[Congressional Record Volume 140, Number 26 (Thursday, March 10, 1994)]
[House]
[Page H]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 10, 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, for several days now and weeks I have been 
addressing this question of the Federal Reserve Board and its total 
lack of accountability.
  One reason that there is dire need to have accountability is that all 
history shows no matter, irrespective of what society, all through 
mankind's recorded history, that when power, particularly tremendous 
power, or wholesale grants of power flow to any individual, group of 
individuals, no matter what, whether they be public, private, even 
religious institutions, that there will be a corruption and misuse of 
that power ultimately.
  The fundamental premise of our Government, even before the 
Constitution and even during the beginning and the first glimmers of 
nationhood, the question of accountability was foremost.
  For example, the issue the First and Second Continental Congresses, 
and then the body under the Articles of Confederation was what is 
technically known as fiscal agent or banker was going to be used.

                              {time}  1950

  And if any of my colleagues would like to know what such great 
Americans as Thomas Jefferson thought of bankers and the confraternity, 
I invite you to read his remarks about it.
  But at this point, for whatever reason, and particularly since the 
war, that is the 1940's, neither the Congress, which created the 
Federal Reserve Board, incidentally--the Federal Reserve Board was not 
heaven-sent--it was created by the Congress and the Congress has not 
seen fit, nor the executive branch in its power to appoint the Chairman 
and some of the members, has not been able to have any kind of 
accountability flowing from the Federal Reserve Board.
  As a result, Americans know and are feeling now the effects of this 
unaccountability of power because it is the power that determines the 
allocation of a credit, who does it, who will benefit, who will have 
access to credit which always from the beginning of our nationhood has 
been the central question.
  With the Federal Reserve insisting that it has an almost divine right 
to retain its regulatory function over bank holding companies, as I 
brought out last night and the night before, it may come as a surprise 
to some that the central bank came into this position of power as an 
accident of the political battles with the Nixon administration.
  For example, interest rates: All during the war, President Roosevelt 
and the Government did not have to pay even an average of 2 percent on 
its borrowing to wage and win the war. How did that happen? How could 
that have been done when now the Government has to pay not only 
interest of huge amounts, in fact, just a few years ago it was paying 
as much as 16 percent on long-term bonds, which is usury, but worse 
than that it is compound interest. We keep going that way and forget 
about ever resolving the national debt, which is now really not 
acceptable, over $4 trillion, and that does not account for the private 
debt, that is us Americans, and corporate debt, which is almost equal 
to that governmental debt.
  So we are in deep trouble, and it is the policies set by a board that 
has no responsibility to account for its actions to anybody. In the 
name of what? Independence.
  So what? The difference is that after the war and when we went into 
the 1970's and the Nixon administration, things happened that changed 
everything from the management of the debt and the handling of the debt 
and the function that the Congress set forth for the Federal Reserve 
Board has been usurped. The Federal Reserve Board Act of 1913 says the 
Federal Reserve Board shall be the fiscal agent of the U.S. Treasury. 
But, lo and behold, it is the one that is printing our money.
  I ask my colleagues to reach into your pockets and pick out any note, 
a $1 note, $5 note, $10 note, $20 note, and see if you do not see 
``Federal Reserve note.'' That used to be, not too long ago, ``U.S. 
Treasury note.'' Therein is a big story.
  But during the Nixon period, in the banking industry, then under the 
head of Paul Volcker, later the Chairman of the Fed, who was then at 
the Chase Manhattan Bank, presented a plan to scatter the Fed's 
regulatory authority to three different agencies. And the rest is 
history.
  I will continue to bring out the sorry and dreary results to the 
detriment of Americans who find themselves, as Jefferson said we will 
find ourselves, ``Americans homeless, rootless in our own land,'' made 
so by the bankers.
  Mr. Speaker, with the Federal Reserve insisting that it has an almost 
divine right to retain its regulatory functions over bank holding 
companies, it may come as a surprise to some that the central bank came 
into this position of power as an accident of political battles with 
the Nixon administration. Some would also be surprised that the Nixon 
administration's Treasury Department with its banker leadership 
including Paul Volcker, then at Chase Manhattan Bank, presented a plan 
to scatter the Fed's regulatory authority to three different agencies. 
It was the great former House Banking chairman, Wright Patman, who was 
compelled to choose the lesser of two evils in 1970--to allow the 
Federal Reserve to retain its present authority just as the holding 
company plan of organization was beginning to spread throughout the 
banking industry.
  Over the last two decades the holding company form of organization of 
banks has exploded. Today the Federal Reserve regulates holding 
companies, which have 93 percent of the country's banking assets. 
Before the 1970's the Federal Reserve had few regulatory 
responsibilities and it did not protest or cry that it needed to 
supervise banks and bank holding companies in order to formulate 
monetary policy.
  The historical record shows this endowment of regulatory power is 
merely the result of political fights in the 1960's and 1070's between 
former House Banking chairman, Wright Patman, the Office of the 
Comptroller of the Currency--which examines national banks--and the 
Nixon administration, which wanted to weaken control over bank holding 
companies by giving it to three banking regulators. To avoid this 
scenario, the Congress passed legislation in 1970 giving full authority 
to the Federal Reserve to regulate bank holding companies.
  Although the 1933 Banking Act provided for mild regulation of bank 
holding companies, it exempted most one-bank holding companies 
ostensibly on the grounds that they were small local enterprises that 
shouldn't be subject to ``onerous regulation.'' The Federal Reserve 
historically had been conservative in its approach to nonbanking 
activities and had established relatively narrow limits on bank holding 
companies' activities after the passage of the 1956 Bank Holding 
Company Act.
  However, in the 1960's, the Office of the Comptroller of the 
Currency, beginning with Comptroller James Saxon, allowed holding 
companies to branch to the outer limits by approving a variety of 
nonbank acquisitions and activities by national banks, even though 
existing law prohibited banks from getting into nonbanking businesses. 
Eventually, Comptroller Saxon had to defend his positions in lawsuit 
after lawsuit brought by entities threatened by the entry of banks into 
their business. Saxon lost consistently in the courts.
  The Comptroller's liberal policy was a bonanza to large banks. By the 
late 1960's large banks--anxious to bypass the law and expand their 
role in commerce--had seized on the loophole and formed one-bank 
holding companies that branched into a wide range of activities--even 
Shakey's Pizza Parlors and S&H Green Stamps. With the explosion of the 
myth of one-bank holding companies being sleepy rural entities, the 
banking industry saw the opportunity to weaken federal restrictions on 
multi-bank holding companies as well.
  The Nixon administration took up the cause of both reducing 
regulation of bank holding companies and taking regulatory authority 
away from the Federal Reserve. Even before Nixon took office, his 
transition team made it clear that holding company legislation would be 
one of the administration's first initiatives.
  President Nixon's Treasury Department--headed by David Kennedy, 
president and CEO, Continental Illinois National Bank, Charls Walker, 
executive director, the American Bankers Association, and Paul Volcker 
of Chase Manhattan Bank and later, Federal Reserve Chairman--drafted 
legislation which broadened the closely related clause for holding 
company activities and scattered the regulation among the three banking 
agencies--the Office of the Comptroller of the Currency, the Federal 
Reserve, and the Federal Deposit Insurance Corporation--with the 
regulator of the lead bank getting the jurisdiction over the holding 
company.
  Former House Banking Chairman Wright Patman dubbed this the ``three-
headed monster.'' To his credit, when Paul Volcker later went to the 
Federal Reserve, along with Chairman Arthur Burns, he exhibited some 
caution on nonbank activities of holding companies.
  Chairman Patman, after President Nixon's election, introduced 
legislation the first day of the new Congress that retained existing 
requirements for close regulation of holding companies and retention of 
holding company authority by the Federal Reserve. The 1970 amendments 
to the 1956 Bank Holding Company Act put the holding company regulatory 
functions exclusively at the Federal Reserve.
  Anyone who interprets Congress 1970 preference for Federal Reserve 
regulation of bank holding companies as some kind of historical 
endorsement for the continued presence of the Federal Reserve in the 
regulatory structure is missing the point of the 1967-1970 fight. As 
far back as the 1950's, Chairman Patman was a staunch proponent of a 
single bank regulator which would have stripped regulatory duties from 
the Federal Reserve. He was forced by the Comptroller of the Currency 
and the initiatives of the Nixon administration to settle for leaving 
the regulation of holding companies with the Federal Reserve.
  The historical record hardly supports Federal Reserve Chairman 
Greenspan's arguments for the vital need for this regulation. Chairman 
Greenspan is waging a classic turf war on behalf of the Government 
bureaucracy largely controlled by the bankers. This is why I urge my 
colleagues to consider the new, independent single bank regulator 
advocated by the Clinton administration, which will prove more cost-
effective and less duplicative than our present Federal bank regulatory 
system.

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