[Congressional Record Volume 140, Number 29 (Wednesday, March 16, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: March 16, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
  COMMUNITY DEVELOPMENT BANKING AND FINANCIAL INSTITUTIONS ACT OF 1993

  The Senate continued with the consideration of the bill.
  Mr. RIEGLE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. RIEGLE. Mr. President, let me inquire of the Chair. Is the 
amendment earlier offered by Senator Packwood at the desk?
  The PRESIDING OFFICER. Senator Packwood's amendment is the pending 
question.
  Mr. RIEGLE. I am prepared to support that amendment, and we are 
prepared to move that amendment at this time. So I ask that we do so. I 
ask the Chair to put the question.
  The PRESIDING OFFICER. Is there further debate on the amendment? If 
not, the question is on agreeing to the amendment of the Senator from 
Oregon.
  The amendment (No. 1529) was agreed to.
  Mr. RIEGLE. Mr. President, I move to reconsider the vote by which the 
amendment was agreed to.
  Mr. D'AMATO. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. RIEGLE. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. RIEGLE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LIEBERMAN. Mr. President, I rise today in strong support of 
subtitle B of the Community Development, Credit Enhancement, and 
Regulatory Improvement Act of 1993. Subtitle B creates the Small 
Business Capital Enhancement Program which I had the privilege of 
coauthoring with the chairman of the Banking Committee, Senator Riegle, 
Senator Stevens, and Senator Dodd. Mr. President, this provision is 
designed to bridge the credit gap and make bank financing more readily 
available to the countless number of small businesses and entrepreneurs 
presently unable to secure financing with conventional lending 
institutions.
  Mr. President, this program represents a new and innovative market-
based approach to small business lending. It will enable banks to 
extend credit to firms which have previously been unable to obtain 
commercial financing. It will do so with a minimum of regulatory 
oversight and without sacrificing safety, soundness, or conventional 
credit analysis. It will focus on small loans from a diverse assortment 
of companies. And, the program will accomplish all this with a 
negligible amount of Government resources and with no hidden 
governmental liability.
  Mr. President, smaller and newer businesses, by definition, provide a 
greater degree of risk for financial institutions than do large 
businesses. Banks routinely assess and cover against different degrees 
of risk in a variety of ways--by charging fees, increasing interest 
rates, or through portfolio diversification. This, in combination with 
recent concerns over safety and soundness stemming from bank and 
savings and loan failures, and the devaluation of collateral due to the 
economic recession has resulted in small businesses finding themselves 
either unable to secure financing at any cost, or priced out of the 
market by high interest rates, short terms, and excessive demands for 
collateral.
  Alternative sources of funding such as public markets, venture 
capital firms, or institutional investors provide little relief to the 
small business. New securities or initial public offerings [IPO's], 
particularly for smaller and riskier issues, have had and will continue 
to have difficulty attracting investors. On the other hand, venture 
capital firms remain focused on high-tech companies that offer 
prospects of relatively higher and faster returns on investment. This 
is complicated by the fact that venture capital--whether equity or 
debt--has been falling off significantly in recent years. Finally, 
institutional investors such as insurance companies or pension funds 
can provide financing to smaller firms, but because of complex capital 
and fiduciary obligations have never focused on developing the systems 
for evaluating credit risks or growth potential of individual smaller 
enterprises. Thus, the relative unavailability of both long term debt 
and equity capital has left many small businesses in a so-called credit 
gap--the unavailability of financing at any cost, or at costs or terms 
beyond a small firm's ability to service.
  Mr. President, small firms are realizing that previously bankable 
loans, or loans which were considered on the margin are less and less 
likely to be approved by commercial financial institutions. This is 
particularly alarming in light of recent surveys which show that 
commercial banks have been and remain the most important supplier of 
debt capital and financial services to the small business sector in the 
United States.
  Since small firms remain the primary creator of new jobs and new 
innovations in the United States, and since small firms remain the 
primary place for employee training, this credit gap has profound 
implications over time for the economy, productivity growth, 
employment, personal income, and eventually our standard of living.
  The U.S. Small Business Administration addresses part of this problem 
through the 7(a) loan guarantee program by providing guarantees of up 
to 90 percent of loans made to qualified small businesses by private 
lenders. While the loan-by-loan guarantee approach is generally 
regarded as very successful, and has proven to be an invaluable tool 
for lenders and borrowers alike, it is also clear that it has not 
filled the credit gap created by events of the past decade. The Small 
Business Capital Access Program is intended to augment, not replace, 
the SBA 7(A) guarantee program or any other loan program administered 
by the Government.

  The Small Business Capital Enhancement Program is based on a 
portfolio insurance concept rather than the traditional loan-by-loan 
guarantee process. In other words, as opposed to current programs where 
government provides a guarantee for each individual loan, this program 
provides a reserve or guarantee on a portfolio of loans. This will 
enable banks to evaluate risk on a pooled or shared basis and apply an 
actuarial approach to small business credit analysis. The result will 
be banks making far more small business loans with far fewer Federal 
dollars.
  In 1986, the State of Michigan, under the leadership of former 
Governor Blanchard, implemented a similar program which has provided 
loans to over 2300 loans, for a total of more than $116 million in 
financing, and has resulted in a leverage ratio--that is total 
government obligation to total lending--of more than 23:1.
  Here's how the program works:
  For each bank participating in the program, a special reserve fund 
would be established to cover future losses from a portfolio of loans 
which the bank makes under the program. The reserve fund would be owned 
and controlled by State government, but earmarked in each participant 
bank's name. Thus each bank participating in the program would have its 
own separate earmarked loss reserve.
  Payments would be made into a bank's earmarked reserve each time the 
bank makes a loan under the program. The borrower would make a premium 
payment of between 1\1/2\ to 3\1/2\ percent of the loan amount and the 
financial institution would match the payment. The State government 
would then match that payment. To make this program less onerous on the 
states, the Federal Government will reimburse the states for half of 
their contribution. So under this four part matching system, a bank 
could have anywhere from a 6 percent to a 14 percent loan loss reserve 
on the portfolio.
  If a bank makes a portfolio of loans under the program, it might have 
a reserve equal to, for example, 10 percent of the total amount of that 
portfolio. In such a situation, the bank could sustain a loss rate of 
up to 10 percent on that portfolio and still be completely covered 
against loss. This gives the bank the ability to absorb a higher loss 
rate--perhaps 5, 6 or 7 percent--than it could tolerate on its 
conventional loans--usually 1 or 2 percent. Since this arrangement 
offers the bank a higher degree of coverage against loss than normally 
available, the institution may be able to offer more favorable interest 
rates and terms to small businesses.

  The bank, however, must still be prudent in making loans under this 
program since it is completely at risk for any losses that exceed the 
coverage provided by the reserve. Because of this incentive for 
prudence, there will be little need for strict regulatory supervision. 
The bank would decide whether or not and under what terms and 
conditions to make a loan.
  The limited need for regulatory oversight is a critical component in 
the implementation of this program. Unlike other Government loan 
programs which require strict oversight due to the Government's large 
hidden liability which is inherent in any guarantee program, the 
Capital Enhancement Program has a limited Government liability--at 
most, 3\1/2\ percent of a loan or a portfolio of loans. This compares 
to traditional guaranteed lending programs where the Government's 
exposure is as high as 85% of the loan amount.
  Also worth noting is the program's built-in bias for small business 
loans. Because this concept is based on insuring a portfolio of loans 
as opposed to one loan, there is a structural incentive to build a 
large portfolio of diverse and smaller loans.
  Thus, through this arrangement of shared risk, the Small Business 
Capital Enhancemenet Program would encourage banks that have been 
cutting back on commercial lending to extend credit to those small 
firms most affected by the credit crunch.
  Mr. President, this program has strong state support. Small Business 
Capital Enhancement Programs have already been established in Arkansas, 
Indiana, Connecticut, Colorado, Delaware, Massachusetts, Minnesota, New 
Hampshire, Oklahoma, Oregon, Utah, Vermont, and West Virginia.
  Mr. President, the continuing lack of credit for small businesses is 
strangling our economy and further impeding economic recovery. Credit 
is the fuel of economic growth. Without credit, businesses cannot grow; 
without business growth, jobs can not be created; and without job 
creation this economy will never fully recover. It's as simple as that. 
The Small Business Capital Enhancement Program will significantly 
expand lending to small businesses which will, in turn, create jobs and 
help put us on the road to economic growth.


                           Amendment No. 1531

  Mr. RIEGLE. Mr. President, I rise to offer an amendment on behalf of 
Senator Metzenbaum and myself. The amendment will insure that negative 
information regarding checks in a consumer credit report includes the 
date, original payees, and amounts of those checks.
  This amendment has been agreed to by Senator D'Amato.
  I send the amendment to the desk, and after it is read I will ask for 
its adoption.
  The PRESIDING OFFICER. Without objection, the pending amendment will 
be set aside.
  The clerk will report the amendment.
  The legislative clerk read as follows:

       The Senator from Michigan [Mr. Riegle] for himself and Mr. 
     Metzenbaum proposes an amendment numbered 1531.

  Mr. RIEGLE. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection it is so ordered.
  The amendment is as follows:

       At the appropriate place, insert:
       Sec.   . Section 609(a) of the Fair Credit Reporting Act 
     (15 U.S.C. 1681g(a)) is amended by adding after paragraph (3) 
     the following:
       ``(4) The dates, original payees, and amounts of any checks 
     upon which is based any negative information about the 
     consumer included in the file at the same time of the 
     disclosure.''

  Mr. RIEGLE. Mr. President, I ask that the amendment be agreed to.
  The PRESIDING OFFICER. If there is no further debate, the question is 
on agreeing to the amendment
  The amendment (No. 1531) was agreed to.
  Mr. RIEGLE. Mr. President, I move to reconsider the vote by which the 
amendment was agreed to.
  Mr. D'AMATO. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. RIEGLE. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. RIEGLE. 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. 1532

  Mr. RIEGLE. Mr. President, I now send to the desk an amendment on 
behalf of Senators Baucus and Wallop and ask it be incorporated into 
the bill.
  This amendment changes the CDFI selection criteria to require the 
fund to take into consideration communities that have experienced a 
sudden and significant loss of employment since the 1990 census or 
experienced a major dislocation in its primary employment base.
  I ask unanimous consent that the amendment that is now pending be set 
aside so that we can take up consideration of the Baucus-Wallop 
amendment, which I now send to the desk.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The clerk will report the amendment.
  The legislative clerk read as follows:

       The Senator from Michigan [Mr. Riegle], for Mr. Baucus, for 
     himself and Mr. Wallop, proposes an amendment numbered 1532.

  Mr. RIEGLE. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection it is so ordered.
  The amendment is as follows:

       On page 56, line 24, strike ``or'';
       On page 57, line 4, after ``;'' insert ``or''; and
       On page 57, between lines 4 and 5, insert:
       ``(c) in a community that has experienced a sudden and 
     significant loss in total employment since the 1990 census or 
     a major dislocation in its primary employment base.''.

  Mr. RIEGLE. Mr. President, I ask that the amendment be agreed to.
  The PRESIDING OFFICER. If there is no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 1532) was agreed to.
  Mr. D'AMATO. Mr. President, I move to reconsider the vote by which 
the amendment was agreed to.
  Mr. RIEGLE. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. RIEGLE. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. RIEGLE. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. RIEGLE. Mr. President, let me say for the benefit of colleagues, 
we have made great progress on this bill today. We have resolved almost 
every outstanding issue. There are a few issues we anticipate dealing 
with and resolving tomorrow, and then I believe we shall be able to 
finish the bill.

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