiary proposal, includes
the same safety and soundness protections and lending restrictions as
the Federal Reserve imposes on section 20 subsidiaries. But to further
address any safety and soundness concerns, the amendment would also
require that the parent bank deduct--yes, deduct--its entire equity
investment in the subsidiary from its own capital and still remain well
capitalized.
Furthermore, under the operating subsidiary, any alleged ``subsidy''
transferred to the subsidiary would be identical to that transferred to
an affiliate because investments in the subsidiary would be limited to
that which the bank could transfer to holding company affiliates in the
form of dividends.
Lastly, the current Chairman of the Federal Deposit Insurance
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound
than the affiliate structure.
[[Page
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The FDIC chairmen argue that forcing activities in an affiliate
actually exposes insured banks to greater risks than that of an
operating subsidiary.
I want to respond to a letter Chairman Alan Greenspan wrote to
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May
3. I believe this is a great letter in support of the operating
subsidiary. In Chairman Greenspan's effort to explain why foreign bank
subsidiaries do not have a competitive advantage and are justified, he
actually makes the case for an operating subsidiary and confirms
everything proponents have been saying all along.
In paragraph 2, Chairman Greenspan says that the International
Banking Act requires foreign banks be allowed to operate in this
country through operating subsidiaries. His major point is that it is
not his choice, but that the law makes him do it, and this is due to
the national treatment principles to which he refers in paragraph 3.
I understand the national treatment principles. However, those
principles are not and should not be interpreted to mean that foreign
banks be given advantages over U.S. banks.
In both the International Banking Act and the Bank Holding Company
Act, the Federal Reserve Board is mandated to deny an application by a
foreign bank to establish a U.S.-subsidiary if the Board finds that the
proposal will result in ``decreased or unfair competition, conflicts or
interests, or unsound banking practices.''
This is a very important point, I submit to my colleagues. By law,
the Federal Reserve must have determined that foreign bank subsidiaries
conducting securities underwriting and equity underwriting does not
result in unsound banking practices.
Otherwise, the Federal Reserve would be in violation of the
International Banking Act and the Bank Holding Company Act. That very
fact supports our argument that conducting such activities in an
operating subsidiary is both safe and sound.
In the third paragraph, Chairman Greenspan says:
In the absence of any evidence that foreign banks are using
their government subsidy to an unfair competitive advantage
in the United States, there does not seem to be any
compelling reason to abandon the current approach to foreign
bank participation in this country.
Chairman Greenspan once again admits there is a government subsidy
for foreign banks. He confirms what I shared with everyone in my ``Dear
Colleague'' letter in the Senate. He then changes the subject to say
there is no reason to abandon foreign banks subsidiaries. I never
suggested such a thing in my ``Dear Colleague'' letter. In only asked
that if it is appropriate for foreign banks, why isn't it appropriate
for national banks?
The fifth paragraph of the letter states that, ``foreign banks have
not been able to exploit their home country subsidy . . .'' and that
foreign bank subsidiaries ``have substantially underperformed U.S.
owned section 20 companies.'' He actually admits that ``the subsidy
does not travel well.'' In other words, foreign banks have not been
successful transferring their home country subsidy to their subsidiary
in the U.S.
But wait a minute. You cannot have it both ways. I do not care who
you are.
Chairman Greenspan just presented evidence to us in the fifth
paragraph that foreign bank subsidiaries, which in the third paragraph
he admits receive a home country subsidy, underperform their American
competitors. Thus, if there is a subsidy, it must either be (1)
insignificant, and not enough to affect market performance or (2)
contained in the section 20 regulatory framework and therefore not an
issue. In either case, the Chairman has just confirmed the arguments
that proponents of operating subsidiaries have made.
To sum up, Chairman Greenspan, just 2 days ago, confirmed that:
foreign bank subsidiaries receive home country subsidies; conducting
such activities in a subsidiary does not result in unsound banking
practices, otherwise the Fed is violating the law with regard to
foreign bank subsidiaries; and the subsidiary does not ``travel well,''
that is, it is not easily transferred from the bank to the sub.
The logic and the evidence presented by Chairman Greenspan in defense
of foreign bank subsidiaries is the exact same logic and evidence that
supports the Shelby-Daschle operating subsidiary amendment.
To be honest, I am quite surprised at the Chairman's uncompromising
position on the issue. As a student of Public Choice economics, I am
sure he is aware of the benefits of competition among regulators. I am
surprised he supports making the Federal Reserve the monopoly umbrella
regulator. Monopolies restrict output and increase prices.
There is no doubt in my mind that making the Federal Reserve the
monopoly regulator will create even more bottlenecks in bank
applications thereby increasing the regulatory cost of banks doing
business with the Federal Reserve.
For the sake of competition, for the sake of free markets, for the
sake of choice, I respectfully request that you support the Shelby
amendment.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
Mr. GRAMM. Mr. President, I think if anyone knows me and knows
Richard Shelby, they know that we came to Congress on the same day. We
served on the House Energy and Commerce Committee together. We were
both Democrats then. We both changed parties. We both ran for the
Senate. And Richard and I have been very close friends since the first
day we came. I think you always regret when you have these kinds of
tough battles, but this is a tough battle. This is vitally important.
Let me basically outline what I want to say and then let me go about
trying to say it.
First of all, there has been some speculation about whether or not,
as chairman of the Banking Committee and a new chairman, chairman only
for a few months, whether or not I would pull my own bill, which, as
the Presiding Officer knows as a member of the committee, has been a
great labor of mine for all these many months and has been the labor of
Congress for 25 years. As to whether I would pull the bill over this
issue, let me leave no suspense: I will pull this bill if the Shelby
amendment is adopted.
You might think that is a very strong statement to make, but I think
when you hear my presentation, you will understand why I make it,
because with all the good things in the bill, I want people to
understand that all of them combined together would not undo the harm
that would be done by this amendment.
What I will do is answer Senator Shelby on foreign banks. I will then
go through and talk about the real issue: What is the issue for
Democrats who are hearing from the Secretary of the Treasury? What is
the issue for Republicans who are hearing from big banks? What is the
public interest?
I will try to answer those issues. Let me begin with the foreign
banks.
Senator Shelby would have us believe that we need to start
subsidizing American banks because foreign banks are subsidized. He
would have us believe that somehow we have given foreign banks a
different set of regulations to abide by in America than American banks
have had and that therefore we need to do something about it.
Let me address that. And I want to address it first by reading Alan
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby
referred to part of it. But I think it goes right to the heart of the
issue.
Reading his letter of May 4:
First, the Board did not simply choose to let foreign banks
operate in this country through subsidiaries. The law
required it. The International Banking Act . . .
That was passed in 1978--
. . . provides that a foreign bank shall be treated as a .
. . holding company for purposes of nonbanking acquisitions.
That is the law of the land. That was adopted by Congress. That was
signed by the President. The Chairman of the Board of the Federal
Reserve had nothing to do with that. He simply had the responsibility
of implementing it.
Therefore, when the Board allowed U.S. bank holding
companies to own securities companies, the Board was required
to permit foreign banks that met the statutory conditions
also to acquire such companies.
The law treating foreign banks as holding companies was a
practical response to an existing situation: most foreign
banks do not have holding companies.
[[Page
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And I will get to that point in a minute because it is important.
Without the [International Banking Act's] approach, foreign
banks generally would be excluded from the U.S. market, in
violation of the national treatment principles embedded in
U.S. law. . . .
The Board stated it would monitor, and in fact has
monitored, this situation to assure that foreign banks do not
in fact operate to the detriment of U.S. banking
organizations. . . .
A recent Federal Reserve study of the performance of
section 20 companies over the last eight years demonstrates
that foreign bank-owned section 20 companies have
substantially underperformed U.S.-owned section 20 companies.
. . .
To cite the fact of foreign bank structure to support a
similar structure in the United States is not only
misleading, it is potentially harmful.
Let me explain what all that means in English. What it means is, we
passed a law, and the law said that since foreign banks do not use
holding companies--they use operating subsidiaries because it is
permitted under their law--that for treatment purposes, they would be
treated as holding companies in the United States. Senator Shelby says
this is unfair.
I would like to note that the Federal Reserve, noting a potential
problem with it, set out a monitoring process to see if these foreign
banks are benefiting relative to our banks in promoting unfair
competition.
What the Fed found in 1995 was that not only were they not
benefiting, but they lost 11 percent. In 1996, their rate of return was
minus 8 percent. In 1997, their rate of return was 18 percent. And in
1998, their rate of return was 25 percent.
So the plain truth is, these foreign banks are poorly run, their
subsidiary operations are a disaster, but if they were well run, and if
they were getting a competitive advantage, we would do something about
it. The point is, it has not created a problem.
Nineteen of these foreign banks are in the securities business.
Together, they make up less than 2.6 percent of the American market. In
terms of underwriting revenues, they earn 3.8 percent of the revenues.
So the point is, these foreign banks are not effective in competing
against American banks. The point is, because foreign governments
subsidize their banks, do we want to subsidize our banks? As chairman
of the Banking Committee, I can tell you, if these foreign subsidies
started having an unfair effect in our market, we would take action to
change the law and prevent this advantage.
But we have allowed this situation to exist for two reasons: One, it
has not done us any harm, and, two, we sell $10 of financial services
abroad for every $1 of financial services sold in America. So the last
thing we wanted to do is get into a trade war in banking, because we
are the world's greatest bankers, we are the world's greatest exporters
of banking services. And so it was to our advantage to allow this to
happen as long as it was doing no harm.
What is the real issue at stake in this amendment? I want to begin
with a quote from Secretary Rubin. In fact, many people on the Democrat
side of the aisle have been called by Secretary Rubin in the last few
days. Some people on our side of the aisle have been called. I want to
read you a quote from Secretary Rubin. And then I want to pose a
question: What could this quote possibly be referring to?
This is a quote from the Secretary of the Treasury, Robert Rubin, on
May 5, 1999, before the Finance Subcommittee of the House Commerce
Committee. And I will read you the quote:
[O]ne of an elected Administration's critical
responsibilities is the formation of economic policy, and an
important component of that policy is banking policy. In
order for the elected Administration to have an effective
role in banking policy, it must have a strong connection with
the banking system.
I remind my colleagues that the Comptroller of the Currency, who
works for Robert Rubin, regulates national banks. And national banks
make up 58 percent of the assets in American banks. Why isn't that ``an
effective role in banking policy''? Why is it not ``a strong connection
with the banking system''? I can tell you, Secretary Rubin is right: It
is not a strong connection. The Comptroller of the Currency is an
accountant. Banking policy is run by the Federal Reserve. And I thank
God for that every single day.
I thank God every single day that in 1913, after the Treasury had run
monetary policy in this country--we had a giant panic in 1907; the
country had gone through continuing economic convulsions--the Congress
put an end to it by setting up an independent monetary authority called
the Federal Reserve.
The Federal Reserve, with an independent board--appointed by the
President, confirmed by the Senate for very long terms--exercises
independent monetary policy. So when the President wants to inflate the
economy to get reelected, the Fed says no. When Congress feels we need
to print more money to get things moving to help them in their
elections, the Fed says no. We have an independent monetary authority.
So while the Comptroller of the Currency is an accountant that
primarily audits national banks, he has no policy authority at all.
Why? Because the Federal Reserve regulates the holding companies, and
there are 6,867 holding companies in America that together make up
about 96 percent of bank assets.
So sure enough, the Treasury sends out all of the accountants and
auditors, but the Federal Reserve sets the policy. And what Robert
Rubin is saying, in the clearest possible terms, is he wants to set
banking policy, he wants to set monetary policy. That is exactly what
he is saying.
The question is, Do we want to put the Treasury back in the position
of setting banking policy in America? Do we want the President to have
the ability to use banking policy as a political tool? Are we not
talking about repealing the Federal Reserve Act?
Now, how all this comes about is a little complicated, but with a
teeny bit of detective work, it becomes very, very clear.
Remember, the Fed does not regulate banks. Not a single bank in
America is regulated directly by the Fed. But it regulates holding
companies that control banks, and those holding companies have 97
percent of the assets of banks. Why do they have it? Because our law
requires that banks not provide other financial services within the
bank, for safety and soundness reasons, and so big banks and banks that
have large assets are holding companies and they come under the Federal
Reserve.
Now, if we adopted the Shelby amendment, let me read what Alan
Greenspan and the Board of Governors of the Federal Reserve say would
happen:
As I have testified, if profit is their goal, there is no
choice. Because of the subsidy implicit in the Federal safety
net, profit-maximizing management will invariably choose the
operating subsidiary. As a consequence, the holding company
structure will atrophy in favor of bank operating
subsidiaries. Our [and ``our'' being the Federal Reserve]
current ability rests principally on our role as holding
company supervisor.
So here is the point: If you let banks perform these services within
the bank itself, their securities affiliate or, in the future, their
insurance affiliate or any other thing you allow them to do can get the
advantage of the bank's FDIC insurance and the ability to borrow money
from the Fed, which is the lowest interest rate in the world, and if
they can use the Fed wire, the Fed has estimated that doing these
things within the bank creates about a 14 basis points advantage over
doing them outside the bank. Those little margins make a very big
difference.
So, obviously, the Treasury and the Federal Reserve believe and both
agree that if you let banks perform these functions inside the bank,
banks will tend to close down their holding companies and bring these
functions inside the bank.
Now, I am going to talk about that issue separately. But what does
that mean in terms of monetary policy? It means that the Comptroller of
the Currency, who will be regulating banks that will no longer be
holding companies, will become the banking authority in the country,
and the Federal Reserve will see the number of holding companies it
regulates decline, decline, decline, and decline.
Now, interestingly, the Treasury and the Shelby amendment, one and
the same, recognize this. They say, OK, for the 43 largest holding
companies, we will force them to maintain their holding company, so
that the Fed will continue to regulate them. That means that 6,824
other holding companies will be allowed to change their structure. They
will be driven by the profit motive to do it. Therefore, over time the
[[Page
S4855]]
control of banking policy and ultimately monetary policy--because bank
regulation is a source of strength for the Fed in implementing much of
its policy--will shift from the Federal Reserve to the Treasury, from
an independent agency to an arm of the President of the United States.
Now, you might say, well, the Federal Reserve still regulates 43
holding companies. But the holding companies have every incentive to
conduct all of their activities within the bank, so the holding
companies, the 43 left that the Fed would regulate, will be empty
shells.
The Fed's power comes from the power to regulate banks. Their ability
to get banks together to prevent a financial collapse--such as the Long
Term Capital Management case in New York--was their ability, using
moral suasion by the fact that they regulated the holding companies
that were involved, to get people together and basically nudge them,
encourage them, and, if you like, pressure them into dealing with that
crisis before it got moving.
Now, I ask my colleagues on the first point: Do you want this
administration, or any administration, to control banking policy? The
Secretary of the Treasury says they should; it is part of the tools
they say they need to conduct economic policy.
Let me tell you something, Mr. President. We had this debate in 1913.
We decided we didn't want the President, in 1913, controlling banking
policy. We have decided we do not want any President or did not want
any President since that time.
Would we have been better off in the last 2 years of the Reagan
administration if the Treasury had controlled banking policy instead of
the Federal Reserve? I do not think so. When the Bush administration
was in a reelection campaign and losing the election because the
economy was recovering slowly, would we have wanted the Secretary of
the Treasury and the Comptroller of the Currency--appointed by the
President, removable by the President--would we have wanted them to
have the ability to turn on the printing presses or to use expansionary
policy with the banks? I do not think we would.
Do we want this President to have the ability to control banking
policy when he orders the Comptroller of the Currency, who would be the
new central banking regulatory authority under the Shelby amendment, to
come to the White House for a fundraiser with bankers?
This is not a partisan matter. Bill Clinton is going to be President
for 18 more months. We may well then have a Republican President. I
hope so. But I do not want a Republican or Democratic President to
control banking policy. We set up an independent Fed to do that, and I
want them to do it. Have no doubt about it, when Robert Rubin is saying
that this amendment is a way of expanding the administration's
effective role in banking policy, he means transferring from the Fed to
the Treasury the ability to set banking policy.
Now, if you are for that, if you believe the executive branch of
American government ought to set banking policy, you should vote for
the Shelby amendment. But if you believe we have done pretty well under
Alan Greenspan and the Federal Reserve, if you believe that since 1913
the American economy has performed pretty well by taking banking policy
away from Congress and away from the executive branch of government and
putting it in an independent agency, if you believe that, do not vote
for this amendment. This amendment is clearly an effort to transfer
regulatory authority over banking from the Federal Reserve to the
Treasury. That would be a disaster for America. That would be far more
important in its negative impact than anything we could possibly do in
terms of letting banks get into a few other areas of providing
services.
This is a fundamental issue. I urge my colleagues not to get caught
up on the Democrat side of the aisle with the fact that there is a
Democrat President or that we have a very friendly, nice, and competent
Secretary of the Treasury who is calling them up and saying, ``We need
you to vote with us.'' This is not a partisan matter. An independent
control of banking policy in America, an independent agency controlling
banking policy, is not a partisan matter, it is a matter that this
Congress, on a bipartisan basis, has stood for since 1913. I don't want
to take any step, and I don't believe America, if it understood this
issue, would want to take a step backward from that.
Let me talk to my Republican colleagues. We have written a bill, and
I think it is a good bill. I had a lot to do with writing it, so
obviously I think that. But I think other people are beginning to think
it, too. This is a big bank, big securities, big insurance bill. That
is just a reality. And I have to say that there is something a little
bit obscene about big banks calling up Members of the Senate and
saying: ``Well, you know we only got 95 percent of what we wanted in
that bill. We could get another 15 percent and go up to 110 percent if
you could let us provide these services within the bank, rather than
doing it outside the bank.''
Now, the banks are not caught up in who is going to conduct banking
policy. They are caught up in the fact that they are going to make more
money if they can provide these services inside the bank, because they
get the subsidies from the FDIC insurance, the Fed window and the Fed
wire.
I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say.
We have all heard: What is good for General Motors is good for America.
That is not right. What is good for America is good for General Motors.
I just say to my colleagues, whatever commitments you have made on
this, whatever partisanship you feel on this, ask yourself a question:
Is it good for America to give the Treasury-
Major Actions:
All articles in Senate section
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
(Senate - May 06, 1999)
Text of this article available as:
TXT
PDF
[Pages
S4848-S4878]
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
The Senate continued with the consideration of the bill.
The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson,
has 3 minutes.
Amendment No. 309, As Modified
Mr. JOHNSON. Mr. President, I have a modification of my amendment at
the desk and I ask unanimous consent that it be so modified.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:
On page 149, strike line 12 and all that follows through
page 150, line 21 and insert the following:
SEC. 601. PREVENTION OF CREATION OF NEW S HOLDING COMPANIES
WITH COMMERCIAL AFFILIATES.
(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Prevention of new affiliations between s holding
companies and commercial firms.--
``(A) In general.--Notwithstanding paragraph (3), no
company may directly or indirectly, including through any
merger, consolidation, or other type of business combination,
acquire control of a savings association after May 4, 1999,
unless the company is engaged, directly or indirectly
(including through a subsidiary other than a savings
association), only in activities that are permitted--
[[Page
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``(i) under paragraph (1)(C) or (2) of this subsection; or
``(ii) for financial holding companies under section 4(k)
of the Bank Holding Company Act of 1956.
``(B) Prevention of new commercial affiliations.--
Notwithstanding paragraph (3), no savings and loan holding
company may engage directly or indirectly (including through
a subsidiary other than a savings association) in any
activity other than as described in clauses (i) and (ii) of
subparagraph (A).
``(C) Preservation of authority of existing unitary s
holding companies.--Subparagraphs (A) and (B) do not apply
with respect to any company that was a savings and loan
holding company on May 4, 1999, or that becomes a savings and
loan holding company pursuant to an application pending
before the Office on or before that date, and that--
``(i) meets and continues to meet the requirements of
paragraph (3); and
``(ii) continues to control not fewer than 1 savings
association that it controlled on May 4, 1999, or that it
acquired pursuant to an application pending before the Office
on or before that date, or the successor to such savings
association.
``(D) Corporate reorganizations permitted.--This paragraph
does not prevent a transaction that--
``(i) involves solely a company under common control with a
savings and loan holding company from acquiring, directly or
indirectly, control of the savings and loan holding company
or any savings association that is already a subsidiary of
the savings and loan holding company; or
``(ii) involves solely a merger, consolidation, or other
type of business combination as a result of which a company
under common control with the savings and loan holding
company acquires, directly or indirectly, control of the
savings and loan holding company or any savings association
that is already a subsidiary of the savings and loan holding
company.
``(E) Authority to prevent evasions.--The Director may
issue interpretations, regulations, or orders that the
Director determines necessary to administer and carry out the
purpose and prevent evasions of this paragraph, including a
determination that, notwithstanding the form of a
transaction, the transaction would in substance result in a
company acquiring control of a savings association.
``(F) Preservation of authority for family trusts.--
Subparagraphs (A) and (B) do not apply with respect to any
trust that becomes a savings and loan holding company with
respect to a savings association, if--
``(i) not less than 85 percent of the beneficial ownership
interests in the trust are continuously owned, directly or
indirectly, by or for the benefit of members of the same
family, or their spouses, who are lineal descendants of
common ancestors who controlled, directly or indirectly, such
savings association on May 4, 1999, or a subsequent date,
pursuant to an application pending before the Office on or
before May 4, 1999; and
``(ii) at the time at which such trust becomes a savings
and loan holding company, such ancestors or lineal
descendants, or spouses of such descendants, have directly or
indirectly controlled the savings association continuously
since March 4, 1999, or a subsequent date, pursuant to an
application pending before the Office on or before May 4,
1999.''.
(b) Conforming Amendment.--Section 10(o)(5)(E) of the Home
Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by
striking ``, except subparagraph (B)'' and inserting ``or
(c)(9)(A)(ii)''.
Mr. JOHNSON. Mr. President, financial modernization should go forward
but without mixing financial services and commerce. Preserving the
unitary thrift loophole should not be allowed. Who believes this should
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary
Rubin, and banking and consumer organizations. There is bipartisan and,
frankly, overwhelming support for loophole closure. I think there is a
sense we do not want to go down the road of financial services and
commerce mixing at this particular juncture. Allowing financial
modernization to go forward should occur, but allowing unitary thrifts
to merge with other financial institutions is the road to go rather
than allowing merger with commerce at large.
I think we need to heed the urgent warnings of our Nation's leading
economic minds. We appreciate that this issue is arcane in the minds of
many in this body, no doubt. But when we have the support for closure
of this loophole coming from the chairman of the House Banking
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that
ought to be compelling support for taking this step to make sure, in
fact, we get a financial modernization bill out of this body that will,
in fact, be signed by the President and will serve this country in good
stead.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
Mr. GORTON. Mr. President, financial modernization should be about
expanding chartering options and choices for consumers, not about
stripping away the fundamental characteristics of consumer-oriented
institutions. It is a paradox that the banks that are here seeking more
powers wish to restrict the powers of their competitors in the same
bill and are using this amendment to do so.
Proponents of this amendment contend that the unitary thrift charter
is a ``loophole'' that allows for the mixing of banking and commerce.
Those concerns are both misplaced and impossible under the very
conditions of charter.
Federal law now expressly prohibits a unitarian thrift from lending
to a commercial affiliate. By law, a thrift must focus on providing
mortgage, consumer, and small business credit, and its commercial
lending is severely restricted.
The thrift charter is unique. Martin Mayer, who is a guest scholar at
the Brookings Institution and a foe of mixing banking and commerce,
supports the commercial ownership of thrifts because of their unique
lending focus on consumers and small businesses. In the more than 3
decades that unitary thrift charters have existed, there is a total
absence of any evidence that unitary thrifts' commercial affiliations
have either led to a concentration of economic power or posed a risk to
the consumer or the taxpayer. To the contrary, the FDIC has testified
that limits such as those proposed in this amendment would restrict ``a
vehicle that has enhanced financial modernization without causing
significant safety-and-soundness problems.''
The issue under debate is not the creation of a banking-commerce
Frankenstein. It is, rather, about the proper treatment of longstanding
institutions focused on serving local communities. Congress should not
limit the authorities of existing consumer-oriented companies without a
compelling reason. To do so would be anticompetitive and anticonsumer.
I am adamantly opposed to any initiative that eviscerates the unitary
thrift charter and urge Senators to oppose the Johnson amendment as a
serious step backwards in our efforts to modernize our Nation's
financial services laws.
I yield back the remainder of my time, and I move to table the
Johnson amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table amendment No. 309. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 32, nays 67, as follows:
[Rollcall Vote No. 103 Leg.]
YEAS--32
Akaka
Allard
Bennett
Breaux
Bunning
Campbell
Chafee
Cochran
Coverdell
Dodd
Domenici
Enzi
Gorton
Gramm
Hagel
Inouye
Kyl
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Murray
Nickles
Reed
Robb
Roth
Smith (NH)
Smith (OR)
Stevens
Warner
NAYS--67
Abraham
Ashcroft
Baucus
Bayh
Biden
Bingaman
Bond
Boxer
Brownback
Bryan
Burns
Byrd
Cleland
Collins
Conrad
Craig
Crapo
Daschle
DeWine
Dorgan
Durbin
Edwards
Feingold
Feinstein
Frist
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lincoln
Mikulski
Moynihan
Murkowski
Reid
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Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Snowe
Specter
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
The motion was rejected.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the
order for the yeas and nays.
The PRESIDING OFFICER. Without objection, it is so ordered.
The question is on agreeing to the amendment.
The amendment (No. 309), as modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. SHELBY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 315
Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
The legislative assistant read as follows:
The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr.
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu,
proposes an amendment numbered 315.
Mr. SHELBY. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
Redesignate sections 123, 124, and 125 as sections 125,
126, and 127 respectively, strike section 122, and insert the
following:
SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.
Chapter one of title LXII of the revised statutes of United
States (12 U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A (12 U.S.C. 25a) as
section 5136B; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:
``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
``(a) Activities Permissible.--
``(1) In general.--A subsidiary of a national bank may--
``(A) engage in any activity that is permissible for the
parent national bank;
``(B) engage in any activity authorized under section 25 or
25A of the Federal Reserve Act, the Bank Service Company Act,
or any other Federal statute that expressly by its terms
authorizes national banks to own or control subsidiaries
(other than this section); and
``(C) engage in any activity permissible for a bank holding
company under any provision of section 4(k) of the Bank
Holding Company Act of 1956 other than--
``(i) paragraph (4)(B) of such section (relating to
insurance activities) insofar as such paragraph permits a
bank holding company to engage as principal in insuring,
guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or to engage as principal in
providing or issuing annuities; and
``(ii) paragraph (4)(I) of such section (relating to
insurance company investments).
``(2) Limitations.--A subsidiary of a national bank--
``(A) may not, pursuant to subparagraph (C) of paragraph
(1)--
``(i) underwrite insurance other than credit-related
insurance;
``(ii) engage in real estate investment or development
activities (except to the extent that a Federal statute
expressly authorizes a national bank to engage directly in
such an activity); and
``(B) may not engage in any activity not permissible under
paragraph (1).
``(b) Requirements Applicable to National Banks With
Financial Subsidiaries.--
``(1) In general.--A financial subsidiary of a national
bank may engage in activities pursuant to subsection
(a)(1)(C) only if--
``(A) the national bank meets the requirements, as
determined by the Comptroller of the Currency, of Section
(4)(l)(1) of the Bank Holding Company Act of 1956 (other than
subparagraph (C));
``(B) each insured depository institution affiliate of the
national bank meet the requirements, as determined by the
Comptroller of the Currency, of Section (4)(l)(1) of the Bank
Holding Company Act of 1956 (other than subparagraph (C));
and
``(C) the national bank has received the approval of the
Comptroller of the Currency by regulation or order.
``(2) Corrective Procedures.--
``(A) In general.--The Comptroller of the Currency shall,
by regulation prescribe procedures to enforce paragraph (1).
``(B) Stringency.--The regulation prescribed under
subparagraph (A) shall be no less stringent than the
corresponding restrictions and requirements of section 4(m)
of the Bank Holding Company Act of 1956.
``(c) Definitions.--For purpose of this section, the
following definitions shall apply;
``(1) Affiliate.--The term `affiliate' has the same meaning
as in section 3 of the Federal Deposit Insurance Act.
``(2) Financial Subsidiary.--The term `financial
subsidiary' means a company that--
``(A) is a subsidiary of an insured bank; and
``(B) is engaged as principal in any financial activity
that is not permissible under subparagraph (A) or (B) of
subsection (a)(1) of this section.
``(3) Subsidiary.--The term `subsidiary' has the same
meaning as in section 2 of the Bank Holding Company Act of
1956.
``(4) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act.
``(5) Well managed.--The term `well managed' means--
``(A) in the case of an insured depository institution that
has been examined, the achievement of--
``(i) a composite rating of 1 or 2 under the Uniform
Financial Instutitions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the insured
depository institution; and
``(ii) at least a rating of 2 for management, if that
rating is given; or
``(B) in the case of an insured depository institution that
has not been examined, the existence and use of managerial
resources that the appropriate Federal banking agency
determines are satisfactory.''.
SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND
THEIR FINANCIAL SUBSIDIARIES.
(a) Purposes.--The purposes of this section are--
(1) to protect the safety and soundness of any insured bank
that has a financial subsidiary;
(2) to apply to any transaction between the bank and the
financial subsidiary (including a loan, extension of credit,
guarantee, or purchase of assets), other than an equity
investment, the same restrictions and requirements as would
apply if the financial subsidiary were a subsidiary of a bank
holding company having control of the bank; and
(3) to apply to any equity investment of the bank in the
financial subsidiary restrictions and requirements equivalent
to those that would apply if--
(A) the bank paid a dividend in the same dollar amount to a
bank holding company having control of the bank; and
(B) the bank holding company used the proceeds of the
dividend to make an equity investment in a subsidiary that
was engaged in the same activities a the financial subsidiary
of the bank.
(b) Safety and Soundness Firewalls Applicable to
Subsidiaries of Banks.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:
``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO
SUBSIDIARIES OF BANKS.
``(a) Limiting the Equity Investment of a Bank in a
Subsidiary.--
``(1) Capital deduction.--In determining whether an insured
bank complies with applicable regulatory capital standards--
``(A) the appropriate Federal banking agency shall deduct
from the assets and tangible equity of the bank the aggregate
amount of the outstanding equity investments of the bank in
financial subsidiaries of the bank; and
``(B) the assets and liabilities of such financial
subsidiaries shall not be consolidated with those of the
bank.
``(2) Investment limitation.--An insured bank shall not,
without the prior approval of the appropriate Federal banking
agency, make any equity investment in a financial subsidiary
of the bank if that investment would, when made, exceed the
amount that the bank could pay as a dividend without
obtaining prior regulatory approval.
``(b) Operational and Financial Safeguards for the Bank.--
An insured bank that has a financial subsidiary shall
maintain procedures for identifying and managing any
financial and operational risks posed by the financial
subsidiary.
``(c) Maintenance of Separate Corporate Identity and
Separate Legal Status.--
``(1) In general.--Each insured bank shall ensure that the
bank maintains and complies with reasonable policies and
procedures to preserve the separate corporate identity and
legal status of the bank and any financial subsidiary or
affiliate of the bank.
``(2) Examinations.--The appropriate Federal banking
agency, as part of each examination, shall review whether an
insured
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bank is observing the separate corporate identity and
separate legal status of any subsidiaries and affiliates of
the bank.
``(d) Financial Subsidiary Defined.--For purposes of this
section, the term `financial subsidiary' has the same meaning
as section 5136A(c)(2) of the Revised Statutes of the United
States.
``(e) Regulations.--The appropriate Federal banking
agencies shall jointly prescribe regulations implementing
this section.''.
(c) Limiting a Bank's Credit Exposure to a Financial
Subsidiary to the Amount of Permissible Credit Exposure to an
Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C.
371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary' has
the same meaning as section 5136A(c)(2) of the revised
statutes of the United States.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
that is not a financial subsidiary), and notwithstanding
subsection (b)(2) and section 23B(d)(1)--
``(A) the financial subsidiary of the bank--
``(i) shall be deemed to be an affiliate of the bank and of
any other subsidiary of the bank that is not a financial
subsidiary; and
``(ii) shall not be deemed a subsidiary of the bank; and
``(B) a purchase of or investment in equity securities
issued by the financial subsidiary shall not be deemed to be
a covered transaction,
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary (that
is not a subsidiary of a bank) shall not be deemed to be a
transaction between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or section 23B of
this Act.
``(B) Certain affiliates excluded.--For purposes of this
paragraph, the term `affiliate' shall not include a bank, or
a subsidiary of a bank that is engaged exclusively in
activities permissible for a national bank to engage in
directly or authorized for a subsidiary of a national bank
under any federal statute other than section 5136A of the
Revised Statutes of the United States.''.
SEC. 124. FUNCTIONAL REGULATION.
(a) Purpose.--The purpose of this section is to ensure
that--
(1) securities activities conducted in a subsidiary of a
bank are functionally regulated by the Securities and
Exchange Commission to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company; and
(2) insurance agency and brokerage activities conducted in
a subsidiary of a bank are functionally regulated by a State
insurance authority to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company.
(b) Functional Regulation of Financial Subsidiaries.--The
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is
amended by inserting after section 45 (as added by section
123 of this subtitle) the following new section:
``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES
AND INSURANCE AGENCY SUBSIDIARIES OF INSURED
DEPOSITORY INSTITUTIONS.
``(a) Broker or Dealer Subsidiary.--A broker or dealer that
is a subsidiary of an insured depository institution shall be
subject to regulation under the Securities Exchange Act of
1934 in the same manner and to the same extent as a broker or
dealer that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(b) Insurance Agency Subsidiary.--Subject to Section 104
of the Act, an insurance agency or brokerage that is a
subsidiary of an insured depository institution shall be
subject to regulation by a State insurance authority in the
same manner and to the same extent as an insurance agency or
brokerage that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(c) Definitions.--For purposes of this section, the terms
`broker' and `dealer' have the same meanings as in section 3
of the Securities Exchange Act of 1934.''.
Mr. SHELBY. Mr. President, I rise today to offer this amendment,
entitled the American Bank Fairness Amendment, to
S. 900, the pending
bill.
This amendment, which, as I have said, is cosponsored by Senator
Daschle, the minority leader, and Senators Grams, Reed, Bennett,
Edwards, Hagel, and Landrieu, would permit national banks to conduct
equity securities underwriting and merchant banking activities in an
operating subsidiary, much as their foreign bank competitors that are
allowed to conduct such activities in the United States today. I note
that six of the seven sponsors of this amendment are members of the
Banking Committee.
We are talking this afternoon about defining a fair and an efficient
framework to allow all--yes, all--financial institutions to better
provide service to their customers in America. This country needs
financial modernization. I support national modernization.
I have great respect for the chairman, the Senator from Texas, Mr.
Gramm, and I supported the chairman in the committee. He helped to get
this bill to the floor.
Unfortunately, this bill does more for the institutions in the top
world financial centers--New York, Hong Kong, London--than it does for
the average bank that serves the average person in America. That is the
issue at hand.
I know many of my colleagues have made up their mind on this issue.
Besides, in all honesty, the chairman of the Federal Reserve, Alan
Greenspan, may not even be the Chairman of the Federal Reserve after
next year, although I wish that he would continue. It is often reported
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant
will be the next person President Clinton nominates to the Federal
Reserve Board. Therefore, I do not believe it is fair for the issues of
this debate to revolve around any one individual, although it is an
individual I hold in great respect.
The truth is, we are here today to write the laws that will determine
the future of the American financial system for the next 60 years. We
are talking about the issues of banking law, corporate law, industrial
organization.
Senators Grams, Reed, and Bennett have been the lead proponents of
the operating subsidiary for several years and they should be commended
for their deep understanding of the issue and the banking expertise
they bring to the Senate Banking Committee.
Let me say from the very beginning, this debate is not about Chairman
Alan Greenspan. It should never be. As I said, I have a deep respect
for Chairman Greenspan. I hold him in very high regard. He is a
tremendous central banker. I am not here to dispute that in any way.
The operating subsidiary amendment is not about monetary policy. Let
me repeat, the operating subsidiary amendment is not about monetary
policy. It is not about inflation, the money supply, or even the
unemployment rate. I plead with Senators to listen to the facts. The
key banking committee Senators supporting this amendment are not from
big cities. They are not doing this for Citigroup or Merrill Lynch,
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial
institutions want a bill so badly, they have forced their associations
to oppose this amendment based on press reports that this bill will be
pulled if it passes. We all know it is the multibillion-dollar
financial institutions that control the associations, and they are the
ones pushing this bill.
I just do not believe that, in passing a financial modernization
bill, we should forget about the smaller, midsized, and regional banks
that serve our local communities and our States. Those banks--the
smaller, midsized, and regional banks--are the ones that are not being
heard on this issue. They are being shut out and they have been
discounted.
I am sorry, but I do not believe financial modernization should be
only for the folks on Wall Street. I do not understand why this body
would knowingly pass a financial modernization bill that would
intentionally discriminate against domestic banks in favor of foreign
banks.
If you want to talk about competition, free markets, and fair and
equal treatment under the law, Senators should seriously consider the
amendment that is before the Senate. The Shelby-Daschle and others
amendment would provide more fair and equitable treatment of our
national banks in comparison with our foreign competitors.
The American Bank Fairness Amendment, as we called it, would ensure
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that foreign banks receive no competitive advantage over our banks here
in America.
S. 900, at the moment, as it is written, discriminates against
domestic banks. Ask yourself, Why are we even here in the first place?
Why are we even considering financial modernization, if it is to be
globally competitive? Is it to ensure that our banks can compete on an
international scale?
I received a letter from John Reed and Sanford Weill, cochairmen of
Citigroup, this morning. They wrote to inform me that passage of
financial modernization is imperative.
They said,
As our financial services firms contort to comply with the
current legal and regulatory structure, we become much less
competitive with our non-U.S. counterparts. Our country's
competitive position as the world's leader in financial
services is at risk of being lost if we don't act now.
So, according to our friends at Citigroup, it appears we have become
less competitive with our foreign competitors, and that our position as
a world leader is at risk.
I received a similar letter from Phil Purcell, chairman of Morgan
Stanley Dean Witter & Co. He said that Congress needs to pass this bill
because:
Financial modernization legislation is critical to the
maintenance of the preeminence of American financial firms in
global markets.
American preeminence, Mr. President? Is that the reason we are
considering this legislation? If these are, indeed, the reasons, I must
confess I am really confused. The reason for my confusion is
S. 900,
the bill we are debating today actually discriminates against domestic
banks in favor of foreign banks. Simply put, national banks are not
allowed to conduct merchant banking activities or equity underwriting
activities in an operating subsidiary. Foreign banks, however, can
conduct those activities today, and will actually expand their range of
activities to include insurance underwriting, if this bill becomes law.
I actually have some charts to share with you to help demonstrate the
blatant discriminatory treatment of our own national banks versus those
of foreign banks' operating subsidiaries in America. Under current law,
national bank subsidiaries are not permitted to conduct merchant
banking activities. Merchant banking basically means that banks are
permitted to make investments in a company subject to conditions
designed to maintain the separation between banking and commerce.
Foreign subsidiaries operating today in America can, however. Under
current law, national bank subsidiaries are not permitted to underwrite
any deal in equity securities. However, foreign bank subsidiaries can.
The last row under the ``current law'' is blank. That is, neither
foreign bank subsidiaries nor national bank subsidiaries may underwrite
noncredit-related insurance.
Let's look at a chart of permitted subsidiary activities that I have
here if this financial modernization bill were enacted into law. Please
notice that under the first column, here, national bank subsidiaries
still will not enjoy the ability to conduct merchant banking activities
or conduct equity securities underwriting. Foreign bank subsidiaries
will not only be allowed to conduct those activities--merchant banking,
underwriting and dealing in equity securities and insurance
underwriting, as shown on the chart--but
S. 900, as currently written,
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole
rationale for the bill.
That is the major flaw with this bill. How can the supporters of this
bill say this will help our national banks compete when they are
clearly put at a disadvantage by their own Federal Government? How can
we in good conscience support a bill that discriminates against our own
national banks?
Senator Gramm and Chairman Greenspan say if national banks are
allowed to conduct such activities in an operating subsidiary, these
banks would have a funding advantage over their competitors because of
an alleged ``subsidy.''
However, neither Senator Gramm nor Chairman Greenspan can reconcile
this argument with the competitive advantage of foreign bank
subsidiaries. Since 1990, the Federal Reserve Board has issued
approvals for 18 foreign banks to own subsidiaries that engage in
securities underwriting activities in the United States. In fact, the
size of these subsidiaries exceeds $450 billion in assets. The Federal
Reserve admits that foreign banks may enjoy a ``home country'' subsidy.
In approving the section 20 subsidiary application for the Canadian
Imperial Bank of Commerce in 1990, the Federal Reserve noted:
Although as banks, applicants [that is foreign banks] are
not supported to any significant extent by the U.S. federal
safety net, they have access to any benefits that are
associated with their respective home country safety nets,
from which they may derive some competitive advantage over
U.S. bank holding companies operating under the section 20
framework or other U.S. securities firms.
Not only does the board basically admit there may be home country
advantages, they also admit:
. . . a foreign bank may establish and fund a section 20
subsidiary, while a U.S. bank may not.
Further, in their 1992 joint report on foreign bank operations
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board
and the Department of Treasury agreed that, ``. . . subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice. The right of a
foreign bank to determine whether to establish a branch or a subsidiary
is consistent with competitive equity, national treatment and equality
of competitive opportunity.''
Why is investor choice the guiding principle for foreign banks but
not for our domestic banks? Why do foreign banks have the right to
choose their own corporate structure but domestic banks do not?
The Federal Reserve Board stated that while a subsidy for foreign
banks may exist:
[T]he Board believes that any advantage would not be
significant in light of the effect on them of the overall
section 20 framework and the circumstances of these cases,
and should not preclude foreign bank ownership of section 20
subsidiaries.
Basically, that means the rules and the regulations that apply to
foreign section 20 subsidiaries should contain any possible subsidy.
Why do the rules and regulations in place contain any possible
subsidy for foreign banks but not domestic banks, our banks? Why should
any alleged subsidy preclude operating subsidiaries for U.S. banks but
not for foreign subsidiaries? Fundamental fairness would suggest that
foreign banks not be allowed to have a competitive advantage over
domestic banks. It just makes no sense. Fundamental fairness suggests
domestic banks should also have the choice of an operating subsidiary
that our foreign banks have.
Critics of the operating subsidiary have voiced concerns about safety
and soundness. But this is a red herring, I believe, and really no
issue at all. Even Chairman Greenspan testified that safety and
soundness is really not the issue with regard to operating
subsidiaries, when asked by Congressman Bentsen in the House. I will
quote the chairman:
My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Non-bank holding companies or other institutions do
not have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.
The amendment before us, the operating subsidiary proposal, includes
the same safety and soundness protections and lending restrictions as
the Federal Reserve imposes on section 20 subsidiaries. But to further
address any safety and soundness concerns, the amendment would also
require that the parent bank deduct--yes, deduct--its entire equity
investment in the subsidiary from its own capital and still remain well
capitalized.
Furthermore, under the operating subsidiary, any alleged ``subsidy''
transferred to the subsidiary would be identical to that transferred to
an affiliate because investments in the subsidiary would be limited to
that which the bank could transfer to holding company affiliates in the
form of dividends.
Lastly, the current Chairman of the Federal Deposit Insurance
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound
than the affiliate structure.
[[Page
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The FDIC chairmen argue that forcing activities in an affiliate
actually exposes insured banks to greater risks than that of an
operating subsidiary.
I want to respond to a letter Chairman Alan Greenspan wrote to
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May
3. I believe this is a great letter in support of the operating
subsidiary. In Chairman Greenspan's effort to explain why foreign bank
subsidiaries do not have a competitive advantage and are justified, he
actually makes the case for an operating subsidiary and confirms
everything proponents have been saying all along.
In paragraph 2, Chairman Greenspan says that the International
Banking Act requires foreign banks be allowed to operate in this
country through operating subsidiaries. His major point is that it is
not his choice, but that the law makes him do it, and this is due to
the national treatment principles to which he refers in paragraph 3.
I understand the national treatment principles. However, those
principles are not and should not be interpreted to mean that foreign
banks be given advantages over U.S. banks.
In both the International Banking Act and the Bank Holding Company
Act, the Federal Reserve Board is mandated to deny an application by a
foreign bank to establish a U.S.-subsidiary if the Board finds that the
proposal will result in ``decreased or unfair competition, conflicts or
interests, or unsound banking practices.''
This is a very important point, I submit to my colleagues. By law,
the Federal Reserve must have determined that foreign bank subsidiaries
conducting securities underwriting and equity underwriting does not
result in unsound banking practices.
Otherwise, the Federal Reserve would be in violation of the
International Banking Act and the Bank Holding Company Act. That very
fact supports our argument that conducting such activities in an
operating subsidiary is both safe and sound.
In the third paragraph, Chairman Greenspan says:
In the absence of any evidence that foreign banks are using
their government subsidy to an unfair competitive advantage
in the United States, there does not seem to be any
compelling reason to abandon the current approach to foreign
bank participation in this country.
Chairman Greenspan once again admits there is a government subsidy
for foreign banks. He confirms what I shared with everyone in my ``Dear
Colleague'' letter in the Senate. He then changes the subject to say
there is no reason to abandon foreign banks subsidiaries. I never
suggested such a thing in my ``Dear Colleague'' letter. In only asked
that if it is appropriate for foreign banks, why isn't it appropriate
for national banks?
The fifth paragraph of the letter states that, ``foreign banks have
not been able to exploit their home country subsidy . . .'' and that
foreign bank subsidiaries ``have substantially underperformed U.S.
owned section 20 companies.'' He actually admits that ``the subsidy
does not travel well.'' In other words, foreign banks have not been
successful transferring their home country subsidy to their subsidiary
in the U.S.
But wait a minute. You cannot have it both ways. I do not care who
you are.
Chairman Greenspan just presented evidence to us in the fifth
paragraph that foreign bank subsidiaries, which in the third paragraph
he admits receive a home country subsidy, underperform their American
competitors. Thus, if there is a subsidy, it must either be (1)
insignificant, and not enough to affect market performance or (2)
contained in the section 20 regulatory framework and therefore not an
issue. In either case, the Chairman has just confirmed the arguments
that proponents of operating subsidiaries have made.
To sum up, Chairman Greenspan, just 2 days ago, confirmed that:
foreign bank subsidiaries receive home country subsidies; conducting
such activities in a subsidiary does not result in unsound banking
practices, otherwise the Fed is violating the law with regard to
foreign bank subsidiaries; and the subsidiary does not ``travel well,''
that is, it is not easily transferred from the bank to the sub.
The logic and the evidence presented by Chairman Greenspan in defense
of foreign bank subsidiaries is the exact same logic and evidence that
supports the Shelby-Daschle operating subsidiary amendment.
To be honest, I am quite surprised at the Chairman's uncompromising
position on the issue. As a student of Public Choice economics, I am
sure he is aware of the benefits of competition among regulators. I am
surprised he supports making the Federal Reserve the monopoly umbrella
regulator. Monopolies restrict output and increase prices.
There is no doubt in my mind that making the Federal Reserve the
monopoly regulator will create even more bottlenecks in bank
applications thereby increasing the regulatory cost of banks doing
business with the Federal Reserve.
For the sake of competition, for the sake of free markets, for the
sake of choice, I respectfully request that you support the Shelby
amendment.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
Mr. GRAMM. Mr. President, I think if anyone knows me and knows
Richard Shelby, they know that we came to Congress on the same day. We
served on the House Energy and Commerce Committee together. We were
both Democrats then. We both changed parties. We both ran for the
Senate. And Richard and I have been very close friends since the first
day we came. I think you always regret when you have these kinds of
tough battles, but this is a tough battle. This is vitally important.
Let me basically outline what I want to say and then let me go about
trying to say it.
First of all, there has been some speculation about whether or not,
as chairman of the Banking Committee and a new chairman, chairman only
for a few months, whether or not I would pull my own bill, which, as
the Presiding Officer knows as a member of the committee, has been a
great labor of mine for all these many months and has been the labor of
Congress for 25 years. As to whether I would pull the bill over this
issue, let me leave no suspense: I will pull this bill if the Shelby
amendment is adopted.
You might think that is a very strong statement to make, but I think
when you hear my presentation, you will understand why I make it,
because with all the good things in the bill, I want people to
understand that all of them combined together would not undo the harm
that would be done by this amendment.
What I will do is answer Senator Shelby on foreign banks. I will then
go through and talk about the real issue: What is the issue for
Democrats who are hearing from the Secretary of the Treasury? What is
the issue for Republicans who are hearing from big banks? What is the
public interest?
I will try to answer those issues. Let me begin with the foreign
banks.
Senator Shelby would have us believe that we need to start
subsidizing American banks because foreign banks are subsidized. He
would have us believe that somehow we have given foreign banks a
different set of regulations to abide by in America than American banks
have had and that therefore we need to do something about it.
Let me address that. And I want to address it first by reading Alan
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby
referred to part of it. But I think it goes right to the heart of the
issue.
Reading his letter of May 4:
First, the Board did not simply choose to let foreign banks
operate in this country through subsidiaries. The law
required it. The International Banking Act . . .
That was passed in 1978--
. . . provides that a foreign bank shall be treated as a .
. . holding company for purposes of nonbanking acquisitions.
That is the law of the land. That was adopted by Congress. That was
signed by the President. The Chairman of the Board of the Federal
Reserve had nothing to do with that. He simply had the responsibility
of implementing it.
Therefore, when the Board allowed U.S. bank holding
companies to own securities companies, the Board was required
to permit foreign banks that met the statutory conditions
also to acquire such companies.
The law treating foreign banks as holding companies was a
practical response to an existing situation: most foreign
banks do not have holding companies.
[[Page
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And I will get to that point in a minute because it is important.
Without the [International Banking Act's] approach, foreign
banks generally would be excluded from the U.S. market, in
violation of the national treatment principles embedded in
U.S. law. . . .
The Board stated it would monitor, and in fact has
monitored, this situation to assure that foreign banks do not
in fact operate to the detriment of U.S. banking
organizations. . . .
A recent Federal Reserve study of the performance of
section 20 companies over the last eight years demonstrates
that foreign bank-owned section 20 companies have
substantially underperformed U.S.-owned section 20 companies.
. . .
To cite the fact of foreign bank structure to support a
similar structure in the United States is not only
misleading, it is potentially harmful.
Let me explain what all that means in English. What it means is, we
passed a law, and the law said that since foreign banks do not use
holding companies--they use operating subsidiaries because it is
permitted under their law--that for treatment purposes, they would be
treated as holding companies in the United States. Senator Shelby says
this is unfair.
I would like to note that the Federal Reserve, noting a potential
problem with it, set out a monitoring process to see if these foreign
banks are benefiting relative to our banks in promoting unfair
competition.
What the Fed found in 1995 was that not only were they not
benefiting, but they lost 11 percent. In 1996, their rate of return was
minus 8 percent. In 1997, their rate of return was 18 percent. And in
1998, their rate of return was 25 percent.
So the plain truth is, these foreign banks are poorly run, their
subsidiary operations are a disaster, but if they were well run, and if
they were getting a competitive advantage, we would do something about
it. The point is, it has not created a problem.
Nineteen of these foreign banks are in the securities business.
Together, they make up less than 2.6 percent of the American market. In
terms of underwriting revenues, they earn 3.8 percent of the revenues.
So the point is, these foreign banks are not effective in competing
against American banks. The point is, because foreign governments
subsidize their banks, do we want to subsidize our banks? As chairman
of the Banking Committee, I can tell you, if these foreign subsidies
started having an unfair effect in our market, we would take action to
change the law and prevent this advantage.
But we have allowed this situation to exist for two reasons: One, it
has not done us any harm, and, two, we sell $10 of financial services
abroad for every $1 of financial services sold in America. So the last
thing we wanted to do is get into a trade war in banking, because we
are the world's greatest bankers, we are the world's greatest exporters
of banking services. And so it was to our advantage to allow this to
happen as long as it was doing no harm.
What is the real issue at stake in this amendment? I want to begin
with a quote from Secretary Rubin. In fact, many people on the Democrat
side of the aisle have been called by Secretary Rubin in the last few
days. Some people on our side of the aisle have been called. I want to
read you a quote from Secretary Rubin. And then I want to pose a
question: What could this quote possibly be referring to?
This is a quote from the Secretary of the Treasury, Robert Rubin, on
May 5, 1999, before the Finance Subcommittee of the House Commerce
Committee. And I will read you the quote:
[O]ne of an elected Administration's critical
responsibilities is the formation of economic policy, and an
important component of that policy is banking policy. In
order for the elected Administration to have an effective
role in banking policy, it must have a strong connection with
the banking system.
I remind my colleagues that the Comptroller of the Currency, who
works for Robert Rubin, regulates national banks. And national banks
make up 58 percent of the assets in American banks. Why isn't that ``an
effective role in banking policy''? Why is it not ``a strong connection
with the banking system''? I can tell you, Secretary Rubin is right: It
is not a strong connection. The Comptroller of the Currency is an
accountant. Banking policy is run by the Federal Reserve. And I thank
God for that every single day.
I thank God every single day that in 1913, after the Treasury had run
monetary policy in this country--we had a giant panic in 1907; the
country had gone through continuing economic convulsions--the Congress
put an end to it by setting up an independent monetary authority called
the Federal Reserve.
The Federal Reserve, with an independent board--appointed by the
President, confirmed by the Senate for very long terms--exercises
independent monetary policy. So when the President wants to inflate the
economy to get reelected, the Fed says no. When Congress feels we need
to print more money to get things moving to help them in their
elections, the Fed says no. We have an independent monetary authority.
So while the Comptroller of the Currency is an accountant that
primarily audits national banks, he has no policy authority at all.
Why? Because the Federal Reserve regulates the holding companies, and
there are 6,867 holding companies in America that together make up
about 96 percent of bank assets.
So sure enough, the Treasury sends out all of the accountants and
auditors, but the Federal Reserve sets the policy. And what Robert
Rubin is saying, in the clearest possible terms, is he wants to set
banking policy, he wants to set monetary policy. That is exactly what
he is saying.
The question is, Do we want to put the Treasury back in the position
of setting banking policy in America? Do we want the President to have
the ability to use banking policy as a political tool? Are we not
talking about repealing the Federal Reserve Act?
Now, how all this comes about is a little complicated, but with a
teeny bit of detective work, it becomes very, very clear.
Remember, the Fed does not regulate banks. Not a single bank in
America is regulated directly by the Fed. But it regulates holding
companies that control banks, and those holding companies have 97
percent of the assets of banks. Why do they have it? Because our law
requires that banks not provide other financial services within the
bank, for safety and soundness reasons, and so big banks and banks that
have large assets are holding companies and they come under the Federal
Reserve.
Now, if we adopted the Shelby amendment, let me read what Alan
Greenspan and the Board of Governors of the Federal Reserve say would
happen:
As I have testified, if profit is their goal, there is no
choice. Because of the subsidy implicit in the Federal safety
net, profit-maximizing management will invariably choose the
operating subsidiary. As a consequence, the holding company
structure will atrophy in favor of bank operating
subsidiaries. Our [and ``our'' being the Federal Reserve]
current ability rests principally on our role as holding
company supervisor.
So here is the point: If you let banks perform these services within
the bank itself, their securities affiliate or, in the future, their
insurance affiliate or any other thing you allow them to do can get the
advantage of the bank's FDIC insurance and the ability to borrow money
from the Fed, which is the lowest interest rate in the world, and if
they can use the Fed wire, the Fed has estimated that doing these
things within the bank creates about a 14 basis points advantage over
doing them outside the bank. Those little margins make a very big
difference.
So, obviously, the Treasury and the Federal Reserve believe and both
agree that if you let banks perform these functions inside the bank,
banks will tend to close down their holding companies and bring these
functions inside the bank.
Now, I am going to talk about that issue separately. But what does
that mean in terms of monetary policy? It means that the Comptroller of
the Currency, who will be regulating banks that will no longer be
holding companies, will become the banking authority in the country,
and the Federal Reserve will see the number of holding companies it
regulates decline, decline, decline, and decline.
Now, interestingly, the Treasury and the Shelby amendment, one and
the same, recognize this. They say, OK, for the 43 largest holding
companies, we will force them to maintain their holding company, so
that the Fed will continue to regulate them. That means that 6,824
other holding companies will be allowed to change their structure. They
will be driven by the profit motive to do it. Therefore, over time the
[[Page
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control of banking policy and ultimately monetary policy--because bank
regulation is a source of strength for the Fed in implementing much of
its policy--will shift from the Federal Reserve to the Treasury, from
an independent agency to an arm of the President of the United States.
Now, you might say, well, the Federal Reserve still regulates 43
holding companies. But the holding companies have every incentive to
conduct all of their activities within the bank, so the holding
companies, the 43 left that the Fed would regulate, will be empty
shells.
The Fed's power comes from the power to regulate banks. Their ability
to get banks together to prevent a financial collapse--such as the Long
Term Capital Management case in New York--was their ability, using
moral suasion by the fact that they regulated the holding companies
that were involved, to get people together and basically nudge them,
encourage them, and, if you like, pressure them into dealing with that
crisis before it got moving.
Now, I ask my colleagues on the first point: Do you want this
administration, or any administration, to control banking policy? The
Secretary of the Treasury says they should; it is part of the tools
they say they need to conduct economic policy.
Let me tell you something, Mr. President. We had this debate in 1913.
We decided we didn't want the President, in 1913, controlling banking
policy. We have decided we do not want any President or did not want
any President since that time.
Would we have been better off in the last 2 years of the Reagan
administration if the Treasury had controlled banking policy instead of
the Federal Reserve? I do not think so. When the Bush administration
was in a reelection campaign and losing the election because the
economy was recovering slowly, would we have wanted the Secretary of
the Treasury and the Comptroller of the Currency--appointed by the
President, removable by the President--would we have wanted them to
have the ability to turn on the printing presses or to use expansionary
policy with the banks? I do not think we would.
Do we want this President to have the ability to control banking
policy when he orders the Comptroller of the Currency, who would be the
new central banking regulatory authority under the Shelby amendment, to
come to the White House for a fundraiser with bankers?
This is not a partisan matter. Bill Clinton is going to be President
for 18 more months. We may well then have a Republican President. I
hope so. But I do not want a Republican or Democratic President to
control banking policy. We set up an independent Fed to do that, and I
want them to do it. Have no doubt about it, when Robert Rubin is saying
that this amendment is a way of expanding the administration's
effective role in banking policy, he means transferring from the Fed to
the Treasury the ability to set banking policy.
Now, if you are for that, if you believe the executive branch of
American government ought to set banking policy, you should vote for
the Shelby amendment. But if you believe we have done pretty well under
Alan Greenspan and the Federal Reserve, if you believe that since 1913
the American economy has performed pretty well by taking banking policy
away from Congress and away from the executive branch of government and
putting it in an independent agency, if you believe that, do not vote
for this amendment. This amendment is clearly an effort to transfer
regulatory authority over banking from the Federal Reserve to the
Treasury. That would be a disaster for America. That would be far more
important in its negative impact than anything we could possibly do in
terms of letting banks get into a few other areas of providing
services.
This is a fundamental issue. I urge my colleagues not to get caught
up on the Democrat side of the aisle with the fact that there is a
Democrat President or that we have a very friendly, nice, and competent
Secretary of the Treasury who is calling them up and saying, ``We need
you to vote with us.'' This is not a partisan matter. An independent
control of banking policy in America, an independent agency controlling
banking policy, is not a partisan matter, it is a matter that this
Congress, on a bipartisan basis, has stood for since 1913. I don't want
to take any step, and I don't believe America, if it understood this
issue, would want to take a step backward from that.
Let me talk to my Republican colleagues. We have written a bill, and
I think it is a good bill. I had a lot to do with writing it, so
obviously I think that. But I think other people are beginning to think
it, too. This is a big bank, big securities, big insurance bill. That
is just a reality. And I have to say that there is something a little
bit obscene about big banks calling up Members of the Senate and
saying: ``Well, you know we only got 95 percent of what we wanted in
that bill. We could get another 15 percent and go up to 110 percent if
you could let us provide these services within the bank, rather than
doing it outside the bank.''
Now, the banks are not caught up in who is going to conduct banking
policy. They are caught up in the fact that they are going to make more
money if they can provide these services inside the bank, because they
get the subsidies from the FDIC insurance, the Fed window and the Fed
wire.
I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say.
We have all heard: What is good for General Motors is good for America.
That is not right. What is good for America is good for General Motors.
I just say to my colleagues, whatever commitments you have made on
this, whatever partisanship you feel on this, ask yourself a question:
Is it good for America to give the
Amendments:
Cosponsors:
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
Sponsor:
Summary:
All articles in Senate section
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
(Senate - May 06, 1999)
Text of this article available as:
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[Pages
S4848-S4878]
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
The Senate continued with the consideration of the bill.
The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson,
has 3 minutes.
Amendment No. 309, As Modified
Mr. JOHNSON. Mr. President, I have a modification of my amendment at
the desk and I ask unanimous consent that it be so modified.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:
On page 149, strike line 12 and all that follows through
page 150, line 21 and insert the following:
SEC. 601. PREVENTION OF CREATION OF NEW S HOLDING COMPANIES
WITH COMMERCIAL AFFILIATES.
(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Prevention of new affiliations between s holding
companies and commercial firms.--
``(A) In general.--Notwithstanding paragraph (3), no
company may directly or indirectly, including through any
merger, consolidation, or other type of business combination,
acquire control of a savings association after May 4, 1999,
unless the company is engaged, directly or indirectly
(including through a subsidiary other than a savings
association), only in activities that are permitted--
[[Page
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``(i) under paragraph (1)(C) or (2) of this subsection; or
``(ii) for financial holding companies under section 4(k)
of the Bank Holding Company Act of 1956.
``(B) Prevention of new commercial affiliations.--
Notwithstanding paragraph (3), no savings and loan holding
company may engage directly or indirectly (including through
a subsidiary other than a savings association) in any
activity other than as described in clauses (i) and (ii) of
subparagraph (A).
``(C) Preservation of authority of existing unitary s
holding companies.--Subparagraphs (A) and (B) do not apply
with respect to any company that was a savings and loan
holding company on May 4, 1999, or that becomes a savings and
loan holding company pursuant to an application pending
before the Office on or before that date, and that--
``(i) meets and continues to meet the requirements of
paragraph (3); and
``(ii) continues to control not fewer than 1 savings
association that it controlled on May 4, 1999, or that it
acquired pursuant to an application pending before the Office
on or before that date, or the successor to such savings
association.
``(D) Corporate reorganizations permitted.--This paragraph
does not prevent a transaction that--
``(i) involves solely a company under common control with a
savings and loan holding company from acquiring, directly or
indirectly, control of the savings and loan holding company
or any savings association that is already a subsidiary of
the savings and loan holding company; or
``(ii) involves solely a merger, consolidation, or other
type of business combination as a result of which a company
under common control with the savings and loan holding
company acquires, directly or indirectly, control of the
savings and loan holding company or any savings association
that is already a subsidiary of the savings and loan holding
company.
``(E) Authority to prevent evasions.--The Director may
issue interpretations, regulations, or orders that the
Director determines necessary to administer and carry out the
purpose and prevent evasions of this paragraph, including a
determination that, notwithstanding the form of a
transaction, the transaction would in substance result in a
company acquiring control of a savings association.
``(F) Preservation of authority for family trusts.--
Subparagraphs (A) and (B) do not apply with respect to any
trust that becomes a savings and loan holding company with
respect to a savings association, if--
``(i) not less than 85 percent of the beneficial ownership
interests in the trust are continuously owned, directly or
indirectly, by or for the benefit of members of the same
family, or their spouses, who are lineal descendants of
common ancestors who controlled, directly or indirectly, such
savings association on May 4, 1999, or a subsequent date,
pursuant to an application pending before the Office on or
before May 4, 1999; and
``(ii) at the time at which such trust becomes a savings
and loan holding company, such ancestors or lineal
descendants, or spouses of such descendants, have directly or
indirectly controlled the savings association continuously
since March 4, 1999, or a subsequent date, pursuant to an
application pending before the Office on or before May 4,
1999.''.
(b) Conforming Amendment.--Section 10(o)(5)(E) of the Home
Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by
striking ``, except subparagraph (B)'' and inserting ``or
(c)(9)(A)(ii)''.
Mr. JOHNSON. Mr. President, financial modernization should go forward
but without mixing financial services and commerce. Preserving the
unitary thrift loophole should not be allowed. Who believes this should
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary
Rubin, and banking and consumer organizations. There is bipartisan and,
frankly, overwhelming support for loophole closure. I think there is a
sense we do not want to go down the road of financial services and
commerce mixing at this particular juncture. Allowing financial
modernization to go forward should occur, but allowing unitary thrifts
to merge with other financial institutions is the road to go rather
than allowing merger with commerce at large.
I think we need to heed the urgent warnings of our Nation's leading
economic minds. We appreciate that this issue is arcane in the minds of
many in this body, no doubt. But when we have the support for closure
of this loophole coming from the chairman of the House Banking
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that
ought to be compelling support for taking this step to make sure, in
fact, we get a financial modernization bill out of this body that will,
in fact, be signed by the President and will serve this country in good
stead.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
Mr. GORTON. Mr. President, financial modernization should be about
expanding chartering options and choices for consumers, not about
stripping away the fundamental characteristics of consumer-oriented
institutions. It is a paradox that the banks that are here seeking more
powers wish to restrict the powers of their competitors in the same
bill and are using this amendment to do so.
Proponents of this amendment contend that the unitary thrift charter
is a ``loophole'' that allows for the mixing of banking and commerce.
Those concerns are both misplaced and impossible under the very
conditions of charter.
Federal law now expressly prohibits a unitarian thrift from lending
to a commercial affiliate. By law, a thrift must focus on providing
mortgage, consumer, and small business credit, and its commercial
lending is severely restricted.
The thrift charter is unique. Martin Mayer, who is a guest scholar at
the Brookings Institution and a foe of mixing banking and commerce,
supports the commercial ownership of thrifts because of their unique
lending focus on consumers and small businesses. In the more than 3
decades that unitary thrift charters have existed, there is a total
absence of any evidence that unitary thrifts' commercial affiliations
have either led to a concentration of economic power or posed a risk to
the consumer or the taxpayer. To the contrary, the FDIC has testified
that limits such as those proposed in this amendment would restrict ``a
vehicle that has enhanced financial modernization without causing
significant safety-and-soundness problems.''
The issue under debate is not the creation of a banking-commerce
Frankenstein. It is, rather, about the proper treatment of longstanding
institutions focused on serving local communities. Congress should not
limit the authorities of existing consumer-oriented companies without a
compelling reason. To do so would be anticompetitive and anticonsumer.
I am adamantly opposed to any initiative that eviscerates the unitary
thrift charter and urge Senators to oppose the Johnson amendment as a
serious step backwards in our efforts to modernize our Nation's
financial services laws.
I yield back the remainder of my time, and I move to table the
Johnson amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table amendment No. 309. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 32, nays 67, as follows:
[Rollcall Vote No. 103 Leg.]
YEAS--32
Akaka
Allard
Bennett
Breaux
Bunning
Campbell
Chafee
Cochran
Coverdell
Dodd
Domenici
Enzi
Gorton
Gramm
Hagel
Inouye
Kyl
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Murray
Nickles
Reed
Robb
Roth
Smith (NH)
Smith (OR)
Stevens
Warner
NAYS--67
Abraham
Ashcroft
Baucus
Bayh
Biden
Bingaman
Bond
Boxer
Brownback
Bryan
Burns
Byrd
Cleland
Collins
Conrad
Craig
Crapo
Daschle
DeWine
Dorgan
Durbin
Edwards
Feingold
Feinstein
Frist
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lincoln
Mikulski
Moynihan
Murkowski
Reid
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Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Snowe
Specter
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
The motion was rejected.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the
order for the yeas and nays.
The PRESIDING OFFICER. Without objection, it is so ordered.
The question is on agreeing to the amendment.
The amendment (No. 309), as modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. SHELBY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 315
Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
The legislative assistant read as follows:
The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr.
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu,
proposes an amendment numbered 315.
Mr. SHELBY. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
Redesignate sections 123, 124, and 125 as sections 125,
126, and 127 respectively, strike section 122, and insert the
following:
SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.
Chapter one of title LXII of the revised statutes of United
States (12 U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A (12 U.S.C. 25a) as
section 5136B; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:
``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
``(a) Activities Permissible.--
``(1) In general.--A subsidiary of a national bank may--
``(A) engage in any activity that is permissible for the
parent national bank;
``(B) engage in any activity authorized under section 25 or
25A of the Federal Reserve Act, the Bank Service Company Act,
or any other Federal statute that expressly by its terms
authorizes national banks to own or control subsidiaries
(other than this section); and
``(C) engage in any activity permissible for a bank holding
company under any provision of section 4(k) of the Bank
Holding Company Act of 1956 other than--
``(i) paragraph (4)(B) of such section (relating to
insurance activities) insofar as such paragraph permits a
bank holding company to engage as principal in insuring,
guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or to engage as principal in
providing or issuing annuities; and
``(ii) paragraph (4)(I) of such section (relating to
insurance company investments).
``(2) Limitations.--A subsidiary of a national bank--
``(A) may not, pursuant to subparagraph (C) of paragraph
(1)--
``(i) underwrite insurance other than credit-related
insurance;
``(ii) engage in real estate investment or development
activities (except to the extent that a Federal statute
expressly authorizes a national bank to engage directly in
such an activity); and
``(B) may not engage in any activity not permissible under
paragraph (1).
``(b) Requirements Applicable to National Banks With
Financial Subsidiaries.--
``(1) In general.--A financial subsidiary of a national
bank may engage in activities pursuant to subsection
(a)(1)(C) only if--
``(A) the national bank meets the requirements, as
determined by the Comptroller of the Currency, of Section
(4)(l)(1) of the Bank Holding Company Act of 1956 (other than
subparagraph (C));
``(B) each insured depository institution affiliate of the
national bank meet the requirements, as determined by the
Comptroller of the Currency, of Section (4)(l)(1) of the Bank
Holding Company Act of 1956 (other than subparagraph (C));
and
``(C) the national bank has received the approval of the
Comptroller of the Currency by regulation or order.
``(2) Corrective Procedures.--
``(A) In general.--The Comptroller of the Currency shall,
by regulation prescribe procedures to enforce paragraph (1).
``(B) Stringency.--The regulation prescribed under
subparagraph (A) shall be no less stringent than the
corresponding restrictions and requirements of section 4(m)
of the Bank Holding Company Act of 1956.
``(c) Definitions.--For purpose of this section, the
following definitions shall apply;
``(1) Affiliate.--The term `affiliate' has the same meaning
as in section 3 of the Federal Deposit Insurance Act.
``(2) Financial Subsidiary.--The term `financial
subsidiary' means a company that--
``(A) is a subsidiary of an insured bank; and
``(B) is engaged as principal in any financial activity
that is not permissible under subparagraph (A) or (B) of
subsection (a)(1) of this section.
``(3) Subsidiary.--The term `subsidiary' has the same
meaning as in section 2 of the Bank Holding Company Act of
1956.
``(4) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act.
``(5) Well managed.--The term `well managed' means--
``(A) in the case of an insured depository institution that
has been examined, the achievement of--
``(i) a composite rating of 1 or 2 under the Uniform
Financial Instutitions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the insured
depository institution; and
``(ii) at least a rating of 2 for management, if that
rating is given; or
``(B) in the case of an insured depository institution that
has not been examined, the existence and use of managerial
resources that the appropriate Federal banking agency
determines are satisfactory.''.
SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND
THEIR FINANCIAL SUBSIDIARIES.
(a) Purposes.--The purposes of this section are--
(1) to protect the safety and soundness of any insured bank
that has a financial subsidiary;
(2) to apply to any transaction between the bank and the
financial subsidiary (including a loan, extension of credit,
guarantee, or purchase of assets), other than an equity
investment, the same restrictions and requirements as would
apply if the financial subsidiary were a subsidiary of a bank
holding company having control of the bank; and
(3) to apply to any equity investment of the bank in the
financial subsidiary restrictions and requirements equivalent
to those that would apply if--
(A) the bank paid a dividend in the same dollar amount to a
bank holding company having control of the bank; and
(B) the bank holding company used the proceeds of the
dividend to make an equity investment in a subsidiary that
was engaged in the same activities a the financial subsidiary
of the bank.
(b) Safety and Soundness Firewalls Applicable to
Subsidiaries of Banks.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:
``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO
SUBSIDIARIES OF BANKS.
``(a) Limiting the Equity Investment of a Bank in a
Subsidiary.--
``(1) Capital deduction.--In determining whether an insured
bank complies with applicable regulatory capital standards--
``(A) the appropriate Federal banking agency shall deduct
from the assets and tangible equity of the bank the aggregate
amount of the outstanding equity investments of the bank in
financial subsidiaries of the bank; and
``(B) the assets and liabilities of such financial
subsidiaries shall not be consolidated with those of the
bank.
``(2) Investment limitation.--An insured bank shall not,
without the prior approval of the appropriate Federal banking
agency, make any equity investment in a financial subsidiary
of the bank if that investment would, when made, exceed the
amount that the bank could pay as a dividend without
obtaining prior regulatory approval.
``(b) Operational and Financial Safeguards for the Bank.--
An insured bank that has a financial subsidiary shall
maintain procedures for identifying and managing any
financial and operational risks posed by the financial
subsidiary.
``(c) Maintenance of Separate Corporate Identity and
Separate Legal Status.--
``(1) In general.--Each insured bank shall ensure that the
bank maintains and complies with reasonable policies and
procedures to preserve the separate corporate identity and
legal status of the bank and any financial subsidiary or
affiliate of the bank.
``(2) Examinations.--The appropriate Federal banking
agency, as part of each examination, shall review whether an
insured
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bank is observing the separate corporate identity and
separate legal status of any subsidiaries and affiliates of
the bank.
``(d) Financial Subsidiary Defined.--For purposes of this
section, the term `financial subsidiary' has the same meaning
as section 5136A(c)(2) of the Revised Statutes of the United
States.
``(e) Regulations.--The appropriate Federal banking
agencies shall jointly prescribe regulations implementing
this section.''.
(c) Limiting a Bank's Credit Exposure to a Financial
Subsidiary to the Amount of Permissible Credit Exposure to an
Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C.
371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary' has
the same meaning as section 5136A(c)(2) of the revised
statutes of the United States.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
that is not a financial subsidiary), and notwithstanding
subsection (b)(2) and section 23B(d)(1)--
``(A) the financial subsidiary of the bank--
``(i) shall be deemed to be an affiliate of the bank and of
any other subsidiary of the bank that is not a financial
subsidiary; and
``(ii) shall not be deemed a subsidiary of the bank; and
``(B) a purchase of or investment in equity securities
issued by the financial subsidiary shall not be deemed to be
a covered transaction,
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary (that
is not a subsidiary of a bank) shall not be deemed to be a
transaction between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or section 23B of
this Act.
``(B) Certain affiliates excluded.--For purposes of this
paragraph, the term `affiliate' shall not include a bank, or
a subsidiary of a bank that is engaged exclusively in
activities permissible for a national bank to engage in
directly or authorized for a subsidiary of a national bank
under any federal statute other than section 5136A of the
Revised Statutes of the United States.''.
SEC. 124. FUNCTIONAL REGULATION.
(a) Purpose.--The purpose of this section is to ensure
that--
(1) securities activities conducted in a subsidiary of a
bank are functionally regulated by the Securities and
Exchange Commission to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company; and
(2) insurance agency and brokerage activities conducted in
a subsidiary of a bank are functionally regulated by a State
insurance authority to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company.
(b) Functional Regulation of Financial Subsidiaries.--The
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is
amended by inserting after section 45 (as added by section
123 of this subtitle) the following new section:
``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES
AND INSURANCE AGENCY SUBSIDIARIES OF INSURED
DEPOSITORY INSTITUTIONS.
``(a) Broker or Dealer Subsidiary.--A broker or dealer that
is a subsidiary of an insured depository institution shall be
subject to regulation under the Securities Exchange Act of
1934 in the same manner and to the same extent as a broker or
dealer that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(b) Insurance Agency Subsidiary.--Subject to Section 104
of the Act, an insurance agency or brokerage that is a
subsidiary of an insured depository institution shall be
subject to regulation by a State insurance authority in the
same manner and to the same extent as an insurance agency or
brokerage that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(c) Definitions.--For purposes of this section, the terms
`broker' and `dealer' have the same meanings as in section 3
of the Securities Exchange Act of 1934.''.
Mr. SHELBY. Mr. President, I rise today to offer this amendment,
entitled the American Bank Fairness Amendment, to
S. 900, the pending
bill.
This amendment, which, as I have said, is cosponsored by Senator
Daschle, the minority leader, and Senators Grams, Reed, Bennett,
Edwards, Hagel, and Landrieu, would permit national banks to conduct
equity securities underwriting and merchant banking activities in an
operating subsidiary, much as their foreign bank competitors that are
allowed to conduct such activities in the United States today. I note
that six of the seven sponsors of this amendment are members of the
Banking Committee.
We are talking this afternoon about defining a fair and an efficient
framework to allow all--yes, all--financial institutions to better
provide service to their customers in America. This country needs
financial modernization. I support national modernization.
I have great respect for the chairman, the Senator from Texas, Mr.
Gramm, and I supported the chairman in the committee. He helped to get
this bill to the floor.
Unfortunately, this bill does more for the institutions in the top
world financial centers--New York, Hong Kong, London--than it does for
the average bank that serves the average person in America. That is the
issue at hand.
I know many of my colleagues have made up their mind on this issue.
Besides, in all honesty, the chairman of the Federal Reserve, Alan
Greenspan, may not even be the Chairman of the Federal Reserve after
next year, although I wish that he would continue. It is often reported
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant
will be the next person President Clinton nominates to the Federal
Reserve Board. Therefore, I do not believe it is fair for the issues of
this debate to revolve around any one individual, although it is an
individual I hold in great respect.
The truth is, we are here today to write the laws that will determine
the future of the American financial system for the next 60 years. We
are talking about the issues of banking law, corporate law, industrial
organization.
Senators Grams, Reed, and Bennett have been the lead proponents of
the operating subsidiary for several years and they should be commended
for their deep understanding of the issue and the banking expertise
they bring to the Senate Banking Committee.
Let me say from the very beginning, this debate is not about Chairman
Alan Greenspan. It should never be. As I said, I have a deep respect
for Chairman Greenspan. I hold him in very high regard. He is a
tremendous central banker. I am not here to dispute that in any way.
The operating subsidiary amendment is not about monetary policy. Let
me repeat, the operating subsidiary amendment is not about monetary
policy. It is not about inflation, the money supply, or even the
unemployment rate. I plead with Senators to listen to the facts. The
key banking committee Senators supporting this amendment are not from
big cities. They are not doing this for Citigroup or Merrill Lynch,
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial
institutions want a bill so badly, they have forced their associations
to oppose this amendment based on press reports that this bill will be
pulled if it passes. We all know it is the multibillion-dollar
financial institutions that control the associations, and they are the
ones pushing this bill.
I just do not believe that, in passing a financial modernization
bill, we should forget about the smaller, midsized, and regional banks
that serve our local communities and our States. Those banks--the
smaller, midsized, and regional banks--are the ones that are not being
heard on this issue. They are being shut out and they have been
discounted.
I am sorry, but I do not believe financial modernization should be
only for the folks on Wall Street. I do not understand why this body
would knowingly pass a financial modernization bill that would
intentionally discriminate against domestic banks in favor of foreign
banks.
If you want to talk about competition, free markets, and fair and
equal treatment under the law, Senators should seriously consider the
amendment that is before the Senate. The Shelby-Daschle and others
amendment would provide more fair and equitable treatment of our
national banks in comparison with our foreign competitors.
The American Bank Fairness Amendment, as we called it, would ensure
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that foreign banks receive no competitive advantage over our banks here
in America.
S. 900, at the moment, as it is written, discriminates against
domestic banks. Ask yourself, Why are we even here in the first place?
Why are we even considering financial modernization, if it is to be
globally competitive? Is it to ensure that our banks can compete on an
international scale?
I received a letter from John Reed and Sanford Weill, cochairmen of
Citigroup, this morning. They wrote to inform me that passage of
financial modernization is imperative.
They said,
As our financial services firms contort to comply with the
current legal and regulatory structure, we become much less
competitive with our non-U.S. counterparts. Our country's
competitive position as the world's leader in financial
services is at risk of being lost if we don't act now.
So, according to our friends at Citigroup, it appears we have become
less competitive with our foreign competitors, and that our position as
a world leader is at risk.
I received a similar letter from Phil Purcell, chairman of Morgan
Stanley Dean Witter & Co. He said that Congress needs to pass this bill
because:
Financial modernization legislation is critical to the
maintenance of the preeminence of American financial firms in
global markets.
American preeminence, Mr. President? Is that the reason we are
considering this legislation? If these are, indeed, the reasons, I must
confess I am really confused. The reason for my confusion is
S. 900,
the bill we are debating today actually discriminates against domestic
banks in favor of foreign banks. Simply put, national banks are not
allowed to conduct merchant banking activities or equity underwriting
activities in an operating subsidiary. Foreign banks, however, can
conduct those activities today, and will actually expand their range of
activities to include insurance underwriting, if this bill becomes law.
I actually have some charts to share with you to help demonstrate the
blatant discriminatory treatment of our own national banks versus those
of foreign banks' operating subsidiaries in America. Under current law,
national bank subsidiaries are not permitted to conduct merchant
banking activities. Merchant banking basically means that banks are
permitted to make investments in a company subject to conditions
designed to maintain the separation between banking and commerce.
Foreign subsidiaries operating today in America can, however. Under
current law, national bank subsidiaries are not permitted to underwrite
any deal in equity securities. However, foreign bank subsidiaries can.
The last row under the ``current law'' is blank. That is, neither
foreign bank subsidiaries nor national bank subsidiaries may underwrite
noncredit-related insurance.
Let's look at a chart of permitted subsidiary activities that I have
here if this financial modernization bill were enacted into law. Please
notice that under the first column, here, national bank subsidiaries
still will not enjoy the ability to conduct merchant banking activities
or conduct equity securities underwriting. Foreign bank subsidiaries
will not only be allowed to conduct those activities--merchant banking,
underwriting and dealing in equity securities and insurance
underwriting, as shown on the chart--but
S. 900, as currently written,
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole
rationale for the bill.
That is the major flaw with this bill. How can the supporters of this
bill say this will help our national banks compete when they are
clearly put at a disadvantage by their own Federal Government? How can
we in good conscience support a bill that discriminates against our own
national banks?
Senator Gramm and Chairman Greenspan say if national banks are
allowed to conduct such activities in an operating subsidiary, these
banks would have a funding advantage over their competitors because of
an alleged ``subsidy.''
However, neither Senator Gramm nor Chairman Greenspan can reconcile
this argument with the competitive advantage of foreign bank
subsidiaries. Since 1990, the Federal Reserve Board has issued
approvals for 18 foreign banks to own subsidiaries that engage in
securities underwriting activities in the United States. In fact, the
size of these subsidiaries exceeds $450 billion in assets. The Federal
Reserve admits that foreign banks may enjoy a ``home country'' subsidy.
In approving the section 20 subsidiary application for the Canadian
Imperial Bank of Commerce in 1990, the Federal Reserve noted:
Although as banks, applicants [that is foreign banks] are
not supported to any significant extent by the U.S. federal
safety net, they have access to any benefits that are
associated with their respective home country safety nets,
from which they may derive some competitive advantage over
U.S. bank holding companies operating under the section 20
framework or other U.S. securities firms.
Not only does the board basically admit there may be home country
advantages, they also admit:
. . . a foreign bank may establish and fund a section 20
subsidiary, while a U.S. bank may not.
Further, in their 1992 joint report on foreign bank operations
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board
and the Department of Treasury agreed that, ``. . . subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice. The right of a
foreign bank to determine whether to establish a branch or a subsidiary
is consistent with competitive equity, national treatment and equality
of competitive opportunity.''
Why is investor choice the guiding principle for foreign banks but
not for our domestic banks? Why do foreign banks have the right to
choose their own corporate structure but domestic banks do not?
The Federal Reserve Board stated that while a subsidy for foreign
banks may exist:
[T]he Board believes that any advantage would not be
significant in light of the effect on them of the overall
section 20 framework and the circumstances of these cases,
and should not preclude foreign bank ownership of section 20
subsidiaries.
Basically, that means the rules and the regulations that apply to
foreign section 20 subsidiaries should contain any possible subsidy.
Why do the rules and regulations in place contain any possible
subsidy for foreign banks but not domestic banks, our banks? Why should
any alleged subsidy preclude operating subsidiaries for U.S. banks but
not for foreign subsidiaries? Fundamental fairness would suggest that
foreign banks not be allowed to have a competitive advantage over
domestic banks. It just makes no sense. Fundamental fairness suggests
domestic banks should also have the choice of an operating subsidiary
that our foreign banks have.
Critics of the operating subsidiary have voiced concerns about safety
and soundness. But this is a red herring, I believe, and really no
issue at all. Even Chairman Greenspan testified that safety and
soundness is really not the issue with regard to operating
subsidiaries, when asked by Congressman Bentsen in the House. I will
quote the chairman:
My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Non-bank holding companies or other institutions do
not have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.
The amendment before us, the operating subsidiary proposal, includes
the same safety and soundness protections and lending restrictions as
the Federal Reserve imposes on section 20 subsidiaries. But to further
address any safety and soundness concerns, the amendment would also
require that the parent bank deduct--yes, deduct--its entire equity
investment in the subsidiary from its own capital and still remain well
capitalized.
Furthermore, under the operating subsidiary, any alleged ``subsidy''
transferred to the subsidiary would be identical to that transferred to
an affiliate because investments in the subsidiary would be limited to
that which the bank could transfer to holding company affiliates in the
form of dividends.
Lastly, the current Chairman of the Federal Deposit Insurance
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound
than the affiliate structure.
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The FDIC chairmen argue that forcing activities in an affiliate
actually exposes insured banks to greater risks than that of an
operating subsidiary.
I want to respond to a letter Chairman Alan Greenspan wrote to
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May
3. I believe this is a great letter in support of the operating
subsidiary. In Chairman Greenspan's effort to explain why foreign bank
subsidiaries do not have a competitive advantage and are justified, he
actually makes the case for an operating subsidiary and confirms
everything proponents have been saying all along.
In paragraph 2, Chairman Greenspan says that the International
Banking Act requires foreign banks be allowed to operate in this
country through operating subsidiaries. His major point is that it is
not his choice, but that the law makes him do it, and this is due to
the national treatment principles to which he refers in paragraph 3.
I understand the national treatment principles. However, those
principles are not and should not be interpreted to mean that foreign
banks be given advantages over U.S. banks.
In both the International Banking Act and the Bank Holding Company
Act, the Federal Reserve Board is mandated to deny an application by a
foreign bank to establish a U.S.-subsidiary if the Board finds that the
proposal will result in ``decreased or unfair competition, conflicts or
interests, or unsound banking practices.''
This is a very important point, I submit to my colleagues. By law,
the Federal Reserve must have determined that foreign bank subsidiaries
conducting securities underwriting and equity underwriting does not
result in unsound banking practices.
Otherwise, the Federal Reserve would be in violation of the
International Banking Act and the Bank Holding Company Act. That very
fact supports our argument that conducting such activities in an
operating subsidiary is both safe and sound.
In the third paragraph, Chairman Greenspan says:
In the absence of any evidence that foreign banks are using
their government subsidy to an unfair competitive advantage
in the United States, there does not seem to be any
compelling reason to abandon the current approach to foreign
bank participation in this country.
Chairman Greenspan once again admits there is a government subsidy
for foreign banks. He confirms what I shared with everyone in my ``Dear
Colleague'' letter in the Senate. He then changes the subject to say
there is no reason to abandon foreign banks subsidiaries. I never
suggested such a thing in my ``Dear Colleague'' letter. In only asked
that if it is appropriate for foreign banks, why isn't it appropriate
for national banks?
The fifth paragraph of the letter states that, ``foreign banks have
not been able to exploit their home country subsidy . . .'' and that
foreign bank subsidiaries ``have substantially underperformed U.S.
owned section 20 companies.'' He actually admits that ``the subsidy
does not travel well.'' In other words, foreign banks have not been
successful transferring their home country subsidy to their subsidiary
in the U.S.
But wait a minute. You cannot have it both ways. I do not care who
you are.
Chairman Greenspan just presented evidence to us in the fifth
paragraph that foreign bank subsidiaries, which in the third paragraph
he admits receive a home country subsidy, underperform their American
competitors. Thus, if there is a subsidy, it must either be (1)
insignificant, and not enough to affect market performance or (2)
contained in the section 20 regulatory framework and therefore not an
issue. In either case, the Chairman has just confirmed the arguments
that proponents of operating subsidiaries have made.
To sum up, Chairman Greenspan, just 2 days ago, confirmed that:
foreign bank subsidiaries receive home country subsidies; conducting
such activities in a subsidiary does not result in unsound banking
practices, otherwise the Fed is violating the law with regard to
foreign bank subsidiaries; and the subsidiary does not ``travel well,''
that is, it is not easily transferred from the bank to the sub.
The logic and the evidence presented by Chairman Greenspan in defense
of foreign bank subsidiaries is the exact same logic and evidence that
supports the Shelby-Daschle operating subsidiary amendment.
To be honest, I am quite surprised at the Chairman's uncompromising
position on the issue. As a student of Public Choice economics, I am
sure he is aware of the benefits of competition among regulators. I am
surprised he supports making the Federal Reserve the monopoly umbrella
regulator. Monopolies restrict output and increase prices.
There is no doubt in my mind that making the Federal Reserve the
monopoly regulator will create even more bottlenecks in bank
applications thereby increasing the regulatory cost of banks doing
business with the Federal Reserve.
For the sake of competition, for the sake of free markets, for the
sake of choice, I respectfully request that you support the Shelby
amendment.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
Mr. GRAMM. Mr. President, I think if anyone knows me and knows
Richard Shelby, they know that we came to Congress on the same day. We
served on the House Energy and Commerce Committee together. We were
both Democrats then. We both changed parties. We both ran for the
Senate. And Richard and I have been very close friends since the first
day we came. I think you always regret when you have these kinds of
tough battles, but this is a tough battle. This is vitally important.
Let me basically outline what I want to say and then let me go about
trying to say it.
First of all, there has been some speculation about whether or not,
as chairman of the Banking Committee and a new chairman, chairman only
for a few months, whether or not I would pull my own bill, which, as
the Presiding Officer knows as a member of the committee, has been a
great labor of mine for all these many months and has been the labor of
Congress for 25 years. As to whether I would pull the bill over this
issue, let me leave no suspense: I will pull this bill if the Shelby
amendment is adopted.
You might think that is a very strong statement to make, but I think
when you hear my presentation, you will understand why I make it,
because with all the good things in the bill, I want people to
understand that all of them combined together would not undo the harm
that would be done by this amendment.
What I will do is answer Senator Shelby on foreign banks. I will then
go through and talk about the real issue: What is the issue for
Democrats who are hearing from the Secretary of the Treasury? What is
the issue for Republicans who are hearing from big banks? What is the
public interest?
I will try to answer those issues. Let me begin with the foreign
banks.
Senator Shelby would have us believe that we need to start
subsidizing American banks because foreign banks are subsidized. He
would have us believe that somehow we have given foreign banks a
different set of regulations to abide by in America than American banks
have had and that therefore we need to do something about it.
Let me address that. And I want to address it first by reading Alan
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby
referred to part of it. But I think it goes right to the heart of the
issue.
Reading his letter of May 4:
First, the Board did not simply choose to let foreign banks
operate in this country through subsidiaries. The law
required it. The International Banking Act . . .
That was passed in 1978--
. . . provides that a foreign bank shall be treated as a .
. . holding company for purposes of nonbanking acquisitions.
That is the law of the land. That was adopted by Congress. That was
signed by the President. The Chairman of the Board of the Federal
Reserve had nothing to do with that. He simply had the responsibility
of implementing it.
Therefore, when the Board allowed U.S. bank holding
companies to own securities companies, the Board was required
to permit foreign banks that met the statutory conditions
also to acquire such companies.
The law treating foreign banks as holding companies was a
practical response to an existing situation: most foreign
banks do not have holding companies.
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And I will get to that point in a minute because it is important.
Without the [International Banking Act's] approach, foreign
banks generally would be excluded from the U.S. market, in
violation of the national treatment principles embedded in
U.S. law. . . .
The Board stated it would monitor, and in fact has
monitored, this situation to assure that foreign banks do not
in fact operate to the detriment of U.S. banking
organizations. . . .
A recent Federal Reserve study of the performance of
section 20 companies over the last eight years demonstrates
that foreign bank-owned section 20 companies have
substantially underperformed U.S.-owned section 20 companies.
. . .
To cite the fact of foreign bank structure to support a
similar structure in the United States is not only
misleading, it is potentially harmful.
Let me explain what all that means in English. What it means is, we
passed a law, and the law said that since foreign banks do not use
holding companies--they use operating subsidiaries because it is
permitted under their law--that for treatment purposes, they would be
treated as holding companies in the United States. Senator Shelby says
this is unfair.
I would like to note that the Federal Reserve, noting a potential
problem with it, set out a monitoring process to see if these foreign
banks are benefiting relative to our banks in promoting unfair
competition.
What the Fed found in 1995 was that not only were they not
benefiting, but they lost 11 percent. In 1996, their rate of return was
minus 8 percent. In 1997, their rate of return was 18 percent. And in
1998, their rate of return was 25 percent.
So the plain truth is, these foreign banks are poorly run, their
subsidiary operations are a disaster, but if they were well run, and if
they were getting a competitive advantage, we would do something about
it. The point is, it has not created a problem.
Nineteen of these foreign banks are in the securities business.
Together, they make up less than 2.6 percent of the American market. In
terms of underwriting revenues, they earn 3.8 percent of the revenues.
So the point is, these foreign banks are not effective in competing
against American banks. The point is, because foreign governments
subsidize their banks, do we want to subsidize our banks? As chairman
of the Banking Committee, I can tell you, if these foreign subsidies
started having an unfair effect in our market, we would take action to
change the law and prevent this advantage.
But we have allowed this situation to exist for two reasons: One, it
has not done us any harm, and, two, we sell $10 of financial services
abroad for every $1 of financial services sold in America. So the last
thing we wanted to do is get into a trade war in banking, because we
are the world's greatest bankers, we are the world's greatest exporters
of banking services. And so it was to our advantage to allow this to
happen as long as it was doing no harm.
What is the real issue at stake in this amendment? I want to begin
with a quote from Secretary Rubin. In fact, many people on the Democrat
side of the aisle have been called by Secretary Rubin in the last few
days. Some people on our side of the aisle have been called. I want to
read you a quote from Secretary Rubin. And then I want to pose a
question: What could this quote possibly be referring to?
This is a quote from the Secretary of the Treasury, Robert Rubin, on
May 5, 1999, before the Finance Subcommittee of the House Commerce
Committee. And I will read you the quote:
[O]ne of an elected Administration's critical
responsibilities is the formation of economic policy, and an
important component of that policy is banking policy. In
order for the elected Administration to have an effective
role in banking policy, it must have a strong connection with
the banking system.
I remind my colleagues that the Comptroller of the Currency, who
works for Robert Rubin, regulates national banks. And national banks
make up 58 percent of the assets in American banks. Why isn't that ``an
effective role in banking policy''? Why is it not ``a strong connection
with the banking system''? I can tell you, Secretary Rubin is right: It
is not a strong connection. The Comptroller of the Currency is an
accountant. Banking policy is run by the Federal Reserve. And I thank
God for that every single day.
I thank God every single day that in 1913, after the Treasury had run
monetary policy in this country--we had a giant panic in 1907; the
country had gone through continuing economic convulsions--the Congress
put an end to it by setting up an independent monetary authority called
the Federal Reserve.
The Federal Reserve, with an independent board--appointed by the
President, confirmed by the Senate for very long terms--exercises
independent monetary policy. So when the President wants to inflate the
economy to get reelected, the Fed says no. When Congress feels we need
to print more money to get things moving to help them in their
elections, the Fed says no. We have an independent monetary authority.
So while the Comptroller of the Currency is an accountant that
primarily audits national banks, he has no policy authority at all.
Why? Because the Federal Reserve regulates the holding companies, and
there are 6,867 holding companies in America that together make up
about 96 percent of bank assets.
So sure enough, the Treasury sends out all of the accountants and
auditors, but the Federal Reserve sets the policy. And what Robert
Rubin is saying, in the clearest possible terms, is he wants to set
banking policy, he wants to set monetary policy. That is exactly what
he is saying.
The question is, Do we want to put the Treasury back in the position
of setting banking policy in America? Do we want the President to have
the ability to use banking policy as a political tool? Are we not
talking about repealing the Federal Reserve Act?
Now, how all this comes about is a little complicated, but with a
teeny bit of detective work, it becomes very, very clear.
Remember, the Fed does not regulate banks. Not a single bank in
America is regulated directly by the Fed. But it regulates holding
companies that control banks, and those holding companies have 97
percent of the assets of banks. Why do they have it? Because our law
requires that banks not provide other financial services within the
bank, for safety and soundness reasons, and so big banks and banks that
have large assets are holding companies and they come under the Federal
Reserve.
Now, if we adopted the Shelby amendment, let me read what Alan
Greenspan and the Board of Governors of the Federal Reserve say would
happen:
As I have testified, if profit is their goal, there is no
choice. Because of the subsidy implicit in the Federal safety
net, profit-maximizing management will invariably choose the
operating subsidiary. As a consequence, the holding company
structure will atrophy in favor of bank operating
subsidiaries. Our [and ``our'' being the Federal Reserve]
current ability rests principally on our role as holding
company supervisor.
So here is the point: If you let banks perform these services within
the bank itself, their securities affiliate or, in the future, their
insurance affiliate or any other thing you allow them to do can get the
advantage of the bank's FDIC insurance and the ability to borrow money
from the Fed, which is the lowest interest rate in the world, and if
they can use the Fed wire, the Fed has estimated that doing these
things within the bank creates about a 14 basis points advantage over
doing them outside the bank. Those little margins make a very big
difference.
So, obviously, the Treasury and the Federal Reserve believe and both
agree that if you let banks perform these functions inside the bank,
banks will tend to close down their holding companies and bring these
functions inside the bank.
Now, I am going to talk about that issue separately. But what does
that mean in terms of monetary policy? It means that the Comptroller of
the Currency, who will be regulating banks that will no longer be
holding companies, will become the banking authority in the country,
and the Federal Reserve will see the number of holding companies it
regulates decline, decline, decline, and decline.
Now, interestingly, the Treasury and the Shelby amendment, one and
the same, recognize this. They say, OK, for the 43 largest holding
companies, we will force them to maintain their holding company, so
that the Fed will continue to regulate them. That means that 6,824
other holding companies will be allowed to change their structure. They
will be driven by the profit motive to do it. Therefore, over time the
[[Page
S4855]]
control of banking policy and ultimately monetary policy--because bank
regulation is a source of strength for the Fed in implementing much of
its policy--will shift from the Federal Reserve to the Treasury, from
an independent agency to an arm of the President of the United States.
Now, you might say, well, the Federal Reserve still regulates 43
holding companies. But the holding companies have every incentive to
conduct all of their activities within the bank, so the holding
companies, the 43 left that the Fed would regulate, will be empty
shells.
The Fed's power comes from the power to regulate banks. Their ability
to get banks together to prevent a financial collapse--such as the Long
Term Capital Management case in New York--was their ability, using
moral suasion by the fact that they regulated the holding companies
that were involved, to get people together and basically nudge them,
encourage them, and, if you like, pressure them into dealing with that
crisis before it got moving.
Now, I ask my colleagues on the first point: Do you want this
administration, or any administration, to control banking policy? The
Secretary of the Treasury says they should; it is part of the tools
they say they need to conduct economic policy.
Let me tell you something, Mr. President. We had this debate in 1913.
We decided we didn't want the President, in 1913, controlling banking
policy. We have decided we do not want any President or did not want
any President since that time.
Would we have been better off in the last 2 years of the Reagan
administration if the Treasury had controlled banking policy instead of
the Federal Reserve? I do not think so. When the Bush administration
was in a reelection campaign and losing the election because the
economy was recovering slowly, would we have wanted the Secretary of
the Treasury and the Comptroller of the Currency--appointed by the
President, removable by the President--would we have wanted them to
have the ability to turn on the printing presses or to use expansionary
policy with the banks? I do not think we would.
Do we want this President to have the ability to control banking
policy when he orders the Comptroller of the Currency, who would be the
new central banking regulatory authority under the Shelby amendment, to
come to the White House for a fundraiser with bankers?
This is not a partisan matter. Bill Clinton is going to be President
for 18 more months. We may well then have a Republican President. I
hope so. But I do not want a Republican or Democratic President to
control banking policy. We set up an independent Fed to do that, and I
want them to do it. Have no doubt about it, when Robert Rubin is saying
that this amendment is a way of expanding the administration's
effective role in banking policy, he means transferring from the Fed to
the Treasury the ability to set banking policy.
Now, if you are for that, if you believe the executive branch of
American government ought to set banking policy, you should vote for
the Shelby amendment. But if you believe we have done pretty well under
Alan Greenspan and the Federal Reserve, if you believe that since 1913
the American economy has performed pretty well by taking banking policy
away from Congress and away from the executive branch of government and
putting it in an independent agency, if you believe that, do not vote
for this amendment. This amendment is clearly an effort to transfer
regulatory authority over banking from the Federal Reserve to the
Treasury. That would be a disaster for America. That would be far more
important in its negative impact than anything we could possibly do in
terms of letting banks get into a few other areas of providing
services.
This is a fundamental issue. I urge my colleagues not to get caught
up on the Democrat side of the aisle with the fact that there is a
Democrat President or that we have a very friendly, nice, and competent
Secretary of the Treasury who is calling them up and saying, ``We need
you to vote with us.'' This is not a partisan matter. An independent
control of banking policy in America, an independent agency controlling
banking policy, is not a partisan matter, it is a matter that this
Congress, on a bipartisan basis, has stood for since 1913. I don't want
to take any step, and I don't believe America, if it understood this
issue, would want to take a step backward from that.
Let me talk to my Republican colleagues. We have written a bill, and
I think it is a good bill. I had a lot to do with writing it, so
obviously I think that. But I think other people are beginning to think
it, too. This is a big bank, big securities, big insurance bill. That
is just a reality. And I have to say that there is something a little
bit obscene about big banks calling up Members of the Senate and
saying: ``Well, you know we only got 95 percent of what we wanted in
that bill. We could get another 15 percent and go up to 110 percent if
you could let us provide these services within the bank, rather than
doing it outside the bank.''
Now, the banks are not caught up in who is going to conduct banking
policy. They are caught up in the fact that they are going to make more
money if they can provide these services inside the bank, because they
get the subsidies from the FDIC insurance, the Fed window and the Fed
wire.
I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say.
We have all heard: What is good for General Motors is good for America.
That is not right. What is good for America is good for General Motors.
I just say to my colleagues, whatever commitments you have made on
this, whatever partisanship you feel on this, ask yourself a question:
Is it good for America to give the Treasury-
Major Actions:
All articles in Senate section
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
(Senate - May 06, 1999)
Text of this article available as:
TXT
PDF
[Pages
S4848-S4878]
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
The Senate continued with the consideration of the bill.
The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson,
has 3 minutes.
Amendment No. 309, As Modified
Mr. JOHNSON. Mr. President, I have a modification of my amendment at
the desk and I ask unanimous consent that it be so modified.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:
On page 149, strike line 12 and all that follows through
page 150, line 21 and insert the following:
SEC. 601. PREVENTION OF CREATION OF NEW S HOLDING COMPANIES
WITH COMMERCIAL AFFILIATES.
(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Prevention of new affiliations between s holding
companies and commercial firms.--
``(A) In general.--Notwithstanding paragraph (3), no
company may directly or indirectly, including through any
merger, consolidation, or other type of business combination,
acquire control of a savings association after May 4, 1999,
unless the company is engaged, directly or indirectly
(including through a subsidiary other than a savings
association), only in activities that are permitted--
[[Page
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``(i) under paragraph (1)(C) or (2) of this subsection; or
``(ii) for financial holding companies under section 4(k)
of the Bank Holding Company Act of 1956.
``(B) Prevention of new commercial affiliations.--
Notwithstanding paragraph (3), no savings and loan holding
company may engage directly or indirectly (including through
a subsidiary other than a savings association) in any
activity other than as described in clauses (i) and (ii) of
subparagraph (A).
``(C) Preservation of authority of existing unitary s
holding companies.--Subparagraphs (A) and (B) do not apply
with respect to any company that was a savings and loan
holding company on May 4, 1999, or that becomes a savings and
loan holding company pursuant to an application pending
before the Office on or before that date, and that--
``(i) meets and continues to meet the requirements of
paragraph (3); and
``(ii) continues to control not fewer than 1 savings
association that it controlled on May 4, 1999, or that it
acquired pursuant to an application pending before the Office
on or before that date, or the successor to such savings
association.
``(D) Corporate reorganizations permitted.--This paragraph
does not prevent a transaction that--
``(i) involves solely a company under common control with a
savings and loan holding company from acquiring, directly or
indirectly, control of the savings and loan holding company
or any savings association that is already a subsidiary of
the savings and loan holding company; or
``(ii) involves solely a merger, consolidation, or other
type of business combination as a result of which a company
under common control with the savings and loan holding
company acquires, directly or indirectly, control of the
savings and loan holding company or any savings association
that is already a subsidiary of the savings and loan holding
company.
``(E) Authority to prevent evasions.--The Director may
issue interpretations, regulations, or orders that the
Director determines necessary to administer and carry out the
purpose and prevent evasions of this paragraph, including a
determination that, notwithstanding the form of a
transaction, the transaction would in substance result in a
company acquiring control of a savings association.
``(F) Preservation of authority for family trusts.--
Subparagraphs (A) and (B) do not apply with respect to any
trust that becomes a savings and loan holding company with
respect to a savings association, if--
``(i) not less than 85 percent of the beneficial ownership
interests in the trust are continuously owned, directly or
indirectly, by or for the benefit of members of the same
family, or their spouses, who are lineal descendants of
common ancestors who controlled, directly or indirectly, such
savings association on May 4, 1999, or a subsequent date,
pursuant to an application pending before the Office on or
before May 4, 1999; and
``(ii) at the time at which such trust becomes a savings
and loan holding company, such ancestors or lineal
descendants, or spouses of such descendants, have directly or
indirectly controlled the savings association continuously
since March 4, 1999, or a subsequent date, pursuant to an
application pending before the Office on or before May 4,
1999.''.
(b) Conforming Amendment.--Section 10(o)(5)(E) of the Home
Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by
striking ``, except subparagraph (B)'' and inserting ``or
(c)(9)(A)(ii)''.
Mr. JOHNSON. Mr. President, financial modernization should go forward
but without mixing financial services and commerce. Preserving the
unitary thrift loophole should not be allowed. Who believes this should
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary
Rubin, and banking and consumer organizations. There is bipartisan and,
frankly, overwhelming support for loophole closure. I think there is a
sense we do not want to go down the road of financial services and
commerce mixing at this particular juncture. Allowing financial
modernization to go forward should occur, but allowing unitary thrifts
to merge with other financial institutions is the road to go rather
than allowing merger with commerce at large.
I think we need to heed the urgent warnings of our Nation's leading
economic minds. We appreciate that this issue is arcane in the minds of
many in this body, no doubt. But when we have the support for closure
of this loophole coming from the chairman of the House Banking
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that
ought to be compelling support for taking this step to make sure, in
fact, we get a financial modernization bill out of this body that will,
in fact, be signed by the President and will serve this country in good
stead.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
Mr. GORTON. Mr. President, financial modernization should be about
expanding chartering options and choices for consumers, not about
stripping away the fundamental characteristics of consumer-oriented
institutions. It is a paradox that the banks that are here seeking more
powers wish to restrict the powers of their competitors in the same
bill and are using this amendment to do so.
Proponents of this amendment contend that the unitary thrift charter
is a ``loophole'' that allows for the mixing of banking and commerce.
Those concerns are both misplaced and impossible under the very
conditions of charter.
Federal law now expressly prohibits a unitarian thrift from lending
to a commercial affiliate. By law, a thrift must focus on providing
mortgage, consumer, and small business credit, and its commercial
lending is severely restricted.
The thrift charter is unique. Martin Mayer, who is a guest scholar at
the Brookings Institution and a foe of mixing banking and commerce,
supports the commercial ownership of thrifts because of their unique
lending focus on consumers and small businesses. In the more than 3
decades that unitary thrift charters have existed, there is a total
absence of any evidence that unitary thrifts' commercial affiliations
have either led to a concentration of economic power or posed a risk to
the consumer or the taxpayer. To the contrary, the FDIC has testified
that limits such as those proposed in this amendment would restrict ``a
vehicle that has enhanced financial modernization without causing
significant safety-and-soundness problems.''
The issue under debate is not the creation of a banking-commerce
Frankenstein. It is, rather, about the proper treatment of longstanding
institutions focused on serving local communities. Congress should not
limit the authorities of existing consumer-oriented companies without a
compelling reason. To do so would be anticompetitive and anticonsumer.
I am adamantly opposed to any initiative that eviscerates the unitary
thrift charter and urge Senators to oppose the Johnson amendment as a
serious step backwards in our efforts to modernize our Nation's
financial services laws.
I yield back the remainder of my time, and I move to table the
Johnson amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table amendment No. 309. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 32, nays 67, as follows:
[Rollcall Vote No. 103 Leg.]
YEAS--32
Akaka
Allard
Bennett
Breaux
Bunning
Campbell
Chafee
Cochran
Coverdell
Dodd
Domenici
Enzi
Gorton
Gramm
Hagel
Inouye
Kyl
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Murray
Nickles
Reed
Robb
Roth
Smith (NH)
Smith (OR)
Stevens
Warner
NAYS--67
Abraham
Ashcroft
Baucus
Bayh
Biden
Bingaman
Bond
Boxer
Brownback
Bryan
Burns
Byrd
Cleland
Collins
Conrad
Craig
Crapo
Daschle
DeWine
Dorgan
Durbin
Edwards
Feingold
Feinstein
Frist
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lincoln
Mikulski
Moynihan
Murkowski
Reid
[[Page
S4850]]
Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Snowe
Specter
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
The motion was rejected.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the
order for the yeas and nays.
The PRESIDING OFFICER. Without objection, it is so ordered.
The question is on agreeing to the amendment.
The amendment (No. 309), as modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. SHELBY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Amendment No. 315
Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
The legislative assistant read as follows:
The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr.
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu,
proposes an amendment numbered 315.
Mr. SHELBY. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
Redesignate sections 123, 124, and 125 as sections 125,
126, and 127 respectively, strike section 122, and insert the
following:
SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.
Chapter one of title LXII of the revised statutes of United
States (12 U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A (12 U.S.C. 25a) as
section 5136B; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:
``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.
``(a) Activities Permissible.--
``(1) In general.--A subsidiary of a national bank may--
``(A) engage in any activity that is permissible for the
parent national bank;
``(B) engage in any activity authorized under section 25 or
25A of the Federal Reserve Act, the Bank Service Company Act,
or any other Federal statute that expressly by its terms
authorizes national banks to own or control subsidiaries
(other than this section); and
``(C) engage in any activity permissible for a bank holding
company under any provision of section 4(k) of the Bank
Holding Company Act of 1956 other than--
``(i) paragraph (4)(B) of such section (relating to
insurance activities) insofar as such paragraph permits a
bank holding company to engage as principal in insuring,
guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or to engage as principal in
providing or issuing annuities; and
``(ii) paragraph (4)(I) of such section (relating to
insurance company investments).
``(2) Limitations.--A subsidiary of a national bank--
``(A) may not, pursuant to subparagraph (C) of paragraph
(1)--
``(i) underwrite insurance other than credit-related
insurance;
``(ii) engage in real estate investment or development
activities (except to the extent that a Federal statute
expressly authorizes a national bank to engage directly in
such an activity); and
``(B) may not engage in any activity not permissible under
paragraph (1).
``(b) Requirements Applicable to National Banks With
Financial Subsidiaries.--
``(1) In general.--A financial subsidiary of a national
bank may engage in activities pursuant to subsection
(a)(1)(C) only if--
``(A) the national bank meets the requirements, as
determined by the Comptroller of the Currency, of Section
(4)(l)(1) of the Bank Holding Company Act of 1956 (other than
subparagraph (C));
``(B) each insured depository institution affiliate of the
national bank meet the requirements, as determined by the
Comptroller of the Currency, of Section (4)(l)(1) of the Bank
Holding Company Act of 1956 (other than subparagraph (C));
and
``(C) the national bank has received the approval of the
Comptroller of the Currency by regulation or order.
``(2) Corrective Procedures.--
``(A) In general.--The Comptroller of the Currency shall,
by regulation prescribe procedures to enforce paragraph (1).
``(B) Stringency.--The regulation prescribed under
subparagraph (A) shall be no less stringent than the
corresponding restrictions and requirements of section 4(m)
of the Bank Holding Company Act of 1956.
``(c) Definitions.--For purpose of this section, the
following definitions shall apply;
``(1) Affiliate.--The term `affiliate' has the same meaning
as in section 3 of the Federal Deposit Insurance Act.
``(2) Financial Subsidiary.--The term `financial
subsidiary' means a company that--
``(A) is a subsidiary of an insured bank; and
``(B) is engaged as principal in any financial activity
that is not permissible under subparagraph (A) or (B) of
subsection (a)(1) of this section.
``(3) Subsidiary.--The term `subsidiary' has the same
meaning as in section 2 of the Bank Holding Company Act of
1956.
``(4) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act.
``(5) Well managed.--The term `well managed' means--
``(A) in the case of an insured depository institution that
has been examined, the achievement of--
``(i) a composite rating of 1 or 2 under the Uniform
Financial Instutitions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the insured
depository institution; and
``(ii) at least a rating of 2 for management, if that
rating is given; or
``(B) in the case of an insured depository institution that
has not been examined, the existence and use of managerial
resources that the appropriate Federal banking agency
determines are satisfactory.''.
SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND
THEIR FINANCIAL SUBSIDIARIES.
(a) Purposes.--The purposes of this section are--
(1) to protect the safety and soundness of any insured bank
that has a financial subsidiary;
(2) to apply to any transaction between the bank and the
financial subsidiary (including a loan, extension of credit,
guarantee, or purchase of assets), other than an equity
investment, the same restrictions and requirements as would
apply if the financial subsidiary were a subsidiary of a bank
holding company having control of the bank; and
(3) to apply to any equity investment of the bank in the
financial subsidiary restrictions and requirements equivalent
to those that would apply if--
(A) the bank paid a dividend in the same dollar amount to a
bank holding company having control of the bank; and
(B) the bank holding company used the proceeds of the
dividend to make an equity investment in a subsidiary that
was engaged in the same activities a the financial subsidiary
of the bank.
(b) Safety and Soundness Firewalls Applicable to
Subsidiaries of Banks.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:
``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO
SUBSIDIARIES OF BANKS.
``(a) Limiting the Equity Investment of a Bank in a
Subsidiary.--
``(1) Capital deduction.--In determining whether an insured
bank complies with applicable regulatory capital standards--
``(A) the appropriate Federal banking agency shall deduct
from the assets and tangible equity of the bank the aggregate
amount of the outstanding equity investments of the bank in
financial subsidiaries of the bank; and
``(B) the assets and liabilities of such financial
subsidiaries shall not be consolidated with those of the
bank.
``(2) Investment limitation.--An insured bank shall not,
without the prior approval of the appropriate Federal banking
agency, make any equity investment in a financial subsidiary
of the bank if that investment would, when made, exceed the
amount that the bank could pay as a dividend without
obtaining prior regulatory approval.
``(b) Operational and Financial Safeguards for the Bank.--
An insured bank that has a financial subsidiary shall
maintain procedures for identifying and managing any
financial and operational risks posed by the financial
subsidiary.
``(c) Maintenance of Separate Corporate Identity and
Separate Legal Status.--
``(1) In general.--Each insured bank shall ensure that the
bank maintains and complies with reasonable policies and
procedures to preserve the separate corporate identity and
legal status of the bank and any financial subsidiary or
affiliate of the bank.
``(2) Examinations.--The appropriate Federal banking
agency, as part of each examination, shall review whether an
insured
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bank is observing the separate corporate identity and
separate legal status of any subsidiaries and affiliates of
the bank.
``(d) Financial Subsidiary Defined.--For purposes of this
section, the term `financial subsidiary' has the same meaning
as section 5136A(c)(2) of the Revised Statutes of the United
States.
``(e) Regulations.--The appropriate Federal banking
agencies shall jointly prescribe regulations implementing
this section.''.
(c) Limiting a Bank's Credit Exposure to a Financial
Subsidiary to the Amount of Permissible Credit Exposure to an
Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C.
371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary' has
the same meaning as section 5136A(c)(2) of the revised
statutes of the United States.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
that is not a financial subsidiary), and notwithstanding
subsection (b)(2) and section 23B(d)(1)--
``(A) the financial subsidiary of the bank--
``(i) shall be deemed to be an affiliate of the bank and of
any other subsidiary of the bank that is not a financial
subsidiary; and
``(ii) shall not be deemed a subsidiary of the bank; and
``(B) a purchase of or investment in equity securities
issued by the financial subsidiary shall not be deemed to be
a covered transaction,
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary (that
is not a subsidiary of a bank) shall not be deemed to be a
transaction between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or section 23B of
this Act.
``(B) Certain affiliates excluded.--For purposes of this
paragraph, the term `affiliate' shall not include a bank, or
a subsidiary of a bank that is engaged exclusively in
activities permissible for a national bank to engage in
directly or authorized for a subsidiary of a national bank
under any federal statute other than section 5136A of the
Revised Statutes of the United States.''.
SEC. 124. FUNCTIONAL REGULATION.
(a) Purpose.--The purpose of this section is to ensure
that--
(1) securities activities conducted in a subsidiary of a
bank are functionally regulated by the Securities and
Exchange Commission to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company; and
(2) insurance agency and brokerage activities conducted in
a subsidiary of a bank are functionally regulated by a State
insurance authority to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company.
(b) Functional Regulation of Financial Subsidiaries.--The
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is
amended by inserting after section 45 (as added by section
123 of this subtitle) the following new section:
``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES
AND INSURANCE AGENCY SUBSIDIARIES OF INSURED
DEPOSITORY INSTITUTIONS.
``(a) Broker or Dealer Subsidiary.--A broker or dealer that
is a subsidiary of an insured depository institution shall be
subject to regulation under the Securities Exchange Act of
1934 in the same manner and to the same extent as a broker or
dealer that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(b) Insurance Agency Subsidiary.--Subject to Section 104
of the Act, an insurance agency or brokerage that is a
subsidiary of an insured depository institution shall be
subject to regulation by a State insurance authority in the
same manner and to the same extent as an insurance agency or
brokerage that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(c) Definitions.--For purposes of this section, the terms
`broker' and `dealer' have the same meanings as in section 3
of the Securities Exchange Act of 1934.''.
Mr. SHELBY. Mr. President, I rise today to offer this amendment,
entitled the American Bank Fairness Amendment, to
S. 900, the pending
bill.
This amendment, which, as I have said, is cosponsored by Senator
Daschle, the minority leader, and Senators Grams, Reed, Bennett,
Edwards, Hagel, and Landrieu, would permit national banks to conduct
equity securities underwriting and merchant banking activities in an
operating subsidiary, much as their foreign bank competitors that are
allowed to conduct such activities in the United States today. I note
that six of the seven sponsors of this amendment are members of the
Banking Committee.
We are talking this afternoon about defining a fair and an efficient
framework to allow all--yes, all--financial institutions to better
provide service to their customers in America. This country needs
financial modernization. I support national modernization.
I have great respect for the chairman, the Senator from Texas, Mr.
Gramm, and I supported the chairman in the committee. He helped to get
this bill to the floor.
Unfortunately, this bill does more for the institutions in the top
world financial centers--New York, Hong Kong, London--than it does for
the average bank that serves the average person in America. That is the
issue at hand.
I know many of my colleagues have made up their mind on this issue.
Besides, in all honesty, the chairman of the Federal Reserve, Alan
Greenspan, may not even be the Chairman of the Federal Reserve after
next year, although I wish that he would continue. It is often reported
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant
will be the next person President Clinton nominates to the Federal
Reserve Board. Therefore, I do not believe it is fair for the issues of
this debate to revolve around any one individual, although it is an
individual I hold in great respect.
The truth is, we are here today to write the laws that will determine
the future of the American financial system for the next 60 years. We
are talking about the issues of banking law, corporate law, industrial
organization.
Senators Grams, Reed, and Bennett have been the lead proponents of
the operating subsidiary for several years and they should be commended
for their deep understanding of the issue and the banking expertise
they bring to the Senate Banking Committee.
Let me say from the very beginning, this debate is not about Chairman
Alan Greenspan. It should never be. As I said, I have a deep respect
for Chairman Greenspan. I hold him in very high regard. He is a
tremendous central banker. I am not here to dispute that in any way.
The operating subsidiary amendment is not about monetary policy. Let
me repeat, the operating subsidiary amendment is not about monetary
policy. It is not about inflation, the money supply, or even the
unemployment rate. I plead with Senators to listen to the facts. The
key banking committee Senators supporting this amendment are not from
big cities. They are not doing this for Citigroup or Merrill Lynch,
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial
institutions want a bill so badly, they have forced their associations
to oppose this amendment based on press reports that this bill will be
pulled if it passes. We all know it is the multibillion-dollar
financial institutions that control the associations, and they are the
ones pushing this bill.
I just do not believe that, in passing a financial modernization
bill, we should forget about the smaller, midsized, and regional banks
that serve our local communities and our States. Those banks--the
smaller, midsized, and regional banks--are the ones that are not being
heard on this issue. They are being shut out and they have been
discounted.
I am sorry, but I do not believe financial modernization should be
only for the folks on Wall Street. I do not understand why this body
would knowingly pass a financial modernization bill that would
intentionally discriminate against domestic banks in favor of foreign
banks.
If you want to talk about competition, free markets, and fair and
equal treatment under the law, Senators should seriously consider the
amendment that is before the Senate. The Shelby-Daschle and others
amendment would provide more fair and equitable treatment of our
national banks in comparison with our foreign competitors.
The American Bank Fairness Amendment, as we called it, would ensure
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that foreign banks receive no competitive advantage over our banks here
in America.
S. 900, at the moment, as it is written, discriminates against
domestic banks. Ask yourself, Why are we even here in the first place?
Why are we even considering financial modernization, if it is to be
globally competitive? Is it to ensure that our banks can compete on an
international scale?
I received a letter from John Reed and Sanford Weill, cochairmen of
Citigroup, this morning. They wrote to inform me that passage of
financial modernization is imperative.
They said,
As our financial services firms contort to comply with the
current legal and regulatory structure, we become much less
competitive with our non-U.S. counterparts. Our country's
competitive position as the world's leader in financial
services is at risk of being lost if we don't act now.
So, according to our friends at Citigroup, it appears we have become
less competitive with our foreign competitors, and that our position as
a world leader is at risk.
I received a similar letter from Phil Purcell, chairman of Morgan
Stanley Dean Witter & Co. He said that Congress needs to pass this bill
because:
Financial modernization legislation is critical to the
maintenance of the preeminence of American financial firms in
global markets.
American preeminence, Mr. President? Is that the reason we are
considering this legislation? If these are, indeed, the reasons, I must
confess I am really confused. The reason for my confusion is
S. 900,
the bill we are debating today actually discriminates against domestic
banks in favor of foreign banks. Simply put, national banks are not
allowed to conduct merchant banking activities or equity underwriting
activities in an operating subsidiary. Foreign banks, however, can
conduct those activities today, and will actually expand their range of
activities to include insurance underwriting, if this bill becomes law.
I actually have some charts to share with you to help demonstrate the
blatant discriminatory treatment of our own national banks versus those
of foreign banks' operating subsidiaries in America. Under current law,
national bank subsidiaries are not permitted to conduct merchant
banking activities. Merchant banking basically means that banks are
permitted to make investments in a company subject to conditions
designed to maintain the separation between banking and commerce.
Foreign subsidiaries operating today in America can, however. Under
current law, national bank subsidiaries are not permitted to underwrite
any deal in equity securities. However, foreign bank subsidiaries can.
The last row under the ``current law'' is blank. That is, neither
foreign bank subsidiaries nor national bank subsidiaries may underwrite
noncredit-related insurance.
Let's look at a chart of permitted subsidiary activities that I have
here if this financial modernization bill were enacted into law. Please
notice that under the first column, here, national bank subsidiaries
still will not enjoy the ability to conduct merchant banking activities
or conduct equity securities underwriting. Foreign bank subsidiaries
will not only be allowed to conduct those activities--merchant banking,
underwriting and dealing in equity securities and insurance
underwriting, as shown on the chart--but
S. 900, as currently written,
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole
rationale for the bill.
That is the major flaw with this bill. How can the supporters of this
bill say this will help our national banks compete when they are
clearly put at a disadvantage by their own Federal Government? How can
we in good conscience support a bill that discriminates against our own
national banks?
Senator Gramm and Chairman Greenspan say if national banks are
allowed to conduct such activities in an operating subsidiary, these
banks would have a funding advantage over their competitors because of
an alleged ``subsidy.''
However, neither Senator Gramm nor Chairman Greenspan can reconcile
this argument with the competitive advantage of foreign bank
subsidiaries. Since 1990, the Federal Reserve Board has issued
approvals for 18 foreign banks to own subsidiaries that engage in
securities underwriting activities in the United States. In fact, the
size of these subsidiaries exceeds $450 billion in assets. The Federal
Reserve admits that foreign banks may enjoy a ``home country'' subsidy.
In approving the section 20 subsidiary application for the Canadian
Imperial Bank of Commerce in 1990, the Federal Reserve noted:
Although as banks, applicants [that is foreign banks] are
not supported to any significant extent by the U.S. federal
safety net, they have access to any benefits that are
associated with their respective home country safety nets,
from which they may derive some competitive advantage over
U.S. bank holding companies operating under the section 20
framework or other U.S. securities firms.
Not only does the board basically admit there may be home country
advantages, they also admit:
. . . a foreign bank may establish and fund a section 20
subsidiary, while a U.S. bank may not.
Further, in their 1992 joint report on foreign bank operations
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board
and the Department of Treasury agreed that, ``. . . subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice. The right of a
foreign bank to determine whether to establish a branch or a subsidiary
is consistent with competitive equity, national treatment and equality
of competitive opportunity.''
Why is investor choice the guiding principle for foreign banks but
not for our domestic banks? Why do foreign banks have the right to
choose their own corporate structure but domestic banks do not?
The Federal Reserve Board stated that while a subsidy for foreign
banks may exist:
[T]he Board believes that any advantage would not be
significant in light of the effect on them of the overall
section 20 framework and the circumstances of these cases,
and should not preclude foreign bank ownership of section 20
subsidiaries.
Basically, that means the rules and the regulations that apply to
foreign section 20 subsidiaries should contain any possible subsidy.
Why do the rules and regulations in place contain any possible
subsidy for foreign banks but not domestic banks, our banks? Why should
any alleged subsidy preclude operating subsidiaries for U.S. banks but
not for foreign subsidiaries? Fundamental fairness would suggest that
foreign banks not be allowed to have a competitive advantage over
domestic banks. It just makes no sense. Fundamental fairness suggests
domestic banks should also have the choice of an operating subsidiary
that our foreign banks have.
Critics of the operating subsidiary have voiced concerns about safety
and soundness. But this is a red herring, I believe, and really no
issue at all. Even Chairman Greenspan testified that safety and
soundness is really not the issue with regard to operating
subsidiaries, when asked by Congressman Bentsen in the House. I will
quote the chairman:
My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Non-bank holding companies or other institutions do
not have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.
The amendment before us, the operating subsidiary proposal, includes
the same safety and soundness protections and lending restrictions as
the Federal Reserve imposes on section 20 subsidiaries. But to further
address any safety and soundness concerns, the amendment would also
require that the parent bank deduct--yes, deduct--its entire equity
investment in the subsidiary from its own capital and still remain well
capitalized.
Furthermore, under the operating subsidiary, any alleged ``subsidy''
transferred to the subsidiary would be identical to that transferred to
an affiliate because investments in the subsidiary would be limited to
that which the bank could transfer to holding company affiliates in the
form of dividends.
Lastly, the current Chairman of the Federal Deposit Insurance
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound
than the affiliate structure.
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The FDIC chairmen argue that forcing activities in an affiliate
actually exposes insured banks to greater risks than that of an
operating subsidiary.
I want to respond to a letter Chairman Alan Greenspan wrote to
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May
3. I believe this is a great letter in support of the operating
subsidiary. In Chairman Greenspan's effort to explain why foreign bank
subsidiaries do not have a competitive advantage and are justified, he
actually makes the case for an operating subsidiary and confirms
everything proponents have been saying all along.
In paragraph 2, Chairman Greenspan says that the International
Banking Act requires foreign banks be allowed to operate in this
country through operating subsidiaries. His major point is that it is
not his choice, but that the law makes him do it, and this is due to
the national treatment principles to which he refers in paragraph 3.
I understand the national treatment principles. However, those
principles are not and should not be interpreted to mean that foreign
banks be given advantages over U.S. banks.
In both the International Banking Act and the Bank Holding Company
Act, the Federal Reserve Board is mandated to deny an application by a
foreign bank to establish a U.S.-subsidiary if the Board finds that the
proposal will result in ``decreased or unfair competition, conflicts or
interests, or unsound banking practices.''
This is a very important point, I submit to my colleagues. By law,
the Federal Reserve must have determined that foreign bank subsidiaries
conducting securities underwriting and equity underwriting does not
result in unsound banking practices.
Otherwise, the Federal Reserve would be in violation of the
International Banking Act and the Bank Holding Company Act. That very
fact supports our argument that conducting such activities in an
operating subsidiary is both safe and sound.
In the third paragraph, Chairman Greenspan says:
In the absence of any evidence that foreign banks are using
their government subsidy to an unfair competitive advantage
in the United States, there does not seem to be any
compelling reason to abandon the current approach to foreign
bank participation in this country.
Chairman Greenspan once again admits there is a government subsidy
for foreign banks. He confirms what I shared with everyone in my ``Dear
Colleague'' letter in the Senate. He then changes the subject to say
there is no reason to abandon foreign banks subsidiaries. I never
suggested such a thing in my ``Dear Colleague'' letter. In only asked
that if it is appropriate for foreign banks, why isn't it appropriate
for national banks?
The fifth paragraph of the letter states that, ``foreign banks have
not been able to exploit their home country subsidy . . .'' and that
foreign bank subsidiaries ``have substantially underperformed U.S.
owned section 20 companies.'' He actually admits that ``the subsidy
does not travel well.'' In other words, foreign banks have not been
successful transferring their home country subsidy to their subsidiary
in the U.S.
But wait a minute. You cannot have it both ways. I do not care who
you are.
Chairman Greenspan just presented evidence to us in the fifth
paragraph that foreign bank subsidiaries, which in the third paragraph
he admits receive a home country subsidy, underperform their American
competitors. Thus, if there is a subsidy, it must either be (1)
insignificant, and not enough to affect market performance or (2)
contained in the section 20 regulatory framework and therefore not an
issue. In either case, the Chairman has just confirmed the arguments
that proponents of operating subsidiaries have made.
To sum up, Chairman Greenspan, just 2 days ago, confirmed that:
foreign bank subsidiaries receive home country subsidies; conducting
such activities in a subsidiary does not result in unsound banking
practices, otherwise the Fed is violating the law with regard to
foreign bank subsidiaries; and the subsidiary does not ``travel well,''
that is, it is not easily transferred from the bank to the sub.
The logic and the evidence presented by Chairman Greenspan in defense
of foreign bank subsidiaries is the exact same logic and evidence that
supports the Shelby-Daschle operating subsidiary amendment.
To be honest, I am quite surprised at the Chairman's uncompromising
position on the issue. As a student of Public Choice economics, I am
sure he is aware of the benefits of competition among regulators. I am
surprised he supports making the Federal Reserve the monopoly umbrella
regulator. Monopolies restrict output and increase prices.
There is no doubt in my mind that making the Federal Reserve the
monopoly regulator will create even more bottlenecks in bank
applications thereby increasing the regulatory cost of banks doing
business with the Federal Reserve.
For the sake of competition, for the sake of free markets, for the
sake of choice, I respectfully request that you support the Shelby
amendment.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
Mr. GRAMM. Mr. President, I think if anyone knows me and knows
Richard Shelby, they know that we came to Congress on the same day. We
served on the House Energy and Commerce Committee together. We were
both Democrats then. We both changed parties. We both ran for the
Senate. And Richard and I have been very close friends since the first
day we came. I think you always regret when you have these kinds of
tough battles, but this is a tough battle. This is vitally important.
Let me basically outline what I want to say and then let me go about
trying to say it.
First of all, there has been some speculation about whether or not,
as chairman of the Banking Committee and a new chairman, chairman only
for a few months, whether or not I would pull my own bill, which, as
the Presiding Officer knows as a member of the committee, has been a
great labor of mine for all these many months and has been the labor of
Congress for 25 years. As to whether I would pull the bill over this
issue, let me leave no suspense: I will pull this bill if the Shelby
amendment is adopted.
You might think that is a very strong statement to make, but I think
when you hear my presentation, you will understand why I make it,
because with all the good things in the bill, I want people to
understand that all of them combined together would not undo the harm
that would be done by this amendment.
What I will do is answer Senator Shelby on foreign banks. I will then
go through and talk about the real issue: What is the issue for
Democrats who are hearing from the Secretary of the Treasury? What is
the issue for Republicans who are hearing from big banks? What is the
public interest?
I will try to answer those issues. Let me begin with the foreign
banks.
Senator Shelby would have us believe that we need to start
subsidizing American banks because foreign banks are subsidized. He
would have us believe that somehow we have given foreign banks a
different set of regulations to abide by in America than American banks
have had and that therefore we need to do something about it.
Let me address that. And I want to address it first by reading Alan
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby
referred to part of it. But I think it goes right to the heart of the
issue.
Reading his letter of May 4:
First, the Board did not simply choose to let foreign banks
operate in this country through subsidiaries. The law
required it. The International Banking Act . . .
That was passed in 1978--
. . . provides that a foreign bank shall be treated as a .
. . holding company for purposes of nonbanking acquisitions.
That is the law of the land. That was adopted by Congress. That was
signed by the President. The Chairman of the Board of the Federal
Reserve had nothing to do with that. He simply had the responsibility
of implementing it.
Therefore, when the Board allowed U.S. bank holding
companies to own securities companies, the Board was required
to permit foreign banks that met the statutory conditions
also to acquire such companies.
The law treating foreign banks as holding companies was a
practical response to an existing situation: most foreign
banks do not have holding companies.
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And I will get to that point in a minute because it is important.
Without the [International Banking Act's] approach, foreign
banks generally would be excluded from the U.S. market, in
violation of the national treatment principles embedded in
U.S. law. . . .
The Board stated it would monitor, and in fact has
monitored, this situation to assure that foreign banks do not
in fact operate to the detriment of U.S. banking
organizations. . . .
A recent Federal Reserve study of the performance of
section 20 companies over the last eight years demonstrates
that foreign bank-owned section 20 companies have
substantially underperformed U.S.-owned section 20 companies.
. . .
To cite the fact of foreign bank structure to support a
similar structure in the United States is not only
misleading, it is potentially harmful.
Let me explain what all that means in English. What it means is, we
passed a law, and the law said that since foreign banks do not use
holding companies--they use operating subsidiaries because it is
permitted under their law--that for treatment purposes, they would be
treated as holding companies in the United States. Senator Shelby says
this is unfair.
I would like to note that the Federal Reserve, noting a potential
problem with it, set out a monitoring process to see if these foreign
banks are benefiting relative to our banks in promoting unfair
competition.
What the Fed found in 1995 was that not only were they not
benefiting, but they lost 11 percent. In 1996, their rate of return was
minus 8 percent. In 1997, their rate of return was 18 percent. And in
1998, their rate of return was 25 percent.
So the plain truth is, these foreign banks are poorly run, their
subsidiary operations are a disaster, but if they were well run, and if
they were getting a competitive advantage, we would do something about
it. The point is, it has not created a problem.
Nineteen of these foreign banks are in the securities business.
Together, they make up less than 2.6 percent of the American market. In
terms of underwriting revenues, they earn 3.8 percent of the revenues.
So the point is, these foreign banks are not effective in competing
against American banks. The point is, because foreign governments
subsidize their banks, do we want to subsidize our banks? As chairman
of the Banking Committee, I can tell you, if these foreign subsidies
started having an unfair effect in our market, we would take action to
change the law and prevent this advantage.
But we have allowed this situation to exist for two reasons: One, it
has not done us any harm, and, two, we sell $10 of financial services
abroad for every $1 of financial services sold in America. So the last
thing we wanted to do is get into a trade war in banking, because we
are the world's greatest bankers, we are the world's greatest exporters
of banking services. And so it was to our advantage to allow this to
happen as long as it was doing no harm.
What is the real issue at stake in this amendment? I want to begin
with a quote from Secretary Rubin. In fact, many people on the Democrat
side of the aisle have been called by Secretary Rubin in the last few
days. Some people on our side of the aisle have been called. I want to
read you a quote from Secretary Rubin. And then I want to pose a
question: What could this quote possibly be referring to?
This is a quote from the Secretary of the Treasury, Robert Rubin, on
May 5, 1999, before the Finance Subcommittee of the House Commerce
Committee. And I will read you the quote:
[O]ne of an elected Administration's critical
responsibilities is the formation of economic policy, and an
important component of that policy is banking policy. In
order for the elected Administration to have an effective
role in banking policy, it must have a strong connection with
the banking system.
I remind my colleagues that the Comptroller of the Currency, who
works for Robert Rubin, regulates national banks. And national banks
make up 58 percent of the assets in American banks. Why isn't that ``an
effective role in banking policy''? Why is it not ``a strong connection
with the banking system''? I can tell you, Secretary Rubin is right: It
is not a strong connection. The Comptroller of the Currency is an
accountant. Banking policy is run by the Federal Reserve. And I thank
God for that every single day.
I thank God every single day that in 1913, after the Treasury had run
monetary policy in this country--we had a giant panic in 1907; the
country had gone through continuing economic convulsions--the Congress
put an end to it by setting up an independent monetary authority called
the Federal Reserve.
The Federal Reserve, with an independent board--appointed by the
President, confirmed by the Senate for very long terms--exercises
independent monetary policy. So when the President wants to inflate the
economy to get reelected, the Fed says no. When Congress feels we need
to print more money to get things moving to help them in their
elections, the Fed says no. We have an independent monetary authority.
So while the Comptroller of the Currency is an accountant that
primarily audits national banks, he has no policy authority at all.
Why? Because the Federal Reserve regulates the holding companies, and
there are 6,867 holding companies in America that together make up
about 96 percent of bank assets.
So sure enough, the Treasury sends out all of the accountants and
auditors, but the Federal Reserve sets the policy. And what Robert
Rubin is saying, in the clearest possible terms, is he wants to set
banking policy, he wants to set monetary policy. That is exactly what
he is saying.
The question is, Do we want to put the Treasury back in the position
of setting banking policy in America? Do we want the President to have
the ability to use banking policy as a political tool? Are we not
talking about repealing the Federal Reserve Act?
Now, how all this comes about is a little complicated, but with a
teeny bit of detective work, it becomes very, very clear.
Remember, the Fed does not regulate banks. Not a single bank in
America is regulated directly by the Fed. But it regulates holding
companies that control banks, and those holding companies have 97
percent of the assets of banks. Why do they have it? Because our law
requires that banks not provide other financial services within the
bank, for safety and soundness reasons, and so big banks and banks that
have large assets are holding companies and they come under the Federal
Reserve.
Now, if we adopted the Shelby amendment, let me read what Alan
Greenspan and the Board of Governors of the Federal Reserve say would
happen:
As I have testified, if profit is their goal, there is no
choice. Because of the subsidy implicit in the Federal safety
net, profit-maximizing management will invariably choose the
operating subsidiary. As a consequence, the holding company
structure will atrophy in favor of bank operating
subsidiaries. Our [and ``our'' being the Federal Reserve]
current ability rests principally on our role as holding
company supervisor.
So here is the point: If you let banks perform these services within
the bank itself, their securities affiliate or, in the future, their
insurance affiliate or any other thing you allow them to do can get the
advantage of the bank's FDIC insurance and the ability to borrow money
from the Fed, which is the lowest interest rate in the world, and if
they can use the Fed wire, the Fed has estimated that doing these
things within the bank creates about a 14 basis points advantage over
doing them outside the bank. Those little margins make a very big
difference.
So, obviously, the Treasury and the Federal Reserve believe and both
agree that if you let banks perform these functions inside the bank,
banks will tend to close down their holding companies and bring these
functions inside the bank.
Now, I am going to talk about that issue separately. But what does
that mean in terms of monetary policy? It means that the Comptroller of
the Currency, who will be regulating banks that will no longer be
holding companies, will become the banking authority in the country,
and the Federal Reserve will see the number of holding companies it
regulates decline, decline, decline, and decline.
Now, interestingly, the Treasury and the Shelby amendment, one and
the same, recognize this. They say, OK, for the 43 largest holding
companies, we will force them to maintain their holding company, so
that the Fed will continue to regulate them. That means that 6,824
other holding companies will be allowed to change their structure. They
will be driven by the profit motive to do it. Therefore, over time the
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control of banking policy and ultimately monetary policy--because bank
regulation is a source of strength for the Fed in implementing much of
its policy--will shift from the Federal Reserve to the Treasury, from
an independent agency to an arm of the President of the United States.
Now, you might say, well, the Federal Reserve still regulates 43
holding companies. But the holding companies have every incentive to
conduct all of their activities within the bank, so the holding
companies, the 43 left that the Fed would regulate, will be empty
shells.
The Fed's power comes from the power to regulate banks. Their ability
to get banks together to prevent a financial collapse--such as the Long
Term Capital Management case in New York--was their ability, using
moral suasion by the fact that they regulated the holding companies
that were involved, to get people together and basically nudge them,
encourage them, and, if you like, pressure them into dealing with that
crisis before it got moving.
Now, I ask my colleagues on the first point: Do you want this
administration, or any administration, to control banking policy? The
Secretary of the Treasury says they should; it is part of the tools
they say they need to conduct economic policy.
Let me tell you something, Mr. President. We had this debate in 1913.
We decided we didn't want the President, in 1913, controlling banking
policy. We have decided we do not want any President or did not want
any President since that time.
Would we have been better off in the last 2 years of the Reagan
administration if the Treasury had controlled banking policy instead of
the Federal Reserve? I do not think so. When the Bush administration
was in a reelection campaign and losing the election because the
economy was recovering slowly, would we have wanted the Secretary of
the Treasury and the Comptroller of the Currency--appointed by the
President, removable by the President--would we have wanted them to
have the ability to turn on the printing presses or to use expansionary
policy with the banks? I do not think we would.
Do we want this President to have the ability to control banking
policy when he orders the Comptroller of the Currency, who would be the
new central banking regulatory authority under the Shelby amendment, to
come to the White House for a fundraiser with bankers?
This is not a partisan matter. Bill Clinton is going to be President
for 18 more months. We may well then have a Republican President. I
hope so. But I do not want a Republican or Democratic President to
control banking policy. We set up an independent Fed to do that, and I
want them to do it. Have no doubt about it, when Robert Rubin is saying
that this amendment is a way of expanding the administration's
effective role in banking policy, he means transferring from the Fed to
the Treasury the ability to set banking policy.
Now, if you are for that, if you believe the executive branch of
American government ought to set banking policy, you should vote for
the Shelby amendment. But if you believe we have done pretty well under
Alan Greenspan and the Federal Reserve, if you believe that since 1913
the American economy has performed pretty well by taking banking policy
away from Congress and away from the executive branch of government and
putting it in an independent agency, if you believe that, do not vote
for this amendment. This amendment is clearly an effort to transfer
regulatory authority over banking from the Federal Reserve to the
Treasury. That would be a disaster for America. That would be far more
important in its negative impact than anything we could possibly do in
terms of letting banks get into a few other areas of providing
services.
This is a fundamental issue. I urge my colleagues not to get caught
up on the Democrat side of the aisle with the fact that there is a
Democrat President or that we have a very friendly, nice, and competent
Secretary of the Treasury who is calling them up and saying, ``We need
you to vote with us.'' This is not a partisan matter. An independent
control of banking policy in America, an independent agency controlling
banking policy, is not a partisan matter, it is a matter that this
Congress, on a bipartisan basis, has stood for since 1913. I don't want
to take any step, and I don't believe America, if it understood this
issue, would want to take a step backward from that.
Let me talk to my Republican colleagues. We have written a bill, and
I think it is a good bill. I had a lot to do with writing it, so
obviously I think that. But I think other people are beginning to think
it, too. This is a big bank, big securities, big insurance bill. That
is just a reality. And I have to say that there is something a little
bit obscene about big banks calling up Members of the Senate and
saying: ``Well, you know we only got 95 percent of what we wanted in
that bill. We could get another 15 percent and go up to 110 percent if
you could let us provide these services within the bank, rather than
doing it outside the bank.''
Now, the banks are not caught up in who is going to conduct banking
policy. They are caught up in the fact that they are going to make more
money if they can provide these services inside the bank, because they
get the subsidies from the FDIC insurance, the Fed window and the Fed
wire.
I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say.
We have all heard: What is good for General Motors is good for America.
That is not right. What is good for America is good for General Motors.
I just say to my colleagues, whatever commitments you have made on
this, whatever partisanship you feel on this, ask yourself a question:
Is it good for America to give the
Amendments:
Cosponsors:
