[Congressional Record Volume 144, Number 134 (Wednesday, September 30, 1998)]
[Senate]
[Pages S11178-S11180]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                     FINANCIAL SERVICES ACT OF 1998

  Mr. GRAMM. Mr. President, I came over this evening to speak briefly 
about H.R. 10 and where we are in our efforts to bring that important 
bill to the floor of the Senate. I want to explain to our colleagues 
the concerns I have--those concerns are shared by Senator Shelby and by 
others--and explain the compromise that we have proposed in the hopes 
that those who are for this important bill will prevail upon those who 
are holding back on reaching a compromise on a key issue in the bill, 
and who by doing so are jeopardizing enactment of this important 
legislation.
  Let me try, as briefly as I can, to lay out where we are in terms of 
the parliamentary situation, what the issue is that is contested in 
this parliamentary maneuvering, why that issue is so important to me, 
and what we can do, in my opinion, to resolve it.
  First of all, thanks to the great leadership of Senator D'Amato in 
the Banking Committee, we have put together a comprehensive financial 
modernization bill. While there are still parts, in my opinion, that 
need to be changed, it is a good bill. There are many provisions of the 
bill that I support. I congratulate Senator D'Amato. I have to say that 
getting this bill through the Banking Committee with as little time as 
is left in the legislative session and bringing together most of the 
disparate interests that are ultimately represented, benefited or hurt, 
in a bill like this is one of the great legislative achievements that I 
have seen. I congratulate Senator D'Amato for his effort.
  Unfortunately, I cannot and do not support the bill in its current 
form. While there are many provisions of the bill that I do support, 
and while I would like to see the bill become law, and while if this 
problem could be dealt with I could step aside and allow the bill to 
come to the floor of the Senate, with this problem now pending, I am 
opposed to the bill.
  Now, what is the problem? The problem has to do with a provision that 
sounds innocent enough. In fact, perhaps it sounds good to the ears of 
some. That is the so-called provision for community reinvestment. These 
are provisions of law that were adopted without a whole lot of debate 
in the late 1970s. The objective of these provisions of law was to 
force banks to lend money in the communities in which they were 
operating. The assertion was made that there were a lot of banks that 
were simply taking deposits and using them in other areas of the 
country and that, therefore, there ought to be a provision of law to 
require banks to meet the lending needs of their local communities.
  Now, the purpose of the Community Reinvestment Act, or CRA, was to 
establish a procedure for an evaluation of whether or not banks were 
making loans in the communities where they were chartered or whether 
banks had simply become deposit takers and were taking those deposits 
and making loans somewhere else or buying government bonds or whatever 
other activities they might be involved in.
  I personally don't think much of having the government require banks 
to use their capital in a particular way pleasing to the government or 
some government functionary. It sort of strikes me as crony capitalism. 
It is an unjustified intrusion into banking, in my opinion.
  However, that is not what I have been objecting to in connection with 
this bill, nor is this government-directed capital allocation the only 
problem with CRA. The aspect of CRA in practice that I wish to bring to 
the attention of my colleagues is that CRA has become a vehicle for 
fraud and extortion. In fact, as strong as it may sound, the Federal 
banking regulators, through their delay of approval of applications, 
actually strengthen the hands of those who would use this law, the CRA 
law, in ways that it was never proposed to be used.
  Let me give an example of how this works and how it is abused. Banks 
periodically have to be evaluated for meeting the CRA requirements. 
This is an evaluation done by the Federal banking regulators, at the 
conclusion of which they give a bank a rating. Whenever the bank wants 
to engage in some activity that requires approval of the Federal 
Reserve Board, or of the Comptroller of the Currency--like opening a 
new branch, merging with another bank--they have to make an 
application. Any person or group of persons can file a protest to that 
action in the name of CRA. They can do it even though the bank may have 
an excellent rating in its last evaluation of its community 
reinvestment activities.
  For example, when Senator Sarbanes, who is a strong proponent of this 
provision of law, talked about the law, he pointed out that perhaps the 
bank that has done the ``best job'' of meeting community reinvestment 
requirements was Bank of America, that they have gotten sterling 
ratings for lending money in the communities they serve. But when Bank 
of America announced a merger with NationsBank, even though Bank of 
America had the highest ratings of any bank in America in lending in 
the communities that it served, professional protesters came in and 
opposed the merger and demanded concessions from the bank. In fact, one 
of the spokesman for the protesters, in making demands on the bank that 
has the best CRA record of any bank in America said:

       We will close down their branches and ensure they fail in 
     California. This is going to be a street fight and we are 
     prepared to engage in it.

  So here is a bank, Bank of America, that has the best CRA rating of 
any bank in America, and yet when they apply to merge we have 
professional protesters come in and protest and threaten to delay their 
merger and ultimately strike concessions from this bank.
  Now, what kind of concessions are being granted? The purpose of CRA 
was to have lending by banks in the communities they serve. But what 
CRA has turned into is a vehicle for extortion, whereby banks are 
accused of not meeting the CRA requirements, whether they have an 
excellent CRA record or not, but the protest are withdrawn in exchange 
for agreeing with protestors to meet a series of demands, and often 
these agreements include cash payments, thinly disguised as donations. 
Banks are being required to make cash payments to the professional 
protester groups. They have, in the past, under duress in my opinion, 
agreed to donate a percentage of their profits to the very institutions 
that have filed protests against their actions with the Federal 
regulator. They have been forced, in my opinion, under duress, into 
agreeing to quotas and set-asides in hiring, in purchases, in 
promotions.
  So what has happened all over America is that under a provision of 
law that was supposed to encourage banks to lend in the communities 
that they serve, we now have banks being extorted and being forced to 
make cash payments which are little more than bribes, being forced to 
set up quotas and set-asides, being forced to give concessions to 
people who are selling goods and services, being forced to agree to 
hire and promote based on things other than merit. Needless to say, 
there is a growing concern about this in America. That concern is 
reflected in the Senate where we rejected a proposal to extend this CRA 
requirement to credit unions. We also had strong support to exempt 
small banks from the CRA requirement.
  Now we have before the Senate a bill that would try to promote a more 
competitive financial structure in America, a goal I very much support 
and have advocated for years. So let me make it clear, I am for 
legislation. But unfortunately, the bill has four different provisions 
that dramatically expand CRA powers, and in essence, give

[[Page S11179]]

the Federal Government, for the first time, the ability to impose 
penalties on banks, and even to impose penalties on nonbanking 
subsidiaries and affiliates, as well as create new hoops and new 
hurdles that banks would have to jump through to get certification as 
financial services holding companies or to engage in certain activities 
in subsidiaries.
  What this would do is literally set up the vehicle for billions of 
dollars to be extorted from financial institutions in America by people 
who are professional protesters. You can hire groups to go to your 
hometown and stage a professional protest under the name of CRA, with 
the objective of extorting banks and forcing them to contribute, 
forcing them to make cash payments, and forcing them to do things that 
are an embarrassment in an economy that has always been the freest, 
most honest and most transparent economy in the world.
  Now, when we set out to write this new major piece of legislation, 
particularly since it came over to us from the House of Representatives 
very late in the session, it appeared, for a time, that we reached an 
agreement that in this legislation we would leave the CRA battle alone, 
that this bill would not be used as a vehicle either to expand or 
reform CRA. That is to say that people like Senator Shelby and myself 
would not use the bill to try to repeal CRA or reform it, something we 
very much favor; but we asked those on the other side not to use this 
bill to try to expand CRA. That effort apparently, broke down, and we 
have in the bill now four major expansions of CRA. Senator Shelby and I 
have said that we are going to oppose this bill as long as these 
provisions are in the bill, as long as the bill is not neutral with 
regard to CRA.
  Now, I want to make it clear that we are willing to work out an 
agreement. I want to go on record here today as to what we are willing 
to do. I see that my distinguished colleague, the senior Senator from 
Alabama, is here. Let me speak for both of us for a moment, and then I 
will let him speak for himself. We are willing to do either one of two 
things that could expedite the consideration of this bill. No. 1, we 
are willing to reach an agreement where the bill would be silent on 
community reinvestment. We would not seek to repeal it, we would not 
seek to reform it or restrict it; we would leave this evil where it 
lies. But we would require that it not be expanded.
  When I made this proposal in the Banking Committee, it reminded me of 
Lincoln's position on slavery in the 1860 Presidential campaign. His 
position was that, as much as he abhorred the institution of slavery, 
where this evil existed, we would leave it alone, but we would not 
allow it to be expanded.
  Now, with regard to CRA, that is a proposal that we have made in the 
past. I wanted to go on record making that proposal today, as much as I 
am opposed to CRA and believe that it is powerfully abused. If someone 
is representing the interests of banks or security companies, or 
insurance companies, and they are for this bill, all they have to do to 
get this bill before the Senate and in a position where it can become 
law is induce the people who want to expand CRA simply to agree with us 
to drop the CRA provisions from the bill. Proponents of CRA won't try 
to expand CRA, and we won't try to use this bill a vehicle to overturn 
those provisions that already exist in law.
  A second, alternative proposal that we have made in writing, both to 
the minority members on the committee and to the chairman, is a 
proposal that says the following: the bill would expand CRA to include 
being considered at the formation of the new financial institutions 
that will exist under this bill. In other words, just as with the 
formation of a bank holding company, CRA performance can be evaluated 
in connection with the creation of a financial services holding 
company. But if we are going to expand CRA in that manner, there are 
two reforms to CRA that we want, and I submit that neither of these 
reforms is unreasonable.
  The first reform we want is an anti-extortion provision, which says 
that CRA is about lending in the community you serve. Under this 
reform, we would have a strict prohibition against kickbacks, cash 
payments, quotas, and set-asides, in connection with purchases, hiring, 
and promotion.
  The idea that professional protesters, as part of withdrawing their 
protest and letting banks proceed with their business, would then be 
hired by the bank in an advisory capacity to advise them on various 
issues conjures up in my mind the ``protection'' racket of an earlier 
era, where the little merchant had the gangster come into his place of 
business and say, ``You know, somebody could come in here and do you 
some real harm, and I am willing to protect you.''
  Now, some people have said--being critical of Senator Shelby and 
myself--well, the banks aren't complaining. Well, the plain truth is 
that many of the merchants who were being extorted by the gangsters 
were afraid to complain. But it was wrong and we did something about 
it. You can call up the President of any bank in America, or any head 
of any Government regulatory agency and, if you have their confidence, 
ask them off the record, ``Is CRA, as it now works, extortion?'' They 
are going to tell you, in all probability, that the answer is yes.
  So what we want is a simple anti-extortion provision that says that 
CRA performance can be evaluated in connection with the formation of 
financial services holding companies under the bill, but these 
institutions can't pay under-the-table bribes or kickbacks, or they 
can't, as part of the settlement, enter into agreements that have 
nothing to do with the purpose of CRA and have everything to do with 
extortion.
  The second change we want is eminently reasonable, as well. It is 
that if a bank is in compliance with CRA, if they have been examined 
for CRA and they have been given a favorable CRA rating, then they 
should be deemed to be in compliance with CRA on anything they want to 
do that requires CRA compliance until their next examination. The idea 
that a bank today can get an excellent CRA rating, and then they apply 
for a merger and CRA protesters come in and shake them down again is 
unconscionable to me, and it is unreasonable. I can't, for the life of 
me, see how anybody could be against an anti-extortion provision, and I 
can't see how anybody could be opposed to a provision that says if you 
have a passing rating on CRA when you apply for a merger or an 
acquisition, you are deemed to be in compliance until you are reviewed 
again and get another rating.
  Senator Shelby and I have offered to do one of two things--either 
drop all the CRA requirements and go on with this bill, or expand CRA 
as we have described, but together with a simple anti-extortion 
provision and a simple provision that says if you are in compliance, 
you are in compliance.
  Now, in the absence of an agreement on these issues, Senator Shelby, 
I, and others intend to resist. We are simply a small number of 
Members, and I understand that there are many powerful interests around 
America who have interest in this bill. I say that Senator Shelby, I, 
and others have a principle in this bill. Our principle is that we are 
against extortion, and we are not going to be parties to expanding it. 
We may not have the votes today to get rid of it. We may not have the 
votes to purge this evil from the American financial system. But I 
think under the rules of the Senate we do have the power--I hope we 
do--to prevent it from being expanded.
  I just want to say to those who have an interest in this bill, if you 
want this bill passed, urge those who are on the other side of this 
issue to look at our reasonable proposal. The rules of the Senate were 
established to protect the rights of the minority. They were 
established so that if a few Members felt strongly about something and 
they were willing to stand up for their principles and beliefs, it was 
hard to run over them.
  It is like Washington said when Jefferson came back from France, 
where he had been Foreign Minister to France while the Constitution had 
been written. Jefferson asked Washington what the Senate was for. His 
argument was, if you have a House of Representatives and that is the 
voice of the people, what do you need a Senate for? Washington, who, 
like Jefferson, was a southerner, was accustomed, when he was drinking 
tea, to sometimes pouring it into the saucer and letting it cool for a 
moment and then pouring it back into the cup and drinking it. So he 
said to Jefferson that the House--

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which has passed this financial services bill, even if only by one 
vote--will be like this cup and it will catch the heat and the fire of 
the moment; but the Senate will be the saucer in which we will allow 
the passions of the moment to cool. That is what role Senator Shelby 
and I intend to fulfill as we exercise our rights. It may be that we 
can be run over and this bill can be passed; maybe not. I believe that 
those who want this bill would be well advised to urge Senator Sarbanes 
and Senator Moseley-Braun, who are so determined to expand CRA--I think 
it would be advisable to ask them whether that is worth killing this 
bill over. Can't you just take a time-out on CRA and leave it out of 
the bill? Or, if you can't do that, why not agree to a compromise 
whereby those who oppose CRA are willing to let you expand it, but you 
have to give them an antifraud provision, and you have to give them 
reasonable enforcement, so that if you are complying with the law, you 
are considered to be complying with the law?

  I hope people who are for this bill with their great economic 
interest will call on those who are on the verge of killing it in the 
name of CRA to be reasonable and let us move ahead.
  I say today that unless there be any confusion from this point on, as 
one single Member of the Senate, I intend to do everything in my power 
to impede this bill unless these problems are resolved. I intend to do 
everything in my power to use all the rules of the Senate, no matter 
how long it takes, no matter how difficult it may be. It may be that 
Senator Shelby and I, and others, can be run over, but it may be that 
the rules of the Senate are sufficiently strong that with our 
determined resistance this bill will die unless some accommodation is 
given on this issue.
  I urge those on the other side of this issue--I am not talking about 
the other side of this body. I am talking about the people who have 
invested millions, billions, trillions in banks, insurance companies, 
securities companies who know in their heart that we are right about 
community reinvestment--I urge them to call on those who are trying to 
use this bill as a vehicle to expand community reinvestment not to kill 
this bill over this issue.
  I yield the floor.
  Mr. SHELBY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. SHELBY. Mr. President, I want to first associate myself entirely 
with the remarks of the Senator from Texas. He was speaking very 
articulately for himself. But he was also speaking for me and a lot of 
other people, I believe, here in the Senate when he was talking about 
the problems with H.R. 10. There are a lot of good things in H.R. 10. 
But one of the most reprehensible things, I believe, Mr. President, is 
the expansion of the Community Reinvestment Act. Senator Gramm has gone 
to great lengths to explain that tonight.
  But before any of my colleagues would think about voting for the 
bill, if it comes up, H.R. 10, I think they ought to ask themselves and 
ask their local bankers, small bankers, the small directors and the 
officers if they in America support these measures that I think are 
reprehensible, such as increased administrative enforcement authority 
of the regulators to fine directors and officers of banks up to $1 
million a day for CRA noncompliance. That is not the law today.
  Two, that would make activities like insurance sales, or mutual fund 
sales, subject to CRA compliance on all depository institution 
affiliates on an ongoing basis. That is not the law today; and 
regulatory authority to shut down any affiliate within the holding 
company if just one subsidiary depository institution falls out of CRA 
compliance.
  Just think about this. These are sweeping, sweeping changes in the 
law as we know it today.
  Senator Gramm talked at length about passing this banking reform 
bill--and I think it has a lot of reform in it--and keeping CRA 
neutral; not bother or try to repeal the CRA law as it exists today, 
although I personally would like to; leave it alone for another day, 
but not to try to expand it, either.
  Those are some of my concerns.
  Senator Gramm and I have offered and we are hoping to negotiate with 
the proponents of this legislation for a resolution to the problems 
dealing with CRA issues. I will go over them one more time.
  Mr. President, it would apply to the formation of financial services 
holding companies the same CRA structure that applies to the formation 
of bank holding companies today. I don't see anything wrong with that. 
It would be uniform, and it makes a lot of sense.
  Second, Mr. President, any financial institution that has been found 
to be in compliance with CRA in its most recent exam shall be deemed to 
be in compliance with CRA for all purposes and for any action until its 
next regularly scheduled CRA exam.
  And, thirdly--I think this is very important--to put forth some 
language in there dealing with antifraud, antibribery provisions, and 
to say basically that it shall be illegal for any financial institution 
in connection with the CRA review evaluation or consideration to give 
anyone not employed by the bank any grant or subsidy in cash, or in 
kind, or to establish any quota, or set aside for employment, 
management, sales, purchases, or other business activities other than 
activities voluntarily undertaken by the financial institution to meet 
the credit needs of the local communities in which the financial 
institution is chartered.
  This makes a lot of sense to me. I think it makes sense that people 
would focus in on this as we debate this bill.
  But I just want to again say that we should go ahead if we could 
knock out and make CRA neutral in this; go ahead and work on the merits 
of H.R. 10, which are many, and try to do something. If we can't, 
Senator Gramm--and there will be others--and I are going to do 
everything we can to protect our rights here in the Senate.

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