[Congressional Record Volume 144, Number 111 (Friday, August 7, 1998)]
[Extensions of Remarks]
[Pages E1570-E1571]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




  THE DEPOSITORY INSTITUTION MERGER PLEDGE ENFORCEMENT ACT (H.R. 4420)

                                 ______
                                 

                          HON. JOHN J. LaFALCE

                              of new york

                    in the house of representatives

                        Thursday, August 6, 1998

  Mr. LaFALCE.  Mr. Speaker, we find ourselves in an era of mega-
mergers among financial institutions, and the trend is likely to 
continue. There is some public concern about these mergers, and with a 
good reason. Diversified financial services companies offer real 
opportunities for consumers, including easier access to a larger array 
of financial services at lower cost. But they also carry risks: higher 
or hidden fees; intrusions upon consumer privacy; and indifference to 
community needs and concerns on the part of institutions with only a 
tenuous link to the local community.
  Today I am introducing legislation intended to help ensure that these 
larger conglomerates remain responsive to community needs, fulfill 
their community reinvestment obligations and honor their own community 
reinvestment pledges.
  As part of the regulatory approval process for merger applications, 
the banking and thrift regulators are required to consider the 
financial institution's community reinvestment record. It is becoming 
increasingly typical for financial institutions to announce sizeable 
financial commitments to provide loans within low and moderate income 
communities in the context of these pending applications. These pledges 
are typically intended to enhance the institution's perceived 
performance; gain support or approval for the application; and assuage 
public concern or--in some cases--reduce community opposition.
  Let me provide some examples. In the NationsBank/BankAmerica merger, 
a CRA commitment of $350 billion over 10 years was made: $180 billion 
for small business; $115 billion for affordable housing; $30 billion in 
consumer loans; and $25 billion in community development investments. 
Citibank-Travelers announced a commitment of $115 billion over 10 years 
in small business and consumer loans; mortgages and community 
investments. Washington Mutual/Great Western/H.F. Ahmanson committed to 
$120 billion in affordable housing, multifamily housing, small business 
and consumer loans.
  These financial institutions and others are to be congratulated on 
the pledges they have made. The commitments have been substantial and 
wide-ranging. I believe they are seriously intended and I have 
confidence they will be pursued. But the public must have confidence as 
well, and the current regulatory oversight system does not provide any.
  These commitments have typically been for ten years and generally 
involve sizeable, but unspecified pledges of credit for affordable 
housing, business loans, consumer loans and investments in community 
projects. Yet current supervisory oversight under CRA focuses on an 
institution's lending and investment activities during one-year periods 
only, and seeks to determine whether the institution is meeting minimum 
required levels of community reinvestment, not the higher levels 
promised in these commitments. Several recent studies have found that 
even these routine CRA examinations have been inadequate and that CRA 
ratings are generally ``inflated.''
  The capacity to monitor the higher levels of lending and investment 
committed to in conjunction with proposed mergers does not now exist 
either among the regulators or the community groups. As a result, the 
community investment pledges we are now routinely seeing cannot and 
will not be measured or monitored over time. But they must be, if they 
are to be more than empty promises. It is difficult for the public and 
community groups to have confidence that the generalized pledges of 
these institutions will take concrete and positive shape within their 
communities if there is no way to monitor pledge implementation.
  Some of the regulators have suggested that community organizations 
should enforce community investment pledges by banks. I fear that may 
be unrealistic as few such groups would have adequate enforcement 
capacity. Moreover, it is difficult to enforce commitments as highly 
generalized as some we have seen.
  Community groups are pressing for commitments that involve highly 
specific goals for improvement in specific types of lending in more 
narrowly targeted communities. That approach may have merit. Some 
institutions have taken it with substantial success, while others are 
strongly resistant.
  My legislation attempts to strike a middle ground. The bill would 
direct the Federal banking regulators to develop and maintain 
procedures to monitor compliance with community reinvestment pledges 
made by financial institutions. In addition, it would:
  Require the regulatory agencies to notify institutions when 
commitments are not being met and make such non-compliance public; and
  Authorize the regulators to take an institution's record of 
compliance with these pledges into account in any future decision-
making regarding the institution.
  The community investment pledges being made by financial institutions 
are becoming an integral element of the mega-merger trend. They must be 
taken seriously by the regulators as well as the institution which 
makes them. Community groups and the public at large must have 
confidence in the integrity and meaningfulness of these pledges. The 
development of a mechanism for monitoring compliance can afford that 
confidence without undue regulatory intrusion.
  These pledges must be more than public relations devices. If public 
concern about the

[[Page E1571]]

wave of mega-mergers is to be assuaged, these commitments must show 
tangible results in local communities. I believe my bill will help 
accomplish that important objective, and I would welcome the support of 
my colleagues.
  The text of the bill follows:

                               H.R. 4420

       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 ``Depository Institution 
     Merger Pledge Enforcement Act''.

     SEC. 2. ENFORCEMENT OF COMMITMENTS MADE IN CONNECTION WITH 
                   ACQUISITION OR MERGER APPLICATIONS.

       Section 18 of the Federal Deposit Insurance Act (12 U.S.C. 
     1828) is amended by adding at the end the following new 
     subsection:
       ``(t) Enforcement of Merger and Acquisition Pledges.--
       ``(1) In general.--Each appropriate Federal banking agency 
     shall establish and maintain procedures for monitoring, on an 
     ongoing basis, compliance by any insured depository 
     institution, bank holding company, savings and loan holding 
     company, foreign bank, or any affiliate of any such person 
     with any pledge or commitment made by any such person in 
     connection with the approval of any application by any such 
     person under subsection (c), section 44, sections 2, 3, or 4 
     of the National Bank Consolidation and Merger Act, section 3 
     or 4 of the Bank Holding Company Act of 1956, or section 10 
     of the Home Owners' Loan Act, including any pledge or 
     commitment relating to community lending and investment.
       ``(2) Report of noncompliance.--Whenever any appropriate 
     Federal banking agency determines that any insured depository 
     institution, bank holding company, savings and loan holding 
     company, foreign bank, or any affiliate of any such person is 
     failing to maintain compliance with any pledge or commitment 
     referred to in paragraph (1) at any time during the effective 
     period of the pledge or agreement, the agency shall--
       ``(A) notify the institution, company, bank, or affiliate 
     of such determination; and
       ``(B) shall publish a notice of such determination in the 
     Federal Register.
       ``(3) Noncompliance taken into account in connection with 
     subsequent approvals.--If an appropriate Federal banking 
     agency makes a determination of noncompliance under paragraph 
     (2) with regard to any insured depository institution, bank 
     holding company, savings and loan holding company, foreign 
     bank, or any affiliate of any such person, the agency may 
     take such noncompliance into account in making decisions in 
     the future regarding the institution, company, bank, or 
     affiliate.''.

     

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