[Congressional Record Volume 143, Number 17 (Tuesday, February 11, 1997)]
[Senate]
[Pages S1226-S1239]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS
By Mr. D'AMATO (for himself, Mr. Grams, Mr. Gramm and Mr.
Bennett):
S. 298. A bill to enhance competition in the financial services
sector, and for other purposes; to the Committee on Banking, Housing,
and Urban Affairs.
THE DEPOSITORY INSTITUTION AFFILIATION ACT OF 1997
Mr. D'AMATO. Mr. President, today with the cosponsorship of my
colleagues, Senators Gramm, Grams, and Bennett, I am introducing the
``Depository Institutions Affiliation Act of 1997,'' to modernize the
laws governing the financial services industry in a comprehensive,
progressive fashion. I am pleased that Representative Richard Baker,
chairman of the Housing Banking Subcommittee on Capital Markets,
Securities and Government Sponsored Enterprises, will introduce similar
legislation, joined by Representatives McCollum, La Falce, and Dreier.
This legislation will promote efficiency and fair competition between
all financial service providers and make U.S. financial firms stronger
in global competition.
Mr. President, Congress has been struggling to modernize the
financial system since before I became a member of the Banking
Committee in 1981. That effort must continue and should conclude
successfully in this Congress. Our existing legal framework is
fundamentally outdated. The Glass-Steagall and Bank Holding Company
Acts impose regulatory structures that are inadequate for today's
global marketplace and the financial needs of consumers.
Mr. President, our Nation's entire financial system --including
traditional banks, insurance companies, and securities firms--faces a
future that is somewhat unsettled. Competitive developments in the
marketplace and the
[[Page S1227]]
technological revolution that is well underway have brought about
significant changes in the financial system, domestic and
international. And these changes have already had a significant
influence on all financial services providers and their customers.
Mr. President, there is widespread recognition that the United States
must adopt a regulatory regime that recognizes market realities and
assesses and controls risk. Our present patchwork of financial laws
protects particular industries, restrains competition, prevents
diversification that would limit risks, restricts potential sources of
capital, and undermines the efficient delivery of financial services
and the competitive position of our financial institutions in world
markets.
Mr. President, Congress' reform effort in the 105th Congress must be
forward-looking, not merely a reengineering of the legacy and laws from
the New Deal. Our reform effort must not be limited in its design by
unfounded fears and outdated philosophies. The far-reaching changes we
are witnessing require a top-to-bottom examination of long-standing
conventions about the way our financial system should be structured and
regulated as we approach the 21st century. Already, banks and
competitors from outside the conventional banking system are jockeying
for position and advantage as competition heats up for control of
market share and customers in a world of electronic commerce.
Existing institutions that fight for legislative restrictions to
protect their markets are fighting the last war. Debate over financial
modernization that focuses primarily on issues like the future of the
banking franchise or gerrymandering markets through piecemeal
legislation to protect a particular market segment is too narrow from a
public policy standpoint. Such a narrow approach addresses questions
and solves problems that existed in the 1970's and 1980's; however, the
year 2000 is quickly approaching and the policy debate in Congress and
among industry leaders should be oriented toward the future. Technology
and new financial competitors from outside the traditional arena will
now provide an important and new catalyst for meaningful change and
long overdue comprehensive financial modernization.
Mr. President, in its consideration of financial modernization, the
new Congress will need to explore a number of new and important issues,
including:
Given all the technological changes and new players in the market,
what does it mean to be a bank? Does it make sense to maintain an
artificial distinction between banks and nonbanks? Does it make sense
to preserve the fiction that banking and commerce are somehow separate?
Does it make sense to prohibit information-driven firms from owning or
affiliating with banks now that financial services are in large part
information processing activities?
How will the old system of deposit insurance fit into this
environment? Should more complex institutions be required to give up
deposit insurance, as was suggested by one of the Federal Reserve Bank
presidents?
How do we ensure that technology results in greater choice, lower
fees and fair, readily available access by consumers? The experience we
are having with ATM's raises questions about whether consumers will
share in the benefits of technology or whether the benefits will go
primarily to the owners of that technology.
How can we protect individual privacy now that computers make it so
easy to collect and disseminate personal information? This is such a
sensitive concern that the Congress directed the Federal Reserve to
conduct a study.
I do not know the answers, but these are provocative questions which
require careful study and debate.
Others are studying these issues as well.
Last year, Congress directed the Treasury Department to conduct a
study of all issues relating to a common charter for all federally
insured depository institutions as part of the law stabilizing and
eventually merging the two Federal deposit insurance funds (BIF and
SAIF) (P.L. 104-208). The Treasury Department is expected to submit
that study next month.
The Treasury Department appointed a consumer electronic payments task
force which will include the principal Federal agencies involved in the
payments system.
In addition, the Treasury Department is completing a study on the
strengths and weaknesses of our financial services system in meeting
the needs of the system's users.
Most recently, Federal Reserve Chairman Greenspan announced formation
of a committee that will look at the Fed's role in the payments system
of the future.
Mr. President, I introduce the Depository Institution Affiliation Act
as a prelude to a vigorous debate about the future of our financial
system. Let me explain how the Depository Institution Affiliation Act
[DIAA] will make the financial system safer, more stable, and more
competitive. I will submit a more detailed section-by-section
explanation of the bill at the end of my remarks. The bill is virtually
identical to legislation that I have previously sponsored or
cosponsored in 1987 (S. 1905) and in 1989 (S. 530). In the previous
Congress, it was S. 337. With the exception of technical and conforming
changes to reflect the enactment of banking laws since its original
introduction, the text of the bill is unchanged.
Mr. President, comprehensive financial modernization as proposed in
this reform legislation would produce many beneficial changes for all
financial intermediaries.
First, the legislation will enable all financial intermediaries--
commercial banks, investment banks, thrifts, and so forth--to attract
financial capital and managerial expertise by eliminating existing
restrictions on ownership by and affiliations among depository and
nondepository firms. However, the DIAA preserves all the safety-and-
soundness and conflict-of-interest protections of the present system,
while providing legal flexibility for a company to meet the financial
needs of consumers, businesses, and others.
Mr. President, some detractors of DIAA describe it as too radical
because it permits these affiliations. However, this type of common
ownership is already allowed by our laws and has existed for decades
without any evidence of problems. Federal law and public policy
expressly allows commercial companies to own and affiliate with a
variety of federally insured banks--for example, credit card banks,
limited purpose banks, trust companies, and so forth--and savings and
loans. For example, unitary thrift holding companies have proven that
finance and commerce can be mixed safely. In fact, the lack of
ownership restrictions on thrifts has worked to expand the capital and
managerial talent available to thrifts. And the successful record of
unitary holding companies demonstrates that broader ownership
affiliations can actually strengthen depository institutions through
greater diversification and financial strength. Moreover, the reality
is that nonbank organizations, including telecommunications, cable
companies, and software firms are designing and delivering banklike
financial services and products over the Internet and World Wide Web
without owning a bank.
Second, this bill will facilitate diversification and assure fair
competition by creating a new charter alternative for all companies
interested in entering or diversifying in the financial services
field--a financial services holding company--FSHC. These FSHC's will be
authorized to engage in any financial activity through separately
regulated affiliates of the holding company. The bill would permit the
merging of banking and commerce under carefully regulated circumstances
by allowing a FSHC to own both a depository institution and companies
engaged in both financial and nonfinancial activities.
Third, this legislation will insulate insured subsidiaries--for
example, banks--from the more risky business activities of its
affiliates, as well as the parent holding company. It would not
authorize or allow these activities to be conducted in a bank's
operating subsidiary.
Mr. President, by authorizing this alternative regulatory framework,
the legislation would essentially exempt a FSHC's subsidiaries and
affiliates from those sections of the Glass-Steagall and Bank Holding
Company Acts that restrict mixing commercial banking with other
financial--securities, investment banking, and so forth--and
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nonfinancial activities--retailing, technology, manufacturing. A FSHC
would be able to diversify into any activity through affiliates of the
holding company, with such affiliates subject to enhanced regulation.
Fourth, this bill will enhance substantially the quality and
effectiveness of regulation through functional regulation. The
regulation of the bank and nonbank affiliates of financial services
holding companies would be along functional lines. The insured bank
affiliate would be regulated by Federal and State bank regulators, the
securities affiliate by the Securities and Exchange Commission, and so
on. Thus, for each affiliate, existing regulatory expertise and
resources will be applied to protect consumers, investors, and
taxpayers. Functional regulation will also assure that competition in
discrete products and services is fair by eliminating advantages
attributable to current loopholes, regulatory gaps, and cost subsidies.
Finally, the bill would improve coordination and supervision of the
overall financial system by permitting more effective analysis and
monitoring of aggregate stability and vulnerability to severe
disruptions and breakdown.
By removing unnecessary barriers to competition between providers of
financial service in the United States, this legislation will permit
U.S. capital markets to maintain their preeminence, and will allow U.S.
financial intermediaries to respond to growing competition from foreign
companies.
Mr. President, I want to underscore that the DIAA would not require
existing firms to alter their regulatory structure. By permitting
financial services providers to become FSHC's, such providers will have
the option to phase gradually into, or expand within, the financial
services industry.
Mr. President, the DIAA provides a solid platform and a sound
approach to modernizing our financial structure. I recognize that this
bill can be improved, and I am specifically requesting constructive and
helpful comments to improve and to refine the major principles
underlying the bill. As the committee proceeds to hearings and further
consideration of the bill, I intend to make changes and adjustments in
order to ensure competitive fairness, promote safety and soundness;
achieve depositor, investor, and consumer protection; and assure
effective and efficient functional regulation. Modernization of the
financial services industry should not include the preemption of State
consumer protection laws.
Mr. President, in the absence of congressional action, the
Comptroller of the Currency and the Federal Reserve Board have acted to
achieve limited modernization with results often of questionable legal
authority and public policy results. Specifically, I am concerned about
the OCC's action to permit a bank's operating subsidiaries to engage in
activities that are not permissible for the bank. I believe this
regulation is unwise. And I am deeply concerned that the Comptrollers
action may subject federally insured banks to excessive risks and
expose the bank insurance funds, and therefore taxpayers, to
unnecessary liability. Congress can never forget the lessons of the
savings and loan crisis in the late 1980's. In addition, the Fed's
recent actions to increase the aggregate level of business a section 20
securities affiliate may engage in and its proposal to reduce or even
eliminate important firewalls and safeguards that have existed for over
a decade are also imprudent.
Mr. President, the rivalry between regulators to attempt unilaterally
to set public policy and alter the competitive balance for their
constituencies is not wholesome or helpful. The regulators actions will
never be a substitute for comprehensive and balanced congressional
action. For far too long, Congress has ceded the field to piecemeal
deregulation by bank regulators and the courts. The time has come for
Congress to decide on a legal and policy framework that prepares our
financial institutions for the new century and the challenges of a
rapidly changing global economy. The 105th Congress must address and
resolve the important questions relating to the health and future of
the banking industry in the broader context of a financial system that
is increasingly composed of nonbank financial service providers. We
must focus on the needs of our economy for credit and growth in the
future and the next century. We must focus on financial stability,
safety and soundness, fair competition, and functional regulation of
all financial service providers--whether they are banks, investment
banks, insurance companies, finance companies or even
telecommunications or computer companies.
Mr. President, the benchmark provisions, principles, and purposes of
DIAA, as stated above, have been tested and explored over the years.
During a decade of debate several studies, including a 1991 study by
the Treasury Department entitled, ``Modernizing the Financial System:
Recommendations for Safer More Competitive Banks'', these principles
and the framework of the bill have become the centerpiece of an
emerging consensus in favor of forward-looking, balanced and prudent
approach to modernization. I am hopeful that a new study underway by
the Treasury Department and due to be submitted to Congress in March
related to a common bank and thrift charter will reach similar
conclusions.
Mr. President, by continuing to work together, as demonstrated by the
BIF/SAIF bill last year, the Congress and the administration can
overcome the complaints of vested interests and reform our antiquated
financial services laws. We should not miss this opportunity for
constructive bipartisanship. I believe that this bill provides a good
starting point for the 105th Congress to act on financial
modernization. Passage of this bill will be a high priority for the
Banking Committee. I believe this is a realistic objective.
Mr. President, I ask unanimous consent that a more detailed section-
by-section summary of the bill be reprinted in the Record.
There being no objection, the summary was ordered to printed in the
Record, as follows:
Depository Institution Affiliation Act--Section-by-Section Analysis
Section 1: Short title
Section 1 provides that this Act be cited as the
``Depository Institution Affiliation Act''.
Section 2: Findings and purpose
The purpose of this Act is to promote the safety and
soundness of the nation's financial system, to increase the
availability of financial products and services to consumers,
businesses, charitable institutions and government in an
efficient and cost effective manner. In addition, this Act
aims to promote a legal structure governing providers of
financial services that permits open and fair competition and
affords all financial services companies equal opportunity to
serve the full range of credit and financial needs in the
marketplace. This Act also aims to ensure that domestic
financial institutions and companies are able to compete
effectively in international financial markets. Finally, this
Act aims to regulate financial activities and companies along
functional lines without regard to ownership, control, or
affiliation.
TITLE I--CREATION AND CONTROL OF DEPOSITORY INSTITUTION HOLDING
COMPANIES
Section 101
This section creates a new type of financial company, a
depository institution holding company (DIHC), and sets out
the terms and conditions under which such a company can be
established and must be operated.
Subsection (a) Definitions. This subsection defines terms
used in this section.
Paragraph (a)(1) defines a DIHC to be any company that
files a notice with the National Financial Services Committee
(see Title II of this Act) that it intends to comply with the
provisions of this section, and controls an insured
depository institution, or, either (i) has, within the
preceding 12 months filed a notice under subsection (b) of
this section to establish or acquire control of a federally
insured depository institution or a company owning such a
federal insured depository institution, or (ii) controls a
company which, within the preceding 12 months, has filed an
application for federal deposit insurance, provided that such
notice or application has not been disapproved by the
appropriate Federal banking agency or withdrawn. Any holding
company which elects to become a DIHC and which does not
control any banks that are not FDIC insured, will lose its
status as a bank holding company immediately upon filing the
notice of its election to become a DIHC. Similarly, a savings
and loan holding company that elects to become a DIHC will
lose that status upon filing the notice of its election to
become a DIHC. To assure that each bank controlled by a DIHC
would be subject to regulation and supervision by an
appropriate federal banking agency, owners of uninsured banks
would not be able to avail themselves of the opportunity to
become a DIHC, unless they agreed to convert such uninsured
banks into federally insured depository institutions.
Paragraph (a)(2) gives the term `bank holding company' the
meaning given to it in Section 2(a) of the Bank Holding
Company Act of 1956, as amended.
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Paragraph (a)(3) gives the term `savings and loan holding
company' the meaning given to it in section 10(a) of the Home
Owners' Loan Act.
Paragraph (a)(4) defines for this section, except paragraph
(5) of subsection (f), the term `affiliate' of a company as
any company which controls, is controlled by, or is under
common control with such a company.
Paragraph (a)(5) gives the term `appropriate Federal
banking agency' (AFBA) the meaning given to it in section 3
of the Federal Deposit Insurance Act.
Paragraph (a)(6) gives the term `insured depository
institution' the meaning given to it in section 3(c)(2) of
the Federal Deposit Insurance Act.
Paragraph (a)(7) gives the term `State' the meaning given
to it in section 3(a) of the Federal Deposit Insurance Act.
Paragraph (a)(8) defines the term `company' to mean any
corporation, partnership, business trust, association or
similar organization. However, corporations that are majority
owned by the Untied States or any State are excluded from the
definition of company.
Paragraph (a)(9) defines control by one company over
another. For purposes of this section, the term ``control''
means the power, directly or indirectly, to direct the
management or policies of a company, or to vote 25% or more
of any class of voting securities of a company.
There are three exceptions from the definition of control.
These pertain to ownership of voting securities acquired or
held:
1. as agent, trustee or in some other fiduciary capacity;
2. as underwriter for such a period of time as will permit
the sale of these securities on a reasonable basis; or in
connection with or incidental to market making, dealing,
trading, brokerage or other securities-related activities,
provided that such shares are not acquired with a view toward
acquiring, exercising or transferring control of the
management or policies of the company;
3. for the purpose of securing or collection of a prior
debt until two years after the date of the acquisition; and
In addition, no company formed for the sole purpose of
proxy solicitation shall be deemed to be in control of
another company by virtue of its acquisition of the voting
rights of the other company's securities.
Paragraph (a)(10) defines the term `adequately capitalized'
with respect to an insured depository institution has the
meaning given to it in section 38(b)(1) of the Federal
Deposit Insurance Act.
Paragraph (a)(11) defines the term `well capitalized' with
respect to an insured depository institution has the meaning
given to it in section 38(b)(1)(A) of the Federal Deposit
Insurance Act.
Paragraph (a)(12) defines the term `minimum required
capital' with respect to an insured depository institution as
the amount of capital that is required to be adequately
capitalized.
Subsection (b): Changes in Control of Insured Depository
Institutions. This subsection provides that any DIHC wishing
to acquire control of an insured depository institution or
company owning such insured depository institution must
comply with the requirements of the Change in Bank Control
Act. Failure to comply with these requirements will subject
the relevant DIHC to the penalties and procedures provided in
subsections (i) through (m) of this section, in addition to
otherwise applicable penalties.
Subsection (c): Affiliate Transactions. This subsection
authorizes supplemental regulation of the transactions of
insured depository institutions controlled by DIHCs with
their affiliates. These regulations would be in addition to
the restrictions on interaffiliate transactions provided for
under sections 23A or 23B of the Federal Reserve Act. This
subsection gives each AFBA some flexibility to promulgate and
adapt rules and regulations in response to changing market
conditions so that the AFBA has at all times the capability
to prevent insured depository institutions under its
supervision that are controlled by DIHCs from engaging in
transactions that would compromise the safety and soundness
of such insured depository institutions or that would
jeopardize the deposit insurance funds.
Moreover, other provisions of this Act assure that the AFBA
will have the capability to enforce these regulations
vigorously (subsection (i) of this section) and that any
violations of these regulations will be more severely
punished than violations of regulations applicable to insured
depository institutions that are not controlled by DIHCs
(subsections (i), (j), (k) and (l) of this section).
Subparagraph (c)(1)(A) empowers the AFBA to develop rules
and regulations to prevent insured depository institutions
under its supervision that are also controlled by a DIHC from
engaging in unsafe or unsound practices involving the DIHC or
any of its affiliates, including unsafe and unsound practices
that may arise in connection with transactions covered by
sections 23A and 23B of the Federal Reserve Act.
Subparagraph (c)(1)(B) empowers the AFBA to create certain
exceptions to the provisions of the preceding subparagraph,
if the AFBA deems that such exceptions are reasonable and in
the public interest and not inconsistent with the purposes of
this Act. These exemptions may relate to certain institutions
or classes of institutions, or to certain transactions or
classes of transactions, including transactions covered
under Sections 23A or 23B of the Federal Reserve Act.
Paragraph (c)(2) provides that any rules adopted under
subparagraph (c)(1)(A) shall be issued in accordance with
normal rulemaking procedures and shall afford interested
parties the opportunity to comment in writing and orally on
any proposed rule.
Paragraph (c)(3) grandfathers specific interaffiliate
transactions approved by a Federal regulatory agency prior to
the enactment of this Act, exempting them from rules and
regulations promulgated under subparagraph (c)(1)(A).
Paragraph (c)(4) makes it clear that sections 23A and 23B
of the Federal Reserve Act will apply to every insured
depository institution controlled by a depository institution
holding company.
Paragraphs (c)(5) and (c)(6) prohibit any insured
depository institution in a DIHC from extending credit to or
purchasing the assets of a securities affiliate and providing
other types of financial support to that DIHC's securities
affiliate except for daylight overdrafts that relate to U.S.
government securities transactions if the daylight overdrafts
are fully collateralized by U.S. government securities as to
principal and interest.
Paragraph (c)(7) prohibits insured depository institutions
in a DIHC from issuing various guarantees for the enhancement
of the marketability of a securities issue underwritten or
distributed by a securities affiliate of that DIHC.
Paragraph (c)(8) prohibits insured depository institutions
in a DIHC from extending credit secured by or for the
purposes of purchasing any security during an underwriting
period of for 30 days thereafter where a securities affiliate
of such institution participates as an underwritten or member
of a selling group.
Paragraph (c)(9) prohibits insured depository institutions
in a DIHC from extending credit to an issuer of securities
underwritten by a securities affiliate for the purpose of
paying the principal of those securities or interest for
dividends on those securities.
Paragraph (c)(10) defines ``securities affiliate'' for the
purposes of paragraphs (c)(5), (6), (7), (8) and (9).
Subsection (d): Capitalization. This subsection regulates
the capitalization of insured depository institutions that
are controlled by a DIHC.
Paragraph (d)(1) requires that insured depository
institutions controlled by a DIHC be well capitalized.
Paragraph (d)(2) provides that if the AFBA finds that an
insured depository institution subsidiary of a DIHC is not
well capitalized, the DIHC shall have thirty days to reach
an agreement with the AFBA concerning how and according to
what schedule the insured depository institution will
bring its minimum capital back into conference with
requirements. During that time the insured depository
institution shall operate under the close supervision of
the AFBA.
In the event that the DIHC does not reach an agreement
within thirty days with the AFBA on how and according to what
schedule the capital of the insured depository institution
will be replenished, the DIHC will be required to divest the
insured depository institution in an orderly manner within a
period of six months, or such additional period of time as
the AFBA may determine is reasonably required in order to
effect such divestiture.
Paragraph (d)(3) states that in view of the enhanced
regulatory control over insured depository institutions
controlled by DIHCs, no AFBA may regulate the capital of the
DIHC. Thus, no AFBA may require the DIHC itself to enter into
any other agreement regarding the maintenance of capital in
its insured depository institution affiliates. The capital of
the DIHC would, however, be regulated by any other agency
having jurisdiction over it. For example, if the DIHC were
also a registered broker/dealer, it would have to conform to
the minimum capital requirements mandated by the SEC.
Subsection (e): Interstate Acquisitions and Activities of
Insured Depository Institutions. This subsection subjects
interstate acquisitions of an insured depository institution
by a DIHC to the same restrictions as those applicable to
bank holding companies under section 3(d) of the Bank Holding
Company Act of 1956, as amended, and it subjects interstate
acquisitions of savings associations by a DIHC to the same
restrictions as those applicable to savings and loan holding
companies.
Subsection (f): Differential Treatment Prohibition; Laws
Inconsistent with this Act. This subsection does two things.
First, it prohibits adversely differential treatment of DIHCs
and their affiliates, including their insured depository
institution affiliates, except as this Act specifically
provides. Second, this subsection ensures that state and
federal initiatives do not undermine achievement of the
purposes of this Act. Whether couched as affiliation,
licensing or agency restrictions or as constraints on access
to state courts, such laws effectively perpetuate market
barriers and deny consumers the opportunity to choose between
different financial products and services.
Paragraph (f)(1) notwithstanding any other federal law,
prohibits states from enacting laws that discriminate against
DIHCs or against their affiliates, including their insured
depository institution affiliates. This paragraph also
prohibits, notwithstanding any other federal law, federal and
state regulatory agencies from discriminating by rule,
regulation, order or any other means against DIHCs or against
their affiliates, including
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their insured depository institution affiliates, except as
this Act specifically provides. This is intended to assure
that the primary purpose of this Act--the enhancement of
competition in the depository institution sector--will be
fulfilled.
Paragraph (f)(2) finds that certain State affiliation and
licensing laws restrain legitimate competition in interstate
commerce, deny consumers freedom of choice in selecting an
insured depository institution and threaten the long-term
safety and soundness of insured depository institutions by
limiting their access to capital.
Accordingly, with the exception of certain laws related to
insurance and real estate brokerage which are treated in
Subsection (g), this paragraph preempts any provision of
federal or state law, rule, regulation or order that is
expressly or impliedly inconsistent with the provisions of
this section. The preempted statutes include state banking,
savings and loan, securities, finance company, retail or
other laws which restrict the affiliation of insured
depository institutions or their owners, agents, principals,
brokers, directors, officers, employees or other
representatives with other firms. Similarly, laws prohibiting
cross marketing of products and services are preempted
insofar as such cross marketing activities are conducted by
DIHCs, their affiliates, or by any agent, principal, broker,
director, officer, employee or other representative. By
contrast, nondiscriminatory state approval, examination,
supervisory, regulatory, reporting, licensing, and similar
requirements are not affected.
Paragraph (f)(3) removes a common uncertainty under state
licensing and qualification to do business statutes, which
leaves an out-of-state insured depository institution's
access to another state's courts unresolved. Under this
provision, so long as such an insured depository institution
limits its activities to those which do not constitute the
establishment or operation of a ``domestic branch'' of an
insured depository institution in that other state, it can
qualify to maintain or defend in that state's court any
action which could be maintained or defended by a company
which is not an insured depository institution and is not
located in that state, subject to the same filing, fee and
other conditions as may be imposed on such a company. This
paragraph is not intended to grant states any power that they
do not currently have to regulate the activities of out-of-
state insured depository institutions.
Paragraph (f)(4) makes clear that a state, except subject
to the provisions of this Act, may not impede or prevent any
insured depository institution affiliated with a DIHC or any
DIHC or affiliate thereof from marketing products and
services in that state by utilizing and compensating its
agents, solicitors, brokers, employees and other persons
located in that state and representing such a insured
depository institution, company, or affiliate. However, to
the extent such persons are performing loan origination,
deposit solicitation or other activities in which an insured
depository institution may engage, those activities cannot
constitute the establishment or operation of a ``domestic
branch'' at any location other than the main or branch
offices of the insured depository institution.
Paragraph (f)(5) contains a special definition of
``affiliate'' and ``control'' for purposes of paragraphs (2)
through (4) this subsection only. Control is deemed to occur
where a person or entity owns or has the power to vote 10% of
the voting securities of another entity or where a person or
entity directly or indirectly determines the management or
policies of another entity or person. Unlike the definition
of affiliate set forth in paragraph (4) of subsection (a),
this definition encompasses not only corporate affiliations
but affiliations between corporations and individuals.
Subsection (q): Securities, Insurance and Real Estate
Activities of Insured Depository Institutions. In order to
facilitate functional regulation of the activities of DIHCs
this section prohibits insured depository institutions
controlled by DIHCs from conducting certain securities,
insurance and real estate activities currently permissible
for some insured depository institutions.
Subparagraph (g)(1)(A) provides that no insured depository
institution controlled by a DIHC shall directly engage in
dealing in or underwriting securities, or purchasing or
selling securities as agent, except to the extent such
activities are performed with regard to obligations of the
United States or are the type of activities that could be
performed by a national bank's trust department (12 U.S.C.
92a).
Subparagraph (g)(1)(B) provides that no insured depository
institution controlled by a DIHC shall directly engage in
insurance underwriting.
Subparagraph (g)(1)(C) provides that no insured depository
institution controlled by a DIHC shall directly engage in
real estate investment or development except insofar as these
activities are incidental to the insured depository
institution's investment in or operation of its own premises,
result from foreclosure on collateral securing a loan, or are
the type of activities that could be performed by a national
bank's trust department.
Paragraph (g)(2) clarifies that nothing in this subsection
shall be construed to prohibit or impede a DIHC or any of its
affiliates (other than an insured depository institution)
from engaging in any of the activities set forth in paragraph
(1) or to prohibit an employee of an insured depository
institution that is an affiliate of a DIHC from offering or
marketing products or services of an affiliate of such an
insured depository institution as set forth in paragraph (1).
Paragraph (g)(3), however, contains significant limits on
DIHC entry into the businesses of insurance agency and real
estate brokerage. No DIHC could enter these fields de novo.
Rather, they would have to purchase either an insurance
agency or real estate brokerage business which had been in
business for at least five years prior to passage of the Act.
Paragraph (g)(4) provides that nothing in this subsection
will require the breach of a contract entered into prior to
enactment of this Act.
Subsection (h): Tying and Insider Lender Provisions. This
section subjects DIHCs to the tying provisions of section 106
of the Bank Holding Company Act Amendments of 1970 and to the
insider lending prohibitions of section 22(h) of the Federal
Reserve Act. These sections prohibit tying between products
and services offered by insured depository institutions and
products and services offered by the DIHC itself or by any
of its other affiliates. Note, however, that these tying
provisions do not apply to products and services that do
not involve an insured depository institution. The insider
lending provisions severely limit loans by an insured
depository institution to officers and directors of the
insured depository institution. For purposes of both
provisions, the AFBA will exercise the rulemaking
authority vested in the Federal Reserve with regard to
these limitations.
Subsection (i): Examination and Enforcement. This
subsection provides that the AFBA shall use its examination
and supervision authority to enforce the provisions of this
section, including any rules and regulations promulgated
under subsection (c). In particular, it is intended that each
AFBA should structure its examination process so as to
uncover possible violations of the provisions of this section
and that the agency should not hesitate to make full use of
its cease-and-desist powers or to impose as warranted the
special penalties discussed below, if it believes that an
insured depository institution under its supervision that is
controlled by a DIHC is in violation of any provisions of
this section.
This subsection also grants the AFBA authority to examine
any other affiliate of the DIHC as well as the DIHC itself in
order to ensure compliance with the limitations of this
section or other provisions of law made applicable by this
section such as sections 23A and 23B of the Federal Reserve
Act.
In addition, this subsection grants each AFBA the right to
apply to the appropriate district court of the United States
for a temporary or permanent injunction or a restraining
order to enjoin any person or company from violation of the
provisions of this section or any regulation prescribed under
this section. The AFBA may seek such an injunction or
restraining order whenever it considers that an insured
depository institution under its supervision or any DIHC
controlling such an insured depository institution is
violating, has violated or is about to violate any provision
of this section or any regulation prescribed under this
section. In seeking such an injunction or restraining order
the AFBA may also request such equitable relief as may be
necessary to prevent the violation in question. This relief
may include a requirement that the DIHC divest itself of
control of the insured depository institution, if this is the
only way in which the violation can be prevented.
This injunctive power will enable the AFBA to move speedily
to stop practices that it believes endanger the safety and
soundness of an insured depository institution under its
supervision that is controlled by a DIHC. If necessary to
protect the depositors and safeguard the deposit insurance
funds, the AFBA may request that the injunction proceedings
be held in camera, so as not to provoke a run on the insured
depository institution.
Subsection (j): Divestiture. This subsection states that an
AFBA may require a DIHC to divest itself of an insured
depository institution, if the agency finds that the insured
depository institution is engaging in a continuing course of
action involving the DIHC or any of its affiliates that would
endanger the safety and soundness of that insured depository
institution. Although the DIHC would have the right to a
hearing and to judicial review and have one year in which to
divest the insured depository institution, it should be
emphasized that the insured depository institution would
operate under the close supervision of the AFBA from the
date of the initial order until the date the divestiture
is completed. This is intended to safeguard the insured
depository institution in question, its depositors and the
deposit insurance funds.
Subsection (k): Criminal Penalties: This subsection
provides for criminal penalties for knowing and willful
violations of the provisions of this section, even if these
violations do not result in an initial or final order
requiring divestiture of the insured depository institution.
For companies found to be in violation of the provisions of
this section the maximum penalty shall be the greater of (a)
$250,000 per day for each day that the violation continues or
(b) one percent of the minimum required capital of the
insured depository institution per day for each day that the
violation continues, up to a maximum of 10% of the minimum
capital of the insured depository institution--a fine that
[[Page S1231]]
could amount to tens of millions of dollars for a large
insured depository institution. Such a fine is designed to be
large enough to deter even large insured depository
institutions from violating the provisions of this section.
For individuals found to be in violation of the provisions
of this section the penalty shall be a fine and/or a prison
term. The maximum fine shall be the greater of (a) $250,000
or (b) twice the individual's annual rate of total
compensation at the time the violation occurred. The maximum
prison sentence shall be one year. In addition, individuals
violating the provisions of this section will also be subject
to the penalties provided for in Section 1005 of Title 18 for
false entries in any book, report or statement to the extent
that the violation included such false entries.
A DIHC and its affiliates shall also be subject to the
Criminal penalties provisions of the Financial Institutions
Reform, Recovery and Enforcement Act of 1989 and the
Comprehensive Thrift and Bank Fraud Prosecution and Taxpayer
Recovery Act of 1990 to the same extent as a registered bank
holding company, savings and loan holding company or any
affiliate of such companies.
Subsection (1): Civil Enforcement, Cease-and-Desist Orders,
Civil Money Penalties. This subsection provides for civil
enforcement, cease-and-desist orders and civil money
penalties consistent with subsections (b) through (s) and
subsection (u) of section 1818 of Title 123 for any company
or person that violates the provisions of this section in the
same manner as they apply to a state member insured bank, and
grants the AFBA the power to impose such penalties after
providing the company or person accused of such violation the
opportunity to object in writing to its finding.
Subsection (m): Judicial Review. This subsection provides
for judicial review of decisions reached by an AFBA under the
provisions of this section. This right to review includes a
right of judicial review of statutes, rules, regulations,
orders and other actions that would discriminate against
DIHCs or affiliates controlled by such companies.
Section 102: Amendment to the Bank Holding Company Act of
1956
This section contains a conforming amendment to the
definition of the term ``bank'' in the Bank Holding Company
Act to ensure that a DIHC owning an insured depository
institution will be regulated under this Act rather than
the Bank Holding Company Act.
Section 103: Amendments to the Federal Reserve Act
This section clarifies the application of Section 23A of
the Federal Reserve Act to certain loans and extensions of
credit to persons who are not affiliated with a member bank.
Section 23A contains a provision that was intended to prevent
the use of ``straw man'' intermediaries to evade section
23A's limitations on loans and extensions of credit to
affiliates. Contrary to its original purpose, the provision
may also be literally read to restrict a bona fide loan or
extension of credit to a third party who happens to use the
proceeds to purchase goods or services from an affiliate of
the insured depository institution; such a loan could occur,
for example, if a customer happened to use a credit card
issued by an insured depository institution to buy an item
sold by the insured depository institution's affiliate. This
section clarifies that such loans and extensions of credit
are not covered by section 23A as long as (i) the insured
depository institution approves them in accordance with
substantially the same standards and procedures and on
substantially the same terms that it applies to similar loans
or extensions of credit that do not involve the payment of
the proceeds to an affiliate, and (ii) the loans or
extensions of credit are not made for the purpose of evading
any requirement of section 23A.
Section 104: Amendments to the Banking Act of 1933
Subsection (a) amends section 20 of the Glass-Steagall Act
so that it does not apply to member banks that are controlled
by DIHCs.
Subsection (b) amends section 32 of the Glass-Steagall Act
so that it does not apply to officers, directors and
employees of affiliates of a single depository institution
holding company.
Section 105: Amendment to the Federal Deposit Insurance Act
This section amends the Change in Bank Control Act to
provide that an acquisition of a DIHC controlling an insured
depository institution may only be accomplished after
complying with that Act's procedures. It also modifies the
definition of ``control'' in the Change in Savings and Loan
Control Act to conform it to the definition in section
101(a)(9) of this Act.
Section 106: Amendment to the Securities Exchange Act of 1934
This section amends the Securities Exchange Act of 1934 to
provide for the registration and regulation of Broker
Dealers.
Section 107: Amendment to the Home Owners' Loan Act
This section amends section 11 of the Home Owners' Loan Act
in order to apply Section 101(c)(1)(B) of this section to
savings associations.
Section 108: Amendment to the Community Reinvestment Act
This section amends the Community Reinvestment Act to make
it applicable to acquisitions of insured depository
institutions by DIHC's.
TITLE II--SUPERVISORY IMPROVEMENTS
Section 201: National Financial Services Committee
This section establishes a standing committee, the National
Financial Services Oversight Committee (Committee), in order
to provide a forum in which federal and state regulators can
reach a consensus regarding how the regulation of insured
depository institutions should evolve in response to changing
market conditions. In addition, the Committee also provides a
mechanism through which various federal regulatory agencies
could coordinate their responses to a financial crisis, if
such a crisis were to occur. The Committee comprises all
federal agencies responsible for regulating financial
institutions or financial activities, and it is structured to
allow state regulators to participate in its deliberations.
The Committee consists of the Chairman of the Secretary of
the Treasury, who is also the Chairman of the Committee, the
Chairman of the Board of Governors of the Federal Reserve
System, the Chairman of the FDIC, the Director of the Office
of Thrift Supervision, the Comptroller of the Currency, the
Secretary of Commerce, the Attorney General, the Chairman of
the SEC, and the Chairman of the CFTC.
The Committee is directed to report to Congress within one
year of enactment of this Act on proposed legislative or
regulatory actions that will improve the examination process
to permit better oversight of all insured depository
institutions. It is also directed to establish uniform
principles and standards for examinations.
TITLE III
Section 301: Effective date
The Act will become effective on the date of enactment.
Mr. GRAMS. Mr. President, I rise today in support of the Depository
Institution Affiliation Act, which has been drafted by Senate Banking
Committee Chairman Alfonse D'Amato. This landmark piece of legislation
will modernize the archaic laws that govern our financial services
industry. Passage of this legislation will benefit consumers, increase
the availability of venture capital for job creation, and bolster the
international competitiveness of America's financial services industry.
There is a clear need to modernize the outdated laws that govern
America's financial services industry, because financial services play
a vital role in our daily lives. We take out loans to go to college, to
buy a car, and to purchase a home. We buy insurance to provide greater
security to ourselves and our families. We make investments throughout
our life so that we may retire in comfort and dignity.
Today, technological advancements and increased innovation in the
delivery of financial services make it easier than ever for consumers
to get loans, purchase insurance, and invest their earnings.
Unfortunately, our archaic and burdensome laws governing financial
institutions continue to discourage, rather than encourage, such
advancement and innovation.
The laws to which I am referring are not those governing the safety
and soundness of financial institutions, such as setting minimum
capital requirements or requiring periodic oversight by Federal or
State regulators. Safety and soundness laws and regulations are
beneficial and necessary, as they enhance the security of the consumer
whenever he or she deposits money in a bank or purchases an insurance
policy.
The outdated laws to which I am referring are the laws that create
barriers to competition by artificially compartmentalizing the three
major sectors of financial services--banking, securities, and
insurance. For example, under the Banking Act of 1933, more commonly
known as the Glass-Steagall Act, banks are generally barred from
directly investing in corporate securities, underwriting new corporate
issues or sponsoring mutual funds. Under the Bank Holding Company Act
of 1956, securities underwriters, insurance underwriters, and
nonfinancial companies are generally prohibited from owning banks or
being owned by a bank holding company.
These outdated financial institution laws hurt consumers by
artificially increasing the costs of financial services, reducing the
availability of financial products, and reducing the level of
convenience in the delivery of financial services. These laws hurt
small businesses--an engine of job growth in the American economy--by
artifically limiting the amount of equity capital available for
expanded activity. These
[[Page S1232]]
laws weaken the international competitiveness of America's financial
institutions by prohibiting them from offering the range of financial
services that foreign financial institutions may offer.
It should be noted that the Glass-Steagall Act--which created the
compartmentalized structure of financial services that we have today--
was based upon the false premise that the massive amount of bank
failures that occurred during the Great Depression was caused by the
securities activities that these banks conducted. However, just the
opposite is true: Diversification in financial services actually
increased the safety and soundness of the banks. Between 1929 and 1933,
26.3 percent of all national banks failed. However, the failure rate
for those banks that conducted securities activities was lower. Of the
national banks in 1929 that either had securities affiliates or had
internal bond departments, only 7.2 percent had failed by 1933. The
message from these statistics is clear: We should encourage competition
and diversification, not discourage it.
Last year, Congress passed a bipartisan and comprehensive legislative
initiative to reform the Telecommunications Act and stimulate
competition and innovation in the telecommunications industry. Similar
action is needed this year to stimulate the growth and global
competitiveness of our financial services industry.
The Depository Institution Affiliation Act creates a new Financial
Services Holding Company structure that will permit banks, thrifts,
securities companies and insurance companies to affiliate and cross-
market their products. This structure will do this while maintaining
consumer protections and the safety and soundness of the Federal
deposit insurance system.
This legislation will greatly benefit consumers. The D'Amato bill's
termination of affiliation restrictions will significantly increase
competition in the financial services industry. Consumers' costs in the
purchase of insurance, securities and banking products will be lowered.
The bill's termination of crossmarketing restrictions will increase
consumer convenience, as consumers will be able to do one-stop shopping
for all of their financial services needs. The D'Amato bill does all of
this while maintaining the statues and regulations that protect
consumers from fraud and discrimination.
This legislation will maintain the safety and soundness of the
Federal deposit insurance system. The D'Amato bill protects banks from
being affected by affiliate and holding company insolvency by
implementing firewalls that prohibit affiliates from raiding the
insured bank. As added protection, it requires that if a bank becomes
anything less than satisfactorily capitalized, the Financial Services
Holding Company must immediately divest of the bank.
This legislation will provide for competitive equality among all
financial services providers. Its provisions have been carefully
crafted to provide a level playing field for banks, thrifts, securities
companies and insurance companies. This charter up approach will permit
all of these companies to become Financial Services Holding Companies,
and will not prevent current financial institutions from conducting any
activities that they currently conduct.
In closing, I look forward to supporting Chairman D'Amato in his
efforts to pass financial modernization legislation. It is my hope that
1997 will be the year that we join together and create a bipartisan
bill that will reform our laws so that America's financial institutions
will be able to compete, innovate and grow to meet the challenges of
the 21st century.
______
By Mr. LAUTENBERG (for himself, Mr. DeWine, Mr. Levin, Mr.
Inouye, Mr. Coverdell, and Mr. Abraham):
S. 299. A bill to require the Secretary of the Treasury to mint coins
in commemoration of the sesquicentennial of the birth of Thomas Alva
Edison, to redesign the half dollar circulating coin for 1997 to
commemorate Thomas Edison, and for other purposes; to the Committee on
Banking, Housing, and Urban Affairs.
THE THOMAS ALVA EDISON SESQUICENTENNIAL COMMEMORATIVE COIN ACT
Mr. LAUTENBERG. Mr. President, I rise on behalf of Senators DeWine,
Levin, Inouye, Coverdell, Abraham, and myself, to introduce legislation
that would direct the Secretary of the Treasury to mint coins
commemorating the 150th anniversary of Thomas Alva Edison's birth. The
introduction of this legislation today, February 11, is significant
because Thomas Edison was born 150 years ago.
Mr. President, few Americans have had a greater impact on our Nation,
and our world, than Thomas Edison. He produced more than 1,300
inventions, including the incandescent light bulb, the alkaline
battery, the phonograph, and motion pictures.
In 1928, the Congress saw fit to award to Mr. Edison a Congressional
Gold Medal ``for development and application of inventions that have
revolutionized civilization in the last century.'' The legislation I am
introducing today would once again honor one of the world's greatest
inventors by issuing both commemorative and circulating coins with Mr.
Edison's likeness.
These coins not only would honor the memory of Thomas Edison, they
would also raise revenue to support organizations that preserve his
legacy. The two New Jersey Edison sites, the ``invention factory'' in
West Orange and the Edison Memorial Tower in Edison, are both in need
of repair. Irreplaceable records and priceless memorabilia are in
danger of being destroyed because of moisture damage and structural
problems. Each year, 9,000 young students visit the West Orange site to
learn about the great inventor. Our legislation, at no cost to the
Government, would provide the funds necessary to protect these and five
other historical sites so that generations of schoolchildren can
continue to visit them.
Let me emphasize that this legislation would have no net cost to the
Government. In fact, because circulating coins are a source of
Government revenue known as seigniorage, this bill would reduce
Government borrowing requirements, thereby lowering the annual interest
payments on the national debt. An Edison commemorative coin program
also has strong support among America's numismatists, whose interest is
crucial to the success of any coin program.
Mr. President, I introduced similar legislation at the end of the
104th Congress. I introduce it again on the 150th birthday of this
great American inventor with the anticipation that my colleagues will
join me in honoring the memory of Thomas Alva Edison while providing
sorely needed funds to important historical sites.
I urge my colleagues to support this legislation and ask unanimous
consent that a copy of the bill be printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 299
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Thomas Alva Edison
Sesquicentennial Commemorative Coin Act''.
SEC. 2. FINDINGS.
The Congress finds that--
(1) Thomas Alva Edison, one of America's greatest
inventors, was born on February 11, 1847, in Milan, Ohio;
(2) the inexhaustible energy and genius of Thomas A. Edison
produced more than 1,300 inventions in his lifetime,
including the incandescent light bulb and the phonograph;
(3) in 1928, Thomas A. Edison received the Congressional
gold medal ``for development and application of inventions
that have revolutionized civilization in the last century'';
and
(4) 1997 will mark the sesquicentennial of the birth of
Thomas A. Edison.
TITLE I--COMMEMORATIVE COINS
SEC. 101. COIN SPECIFICATIONS.
(a) Denominations.--In commemoration of the
sesquicentennial of the birth of Thomas A. Edison, the
Secretary of the Treasury (hereafter in this Act referred to
as the ``Secretary'') shall mint and issue--
(1) not more than 350,000 $1 coins, each of which shall--
(A) weigh 26.73 grams;
(B) have a diameter of 1.500 inches; and
(C) contain 90 percent silver and 10 percent copper; and
(2) not more than 350,000 half dollar coins, each of which
shall--
(A) weigh 12.50 grams;
(B) have a diameter of 1.205 inches; and
(C) contain 90 percent silver and 10 percent copper.
(b) Legal Tender.--The coins minted under this title shall
be legal tender, as provided in section 5103 of title 31,
United States Code.
[[Page S1233]]
(c) Numismatic Items.--For purposes of section 5134 of
title 31, United States Code, all coins minted under this
title shall be considered to be numismatic items.
SEC. 102. SOURCES OF BULLION.
The Secretary shall obtain silver for minting coins under
this title only from stockpiles established under the
Strategic and Critical Materials Stock Piling Act.
SEC. 103. DESIGN OF COINS.
(a) Design Requirements.--
(1) In general.--The design of the coins minted under this
title shall be emblematic of the many inventions made by
Thomas A. Edison throughout his prolific life.
(2) Designation and inscriptions.--On each coin minted
under this title there shall be--
(A) a designation of the value of the coin;
(B) an inscription of the years ``1847-1997''; and
(C) inscriptions of the words ``Liberty'', ``In God We
Trust'', ``United States of America'', and ``E Pluribus
Unum''.
(3) Obverse of coin.--The obverse of each coin minted under
this title shall bear the likeness of Thomas A. Edison.
(b) Design Competition.--Before the end of the 3-month
period beginning on the date of enactment of this Act, the
Secretary shall conduct an open design competition for the
design of the obverse and the reverse of the coins minted
under this title.
(c) Selection.--The design for the coins minted under this
title shall be--
(1) selected by the Secretary after consultation with the
Commission of Fine Arts; and
(2) reviewed by the Citizens Commemorative Coin Advisory
Committee.
SEC. 104. ISSUANCE OF COINS.
(a) Quality of Coins.--Coins minted under this title shall
be issued in uncirculated and proof qualities.
(b) Mint Facility.--Only 1 facility of the United States
Mint may be used to strike any particular quality of the
coins minted under this title.
(c) Commencement of Issuance.--The Secretary may issue
coins minted under this title beginning on and after the date
of enactment of this Act.
(d) Termination of Minting Authority.--No coins may be
minted under this title after July 31, 1998.
SEC. 105. SALE OF COINS.
(a) Sale Price.--The coins issued under this title shall be
sold by the Secretary at a price equal to the sum of--
(1) the face value of the coins;
(2) the surcharge provided in subsection (d) with respect
to such coins; and
(3) the cost of designing and issuing the coins (including
labor, materials, dies, use of machinery, overhead expenses,
marketing, and shipping).
(b) Bulk Sales.--The Secretary shall make bulk sales of the
coins issued under this title at a reasonable discount.
(c) Prepaid Orders.--
(1) In general.--The Secretary shall accept prepaid orders
for the coins minted under this title before the issuance of
such coins.
(2) Discount.--Sale prices with respect to prepaid orders
under paragraph (1) shall be at a reasonable discount.
(d) Surcharges.--All sales of coins minted under this title
shall include a surcharge of--
(1) $14 per coin for the $1 coin; and
(2) $7 per coin for the half dollar coin.
SEC. 106. GENERAL WAIVER OF PROCUREMENT REGULATIONS.
(a) In General.--Except as provided in subsection (b), no
provision of law governing procurement or public contracts
shall be applicable to the procurement of goods and services
necessary for carrying out this title.
(b) Equal Employment Opportunity.--Subsection (a) shall not
relieve any person entering into a contract under the
authority of this title from complying with any law relating
to equal employment opportunity.
SEC. 107. DISTRIBUTION OF SURCHARGES.
(a) In General.--Subject to section 5134(f) of title 31,
United States Code, the first $7,000,000 of the surcharges
received by the Secretary from the sale of coins issued under
this title shall be promptly paid by the Secretary as
follows:
(1) Museum of arts and history.--Up to \1/7\ to the Museum
of Arts and History, in the city of Port Huron, Michigan, for
the endowment and construction of a special museum on the
life of Thomas A. Edison in Port Huron.
(2) Edison birthplace association.--Up to \1/7\ to the
Edison Birthplace Association, Incorporated, in Milan, Ohio,
to assist in the efforts of the association to raise an
endowment as a permanent source of support for the repair and
maintenance of the Thomas A. Edison birthplace, a national
historic landmark.
(3) National park service.--Up to \1/7\ to the National
Park Service, for use in protecting, restoring, and
cataloguing historic documents and objects at the ``invention
factory'' of Thomas A. Edison in West Orange, New Jersey.
(4) Edison plaza museum.--Up to \1/7\ to the Edison Plaza
Museum in Beaumont, Texas, for expanding educational programs
on Thomas A. Edison and for the repair and maintenance of the
museum.
(5) Edison winter home and museum.--Up to \1/7\ to the
Edison Winter Home and Museum in Fort Myers, Florida, for
historic preservation, restoration, and maintenance of the
historic home and chemical laboratory of Thomas A. Edison.
(6) Edison institute.--Up to \1/7\ to the Edison Institute,
otherwise known as ``Greenfield Village'', in Dearborn,
Michigan, for use in maintaining and expanding displays and
educational programs associated with Thomas A. Edison.
(7) Edison memorial tower.--Up to \1/7\ to the Edison
Memorial Tower in Edison, New Jersey, for the preservation,
restoration, and expansion of the tower and museum.
(b) Excess Payable to the National Numismatic Collection.--
After payment of the amounts required under subsection (a),
the Secretary shall pay the remaining surcharges to the
National Museum of American History in Washington, D.C., for
the support of the National Numismatic Collection at the
museum.
(c) Audits.--Each organization that receives any payment
from the Secretary under this section shall be subject to the
audit requirements of section 5134(f)(2) of title 31, United
States Code.
SEC. 108. FINANCIAL ASSURANCES.
(a) No Net Cost to the Government.--The Secretary shall
take such actions as may be necessary to ensure that minting
and issuing coins under this title will not result in any net
cost to the United States Government.
(b) Payment for Coins.--A coin shall not be issued under
this title unless the Secretary has received--
(1) full payment for the coin;
(2) security satisfactory to the Secretary to indemnify the
United States for full payment; or
(3) a guarantee of full payment satisfactory to the
Secretary from a depository institution whose deposits are
insured by the Federal Deposit Insurance Corporation or the
National Credit Union Administration Board.
TITLE II--CIRCULATING COINS
SEC. 201. AUTHORITY TO REDESIGN HALF DOLLAR CIRCULATING
COINS.
Section 5112(d) of title 31, United States Code, is amended
by inserting after the 6th sentence the following: ``At the
discretion of the Secretary, half dollar coins minted after
December 31, 1996, and before July 31, 1998, may bear the
same design as the commemorative coins minted under title I
of the Thomas Alva Edison Sesquicentennial Commemorative Coin
Act, as established under section 103 of that Act.''.
______
By Mr. FEINGOLD (for himself and Mr. Kohl):
S. 300. A bill to prohibit the use of certain assistance provided
under the Housing and Community Development Act of 1974 to encourage
plant closings and the resultant relocation of employment, and for
other purposes; to the Committee on Banking, Housing, and Urban
Affairs.
The Prohibition of Incentives for Relocation Act of 1997
Mr. FEINGOLD. Mr. President, I introduce legislation to
address an important and timely issue for the citizens of my State of
Wisconsin, and for others all over our Nation--the issue of job piracy.
Last month, officials in the State of Michigan announced a new
initiative designed to lure businesses from other States into their own
borders. Businesses are provided a tempting incentive to relocate
there, tax-free status for 15 years, if they relocate to select regions
of the State. The communications director for the Michigan Jobs
Commission, Jim Tobin, was quoted in the Wisconsin State Journal as
saying that the new so-called renaissance zones program ``will
aggressively pursue Wisconsin companies for relocation into Michigan.''
Presumably, other States bordering Michigan will be targeted as well.
I was extremely disappointed to hear that my neighboring State had
chosen to blatantly target Wisconsin jobs, rather than focusing its
energies on creating new jobs for its residents. In my opinion,
economic development ought not be thought of as a zero-sum game. We
live in an era of increasing economic interdependence, and responsible
elected officials should be focusing on regional and national solutions
to the crises in our States' most economically distressed areas, not on
raiding each others' jobs.
Upon hearing of the new Michigan initiative, my colleagues Senator
Kohl and Congressman Tom Barrett and I requested investigations from
several Federal agencies in order to ascertain whether and to what
degree Federal funds are being used to finance the renaissance zones
initiative. We feel strongly that our constituents' tax dollars should
not have to help finance the efforts of those across State lines who
attempt to steal their jobs.
Fortunately, most Federal economic development grant programs, such
as those funded by the Small Business Administration and the Economic
Development Administration, currently include antipiracy language.
However,
[[Page S1234]]
this important anti-piracy provision is conspicuously absent in the
Community Development Block Grant [CDBG] Program and several other
small programs administered by the Department of Housing and Urban
Developmen [HUD].
Today, Senator Kohl and I are introducing the Prohibition of
Incentives for Relocation Act of 1997, a bill we have introduced
previously, in both the 103d and 104th Congresses. It would simply make
the CDBG, HUD special purpose grants, and HUD economic development
grants consistent with other domestic economic development grant
programs, by prohibiting HUD funds from being used for activities that
are intended, or likely to facilitate, the closing of an industrial or
commercial plant, or the substantial reduction of operations of a
plant; and result in the relocation or expansion of a plant from one
area to another area. Identical legislation is being introduced in the
House by Representative Barrett and Representative Kleczka.
We became aware of this problem in the way the CDBG language is
currently drafted several years ago. In 1994, Briggs and Stratton, one
of Wisconsin's major employers, announced that its Milwaukee plant
would be closing. As a result, over 2,000 jobs at the plant were lost.
The total economic impact on the community was even worse: For every
four Briggs jobs lost, an estimated one additional job from a supplier
or other business that relied on Briggs was lost.
At the same time as the Milwaukee closing, Briggs and Stratton
expanded two of its plants in other States. I do not dispute its right
to do so. But what I find objectionable, Mr. President, is that Federal
dollars, CDBG funds, were used to facilitate the transfer of these jobs
from one State to another. This was, in my opinion, a completely
inappropriate use of Federal funds. The Community Development Block
Grant Program is designed to expand employment opportunities and
economic growth, not simply move jobs from one community to another.
There is no way to justify to my constituents that they are sending
their tax dollars to Washington to be distributed to other States in
order to attract jobs out of our State, leaving behind communities
whose economic stability has been destroyed.
Mr. President, it is not clear if CDBG dollars are being used by the
State of Michigan to finance their piracy of jobs from my State and
from our other Midwestern neighbors. But in any event, the statute
should be revised to prohibit such usage. It is an issue of fairness,
and it deserves our attention. I ask unanimous consent that the text of
the bill be printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 300
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. PROHIBITION OF USE OF CERTAIN ASSISTANCE TO
ENCOURAGE PLANT CLOSINGS AND RESULTANT
RELOCATION OF EMPLOYMENT.
(a) Authorizations.--Section 103 of the Housing and
Community Development Act of 1974 (42 U.S.C. 5303) is
amended--
(1) by inserting ``(a)'' before ``The Secretary''; and
(2) by adding at the end the following new subsection:
``(b) Prohibition of Use of Assistance to Encourage Plant
Closings and Resultant Relocation of Employment.--
``(1) In general.--Notwithstanding any other provision of
law, no amount from a grant made under section 106 shall be
used for any activity that is intended or is likely to--
``(A) facilitate the closing of an industrial or commercial
plant or the substantial reduction of operations of a plant;
and
``(B) result in the relocation or expansion of a plant from
one area to another area.
``(2) Notice.--The Secretary shall, by notice published in
the Federal Register, establish such requirements as may be
necessary to implement this subsection. Such notice shall be
published as a proposed regulation and take effect upon
publication. The Secretary shall issue final regulations,
taking into account public comments received by the
Secretary.''.
(b) Special Purpose Grants.--Section 107 of the Housing and
Community Development Act of 1974 (42 U.S.C. 5307) is amended
by adding at the end the following new subsection:
``(g) Prohibition of Use of Assistance To Encourage Plant
Closings and Resultant Relocation of Employment.--
``(1) In general.--Notwithstanding any other provision of
law, no amount from a grant made under this section shall be
used for any activity that is intended or is likely to--
``(A) facilitate the closing of an industrial or commercial
plant or the substantial reduction of operations of a plant;
and
``(B) result in the relocation or expansion of a plant from
one area to another area.
``(2) Notice.--The Secretary shall, by notice published in
the Federal Register, establish such requirements as may be
necessary to implement this subsection. Such notice shall be
published as a proposed regulation and take effect upon
publication. The Secretary shall issue final regulations,
taking into account public comments received by the
Secretary.''.
``(c) Economic Development Grants.--Section 108(q) of the
Housing and Community Development Act of 1974 (42 U.S.C.
5308(q)) is amended by adding at the end the following new
paragraph:
``(5) Prohibition of use of assistance to encourage plant
closings and resultant relocation of employment.--
``(A) In general.--Notwithstanding any other provision of
law, no amount from a grant made under this subsection shall
be used for any activity that is intended or is likely to--
``(i) facilitate the closing of an industrial or commercial
plant or the substantial reduction of operations of a plant;
and
``(ii) result in the relocation or expansion of a plant
from one area to another area.
``(B) Notice.--The Secretary shall, by notice published in
the Federal Register, establish such requirements as may be
necessary to implement this paragraph. Such notice shall be
published as a proposed regulation and take effect upon
publication. The Secretary shall issue final regulations,
taking into account public comments received by the
Secretary.''.
______
By Mr. McCAIN:
S. 301. A bill to authorize the Secretary of the Interior to set
aside up to $2 per person from park entrance fees or assess up to $2
per person visiting the Grand Canyon or other national park to secure
bonds for capital improvements to the park, and for other purposes; to
the Committee on Energy and Natural Resources.
NATIONAL PARKS LEGISLATION
Mr. McCAIN. Mr. President, I introduce legislation that would allow
us to make desperately needed improvements within America's national
parks.
The National Parks Capital Improvements Act of 1997 would allow
private fundraising organizations to enter into agreements with the
Secretary of the Interior to issue taxable capital development bonds.
Bond revenues would then be used to finance park improvement projects.
The bonds would be secured by an entrance fee surcharge of up to $2 per
visitor at participating parks, or a set-aside of up to $2 per visitor
from current entrance fees.
Our national park system has enormous capital needs--by last
estimate, over $3 billion for high priority projects such as improved
transportation systems, trail repairs, visitor facilities, historic
preservation, and the list goes on and on. The unfortunate reality is
that even under the rosiest budget scenarios our growing park needs far
outstrip the resources currently available.
A good example of this funding gap is at Grand Canyon National Park.
The park's recently approved park management plan calls for over $300
million in capital improvements, including a desperately needed
transportation system to reduce congestion. Despite this enormous need
for funding, the Grand Canyon received only $12 million from the
Federal Government last year for operating costs. The gap is as wide as
the Grand Canyon itself. Clearly, we must find a new way to finance
park needs.
Revenue bonding would take us a long way toward meeting our needs
within the national park system. Based on current visitation rates at
the Grand Canyon, a $2 surcharge would enable us to raise $100 million
from a bond issue amortized over 20 years. That is a significant amount
of money which we could use to accomplish many critical park projects.
I want to emphasize, however, the Grand Canyon would not be the only
park eligible to benefit from this legislation. Any park unit with
capital needs in excess of $5 million is eligible to participate. Among
eligible parks, the Secretary of the Interior will determine which may
take part in the program.
I also want to stress that only projects approved as part of a park's
general management plan can be funded through bond revenue. This
proviso eliminates any concern that the revenue could be used for
projects of questionable value to the park.
[[Page S1235]]
In addition, only organizations under agreement with the Secretary
will be authorized to administer the bonding, so the Secretary can
establish any rules or policies he deems necessary and appropriate.
Under no circumstances, however would, investors be able to attach
liens against Federal property in the very unlikely event of default.
The bonds will be secured only by the surcharge revenues.
Finally, the bill specifies that all professional standards apply and
that the issues are subject to the same laws, rules, and regulatory
enforcement procedures as any other bond issue.
The most obvious question raised by this legislation is: Will the
bond markets support park improvement issues, guaranteed by an entrance
surcharge? The answer is yes, emphatically. Americans are eager to
invest in our Nation's natural heritage, and with park visitation
growing stronger, the risks would appear minimal. For example, a recent
Washington Times editorial printed on December 8, 1996, noted that park
visitation has increased to nearly 280 million since 1983, so that now
more than a quarter of a million people visit our national parks every
year. That editorial went on to point out that attendance is expected
to further increase to well over 300 million by the turn of the
century.
Are park visitors willing to pay a little more at the entrance gate
if the money is used for park improvements? Again, yes. Time and time
again, visitors have expressed their support for increased fees
provided that the revenue is used where collected and not diverted for
some other purpose devised by Congress.
With the fee demonstration program currently being implemented at
parks around the Nation, an additional $2 surcharge may not be
necessary or appropriate at certain parks. Under the bill, those parks
could choose to dedicate $2 per park visitor from current entrance fees
toward a bond issue.
Finally, I want to point out that the bill will not cost the Treasury
any money? On the contrary, it will result in a net increase in Federal
revenue. First, the bonds will be fully taxable. Second, making
desperately needed improvements sooner rather than later will reduce
total project costs.
Mr. President, this legislation seeks to use park entrance fees to
their fullest potential through bonds. I appreciate that some details
may remain to be worked out in this bill and I encourage the
administration and other interested groups to work with me to fine tune
this legislation. But, I believe that use of revenue bonds to pay the
staggering costs for capital improvements within our parks is an idea
whose time has come.
America has been blessed with a rich natural heritage. The National
Park Service Organic Act, which created the National Park Service,
enjoins us to protect our precious natural resources for future
generations and to provide for their enjoyment by the American people.
The National Parks Capital Improvements Act must pass if we are to
successfully fulfill the enduring responsibilities of stewardship with
which we have been vested. I urge my colleagues to support me in this
important effort.
I ask unanimous consent that copies of letters supporting this
legislation from the Environmental Defense Fund, the National Trust for
Historic Preservation, the Grand Canyon Fund, the National Park
Foundation, the Grand Canyon Trust, the Friends of Acadia, Mount
Rainier, North Cascades & Olympic Fund and the Rocky Mountain National
Park Associates, Inc., be included in the Record.
There being no objection, the letters were ordered to be printed in
the Record, as follows:
Rocky Mountain National Park
Associates, Inc.,
Estes Park, CO, February 3, 1997.
Senator John McCain,
U.S. Senate,
Washington, DC.
Dear Senator McCain, Permit me to add a voice of support
for the bill you are reintroducing known as the National
Parks Capital Improvement Act.
Many of us affiliated as non profit and philanthropic
partners working to improve and enhance America's National
Park System are searching for innovative solutions to address
the pressing needs of our parks. The concept of the National
Parks Capital Improvements Act may be innovative within the
context of national parks, but it is clearly a well-tested
tool in the private sector and it is needed now for our park
fix-up kits. It is my understanding that it permits bonds to
be issued at our parks--at least those areas having special
long-term needs and those adept at revenue generation. This
legislation is not designed to address every need of the
maintenance backlog which is fast accumulating within the
National Park System. But in specific parks--like that of
Grand Canyon or others with carefully defined Master Plans--
this authority to issue bonds could be put to beneficial use
immediately, addressing critically important infrastructure
and visitor services improvement programs.
I hasten to add that not many parks have non profit
partnerships as strong as Grand Canyon National Park has with
its affiliates, the Grand Canyon Association and the Grand
Canyon Fund. The key to making this bond issuance authority
work effectively is the leadership and managerial competence
coming from these non profit partners. The National Park
Service is fortunate to have such strong non profit friends
who are able to both create and manage this financing plan
within the context of our National Park System.
I applaud your foresight and your leadership in
reintroducing the National Parks Capital Improvements Act in
this current session of Congress. I heartily endorse your
concern and your continued efforts in seeking new solutions
to help our national parks.
Kindest regards,
C.W. Buchholtz,
Executive Director.
____
National Trust for Historic
Preservation,
Washington, DC, February 3, 1997.
Hon. John McCain,
U.S. Senate,
Washington, DC.
Dear Senator McCain: On behalf of the more than 250,000
members of the National Trust for Historic Preservation, I am
writing to express our support for the National Parks
Improvements Act of 1997. This legislation creates, in the
form of revenue bonds, an innovative mechanism for funding
the backlog of capital investment and deferred maintenance
needs in our National Park System.
Recently, Senator Craig Thomas, the new Chairman of the
Subcommittee on Parks, Historic Preservation and Recreation,
expressed the view that the challenges facing the National
Parks System--specifically the backlog of deferred
maintenance, repair and restoration needs--must be addressed
outside that normal annual appropriation process. The
National Trust for Historic Preservation has a particular
interest in finding sources of funding for the $1 to $2
billion backlog of restoration and rehabilitation needs for
the 20,000 historic structures in our National Parks. The
National Parks Improvement Act of 1997 provides a solution to
the complex problem, and we look forward to working with you
on this legislation.
Sincerely,
Edward M. Norton, Jr.
____
Grand Canyon Fund, Inc.,
Grand Canyon, AZ, January 31, 1997.
Hon. John McCain,
U.S. Senate,
Washington, DC.
Dear Senator McCain: We are very pleased to offer our
enthusiastic support of your new legislation, which will
enable the National Park Service and private partners to use
taxable revenue bond funding for the benefit of our
irreplaceable national parks. We understand the new
legislation incorporates the necessary changes to accommodate
the recreation fee demonstration project and other interests.
Revenue bonding is an additional tool for private partners
to utilize in assisting the National Park Service with
meeting the overwhelming backlog of unfunded capital needs.
We appreciated your support of the parks with your bill S.
1695 (National Parks Capital Improvements Act of 1996) and
were very pleased to testify before the United States Senate
Subcommittee on Parks, Historic Preservation and Recreation
last September. We stand ready to assist you in any
appropriate way.
Sincerely,
Eugene P. Polk,
Chairman.
Robert W. Koons,
President.
____
Friends of Acadia,
Maine, February 3, 1997.
Re S. 1695--National Parks Capital Improvements Act of 1997.
Senator John McCain,
Senator Ben Nighthorse Campbell,
Subcommittee on Parks, Historic Preservation, and Recreation.
Dear Sen. McCain, Sen. Campbell and Committee Members:
Friends of Acadia enthusiastically supports S. 1695, the
National Parks Capital Improvements Act of 1997. Please add
these comments directly to the record.
The bill would allow as much as a $2.00 user surcharge for
visitors to Grand Canyon National Park and allow the issuance
of bonds by a nonprofit park cooperator. The bill can apply
to other, unspecified parks as well.
[[Page S1236]]
Friends of Acadia endorses this resourceful idea and thinks
it may be applicable to Acadia National Park, which has an
approved general management plan and currently has capital
needs exceeding $5 million.
We respectfully request that, based on conditions unique to
a given park, an individual park may be allowed to set the
surcharge within or above the fee demonstration amount, if it
is a fee demonstration park.
Friends of Acadia is an independent nonprofit organization
whose mission is to protect and preserve Acadia National Park
and the surrounding communities. We recently raised $4
million in private funds to leverage a $4-million park
capital appropriation.
This was a model private-public partnership. Its success
demonstrates that federal dollars can be effectively
multiplied by innovative use of philanthropic nonprofits, as
is envisioned in this bill.
Friends of Acadia urges passage of S. 1695.
Thank you for your consideration of and support for this
effort.
Sincerely,
Heidi A. Beal,
Director of Programs.
____
National Park Foundation,
Washington, DC, February 3, 1997.
Hon. John McCain,
U.S. Senate, Washington, DC.
Dear Senator McCain: Last year the National Park Foundation
enjoyed working with you on several pieces of legislation,
including a bill you authored which would have allowed the
use of taxable bonds to finance long-term capital
improvements within the National Park System. This bill, the
National Parks Capital Improvements Act, would have generated
additional revenue for America's natural, cultural and
historic treasures through an innovative public-private
partnership.
As the 105th Congress begins, we look forward to working
closely with you and your staff on legislation designed to
help conserve and protect National Parks.
Thank you for your consistent, thoughtful support of Grand
Canyon National Park and the leadership you have shown in
developing solutions to help the entire National Park System.
Sincerely,
Jim Maddy,
President.
____
Grand Canyon Trust,
February 6, 1997.
Hon. John McCain,
Washington, DC.
Dear Senator McCain: I am writing to express Grand Canyon
Trust's support for the National Parks Capital Improvements
Act of 1997, legislation to authorize a $2.00-per-person
surcharge on entrance fees at Grand Canyon and other national
parks to secure bonds for capital improvements.
We believe the proposed legislation will greatly assist the
efforts of the National Park Service and other entities to
generate the additional funding so urgently needed to
maintain, repair and enhance the infrastructure of Grand
Canyon National Park and others in the National Park System.
We support the proposed use of the $2.00-per-person surcharge
to generate incremental revenue for park capital projects.
Grand Canyon Trust shares your concerns that the park
system's, and particularly Grand Canyon National Park's,
pressing infrastructure and resource management needs will
not be met unless Congress acts to provide the new authority
proposed in this legislation. If those needs are not met, the
environment in the parks and visitors' experiences will
continue to deteriorate, an unacceptable and unnecessary fate
for America's ``crown jewels,'' the national parks.
We look forward to working with you to achieve passage of
this important legislation.
Sincerely,
Geoffrey S. Barnard,
President.
____
Mount Rainier, North Cascades
& Olympic Fund,
Seattle, WA, January 31, 1997.
Senator John McCain,
Washington, DC.
Dear Senator McCain: On behalf of the Mount Rainier, North
Cascades & Olympic Fund, I would like to state our strong
support for the upcoming bill that is replacing S. 1695.
The Fund is a non-profit organization, dedicated to the
preservation and restoration of Washington's National Parks.
Organizations such as the Fund, have been created throughout
the United States to help fill the increasing gap between
national park needs and funds. In 1995, these non-profits
contributed approximately $16 million dollars to national
parks throughout the nation. However, even this impressive
figure is only scratching the surface of the National Park
Services needs.
``The National Park Service was created in 1916, with a
mandate to manage the national parks in such a manner . . .
as will leave them unimpaired for the enjoyment of future
generations.'' As financial pressures have mounted, it has
become increasingly difficult for the parks to fulfill this
mission.
I believe that passage of the National Parks Capital
Improvements Act, will help parks such as the Grand Canyon,
fulfill their mission to protect our national treasures for
present and future generations.
Thank you for your efforts to preserve and protect our
natural heritage.
Sincerely,
Kim M. Evans,
Executive Director.
____
Environmental Defense Fund,
Boulder, CO, February 9, 1997.
Hon. John McCain,
U.S. Senate,
Washington, DC.
Dear Senator McCain: In a recent report, the General
Accounting Office told the United States Congress that ``the
national park system is at a crossroads.'' The General
Accounting Office confirmed what many of us have known for
some time: while the national park system is growing and
visitation is increasing, the resources available to manage
and protect these resources are falling far short of what is
needed to preserve America's natural and historical heritage.
As a result, the backlog of repairs and maintenance needed
throughout the national park system has grown to $4 billion.
Last year, you proposed legislation that would have
authorized a limited number of not-for-profit entities to
issue taxable bonds, the proceeds of which would have been
used to make critically needed investment in units of the
national park system. Without creative and innovative
approaches such as this, we very likely will never close the
gap between the financial resources that are needed to manage
and protect our national park system, and the resources that
are available.
I understand that you plan to introduce a similar bill in
the 105th Congress, and I am writing to offer the
Environmental Defense Fund's support for this undertaking.
While no one piece of legislation will solve all of the
problems confronted by the national park system, your
legislation is a big step in the right direction.
I look forward to working with you as your proposal works
its way through the legislative process.
Respectfully,
James B. Martin,
Senior Attorney.
By Mr. CHAFEE (for himself, Mr. Rockefeller, Mr. Frist, Mr. Jeffords,
and Ms. Collins):
S. 302. A bill to amend title XVIII of the Social Security Act to
provide additional consumer protections for Medicare supplemental
insurance; to the Committee on Finance.
THE MEDIGAP PORTABILITY ACT OF 1997
Mr. CHAFEE. Mr. President. Last year, the President signed into law
bipartisan legislation that provides greater portability of health
insurance for working Americans. Today, I join with my colleagues,
Senator Rockefeller, Senator Frist, Senator Jeffords, and Senator
Collins, in the introduction of a bipartisan bill that will provide
some of the same guarantees for Medicare beneficiaries who buy Medicare
supplemental insurance or MediGap policies.
Of the 38 million Medicare beneficiaries, about 80 percent, or 31
million, have some form of Medicare supplemental insurance, whether
covered through an employer-sponsored health plan, Medicaid or another
public program, or a private MediGap policy. Our bill does several
important things for Medicare beneficiaries who have had continuous
coverage:
First, it guarantees that if their plan goes out of business or the
beneficiary moves out of a plan service area, he or she can buy another
comparable policy. These rules also would apply to a senior who has had
coverage under a retiree health plan or Medicare Select if their plan
goes out of business.
Second, it encourages beneficiaries to enroll in Medicare managed
care by guaranteeing that they can return to Medicare fee-for-service
and, during the first year of enrollment, get back their same MediGap
policy if they decide they do not like managed care. Under current law,
if a senior wishes to enroll in a Medicare managed care plan, he or she
has two options. The MediGap policy may be dropped if the senior
chooses a managed care program, or the individual can continue to pay
MediGap premiums in the event that the policy is needed again some
day--a very costly option for those on fixed incomes. Many seniors fear
that if they lose their supplemental policy after entering a managed
care plan, it may be financially impossible for them to reenroll in
MediGap.
Third, it bans preexisting condition exclusion periods for Medicare
beneficiaries who obtain MediGap policies when they are first eligible
for Medicare. Under current law, any time insurers sell a MediGap
policy, they can limit or exclude coverage for services related to
preexisting health conditions for a 6-month period.
Fourth, it establishes a guaranteed open enrollment period for those
under
[[Page S1237]]
65 who become Medicare beneficiaries because they are disabled. Under
current Federal law, Medicare beneficiaries are offered a 6-month open
enrollment period only if they are 65. There are approximately 5
million Americans who are under 65 years of age and are enrolled in the
Medicare program. Currently, they do not have access to MediGap
policies unless State laws require insurers to offer policies to them.
Our bill provides for a one-time open enrollment period for the current
Medicare disabled, which will guarantee access to all MediGap plan
options for almost 5 million disabled Americans.
It is true that this bill does not go as far as some would like. Our
bill leaves to the states more controversial issues, such as continuous
open enrollment and community rating of MediGap premiums. I believe,
however, that this legislation will provide seniors similar guarantees
to those that we provided to working Americans under the Kassebaum-
Kennedy legislation.
Mr. FRIST. Mr. President, I rise to speak in support of the MediGap
Portability Act of 1997. The importance of this legislation is best
expressed by the many stories of individuals who have unsuccessfully
tried to obtain adequate Medicare supplemental coverage. Therefore, I
would like to share with you the experience of one of my constituents--
Gary Purcell, a 60-year-old retired professor from the University of
Tennessee.
To say the least, Dr. Purcell's health status has been a challenge
for him. Despite a history of multiple illnesses including lupus,
hypertension, diabetes, severe heart and kidney disease, and recurrent
life-threatening skin infections, this man kept working. Even after
suffering a stroke, he kept working. Dr. Purcell fought to remain
productive, but as his condition deteriorated, he was forced to retire
on disability. He subsequently developed prostate cancer and recently
suffered an amputation of the left leg.
One day last fall, he received a letter saying he was eligible for
Medicare due to disability. In fact, the situation was a little more
complicated than that. Since he had not yet reached his 65th birthday,
Dr. Purcell was actually being reassigned to Medicare, thus losing his
private health insurance coverage. Due to the fact he is eligible for
Medicare because of disability and not age, and because of preexisting
medical conditions, Dr. Purcell could not obtain MediGap coverage and
he had no other insurance options. As a result, he will incur high out-
of-pocket costs to fill the many gaps in Medicare's coverage. Although
Dr. Purcell will be eligible for supplemental coverage at age 65, 5
years from now, until then he will have to spend $500 per month or 25
percent of his income on medications to make up for what Medicare does
not cover.
Dr. Purcell explored other options--ways of obtaining less expensive
drugs, but the bottom line is, he will still have to pay massive sums
of money for his medications, money which he does not have.
Unfortunately, his situation is not unique. Many seniors, as well as
other individuals with disabilities, are suffering as well.
How did this happen? What is the real issue? MediGap insurance
policies offer coverage for Medicare's deductibles and coinsurance and
pay for many services not covered by Medicare. However, for several
reasons, the current MediGap laws do not always meet the needs of
Medicare beneficiaries--especially individuals with disabilities.
First, under current law, individuals with disabilities who qualify
for full Medicare benefits before the age of 65 must wait to purchase
MediGap coverage until they reach that age. At that time, they are
given a 6-month period of open enrollment. This means that unlike the
elderly, they cannot obtain MediGap insurance when they become eligible
for Medicare.
Second, even when obtainable, MediGap coverage may be limited. During
the open enrollment period, insurers may not use a preexisting
condition to refuse a policy for an individual. However, coverage for a
specific preexisting condition can be delayed for up to 6 months. This
is called underwriting. Even though alternative policies which do not
use the underwriting process are available, they do not necessarily
offer comparable coverage. Further, Federal law does not guarantee that
these alternatives will continue in the future. Thus, individuals with
disabilities on Medicare may not receive the same choices of MediGap
plans as their senior counterparts.
Third, such stringent requirements hinder the efforts of seniors who
wish to try a Medicare managed care option. They are afraid of not
being able to receive comparable supplemental coverage should they
decide to return to the traditional fee-for-service Medicare.
Accordingly, they do not take the risk of changing. This is perhaps one
reason that enrollment in Medicare managed care lags far behind the
rest of the population. We must encourage this transition if we are to
slow the growth of Medicare costs.
Fourth, those Medicare beneficiaries whose employer-provided wrap-
around plans are reducing or dropping benefits after they become
eligible for Medicare will have difficulties purchasing additional
coverage.
Finally, we must consider those who have enrolled in Medicare managed
care plans which terminate contracts with Medicare or whom move outside
the service area of their plan. In these circumstances, beneficiaries
often need to return to the traditional Medicare program and may again
wish to obtain supplemental coverage.
To summarize, although our current policies may encourage many
members of the aging population to obtain continuous coverage, they are
deficient in encouraging the same for individuals with disabilities who
are unable to obtain supplemental coverage even if they have had
continuous insurance coverage. They also limit the choices of seniors
who wish to switch plans or whose retiree plans terminate or limit
coverage. The situation is simply unfair.
Last fall, the President signed the Health Insurance Portability and
Accountability Act of 1996 (the ``Kassebaum-Kennedy'' bill) which
addressed health insurance portability for the small group market. The
Medigap Portability Act addresses similar issues for seniors and
individuals with disabilities.
First, seniors will now have more choices than were available before.
They will be able to explore the managed care options now available,
yet still return to their original Medigap plans if they change their
minds.
Second, if their retiree health plans terminate or substantially
reduce benefits, seniors will still have access to supplemental health
insurance without regard to previous health status.
Finally, if their insurance plans should go out of business, seniors
will still have Medigap options.
In other words, it guarantees choice and security for senior citizens
on Medicare.
In addition, the bill guarantees access to the same coverage
available to seniors for individuals with disabilities in three ways:
First, it insures that anyone will be able to enroll in a Medigap
plan of their choosing without discrimination during the first 6 months
of their eligibility for full Medicare benefits, regardless of age.
Second, the bill guarantees that the disabled will still have the
same access to the array of Medigap choices that are available to
seniors after the enrollment period ends, although restrictions may
apply.
And, third, individuals with disabilities who are currently enrolled
in the Medicare program will have a one-time open enrollment period to
guarantee their access to all Medigap plan options.
Dr. Purcell is a responsible middle income American who fell through
the safety net. He lost both rights and choices. In his own words, ``I
find it so frustrating that I had really planned for the retirement
period and had tried to prepare myself as prudently as possible * * *
Yet, I had no idea that my comprehensive coverage would cease after
only 2 years. Even though I have always done my best to be a good
worker and to provide for my family, the rug was pulled out from under
me anyway. I feel so helpless.''
Dr. Purcell went on to say, ``I thought the issue through and tried
to determine where I might have the most impact just as one person * *
* I felt that my best option was to go to the people who represent me *
* * in the national legislature.''
[[Page S1238]]
Dr. Purcell and the 4 million other disabled Americans he represents
have legitimate concerns. So do the 34 million senior citizens who are
also affected by this issue. They are only asking for the same rights
given to working Americans. They are coming to us, their elected
representatives, for help. Mr. President, I challenge my colleagues and
the insurance industry to respond to these beneficiaries. This bill
will provide freedom of choice for seniors and individuals with
disabilities. It is a step forward in our battle to improve health care
access for all of our citizens and I give it my full support.
Mr. ROCKEFELLER. Mr. President, I am pleased to be reintroducing a
bill with my colleague from Rhode Island, Senator Chafee, to improve
the security and protection of Medicare supplemental policies, so-
called MediGap policies. I am especially pleased that Senator Jeffords,
both the new chairman of the Labor and Human Resources Committee and
one of the newest members of the Finance Committee, Senator Frist, and
Senator Collins have joined us this year as original cosponsors of our
legislation. And I continue to be pleased that similar legislation has
been introduced in the House of Representatives by the bipartisan team
of Representatives Nancy Johnson and John Dingell.
When enacted, our bipartisan, bicameral bill will make MediGap
policies more portable, more reliable, and more accessible for almost
40 million Medicare beneficiaries, including 5 million disabled
Medicare beneficiaries.
Last year, when we introduced this bill, we were not terribly
optimistic that it would get enacted before the end of the 104th
Congress. But we put forward our legislation anyway to share our
proposal and objectives, begin building momentum for changes we feel
are necessary, and to preview the fact that we would be back in the
105th Congress with a concerted effort to make this a legislative
priority. As it turns out, having identified MediGap improvements as an
area of bipartisan concern, President Clinton has responded directly by
adding the same goal of new MediGap protections as a priority he shares
and included it in his recently submitted budget proposal. We are very
happy that our bipartisan support for improved MediGap protections got
noticed by the President and will be pursued by his administration in
the upcoming budget process.
Mr. President, too many Americans are falling through the gaps in our
health care system. For example, consider the situation of a 44-year-
old disabled man from Capon Bridge, WV. He earns too much money to
qualify for Medicaid and is unable to buy a private MediGap policy
because of his medical condition. And, there is the 47-year-old woman
from Slanesville, WV, who is in a similar situation. She was uninsured
before qualifying for Medicare because of kidney disease. She and her
husband have too many assets to qualify for Medicaid and they can't
afford the $300-a-month health insurance policy offered by her
husband's employer. They have not been able to find an insurer willing
to sell them a MediGap policy to help with Medicare's hefty cost-
sharing requirements. A MediGap policy would be more affordable for
them than the insurance policy offered by her husband's employer which
duplicates, rather than supplements, Medicare's benefits. Many of the
50,000 disabled West Virginians who qualify for Medicare are in a
similar situation. This is wrong and we can do better.
Mr. President, almost 8 in 10 older Americans have opted to purchase
policies through private insurance companies to fill gaps in their
Medicare benefits. This MediGap insurance commonly covers the $756
deductible required for each hospital stay, the part B deductible for
doctor visits and doctor copayments. MediGap policies also cover
copayments for nursing home care, extended rehabilitation, or for
emergency care received abroad. Some MediGap policies cover
prescription drugs.
But even MediGap policies have gaps because of insurance underwriting
practices which prevent beneficiaries from switching MediGap insurers
or, as in the case of the Medicare disabled, from even initially
purchasing MediGap protection.
Employers, looking to lower their health care costs, are increasingly
cutting back on retiree health benefits. In just 2 years, employer-
sponsored retiree health benefits has dropped by 5 percent. These
retirees are forced to go out on the private market and purchase
individual MediGap coverage. Those lucky enough to find insurance will
find their coverage compromised by preexisting condition limitations.
Some won't find an insurer willing to sell them a policy at any price.
In 1990, I worked with Senator Chafee, the minority leader, Senator
Daschle, and the then-chairman of the Finance Committee, Senator
Bentsen, On enacting a number of measures to improve the value of
MediGap policies. We also successfully enacted legislation that
standardized MediGap policies so that seniors could more easily compare
the prices and benefits provided by MediGap insurers.
At that time, Congress also mandated that insurers must sell a
MediGap policy to any senior wishing to buy coverage when that person
first becomes eligible for Medicare, without being subject to medical
underwriting. At the time, there was a worry that including the
Medicare disabled population in this open enrollment period would
escalate premiums for current MediGap policyholders. As a result, the
disabled were not included in this guaranteed issue requirement. Since
then, 12 States have moved ahead and required insurers to issue
policies to all Medicare beneficiaries in their States, including the
disabled. To my knowledge, not one State has reported large hikes in
premiums as a result of their new laws.
We have also asked the American Academy of Actuaries for an
independent analysis of our legislation. We are confident that their
evaluation of our bill will lay to rest any concerns about wild hikes
in MediGap premiums because of our provision to end the current law
discrimination against the disabled.
Mr. President, our bill would protect all Medicare beneficiaries by
guaranteeing them MediGap coverage if they are forced to change their
MediGap insurer, or if their employer stops providing retiree health
benefits. Specifically, our bill would require MediGap insurers to sell
Medicare beneficiaries a new MediGap policy without any preexisting
condition limitations if an individual moves outside the State in which
the insurer is licensed, or the health plan goes out of business; if an
individual loses their employer-sponsored retiree health benefits; if
an individual enrolled in a health maintenance organization [HMO] or
Medicare Select policy moves outside of a health plan's service area,
or if the HMO's contract is canceled; or if an individual enrolled in a
HMO or a Medicare Select policy decides during their first 12 months of
enrollment to return to a MediGap fee-for-service policy.
Mr. President, our bill gives Medicare beneficiaries an opportunity
to try out a managed care plan without worrying about losing their
option to return to fee-for-service medicine. Understandably, many
seniors worry about enrolling in a managed care organization if it
means losing access to their lifelong doctor. Our bill would encourage
Medicare beneficiaries to try out a managed care plan to see if it
suits them, but our bill gives them a way back to fee-for-service
medicine, if that ends up being their personal preference.
Our legislation bans insurance companies from imposing any
preexisting condition limitation during the 6-month open enrollment
period for MediGap insurance when a person first qualifies for
Medicare. This change from current law makes the rules for MediGap
policies consistent with the recently enacted Kassebaum-Kennedy bill
for the under-65 population, and with Medicare coverage which begins
immediately, regardless of any preexisting conditions.
Mr. President, our bill also includes a section to help seniors
choose the right health plan for them by ensuring that they get good
information on what plans are available in their area. It allows them
to compare different health plans based on results of consumer
satisfaction surveys, and will include information on benefits and
costs.
Our bill does not directly address affordability. And, even since we
introduced our original bill last September, there is growing evidence
that MediGap premiums are skyrocketing. I am hopeful that the Finance
Committee will take a closer look at this issue
[[Page S1239]]
during its deliberations on other Medicare reform initiatives. Between
1995 and 1996, large numbers of seniors received double-digit increases
in their MediGap premiums. These increases were far in excess of Social
Security cost-of-living increases and varied dramatically across
States. In my own State of West Virginia, MediGap policies sold by the
Prudential Insurance Co. increased by 17 percent between 1995 and 1996.
In Ohio, premiums increased by 30 percent and in California by 37
percent.
Congress has considerable history in trying to guarantee at least a
minimal level of value across all MediGap policies. Under the current
law, individual and group MediGap policies must spend at least 65 and
75 percent, respectively, of all premium dollars collected, on
benefits. If a MediGap plan fails to meet these minimum loss ratios,
they must issue refunds or credits to their customers.
Mr. President, while Federal loss ratio standards help assure a
minimum level of value, they do not prevent insurance companies from
annually upping premiums as a senior ages. This practice, known as
attained age-rating, results in the frailest and the lowest income
seniors facing large, annual premium hikes as they age. I would hope
that more States would follow the lead of the 10 States that have
already banned attained age-rating. This would vastly improve the
affordability of MediGap for the oldest and frailest of our seniors.
Mr. President, to repeat what I said last year, our bill is a
targeted, modest, proposal. But it would provide very real and very
significant help to millions of Medicare beneficiaries who, year in and
year out, pay out billions of dollars in premiums to have peace of mind
when it comes to the cost of their health care. It is wrong and unfair
when senior and disabled citizens in West Virginia and across the
country are suddenly dropped by insurers or denied a MediGap policy
just because they move to another State, or their employer cuts back on
promised retiree health benefits, or because they're disabled.
Mr. President, it is always a pleasure to be working on legislation
with the Senator from Rhode Island. Senator Chafee has a long,
impressive, and, more important, successful record in enacting
legislation that has helped millions of seniors, children, and
disabled. I urge my colleagues to join Senators Jeffords, Frist, and
Collins in cosponsoring this bill, and to help us extend more of the
health care peace of mind that older and disabled Americans ask for and
deserve.
______
By Mr. ABRAHAM (for himself and Mr. Levin):
S. 303. A bill to waive temporarily the Medicare enrollment
composition rules for the Wellness Plan; to the Committee on Finance.
medicare waiver for the wellness plan of detroit, mi
Mr. ABRAHAM. Mr. President, at the end of the last Congress I
expressed my disappointment at the unwillingness of this body and the
other Chamber to move legislation that I believe is important to the
health care of the people of Michigan. Today I rise along with my
colleague from Michigan, Senator Levin, to reintroduce our legislation
providing a Medicare 50/50 enrollment composition rule waiver for the
Wellness Plan of Detroit, MI.
The Wellness Plan is a federally certified Medicaid health
maintenance organization located in Detroit, MI. It has approximately
150,000 enrollees--roughly 140,000 of whom are Medicaid, while only
about 2,000 are Medicare beneficiaries. Since 1993, the Wellness Plan
has had a health care prepayment plan contract with Medicare. However,
technical changes enacted by Congress effective January 1, 1996,
unintentionally prevent the Wellness Plan from enrolling additional
Medicare beneficiaries under the HCPP contract. So the Wellness Plan is
positioned to become a full Medicare risk contractor, it currently is
precluded from doing so due to the 50/50 Medicare enrollment
composition rule.
Mr. President, it is important to note that even the Health Care
Financing Administration has supported the Wellness Plan receiving this
plan-specific 50/50 waiver. We also expect a companion bill to be
introduced in the other Chamber shortly, and we expect it to be
cosponsored by the entire Michigan delegation.
Because this legislation is essentially noncontroversial, affects
only the State of Michigan, and is supported by the entire State
delegation, it is our earnest hope that the Senate will act on this
measure as expeditiously as possible. There is no rational
justification for preventing the Wellness Plan from enrolling new
Medicare beneficiaries into its health plan. If our goal is to allow a
wider variety of options and choices of health care plans for our
seniors, a good place to start is to allow those Michigan residents who
wish to join this particular health maintenance organization to be able
to do so.
Mr. President, I wish to thank my friend and colleague from Michigan,
Senator Carl Levin, for once again supporting and helping me with this
effort. I look forward to working with him to see that this measure
which has such broad support in Michigan becomes enacted in the very
near future.
Mr. President, I ask unanimous consent that the text of the bill be
printed in the Record.
There being no objection, the bill was ordered to be printed in the
Record, as follows:
S. 203
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SECTION 1. WAIVER OF MEDICARE ENROLLMENT COMPOSITION RULES
FOR THE WELLNESS PLAN.
The requirements of section 1876(f)(1) of the Social
Security Act (42 U.S.C. 1395mm(f)(1)) are waived with respect
to Comprehensive Health Services, Inc. (doing business as The
Wellness Plan) for contract periods through December 31,
2000.
Mr. LEVIN. Mr. President, today I am joining with my colleague
Senator Abraham in introducing legislation that would provide the
Wellness Plan of Michigan with a Medicare 50/50 enrollment composition
rule waiver. I was disappointed that Congress did not enact this waiver
last session as the Wellness Plan is the prototype for the type of
health maintenance organization into which many Medicare beneficiaries
will want to enroll. It is my hope that the Senate will act
expeditiously on this legislation so that Michigan Medicare
beneficiaries may have the opportunity to enroll in this well-
established, quality plan.
____________________