[Congressional Record Volume 140, Number 24 (Tuesday, March 8, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 8, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
REDUCTION IN REGULATORY CONTROL OF FEDERAL RESERVE BOARD IS SUBJECT OF 
                          PROPOSED LEGISLATION

  The SPEAKER pro tempore. Under a previous order of the House, the 
gentleman from Texas [Mr. Gonzalez] is recognized for 5 minutes.
  Mr. GONZALEZ. Mr. Speaker, through a combination of aggressive--and 
inappropriate--lobbying and strong-arm scare tactics, the Federal 
Reserve is engaging in an all-out crusade to sink the administration's 
plan to consolidate and modernize banking regulation. So far, few have 
been willing to challenge the Fed--particularly after a visit from 
their friendly local banker. The truth be known, the Fed is not worried 
about the continued existence of the dual banking system, or about 
being a less effective central banker. Rather, the Fed doesn't want to 
lose the Rasputin-like control it has over the banks it regulates.
  The administration's Consolidation Act of 1994 makes banking more 
efficient and reduces the number of separate Government agencies 
necessary to examine each federally insured bank. In his effort to 
thwart this reform, Federal Reserve Chairman Alan Greenspan 
uncharacteristically wrote an editorial for the Wall Street Journal 
attacking the administration's plan. He talked about the need for 
``hands-on bank supervision,'' though Chairman Greenspan failed to tell 
us where the Fed really has its hands when it comes to supervising 
banking competition.
  To understand what the Federal Reserve is really talking about, I ask 
you to consider the scope of regulation in which the Federal Reserve is 
now embroiled. The Federal Reserve has complete authority to regulate 
bank holding companies, which are companies owning one or more 
commercial banks. This authority extends to banks with 93 percent of 
the assets in the private banking system, a statistic which may come as 
a surprise.
  More than 6,000 bank holding companies control about 85,000 federally 
insured private commercial banks with approximately 93 percent of the 
assets of all insured commercial banks in the United States at the end 
of 1992, according to Federal Reserve records.
  What does this kind of regulation involve? Take a large bank holding 
company seeking to buy a number of banks, for example. The holding 
company must first get permission from the Federal Reserve, then, the 
Federal Reserve must determine if these bank purchases will seriously 
reduce competition.
  The Federal Reserve Bank overseeing the bank holding company makes 
this decision. Yet, indirectly, the banking industry ends up having a 
say in this decision. All actions of the Federal Reserve Bank, of which 
there are 12 around the country, must be approved by the nine members 
of the board of directors, six of whom are elected by the Federal 
Reserve member banks in the area. The president of the Federal Reserve 
Bank is also elected by this board of directors, which is top-heavy 
with bankers.
  I have received reports of candidates campaigning for the position of 
president of a Federal Reserve Bank by visiting the private banks in 
the area to gain support. There is no doubt that the Federal Reserve 
Banks' favored constituents are the very banks they supervise. Clearly 
this gives rise to possible conflicts of interest.
  CEO's of bank holding company officials must play the Federal Reserve 
game if they are to be successful in buying up competing institutions. 
They must get friendly people on the boards of directors of the 
regional Federal Reserve Banks. This is useful because when bank 
holding companies want to buy competitive banks, they have their people 
positioned inside the Federal Reserve and when they want to block 
competitors from buying up banks they also can rely on their 
representatives inside the Federal Reserve to represent their 
interests.
  This Federal Reserve power to regulate holding companies has 
virtually nothing to do with the kind of bank examination Chairman 
Greenspan would lead us to believe he needs for hands-on regulatory 
authority. The Federal Reserve determines competition in the banking 
system. In such an incestuous relationship the Federal Reserve does not 
hesitate to call on many of its regulated banks to add to Chairman 
Greenspan's clamor to block a single, streamlined, independent banking 
commission of the type proposed by the administration and which I have 
advocated in my proposed legislation, H.R. 1214.
  The only hands that should be on Federal bank regulation are those of 
neutral bank regulators. The Federal banking regulators should not have 
to campaign for the votes of the banks they are regulating, as is the 
case in our present Federal Reserve System. The Federal Reserve System 
is definitely broken and needs fixing and those who claim the present 
system is apolitical do not understand how it operates. I urge my 
colleagues to question the Fed's arguments and motives before throwing 
their hats into the Fed's exclusive ring.

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