[Congressional Record Volume 145, Number 64 (Wednesday, May 5, 1999)]
[Senate]
[Pages S4736-S4788]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
FINANCIAL SERVICES MODERNIZATION ACT OF 1999
The Senate continued with the consideration of the bill.
Mr. DASCHLE addressed the Chair.
Mr. SARBANES. Mr. President, I yield such time as the minority leader
may consume.
The PRESIDING OFFICER. The Democratic leader.
Mr. DASCHLE. Mr. President, I thank the distinguished ranking member,
the Senator from Maryland. I thank him and the Democratic members of
the Banking Committee for the tremendous leadership and patience that,
in particular, Senator Sarbanes has demonstrated in getting us to this
point.
I also want to acknowledge the efforts of all my colleagues on the
Senate Banking Committee, and especially the fellow Democrats of the
Banking Committee, who have put so much effort and energy and diligence
into bringing us to this very important debate, and ultimately this
vote which we will shortly have.
I might add, as I know the distinguished Senator from Maryland has
already noted, that every Democratic member of the Senate Banking
Committee is a cosponsor of the substitute we will be voting on
shortly. Together, my colleagues on the committee have produced a
proposal to give financial service companies new freedoms and new
flexibility--without risking the financial well-being of our economy or
of individuals. It is a balanced, responsible proposal--one the
President can sign--and, on behalf of the entire Democratic caucus, I
thank them for producing it.
Let me be very clear, Mr. President. Senate Democrats support
financial services modernization. We want to see a bill passed. There
is no good reason that can't happen this year--in fact, this week.
This should not be a partisan issue. Historically, it has not been
one.
Our substitute is based on last year's H.R. 10. The Senate Banking
Committee passed H.R. 10 on a vote of 16 to 2--16 to 2. Republicans on
the Senate Banking Committee supported H.R. 10 last year. So did
virtually every major financial services industry group.
In the House, the House Banking Committee passed a very similar bill
this year. Again, the vote was overwhelmingly bipartisan--51 to 8.
[[Page S4737]]
Until recently, Democrats and Republicans have agreed overwhelmingly
that the path laid out in our substitute was the right path. That has
all changed. Reform has suffered a major setback this year. In the
Senate Banking Committee, the majority forced through a new, harshly
partisan bill on a party line vote of 11 to 9. This new bill shattered
the consensus that so many people worked so long and so hard to create.
In place of the broad support enjoyed by H.R. 10, the committee bill
is opposed now by every Democrat on the Banking Committee. It is also
opposed by every civil rights group. It is opposed by community groups,
community organizations, and local governmental officials.
Instead of a clear path to enactment--which is what we would have had
had we stayed with the bipartisan approach to H.R. 10--financial
services reform is now on two tracks. There is the veto track. And make
no mistake, S. 900 is on this track. It will be vetoed if the President
receives it in its current form. Then there is the enactment track.
That is the track our substitute and the bipartisan House Banking bill
are on.
We are not saying, ``It is our way, or no way.'' Neither side should
ever issue such an ultimatum. That is not the way of the Senate. We
have discussed with the majority leader our desire to find a bipartisan
way to get the financial services modernization bill back on the
enactment track. We have agreed to a floor procedure which will enable
us to finish this bill in an expeditious manner.
We do not want to delay this bill any longer. That has already
happened. It has already been delayed. As I said, we want to pass
financial services modernization this year, and perhaps even this week.
So the choice for the Senate is clear. It is partisan brinkmanship, or
bipartisan accomplishment.
We stand ready on this side of the aisle to deliver a bill that the
President can sign. He has cited four serious flaws in S. 900 which he
has said will force him to veto the bill. Our substitute corrects all
four flaws.
First and foremost, our substitute does not gut CRA--the Community
Reinvestment Act--as S. 900 does. The CRA has proven a huge success in
expanding access to credit and investment in low- and moderate-income
communities. Investment capital is the lifeblood of these communities.
That capital must continue to be available to qualified borrowers in
all communities. We cannot draw red lines around the American dream.
Democrats will not support a bill that undermines the effectiveness of
the CRA.
The second major difference between our substitute and the underlying
bill is the way the two proposals deal with the separation of banking
and commerce.
For nearly 70 years, since the collapse of the banking industry
during the Great Depression, U.S. law has separated banking from other
commercial activities. An army of experts--from Chairman Greenspan to
Secretary Rubin to former Federal Reserve Chairman Paul Volcker--
believe that separation must be maintained.
But you don't have to look in the history books to understand why
mixing banking and other commercial activities is risky business. Look
at the recent currency crisis that started in Asia and spread to some
of our Latin American neighbors. If anything, the globalization of our
economy makes a reasonable separation between banking and other
commercial activities even more important now than it was when those
laws were first enacted.
Unfortunately, as the distinguished Senator from Maryland has
observed, the underlying bill weakens the separation of banking and
commerce in a number of ways. Our alternative does not. It reflects the
careful compromises developed last year. It preserves the separation
between banks and other commercial activities without in any way
limiting the flexibility financial service companies need in today's
economy. It strikes the right balance between opportunity and
responsibility.
Let me interject here that, should our substitute fail, my colleague
from South Dakota, Senator Johnson, intends to offer a related
amendment. It would close a loophole which commercial companies
currently use to mix banking and commerce by acquiring existing unitary
thrift holding companies. I will strongly support his effort.
A third difference between our substitute and S. 900 has to do with
consumer protection. H.R. 10--the bill the Banking Committee passed out
last year with overwhelming support--included a number of consumer
protections having to do with such things as risk disclosure and
licensing of personnel. Those protections were essential for its
passage last year. They remain essential to the American people. They
have all been stripped out of the underlying bill--every one of them.
They are all included in the Democratic alternative. They must be
included in any financial services bill this Congress passes, or the
President will veto it.
There is a fourth way in which our bill differs from both the
committee bill and from last year's bill. It involves what financial
activities can take place in subsidiaries of banks, and under what
conditions.
As the legislative process has progressed, the Treasury Department
has agreed to significant additional safeguards regarding the financial
activities of banks' operating subsidiaries. Our alternative
incorporates these safeguards. At the same time, it would permit banks
to structure certain new activities in these so-called ``op-subs'' as
they see fit. Again, it balances opportunity and responsibility.
Mr. President, that is where we stand--the juncture of two tracks:
The veto track, and the enactment track.
S. 900--as it is currently written--will put us on the veto track. We
know that:
It undermines the Community Reinvestment Act.
It breaches the separation of banking and commerce.
It ignores consumer protection.
And, it fails to strike a responsible balance on the question of bank
operating subsidiaries.
The failure to proceed on a bipartisan track has placed this bill at
risk. Unless we negotiate with each other once again in good faith, I
must say this bill will be vetoed.
If that happens, it would represent a serious failure on the part of
this Senate.
More important, it would deprive American businesses, and the
American people, of important tools and safeguards they need in this
new global economy.
We appeal to our colleagues: Let's get this bill back on track. Let's
adopt this alternative. Let's pass financial services modernization.
This year. This week. We can do it. I hope we will.
Mr. GRAMM. Mr. President, I thank the distinguished Democrat leader
for the effort he has made to get the Senate to this point. Obviously,
when we have votes on contentious issues, ultimately Members come to
the floor and vote. Somebody wins and somebody loses. I think on many
of the votes we are going to have, neither of us knows what the outcome
will be.
We are beginning a process that will go through conference. We have a
bill in the House that is very different. I think we all want to write
a bill that the White House can sign.
Yesterday, the President came out with six conditions for signing the
bill, two of which your substitute does not comply with. Obviously, we
are going to have to work with the White House on a continuing basis.
I want to assure you, Mr. Leader, I will also sit down, roll up my
sleeves, and try to work. Maybe we can't solve these problems, but if
it is possible to solve them, I want to do it.
I thank the Senator for his help.
Mr. President, how much time remains on both sides?
The PRESIDING OFFICER. The Senator from Texas has 11 minutes, and the
Senator from Maryland has 7 minutes 24 seconds.
Mr. GRAMM. I yield 5 minutes to the distinguished Senator from
Wyoming.
Mr. ENZI. Mr. President, I thank the chairman of the Banking
Committee. I thank him for the time. I also thank him for the
leadership and direction and focus he has had on this issue and his
willingness to talk to others about the issues.
I rise to oppose the substitute amendment offered by the ranking
member of the Banking Committee. Most of the reasons for my opposition
[[Page S4738]]
lie within the great expansion of the Community Reinvestment Act, or
CRA.
For example, the amendment would allow the Federal banking agencies
to take actions, including divestiture, forcing people to sell off
parts of their business if an institution fails to maintain a
satisfactory or better CRA rating. Currently, the enforcement action
authorized for the banking agencies is the ability to deny the
noncompliant banks' application to acquire another facility.
The substitute would expand the reach of CRA to noninsured
institutions or wholesale financial institutions, and they don't even
deal with consumers. Previously it had been argued that banks and
thrifts convey an economic benefit as a result of deposit insurance,
and thus the CRA is justifiably imposed on those institutions. But now,
for the first time, this amendment would expand CRA to the non-FDIC-
insured institutions.
It would allow a Federal banking agency to take enforcement action,
such as the cease and desist order, civil monetary penalties, or even
criminal sanctions, all for not complying with the CRA. That is an
expansion. These penalties could even be extended to an officer or
director of the holding company or bank.
In addition to extraordinary CRA expansion, I found several other
problems with the substitute amendment. First, it reduces the authority
of State insurance commissioners and creates the National Association
of Registered Agents and Brokers, NARAB. The insurance agents in
Wyoming oppose the NARAB provision because they believe it is the
precursor to Federal regulation of insurance and Federal bureaucracy.
The substitute amendment also reduces the ability of the bank to
engage in trust and fiduciary activities. On the other hand, S. 900
allows a bank to engage in traditional trust and fiduciary activities,
just as they have done for so many years.
Additionally, it is apparent that there is not consensus in the
substitute bill, and it differs from the product of last year. I voted
for H.R. 10 last year. I will not vote for this substitute. It is not
the same bill. The most significant difference lies in the operating
subsidiary provisions. Last year, H.R. 10 only passed the House by one
vote. Just last week the House Commerce Committee held a hearing on
H.R. 10, which is nearly identical to the substitute amendment, and the
Members on both sides of the aisle were very critical of the bill.
I strongly encourage my colleagues to oppose the substitute
amendment. It does not represent a consensus, and it is certainly more
burdensome and expansive on the affected industries. It is not the
product of compromise.
I yield back the remainder of my time.
Mr. SARBANES. Mr. President, what is the parliamentary situation?
The PRESIDING OFFICER. The Senator from Texas controls 7 minutes 37
seconds, and the Senator from Maryland has 7 minutes 24 seconds.
Mr. SARBANES. I thank the Chair.
Mr. President, I rise in very strong support of the substitute
amendment, which is the provisions contained in S. 753, introduced by
Senator Daschle and all of the Democratic members of the Senate
Banking, Housing, and Urban Affairs Committee.
We have been at this for a long time--those on the committee and
other Members who have been interested in the issue of financial
services modernization. We have been seeking to find a way to pass a
bill to protect safety and soundness, to protect consumers, to ensure
that CRA not be undercut or eroded; and that permits financial service
institutions within the realm of financial services, in effect, to
enter into new arrangements in terms of affiliations and the activities
they can conduct.
This is something that has been urged on us. Those in the industry
think it would be helpful to them. Some of this has been taking place
without statute, but it is uncertain, unsure. It happens through
regulation; it happens through court decision. I think most people
think if we could arrive at a statutory framework in which to place
these developments that that would be a desirable objective.
That is why we introduced S. 753. That is why we are offering it as a
substitute amendment to the committee bill. It essentially tracks the
language of the bill that was reported last year on a vote of 16-2 from
the committee with one exception with respect to operating
subsidiaries. This substitute permits banks to conduct some activities
in an operating subsidiary--not all of the activities they can now
engage in--and that reflects, in part, an effort by Secretary Rubin to
try to reach an accommodation to ensure that some of the concerns that
were raised are addressed.
There is a conflict, a difference of view here, a very strong
difference of view here between Secretary Rubin and Chairman Greenspan,
both of whom are saying to have a bill we have to have a good bill, and
their definition of a good bill, each of them, is one that corresponds
to their views, particularly on this important issue of the op-sub
versus the affiliate, as far as carrying on activities.
In this regard, I point out as we listen to Secretary Rubin that we
are also listening, of course, to the possibilities of a Presidential
veto. We can't get a bill into law without the President's signature--
that is obvious and clear--and the President has taken a very strong
position on this legislation. In fact, he has sent a letter to the
committee stating in the clearest possible terms that he would veto the
committee bill if it was presented to him in its current form. That is
when we began the markup in the committee. The committee has issued a
statement of administration policy in which they say:
Nevertheless, because of crucial flaws in the bill, the
President has stated that if the bill were presented to him
in its current form, he would veto it.
We have had extended debate on the differences between the committee
bill and the substitute amendment. Senator Gramm and I and others are
participating in that. I am frank to say I thought the minority leader,
Senator Daschle, just laid out a very clear, concise, extremely well-
stated position with respect to the differences between these
approaches.
We differ in banking and commerce. The substitute seeks to, in
effect, reaffirm, make clearer, the division between banking and
commerce. We differ, as I indicated, with respect to the operating
subsidiary issue, which of course involves the sharp difference between
the Secretary of the Treasury and the Chairman of the Federal Reserve.
We differ very strongly on CRA. It is asserted that the substitute
expands CRA. In fact, what the substitute seeks to do is to ensure that
if banks move into securities and insurance, that those banks should
have a satisfactory CRA rating before they can undertake such a merger
or affiliation.
It requires the banks to be in compliance with CRA. It in effect says
that a bank with an unsatisfactory CRA rating is not going to be able
to use this additional power now being given to them to move into
securities and to move into insurance. At the moment, they do a limited
amount of that activity. But if they are going to actually go into it
in a full-scale way, which is what this legislation offers--which both
pieces of legislation offer to the banks, we do not differ on that
proposition; both as a part of the financial services modernization
approach are prepared to permit that--but we feel very strongly that
they should be in compliance, the banks should be in compliance with
CRA, if they intend to do that.
A number of very important groups in the community support the
substitute. I will have printed in the Record letters from civil rights
organizations--from Hispanic organizations, which have been very strong
in perceiving that CRA has made a big, big difference in their
community in terms of home ownership and in terms of investment, and
that there has been very significant benefit for Native American
organizations that report on what has happened on the Indian
reservations, from farm and rural groups, and from over 200 mayors, all
of whom prefer the substitute amendment.
I ask unanimous consent those letters be printed in the Record.
There being no objection, the letters were ordered to be printed in
the Record, as follows:
[[Page S4739]]
Leadership Conference
on Civil Rights
Washington, DC, March 18, 1999.
Hon. Phil Gramm,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Senator Gramm: We are writing to express our deep
concern over your public mischaracterizations of the
Community Reinvestment Act (CRA), and over the treatment of
CRA in the Financial Services Modernization Act of 1999 as
reported out of the Senate Banking Committee on March 4.
The Leadership Conference on Civil Rights is the nation's
oldest, largest, and most diverse coalition of organizations
committed to the protection of civil rights in the United
States. As leaders of the civil rights community, we take
strong issue with your description of CRA as a vehicle for
``fraud and extortion'' \1\ and to your characterization of
CRA as ``perhaps the greatest national scandal in America.''
\2\ To the contrary, we agree with President Clinton that the
Community Reinvestment Act is ``a law that has helped to
build homes, create jobs, and restore hope in communities
across America.'' \3\
---------------------------------------------------------------------------
Footnotes at end of letter.
---------------------------------------------------------------------------
CRA has proven to be an effective means of encouraging
federally insured financial institutions to extend prudent
and profitable loans in underserved urban and rural
communities. CRA has been credited with the dramatic increase
in homeownership rates among minority, and low- and moderate-
income individuals. Since 1993, the number of home mortgage
loans extended to African-Americans has increased by 58%, to
Hispanics by 62%, and to low- and moderate-income borrowers
by 38%.\4\ CRA has similarly served as the impetus for
revitalizing distressed rural and urban communities through
small business and small farm lending and community
development investments.
Data from federal bank regulators reveal that the CRA has
not been used arbitrarily to block or delay bank applications
to the regulators. Community groups and others rarely file
adverse comments to bank applications based on CRA. Less than
1% of bank applications have received adverse comments.\5\
Moreover, assertions that banks provide commitments to
community groups and others because they are afraid that
regulators will deny or substantially delay the processing of
their application is not supported by the record. Bank
applications that receive adverse comments are denied only 1%
of the time.\6\ In addition, few applications are
substantially delayed due to an adverse CRA comment.
Despite the strong record of CRA success and the lack of
evidence of abuse, the bill that was reported out of the
Senate Banking Committee seriously weakens CRA in three ways.
First, it does not require that all banks in a bank holding
company have a ``satisfactory'' CRA rating to exercise the
new powers provided by the legislation. This would
substantially roll back CRA by permitting banks that are not
meeting the credit needs of their communities to benefit from
the expanded powers to affiliate with securities and
insurance firms.
Second, the bill would provide a ``safe harbor'' from
public comment on CRA performance for banks with a
``satisfactory'' CRA rating. Under the bill, an institution
receiving at least a satisfactory CRA rating during the
previous 36-month period would be deemed in compliance with
CRA and immune from public comment unless individuals present
``substantial verifiable information'' to the contrary
arising since the last examination. Since over 95% of banks
receive a satisfactory rating, the provision would
fundamentally undercut the right of community groups and
others to comment on a bank's CRA performance.\7\ Community
group participation in the CRA process has been critical to
the success of CRA. Public comment on other aspects of a
bank's performance, such as management or financial
resources, would not face similar limitations on the scope of
information that may be introduced nor be subject to the same
burden of proof.
Third, the bill exempts banks with less than $100 million
in assets from CRA. This represents 63% of all banks.\8\ If
enacted the provision will have devastating consequences for
rural communities because small banks are often the only
source of credit in rural areas. Despite claims that small
banks by their nature serve the credit needs of local
communities, data from regulators reveal that these
institutions have disproportionately poor CRA records.
We would note that the financial services bill reported out
of the House Banking Committee last week on a bipartisan vote
of 51-8 did not contain any of these shortcomings in regard
to CRA. This is in sharp contrast to the 11-9 party line vote
by which the Senate Banking Committee reported out its bill,
in significant measure because of the controversial CRA
provisions.
Fair access to credit, which is the purpose of CRA, is a
critical civil rights issue. As the President has said, ``CRA
is working, and we must preserve its vitality as we write the
financial constitution for the 21st century.'' \9\ As
reported out of the Senate Banking Committee, the Financial
Services Act of 1999 would drastically weaken CRA. Unless
this shortcoming is addressed, we would urge strong
opposition to this legislation.
Sincerely,
Dr. Dorothy I. Height, Chairperson, Leadership Conference
on Civil Rights; Barbara Arnwine, Executive Director,
Lawyers' Committee for Civil Rights Under Law; Andrew
H. Mott, Executive Director, Center for Community
Change; Wade Henderson, Executive Director, Leadership
Conference on Civil Rights; Karen Narasaki, Executive
Director, National Asian Pacific American Legal
Consortium; JoAnn K. Chase, Executive Director,
National Congress of American Indians.
Shanna L. Smith, Executive Director, National Fair
Housing Alliance; Hugh B. Price, President and Chief
Executive Officer, National Urban league; Hilary
Shelton, Washington Bureau Director, National
Association for the Advancement of Colored People; Raul
Yzaguirre, President, National Council of La Raza;
Manuel Mirabal, President and Chief Executive Officer,
National Puerto Rican Coalition, Inc.
footnotes
\1\ Congressional Record, September 30, 1998.
\2\ Congressional Record, October 5, 1998.
\3\ Letter from President Clinton to Senator Phil Gramm,
March 2, 1999.
\4\ Home Mortgage Disclosure Act data cited in Secretary
Robert Rubin's letter to Senator Phil Gramm, February 23,
1999.
\5\ Comptroller of the Currency, Office of Thrift
Supervision, Federal Deposit Insurance Corporation, and
Federal Reserve Board.
\6\ Id.
\7\ Federal Financial Institutions Examination Council.
\8\ Federal Deposit Insurance Corporation.
\9\ See supra note 3.
____
April 8, 1999.
Hon. Paul S. Sarbanes,
Senate Hart Office Building, U.S. Senate, Washington, DC.
Dear Senator Sarbanes: The undersigned organizations write
to express strong opposition to the Financial Services
Modernization Act of 1999 as reported out of the Senate
Banking Committee on March 4th. The Act would restructure the
financial services industry in the United States by allowing
broad affiliations among banks, insurance companies, and
security firms. Currently, the law strictly limits ownership
among different financial entities and between financial
companies and commercial corporations. The Act seeks to ease
these restrictions, without commensurate expansion of the
Community Reinvestment Act (CRA) to cover insurance
companies, securities firms, mortgage companies, and other
financial entities allowed to affiliate with banks. The Act
would undermine one of the most effective revitalization
vehicles for underserved low-income and minority communities,
including Hispanic American communities across the country.
We have found, and research confirms, that all too often
the credit and financial needs of these communities are
severely underserved. Historically, many financial
institutions have avoided investing in these communities due
to their perceived higher level of risk. Unfortunately,
``perceived higher level of risk'' is often code for ``low-
income'' or ``minority.'' But the facts show that low-income
and minority communities are not inherently riskier than
other communities. In fact, most financial institutions find
them to be quite profitable, once they begin investing in
them. Unfortunately, without the CRA, many financial
institutions have not and would not be encouraged to do so.
As the data show, Hispanics are the fastest-growing
population in the United States. We are a growing force in
the expansion of homeownership and small business
development, two leading indicators of the economic well-
being of this country. For example, between 1987 and 1992,
Hispanic-owned business grew by 76%, compared to 26% for U.S.
businesses overall. According to a 1997 Harvard study, ``the
number of Hispanic homeowners has shown the most spectacular
rise'' in recent years compared to that of Whites and of
other minority groups. Population projections forecast
Hispanics to be the largest minority group in the U.S. by the
year 2005, causing the U.S. economy to be increasingly
dependent on the continued prosperity of the Hispanic
American community. Without the CRA, this growth may be
impeded.
As reported out of the Senate Banking Committee, the
Financial Services Modernization Act of 1999 would hinder
that growth by weakening the CRA in the following three ways.
First, a ``satisfactory'' CRA rating is not required in order
for financial institutions to enjoy the new powers afforded
to them by the legislation, thereby allowing banks to
exercise their privilege, even if they are not meeting the
credit needs of the communities where they do business.
Second, banks receiving a ``satisfactory'' CRA rating would
be given a ``safe harbor'' from public comment on CRA
performance. Since over 95% of banks receive a
``satisfactory'' rating, this would undermine the
effectiveness of the law by restricting a community's right
to voice its experience with banks. While a ``satisfactory''
rating provides a helpful guide to a bank's overall
performance, it may not provide an accurate picture at the
neighborhood level.
Third, the Act proposes to exempt all small rural banks
(those with less than $100 million in assets) from CRA,
thereby releasing 76% of all rural banks from their CRA
obligations. As with the safe harbor provision, this
undermines the spirit and the effectiveness of the law by
exempting most rural banks. This would have particularly
adverse consequences in low-income rural communities where
often the only source of
[[Page S4740]]
credit is a small bank. Moreover, researchers have found that
small banks have disproportionately poor CRA records compared
to larger banks, thereby highlighting the need for CRA in
rural communities and small towns.
CRA is one of the strongest incentives to encourage
investment in low-income and minority communities. Over the
last twenty-two years, neighborhoods across the country have
benefited from CRA-encouraged investments. This has resulted
in increases in homeownership and business development,
leading to the rebirth of many American neighborhoods.
However, many communities remain underserved by capital and
investment vehicles. For this reason, reinforcement, not
weakening, of CRA is critically needed. We urge you to
support the continued strengthening of America's communities
by vigorously opposing the Financial Services Modernization
Act of 1999 as reported out of Committee, and supporting
amendments that would strengthen the Bill's CRA protections.
Thank you.
Sincerely,
Rick Dovalina, National President, League of United Latin
American Citizens; Arturo Vargas, Executive Director,
NALEO Educational Fund; Ruth Pagani, Executive
Director, National Hispanic Housing Council (NHHC);
Juan Figueroa, President and General Counsel, Puerto
Rican Legal Defense and Education Fund (PRLDEF);
Antonia Hernandez, President and General Counsel;
MALDEF; Raul Uzaguirre, President and Chief Executive
Officer, National Council of La Raza (NCLR); Manual
Mirabal, President and Chief Executive Officer,
National Puerto Rican Coalition (NPRC).
____
National Congress of
American Indians,
Washington, DC, April 14, 1999.
Hon. Phil Gramm,
Chairman, Committee on Banking, Housing and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Senator Gramm: On behalf of the National Congress of
American Indians (``NCAI''), we are writing to express our
serious concern over the treatment of the Community
Reinvestment Act (``CRA'') in the Financial Services
Modernization Act of 1999. NCAI is the oldest, largest and
most representative national Indian organization devoted to
promoting and protecting the rights of tribal governments and
their citizens.
The CFA has proven to be an effective means of encouraging
federally insured financial institutions to extend prudent
and profitable loans in traditionally underserved areas
including Indian Country. Specifically, the CRA has helped
focus attention to the challenges of extending credit to
reservations under current law and has acted as a catalyst to
reservation based economic development. Since the
implementation of the CRA, Native American groups and banks
have negotiated agreements for lending more than $155 million
within Indian Country.
In its current form, we believe the Financial Services
Modernization Act of 1999 would seriously erode the
effectiveness of the CRA, a law that has certainly helped to
build homes, create jobs and restore hope in many of our
communities. We are particularly concerned that the bill
reported by your committee would exempt small rural banks
from coverage by the CRA and would create a ``safe harbor''
under CRA for banks with satisfactory or better ratings thus
making it much more difficult for the public to comment on
problems with a bank's CRA performance in conjunction with an
expansion application filed by a bank. We are also concerned
that your bill does not require that all banks in a bank
holding company have a ``satisfactory'' CRA rating to
exercise the new powers provided by the legislation. This
would substantially roll back the CRA by permitting banks
that are not meeting the credit needs of communities to
benefit from the expanded powers to affiliate with securities
and insurance firms.
We strongly urge you to reconsider these provisions of the
bill. As reported out of the Senate Banking Committee, the
Financial Services Act of 1999 drastically weakens the CRA
and unless this shortcoming is addressed, we would urge
strong opposition to the legislation.
Sincerely,
W. Ron Allen,
President.
(Also signed by 17 representatives of tribes and tribal
organizations.)
____
The United States
Conference of Mayors
Washington, DC, April 29, 1999.
Dear Senator: The Community Reinvestment Act (CRA) has
played a critical role in encouraging federally insured
financial institutions to invest in the cities of our
country. Legislation reported out of the Senate Banking
Committee on March 4, the Financial Modernization Act of
1999, would dramatically weaken CRA. We strongly urge you to
oppose this legislation unless CRA is preserved and
strengthened.
The United States Conference of Mayors is the nation's
largest nonpartisan organization dedicated to ensuring the
economic stability of the nation's largest cities. As mayors,
we recognize that CRA has been an essential tool in
revitalizing cities around this nation. In fact, there is now
increasing recognition that the strength and economic health
of whole regions require strong and vibrant cities. Creating
new economic activity--new businesses, new jobs, new
homeowners--is key to the revival of urban areas and their
surrounding regions, CRA has been a key component to creating
this new economic activity.
Private sector investment encouraged under CRA has helped
to stabilize communities suffering from economic decline. CRA
has similarly helped to spur bank and thrift investment in
multi-family rental housing development and rehabilitation,
small business expansion, and community economic development.
CRA is a crucial complement to FHA Insurance, The HOME
program, Community Development Block Grants, and the low-
income housing tax credit. These programs, which have built
or financed the purchase of millions of units of affordable
rental and ownership homes, work so effectively because they
leverage tens of millions of private dollars.
In light of the success of CRA and our experiences with
community revitalization efforts, we are very troubled by
allegations that have been made that CRA has ``since been
corrupted into a system of legalized extortion.'' In contrast
to the description of community based organizations as
``racketeers'' and ``thugs'' many of us have participated in
successful partnerships with private institutions and members
of the community. These relationships have resulted in a
tremendous infusion of capital into underserved communities
as well as increased banking services.
The bill that was reported out of the Senate Banking
Committee would have dire consequences for the nation's
cities if it were enacted. First, the failure to require that
banks seeking to affiliate with securities and insurance
firms have a ``satisfactory'' CRA rating would permit banks
to ignore the credit needs of their communities and benefit
from the powers provided in the legislation. This is a
substantial rollback of CRA and would most certainly reduce
the flow of capital in these areas--returning us to a time
when banks and thrifts redlined communities with credit
worthy borrowers.
In addition, the bill provides a ``safe harbor'' from
public comment on CRA performance to banks with a
``satisfactory'' or better CRA rating. This provision
effectively eliminates public comment on a bank's CRA
performance. As you are undoubtedly aware, the opportunity to
comment on a bank's performance is a right given to every
member of the public. Public comment participation in the CRA
process is considered a critical component of the law's
success. The public often raises community investment issues
which have been overlooked by regulators. This provision
singles out CRA comments for unfair treatment. Unlike CRA
comments, individuals seeking to comment on other aspects of
a bank's performance would not face limitations on the scope
of information that they may introduce or be required to
carry a burden of proof. Moreover, data from regulators
indicated that the comment process has not been abused.
Finally, the bill exempts small banks in rural areas
(assets less than $100 million in assets) from CRA
obligations. These institutions represent 76% of banks and
thrifts in rural communities. This provision would seriously
compromise the capital needs of rural residents who depend
almost exclusively on small banks and thrifts to meet their
credit needs. Residents in these communities rely on CRA to
encourage banks to make mortgage, small farm, and small
business loans.
Prior to the enactment of CRA, banks, and thrifts routinely
redlined low- and moderate-income neighborhoods in our
nation's cities. The modest requirement in CRA that financial
institutions meet the credit needs of their communities has
lead to the successful channeling of billions of dollars into
localities.
As reported out of the Senate Banking Committee, the
Financial Services Act of 1999 would severely weaken CRA and
our nation's cities. Unless the onerous CRA provisions are
addressed and CRA is preserved and strengthened, we would
urge strong opposition to the Senate bill.
Sincerely,
Richard Arrington, Jr., Birmingham, AL
Patrick Henry Hays, North Little Rock, AR
Robert Mitchell, Casa Grande, AZ
Alex J. Harper, San Luis, AZ
Neil Giuliano, Tempe, AZ
George Miller, Tucson, AZ
Richard F. Archer, Sierra Vista, AZ
Marilyn R. Young, Yuma, AZ
Ralph Appezzato, Alameda, CA
Garry Fazzino, Palo Alto, CA
Mary Rocha, Antioch, CA
Shirley Dean, Berkeley, CA
Eunice M. Ulloa, Chino, CA
Judy Nadler, Santa Clara, CA
Chris Christiansen, Covina, CA
George Pettygrove, Fairfield, CA
Larry R. Green, Glendora, CA
Chris B. Silva, Indio, CA
Roosevelt F. Dorn, Inglewood, CA
Cathie Brown, Livermore, CA
Donald E. Lahr, Santa Maria, CA
David Smith, Newark, CA
William E. Cunningham, Redlands, CA
Willie L. Brown, Jr., San Francisco, CA
Harriett Miller, Santa Barbara, CA
Gary Podesto, Stockton, CA
Robert R. Nolan, Upland, CA
Wally Gregory, Visalia, CA
Robert Frie, Arvada, CO
Wellington E. Webb, Denver, CO
John DeStefano, Jr., New Haven, CT
[[Page S4741]]
Dannel P. Malloy, Stamford, CT
Anthony A. Williams, Washington, DC
Gerald Broening, Boynton Beach, FL
Alex Penelas, Miami-Dade County, FL
Mara Giulianti, Hollywood, FL
Ralph L. Fletcher, Lakeland, FL
Richard J. Kaplan, Lauderhill, FL
James F. Fielding, Port St. Lucie, FL
Alex G. Fekete, Pembroke Pines, FL
Joe Schreiber, Tamarac, FL
Bill Campbell, Atlanta, GA
Bob Young, Augusta, GA
Patsy Jo Hilliard, East Point, GA
Felix F. Ungacta, Hagatna, Guam
Stephen K. Yamashiro, Hawaii, HI
Lee R. Clancey, Cedar Rapids, IA
H. Brent Coles, Boise, ID
Gregory R. Anderson, Pocatello, ID
Neil Dillard, Carbondale, IL
Richard Daley, Chicago, IL
Jerry P. Genova, Calumet City, IL
Angelo A. Ciambrone, Chicago Heights, IL
Lydia Reid, Mansfield, IL
Stanley F. Leach, Moline, IL
Barbara Furlong, Oak Park, IL
R. David Tebben, Pekin, IL
Ross Ferraro, Carol Stream, IL
Stephen J. Luecke, South Bend, IN
Joseph R. Zickgraf, Columbia City, IN
James P. Perron, Elkhart, IN
Duane W. Dedelow, Jr., Hammond, IN
Paul W. Helmke, Fort Wayne, IN
Carol Marinovich, Kansas City, KS
David L. Armstrong, Louisville, KY
Waymond Morris, Owensboro, KY
Edward G. ``Ned'' Randolph, Jr., Alexandria, LA
Ruth Fontenot, New Iberia, LA
Walter Comeaux, Lafayette, LA
Marc Morial, New Orleans, LA
John Barrett, III, North Adams, MA
Nicholas J. Costello, Amesbury, MA
Thomas M. Menino, Boston, MA
David Ragucci, Everett, MA
Patrick J. McManus, Lynn, MA
Richard C. Howard, Malden, MA
Thomas V. Kane, Portland, ME
James L. Barker, Garden City, MI
Dennis Archer, Detroit, MI
Woodrow Stanley, Flint, MI
Aldo Vagnozzi, Farmington Hills, MI
Robert B. Jones, Kalamazoo, MI
David C. Hollister, Lansing, MI
Jack E. Kirksey, Livonia, MI
Linsey Porter, Highland Park, MI
Walter Moore, Pontiac, MI
Donald F. Fracassi, Southfield, MI
Sharon Sayles Belton, Minneapolis, MN
Chuck Canfield, Rochester, MN
Joseph L. Adams, University City, MO
Larry R. Stobbs, St. Joseph, MO
Harvey Johnson, Jr., Jackson, MS
Jack Lynch, Butte, MT
Patrick McCrory, Charlotte, NC
George W. Liles, Concord, NC
Jerry Ryan, Bellevue, NE
Ken Gnadt, Grand Island, NE
James Anzaldi, Clifton, NJ
Anthony, Russo, Hoboken, NJ
Sara B. Bost, Irvington, NJ
Margie Semler, Passaic, NJ
Albert McWilliams, Plainfield, NJ
Thalia C. Kay, Pemberton Township, NJ
Douglas Palmer, Trenton, NJ
Lavonne Bekler Johnson, Willingboro Township, NJ
Jan Laverty Jones, Las Vegas, NV
Sandra L. Frankel, Brighton, NY
Anthony M. Masiello, Buffalo, NY
James C. Galie, Niagara Falls, NY
William F. Glacken, Freeport, NY
James A. Garner, Hempstead, NY
Roy A. Bernardi, Syracuse, NY
Edward A. Hanna, Utica, NY
Ernest D. Davis, Mount Vernon, NY
Donald L. Plusquellic, Akron, OH
Richard D. Watkins, Canton, OH
Michael B. Keys, Elyria, OH
Paul Oyaski, Euclid, OH
Beryl E. Rothschild, University Heights, OH
William L. Pegues, Warrensville Heights, OH
Thomas J. Longo, Garfield Heights, OH
Debora A. Mallin, Bedford Heights, OH
Marilou W. Smith, Kettering, OH
David Berger, Lima, OH
Joseph F. Koziura, Lorain, OH
Cicil E. Powell, Lawton, OK
M. Susan Savage, Tulsa, OK
Bill Klammer, Lake Oswego, OR
Vera Katz, Portland, OR
Donald T. Cunnigham, Jr., Bethlehem, PA
Timothy M. Fulkerson, New Castle, PA
Joyce A. Savocchio, Erie, PA
Stephen R. Reed, Harrisburg, PA
Ted LeBlanc, Norristown, PA
Edward Rendell, Philadelphia, PA
Charles H. Robertson, York, PA
William Miranda Marin, Caguas, PR
James E. Doyle, Pawtucket, RI
Vincent A. Cianci, Jr., Providence, RI
James E. Talley, Spartanburg, SC
Jon Kinsey, Chattanooga, TN
Kirk Watson, Austin, TX
David W. Moore, Beaumont, TX
Ronald Kirk, Dallas, TX
Jack Miller, Denton, TX
Mary Lib Saleh, Euless, TX
Charles Scoma, North Richland Hills, TX
Lee P. Brown, Houston, TX
Michael D. Morrison, Waco, TX
Kenneth Barr, Fort Worth, TX
Deedee Corradini, Salt Lake City, UT
William E. Ward, Chesapeake, VA
Paul D. Fraim, Norfolk, VA
Peter Clavelle, Burlington, VT
Mark Asmundson, Bellingham, WA
Lynn Horton, Bremerton, WA
Paul Schell, Seattle, WA
Paul F. Jadin, Green Bay, WI
John D. Medinger, La Crosse, WI
Susan J. Bauman, Madison, WI
Maricolette Walsh, Wauwatosa, WI
John Lipphardt, Wheeling, WV
____
April 29, 1999.
Family Farm and Rural Organizations Support Community Reinvestment Act:
Oppose the Financial Services Modernization Act of 1999
Dear Senator: As organizations working with and
representing rural residents, we write to register our strong
opposition to the Financial Services Modernization Act of
1999 as reported out of the Senate Banking Committee in late
March. We are very concerned that the bill substantially
undercuts the existing Community Reinvestment Act (CRA) and
totally ignores the need to modernize CRA to meet the
dramatic changes in financial services across the country.
Rural America remains in desperate need of affordable
credit. CRA has been a law that has significantly expanded
access to credit in rural areas of our country. Despite this
increased access, there remain widening gaps and unmet needs
in ensuring credit access to all rural residents. A recent
Small Business Administration (SBA) report analyzing the June
1998 Federal Reserve Data shows a 4.6% decline in the number
of small farm loans. The value of total farm loans was $74.5
billion. Of great concern is the statistic that reveals a
troubling trend; the value of very large farm loans (over $1
million) increased by 25% while ``small'' farm loans (under
$250,000) increased a mere 3.9%. Larger loans are going to
fewer operations.
Rural areas continue to suffer from a serious shortage of
affordable housing. Farmers are facing the worst financial
conditions in more than a decade due to declining commodity
prices. Rural Americans continue to need the tools of the CRA
to ensure accountability of their local lending institutions.
CRA helps to meet the credit demand of millions of family
farmers, rural residents, and local businesses.
We strongly oppose three provisions in the Senate Banking
Committee reported bill which would have particularly
negative consequences for our communities.
First, the bill contains a ``safe harbor'' for banks that
have achieved a ``satisfactory'' CRA rating in each of its
examinations in the prior 36-month period. This provision
would make banks and thrifts immune to public comment during
pending expansion applications unless individuals or groups
are able to provide ``substantial verifiable information''
that the bank is not in compliance with CRA. This provision
would essentially eliminate the public's opportunity to
comment on a bank's performance in meeting the credit needs
of its communities. More than 95% of banks consistently
receive `satisfactory' or higher ratings. Rural residents
play an important role in bringing CRA performance issues to
the attention of regulators and making banks responsive to
community needs. This provision would deny citizens and
community based organizations the opportunity to comment on
the credit needs of their community.
Two, the bill exempts from CRA banks and thrifts with less
than $100 million in assets located in non-metropolitan
areas. These institutions represent 76% of banks and thrifts
in rural communities. This provision would seriously
compromise the capital needs of rural residents who depend
almost exclusively on small banks and thrifts to meet their
credit needs. Banks and thrifts in rural areas face little
competition from other financial services institutions.
In addition, despite assertions from the industry, many
small banks do not by their nature serve the credit needs of
their communities. In fact, data from the regulators show
that small banks do not invest more in their communities, on
average than larger banks. In addition, small banks have a
disproportionately high share of less than satisfactory CRA
ratings. A Congressional Research Service study of data from
1997 to mid-1998, found that banks with less than $100
million in assets received 70% of the below ``satisfactory''
CRA ratings.
In addition, arguments that CRA subjects small banks to
intrusive and time consuming compliance requirements are
unfounded. The CRA regulations were revised in 1995 in part
to reduce compliance burdens on small banks. The new rules
provide for a streamlined examination for banks with less
than $250 million in assets including an exemption from data
collection and reporting requirements. Small bank ratings now
focus exclusively on lending and lending related activities.
The need to reduce an already minimal regulatory burden on
small banks should not outweigh the credit needs of residents
of rural communities.
Third, unlike last year's H.R. 10 voted out of the Senate
Banking Committee and this year's House Banking Committee
version of financial modernization, the Senate Banking
Committee reported bill fails to require that banks have a
``satisfactory'' CRA rating in order to affiliate with
securities and insurance firms. In the absence of this
requirement, a bank could ignore the credit needs of its
communities and still benefit from the new affiliations and
powers provided under this legislation.
The Small Business Administration (SBA) report on bank
holding company lending in rural communities reaffirms this
concern. While the 57 largest bank holding companies held
68.6 percent of all domestic bank assets in June 1998, they
made just 10.7% or 160,000 of all the outstanding farm loans.
These loans totaled just .18 percent of total assets in these
bank holding companies. This increasing concentration and
consolidation in
[[Page S4742]]
financial services comes at a time when the community role in
determining whether this expansion is appropriate is being
reduced.
In closing, CRA has been a valuable tool for over twenty
years to encourage financial institutions to help meet the
credit needs of rural communities across this nation. Access
to affordable capital is important to restoring economic
prosperity in our nation's rural areas. In its current form,
the Financial Services Modernization Act of 1999 permits
banks to ignore the needs of our communities and remove one
of the few tools that has resulted in a level of
accountability. We urge you to vote against the Financial
Services Modernization Act of 1999 unless these objections
are addressed. Please contact (202) 543-5675 with any
questions.
Sincerely,
American Corn Growers Association
Center for Rural Affairs
Federation of Southern Cooperatives
Intertribal Agriculture Council
Iowa Citizens for Community Improvement
Land Loss Prevention Project (NC)
Missouri Rural Crisis Center
National Black Caucus of State Legislators
National Catholic Rural Life Conference
National Family Farm Coalition
National Farmers Union
National Neighborhood Housing Network
National Rural Housing Coalition
North American Farm Alliance
Presbyterian Church (USA), Washington office
Rural Coalition
Sin Fronteras Organizing Project
United Methodist Church, General Board of Church and Society
Wisconsin Rural Development Center
Mr. SARBANES. Finally, let me simply say, as the Democratic leader
indicated, unless we can get the substitute in place, we are on a veto
track with S. 900. The substitute will eliminate the veto problem. So,
for those who want legislation, who want to see financial services
modernization enacted into law, I urge them to vote for the substitute.
I assume the chairman will probably make a motion to table.
Mr. GRAMM. I will.
Mr. SARBANES. Therefore, I urge Members to vote against the motion to
table the substitute, thereby giving us the opportunity to then go
forward and adopt the substitute.
I thank the Chair and yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, let me begin by noting that not one single
organization which represents anyone who makes a living in any industry
directly affected by this bill supports the Sarbanes substitute. The
Sarbanes substitute is opposed by insurance companies, by those who
represent the companies; it is opposed by the American Bankers
Association, by the Bankers Roundtable, and by the Independent Bankers
of America. It is opposed by every organization that represents any
facet of the securities industry. This substitute is literally a
substitute which has no support by anyone who is going to be directly
affected by these laws.
What are the major problems with it? There are more problems than I
can possibly outline in 6 minutes, so let me just take a couple of
them. We all know Alan Greenspan. We know he is the most respected
person in America on economic matters. We all know if there is anybody
on this planet who can lay any legitimate claim to the current level of
prosperity in America, it is Alan Greenspan, because of his banking and
monetary policies.
We also know that Alan Greenspan is not someone who goes out looking
for a fight. If he has to say something that anybody does not want to
hear, he tends to go all around the barn before he says it. You need to
know those things to understand how strongly Chairman Greenspan feels
in his opposition to the Sarbanes substitute. In fact, he has said, ``I
and my colleagues''--and by ``colleagues'' he means every member of the
Board of Governors of the Federal Reserve, most of whom were appointed
by Bill Clinton--``are firmly of the view that the long-term stability
of the U.S. financial markets and the interests of the American
taxpayer would be better served by no financial modernization bill
rather than one that allows the proposed new activities to be conducted
by the bank. . ..''
Alan Greenspan says in the strongest way possible, in the most
passionate terms that he has ever spoken on any issue in his public
life: You would be better not to pass a bill than to pass the Sarbanes
substitute.
Why? Because the Sarbanes substitute lets banks engage in these
expanded financial services within the bank, thereby putting at risk
the taxpayer through FDIC insurance. By performing these services in
banks, they get an implicit subsidy from FDIC insurance, from the
discount window, from the Federal wire, that will make banks able--not
because they are more efficient, but because of this subsidy--
ultimately able to dominate the securities industry and all other
industries which would be affected. We would end up with a banking
system that looks very much like the Japanese banking system, totally
dominating our financial markets. Alan Greenspan is opposed to that. It
is very dangerous for the American economy. It is dangerous for the
taxpayer. I urge my colleagues to reject this substitute.
A second issue I want to talk about is CRA. The current bill
preserves CRA. The current bill makes two modest changes. One, it says
that if a bank has a long-term history of compliance --has been in
compliance three years in a row and is currently in compliance--that if
a protest group or individual wants to inject themselves into the
process, they can do it. They can say whatever they want to say. But
the regulator can't hold up the bank's action in the name of CRA, given
their long history of compliance and given that they are currently in
compliance, unless the protester has more than a scintilla of evidence;
unless the protester can present such relevant evidence as a reasonable
mind might accept as adequate to support the claim; unless the
protester has real, material--not seeming or imaginary--evidence. In
other words, if you are going to stop a bank from doing something that
it has been found qualified to do, you have to present some evidence--
hardly, a demanding constraint.
Second, we exempt very small rural banks from CRA. Why? We exempt
very small rural banks from CRA for a very simple reason:
Ms. MIKULSKI. Mr. President, I rise in support of the Sarbanes
substitute amendment to the Financial Services Modernization Act. I
salute him for his leadership in seeking financial services reform that
prepares us for the new century.
I agree that we should reform our financial services. There is no
doubt that changes in law have lagged behind changes in our banking and
financial services industries.
This amendment is a great improvement over the underlying bill. It
would provide greater protections for consumers. It would also maintain
the Community Reinvestment Act--which is so important in enabling low
income communities to help themselves.
However, I would like to raise a number of what I call ``flashing
yellow lights'' or warning signals that we should be aware of before
enacting financial services modernization. We should proceed with
caution to avoid irrevocable changes when the savings of hard working
families and the viability of our communities could be put in jeopardy.
For example, financial services reform would make it easier for
banks, securities firms and insurance companies to merge into
oligopolies. The savings of many would be controlled by a few.
Americans will know less about where their deposits are kept and how
they are used.
What would be the effect of these mergers on consumers? I am
concerned that these mega institutions could lead to higher fees and
fewer choices for consumers.
Marylanders used to have savings accounts with local banks where the
teller knew their name and their family. We have already seen the trend
toward mega-mergers, accompanied by higher fees, a decline in service,
and the loss of neighborhood financial institutions. This legislation
accelerates that trend.
In addition, what would be the affect of this legislation on the
alarming increase in foreign takeovers of US banks? I support increased
globalization, but what will happen when home town banks are taken over
by companies that have no roots or commitments to the community?
With a globalization of financial resources, the local bank could be
bought by a holding company based outside the United States. Instead of
the friendly neighborhood teller, consumers would be contacting a
computer operator in a country half-way around the globe through an 800
number. Their account could be subject to
[[Page S4743]]
risks that have nothing to do with their job, their community or even
the economy of the United States. I know that impersonalized
globalization is not what banking customers want when they talk about
modernization of financial services.
So I will support the Sarbanes amendment. It goes further in
answering my concerns. But I hope we will be able to address these
concerns more fully as we move forward with this legislation. they
generally do not have a city to serve, much less an inner city.
Third, in the last 9 years, Federal regulators have performed 16,380
CRA evaluations of these banks--evaluating them annually. These banks
report that it costs them between $60,000 and $80,000 a year to comply
with CRA. Yet, at the end of 9 years and 16,380 evaluations, just three
small rural banks have been found to be substantially out of
compliance. One million--excuse me, one trillion. Excuse me, let me be
sure I have my figure here. At the end of this process, with small
banks having spent perhaps $1,310,400,000,000 complying with paperwork
in the name of evaluating community lending, we have found just three
banks out of compliance. Not only does the substitute eliminate this
provision that ends this senseless wasting of small bank resources that
cost local communities and deny them access to credit, but it imposes
confiscatory penalties that would make a bank, if it fell out of
compliance with CRA, potentially subject to a $1 million fine, not just
on the bank but on the bank officer or on the bank director.
We have two letters here, one from the Independent Bankers and one
from the ABA, raising the point that one of the toughest things to do
now in this period of massive lawsuit liability is to get good people
to serve on a bank board. Both the Independent Bankers of America and
the ABA have written urging us not to adopt a provision that would make
it virtually impossible for small banks, especially, to get qualified
officers and board members because of the liability costs. I urge my
colleagues to reject this substitute.
The PRESIDING OFFICER. Under the previous order, the hour of 12 noon
having arrived, the Senator from Texas is recognized to make a motion
to table.
Mr. SARBANES. Mr. President, I ask for 1 minute so I can pose a
question to the Senator from Texas.
The PRESIDING OFFICER. Is there objection?
Mr. GRAMM. Mr. President, I want 1 minute to respond.
Mr. SARBANES. How does the Senator get this $1 trillion figure?
Mr. GRAMM. We have had 16,380 examinations of small, rural
institutions since 1990. Those small, rural institutions report to us
that it costs them about $80,000 a year to keep the records to comply
with these examinations, and that is where the number came from.
Mr. SARBANES. My arithmetic--first of all, I do not concede the
figures. In any event, even if I accept them, it is 1 billion, not 1
trillion.
Mr. GRAMM. If it is a billion or a trillion, it is a lot of money.
Mr. SARBANES. A lot of money, but there is a big difference between a
billion and a trillion. That is one of the problems with this debate, I
underscore.
Mr. GRAMM. I have my trusty calculator, and I will make the
calculation again. But lest my colleague be correct, let me just
restate it in his terms. The term is, does it make sense to make little
banks spend $1.3 billion to comply with keeping paperwork when in 9
years, only three banks out of 16,000 audits have been substantially
out of compliance? Is that not overkill? Is that not bankrupting every
small bank in America? The answer is yes.
Mr. GRAMM. I move to table the pending substitute, and I ask for the
yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table the amendment. The yeas and nays have been ordered. The clerk
will call the roll.
The legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
Mr. REID. I announce that the Senator from North Dakota (Mr. Dorgan),
is necessarily absent.
I also announce that the Senator from Louisiana (Ms. Landrieu), is
absent attending a funeral.
I further announce that, if present and voting, the Senator from
Louisiana (Ms. Landrieu), would vote ``no.''
The PRESIDING OFFICER (Mr. Burns). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 54, nays 43, as follows:
[Rollcall Vote No. 100 Leg.]
YEAS--54
Abraham
Allard
Ashcroft
Bennett
Bond
Brownback
Bunning
Burns
Campbell
Chafee
Cochran
Collins
Coverdell
Craig
Crapo
DeWine
Domenici
Enzi
Frist
Gorton
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Helms
Hutchinson
Hutchison
Inhofe
Jeffords
Kyl
Lott
Lugar
Mack
McCain
McConnell
Murkowski
Nickles
Roberts
Roth
Santorum
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stevens
Thomas
Thompson
Thurmond
Voinovich
Warner
NAYS--43
Akaka
Baucus
Bayh
Biden
Bingaman
Boxer
Breaux
Bryan
Byrd
Cleland
Conrad
Daschle
Dodd
Durbin
Edwards
Feingold
Feinstein
Graham
Harkin
Hollings
Inouye
Johnson
Kennedy
Kerrey
Kerry
Kohl
Lautenberg
Leahy
Levin
Lieberman
Lincoln
Mikulski
Moynihan
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Schumer
Torricelli
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
NOT VOTING--2
Dorgan
Landrieu
The motion was agreed to.
Mr. LOTT. Mr. President, I ask unanimous consent that notwithstanding
the agreement of May 4, Senator Sarbanes now be recognized to offer a
CRA amendment with all other provisions of the previous consent
agreement still intact.
I further ask that a vote occur in relation to the CRA amendment at 7
p.m. tonight, and if debate has been completed prior to that time, the
amendment may be laid aside in order for Senator Gramm, or his
designee, to offer an additional amendment.
Mr. SARBANES. Mr. President, reserving the right to object, I think
the agreement should be ``or a designee,'' and Senator Bryan is going
to offer the amendment.
Mr. LOTT. I modify it to say Senator Sarbanes or his designee.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LOTT. Mr. President, for the information of all Senators, Members
should be aware that votes will occur today on the CRA issue and
possibly other banking issues. If debate is completed before the 7
o'clock hour, there are other amendments that could be considered.
There will certainly be one at 7 o'clock on this CRA issue.
If the Senate is able to complete this banking bill by the close of
business on Thursday, then I would be prepared to announce at that time
that there would be no votes on Friday. So if we can get this work
completed--and it looks as if we may be able to; the managers are
working together. And we have a couple of issues that will have to be
debated and considered carefully, plus there are other amendments that
won't take as long to be debated. This could be completed by Thursday
night. If that is the case, we will not have any votes on Friday. If we
are not able to finish it Thursday night, we may have to go over until
Friday and complete it. I wanted Members to be aware of that
possibility.
I yield the floor.
Mr. SARBANES. Mr. President, I yield to the distinguished Senator
from Nevada.
The PRESIDING OFFICER. The Senator from Nevada is recognized.
Amendment No. 303
(Purpose: To make amendments relating to the Community Reinvestment Act
of 1977, and for other purposes)
Mr. BRYAN. Mr. President, I send an amendment to the desk and ask for
its immediate consideration.
The PRESIDING OFFICER. The clerk will report.
[[Page S4744]]
The legislative assistant read as follows:
The Senator from Nevada [Mr. Bryan], for himself, Mr. Dodd,
and Mr. Kerry, proposes an amendment numbered 303.
Mr. BRYAN. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:
On page 14, strike lines 8 and 9 and insert the following:
``are well managed;
``(C) all of the insured depository institution
subsidiaries of the bank holding company have achieved a
rating of `satisfactory record of meeting community credit
needs', or better, at the most recent examination of each
such institution under the Community Reinvestment Act of
1977; and
``(D) the bank holding company has filed''.
On page 14, line 20, strike ``and (B)'' and insert ``, (B),
and (C)''.
On page 18, between lines 4 and 5, insert the following:
``(5) Limitation.--A bank holding company shall not be
required to divest any company held, or terminate any
activity conducted pursuant to, subsection (k) solely because
of a failure to comply with subsection (l)(1)(C).
On page 66, strike lines 7 and 8 and insert the following:
``bank is well capitalized and well managed;
``(E) each insured depository institution affiliate of the
national bank has achieved a rating of `satisfactory record
of meeting community credit needs', or better, at the most
recent examination of each such institution under the
Community Reinvestment Act of 1977; and
``(F) the national bank has received the''.
On page 66, line 12, strike ``subparagraph (D)'' and insert
``subparagraphs (D) and (E)''.
On page 66, line 16, insert before the period ``, except
that the Comptroller may not require a national bank to
divest control of or otherwise terminate affiliation with a
financial subsidiary based on noncompliance with paragraph
(1)(E)''.
On page 96, strike line 23 and all that follows through
page 98, line 4.
On page 104, strike line 20 and all that follows through
page 105, line 14.
Redesignate sections 304 through 307 and sections 309
through 311 as sections 303 through 309, respectively.
Amend the table of contents accordingly.
Mr. BRYAN. Mr. President, we are about ready to debate an important
issue dealing with the Community Reinvestment Act. Let me say that I
think there has been considerably more heat than light generated in the
debate surrounding this issue. I thought it might be helpful to my
colleagues to explain how the provisions of this act work, what is
involved, what is not involved, the provisions that currently exist in
the bill we are debating, and the contents of the amendment.
The Community Reinvestment Act has been in operation now for 21
years. The act itself is triggered in either of two circumstances--one,
as part of a periodic review, and that depends upon the size of the
institution. It applies only to insured depository institutions, so we
are talking about banks and thrifts. It also is triggered when a
depository institution files an application for a charter conversion,
for merger, acquisition, or requesting authority for additional
branches.
Those applications, then, are reviewed by the appropriate bank
regulator, or the thrift regulator, whether that be the OCC, the
Federal Reserve, or the OTC. Notice is then given, and the community
groups have an opportunity to comment on the application. So you have a
periodic review, which may be annually or a longer period of time, or
you have the circumstances in which an insured depository institution
seeks either a charter conversion, a merger, an acquisition, or
additional branches.
Notice is given. Now, 97 percent of all depository institutions--
banks or thrifts--get a satisfactory CRA rating. The penalties that can
be provided are that, No. 1, an application could be denied, an
application could be accepted subject to certain conditions, or the
application can be approved without conditions. I think it is important
to understand who is making the decision here. It is not the community
groups that have a veto power. These are decisions that are essentially
made by bank regulators--regulators that have traditionally evinced no
hostility to the banking industry. And even an institution which gets
the lowest rating--substantial noncompliance is the lowest rating you
can get--may still have its application approved. So nothing in the
language of CRA compels a regulator to disapprove an application, even
if the financial institution that is applying for the relief sought
gets the lowest evaluation possible.
What is the history in the last 21 years of the act? There have been
some 86,000 applications filed over the last 21 years and, of those,
only 660 have received adverse comments. So less than 1 percent of all
of the applications relating to CRA that have been received have been
subject to objections or adverse comments by any of the regulating
groups over a period of 21 years.
What has CRA accomplished? Well, it has accomplished a great deal. In
point of fact, the CRA, over the years, has resulted in a substantial
increase in lending and other financial activity within the inner-city
and minority groups in America. CRA encourages banks to meet the credit
needs of the entire community, including low- and moderate-income
areas.
Over the last 21 years, the CRA has been one of the strongest
incentives to encourage investment in low-income and minority
communities.
Under the law, federally insured financial institutions have made
billions of dollars in profitable market rate loans and investments in
underserved urban and rural areas. And it has done so without creating
a large Federal bureaucracy, or jeopardizing the safety and soundness
of any financial institution.
CRA has been an important tool in improving access to credit for
minority and low- to moderate-income Americans.
The dramatic increase in home ownership rates for minorities is
attributable in large part to increased focus on banks' CRA
performance. Between 1993 and 1997, the number of conventional home
mortgage loans extended increased for African Americans by 72 percent;
for Hispanics, 45 percent; for Asian Americans, 31 percent; for Native
Americans, 30 percent; for low- and moderate-income census tracks by 45
percent.
Small business owners in low- and moderate-income communities have
seen a substantial increase in their access to credit under the law.
Under the emphasis of CRA, banks have made loans to African
Americans, Native Americans, Hispanic and Asian Americans, and,
according to the Small Business Administration, loans to African-
American-owned firms increased by 145 percent between 1992 and 1997. In
1997 alone, banks made more than $34 billion in loans to entrepreneurs
located in low- and moderate-income areas.
These loans have financed businesses which have been critical to
revitalizing the distressed communities.
Mr. President, it seems to me that has a desirable result for every
mayor of every major community in America struggling to revitalize the
inner core of his or her State. That is the experience in my own State.
That is the experience, I suggest, of every State.
As a result of CRA, we are seeing more money being invested and
loaned in inner cities with minority businesses.
That, it seems to me, makes sense, and good public policy.
Who, then, objects to CRA?
We are dealing with a piece of legislation that will substantially
transform the way in which modern financial institutions will be
regulated--banking, securities and insurance.
Mr. President, those groups are in support of CRA, and they are in
support of the amendment which I have offered.
Indeed, in the last session of the Congress, H.R. 10, which contains
CRA provisions virtually identical to the ones that are contained in
the Bryan amendment, were passed by the House of Representatives, and
emerged from a Senate Banking Committee by a vote of 16 to 2--broad
bipartisan support.
In this Congress, the financial institution restructuring bill that
is making its way through the other body was approved by a vote of 51
to 8--51 to 8--and the CRA provisions contained in that piece of
legislation are essentially identical to the provisions that the Bryan
amendment addresses.
Banks are supportive, the insurance industry is supportive, and the
securities industry--the major players are supportive. Moreover, banks
have found not only that it is good public policy, but it makes sense
financially.
The National Association of Home Builders, which has participated in
an enormous growth in the rate of new housing starts, and has seen a
remarkable increase in the percentage of home
[[Page S4745]]
ownership in America, has this to say about CRA.
The National Association of Home Builders:
Therefore, the NAHB, the National Association of Home
Builders, supports any amendments offered to remove or
replace the provisions in S. 900--
That is the bill that we are debating--
that deals with a much more restrictive and a roll-back
provision of CRA.
The Home Builders go on to say:
While the CRA may not be the perfect solution to ensuring
housing credit is available to all communities, financial
institutions of all sizes, through their compliance with CRA,
have provided crucial community development loans and
affordable housing production loans that have benefited
millions of people across the United States. We see no public
good served by a weakening or a reduction in the CRA
requirements.
I will explain shortly how S. 900, the bill before us, would
substantially weaken the CRA provisions, and the position taken by the
Home Builders, and others, is to support the amendment which is
presently before the body.
Mr. President, the distinguished chairman of the committee and I have
a difference of opinion. And he will have an opportunity, I am sure, to
articulate his point of view. The chairman--it is entirely appropriate
for him to do so--sent out letters to various groups to get their
comments.
A letter from a small banker dated March 26 of this year responds to
that--a copy of which was made available to those of us who serve on
the committee--a letter addressed to:
Dear Senator Gramm: I received a copy of your letter to
Scott Jones--
Mr. Jones is the President of the American Banking Association--
regarding the proposed exemption from CRA requirements for
small banks. While I appreciate your efforts on our behalf, I
have to say that this exemption ``Don't mean jack to me.''
That is a quote. That is his language.
We have two bank charters, and have always received an
outstanding rating. The burden is not onerous, especially
under the revised requirements now in effect for the past two
or three years. The information I gather to determine in-area
versus out-of-area loans is useful to me outside of the CRA
requirements. I probably spend less than 5 hours a year on
the issue. I don't think it is worth squandering any
political capital you have to eliminate the CRA.
That is the essential text of the letter that our distinguished
chairman received. That small banker made reference to some provisions
in CRA that were changed in 1996.
Mr. President, recognizing that a small bank has a much smaller staff
to deal with compliance issues, substantial changes were made in the
CRA requirements for small banks. Essentially, we are talking about
institutions under $250 million.
No. 1, with respect to CRA, those small banks have no CRA reporting
requirements.
Let me reemphasize that. They have no CRA reporting requirements.
And the standards which are applied to larger banks that are involved
in a lending, a service, and an investment criteria are not applicable
to small banks. Indeed, small banks do not have to compile any data.
They don't have to submit any reports.
They have to have records available so that when the bank examiner
comes in pursuant to this periodic request, or if a small bank requests
some activity which triggers the application of CRA, they simply say to
the bank examiner, ``Our records are contained in the file cabinet over
there.'' There is no reporting requirement and no affirmative burden on
their part other than to have the records which, as the small banker
who wrote the letter to our distinguished chairman pointed out, a bank
would want to have for itself independent and separate and apart from
the CRA requirements.
So, indeed, there has been an acknowledgment and an attempt to
streamline the requirements that small bankers are subject to. And that
has been acknowledged by the correspondent who wrote to our
distinguished chairman.
What do we have in the current bill? The current bill does a couple
of things which, in my view, roll back the provisions of CRA.
It says, in effect, that if a financial institution has a CRA rating
of satisfactory or above for a period of 36 months, 3 years, it would
be deemed in compliance for purposes of CRA, and for any one of the
applications for either a merger, an acquisition, or grant of
extension, there would be no opportunity for community groups to
comment.
That would roll back the provisions.
Mr. GRAMM. Will the Senator yield?
Mr. BRYAN. I am happy to yield to the Senator.
Mr. GRAMM. I know the Senator, and I know he would not want to state
something that is incorrect. I will be brief.
The amendment says if a bank has a long history of compliance, they
have been in compliance for 3 years in a row, they are currently in
compliance, in order for the regulator to prevent them from taking the
action that they are allowed to take by being in compliance, that a
person who protests has to present some substantial evidence.
``Substantial evidence'' is defined in the law as more than a
scintilla. It does not in any way say they are deemed to be in
compliance, other than that they are innocent until proven guilty if
they have a good record. Anybody can protest, anybody can file a
complaint, but the regulator can't stop the process or delay it unless
the challenging party presents some ``substantial evidence.''
This isn't for everybody. It is only for the banks that have a long
history of compliance.
I didn't want to have any confusion. That is exactly what it says.
I thank the Senator.
Mr. BRYAN. I thank the chairman.
The chairman states correctly the contents of the bill. However, let
me say in response to the Senator's position, we have in effect a 97-
percent compliance rate. Mr. President, 97 percent of the financial
institutions in the country receive satisfactory or better. In the
entire history of the Community Reinvestment Act, with some 86,000
applications, we have had fewer than 1 percent of those protested in
any way.
In terms of balance, to give community groups an opportunity not only
to comment but to register concerns, it strikes me that the Senator's
provisions impose limitations that do not currently exist in the law. I
know the able chairman well understands, even if there were a finding
under current law that the particular financial institution has the
lowest possible rating--substantial noncompliance--that does not
preclude the bank regulator from approving the application.
CRA is not an onerous burden. Under the current law, which would
remain in place with the Bryan amendment, a bank that seeks a merger
approval or charter provision change or a new branch, even if that bank
had a substantial noncompliance, the lowest rating possible in the CRA,
under the law, nothing precludes the bank regulator from approving that
application.
I understand the concern of the Senator from Texas in terms of
balancing the equities here. It strikes me that we ought not to put
that additional burden of proof on community groups who may want to
file some legitimate concerns they have about a proposed merger,
acquisition, or a branch extension.
I think the record reflects, of 86,000 applications, we have had
fewer than 1 percent, 660, that have availed themselves of this. I
respectfully submit, in response to the comments of my friend from
Texas, that is not, in my judgment, unduly burdensome.
The Senator also provides in his version of S. 900 a small bank
exemption. The effect of that would be to eliminate about 37 percent of
all of the banks in the country from the current provisions of CRA.
Again, I think it is a balance. It is not the purpose of the Senator
from Nevada nor of those who support the Bryan amendment to want to
impose an onerous, unreasonable, unfair burden upon a financial
institution. However, I must say, I think the track record would
indicate that is not the case.
Responding to a legitimate concern of small banks, as I pointed out,
in 1996 the rules were changed so that small banks do not have a
reporting requirement. All they must do is maintain records so that the
bank examiner who comes in periodically to review, or whenever the
application is filed that triggers the CRA review to look at the
records, can make sure in effect that the bank is lending in the
community. It strikes me that is good public policy. Indeed, banks have
profited from that activity.
[[Page S4746]]
Those are the two provisions that the Senator's version of S. 900
would contain. Also, it would eliminate CRA from the new activities
which would be permitted under the provisions of this law.
The thrust of this legislation is to provide a regulatory framework
that deals with the reality of the marketplace. Many of those who do
not serve on the Banking Committee have heard Glass-Steagall mentioned
frequently in the course of financial modernization discussions. This
is a Depression-era piece of legislation. I like it. It neatly
compartmentalizes banking regulation, insurance regulation, and
security regulation. It makes a lot of sense. In the aftermath of the
financial collapse of the 1920s and the Great Depression that followed,
a number of abuses were pointed out. This legislation was in response
to those abuses. It served the Nation effectively for many decades.
As a result of court decisions and actions taken by bank regulators,
today much of Glass-Steagall has been effectively emasculated and the
marketplace is dictating new products that involve combinations of
insurance, securities, and banking functions. I agree with the
distinguished chairman that we need a piece of legislation which
effectively deals with that. In effect, what we are doing is
establishing that modern framework. We have established essentially a
system of functional regulation.
It appears from the testimony we have received from the Banking
Committee and others who have offered comment that the new financial
world will deal not so much in terms of mergers and acquisitions but
will seek to avail itself of the new financial services that banks will
be able to participate in under the provisions of S. 900, the financial
restructuring bill we are debating. Those services involve,
essentially, securities and insurance functions.
This is testimony offered before the House Banking Committee by
Treasury Secretary Rubin. I think he makes a point far more effectively
than I.
Banking industry experts agree that most of the
consolidations within the banking community have occurred and
that the new frontier will involve mergers among banks,
securities and insurance firms.
As a side point, that is the kind of activity which the S. 900
restructuring bill will authorize.
According to Treasury Secretary Rubin, if we wish to preserve the
relevance of CRA at a time when the relative importance of bank mergers
may decline and the establishment of nonbank financial services will
become increasingly important, the authority to engage in newly
authorized activities should be connected to a satisfactory CRA rating.
That is the philosophical underpinning. We will be dealing with a new
world, a new financial structure, and that, we believe, is appropriate
in light of the changes in market conditions.
What are the requirements that would be imposed upon a depository
institution under the provisions of this amendment which would seek to
avail itself of these new activities--insurance and securities? No. 1,
as a condition precedent, a depository institution would have to have a
satisfactory rating. That is not, it seems to me, an unreasonable
provision.
What kind of action must the regulator consider? If the institution
has a satisfactory CRA rating and all other regulatory issues
nonrelated to CRA are in place, that application could be approved, it
could be subjected to certain conditions, or it could be denied. An
agreement could be entered into between the financial institution and
the regulator if, indeed, there were some concerns about maintaining
the CRA, and the regulator would have the ability to do several things
if there were a noncompliance with the agreement entered into.
On balance, what we are talking about is preserving the relevance of
CRA in this new financial world we are talking about that will deal
with mergers and acquisitions involving brokerage and insurance type of
services which are not currently authorized under the regulatory
framework.
So I think, just by way of concluding, what we are talking about is
not a bold or reckless expansion of CRA. We are really talking about,
No. 1, maintaining the status quo with respect to CRA and its
traditional functions as it deals with the mergers and the acquisition
and charter changes and the new branch request, which is the current
part of the law. And we are simply saying, with respect to these new
services, these new opportunities which financial institutions will be
allowed to participate in, which as Secretary Rubin points out is where
the action is going to be, that is where the field of play is. To say
that with respect to those new activities no CRA would be applicable,
no requirement would be in place, is, in effect, to roll back the
application of CRA to the range of financial services that banks are
currently allowed to participate in.
In my judgment, this is a reasonable and fair amendment. Bankers
support it. Securities firms support it. Insurance companies support
it. It enjoys a broad range of support.
Let me emphasize to my colleagues that, unlike some issues which have
tended to divide us in terms of partisan differences, the House of
Representatives, in considering banking legislation and financial
restructuring--the same type of legislation we are debating here
today--in a vote of 51 to 8 approved CRA provisions which essentially
track the Bryan amendment. In the last Congress, when we came within a
gnat's eyelash of getting financial restructuring legislation enacted,
it was approved by a bipartisan majority in the House and it cleared
the Senate Banking Committee on a vote of 16
to 2.
So this should not be, and I hope it will not be, a partisan vote.
In the 21 years that CRA has been around, 86,000 applications have
been received that were triggered by the provisions of the existing
law. And in fewer than 1 percent--fewer than 1 percent--have objections
or adverse comments been made.
I think the amendment is fair. It strikes a middle ground. It
acknowledges the concerns of small banks with the changes that were
made in 1996. I hope my colleagues on both sides of the aisle will
support this legislation.
I see the Senator from Maryland----
Mr. SARBANES. Will the Senator yield for a question?
Mr. BRYAN. I am happy to yield to the Senator from Maryland.
The PRESIDING OFFICER (Mr. Bunning). The Senator from Maryland.
Mr. SARBANES. First of all, I commend the able Senator from Nevada
for an extremely fine statement in support of this amendment which I
very strongly back.
The Senator made reference--I think it is an extremely important
point--to the fact that the decisions with respect to complying with
CRA are made by the regulators. As I understand it, community groups or
anyone else can come in and make comments when some of these steps are
to be taken for which an institution would have to meet CRA muster, and
some of those comments, I assume, can be right on point, others may
wander about. But whatever the case, it is not the people who comment
who make the judgment; it is the regulators who make the judgment. So
they can take it into account, give it some weight, give it no weight--
isn't that correct?
Mr. BRYAN. The Senator from Maryland is absolutely correct. It is the
regulators, whether it is the OTS, or Federal Reserve, or the OCC.
As the Senator from Maryland knows, because of his longstanding
membership on the committee, much can be said about bank regulators. I
do not believe anybody would indicate or suggest the record would
indicate that there is a hostility by the regulators to the
institutions they regulate. In effect, the regulators have the
opportunity to consider the CRA issues presented among a range of other
issues--capital adequacy, a whole host of things that may be unrelated.
As the Senator from Maryland knows--and I think this is something
that needs to be pointed out--even if the institution which has the
application has the lowest possible rating--substantial noncompliance,
which, in effect, means they have done virtually nothing--the regulator
can still approve the application. They can still approve it. So there
is no requirement under the existing law with respect to the kinds of
mergers, acquisitions, charter changes, and branch expansions that
requires a financial institution to even have a satisfactory rate.
So this is hardly an onerous provision, I say to my friend from
Maryland.
[[Page S4747]]
Mr. SARBANES. The Senator from Texas interrupted the Senator to make
the point on this ``comments'' question, the safe harbor issue, that if
we previously had a satisfactory rating or better, they could not take
into account people's comments, unless they had substantial, verifying
information, and then we are being told that a lot of cases were read
that indicated that ``substantial'' means a scintilla of evidence.
The Senator was a distinguished attorney general for the State of
Nevada for a number of years before he became the Governor. Wouldn't he
read the phrase ``substantial, verifiable information'' as a more
exacting standard than ``scintilla'' of evidence?
Mr. BRYAN. The Senator from Maryland makes a good point. I think any
fair reading, in terms of the standards of proof, is that a
``substantial'' standard is much higher than a scintilla.
In effect, what this provision would do is raise the bar
substantially, I say to my friend from Maryland, for community
investment groups being able to, in effect, make their case for the
consideration--the consideration of the regulator.
I come back to the point. Even if they make their case that, indeed,
the bank has not been responsible, has not done what it ought to do
under CRA, the regulator may disregard that and still grant that
approval. So it strikes me that by posing a standard before they even
get into the ball game of ``substantial,'' you indeed cut off access to
much of the input the community groups ought to have before a regulator
makes a decision.
Mr. SARBANES. It is interesting. The current system I think is seen
by most people as working fairly well. In fact, many fine financial
institutions do not complain about it. They are prepared to continue to
work under the current system, and many of them have even said they see
strong positive value in it. So it seems to me this is an effort to
institute an important change that would really cut off open comment.
You see, none of this is done, as I understand it, in the committee
bill with respect to management or capital or any of the other issues
the regulators look at when they undertake to consider one of these
mergers or affiliations. It is being applied only to CRA. I mean CRA is
being singled out for the application of this kind of prescreening, as
it were, of people's ability to come in and make their comments.
Mr. BRYAN. The Senator makes a good point. That is absolutely
correct. As the Senator knows, as a practical matter, although CRA is
triggered generically in two circumstances--one, part of a periodic
review; the other, when applications are made for charter changes or
new branches or mergers or acquisitions--as a practical matter, the
only opportunity community groups have is in this application process
which the Senator has described.
That is the only opportunity. So if you foreclose them by a standard
that is unreasonable and difficult to meet, you have, for all intents
and purposes, foreclosed community groups from registering any
effective concerns that they have.
Mr. SARBANES. I think that is an extremely important point. The
chairman has said they have court opinions. I have not seen these cases
that interpret ``substantial'' to mean ``a scintilla of evidence.''
Mr. GRAMM. More than a scintilla.
Mr. SARBANES. The chairman corrects me and says ``more than a
scintilla.'' I don't know how much more, but more than a scintilla.
In any event, isn't it the case that no full hearings have been held
on CRA? We come to the floor, and we get all of these assertions about
abuses of one sort or another, sort of radical changes in a program
that is seen as having been the lifeblood, enabling communities to
renew themselves. To my knowledge, we have not had within the committee
any sort of comprehensive hearings to examine those questions; is that
the Senator's understanding?
Mr. BRYAN. That is the understanding of the Senator from Nevada, we
have had no hearings at all.
I must tell the Senator from Maryland that the financial institutions
in my State are supportive of CRA. If we want to take anecdotal
evidence, I have to say financial institutions in my State have
indicated, one, it is good public policy, and, two, they have
financially benefited. But there is no record before us, based upon any
hearings or testimony--and I must say I think that there is opportunity
for hearings to be held. When we are dealing with some other regulatory
relief issues in the Banking Committee, that might be an appropriate
time to bring people in so we can build a record.
My understanding is that we have had nothing to that effect and,
indeed, this Senator has been on the committee now for 11 years.
Financial institutions in my own State are very supportive of the
provisions.
Mr. SARBANES. Isn't it also the case, I ask the Senator, that in the
mid-1990s, when a number of banks were complaining about the regulatory
burden associated with CRA, Secretary Rubin undertook a major effort to
address the question of regulatory burden and made very substantial
changes in the requirements, which were greeted by the various banking
associations at the time as being very forthcoming in dealing with this
question of overregulation?
Mr. BRYAN. The Senator from Maryland is correct. Recognizing that
small banks are in a different situation than larger banks in terms of
staff capability, the Secretary did precisely that. In January 1996,
these new provisions went into effect, and they are appropriate, in my
judgment, and they are dramatic.
No small bank under the size of $250 million has to report CRA. There
is no reporting requirement for CRA that is incumbent upon a small
bank, as defined in the provisions.
The responsibility of the small bank is simply to make available to
the bank examiner, when he or she comes in periodically or when the
examiner is reviewing the records for an application, the fact that the
bank is serving the community.
Moreover, the standards which are required for a larger bank dealing
with a lending standard, a service standard and investment standard are
inapplicable to small banks.
In trying to balance the inequities here, as I know the distinguished
Senator from Maryland is interested in doing and all of us share in a
very bipartisan way, dealing with the very special concerns of small
banks has been addressed, we have eliminated the reporting requirement
and have simply said, if I might respond to my friend from Maryland,
that when the bank examiner comes in, the only obligation on the part
of the financial institution is to direct the bank examiner to the file
drawer and say, ``Those are our records.'' The bank examiner examines
those records, and that is the burden that is imposed.
I must say, in terms of the balance, as the Senator from Maryland
knows, coming from a State which has major metropolitan areas that
fight urban decay, as does every major community in America, CRA is one
of the most effective redevelopment tools for the inner cities in
America that we have. It has poured hundreds of millions of dollars of
new investments into the inner cities. That benefits not just the inner
cities, but that benefits all of us.
The tragedy that occurred in Littleton, CO, 2 weeks ago occurred in a
suburban area, but I think it is increasingly apparent to America,
whether you live in the inner city or live in the suburbs, the problems
that our inner cities have in America spread like a contagion. So it is
in the best interest of every American, wherever he or she lives, that
those inner cities which face all the problems of urban decay, crime,
and drugs, that what we can do to help to build those inner cities and
strengthen the hands of mayors, Democrats, Republicans, nonpartisan, is
important public policy, and CRA has done the job. That is why the U.S.
Conference of Mayors, as the distinguished ranking member knows, has
been so strongly supportive of the provisions in the Bryan amendment
that we offer today.
Mr. SARBANES. The Senator has been very patient. Will he indulge me
for one further question?
Mr. BRYAN. The Senator from Nevada is happy to do so.
Mr. SARBANES. The Senator's amendment, I think, has an extremely
important provision which says that if a banking institution wishes to
go into securities or into insurance, which would be permitted in a
comprehensive way for the first time by this legislation, that banking
institution must
[[Page S4748]]
pass the CRA test in order to do that. It is asserted that this is a, I
think the language was used by my colleague, the chairman, a massive
expansion of CRA.
I take a very different view of that. It seems to me it is only
keeping CRA abreast of the developments that are taking place with
respect to financial modernization, because heretofore banks could not
reach out and do--they did some of those activities within the bank of
a very limited nature that had been permitted either by regulation or
by court opinion but which were highly controversial and contested, and
one of the things this bill is intended to do is to resolve those
questions in terms of the structure of the financial services industry.
Both the Senator and I are supportive of trying to do that.
It seems to me that if the bank is now going to be permitted to move
out to do these other activities, it is not some massive expansion of
CRA. That CRA requirement would be placed upon the bank before they
could move to do those other activities. Otherwise, it seems to me,
over time, you will erode CRA, as institutions begin to shift their
assets out from under the banking activity into the securities and the
insurance activities.
This amendment, the proposal the Senator has, does not extend CRA to
the securities and insurance affiliates; am I correct on that point?
Mr. BRYAN. The Senator is correct.
Mr. SARBANES. Which in fact has been strongly urged by a number of
the community groups that are supportive of CRA. They in effect want to
extend it out. If that were to be done, I would recognize that as an
expansion, and we could fight that issue, as it were. But that is not
what is in this amendment.
This amendment puts the requirement only on the bank, if it seeks to
go out and do those activities. That seems to me to be perfectly
reasonable. In fact, it seems to me failure to do that is really a
setback or an erosion of CRA.
I ask the Senator his view on that question.
Mr. BRYAN. I share the observation and the conclusion reached by the
distinguished ranking member. That is precisely the case. As the
Senator from Maryland knows, we are dealing with a changing dynamic in
the financial marketplace. That really is the catalyst that brings us
into this financial restructuring debate.
The Senator may have been off the floor when I shared the observation
that the Treasury Secretary made, which reflects the view that the
Senator has expounded upon. He says, in effect:
[I]f we wish to preserve the relevance of CRA at a time
when the relative importance of bank mergers may decline and
the establishment of non-bank financial [services] will
become increasingly important, the authority to engage in
newly authorized activities should be connected to. . .CRA.
He is saying that much better than I. He is saying, in effect: Look,
this marketplace is shifting, it is moving. From what we have seen
historically, since CRA has been in effect, with the traditional
consolidation and mergers of one bank with another, that is not likely
to be where the dynamic is in the marketplace in the future. We have
already seen it.
What we are going to see are consolidations and mergers with other
aspects of the financial services community--insurance and securities.
And if you say that CRA has no reference or application to those
applications, in effect you are relegating CRA to the dustbin of
history; by and large, it is no longer as relevant as it is currently.
So, in effect, what we are trying to do is simply keep CRA as
relevant in the new financial world as we have in the old financial
world. I do not view this as an extension of CRA. It simply reflects a
change in the marketplace that we are likely to see with respect to the
way the financial services are provided to Americans.
Mr. SARBANES. In fact, unless we do this, you could have a bank in
substantial noncompliance with respect to the CRA test which would then
be able to reach out and exercise these additional powers?
Mr. BRYAN. That is precisely the case.
Mr. SARBANES. I thank the Senator. I thank him very much for his
strong opening statement on this important amendment.
Mr. BRYAN. I thank the Senator for his comments, which I think helped
elucidate a number of comments which are going to be important in this
debate.
I yield the floor. I note that the Senator from Minnesota may wish to
speak.
Mr. GRAMS addressed the Chair.
The PRESIDING OFFICER. The Senator from Minnesota.
Mr. GRAMS. I thank the Chair.
Mr. President, I want to take time today to first outline my support
for the bill overall, and then also to talk a little bit about the
current pending business, and that is the question concerning CRA.
As a member of the Senate Banking Committee, I rise in strong support
of S. 900, the Financial Services Modernization Act of 1999, and urge
my colleagues to take the committee's recommendation to pass this very
important piece of legislation.
The Glass-Steagall Act--which prohibits commercial banks from
affiliating with companies predominantly engaged in the securities
busines--was passed at a different point in time and in a dramatically
different economy. In response to the numerous commercial bank failures
during the depression, the Glass-Steagall Act was enacted as part of
President Roosevelt's economic recovery package. One premise leading to
the law which has since been proven incorrect, by the way--was that
commercial banks which were involved in securities underwriting failed
at a higher rate than other banks due to losses in their securities
business when Wall Street collapsed. Subsequent studies have proven
that these very same banks actually fared better than other banks which
had not diversified by offering broad securities products.
Unfortunately, as with most of the flawed legislation on our books, the
law was not sunset and has hindered America's financial institutions--
banks and securities firms alike--since its enactment in the 1930s.
Although commercial banks in recent years have been able to conduct
limited securities underwriting activities through Section 20
affiliates, S. 900 appropriately repeals the Glass-Steagall
prohibitions on common ownership of commercial banks and securities
firms and will allow these activities to be conducted without the
arbitrary restrictions which govern these activities currently.
The Bank Holding Company Act also includes similar restrictions in
Section 4(c)(8) which have prevented safe, sound, and well managed
commercial banks from affiliating with insurance companies. Although
insurance is unquestionably a financial product, banks have been
prohibited from underwriting insurance, and insurance companies have
been restricted from fully entering the business of banking. This bill
removes the Bank Holding Company Act restrictions and it preempts State
laws which prohibit these affiliations.
Although there always seems to be broad agreement that the time for
reform is now, every recent effort has failed because the devil has
been in the details of how to regulate the new entities. S. 900
successfully incorporates a wide array of negotiated agreements between
the interested industries to provide functional regulation--meaning
regulation by product and not by the entity offering it. Under the
bill's regulatory structure, banking products will be regulated by bank
regulators, securities activities will be regulated by the Securities
and Exchange Commission, and insurance will continue to be regulated by
State insurance commissioners. This system will ensure that the experts
in each area will oversee the activities to protect the consumer and to
ensure that all parties are playing on a level playing field.
As part of this system of functional regulation, the bill retains the
current system of State regulation of insurance. While I strongly
support State regulation of insurance, I believe there is a role for
some Federal oversight. I believe that because Congress delegates the
authority to regulate the insurance activities of national banks, it
also has the responsibility to ensure that State regulation does not
result in bloated, burdensome, and unresponsive regulation. Also, I
will be holding hearings this year in the Securities Subcommittee to
explore where any flaws exist and will work hard to address them with
all of the interested parties.
[[Page S4749]]
Another major area of functional regulation contained in S. 900 is
the regulation of securities activities. The bill provides a workable
compromise which eliminates the bank's existing broker-dealer exemption
and substitutes a system of targeted exemptions which protect
traditional banking products while requiring other securities
activities to be offered by a broker-dealer. Also, the bill requires
the SEC and the Federal Reserve Board to work together to determine how
future products will be regulated.
There has been some talk around Washington that an amendment may be
offered to delete these bank exemptions and give the SEC complete
authority to determine how future products will be regulated.
Let me be clear that if this amendment is offered, it is done so for
only one reason--and that would be to kill the bill. If the bank
exemptions are eliminated and traditional activities, such as trust
activities, are not statutorily protected, the entire banking industry
will unite against this bill. Again, I urge my colleagues to oppose any
amendments which significantly alter the bill's securities provisions.
When repealing current law affiliation restrictions, the question is
also raised about what activities the new broader bank holding
companies will be able to conduct. The bill contains a standard--
financial in nature--by which all activities of a bank holding company
must comply. This provision maintains the current separation of banking
and commercial activities, while providing appropriate flexibility,
again, subject to Federal Reserve Board oversight. Some have criticized
even the narrow flexibility which is provided in this bill. However,
without this flexibility many financial companies will not be able to
take advantage of the new structure contained in the bill and will
continue to expand their activities outside of the bank holding company
model and, thus, outside the oversight that the structure would ensure.
Also, while on the topic of banking and commerce, I want to briefly
touch on the unitary thrift holding company. There are three thrift
related provisions either in S. 900 or which are expected to be
considered as floor amendments. First, as reported by the Committee,
the bill prevents the formation of any new unitary thrift holding
companies after February 28, 1999. This provision will protect any
applications which were ``in the pipeline'' at that time, on the date
the bill was unveiled but will prevent any new unitary charters, thus
providing a finite universe of unitary charters.
Mr. President, another provision which is included in the base text
of the bill extends the assessment differential between banks and
thrifts on the payment of interest on bonds that were issued by the
Financing Corporation as part of the savings and loan crisis. In 1996,
Congress enacted legislation requiring thrifts to make a one-time
assessment into the Saving Association Insurance Fund or better known
as SAIF, to fully capitalize the then-undercapitalized fund. This
assessment was included predominantly because it was scored as a
revenue gain under budget rules, and it could be used as the offset
that Congress needed to grant the President added spending that he was
demanding in return for his support of the balanced budget plan.
In order to lighten the blow to thrifts and to ensure that the FICO
bond interests payments were made in a timely and also in a dependable
manner, Congress for the first time spread the assessment for FICO
interest to the commercial banks. Under that legislation, banks were to
be assessed at a rate one-fifth of that which thrifts are assessed
until January 1, 2000, at which time all institutions would be assessed
at the same rate.
The bill before us today extends for 3 years the period during which
there will be an assessment differential. Not surprisingly, the thrift
industry adamantly opposed this provision. It is expected that Senator
Johnson will be offering an amendment, which I intend to support, which
strikes the FICO assessment extension and eliminates the thrifts'
ability to affiliate with nonfinancial firms.
Although this amendment presents an unpopular choice for thrifts, I
believe that it is in the best interest of the thrifts in my State
because it will positively impact their bottom line while only slightly
impacting their ability to affiliate.
I should note that if the Johnson amendment were approved outside of
the underlying modernization bill, it would be much more burdensome,
because thrifts would then be limited to selling only to banks or to
other thrifts. However, the bill's expansion of the ability of bank
holding companies to affiliate with insurance companies and securities
firms passes through to thrifts and will now permit nonunitary thrifts
to also sell to banks, sell to securities firms, or insurance
companies.
Now I want to take a moment to discuss the issue which will likely be
the most contentious during the debate on this bill. That is the
Community Reinvestment Act or CRA. During consideration of this bill,
the Banking Committee approved two balanced amendments designed to
bring rationality to a law which has ventured far from what I believe
was its original purpose. CRA was enacted in 1977 to encourage
financial institutions to help meet the credit needs of the local
communities in which they were chartered. Although noble sounding, CRA
has drifted far afield from that original purpose. S. 900 includes a
small bank exemption, approved on a bipartisan vote of the committee,
which exempts banks with assets of under $100 million and which are
outside of a metropolitan statistical area for the CRA.
Although I have received a number of calls of opposition from
constituents in urban areas in my State, which will not be affected by
this exemption, I do think it is important to listen to what some of
the bankers in rural Minnesota are also saying. I am sure this is true
not only in Minnesota but in rural banks across the country.
Although these bankers are often vilified, I believe that they play a
very crucial role in ensuring that affordable financial services are
widely available in the rural America.
Just take, for example, the comments of John Schmid of the Security
State Bank in Sebeka, MN. John writes:
We are a small rural Minnesota bank with assets of $21
million--$21 million, this is not a large money center bank--
and our town population is 680 souls. We could not exist if
we did not support and reinvest as much as we could in our
town and surrounding area.
Gregory Morgan of First National Bank of Montgomery, MN, also tells a
similar story. He writes:
Our bank is 36 years old, founded on the idea of serving
the entire community of Montgomery and as such, we have been
successful. Our efforts of living and breathing community
reinvestment are not driven by having to be in compliance
with some law written in Washington but rather by listening
and serving our friends and neighbors throughout the
Montgomery area.
Yet another constituent committed to his hometown is Romane Dold, of
Currie State Bank. Romane writes:
We are a small community bank located in a town of 300
people. Our assets are $17 million. Our bank has always
adhered to the regulations of CRA and, in fact, received an
``Outstanding'' rating in our most recent exam. The problem
that we have with the regulations is that it just is not
necessary. Our bank has been in this town since 1931 and
quite honestly, if we hadn't been reinvesting in this
community for over 60 years we wouldn't be here. CRA has just
been another ``little burden'' that we have to contend with
to appease some regulator.
Finally, the message Kieth Eitreim of Jasper State Bank in Jasper,
MN, shared also proved that CRA is a bottom-line issue, costing small
rural communities precious dollars, a lot of money. His bank is
. . .an $18 million bank located in a town of 600 people in
southwestern Minnesota. CRA is a requirement that does
absolutely nothing to protect the people of my community
except to cost them money. The last exam we had lasted 3 days
and proved what we already knew. We service our community. If
we did not, we would not be in business.
Mr. SARBANES. Will the Senator yield on that point?
Mr. GRAMS. I will yield to the Senator.
Mr. SARBANES. I am quite prepared to concede that there are a lot of
small banks that do, in fact, service their community, as the Senator
has indicated by the quotes. We have never held extended hearings on
this issue, but the material from the Federal Deposit Insurance
Corporation says that 57 percent of small banks and thrifts have a
loan-to-deposit ratio below 70 percent and that 17 percent of those
have levels less than 50 percent. Conceding that there are small banks
who
[[Page S4750]]
really pay attention to their community, it is obvious that there are
also small banks which are not doing that.
In fact, the Madison Wisconsin Capital Times, in an editorial a
couple of years ago, said:
Many rural banks establish a very different pattern than
reinvesting in their communities where local lending takes a
lower priority than making more assured investment like
Federal Government securities. Thus, such banks drain local
resources of the very localities that support them, making it
much harder for local citizens to get credit.
I do not gainsay the examples that the Senator cited. But clearly,
there are examples on the other side. And CRA, of course, is directed
to get not at the good or the best actors, but the ones that are not
addressing needs. The statistics from the regulators seem to indicate,
and this editorial that we have--and we have other comments to the same
effect--seems to indicate that there is a problem.
Mr. GRAMS. I understand the concern, and I know those numbers have
been raised in the questions.
I also know, if you look at the other side of the story, I have
talked to some of these small bankers who say they live in a town or
work in a town of 300 people. And if you look out in the rural parts of
the country today, most of the population in these small towns is
growing in age. So his concern was, although we make all these loans
available, there are not many home mortgages being sought. There are
not many automobiles being bought. There are not many washers and
dryers for which loans are being asked. There isn't the demand for the
loan.
You have to expect that these bankers are going to have to put the
money to some use, if there is nobody out there asking for the loan.
The question I have for the Senator is, how many of those loans have
been asked for and then denied?
The story I have--and I don't have this information in front of me--
is that he said it is awfully hard to loan money to my community when
there is no request for loans. What do I do, let the money sit in the
safe overnight? No, he has to invest it, maybe in some of these other
government or other financial institutions or financial mechanisms.
I think there are two sides of that story. It is not that these banks
are turning down loans. In many cases, in these small communities in
rural parts of the country, there is no demand for these loans. The
bank is a good, safe place to keep it, but not always to be able to use
the bank's facilities.
Mr. SARBANES. That is a reasonable point. It ought to be examined in
a set of careful hearings, because, in fact, the particular institution
may confront that problem, although it may be overlooking loan
possibilities, which has frequently been the case and is certainly the
case in many instances in which areas people were neglected in terms of
the availability of credit. We have never done those kinds of hearings.
We have never really looked at this problem in some sort of objective,
comprehensive way.
And we hear all these kinds of ad hoc stories, as it were. But, you
know, there are counter-ad hoc stories. I am frank to say I don't think
we ought to be making the kind of significant changes in the CRA that
are in the committee bill without having gone through the sort of
process I am talking about.
I thank the Senator for yielding.
Mr. GRAMS. Mr. President, by putting a face on the businesspeople
working day in and day out trying to help America's rural communities
strive and survive, I hope we can eliminate the vilification which is
cast upon them. We are talking about banks under $100 million. As the
gentleman from Sebeka said: 680 people is not a major financial center,
and we have done the best we can to meet the requirements. We would not
be in existence and would not be able to survive in our community if we
didn't reinvest and if we had turned down these loans.
There is a commonsense way to look at it. According to the stories we
have heard and the bankers we have talked to, a lot of times these are
banks with three or four employees. Many times they are asked to have a
full-time employee just to work on government regulations, which takes
a lot of money that could be used for loans, et cetera, out of the
bank, and, as one banker said, it does absolutely nothing for his
community. That is where we have to look at some of this. This is
common sense.
By using their words to show that they are meeting their communities'
needs, not because Washington tells them to do so or says they have to,
but, again, because it is in their best interest and it is in the best
interest of their community and their town, it proves the need for the
small bank exemption.
The Committee also included a provision which has mistakenly been
deemed a ``safe harbor.'' Unlike a safe harbor, which gives an
institution a free ride, the rebuttable presumption included in S. 900
simply gives meaning to the work of the regulators during CRA exams.
CRA's stated purpose is to require each appropriate federal banking
regulator to use its authority when examining financial institutions to
encourage such institutions to help meet the credit needs of the local
communities. By providing a rebuttable presumption, the bill gives the
regulator the benefit of the doubt that they are meeting the
requirements of CRA by encouraging action by the institution during the
exam. However, the bill provides a safety that if someone feels that
the regulator has not properly assessed the institution, provided the
individual can prove the regulators failure, it can still protest an
action. Thus, this amendment simply protects federal banking regulators
against harassment by individuals who simply want to criticize their
work.
Finally, Mr. President, I regret to have to include a negative
comment in this statement about an otherwise outstanding bill. However,
I believe that the operating subsidiary provisions included in S. 900
are inadequate and should be amended. As the Senator who worked on a
bipartisan basis last year with Senator Reed of Rhode Island to draft a
compromise operating subsidiary amendment, I have vested a great deal
of time studying the pluses and minuses of this option. I have come to
the conclusion that it is appropriate for national banks to conduct
full financial activities, with the exception of insurance underwriting
and real estate development. I enthusiastically support the op sub
amendment of Senator Shelby which will be offered to this bill. It is
identical to the amendment I authored last year and again this year in
Committee. The amendment provides adequate safeguards to ensure that
the sub poses no greater risk to the bank than a holding company
affiliate. Another benefit of this amendment is to provide competition
among regulators. A recent conversation I had with a banking lawyer
convinced me that this amendment is prudent public policy. The attorney
shared with me that in his dealings with the Federal Reserve Board and
the Office of the Comptroller of the Currency, one of the agencies have
been cooperative in helping his client work through issues and find
creative ways to deal with their problems while the other has done
nothing to help. If we were to eliminate the competition, regulators
would have no incentive to be responsive to the institutions they
regulate and American banks would have no where to turn if they are
unhappy with their treatment.
Mr. President, in closing I again urge my colleagues to support this
important legislation so that we can move the bill through conference
and to the President for his signature.
I yield the floor.
The PRESIDING OFFICER (Mr. Voinovich). The Senator from Illinois.
Mr. DURBIN. I thank the Chair.
Mr. President, the bill which is before the Senate, S. 900, is known
in the shorthand form as the Financial Modernization Act. It is a 150-
page bill which has been the subject of debate and deliberation on
Capitol Hill for almost 10 years--a 10-year effort by the House and the
Senate to try to modernize the laws and regulations in Washington
relative to banks and financial services. Of course, anyone who has
paid any attention understands that while we have been debating, there
has been a revolution taking place.
I am reminded that just a few years ago we passed major reform in the
area of telecommunications--years of hearings, extraordinary testimony
from expert witnesses, the best staff work, the best lawyers, the best
efforts by the
[[Page S4751]]
Members of the House and Senate--and we delivered the
Telecommunications Act modernizing regulation when it came to this
industry.
Now, a few years later, we take a look at that work product. I was
amused to find someone who came to my office and reported to me that
they had found in that 1,000-page bill only two references to the
Internet. Think of that. We modernized our telecommunications law and
almost overlooked the most amazing phenomena that is taking place in
telecommunications.
I hope we don't make the same mistake here. I hope in our effort to
modernize financial institutions that we are thoughtful, that we
modernize them in a way that is good for everyone--consumers and
families in America as well as the owners of those institutions.
Twenty-two years ago we took a look at banking in America. We decided
that we had some interest as a nation in making certain that the banks
served the communities where they were located. That is not a radical
notion, is it--to say if you have a bank in a town that is holding the
savings and checking accounts of individuals and families and
businesses, that when that bank does business it should do business in
that same community where the people live, where the businesses are
located, where the farmers have their farms, and where the ranchers
have their ranches.
We found that some banks were, in effect, in a parasitic capacity.
They were drawing out the resources of communities and regions and not
putting the money back in. In its worse situation, you would find in
some of the urban areas redlining, where banks would take the money out
of a community and refuse to write mortgages for the people who wanted
to build homes, or to modernize their homes. They wouldn't put money
into the small businesses in the same communities where they were
drawing the money.
In 1977, we decided there was a need for legislation called the
Community Reinvestment Act. It speaks for itself--that the banks
reinvest in the communities where they are located. It is not a radical
concept. In fact, I think it is a rational concept. It is one that,
frankly, has served us very well for 22 years. Now, as part of Senate
bill 900, there is an effort to radically change community
reinvestment.
I don't know what the experience of other Senators might be. But I
can tell you what my experience has been in my hometown of Springfield,
IL. I have lived in that town for about 30 years, practiced law there,
and raised a family. There was a time when I not only knew the name of
every bank downtown, but I knew the bank presidents. I might not have
socialized with them, but I sure knew where they were. I knew where
they lived, and I knew who their families were. I had a feeling that
those banks were going to be around for a long time. You could just
tick them off: The First National Bank, the Illinois National Bank, The
Springfield Marine Bank.
But over a span of 10 or 15 years a dramatic change has taken place.
I think a lot of Americans find themselves in the same situation that I
am in. I struggle to remember the latest names of these latest banks.
Which one is the First National Bank? Which one is the Planters and
Growers Bank? I can't keep up with it. It seems every 6 or 12 months
there is a change, and not just a change in name, there is a change in
ownership. The bank that used to be run downtown in Springfield may be
run out of someplace in Ohio, New York, or Europe.
If Members ask whether or not we need this law of 1977, this
Community Reinvestment Act, to make certain that as these changes are
taking place in the banking industry--whoever owns them, wherever their
home might be--that they still serve the communities where they draw
their money from, I think is still a very sound concept.
Yet this bill, S. 900, suggests it is a concept that should be
largely abandoned, because in three specific areas there are changes in
the law.
First, it eliminates the requirement that all banks within a holding
company have and maintain satisfactory Community Reinvestment Act
ratings as a condition for exercising new financial powers. To put it
in common English, if you want to take your bank and holding company
and expand it in some direction, we are going to take a look to see if
you have been good citizens in the communities where you are located.
I think that is a reasonable suggestion. That is the law. But this
bill changes it. This bill removes that requirement and says you can't
take a look at their records and see if they have been helping local
farmers and businesspeople, families, with mortgages.
Does that make sense, at a time when bank ownership is becoming
further and further removed from the people who bank, that we are going
to somehow absolve them of responsibility to the neighborhoods, the
communities, the towns, the counties around them? I don't think that
makes any sense at all.
The second thing, the so-called safe harbor provision. If an
institution had a good conduct ribbon for 36 months under the Community
Reinvestment Act, this bill basically says leave those banks alone,
don't ask any more questions.
I don't think that makes sense either.
The Community Reinvestment Act examinations take place about once
every 18 to 24 months. In fact, for the smaller institutions, they have
been streamlined more dramatically. I don't think we ought to say that
after some 3 years of good conduct we are no longer going to ask basic
questions as to whether or not you are making an investment in your
community.
The final provision, which the previous speaker, the Senator from
Minnesota, addressed from his point of view, was whether or not a
bank--rural bank in this instance--with less than $100 million in
assets should be required to meet the requirements of the Community
Reinvestment Act. An argument can be made, and has been made by some,
that these are smaller institutions and, as such, should not be
burdened by regulators and paperwork, let them do their business, they
are good neighbors, and things will work out.
Yet in the report filed with this bill, we find the statistics do not
bear out that point of view. Let me read:
Over 76 percent of rural U.S. banks and thrifts have assets
less than $100 million.
We are talking about more than three-fourths of the bank and thrift
institutions in the smalltown areas.
It is asserted these small rural banks by their nature
serve the credit needs of their local neighbors. However,
small banks have historically received the lowest Community
Reinvestment Act ratings. Institutions with less than $100
million in assets accounted for 92 percent of institutions
receiving noncompliance ratings under the CRA.
What many do is take the money from the community and then do not
lend it back into the communities. They turn around and buy government
securities instead of lending it to the businesses and families that
need those assets to make investments in the communities.
I don't think the small bank exemption is the way to go. I think the
provision in the CRA change relating to that overlooks the fact that
just a few years ago we put in new regulations to streamline CRA
investigations in smaller banks, banks of less than $250 million in
assets. We exempted many small banks from reporting requirements and
eliminated a lot of documentation and paperwork. We need to continue to
focus on banks of all sizes to make sure they are doing the right
thing.
After 22 years of the Community Reinvestment Act, what do we have to
show for it? Has it worked? I think, quite honestly, it has worked very
well. My State of Illinois is very diverse, with a large city like
Chicago and many small towns. In the Chicago area, thanks to a strong
economy and CRA, the number of home loans to low-income borrowers
almost doubled between 1990 and 1996, enabling 30,000 families to
become homeowners. Is it of value to those families that those banks
put the money back into the community? I think it obviously is.
I want to take a look at some of the other areas of my State. Voice
of the People, in the Chicago Uptown area, has provided quality,
affordable housing for low-income families. The racially and
economically diverse community of Uptown Chicago, on the far north side
of town, partnered with the
[[Page S4752]]
Uptown National Bank of Chicago and completed the International Homes
project, a development of 28 town homes constructed on five vacant lots
within a four-square-block area in Uptown. This made homeownership
possible for 28 lower-income minority and immigrant families. Half of
these first-time homeowners are families earning under 50 percent of
median income.
At the same time, down in my old hometown of East St. Louis is
Winstanley/Industry Park Neighborhood Organization, a new nonprofit
corporation representing 8,000 people. For those not familiar with it,
my old hometown has had a tough time for the last 20 or 25 years. They
struggled to keep the community together and to survive. The
Winstanley/Industry Park Neighborhood Organization has been a plus. It
is a mixed-use area comprised of residential, commercial, and abandoned
industrial sites. What they have tried to do is to work with Magna Bank
of Illinois to change the area. They have created a farmers market,
community owned and operated, which was developed by this organization.
What makes the market particularly unique is 14 of the 16 vendors are
local residents.
If your bank were located somewhere in Europe and you came into the
branch in your hometown and said, ``We have some people here who are
struggling to make a living; they are low income and they want a chance
to start a farmers market,'' is it more likely that you are going to
get a sympathetic response from someone who knows the community, has a
responsibility to the community, rather than someone who is just
hammering away at the bottom line? I think the answer is obvious.
A residential loan counseling program of the same organization has
launched a response to the victimization of over 1,400 lower-income
families who were being misled by unscrupulous realtors into home
purchase agreements known as bond-for-deed. The realtors who engaged in
this often held the title to the properties throughout the length of
the contract without recording the transaction and without hazard
insurance for the purchaser. Most of these agreements contain no terms
and have open-end type mortgage balances. This organization counseling
program helped these same residents, lower-income families, refinance
with conventional mortgages on their own homes.
Finally, West Humboldt Park is a low-income, predominantly minority
neighborhood on Chicago's west side. It is plagued by poverty,
illiteracy, welfare dependence, street and domestic violence, alcohol
and substance abuse, and a lack of job opportunity. In 1989, Orr High
School and the 12 neighborhood elementary schools formed a partnership
with Bank of America--then Continental Bank--establishing a community
network of schools in West Humboldt. The partnership has grown to
include over 25 programs providing education and social services. They
include Boys and Girls Clubs, the creation of the BUILD project, which
is a group of parents who are really trying to keep the streets safe
for their kids.
It amazes me that in our efforts to modernize the laws involving
banks and thrift institutions, one of the first casualties proposed in
the Republican majority bill before the Senate is to eliminate the
Community Reinvestment Act. A party which dedicates itself to the
premise that local control is best is virtually ready to give it away.
To say that when it comes to local control of banking assets so
critical for building and rebuilding a community, it will no longer
hold them responsible, I think that is shortsighted.
For 22 years, the Community Reinvestment Act has worked. I hope we
defeat this provision if we can muster a direct vote on it. If not,
defeat the bill if it continues to push the things which are not in the
best interests of consumers and families across America.
I yield the floor.
The PRESIDING OFFICER (Mr. Roberts). The distinguished Senator from
Texas is recognized.
Mr. GRAMM. Mr. President, I want to respond to the amendment that has
been offered. I apologize if anybody has the idea, listening to this
debate, that there is not another side to the argument. We had several
people who had time constraints and wanted to speak. Senator Sarbanes
and I are being held hostage here, in managing the bill. So as a
courtesy to others, we have let them speak first. But I now want to
give a comprehensive response to this issue. Let me begin.
Mr. SARBANES. Will the Senator yield for a minute?
Mr. GRAMM. I am happy to yield.
Mr. SARBANES. How long would the Senator expect to go?
Mr. GRAMM. I think it is going to take me probably a minimum of about
30 minutes to go through the entire group of issues.
Mr. SARBANES. Could we then put Senator Bayh and Senator Edwards in
line to speak after you finish?
Mr. GRAMM. I do not know that any Republican has spoken on this
issue. Did Senator Enzi speak?
To this point, if I might say, the distinguished Senator from Nevada
spoke at length. You engaged in a lengthy colloquy with him. We then
had a nonrelevant speaker.
Mr. SARBANES. Senator Grams spoke for you.
Mr. GRAMM. By nonrelevant I do not mean the Senator was irrelevant on
the issue. It had no relevance to this issue. It was about another
issue completely. Senator Grams really talked about the bill itself.
So it is my turn to speak. I intend to speak and answer the points
that have been raised. Then I would like to continue going side to
side. We only have one other person here. I do not know if he is going
to speak at any great length.
Mr. SARBANES. Then I guess our colleagues know in about 30 minutes
they could hope to get recognition to speak.
I thank the Senator.
Mr. GRAMM. Mr. President, I think it is important for people to step
back and look at what is being proposed. I have to break the discussion
down into two parts. No. 1, what it is that Senator Sarbanes would do
with his amendment, and, second, what it is he would undo with his
amendment.
Mr. SARBANES. Senator Bryan.
Mr. GRAMM. So let me explain what he would do with his amendment,
then explain what he would undo, and then explain why both what he
would do and what he would undo is bad.
First of all, let me begin with current law in CRA, then what I am
going to do is go through what the Senator's amendment would do. I am
then going to talk about the history of CRA and within that history I
am going to try to explain the problems that we are trying to fix in
the underlying bill. Then I want to talk at some length about those
problems and about the underlying bill. I think I will have covered the
whole waterfront.
Let me remind our colleagues the current Community Reinvestment Act
basically has two provisions. The first provision is that bank
regulators have to consider how a bank has been meeting local credit
needs only when a bank applies to open a new bank, branch or to merge.
Second, bank regulators may deny application based on a CRA record. So
basically, in terms of the existing CRA law, the way it was written,
there is no violation for simply failing to comply. The enforcement
mechanism is that if you apply to open a new branch or open a bank or
to merge, then the bank regulator--whichever one you are subject to,
based on your charter--looks to see if you are meeting the needs of
your community. And community reinvestment, I would like to remind our
colleagues, is focused on lending. The primary focus of community
reinvestment is lending in the communities where you take deposits.
A bank regulator can deny an application based on your CRA record.
There is no penalty involved other than the denial of the application.
That is current law in CRA. What the substitute that has been offered
by Senator Bryan would do--I have ``The Sarbanes Substitute,'' because
Senator Sarbanes offered this in committee and we assumed he would
offer it today, but it is the same provision--is this:
The Bryan substitute would add eight more requirements to CRA than
the are required under current law. In fact, this would be a good
opportunity to ask unanimous consent to have printed in the Record a
letter from Chairman Greenspan that outlines what the CRA provisions of
this substitute are, what the CRA provisions of the bill are, and
exactly what they would do. Because, as I am sure all of
[[Page S4753]]
our colleagues are aware, what tends to happen in these debates is
people set up straw men. In this case the straw man is that somehow the
underlying bill undoes CRA --that is straw man 1. Straw man 2 is that
the substitute virtually leaves CRA as it is.
The reality, as I will paint in some detail, is that the underlying
bill tries to deal with two clear abuses in CRA: One, an integrity
provision; and, two, a relevancy provision. It in no way does violence
to the basic idea of CRA. And the second reality as compared to the
straw man is that this substitute is the most massive expansion of CRA
in its history and would literally impose a penalty structure that goes
far beyond anything ever contemplated in CRA when it was adopted in
1977, or that has ever been discussed since. In fact, our colleague
keeps wondering where the hearings are concerning the two modest
changes that we have made in the underlying bill, without ever raising
the question: Where are the hearings on which these massive punitive
penalties would be based? Where is the abuse that they seek to address?
The point is, the rhetoric of Senator Sarbanes applies more to his
substitute than it does the underlying bill.
So let me ask unanimous consent that the letter from Alan Greenspan
with regard to the CRA provisions of the substitute and the CRA
provisions of the underlying bill be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:
Board of Governors of the
Federal Reserve System,
Washington, DC, April 7, 1999.
Hon. Phil Gramm,
Chairman, Committee on Banking, Housing, and Urban Affairs,
U.S. Senate, Washington, DC.
Dear Mr. Chairman: You have asked for an analysis of how
the financial modernization bills recently passed by the
House Committee on Banking and Financial Services (H.R. 10)
and the Senate Committee on Banking, Housing, and Urban
Affairs affect the Community Reinvestment Act of 1977 (CRA).
Enclosed is a memorandum from the Board's General Counsel
discussing the impact of these bills on the CRA.
That memo indicates that H.R. 10 would affect the CRA in
three principal ways. It would require at least a
``satisfactory'' CRA performance rating as a precondition for
engaging in the new financial activities, provide for the
enforcement of this requirement, including through penalties
and divestiture, and apply the CRA to uninsured wholesale
financial institutions. Currently, the CRA does not require
that an institution's CRA record be considered in connection
with proposals to engage in nonbanking activities, authorize
enforcement of the Act outside the applications process, or
apply to uninsured depository institutions.
The bill recently passed by the Senate Committee on
Banking, Housing, and Urban Affairs does not contain similar
provisions. The Senate bill, however, does contain two CRA-
related provisions not contained in H.R. 10: an exemption
from the CRA for small insured depository institutions that
are located outside metropolitan areas and a rebuttable
presumption regarding an institution's compliance with the
CRA.
I hope this information is helpful.
Sincerely,
Alan Greenspan,
Chairman.
Enclosure.
Memorandum Regarding the Effect of Recent Legislative Proposals on the
Community Reinvestment Act
Chairman Phil Gramm has asked for an analysis of how H.R.
10, as passed by the House Committee on Banking and Financial
Services last month, and the bill passed by the Senate
Committee on Banking, Housing, and Urban Affairs on March 4,
1999, would affect the Community Reinvestment Act of 1977
(``CRA'').
H.R. 10 would primarily impact the CRA in the following
three ways.
1. The CRA currently applies only to federally insured
depository institutions. H.R. 10 would subject the newly
established uninsured wholesale financial institutions to the
CRA.
2. The CRA currently requires that the Federal banking
agencies consider the CRA performance of an insured
depository institution in connection with proposals by the
institution, or the institution's holding company, to acquire
or establish a deposit-taking facility (e.g., open a branch
or acquire or merge with another insured depository
institution). It does not require that an institution's CRA
record of performance be considered in connection with
proposals to engage in, or acquire a company engaged in,
nonbanking activities. H.R. 10 would allow a financial
holding company to engage in new financial activities only if
all of the company's subsidiary depository institutions have
and maintain at least a ``satisfactory'' CRA rating. Thus,
H.R. 10 would link CRA performance to the ability of a
banking organization to engage in, or acquire a company
engaged in, a nonbanking activity. More than 95 percent of
the depository institutions examined for CRA compliance in
1997 received a ``satisfactory'' or better CRA rating.
3. Current law does not authorize a Federal banking agency
to take any type of enforcement action against an insured
depository institution that has a less than satisfactory CRA
rating, other than denying proposals by the institution (or
the institution's holding company) to establish or acquire a
deposit-taking facility. Thus, current law does not permit
the Federal banking agencies to take actions, including
enforcement actions or divestiture proceedings, outside the
applications process if an institution fails to maintain a
``satisfactory'' CRA rating on an ongoing basis. See
Memorandum from Walter Dellinger, Assistant Attorney General,
U.S. Department of Justice, to Eugene A. Ludwig, Comptroller
of the Currency, 18 U.S. Op. Office of Legal Counsel No.
39 (Dec. 15, 1994).
H.R. 10 would require that the subsidiary depository
institutions of a financial holding company maintain at least
a ``satisfactory'' CRA rating for the holding company to
continue to engage in the new financial activities. If a
subsidiary depository institution fails to maintain such a
rating, the financial holding company and subsidiary
depository institution must execute an agreement with the
appropriate Federal banking agencies to correct the
deficiency and such agencies could impose limitations on the
activities of the financial holding company or subsidiary
depository institution until the subsidiary's rating is
restored. The failure by a financial holding company or
subsidiary depository institution to comply with these
requirements would constitute a violation of the Bank Holding
Company Act. In such circumstances, the appropriate Federal
banking agency could take enforcement action (e.g., issue a
cease and desist order, assess civil monetary penalties or,
in the case of the Board, seek criminal sanctions) against
the financial holding company, the subsidiary depository
institution, or an individual participating in the violation
(such as an officer or director of the holding company or
depository institution). Finally, if the subsidiary
depository institution's CRA rating is not restored to at
least the ``satisfactory'' level by its next examination (or
such longer period as the Board determines to be
appropriate), H.R. 10 would authorize the Board to require
that the financial holding company divest the subsidiary
depository institution or, alternatively, cease engaging in
new financial activities.
Section 121 of H.R. 10 also would permit a national bank to
control an operating subsidiary engaged in financial
activities permissible for a financial holding company, but
only if the national bank and its depository institution
affiliates have and maintain at least a ``satisfactory'' CRA
rating.\1\ National banks and affiliated depository
institutions that did not maintain such a rating could be
subject to the same type of corrective measures as discussed
above for financial holding companies.
---------------------------------------------------------------------------
\1\ Part 5 of the OCC's regulations, which purports to allow
subsidiaries of national banks to engage in activities that
national banks are not permitted to conduct directly,
currently requires that a national bank have and maintain at
least a ``satisfactory'' CRA rating to control an operating
subsidiary engaged in principal activities that the bank
cannot conduct directly. See 12 C.F.R.
Sec. Sec. 5.34(f)(3)(iii), 5.3(g)).
---------------------------------------------------------------------------
The bill passed by the Senate Banking Committee does not
contain provisions similar to those discussed above. The
Senate bill, however, would exempt from the CRA any insured
depository institution that has $100 million or less in total
assets and that is located outside a Metropolitan Statistical
Area. Data indicate that approximately 3,871 insured banks
and thrifts, representing approximately 37 percent of all
insured banks and thrifts and 2.7 percent of the assets of
all such institutions, would meet these criteria, as of
December 31, 1998. In addition, under the Senate bill, an
insured depository institution would be presumed to be in
compliance with the CRA until its next examination if the
institution received at least a ``satisfactory'' rating at
its most recent CRA performance examination and at each CRA
examination in the preceding three years. This presumption
would not attach if the appropriate Federal banking agency
receives substantial verifiable information, arising since
the date of the institution's most recent CRA examination,
that demonstrates the institution is not in compliance with
the CRA.
Mr. SARBANES. Will the Senator yield? I understood the Greenspan
letter compared the provisions in the House bill with the committee
bill, not the provisions of the substitute.
Mr. GRAMM. They are virtually identical, but I stand corrected. In
fact, let me yield to you to tell us the difference.
Mr. SARBANES. They are not identical. There are some significant
differences between the two, and I will develop them after the Senator
finishes his presentation.
But as I understand it, your request to the Fed and their response
was to compare the House bill with the committee bill. Am I correct in
that?
Mr. GRAMM. I think that is correct. I stand corrected. I would like
it printed in the Record, but I would be happy
[[Page S4754]]
to hear the distinguished Democratic ranking member of the committee
explain to us the differences. I assert that there are no significant
differences, but I would like to hear them.
Let me go over basically what we have in terms of additions to CRA in
the pending amendment, if the Senate decided to adopt it.
No. 1, by making noncompliance with CRA or falling out of compliance
with CRA a violation of banking law, officers and directors of banks
for the first time could be fined up to $1 million a day for CRA
noncompliance. I will come back to this in a moment.
Under this substitute, banks can be fined up to $1 million a day for
falling out of compliance.
Under this substitute, cease and desist authority for CRA
noncompliance are brought into the system.
Bank regulators may place any restrictions on any banking activities
for CRA noncompliance.
Bank regulators may place any restrictions on any insurance
activities for CRA noncompliance.
Bank regulators may place any restrictions on any securities
activities for CRA noncompliance.
Bank regulators may place any restrictions on any other activities of
the holding company for CRA noncompliance.
Any violation by any one bank in the holding company can trigger
penalties against any and all activities of the entire banking company.
Insurance sales of bank subsidiaries can be restricted for CRA
noncompliance.
Finally, the provision adds new expansions of CRA far beyond the
existing law. Under current law, banks sell insurance--small banks in
cities of less than 5,000, other banks depending on their State
regulation--and they do it without CRA approval.
The substitute would expand the decision of banks or ability of banks
to sell insurance to require CRA approval. Some 20 banks now provide
some security services. They do it without being required to get CRA
approval. The pending substitute would expand CRA approval to that
activity.
The first point I want to make is, contrary to the rhetoric being
used, we are talking about the largest, most significant expansion of
CRA in history--none of which is based on any assertion of any abuse--
and we are talking about imposing confiscatory penalties that are
devastating to our banking industry.
I want to read pieces of two letters on this issue of the potential
for a million-dollar-a-day fine. One letter is from the Independent
Community Bankers of America. This is a letter from an organization of
very, very small, generally community banks, often in rural areas that
would be affected by this. Let me read the paragraph:
We also have grave concerns about expanding CRA enforcement
authority to include the levying of heavy fines and penalties
against banks or their officers and directors. An ongoing
challenge for many community banks in small communities is
finding willing and qualified bank directors. Legislation
following the savings and loan crisis of the 1980s and 1990s
greatly increased the amount of civil money penalties to
which bank officers and directors may be subject. Any
increase in the potential for fines and penalties could
provide further disincentive for service on a bank board.
Here is the point. If a small bank is going to hire somebody to be
president or be an officer or recruit somebody to be on a bank board,
they are going to have to buy liability insurance to protect that
person from this potential fine, which would literally put thousands of
rural banks in America out of compliance.
If there is a problem here that needs to be fixed, if there is an
abuse that should be dealt with, then one might say that perhaps this
is justified. But here is the record: There have been some 16,380
examinations of small, rural banks in America since 1990, and of those
16,380 examinations, three banks and S&Ls have been found to be out of
compliance to a substantial degree.
Our ranking member of the committee would bring in the potential for
a million-dollar-a-day fine based on the fact that in 16,380 audits on
CRA since 1990--9 years--there have been three banks substantially out
of compliance. What is the justification for these massive punitive
fines? There is no justification.
The justification basically is that this is seen as an opportunity to
massively expand CRA. That is what the justification is.
The second letter, on exactly the same subject, is from the American
Bankers Association. Here is what they say:
We would oppose amendments we understand may be offered
that would contain provisions not only eliminating the two
CRA provisions currently in the bill, but also adding
additional new CRA requirements. One strong concern the ABA
has is that the potential for such penalties could
discourage directors from serving on community bank boards
and increase the cost of officer and director liability
insurance coverage for banks. There has been no
justification given for inserting these new penalties into
CRA, particularly given the outstanding record the banking
industry has in serving communities across the country.
I remind my colleagues, this substitute seeks to impose these massive
punitive penalties against small banks in America when in 16,380 exams,
which cost those banks cumulatively $1,310,400,000 to keep the records
and comply with the exam--$1,310,400,000; I have the decimal points
right this time--after all that money, after all those exams, three
small, rural banks or S&Ls were found substantially out of compliance.
If this is not regulatory overkill that drives working men and women
in America crazy and that threatens little banks all over the State of
Kansas, the State of the Presiding Officer, and all over Indiana and
all over Texas and all over America, that threatens their very
existence, I don't know what it is.
First of all, this is totally unjustified, makes absolutely no sense
and, to quote my colleague from Maryland, never has a hearing been held
on this subject. Never has any justification been given whatsoever for
imposing a million-dollar fine on bank board members and bank officers
in the name of CRA. It is the most gross overkill and regulatory burden
that this Senator has seen in the entire time that I have been debating
banking legislation.
I remind my colleagues that I spent 12 years of my life teaching
money and banking in college. I have spent too long of my life, 21
years, in the House and Senate, and I have been serving on the Banking
Committee every day I have been in the Senate, and I have had the
privilege this year of serving as chairman. I have never seen such a
massive regulatory overkill as these proposed provisions, and I am
confident that they will be rejected.
(Mr. SANTORUM assumed the Chair.)
Mr. SARBANES. Will the chairman yield on this point?
Mr. GRAMM. I will be happy to yield.
Mr. SARBANES. I am looking at a table from the Federal Deposit
Insurance Corporation, from 1990 through 1998, that those 320
institutions were given a ``needs to improve'' rating which, of course,
is below compliance, and 18 institutions were given ``substantial
noncompliance.''
The Senator is using this ``three'' figure, and I don't know where
that comes from.
Mr. GRAMM. I can tell you where it comes from. It comes from looking
at the banks and S&Ls that meet two tests: One, they have less than
$100 million of assets; and, two, they operate solely outside standard
metropolitan areas.
And my figure is, that those banks have been subjected, since 1990,
to 16,380 examinations. And in those 16,380 examinations, the average
of which has cost that little bank about $80,000, according to some 488
banks which have written us on this subject, that these 16,380
examinations--this is from the Federal Financial Institutions
Examination Council--that in these 16,380 examinations, costing, on
average, $80,000 apiece--so this is $1.3 billion that has been taken
out of these little bitty communities and out of their banks, where
people are paid higher interest rates and have gotten less credit--the
result of that has been that three of these banks, over a 9-year
period, have been found to be in substantial noncompliance.
You do not have to have a Ph.D. in mathematics to figure out, if you
have done 16,380 exams on these small, rural banks, and only three of
them have been in substantial noncompliance, you
[[Page S4755]]
are spending a tremendous amount of their money to find a very, very
small number of bad actors--in fact, three one-hundredths of 1 percent.
What is even more astounding is that all of these little banks
combined make up only 2.8 percent of the capital of the banking system.
They are getting 44 percent of the examinations. They make up only 2.7
percent of the assets of the banking system, and out of 16,380 exams,
only three of them were out of compliance.
Mr. SARBANES. If the Senator----
Mr. GRAMM. What is wrong here? What does not make sense here?
Mr. SARBANES. If the Senator will yield, he simply stated the point
all over again, but it hasn't squared the factual discrepancy.
According to our data from bank regulatory agencies, more than 70
small, rural banks and thrifts are currently deemed not in compliance;
that is, below a satisfactory rating with CRA this year alone.
Since 1990, 338 small, rural banks and thrifts received CRA ratings
below satisfactory.
Sure, the Senator can make the same speech about those numbers, but I
just want to get those on the Record, because those numbers are very
significantly different from the numbers which the Senator is putting
forward.
Mr. GRAMM. If I might reclaim my time--and I think probably we would
be better off to let me go through and make my presentation and let the
Senator do the same--let me go back and restate the facts.
What the Senator has done is basically taken a totally different
classification than I am talking about. I have been very clear in what
I am saying. Here is what I am saying. And it is devastating, there is
no question about that. I am glad I am not on the other side of this
argument. I would be trying to change the subject, if I were. But here
are the devastating facts.
The devastating facts are, that of the little banks in America--less
than $100 million in deposits; probably have 6 to 10 employees--that
are outside standard metropolitan areas--so these are banks that do not
have a city to serve, much less an inner city.
Mr. SARBANES. Those are the banks we are talking about. Those are the
figures I am giving you.
Mr. GRAMM. Look, let me go ahead. I will explain the difference in
what you are saying and what I am saying. OK. So let me start at the
top. I will go all the way down, make my point, and then I want to go
on and give my presentation. You all have had many opportunities to
give yours today. And I listened to them faithfully.
But here is the point, if you take every bank in America that has
less than $100 million of deposits, and that is also outside a standard
metropolitan area, they make up 38 percent of the financial
institutions in the country. They have 44 percent of the audits. In
fact, they were audited for CRA 16,380 times from 1990 through 1998.
In those 16,380 audits, that cost, on average--cost the bank; I am
not talking about the Government regulator; but cost the bank to comply
with gathering all the information, spending the week in the audit,
keeping all the records, designating a CRA officer--and I will later in
my presentation read actual letters from the banks--these little banks
and these little communities spent $1.3 billion of their money
complying with this law.
Of these 16,380 examinations, only three banks, over a period of 9
years, only three banks were found to be substantially out of
compliance.
Our colleague has taken a different definition, ``marginally out of
compliance,'' and the number was bigger, maybe 70 out of 16,380. The
point being, my statement is true, that only three banks, out of all of
these that are audited, have turned out to be substantially out of
compliance.
On the basis of that, our colleague would impose a $1 million-a-day
fine on officers and board members. And I stand by my point that that
is the biggest overkill I have seen.
I think I have dealt with the proposals made which would be added by
the amendment that is pending.
These proposals really boil down to punitive, crushing, regulatory
burden and fines, imposing a $1 million-a-day fine on bank officers and
bank board members, massively expanding CRA.
The justification in 1977 for CRA was, ``Well, you've got deposit
insurance. That's a good subsidy. We ought to be able to force these
institutions to allocate capital for a public purpose.'' But for the
first time, this substitute would expand CRA to a noninsured
institution where there is no logic for its expansion. For the first
time, CRA approval would be necessary for selling insurance and selling
securities within a bank or at an affiliate of a bank holding company.
These are massive expansions of regulatory burden. They are totally
unjustified based on any facts, no matter how you read them. I cannot
believe that a majority of the Senators would vote to do those things.
Let me talk about what we undo if we adopt the Senator's amendment.
And I want to take some time to go through this. I have not done this
at great length.
I want people to understand what is the problem with CRA that we are
trying to deal with in these two very modest amendments which the
Banking Committee has written.
First of all, let me talk about what you can view as good news. In
1977, there was a rider to a bill that was written by Senator Proxmire
that created what we today call CRA. It said that banks should lend in
the communities where they collect deposits. There was no enforcement
mechanism. It was simply to be used when evaluating approval for bank
mergers and branches.
A Democrat Senator raised an objection to the provision, worrying
about redtape and paperwork. Interestingly enough, the distinguished
chairman at that time said, ``No problem. The redtape and paperwork
will be nominal. No big deal.'' We have all heard it millions of times
when thousands of programs have become law. There was a vote in the
Banking Committee to strip out this provision. And that vote failed on
a 7-7 tie.
We then had the bill come to the floor of the Senate. There was
another vote. And I do not have the total here, but I think it was 41-
30. We had some huge number of Members of the Senate who were absent.
So the bill became law.
So here is the point I want to make. In 1977, we started out with a
CRA requirement. And in that year--and these figures are all from the
National Community Reinvestment Coalition--in that year there were
about $50 million of CRA loans or cash payments or commitments to lend.
And that number was relatively small, until 1992.
Now, what happened in 1992? Well, two things happened. One, we
started having a rash of mergers, so that these very large banks and
also some small banks had to get CRA approval to merge. What happened
is this number started to grow very rapidly. Last year, in loans,
commitments to lend, cash payments, the total was $694 billion.
Now, to put that in perspective, the loans, commitments to lend, and
cash payments, and commitments to pay cash--and I am going to talk
about cash payments at some great length here in a moment--totaled $694
billion last year. That is bigger than the Canadian economy. That is
bigger than the combined assets of Ford, General Motors, and Chrysler.
That is bigger than the discretionary budget of the Federal Government.
Yet our colleagues, who will oppose these two very simple amendments,
say there is no need to look at a potential reform in CRA.
CRA is now bigger than General Motors. It has grown from virtually
nothing to become larger than the discretionary budget of the Federal
Government, and yet our Democrat colleagues refuse to admit the
possibility--or many of them do--that we might need some degree of
effort to deal with abuses which would naturally occur in a program
that grew in a very short time from $50 million to $694 billion.
Why do I think this is a relevant point? Well, let me give you one
fact. According to the community groups, $9 billion has been paid or
committed in cash. Had you gone to that committee hearing in 1977 and
said to the then chairman of the Banking Committee, Senator Proxmire,
``Well, what about cash payments, what about people literally giving
community groups and individuals money not to testify against their
merger or not to oppose it or actually paying them to support it,''
what he would think about that? I can tell you: he would have said,
``It is not possible.''
[[Page S4756]]
This bill in no way contemplates that cash payments would be made,
but the fact remains that as this program has exploded, $9 billion of
cash payments and cash commitments have been made. This basically
represents an abuse that needs to be dealt with. In fact, in the one
hearing we had on this subject, the spokesman for these reinvestment
coalitions admitted there were abuses. He called it ``green mail,'' and
he said that it hurt the program. Most people would call it blackmail.
The point is, if these abuses exist--and no one disputes they do--why
shouldn't we begin to try to do something about them?
Now, let me turn to a quote, and then I will get into some of these
abuses.
This is a quote from a Cornell University law professor, Jonathan
Macey, who specializes in banking law and is one of the most respected
lawyers in banking law in the country. Here is what he said about CRA,
as it exists in 1999:
You see really weird things when you look at the Code of
Federal Regulations . . . like Federal regulators are
encouraged to leave the room and allowing community groups to
negotiate ex parte with bankers in a community reinvestment
context . . . Giving jobs to the top five officials of these
communities or shake-down groups is generally high up on the
list (of demands).
So what we really have is a bit of old world Sicily brought
into the United States, but legitimized and given the patina
of government support.
It has never been stated more clearly than that.
Now, let me give you an example, if you would give me those
agreements.
Part of our problem--and this will be discussed later, and I hope
people will listen to this point--part of our problem is that community
groups, in negotiating with banks, in virtually every case negotiate
for and insist on the confidentiality of these agreements. So one of
the problems in evaluating this $9 billion is, we do not have any of
the facts as to where this money goes, who it goes to, and what they do
with it when they get it.
One of the amendments that Senator Bennett or someone else will be
offering later in the Senate's consideration of financial services
modernization is a sunshine amendment, which says that in the future
these agreements have to be made public, that they have to go to the
regulator, that the regulator has to require that the information be
provided, and that they be made public. The logic of that is, nothing
disinfects like sunshine.
Now, it so happens that we have three of these agreements that we
have obtained on the condition that we not disclose the names of the
bank or community group involved. We have redacted those names. I just
want to give you a flavor of what these agreements looks like, and I
have pieces of three of them here.
This is Bank A: Provide blank--and this is a community group--with a
grant of up to $20,000. Provide blank--another community group--with a
grant of up to $50,000. Provide blank with a grant of up to $25,000 to
pay reasonable and necessary ``soft costs'' to be incurred by blank.
Provide blank with a grant of a reasonable amount. . . .
That is the quid; now the quo:
Blank agrees to withdraw on the date hereof the comment letter, dated
blank 28, 19 blank, and any related materials collectively, the comment
letter filed with the Office of the Comptroller of the Currency, the
Federal Reserve Bank, and the board. I don't have the second sheet.
The point is, the community groups gets all of these cash grants and
then agrees to withdraw the complaints they have filed, a classic quid
pro quo.
Now, what happened to these complaints? Were they not meritorious or
did the community groups suddenly no longer care about the people they
were protesting against? What did all of those cash grants do that
induced them to withdraw their comment?
Bank A, one more thing, blank and blank agree--this is the community
group and the bank--agree not to disseminate or otherwise make
available to the public copies of this agreement.
So the community group gets these cash payments and in return agrees
to withdraw their protests, and then the bank and group agree that they
will keep the agreement secret.
Now, let's look at Bank B: Blank will receive a fee of 2 and three-
quarters percent of the face amount of each program loan made by blank.
This is an agreement whereby a community activist and their community
group receive a rake-off of 2.75 percent of the face value of every
loan made under this agreement.
Do you think people receiving that loan know that this individual and
this group will get 2.75 percent? In fact, they don't. And, as you will
see later, unless we open up this process, they never will. No one will
ever know what is happening. Continuing with the Bank B's agreement:
Blank will receive a fee of $200,000 as reimbursement; according to
blank, $100,000 is payable upon execution and delivery and $100,000 six
months later.
We have the quid, now the quo.
The community group or the individual agrees to withdraw all pending
protests of blank regulatory applications and related materials and not
to sponsor, either directly or indirectly, the protest or to supply
information in connection with any protest relating to pending or
future blank applications with regulators.
In other words, the community group is agreeing that in return for
this 2.75 percent of the face value of all loans that are made, not
only will they withdraw the complaint they have already filed, but they
will never make another one. They will never make another one, no
matter what.
At blank's request--listen to this one. Many of you wonder why you
have gotten letters from banks, and I got a letter from a big North
Carolina bank, might I say, and I was shocked. Then I read the letter
and it, in essence, said that they are required by a CRA agreement to
send me this letter saying they support CRA. I said, how is it possible
that somebody could be required to send me a letter? And this is a
different bank altogether and a different agreement. Here is how it
happens:
In addition, the bank agrees to send letters to customers of blank
previously contacted by blank--well, I will get to the point on the
next sheet. And then the community group agrees to purge their files
and database of all information related to this bank's customers. In
other words, they get this breakoff; they get these cash payments. They
agree to withdraw their objection. They will never do another
objection. They are even going to destroy the computer database they
used to do it.
Now I think we are getting to the thing I mentioned. The community
group agrees to: immediately cease and desist all activities directed
against blank; to maintain the confidentiality of this agreement, to
maintain the confidentiality of this agreement and any other
agreements; to cooperate with them in getting agreements with other
banks. And then is the thing about sending letters. This is called
``public policy partnership.''
In this public policy partnership: blank will work with the blank to
establish a clear written declaratory statement indicating support for
the Community Reinvestment Act and the Home Mortgage Disclosure Act,
and the party's opposition to any attempts to weaken the law. Blank
will send the final copy of this statement to the blank, the American
Bankers Association, the Federal Reserve Board, the Office of the
Comptroller of the Currency, the blank Congressional delegation, and
all Members of the House and Senate banking committees.
So when you have letters from banks telling you what great things CRA
is doing, many of those were dictated by commitments they made as part
of contracts, secret agreements they signed with protesters in order to
get them out of the way to do their work.
Now, I could go into a hundred other examples--someone who graduates
from college, goes to graduate school, and goes to work for the Federal
Reserve in acquisitions and mergers, quits and goes into business,
spends 4 years harassing a bank and bank presidents, and finally the
bank craters and gives them $1.4 million, gives them $200,000 to set up
their organization; they now have 20 offices, lending $3.5 billion,
getting 2.75 percent of every penny they lend right off the top, that
nobody knows about, forcing people to participate in their program and
pay $50 a month for 5 years in order to get the loan, and the bank
actually collects the money for them as if somehow it were part of the
loan. I could go
[[Page S4757]]
on and on. But we are not here to debate dramatic reforms in CRA. We
are only trying to do two things, and here they are; here is the
concern. You have heard the number.
Only in 1 percent of the cases is a protest filed. Well, remember
that in 90-some-odd percent of the cases, where somebody wants to open
or close a branch, regulators generally get no comments. Where the
protests come are in the big mergers, and in some of the smaller ones
that get contentious. But what happens more often than not is that
rather than filing a protest, the protest group simply goes to the bank
and says: I am going to file a protest and I am going to say--to quote
one of the protesters in what they said about a bank in New England--I
am going to say, A, you are a racist; and, B, you are a loan shark.
That is my charge. I am going to make that charge, and you can either
reach an agreement with me, or I am going to do that.
Now, here is the problem, and I don't think it is that hard to
visualize. You have a bank and it has agreed to merge with another
bank. And people don't know whether the merger is going to be approved
or whether it is good or bad for the bank. So during that period, the
stocks of these two banks are just fluttering. The bank literally has
hundreds of millions--and sometimes billions with these big bank
mergers--at risk. So it doesn't take a lot of imagination to see that
when a protester shows up and says, ``Look, I am going to go to the
Comptroller of the Currency and tell him you are a racist and that you
are a loan shark; I am going to file a complaint and I am going to hold
up this merger,'' the bank is under immense pressure to act as quickly
as possible. What is happening in America today is that banks that are
risking hundreds of millions, or billions, of dollars are settling
these threats with secret agreements that the public knows nothing
about, and they are often paying thousands, or hundreds of thousands,
of dollars in cash payments.
Now, who ever said CRA had anything to do with cash? Yet, according
to the CRA groups, $9 billion of cash payments have been made under
CRA. I would like to ban cash payments, quite frankly. I don't think
they are what CRA is about. I don't think some protester getting a
rake-off of interest or getting a cash payment is what community
lending is about. I think it is wrong, but I don't have the votes to do
it and I didn't try to do it.
So, here are the two modest changes in our bill. Number 1, consider a
bank that has been consistently in compliance with CRA. In fact, in its
last 3 evaluations it has consistently been in compliance and is in
compliance now. What do we require that Senator Sarbanes and others so
strenuously object to? We require that if a bank has historically been
in compliance, if it has been evaluated for meeting its community
lending requirements by its Federal regulator three times in a row and
was found to be in compliance, and if it is currently in compliance,
then somebody can still protest. They can call the bank all the nasty
names they want to call them. In fact, the regulator is required to
hold a hearing if they provide any complaint just saying ``I oppose
it.'' There is a hearing.
None of that has changed. Anybody can say whatever they want to say.
All our amendment says, however, is that before you can stop the action
from going forward in the normal timeframe, the objector has to present
substantial evidence. In other words, a bank that is historically in
compliance, and is in compliance now, is deemed to still be innocent
until proven guilty. And a protester can protest all they want to. But
the regulator can't stop or delay the process unless some substantial
evidence is presented.
Now, I know we have some distinguished attorneys here, and I am not
going to get into any kind of legal debate with distinguished
attorneys. Number 1, I object to duels between armed and unarmed men,
especially when I am the unarmed man. Every once in a while, I have
mercy on other types of issues where I am armed and others are not. I
don't shoot down unarmed men.
But I want to remind those who aren't legal experts that
``substantial evidence'' is not a trivial phrase. It was chosen because
it is not trivial. It is referred to 900 times in the United States
Code. There have been over 400 instances in case law where the term
``substantial evidence'' has been defined. Let me give you some
definitions that came from the Supreme Court, and they are important
because they give examples of the evidence that is required to be
submitted by a protester in order to stop a bank from doing something
that they are qualified to do based on their record.
In other words, what do you have to have in order to say, ``This
person is not meeting the requirement of law and I want him stopped''?
Knowing that it may cost them hundreds of millions of dollars, even
billions of dollars, what is the standard you have to meet? What does
``substantial evidence'' mean?
Here is what it means. Here are four definitions from Supreme Court
rulings. ``Substantial evidence'' is understood to mean:
No. 1, ``more than a mere scintilla.'' More than a mere scintilla.
No. 2, ``such relevant evidence as a reasonable mind might accept as
adequate to support a claim.''
Not that they have to accept it. Notice that the Court said that
substantial evidence is ``such relevant evidence as a reasonable mind
might accept.'' They might not accept it. But they might accept it as
adequate to support a claim.
No. 3, ``real, material, not seeming imaginary.''
And, finally, ``considerable in amount, value and worth.''
I fail to understand why there is an objection when a protester wants
to come into a bank which has been in compliance with the lending laws
of this country for three evaluations in a row and is currently in
compliance, why anyone would object to saying that in order to stop the
bank from exercising the right they have earned, the protester has to
provide some evidence. I cannot understand why anybody would object to
that. Why is it important?
I have spent a lot of time talking about why it is reasonable. But
why is it important?
It is important because it eliminates the worst abuses where someone
comes in, they have no evidence, they have no facts, there is no abuse.
They simply say, ``I will go away if you can give me some money.'' In
this case, if they can't provide substantial evidence, they can't stop
the process. But it doesn't prevent the regulator from saying, ``You
have to do a new CRA review.''
Our colleague talked about what regulators could do. Nothing in our
amendment would prevent the regulator from saying, ``Every time you
want to merge, we have to have a new CRA evaluation.'' We don't stop
that. All we are trying to do is to require some substance--and require
someone to have the evidence--before they can stop the application
process and cost taxpayers and investors hundreds of millions of
dollars.
It is a strange thing to say in America. But I am going to say it,
because I believe it. I will never forget when the American Airline
pilots were getting ready to go on strike. I met with some Members of
Congress to talk about what Congress could do because of the disruption
that might be caused by the strike. I finally said, ``Look. You know,
it is no secret that most unions do not love me, but I believe in
freedom. And people have a right to strike, if they want to strike. And
I am not voting for a bill that prevents them from striking.'' One
Member of Congress, who will go unnamed, said, ``Well, wait a minute.
These pilots make $150,000 a year. I am not worried about their
rights.''
Let me tell you why that is relevant. One of the reasons this is so
hard to discuss is that everybody has the idea that these bankers are
rich. So we are not worried about their rights.
When do our rights end based on how much money we have? I can
understand and I accept that you ought not have more rights because you
have more money, but you ought not have less.
The idea that we would let someone or some group impose hundreds of
millions of dollars of costs on other citizens, many of whom are
stockholders--my teacher retirement fund, I am sure, is invested in
some financial institution, or in a thrift. I don't know, because I
don't keep up with what they are invested in. But every teacher in
America is invested in stocks of some of these companies.
[[Page S4758]]
How is it right to let somebody literally deprive them of millions of
dollars without providing any evidence?
So that is the substance of the first committee provision. I don't
know why it requires so much discussion, but it does. I don't mind
discussing it, though, because it is something that I feel strongly
about.
This is about abuse. This is about a wrong that is going on in
America today, right now. The fact that there are many success stories
in CRA, the fact that there are probably wonderful people in almost
every circumstance, does not justify looking the other way at the kind
of abuses that are occurring. We are not trying to fix them here.
We are going to have a lot of hearings this summer. We are going to
bring a lot of people in and put them under oath. We are going to have
a major GAO study. We are going to look at this thing in great detail.
We are just trying to deal with two little commonsense things that
ought to be done in the bill. I talked about the first. What is the
second?
The second committee provision exempts little banks in rural areas
from CRA. Why? Because the regulatory burden on these very small banks
in very rural areas is oppressive.
First of all, these are banks that are not in standard metropolitan
areas. They are by and large serving areas that do not have a city,
much less an inner city to serve. So making them comply with these laws
that are really aimed at inner-city lending makes absolutely no sense.
Why is this provision important? Because these banks--as documented
in the letters they have written to us--are spending $60,000 to $80,000
a year complying with CRA.
I have used the figure before, but it fits here, and I want to use it
again. Since 1990, there have been 16,380 CRA examinations of these
little banks in rural areas, and only three of them have been found to
be substantially noncompliant. But even though three bad actors have
been found, $1.3 billion in compliance costs has been imposed on these
little banks that have only between 6 and 10 employees. It is a very
heavy regulatory burden.
Let me read just a couple of letters from the banks that are
affected. Our colleague from Illinois was here. I am sorry he left. We
probably have more letters from Illinois than any other State. But he
won't get to hear it. But I am going read three of his letters, and
then the others.
This is a letter from Franklin Bank in Franklin, IL. I don't know how
big the bank is, but it is small. Their building looks like a house.
Here is what he says:
Were it not for the time-consuming paperwork involved, we
in small banks in rural America would find CRA laughable. Our
community is our business. We wrote this book long before the
government did. Offering us exemption from the requirements
of the Community Reinvestment Act would not change the way we
do business, but it would relieve us of the mounting
paperwork from this examination for one day every other year.
In other words, relief by exempting them--they don't change their
business. They are just not going to have the examination to do and the
paperwork and cost of about $80,000 involved in it.
This is from Security Bank of Hamilton, IL:
Our experience is that regulators struggle to fill out
their questionnaires when we are being examined as most
sections do not apply. Then we really have to stretch to
imagine our community of 3,000 having the same problem as
Chicago or Los Angeles as none of the demographic
stratifications fit.
This is the First National Bank of Nokomis, IL. It doesn't say how
big they are:
I truly believe we could free up one-half to one employee
in our banking operation to put in positive service thereby
expanding our service to the community we serve.
That is what they believe they could do if we could reduce the
regulatory burden on them.
They don't say in their letter, but my guess is they don't have even
10 employees. So when they are talking about freeing up one half of one
employee, they are talking about a tremendous reduction in their cost
and their regulatory burden.
Let me read a couple of other letters. This is from the Cattle
National Bank in Seward, NE:
Since the origination of public disclosure of CRA
examinations, we have not had one person from our community
ever request the information.
I remind Members that CRA went into effect in 1977 and public
disclosure went into effect about a decade after that.
So for about 12 years nobody in this little community has ever raised
a CRA question. The only people who have raised those questions are
bank consultants.
The next bank is Copiah Bank from Crystal Springs, MS:
Our compliance officer, Gerry Broome, and his assistant
have spent many research hours and reams of paper in their
efforts to comply with mandated requirement's paper work. We
have even had to outsource some of its checkpoints to a
compliance consultant from time to time.
* * * * *
As an $83 million community bank, we feel an obligation to
help you in your efforts toward easing our paper work burden.
Lakeside State Bank, New Town, ND:
As a former bank examiner for the Federal Deposit Insurance
Corporation, which included consumer compliance experience,
and as a banker for over 15 years I believe I have a good
understanding of the intent and the workings of the CRA.
* * * * *
Over the 47 years of our existence we have provided
financing to virtually every main street business in our
town, our customer base includes approximately 80 percent of
the area farmers and for the last several years over 50
percent of our loans have been to American Indians.
The law [he means the CRA law] is a heavy burden because of
the expansiveness of the regulations and the paper
requirements of compliance. We spend hours documenting what
we have already done, rather than spending that time more
efficiently by doing more for our community.
The Farmers and Merchant Bank of Arnett, OK:
I am the CEO as well as the chief loan officer, compliance
officer and CRA officer. I have to wear so many hats because
we are small and have a staff of only 7 including myself. CRA
compliance, done correctly, takes a lot of time, which takes
me away from my primary responsibility of loaning money to my
community. It has almost gotten to the point that lending is
a secondary function. It seems like we have the choice of
lending to our community or writing up CRA plans showing how
we would loan to the community if we had time to make loans.
* * * * *
Large banks can hire full time CRA officers and other
compliance personnel to administer CRA programs but, small
banks cannot. . . .
Redlands Centennial Bank:
We spent approximately $80 thousand of our shareholders'
money last year supporting this ill-defined regulation. Even
the regulators who examined us were hard pressed to give us
specific definition on how we might better implement this
regulation.
* * * * *
I am urging you to get rid of the nonsensical CRA yoke.
Keep up the fight because there are a lot of us out here who
are too busy balancing, making a living with government
regulation in this crazy business.
Chemical Bank North is a bank of $74 million in Grayling, MI:
As it is, we must devote disproportionate resources to
creating and maintaining the ``paper trail'' that the current
CRA regulations require. Our board members must attend time
consuming CRA Committee meetings and our officers and staff
members spend significant valuable time preparing reports and
keeping records that serve no purpose other than to keep us
in compliance with a regulation that attempts to enforce from
a regulatory standpoint what we do everyday in the normal
course of our business. . . . I would estimate that we devote
the equivalent of a full time employee to all aspects of CRA
compliance.
The First National Bank of Wamego, KS--I mispronounced Wamego
yesterday; the Presiding Officer was from Kansas and I appreciate him
correcting me. This is a $65 million bank, which means this bank
probably has five or six employees.
Our bank was listed two years in a row as the ``best'' bank
in Kansas to obtain loans for small businesses. . . . [This
bank also was rated outstanding on CRA.]
* * * * *
[O]ur outstanding grade did not make us a better bank. The
CRA did not make us make loans we wouldn't have made. The CRA
did take a lot of employees' time to document that we were an
outstanding bank.
This is from Nebraska National in Kearney, NE. This is a very small
bank. In fact, I think this might be one of the smallest banks in
America that was not a recent start. This bank has $34 million in
assets, so we are talking about probably four or five employees working
in this bank:
[[Page S4759]]
We do not make foreign loans, we don't speculate in
derivatives, and we don't siphon deposits from this area to
fund loans elsewhere. Instead, like virtually all the banks
under $250 million in assets we provide home loans, business
loans, farm loans, and construction loans. We don't do this
because of the Community Reinvestment Act but because it
makes good business sense. . . . I bitterly resent every
minute of my time and that of my staff spent to comply with
this regulation because it takes time away from productive
duties.
I feel the regulation is now being used by consumer
activist groups to ``shakedown'' banks seeking regulatory
approval for expansion or merger.
Finally, from American State Bank, an independent bank, from
Portland, OR:
As one of the oldest and most strongly capitalized African
American-owned banks west of the Mississippi River, Portland-
based American State Bank supports your position on CRA
exemption for non-metropolitan banks.
We also urge you to explore exempting from CRA requirements
minority-owned commercial banks. . . . Today, minority-owned
banks still maintain their focus on serving our nation's
minority communities and their citizens. It is redundant, at
best, to impose CRA requirements on banks whose sole purpose
is to serve minority citizens. At worst, it compels minority
banks to sustain burdensome expenses and administrative costs
and subjects banks to a bureaucracy largely unaware of the
realities of the inner-city marketplace.
I have covered a lot of territory. Let me sum up with the following
points. The Bryan amendment before us has two parts. It does a whole
bunch of bad things, and it undoes two little good things. What are the
whole bunch of bad things it does? It is the largest expansion in the
regulatory burden of CRA in American history; it would expand CRA to
noninsured institutions, violating the very logic of CRA, which is,
banks get deposit insurance that is partly subsidized by the
Government, so it is reasonable for the Government to force them to do
things that have a community benefit.
The proposed substitute would expand CRA to institutions that are not
insured. It would expand CRA approval as being necessary to sell
insurance and securities in a bank, something that is not required
today and it is occurring every day today without CRA approval.
The proposed amendment would impose a potential fine of $1-million-a-
day on bank officers and bank board members without any evidence
whatsoever that abuses occur. In fact, as I pointed out over and over
again, with small banks in rural areas having 16,380 examinations at a
cost of about $80,000 in annual compliance, where the banks had to pay
$1.3 billion to comply with all this regulation, all this paperwork--
all of these evaluations, 16,380 of them, found only three banks that
were substantially out of compliance. So, the regulatory overkill
already exists. Why you would want to come in and subject small banks
and large banks, and their officers and board members, to a million-
dollar-a-day for if their institution fell out of compliance with CRA,
I cannot understand. In fact, I have never heard an explanation for
this draconian change in law.
I read earlier, and I will not read again, letters from the American
Bankers Association and the Independent Bankers Association saying how
the pending amendment will make it virtually impossible for them to get
quality people who will serve on bank boards. They also talk about the
cost of liability insurance, which will explode if you are going to
impose these new potential penalties on banks, their officers and
directors, all in the name of abuses that apparently exist at the
extreme level in .03 percent of all CRA examinations.
Those are all the bad things the substitute does. What are the good
things that it undoes? Is that a word, ``undoes''? I guess so. To try
to curb some of the abuses--and the abuses are very similar to the
strike lawsuit that we dealt with 2 years ago, and again last year.
The abuse basically occurs during the critical moment when a bank is
trying to merge with another bank or sell or engage in some new
activity: it's at that moment the bank has a lot at stake and is most
vulnerable. Under current law, any protester can come in and threaten
to hold the whole thing up. This creates immense pressure on the bank
to settle with that protester and either commit some bank action or pay
the protester cash in return for not filing a protest.
A lot of rhetoric has been used on this, and I am being redundant
because when other people say something wrong, you have to say it right
twice to get people to get it straight. Our amendment does not prevent
people from protesting. They can protest. Our amendment does not
prevent people from filing complaints. They can file complaints whether
they have any facts or whether not. Our amendment does not prevent the
regulator from holding a hearing. Under current law, the regulator has
to hold a hearing if somebody complains. We do not change that. Our
amendment does not prevent the regulator from forcing an entirely new
CRA evaluation.
All our amendment says is: If you have a bank that has been in
compliance with CRA over a 3-year period, and if they are currently in
compliance, a protester can still file a protest, but in order to stop
the bank's application from going forward, the protester has to provide
substantial evidence.
Then I went through and read from Supreme Court cases, how you define
``substantial evidence''--more than a scintilla; enough that a
reasonable person might believe that what you are saying is true. Those
are not high standards.
Why anybody would want to let protesters potentially impose hundreds
of thousands of dollars or millions of dollars in losses on a bank and
their stockholders, many of whom are members of teacher retirement
programs and other broad investment groups, without providing any
evidence whatsoever to back up their claim, I don't know. But that is
the debate we are having.
So, that is what the amendment does and does not do. It is not a safe
harbor. It is not a safe harbor. It is not a safe harbor. The Secretary
of the Treasury came up with the use of that term and now all critics
use it, even though it is verifiably false. This is a rebuttable
presumption. Stated another way, if a bank has a good record of
compliance and it is deemed by the regulator to be in compliance, it is
innocent until proven guilty. You have to present some facts to
substantiate your claim if you are going to stop it from going forward.
You don't have to have any facts to state your opinion. You don't have
to have any facts to declare that there ought to be a hearing. You
don't have to have any facts to protest. But before the regulator can
stop it, you have to present some facts.
The final provision that would be undone here is the eminently
reasonable exemption of very, very small, very, very rural banks that
on average have a regulatory burden of about $80,000 a year in
complying with CRA, even though in the last 9 years, with 16,380
examinations of these small, rural banks, only three have been deemed
to be substantially out of compliance with CRA.
If you were from a small town like I am, or you represented a State
that had a lot of little bitty towns and a few little bitty banks left
and you went to those banks, you would discover why only .03 percent
have been found out of compliance in 9 years. If you are from a small
town and you have a bank with four or five employees, your bank ends up
lending to everybody in town because they have nobody else to lend to.
That is basically what the debate is about.
I wish every person could, in some simple form, get all these facts.
But it takes time to debate them, and I am grateful to have the
opportunity. I am sure we will get some more opportunity today. But I
thank my colleagues for their patience, and I yield the floor.
The PRESIDING OFFICER (Mr. Crapo). The Senator from Indiana.
Mr. BAYH. Mr. President, I rise in strong support of the Bryan
amendment, which contains, in my opinion, a balanced approach to the
Community Reinvestment Act as well as a bipartisan spirit enjoyed in
the last session of Congress.
I also want to say, to my colleague from the State of Texas, how much
I respect his expertise in this area as well as his dedication to this
cause. But I must also respectfully disagree and say to all those who
are concerned about this issue that if there are problems with this
amendment, in terms of
[[Page S4760]]
the fines that can be imposed or other details, let's correct them. If,
in the past, overly zealous advocates have used CRA as an excuse for
extortion, then let's prosecute them. If there are other problems,
let's correct them.
Let's throw out the bathwater, not the baby. At the dawn of the 21st
century, let us not turn back the clock and deny to thousands of
Americans, because of the color of their skin, because of their race,
because of their income, the right to access one of the basic tools for
empowerment and progress, and that is credit and the ability to start a
business or build a home. We cannot return to those days.
I should also say I am somewhat disappointed that we have arrived at
this impasse, because this is important legislation. It is my great
hope we will ultimately get it enacted, because it is important to the
financial services industry, insurance, banking, as well as other
industries that need access to credit and to consumers across our
country. This should not be a partisan debate. In fact, in the very
recent past, it has been nonpartisan or even bipartisan. Unfortunately,
it has become an issue that has broken down more and more along party
lines.
I especially regret this has happened in large part because of
efforts to curtail and restrict the Community Reinvestment Act, which
the vast majority of evidence has suggested works well, has served the
American people well in the past, and I believe is critical to equal
opportunity for all Americans as we advance to a new century and a new
millennium.
We are increasingly relying upon the use of market forces to create
opportunity. We are asking the American people to be self-sufficient,
to save, to work hard, to be personally responsible, and I support
those trends. At the same time, we need to ensure that the market
system works for all Americans and that every American, regardless of
whether that person happens to come from the right side of the tracks
or the wrong side of the tracks, be he or she Hispanic, African
American, Native American or any other race, creed or religion in this
society, that they have access to those tools in the marketplace that
will allow them to be self-sufficient, to build a better way of life
for themselves and their families.
It is important that we pass this law, as I mentioned. It is one of
the areas in which we are internationally competitive. It is important
that we pass legislation that will allow our financial services
industry to provide comprehensive services to their customers and to
compete with our foreign competitors.
It is important that consumers be allowed to have access to these
services on a coordinated basis, on a one-stop shopping basis. It is
better for consumers as well. It means jobs for your State and my State
and the rest of the 48 States across the United States of America, not
just in insurance, which is important to the State of Indiana, or
investment banking or in securities or on the part of insurance company
employees, agents, and brokers across this country. It means jobs for
small businesses and industries in the State of Indiana and elsewhere
that need access to low-cost credit, so that they can invest, be more
competitive, more productive and create good-paying jobs across our
country. This is an issue not just for Wall Street, but for Main Street
and for all of our streets across this country.
Unfortunately, there has been increasing partisanship. I think that
is very, very important. Just last year this measure passed out of the
Senate Banking Committee on a 16-to-2 vote. This year, unfortunately,
it broke down exactly along party lines, 11 to 9.
Earlier this year, this provision, very similar to the amendment I am
supporting today, passed out of the House of Representatives Banking
Committee 52 to 8, with the vast majority of Republicans and Democrats
supporting a continuation of a vital CRA and equal financial
opportunity for all Americans.
The administration strongly supports this point of view. It is
important to note that there is virtually no significant opposition
from industry groups. I find it to be somewhat ironic that in the past,
members of my own party have been accused of favoring legislation that
would unduly hamstring business for ideological reasons. Today, the
shoe seems to be on the other foot.
Let me be very clear what this dispute that has brought us to this
impasse is not about. It is not about the organization under which
future banking, insurance and security services will be offered. This
is not really a dispute about operating subsidiaries versus the
affiliates and holding companies, although there is a very serious
dispute between the Secretary of the Treasury and the Chairman of the
Federal Reserve on this issue. I am convinced that this can be resolved
if we are given a chance.
Our dispute in this impasse is really not about the unitary thrift
and whether commercial entities should be allowed to get involved in
the financial services sector. That is a legitimate issue and a concern
that I am convinced that, too, can be resolved if we can only deal with
the issue currently before us. No, Mr. President, the dispute that has
brought us to this point involves the Community Reinvestment Act.
I say to my colleagues and those listening and watching us at home
that the Community Reinvestment Act has been good for America and good
for Americans. It is working. Between 1993 and 1997--4 years--loans in
low- and middle-income areas across our country for mortgages and
building homes increased 45 percent, 45 percent in just 4 years; up 72
percent for African Americans; up 45 percent for Hispanic Americans; up
30 percent for Native Americans.
In the same period of time, actually just last year alone, there were
525,000 loans to small business men and women in low- and moderate-
income areas, with total capital investments of $34 billion.
The Community Reinvestment Act has proven to be a boom for the
American dream: families wishing to invest in home ownership,
entrepreneurs wishing to start small businesses, Americans of every
race, creed and religion wanting to participate in the American dream
of a better way of life for themselves and for their loved ones.
The Community Reinvestment Act has worked in my own home State of
Indiana. I won't go through all the cases here. From Gary, East
Chicago, Indianapolis, South Bend, Lafayette, Bloomington, from the
north to the south, from the east to the west, in communities large and
small across my State, more Hoosiers have opportunities to make
investments, make a decent income through a good job, buy a home, or
start a small business. It has been good for our country. It has been
good for my State.
Mr. President, I have a letter with me today that I think my
colleagues will find to be of some interest. It was sent to me 2 days
ago. It happens to be from the mayor of the city of Fort Wayne. The
reason this may be of interest is that Fort Wayne is the second largest
city in the State of Indiana. More than that, Paul Helmke, the mayor of
Fort Wayne, happened to be my opponent in the race for the Senate last
year.
Paul Helmke is a card-carrying member of the Republican Party. He
also believes in opportunities for the citizens of Fort Wayne, business
investment expansion, and home ownership. The mayor of Fort Wayne, my
opponent in the election last year, has written me asking me to support
a vigorous and vital Community Reinvestment Act.
I read from his correspondence:
. . . In Fort Wayne, banks have fulfilled their CRA
requirements in creative and meaningful ways that have
allowed us to leverage their resources with public and other
private influences to help in our urban revitalization
efforts.
. . . Perhaps the banking community would continue to see
their investment in urban renewal as beneficial without the
CRA requirements. But I do not think that it is wise to tempt
fate.
Mr. President, neither do I. Involved mayors, like Mayor Helmke, who
was the head of the mayors association last year, and I believe
concerned Senators should rise to vote in favor of a vital and
continually vigorous Community Reinvestment Act. On April 22 of this
year, the Los Angeles Times wrote:
Before Congress voted to establish the CRA in 1977, many
banks wrote off entire areas, refusing to lend to anyone who
lived behind the red line.
The unfortunate truth is that while the vast majority of bankers
across our country are involved and caring and doing a good job, both
before and afterwards, too often there were bankers
[[Page S4761]]
who were willing to accept deposits from some parts of our communities
and not make loans to those very same parts of our communities. That is
what CRA has established. It is a very strong track record of change.
Unfortunately, the bill, as unamended, before us poses a serious
threat to the continuation of this progress we have seen across this
country and in my State. My understanding is it would make 97 percent
of all banks presumptively exempt from the requirements of CRA, 38
percent entirely exempt from the provisions of CRA, and would exclude
the whole new areas banks hope to get into, entirely exempt, new users
entirely exempt from the provisions of CRA. Mr. President, now is not
the time to turn back the clock.
I will summarize before yielding the floor. Access to credit today is
as important an opportunity for Americans of every walk of life as
rural electrification was in the 1930s. Access to credit today is as
important to the future well-being of all of our citizens as universal
service to telephones was in the fifties and the sixties.
That is why I believe very strongly, as we ask Americans to be more
responsible, to take charge of their own lives, as we encourage them to
start homes and build businesses and to build for the future, we must
give them the tools within the market economy to get the job done. That
means equal access to credit as we approach the new millennium, not
just to the few, not just to the powerful, but to Americans of every
race, ethnicity, and those of even modest means. That, Mr. President,
is why I rise in support of the Bryan amendment and urge my colleagues
to vote in the affirmative for it.
Thank you. I yield the floor.
Mr. EDWARDS. Would the Senator from Indiana yield for a question?
Mr. BAYH. I would be glad to yield to my colleague from North
Carolina.
Mr. EDWARDS. Thank you.
I am wondering, Senator Bayh, if you have had the same experience I
have had. That is, I come from a State with many banks, including some
of the largest banks in America, Bank of America being one. And having
had many conversations with representatives of banks that are
headquartered in my State, what I hear from them is, in fact, they
enjoy participating in the Community Reinvestment Act. They take great
pride in the work they do in the communities where they are located.
They have absolutely no opposition to the Community Reinvestment Act
and, in fact, do not oppose the Community Reinvestment Act provisions
of the Democratic substitute offered by Senator Sarbanes.
I am just curious whether the banks in your State of Indiana have had
the same kind of reaction.
Mr. BAYH. I say to the Senator, I appreciate your question. As a
matter of fact, one of the things that has been most impressive about
this issue has been the uniformity of opinion among our banks in my
State, large and small. They find that CRA has not been a significant
impediment to their doing business, and really the industry groups are
not in opposition at all. As a matter of fact, they support the intent
behind this very, very important provision.
So we have a situation here where many of our community groups,
including our mayors--as a matter of fact, I should mention for the
Record I spoke to the mayor or Gary last night, as well, who believes
very strongly that a city like Gary, which has been struggling to get
back on its feet, needs this provision.
The banks are not opposed and, in fact, find it to be a very positive
element.
Mr. EDWARDS. That is exactly the response I have had. I thank the
Senator.
Mr. President, I seek recognition at this time.
The PRESIDING OFFICER. The Senator from North Carolina is recognized.
Mr. DODD. Will the Senator from North Carolina yield?
Mr. EDWARDS. Absolutely.
Mr. DODD. I want to say to my colleague from Indiana, before he
leaves the floor, that was an excellent set of remarks. I think it
points out the importance of this issue. I was particularly taken by
the comments of your mayor of--which city was that, I ask?
Mr. BAYH. Fort Wayne.
Mr. DODD. Fort Wayne. This was your former opponent, I think, that my
colleague pointed out. And I just say to my colleague, again, I have
had a similar reaction from my mayors across my State. I know others
have.
We have a tendency to think of these issues in terms of just what the
banking community wants. And that is an important consideration for us,
as we certainly deal with financial institutions. But I think--and I
would ask my colleague from Indiana whether or not he would agree with
this--that, in addition to the banking community, we bear a special
responsibility, as Members of the Senate, to also consider what occurs
to the customers' financial services.
I think sometimes that constituency is given a back seat when it
comes to considering the implications of decisions we make. It is the
farmer in Wyoming; it is the small businessperson in Connecticut; it is
the consumer in Indiana; it is the minority business in North
Carolina--all of us have consumers out here who use these financial
institutions.
I commend my colleague from Indiana for a very thoughtful set of
remarks, pointing out that side of the equation, the consumer side, the
user side, the business side of our financial services, and I commend
him again for his remarks.
Mrs. BOXER. Before the Senator yields, I wonder if I could pose a
question for 20 seconds.
Mr. EDWARDS. Of course.
Mrs. BOXER. Thank you. I also want to thank my colleague for his
remarks. I wonder if he was aware of the comments made --and this gets
to the Senator from North Carolina--by the President of Bank of America
about this program. If not, I would like to put them in the Record. If
he answered that question----
Mr. ENZI addressed the Chair.
The PRESIDING OFFICER. The Senator from Wyoming.
Mr. ENZI. Mr. President, I believe the Senator from North Carolina
has the floor. The question was being directed to the Senator from
Indiana.
The PRESIDING OFFICER. The Senator from North Carolina does have the
floor and may only yield for a question.
Mrs. BOXER. I would be happy to direct this to the Senator from North
Carolina.
Mr. EDWARDS. Yes, absolutely. I am aware, I say to Senator Boxer, of
the comment by Hugh McColl, who is head of Bank of America. I think I
can quote him exactly.
Mrs. BOXER. I would like you to do that right now in the Record,
because it is a very telling comment.
Mr. EDWARDS. I think it is, too. He says, ``My company supports the
Community Reinvestment Act both in spirit and in fact. We have gone way
beyond its requirements. We have had fun doing it. And we have made a
business out of it.''
Now, here is the head of the largest, or one of the largest, banks in
the country, headquartered in my home State. I happen to know that Mr.
McColl has, in fact, strongly supported the Community Reinvestment Act.
His bank has gone above and beyond the call of duty in that respect.
Mrs. BOXER. One more question before I yield to my friend.
I find it very interesting that Senators would get up and attack this
program as if it were some kind of a giveaway program. These bank
presidents have told us that these loans are very profitable. As a
matter of fact, I wonder if the Senator is aware, at least in
California--and now we do have a tie in because, as you know, Mr.
McColl, although headquartered in your fair State, does a lot of
business in my fair State--they have told us that they are doing very
well with their CRA ratings. As a matter of fact, they are telling us--
and I want to know if the Senator was aware of this--that their
portfolio of CRA loans--these are loans that never used to be made in
the old days--are just as profitable, that portfolio, as their other
loans. Is my friend aware of that?
Mr. EDWARDS. Yes, I say to Senator Boxer, I am aware of that, and
that is what I have been told consistently by the banks located in
North Carolina.
Mrs. BOXER. I thank my friend, and also my friend from Indiana,
because I think the notion that somehow, if you are for CRA, you are
for doing something with social value and yet interfering with business
is simply not true.
[[Page S4762]]
These loans are profitable loans. They are good for the community. It
goes back to the old adage: ``If you do good, you do good things, you
will do well.''
I hope we will stand together in favor of this program that does good
things for people and does well for the banks.
I yield back to my friend.
Mr. EDWARDS. Thank you, I say to Senator Boxer.
I will add to what she just said: When you do good things and have
the impact that the Community Reinvestment Act has had, it does not
just inure to the benefit of the people who are directly affected, it
inures to the benefit of all of us.
Mrs. BOXER. Absolutely.
Mr. EDWARDS. I want to address that in just a moment. I want to say,
first, in relation to the remarks of my friend, the Senator from
Indiana, who has become a very close friend and colleague of mine
during our tenure--we came to the Senate together--that I am proud of
what he had to say. I completely agree with everything he had to say,
and his remarks particularly about turning back the clock on this very,
very important piece of legislation ring true with me and I think ring
true with most Americans.
Mr. President, if I may, there is a really critical thing I want
Americans, who are listening to this debate, to understand. This is not
some obscure piece of banking legislation that has nothing to do with
their lives.
It is really important for Americans to understand that this bill--I
refer now to Senator Gramm's bill--that this bill will have, or has the
potential to have, a dramatic effect on the lives of every American,
not just the poor, not just minorities, not just the elderly, not just
those who run a small business or want to get into the family farming
business, and not just those people who are directly impacted by the
Community Reinvestment Act.
This bill has the potential to affect every single one of us, every
single American. And here is why. Because it weakens the Community
Reinvestment Act. Because of CRA, we provide low-income housing, we
provide single-family housing, we give families a place to live, we
give small businessmen and women, minority and otherwise, a chance to
engage in entrepreneurship, to open their own business. We give the
people the opportunity, in my home State of North Carolina, to start a
small farm, and expand that farm.
Every time we provide these kinds of economic opportunities to
people, every time we give families, core families, a chance to live
together, to stay together, and not be spread out, we do a number of
things: No. 1, we reduce crime; No. 2, we create pride, an
extraordinary amount of self-esteem that may not have existed before;
and we give people an opportunity to do something they otherwise might
not be able to do--own their own home or open their own business.
I speak to every American when I say, crime, core family values, the
fact that the folks who benefit directly from the Community
Reinvestment Act are folks that we may otherwise, as a Government, have
to support, these are things that affect every American. This bill is
not some obscure banking bill that has nothing to do with people's
lives. The Community Reivestment Act has a dramatic effect and has had
a dramatic effect on every single American. I think it is critically
important for people to understand that.
I think it is also important for them to understand what exactly
Senator Gramm's bill does to the existence of the Community
Reinvestment Act. I have heard the bill described by him and others as
being ``Community Reinvestment Act neutral,'' as to the overall
purposes of this legislation.
I might add parenthetically that I strongly support the idea that
banks ought to be able to expand services and affiliate with other
financial institutions. They ought to be able to sell insurance. They
ought to be able to sell securities. It is good for banks. We have a
lot of banks in my State that need to do this and want to do it and, I
think, ought to be able to do it. It is also good for consumers because
it creates competition, and it is a good thing for consumers to have
access to these services when they go to their banks. I strongly
support those opportunities.
Here is the problem. Under existing law, when a bank seeks to expand,
either by merger or by opening a branch, then its CRA rating is one of
the things that is taken into consideration. Under the provision that
is proposed by Senator Gramm, when a bank seeks to expand services by
affiliating with a company that sells insurance, by affiliating with a
company that sells securities, CRA, or the Community Reinvestment Act,
plays no role whatsoever.
Let me say this in the simplest terms. A bank with a completely
unsatisfactory Community Reinvestment Act rating that has been
determined by regulators to not be complying with the law, to not be
doing what it should be doing with respect to investing in its
community, I am talking about a totally noncompliant bank, that factor
cannot even be taken into consideration in determining whether that
bank should be allowed to sell insurance and whether it should be
allowed to sell securities.
This bill, Senator Gramm's bill, is not CRA neutral for one simple
reason. We are, by virtue of this law, expanding what banks can do,
allowing them to sell insurance, allowing them to sell securities. If
we don't take CRA, which presently applies to applications for
branching and mergers, and apply it as a precondition for these new
services they are going to engage in, then we have withdrawn from CRA.
We will have cut the underpinnings from CRA. It is something we
shouldn't do--it is fundamental--we shouldn't do. CRA compliance ought
to be a consideration when banks seek to engage in the expanded
services permitted under this bill in exactly the same way, in exactly
the same fashion that it presently applies to their attempts to merge
with other banks or to their attempts to open other branches.
Now, I want to show a couple of examples with the indulgence of my
colleagues.
I want to show a couple examples of what the Community Reinvestment
Act has done in North Carolina. I show now a photograph of a
neighborhood, an economically disadvantaged neighborhood, a minority
neighborhood in Durham, NC. This is a house that existed in that
neighborhood.
As a result of the Community Reinvestment Act, and as a result of a
bank partnering with local community groups, this house that we have
just taken a look at was turned into this house.
If I could hold up the first photo just a minute, this was a crime-
ridden, drug-infested community. As a result of the Community
Reinvestment Act, we went from this to this--a place that the people
who occupy this home are proud of; a low-income family was able to
reside there. They take pride in their community. And as Reverend
Brooks, who was part of this effort, said:
Before, there were drug dealers sitting on this corner.
Now, we have homeowners hoping to be in these houses.
The Community Reinvestment Act. It changes communities. It changes
families. It changes people's lives. It also changes the financial
obligations that the rest of us, as Americans, have to support
opportunities for people who want to support themselves. They just need
a chance. What the Community Reinvestment Act does is, it gives those
folks a chance.
I want to show one last photo. We have seen one house. This is a
neighborhood. This is located in Durham, NC. This is a neighborhood
that, again, has gone from a high-crime, drug-dealers-on-the-street-
corner neighborhood to a model community. Can you imagine the
difference between the way a family feels when they live in a community
where right outside their doorstep people are selling drugs and all the
houses are in terrible shape versus how they feel when they find
themselves in a community that looks like this? Now they take pride in
their community. The children growing up in this community take pride
in where they live. It gives them a sense of self-esteem. It allows
them an opportunity to have pride in themselves and their family that
they otherwise might not have.
Now, there are some simple facts that I will speak to briefly that
have emerged from the progress of the Community Reinvestment Act during
the time it has been in place. If I could have the appropriate chart,
please.
First of all, just since 1993, the private sector lending in low- and
moderate-income areas, which is what we have been concerned with, has
risen.
[[Page S4763]]
From 1993, I guess this is the number of loans, 185,014 to 268,463 in
1997. Over a period of 4 years, there is an increase of 45 percent,
almost a 50-percent increase in just 4 years, as a result of the
Community Reinvestment Act.
The argument is made that--and we have heard a lot of it from Senator
Gramm over the course of the last 45 minutes to an hour--that the
Community Reinvestment Act places an enormous regulatory burden on
banks, unfairly so.
Well, I think, unfortunately, with all due respect to Senator Gramm,
the facts do not bear that argument out. What we find is that among
CRA-covered institutions, when they make an application, for example,
when a bank decides they are going to merge with another bank, when a
bank decides they are going to expand and open a branch, and therefore
they file a CRA application, 99 percent of those applications are never
even challenged by community groups. So we start with a base of 99
percent where there is no challenge whatsoever. I would love the
comments of Senator Sarbanes on this in a moment, if he will. It is my
understanding that the banks are not required to keep additional
information as a result of this expansion of services. In fact, I think
they use exactly the same base data that they kept previously. Is that
correct, Senator Sarbanes?
Mr. SARBANES. I say to the Senator, that is correct. Senator Bryan
spoke to that earlier, about the effort that was made in the mid-1990s
to ease the regulatory burden on the banks.
Mr. EDWARDS. That is my understanding.
So we start with this basic idea that 99 percent of all the CRA-
covered applications are not challenged at all. Then of the ones that
are challenged, in only 1 percent of those cases are the applications
denied. So 1 percent are challenged versus 99 percent that are not, and
of that 1 percent, only 1 percent of those are denied.
I think the facts prove that CRA has not been an enormous regulatory
burden and that banks, as has been the experience of Senator Bayh, as
has been the experience of Senator Dodd in Connecticut, and as has been
my experience in talking to my bankers in North Carolina, the reality
is they do not oppose the Community Reinvestment Act. They simply do
not.
As the quote from Hugh McColl indicated earlier, banks take great
pride in their opportunities to invest in their community. Our banks
are good corporate citizens who do what they do because they take pride
in it. They believe in the Community Reinvestment Act. They support it.
They are not opposed to it.
Finally, this chart depicts what CRA has done in loans to low- and
moderate-income communities. This is as of 1997, $34 billion in small
business loans. I think it is really important that we understand we
are not just talking about housing. We are talking about small
businesses, entrepreneurs who want to get started and just need a leg
up, giving them a chance to develop their own business, $34 billion as
a result of the Community Reinvestment Act; $18.6 billion in community
development, the kind of community development that we saw photographs
of just a few moments ago; and critically important to my State of
North Carolina--and I suspect Senator Bayh's State of Indiana--$11
billion in small farm loans. That is $11 billion going to small farmers
as a result of the Community Reinvestment Act.
Here is what we have. We have a bill that makes a great deal of sense
on the whole. We want to expand the services of banks. We believe--at
least I believe--that banks ought to be able to engage in those
services. But it is critically important that we maintain the viability
and the vitality of the Community Reinvestment Act. It is important
that we maintain it for a lot of reasons: because we need to support
minorities; we need to support the elderly; we need to support low-
income families; we need to support people who need or want to start
their own small business or their own family farm. It makes good
business economic sense for the country.
But what I want the American people to hear from me today, if they
hear nothing else, is that this is not some obscure piece of banking
legislation that is technical or difficult to understand. This
legislation can affect their lives and, in fact, will affect the lives
of every American every day because to the extent that we keep poor
families together, to the extent that we reduce crime in this country,
to the extent that we give people an opportunity to seek out good
employment, to get jobs to support their own families--all those things
that we as Americans believe in--when we do those things in
conjunction, we as a country benefit. And to the extent that we look at
it selfishly, we as individuals benefit because those people will not
be supported by the Government. They won't be supported by taxpayers.
They will support themselves. And the reality is that is exactly what
they want. They want the opportunity to support themselves and to know
the pride of homeownership. That is what community reinvestment is all
about. That is the reason Senators Sarbanes, Kerry, Bayh, Dodd, and
myself believe in it so deeply.
Mr. SARBANES. Will the Senator yield for a question?
Mr. EDWARDS. Yes.
Mr. SARBANES. Let me compliment the Senator from Indiana and the
Senator from North Carolina for their very strong presentations and
their tremendous contributions to the Banking Committee. They both came
on the committee this year, and we are barely a few months into their
first session and they have both made extraordinary contributions to
the work of the committee and to the work of the Senate. I simply want
to say, as one Senator who has been here for a while, we are very
honored to have them as part of the Senate and thankful and grateful to
them for the contributions they make.
I wanted to ask the Senator this: In a letter we received from the
U.S. Conference of Mayors, which in effect fits in with the point that
both Senators were making about the importance of the Community
Reinvestment Act--it is signed by close to 170 mayors from all over the
country, besides the ones that are trustees and on the advisory board
of the U.S. Conference of Mayors--it says:
. . .As mayors, we recognize that CRA has been an essential
tool in revitalizing cities around this nation. In fact,
there is now increasing recognition that the strength and
economic health of whole regions require strong and vibrant
cities. Creating new economic activity--new businesses, new
jobs, new homeowners--is key to the revival of urban areas
and their surrounding regions, CRA has been a key component
to creating this new economic activity.
They go on later to say:
Prior to the enactment of CRA, banks and thrifts routinely
redlined low and moderate-income neighborhoods in our
nation's cities. The modest requirement in CRA that financial
institutions meet the credit needs of their communities has
led to the successful channeling of billions of dollars into
localities.
Then they note that the bill brought out by the committee would
severely weaken CRA. They say:
Unless the onerous CRA provisions are addressed and CRA is
preserved and strengthened, we would urge strong opposition
to the Senate bill.
I raise that with the Senator because it seems to me that it goes to
this very point, including the pictures he was showing. We are talking
about the elected officials who are right on the front line, so to
speak, trying to deal with the problems of their communities, trying to
bring them back and achieve revitalization and renewal. They,
obviously, have come in feeling very strongly.
Mr. President, does the Senator feel that this is another perspective
on the very point he was trying to make of the importance of CRA--not
just for the people who directly benefit from it but for the broader
community, for all of us, it seems to me, here is, in a sense, an
endorsement of the very position the Senator has been enunciating.
Mr. EDWARDS. I think that is a wonderful indication, as the Senator
put it, of the people on the ground, on the spot, seeing what is
happening on a day-to-day basis, recognizing how critically important
CRA is to this country. They see what is happening. I think it goes
hand in hand with the fact that the banks--and I might add, I take
great pride in the fact that every bank in North Carolina has a
satisfactory CRA rating, every single one of them--are helping make a
difference.
I think the fact that the mayors are behind it, the fact that the
community
[[Page S4764]]
groups are behind it, the fact that the banks themselves, the financial
institutions, are behind it, I think all these things in combination go
to prove a very simple point: The Community Reinvestment Act has been
good for America. It is good for the specific groups it directly
benefits, and it is good for all of us as Americans because it allows
these folks to support themselves, which is what they want to do.
Mr. BAYH. Will the Senator yield for a question?
Mr. EDWARDS. Yes.
Mr. BAYH. Mr. President, I echo the words of the Senator from
Maryland in complimenting my friend from North Carolina for his
eloquence and his insightful presentation on a continued, strong CRA. I
observe and I can tell that he has taken his advocacy skills from the
courtroom to the floor of the Senate, and the American people are
better for it.
I compliment the Senator on his statement, which is built upon what
the ranking member said in the statement he read from the Conference of
Mayors. The Senator from North Carolina has become a dear friend and
someone I have admiration and great respect for. I have heard the
Senator mention on many occasions his dedication to ensuring that not
just big cities or large institutions have opportunities, but that the
farmers and small rural areas across North Carolina are afforded the
same opportunities as those in the large cities and in the large
financial institutions.
My question is this: Very often, this financial modernization bill is
portrayed as something that just Wall Street and big institutions are
interested in. The Senator touched on this briefly, and there is one
thing I was hoping he can expand on. I wonder if his experience in
North Carolina is the same as ours in Indiana, which is that CRA can be
an engine for making sure that farmers and small businesses in rural
areas are afforded the same kinds of opportunities as the mayors
indicated the cities enjoy.
Mr. EDWARDS. I thank the Senator for his kind comments. He and I
share the same feelings about each other. We share a lot of the same
beliefs and values. There is no question that in the State of North
Carolina we have had the same experience they have had in Indiana,
which is that the Community Reinvestment Act, in fact, reaches out into
rural, underserved communities, to small farmers, small businesses and
communities that are chronically and economically disadvantaged and so
desperately need its help. I think it is another example of how well
the CRA has worked.
Several Senators addressed the Chair.
The PRESIDING OFFICER (Mr. Abraham). The Senator from Wyoming is
recognized.
Mr. KERRY. Will my colleague yield for a question?
The PRESIDING OFFICER. The Senator from Wyoming has the floor.
Mr. KERRY. I would like to ask a question.
Mr. ENZI. The Senator doesn't even know what my statement would be.
It would be difficult to yield for a question based on what I haven't
said yet. There is a little bit of smoke that needs to be cleared out
of the Chamber before we proceed.
Mr. SARBANES. Mr. President, I think the Senator was just asking you
to yield in order to determine the procedure.
Mr. KERRY. I was just going to ask the Senator how long he was going
to speak.
Mr. ENZI. I apologize. I have been listening to a lot of statements
made, and I probably reacted in a way that I should not have.
Mr. GRAMM. Will the Senator yield?
Mr. ENZI. I will yield for a question, yes.
Mr. GRAMM. Mr. President, I will make the following point. We go back
and forth to try to keep some balance in the debate.
I think when people have a real question that it is a logical thing
to do. But when questions used really disrupt the flow of the debate so
that you have long periods of time on one side of the aisle, I don't
think it is quite fair. Obviously under the rules we can do it, but it
can be done on both sides.
I would like to just suggest--we are going to vote on this at about 7
o'clock. We have plenty of time. Everybody can be heard. I would just
like to suggest that we go back and forth. Everybody will get a chance
to speak.
I urge our colleagues, if you have a real question on something you
don't know--other than, ``Do you realize that our proposal is a great
proposal and their proposal is a rotten proposal?''--yes, I realize
that--if you have a real question, I think it makes sense. But in
fairness to what we try to do in going back and forth, I urge people to
wait for their time to speak so we have debate on both sides of the
aisle. That is my point.
Several Senators addressed the Chair.
The PRESIDING OFFICER. The Senator from Wyoming has the floor.
Mr. ENZI. The answer to the question of the Senator from
Massachusetts is, I think about 10 minutes.
Mr. KERRY. I thank the Senator.
Mr. SARBANES. I ask unanimous consent that when the Senator from
Wyoming concludes that the Senator from Massachusetts be recognized.
The PRESIDING OFFICER. Is there objection? Without objection, it is
so ordered.
The Senator from Wyoming.
Mr. ENZI. Mr. President, I thank you for the recognition. I
appreciate this opportunity to speak.
There is a certain amount of tension that builds up as you listen to
some of the comments. The comments have been very good about CRA, the
Community Reinvestment Act, in general, and in general nothing is going
to happen to that CRA. The Community Reinvestment Act will still be in
place. There will still be community reinvestment.
There are two changes in this bill that have been suggested. They
make some changes. They make some important changes that may make CRA
more viable, more valuable, more productive, and more useful.
There has been a tremendous escalation in the number of dollars being
given in CRA commitments. We note that in 1995 the annual dollars were
26 million, almost $27 million. In 1998, the annual dollars were 694
million.
What do you suppose caused the increase? Are banks just discovering
this? I don't think so.
A while ago you had the opportunity to listen to some of the contents
of an agreement that was necessary in order to move on in a banking
arrangement. There are a lot of clauses in that which are pretty
disturbing to me.
It has been said that you are not hearing from the banks. If that
letter has been used by many groups--you can see by the numbers that it
is rapidly escalating--how many groups are being brought into this?
There is a clause in that which says they cannot complain about CRA.
That is freedom of speech? You cannot complain about somebody extorting
money from you?
When banks are merging, there are a lot of stockholders who are
nervous. There are customers who are nervous. They do not know whether
they want to stay with the bank or not just because of the media
turmoil that is caused by the merger.
Then you have a group coming in to take advantage of that crisis
moment, that interest moment. They raise an issue. The bank isn't found
to be out of compliance; the bank is in compliance. Under this bill,
they have to have been in compliance for 3 years. For 3 years they have
been following this.
We had some discussion earlier that there are audits done on this.
They are checked on. It has always been shown that the ones that are
most likely to be involved in this, the bigger banks, are also the best
respondents. But there is a clause they have that says, first of all,
they are not going to complain about CRA; second, they are going to
write this Congress and say what a good deal CRA is.
Does that sound like a normal business transaction? Does that sound
like something that businesses ought to be involved in?
If these things are really invalid actions by those banks, they ought
to be taken to the highest level and the highest opportunity to punish.
But that destroys the value of the company. So they enter into
agreements like this and send letters that say that the CRA is OK.
This bill does not gut CRA. It keeps the same program in place. If a
bank, which is audited regularly, has met the criteria for 3 years, and
meets it at the moment, then actual objections have
[[Page S4765]]
to be lodged. It seems like common sense to me. It doesn't sound like
doing away with the program. It is just common sense.
Small banks were mentioned. There is a change for small banks in
here, too, if they have under $100 million in assets. I think if any of
you look into banks, you will find that it is a very small bank that
has five or six employees. You will probably find that one of those
employees is dedicated to just doing CRA--doing CRA so they can prove
that they don't have a problem. It is only rural banks.
We have had these letters from Fort Wayne and some other cities.
Those aren't rural banks. I don't care what their asset base is. They
don't get this advantage.
We are talking about the very small communities. I have those in
Wyoming. Those very small communities, even if they only have one or
two employees, have to have somebody dedicated to doing the CRA. It is
a paperwork experience. They are having to fill out paperwork to prove
that they are not in violation in a community where there may not even
be minorities. So they cannot rest as well, because they don't have a
classification they can meet in their customer base in their community.
Three-fourths of the banks are rural banks. It was said that we had
an amendment that put that at $2 million. I also want to point out a
comment that was made about these small banks. There were over 16,000
of them audited for CRA. There were three out of compliance. According
to my record, there were three out of compliance. There are some that
get lower ratings, and I have explained why they are lower ratings. But
even if they were considerably more out of compliance, it is not good
auditing to do it under that basis.
I am an accountant. I am the only accountant in the Senate. When you
have criteria for auditing businesses, you come up with higher
statistics than that kind of a base, or even a higher base than that.
You have to. Otherwise, you are wasting resources.
What I am saying is that some of these benefits that are talked about
may not have been worth it even on the basis of the auditing costs. We
are talking about the basis of the business cost as well complying with
this law.
These banks are community banks--rural banks. In Wyoming, the bank
may be 100 miles from another bank. Who do you think they serve? People
from other States in the Nation don't mail their money there. It is the
people who live in that community, and they expect and they get
service, or the bank goes out of business.
We have heard some statistics about how business has increased
because of the CRA. We have heard statistics about how loans have
increased because of the CRA. Take a look at the timeframe. It wasn't
the CRA that drove up the number of people buying houses or drove up
the opportunity for more people to go into business. It was the
interest rate. The interest rate plummeted. More people could make
house payments. More people bought houses. It wasn't that the banks
were being forced into this; the banks are already precluded from
having to do bad loans. They are not loaning to just anybody who comes
in the door. They are just doing a lot of paperwork to show that the
loans they are granting are valid loans and the ones they are not are
not valid loans.
The economy makes the difference in whether new businesses start and
whether people buy more houses. The exemption for small banks will
solve some problems for small banks, and it probably ought to be a
higher amount than that.
Again, if you are looking at auditing statistics, you could double or
triple that number without affecting the numbers that are out of
compliance; hardly at all.
I want to reiterate again that that amount of extortion to the big
banks has gone from $27 billion up to $694 billion. That is going to be
something on an ever-increasing basis. As more people get into the
business of taking on CRA, taking a base and a commission off of that,
none of this goes to the sector of the community we are talking about.
CRA is important. CRA is included in the bill. CRA only makes two
changes. It does not gut the bill. There are two changes: One for
small, rural banks so we don't have to spend so much annually complying
with CRA and they instead can put it into their community, which is
where they put their money; the other one is for the big banks so they
don't have to write these required letters we heard to their
Congressman saying they don't have any problem with CRA.
This is not an attempt to gut CRA. This is an attempt to make it more
valuable, more useful and more applicable in the banks.
I yield the floor.
The PRESIDING OFFICER. The Senator from Massachusetts is recognized.
Mr. KERRY. Mr. President, I thank particularly the Senator from
Maryland, the ranking member, for his leadership on this issue. I
regret that the Senate is in the position it is in on this particular
bill.
I have previously supported financial modernization. We have voted on
it in several incarnations. Last year I was among those who happily
sent this bill, what was then H.R. 10, to the Senate with a very
significant vote of support in the Banking Committee, because we
believed overwhelmingly that we had the right balance between the
interests of the financial services community, whom we are all
concerned about and we all understand need the needs of that community;
at the same time we had what most people thought was a very fair and
sensible recognition of the virtues of the CRA.
In the waning hours of the last Congress, all Members remember there
was a single, very adamant voice of opposition, the now chairman of the
committee, who in fairness has deep-rooted beliefs about it, but who
frankly stood in a very, very small number last year who ultimately,
because of the timing of the bill, was able to prevent an entire bill
from passing the Senate.
Now we are back here once again revisiting the important imperatives
of financial modernization. This year many of us who want to vote for
that financial modernization are put in the very difficult position of
having to take a position of fundamental principle that because we
believe so deeply that the CRA provision is so disturbed by this bill
that a strong relationship that has existed and worked with a profound,
positive impact for people in this country, is being sufficiently
undone, even attacked, and requires that we oppose the bill in its
current form.
I am used to going through Pyrrhic exercises in the Senate,
regrettably with increased frequency. It is a sad commentary on the
nature of the legislative process today that sometimes measures move
through here in a very partisan way and then we ultimately wind up in
the conference committee with the administration negotiating and things
are changed.
That may or may not happen here. It certainly didn't have to be this
way. We could have arrived at some kind of fairminded compromise that
reflected the views of the vast majority of Senators. Instead, we find
ourselves with a bill that is not just about financial modernization.
It is also about a significant reduction in the capacity of the
Community Reinvestment Act to work. Many Members believe very, very
deeply we can do better than that.
I think we obviously need to recognize that U.S. financial
institutions as a whole are the most efficient providers of financial
services in the world today. There have been remarkable changes in the
marketplace in the last years. All Members ought to pay proper tribute
to the virtues of the entrepreneurs who have themselves undertaken to
put those changes in place.
I don't think Congress can stand here with a straight face and take
entire credit for the virtues of the economy that we are living in
today. I do think we take partial credit because I think it was a
courageous effort in 1993 to face up to the realities of the deficit
and to come up with a solid deficit reduction act. In addition to the
congressional efforts, Alan Greenspan, the chairman of the Fed,
deserves enormous credit for his courage during the banking crisis of
the last years of the 1980s and the beginning of the 1990s when he took
bold action to help refinance the banks, as well as his remarkable
stewardship of monetary policy itself.
Finally, it seems to me a very significant amount of the credit goes
to the companies themselves and the CEOs
[[Page S4766]]
who saw a change coming down the road, who responded to the demands of
the 1980s when people were writing books about Japan, Inc. and writing
off American enterprise and suggesting we needed a wholesale adoption
of another model. Indeed, our model has proven perhaps at times to be
excessive and at times even to be insensitive, but nevertheless to be
way ahead of any other capacity or structure in the world in the
marketplace.
Increasingly, one of the reasons for that success has been the
blurring of the lines between banking, insurance, and securities. We
need to do our part. We are way behind the curve, years behind the
curve. Were it not for the thoughtful and judicious steps taken by the
regulators themselves without congressional impetus we perhaps wouldn't
have been able to accomplish some of what we have.
Now is the time to respond by breaking down the artificial legal
barriers of an outdated era, the barriers that prevented banks,
security firms and insurance companies from affiliating. It is time we
take the step to ratify the liberation of financial service companies
so they can provide a broader array of services to consumers and
corporate customers. I don't think we should hesitate to do it. This is
several years overdue.
It is regrettable that we find ourselves in this position, after the
Senate Banking Committee overwhelmingly by a 16-2 vote passed
legislation. That is a fairly profound statement of the Senate Banking
committee's willingness to move forward.
Here we are again, notwithstanding the challenge of financial
modernization, with too many Members having to say no to moving forward
because of the extreme measures being applied to the CRA itself.
That judgment is not ours alone. The Treasury Secretary, whose
expertise and judgment over the last years, I think, has been without
parallel, and the President of the United States, clearly on Secretary
Rubin's recommendation, have stated that if the CRA measure stays as it
is, this measure will be vetoed. Very simple: It is going to be vetoed.
We have a choice. We can either take a look at the CRA and make a
judgment about what it accomplishes or we can go through another Senate
exercise, send the bill out for veto and accept failure in the end for
our capacity to be able to recognize the importance of the vast changes
that I referred to a moment ago.
Let me say a few words about the CRA, if I may. The CRA is now more
than 20 years old. It is very straightforward in concept. It is
imminently reasonable. It says simply that banks have to provide credit
to all the communities in which they take deposits. In other words, if
a bank accepts deposits from a neighbor, that bank has some kind of
responsibility to make loans available to creditworthy borrowers in
those neighborhoods. That is common sense and it is fundamentally fair.
This statement of reciprocity, of mutual responsibility, says an awful
lot about the kind of country we want to be and the kind of country we
are as a consequence of that kind of effort.
Let me speak for a moment to what the CRA has accomplished. It has
helped to make more than $1 trillion in good, profitable loans to low-
income areas, loans that bankers in my State and in States all across
the country have said would not have been made without the law. It has
given low-income communities of working families access to capital that
is absolutely crucial to start a small business or to buy a home. And
it has created new business opportunities for the banks themselves.
I would say that CRA is a fundamentally conservative, procapitalist
law because it is not a handout; it is not something for nothing. It
requires responsibility. It broadens the tax base. It broadens the
capitalization capacity of a community. It brings people into the
economic mainstream. It is a law that provides that all Americans, low-
and moderate-income Americans, very often African Americans or Hispanic
Americans, with the opportunity to buy a home or build a business if
they are creditworthy.
The law is very clear on the last point, about creditworthiness.
Loans have to be made with all of the normal concerns for safety and
for soundness. The act itself could not have been more clear on that.
It says that it has to help meet the credit needs of the local
communities from which it is chartered, ``consistent with the safe and
sound operation of such institutions.''
So, when the chairman of the committee says it is just an extortion
program, I think there is such a level of extreme exaggeration and
rhetoric in that, measured against what happens --and I will speak for
a moment later to the question of extortion--because any bank has the
ability to prove that any particular request was not able to meet the
requirement of safe and sound operation of that institution. It is
clear there are plenty of ways of doing that. And the balance of the
weight is on the bank; it is really against the person requesting the
credit, based upon the normal standards by which banks do business.
If you talk to most bankers, they will tell you the CRA loans perform
as well as the rest of their portfolios. We are not looking at some
enormous drag on banking institutions. In fact, some banks have begun
to sell CRA loans on Wall Street in order to acquire more capital to
make more CRA loans. Those are market forces that are being harnessed
to expand opportunity and to grow our economy.
Here in the Senate, lately, we have heard a lot of talk about the
``opportunity society.'' The fact is, the Community Reinvestment Act
exemplifies that notion. Credit is the economic lifeblood of every
community, whether it is rich or poor. In our society, I think it is
fair to say that historically we know that credit denied is also
opportunity denied. When you deny hard-working Americans the chance to
buy their own homes or start their own businesses, you are denying them
the opportunity to share in the American promise.
This is a country where we have demanded a lot of our citizens. We
expect them to make the most of their own lives, to take responsibility
for themselves and for their families--largely because of the kinds of
public policy decisions we have had the privilege of supporting here in
the Senate with respect to this kind of economic sharing, if you will.
We say to Americans: If you take the effort to live by the rules, to
show your creditworthiness, to stand up within the economic structure,
then we have the ability to help provide some of the tools to build
that decent life for yourself. CRA was built on that.
But what we are considering today--and I heard the Senator from
Wyoming and I have heard other Senators try to suggest this is really
just a fixing of the CRA, that it doesn't really take it apart, it is
going to leave it in place; we are just going to take, whatever, about
38 percent of the banks out from under it--those are the banks under
the $100 million mark--and then we are going to make it a lot more
difficult to apply any real measurement because we are going to change
the standard by which we measure a violation; and, we are also going to
change--according to the chairman--we are going to exempt banks from
protest based on a 3-year satisfactory CRA record no matter what. And
of course for the new activities we are empowering in this bill, it
doesn't apply at all.
If ever there was a reason to make judgments about whether or not
people are in compliance, it is when they are going to go out and
engage in new activities that involve a whole series of new, larger
roles within the economic community.
It seems to me it is inconceivable that, when they are going to take
on those new kinds of responsibilities, you are suddenly going to say:
We are not going to apply it; we are going to hold it where it is based
on the theory of what CRA is supposed to be.
There is a reason that there is this kind of semi-subtle approach--I
would not call it that subtle in the end. It is sort of a sledgehammer,
but it is hidden enough in a way that people who are not completely
familiar with it or with the process might say there are some redeeming
factors here. But the fact is, the reason it is done in this sort of
backdoor approach is that they learned they cannot do a frontal
assault. They are not going to strike it altogether. It does not give
people enough cover. So then you are left sort of analyzing: What is it
that it is really going to do? What is going to happen here, in terms
of this effort?
[[Page S4767]]
I believe the Bryan amendment will preserve the appropriate
relationships by simply requiring that banks have and maintain a
satisfactory CRA rating as a condition of exercising the new
affiliations allowed in this bill. The Bryan amendment also strikes the
safe harbor language and the exemption from CRA regulations for banks
with less than $100 million of assets.
I listened to the chairman in the committee and I addressed this
directly--raised this issue of extortion. I acknowledged at the time,
and I will acknowledge on the floor, that I know of instances where
people have come into a bank at the last minute, or at the moment of a
merger, feeling the iron is hot, and of course when the bank wants the
merger to move--carefully and without ruffled feathers. When the banks
don't want the regulators suddenly getting their dander up at this
critical moment of merger. So people take advantage of this
opportunity.
Let me say, I know of some instances where there have been some
marginally meritorious requests. But the record of the numbers of
challenges--and I will address that in a moment--is very clear. It is
so de minimis that no one can come to the floor with anything except
pure anecdote, sort of a story here or there, that suggests that
somehow there is some massive problem. What bank does not deal with
community groups, all the time--this is not some sort of a last minute
thing where there are a bunch of unknown people sitting at a table who
can walk into the bank and the newspapers and the local television are
all going to take them seriously. We are dealing, after all, with
communities in which there are sets of relationships which everybody
understands.
Most of the people within that community--the political leaders, the
elected political leaders, the opinion leaders, the bankers, the
businesspeople, the news people--understand the difference between
legitimacy and extortion. They understand the difference between a
community that is getting its fair share of community investment from a
bank and a community that has been starved.
The fact is, if somebody is walking in, in some sort of bald-faced
``extortion effort,'' the bank can tell them no way and probably stand
there with impunity and justification in doing so. If some banker is
complaining about some illegitimate group coming in and holding them
up, then that banker, frankly, ought to be fired for not having the
courage and the guts to say: Look, we are meeting our standards. We
have covered all the people who have made legitimate requests. Your
request is not legitimate. It will not withstand the scrutiny in the
light of day, and I am not going to be blackmailed, period.
Moreover, there are laws in this country already on the books,
Federal laws, State laws and local--within counties--which district
attorneys can prosecute with respect to those kinds of extortion
efforts.
To suggest we are going to hold up the financial modernization
efforts of the United States of America in a global marketplace over
these anecdotal stories and not be able to find a common ground where
we could fix or address the question of legitimacy--there are any
number of language changes you could make in the standards or in the
review process or in the process, all of which would be adequate to
deal with the questions that the Senator from Texas has raised. But
none of those is on the table, none of them. What is on the table is an
entire exemption for a whole set of banks for whom this has worked very
effectively. Moreover, what is on the table is an exemption of any
consideration at all for these remarkable new powers that are going to
be given to the banks which demand that you make some kind of judgment
about what their commitment really is in their community.
You can talk to most of the bankers in the country right now.
The Wall Street Journal summed it up this way:
Few Republicans share (the Chairman's) passion for the
(CRA) issue. Bankers don't love the CRA but have largely made
their peace with it. . . . ``CRA is part of the way we do
business--we don't have any problems with it,'' says Pamela
Flaherty, a vice president at Citigroup, Inc.
It is not industry leaders or community leaders who are driving this
effort to undermine the CRA; it is the tendency in this Chamber and in
our politics for ideology sometimes to work against the needs of
communities and the interests of good public policy. When you measure
what we are doing against the broad-based effort of the House of
Representatives and the House Banking Committee to develop a more
broad-based effort, you have a real confrontation with that approach.
If you look at some of the language we have heard about the CRA--
comparing it to slavery--that is the kind of statement that just
ignores the reality of what the CRA has accomplished.
The CRA, accepted by most bankers in this country, supported by
people like Alan Greenspan, supported by major bankers in the country,
has brought billions of dollars of credit into African communities,
Hispanic communities, and Asian-American communities where thousands of
banks have become active partners in creating opportunities for working
families so they can become new homeowners and by providing the capital
to budding entrepreneurs.
Slavery? That is an extraordinary comment. Too many of our colleagues
are willing to forget the redlining and the racism that plagued lending
in too many low-income communities in previous years. Before 1977, when
the Community Reinvestment Act became law, many financial institutions
believed they had absolutely no responsibility to the communities they
served. Some financial institutions accepted racial and economic
discrimination as part of their mortgage credit and business lending
policy. It is because we found that too many banking institutions saw
an ease to the profit line by moving into certain areas and an
unwillingness to do business and reach out to Main Street with access
to credit that we put the CRA in place.
Studies from that time period show that some financial institutions
routinely invested more than 90 percent of their deposits that they
received from low-income and minority neighborhoods into other areas.
Ninety percent of the deposits that came from certain low-income
communities went out to other areas. We have a fundamental
responsibility not to start segmenting and dividing up the financial
marketplace in a way that is going to allow people to turn away from
that responsibility of inclusion that has benefited everybody in this
country and has made this country a better place.
In Roxbury, MA, a low-income minority neighborhood within the city of
Boston, only 20 percent of home sales were financed by financial
institutions between 1975 and 1976. But in the prosperous suburbs of
Boston, 83 percent of home sales were financed by financial
institutions in the same time period.
The residents of Roxbury who were able to obtain financing were
forced to use private mortgage companies, often at substantially
greater expense than at financial institutions. The cost of denying
private mortgage credit and business lending was literally devastating
to the social and economic growth of Roxbury and other low-income
neighborhoods in the inner city and in rural areas. Over time, property
values and small business activity plummeted, and then crime and
poverty escalated.
We can recreate that cycle if we want to go backward in time, Mr.
President. Activities like that are exactly what brought the Congress
to pass the Community Reinvestment Act in 1977, to encourage bank and
thrift regulatory agencies to help meet the credit needs in all areas
of the communities that they serve.
I don't think we can afford as a nation to roll ourselves back to
those days when it was more power to the powerful, more money to those
who already had the money, and less concern and less effort to try to
be the country that all the speeches are about and all our days of
celebration are about.
CRA has worked in Massachusetts where there has been more than $1.6
billion in commitments made by financial assistance institutions to
assist low-income neighborhoods. These funds have been invested in home
ownership, affordable housing development, minority small business
development, new banking facilities and services, and it has made a
difference in our inner-city neighborhoods from Roxbury to Jamaica
Plain to the South End. Let me give a direct example.
[[Page S4768]]
Stacy Andrus, from Jamaica Plain, Massachusetts, was a restaurateur
struggling to make ends meet and retain her clientele in a competitive
environment. She knew she had to be creative just to keep pace. She
began toasting chips out of pita bread to serve as finger food before
meals. As one might expect, those chips soon became the most popular
item on the menu.
Like so many businessowners who know they have latched on to a great
idea, she wanted to expand the operation. She tried to bring the
concept to scale, but capital and credit were not available to her;
they were not available in Jamaica Plain. Even though their deposits
went into the bank, they did not come back into the community.
She could not find the help she needed until finally she started
working with the Jamaica Plain Neighborhood Development Corporation.
This corporation works within a network of small business providers
that use CRA programs at local banks to secure funding for small
businesses. With their help, Stacy obtained a $60,000 loan from
BankBoston. As a result, her business expanded rapidly: She has leased
a production plant in Jamaica Plain; she has residents of the low-
income community working for her; she has put former welfare recipients
on the payroll; she has 900 bags of chips rolling off the assembly line
every single day. Thanks to CRA she has now made them one of the top
selling gourmet snack foods in all of Boston, and she has major
airlines interested in serving her chips to first-class customers.
Without the CRA, Mr. President, the community of Jamaica Plain would
not have received those kinds of benefits from economic development
that has been generated. In addition, it is also giving low-income
communities a shot at home ownership.
Julie Orlando is a single working mother of three. She wanted to buy
a home for her family in Leominster, MA, which is Northwest of Boston.
In the days before CRA, she would not have possibly been considered a
likely candidate to own a home, but because the Fidelity Cooperative
Bank was involved in the CRA coalition, she was able to obtain a
$72,000 mortgage with no points. The city of Leominster provided
additional assistance to Julie and her family. Because the Fidelity
Cooperative Bank participated in the CRA coalition, she and her
children can live with their first home, which is, after all, Mr.
President, not just the American dream, but it is good for the
community.
How many times have we heard of the problem of crime that comes from
transient members of the community, people who do not have a stake in
the community. That is exactly the type of assistance that CRA was
designed to provide.
It is my hope we are not going to take measures here that deny a
whole generation of CRA success stories in the future. The CRA and the
Home Mortgage Disclosure Act data continue to show that blacks and
Hispanics face significantly higher mortgage rejection rates.
The Boston Federal Reserve showed conclusively that African Americans
get turned down for a mortgage 1.6 times more often than whites, even
after you control for many of the economic income and creditworthiness
differences.
A New York Newsday study, looking at 100,000 mortgage applications on
Long Island, showed that blacks' applications were rejected three times
as often as whites', even when they had the same income.
In a study right here in the Washington, DC, area, completed last
year, we found that significant lending discrimination exists against
blacks and Hispanics.
Mr. President, the need for the CRA remains very much alive in the
United States. Let's put the rhetoric aside. Let's put the ideology
aside. Let's find the common ground within the Senate whereby we can
guarantee that we can build a coalition that will support the best of
financial modernization and the best of our effort to broaden the
economic base of this country.
I might add, some have suggested there is sort of a legalized concept
to what has been called the ``legalized extortion.'' In fact, some
people have suggested that the regulators have assisted that process.
Let me say, Mr. President, I find it very hard to believe that people
would suggest that Alan Greenspan, the Chairman of the Federal Reserve,
for whom we have--all of us--such respect for, is complicitous in that
process. This is what he said about the CRA:
. . . the CRA process is something that we clearly have
been supportive of and think is crucial and necessary to the
development of communities. We think that it's in the
interest of the banks. We think that it's in the interest of
communities.
Mr. President, the data from the regulators--let me just close on
this--the data from the regulators is clear. The chairman of the
Banking Committee wants the Senate to fundamentally weaken CRA. He will
stand up and argue, this is not taking it away. He is going to try to
point to the exemption for the small banks. And he will come back to
the notion that it somehow is still in effect, even though it does not
apply to the new services that will be provided, and even though the 3-
year safe harbor provision is included.
But the fact is, that fewer than 1 percent of bank applications have
been receiving an adverse CRA comment. Fewer than 1 percent of the 660
applications that received the adverse comment were denied on CRA
grounds--1 percent of the 1 percent. Not a single application receiving
adverse comments has been denied since 1994.
So here we are with the entire regulatory structure of our
modernization effort of the financial services of our country held
hostage to a few people's perceptions, based on ideology, of 1 percent
of 1 percent, notwithstanding that all of the banks in the country have
learned that this is, in fact, good economic policy, good banking
policy, and they have accepted the CRA.
It is my hope that our colleagues will recognize that, even as this
country has grown strong and the economy and the marketplace has grown,
even as the stock market is reaching the extraordinary 11,000 level,
the fact is that there are more Americans who are poor, there are more
Americans who are living on 1989 wages, there are more children in
poverty today than there were 3 years ago or 4 years ago in this
country, by a figure of about 400,000, and the fact that too many
families are working too hard at the bottom level just to make ends
meet.
For us to backtrack on a fundamental commitment about the
relationship of financial institutions within the communities in which
they do business, would be to turn our backs on what has made America
stronger and better. And I hope my colleagues will not do that. I yield
the floor.
Several Senators addressed the Chair.
The PRESIDING OFFICER (Mr. Sessions). The Senator from Texas.
Mr. GRAMM. Mr. President, you will hardly know where to begin when
you have listened to these speeches for a couple hours, and most of
them have nothing whatsoever to do with what we are talking about on
the floor.
It reminds me of the old Lincoln adage, where Lincoln was engaged in
a debate, and the guy debating Lincoln got up and gave a wonderful
speech that had nothing to do with the subject being debated; and
Lincoln got up and said that his colleague had given a wonderful speech
that would be appropriate for another day and another occasion.
I want to go through, roughly, 10 points that have been raised in all
these speeches, and then go back to what we are debating.
No. 1, we have had a lot of speeches for CRA. And one would get the
idea in listening to these speeches that someone is proposing to repeal
CRA. In fact, as far as I am aware, no one has ever offered an
amendment or bill since 1977 proposing repeal of CRA.
Whether the record for CRA is as wonderful as our colleagues have
claimed, have we built more houses because the economy is better or
because of CRA? Who wants to get into that debate? Because it is not
relevant to what we are talking about, nobody is talking about
repealing CRA.
No. 2, nobody is talking about ``turning back the clock.'' What we
are talking about is dealing with abuses that exist in the current
system, and that can and should be fixed. One of those abuses basically
has to do with extraordinary power that protesters and protest groups
have at critical moments when banks are trying to make
[[Page S4769]]
decisions. The second has to do with the relevancy of CRA, and which
banks under what circumstances have relevant requirements, and what are
the regulatory burdens and costs involved.
In terms of a point that was made way back so many speeches ago--I
forget which one it was--that in 99 percent of the cases where banks
apply to do something that requires CRA evaluation, nobody challenges
that action, that is a very misleading number, really, for a number of
reasons.
First, most of these applications concern the opening or closing
branches. They are not very relevant. It is basically the mergers and
acquisitions that are relevant to CRS protests.
Second, as I have pointed out on many occasions, most of the CRA
action takes place not in the formal complaint, but basically when the
protester goes to the bank threatening that unless the bank takes
certain action, often giving that person money, that they are going to
file a complaint. So it never shows up in the statistics. So that is
all interesting but largely irrelevant.
One of our colleagues said that I said, or someone had said, that CRA
is just an extortion program. No one ever made that statement. What I
have said is that CRA has become a vehicle where a tremendous number of
actions occur that certainly look like extortion. When you look at
contracts that are being signed, these individuals and groups are given
large sums of money, and then they sign a commitment that they will
withdraw their objection. That is a classic quid pro quo, that is the
essence of extortion or bribery or kickbacks. There are a lot of names
you can use. But no one has suggested any of them in this debate. Many,
most, almost all of the people involved in CRA are conscientious and
honest.
We are talking about people here who are abusing the system. And even
spokesmen for CRA, even spokesmen for community groups, say there are
abuses, that the abuses undercut the system. As everybody who is on the
Banking Committee knows, when the CRA advocates testified before the
Banking Committee, a clear point was made that abuses do occur. They
called the abuses ``greenmail.'' I think the standard term is
``blackmail,'' but nobody disputes that they occur. What we are trying
to do is to deal with them.
In terms of half the banks being out of compliance, half the banks
being affected, there isn't any proposal that would let half the banks
out of CRA. Basically, the proposal in the underlying bill is that
banks with less than $100 million in assets and which are also in
nonmetropolitan areas, in rural areas, that these banks be exempt from
CRA. Now, why?
First of all, since 1990, over a 9-year period, there have been
16,380 examinations of these small rural banks; 16,380 times Federal
regulators have gone to these rural banks. They have sat down for days
and weeks, looking through their records. They have done reports to
determine whether these rural banks are lending in their community and
meeting their community reinvestment requirements.
After 16,380 examinations, only 3 banks have been found to be
substantially out of compliance. The cost of complying with CRA for
these examinations to the small banks has been roughly $80,000 a year,
according to the 488 letters we have received from small banks on this
subject.
That is $1.3 billion of cost imposed on small banks. I have read at
great length letters about how small banks can't serve their customers
because they have to do all this paperwork and how it is interfering
with community lending. I have read some passionate letters on this
subject on the floor of the Senate in this debate. I am not going to
reread them now.
The point is, $1.3 billion later, 16,380 examinations later, crushing
paperwork, cost burden on very small banks, many of them between 6 and
10 employees, $1.3 billion of costs banks have paid, and only 3 small
rural banks have been found to be substantially out of compliance.
What does our bill do? It exempts from CRA very small, very rural
banks. In total, in terms of the number of banks, that is about 38
percent of the banks in America. In terms of available capital, as you
can see from this chart, that is 2.7 percent of all the assets in all
the banks and S&Ls in America.
Now, the logical question is this: 44 percent of our auditing effort
is going into banks that have only 2.7 percent of the assets, and they
have been found to be substantially out of compliance only 3/100 of 1
percent of the time. Is this not massive regulatory overkill? What does
this have to do with meeting community needs for loans? If there has
ever been an overreach in regulatory terms, imposing $1.3 billion of
cost on little banks and little communities to turn up three banks in 9
years that have been substantially out of compliance, this is
regulatory overkill. We are trying to fix it.
In terms of exemption based on a 3-year record, one of my
frustrations in debating on the Senate floor--and I guess all of us can
be accused of doing it; I try to, at least within my own mind, be
careful about things I say. I try to put my argument in the best light
I can. Everybody else does. I try not to say things I don't believe to
be true. But we continue to hear these things like, if a bank has been
in compliance three times, they are exempt from CRA. That is not what
our bill does.
Here is what our bill does. Let me explain the problem. In fact, let
me have that quote from the law professor at Cornell. This quote is
from Cornell law professor Jonathan Macey. Jonathan Macey is one of our
Nation's premier experts in banking law and is very knowledgeable in
this whole area of application of CRA. In evaluating what is happening,
this is basically what he says:
You see really weird things when you look at the code of
Federal regulations . . . like Federal regulators are
encouraged to leave the room and allowing community groups to
negotiate ex parte with bankers in a community reinvestment
context. . . . Giving jobs to the top five officials of these
communities or shake-down groups is generally high up on the
list (of demands). So, what we really have is a bit of old
world Sicily brought into the U.S., but legitimized and given
the patina of government support.
Let me see those CRA agreements, if you will stack all those back up
there one more time. I am going to zip through them real quickly.
One of our problems in evaluating what happened to the $9 billion of
cash payments that were made under CRA--something never contemplated;
nobody on the Banking Committee in 1977, I don't believe, thought CRA
would ultimately produce cash payments being made to individuals and to
groups; they thought, as we have heard arguments all day, that CRA is
about lending--we don't know where all this money goes. We don't know
what percentage of rake-offs, for example, these groups get on loans
banks make, because we don't have the records. These CRA agreements are
confidential; they are not made public. That is something later that we
hope to change.
But let me just say, I have three pieces of CRA agreements. These are
all private agreements where the parties have agreed not to make them
public. We have redacted the names to protect the people who committed
not to make them public.
The point I am trying to make here is how far away from lending, as
we conventionally know it, this is.
This is from Bank A: Provide blank--this is the CRA group--with a
grant of up to $20,000. Provide blank with a grant of up to $50,000.
Provide blank with a grant of up to $25,000. And on this one they say
why: to pay reasonable and necessary soft costs incurred. Provide blank
with a grant of a reasonable amount.
And then after they agree to pay that money, look at this provision:
Blank agrees to withdraw on the date hereof the comment letter, dated
blank 28, 19 blank, and any related materials filed by blank with the
Office of the Comptroller of the Currency, the Federal Reserve Bank,
and the board--and it goes on.
The point is, on one page they give all these grants to groups, and
then on the second page the groups agree to withdraw the complaints
they filed against the action the banks want to make.
Here is the point: Did the groups file the complaints to get the
money? What about the legitimacy of the complaint? Did it go away when
they got the money?
It goes on. We are getting more and more of these every day. Then, in
every one of these agreements we have seen,
[[Page S4770]]
there is an agreement by the community group or the individual and the
bank not to disseminate or otherwise make available to the public
copies of this agreement.
Here is a second bank agreement, Bank B: Blank will receive a fee of
2 and three quarters percent of the face amount of each program loan
made by blank.
Now, I wonder if people in that community realize that this
undisclosed individual, or group, is getting a rake-off of 2.75 percent
of the face value of every loan that is being made by this bank. Blank
will receive a $200,000 fee as reimbursement, $100,000 payable fund,
execution and delivery, $100,000 6 months from now. That is the quid.
Here is the quo: The group commits to withdraw all pending protests of
regulatory applications and related matters, but not to sponsor, either
directly or indirectly, to protest or supply information in connection
with any protest relating to the pending or future blank applications
with bank regulators.
In other words, it doesn't matter what abuses the bank might do in
the future. They are never going to protest again because of this. At
the request to send letters to the customers of the bank--well, let me
go on. Not only do they agree never to protest again on any issue, but
they agree to purge the files and data bases of all information
relating to the bank's customers.
Now, it goes on: to immediately cease all activities directed against
the bank; to maintain the confidentiality of this agreement--they have
confidentiality again here--and then: to cooperate with the community
group, to help them use this agreement to leverage other financial
institutions to get money from them. In other words, not only are they
paying this money, they are going to help them get other banks to pay
it.
It is funny how little things grab you. Maybe it is just me, but this
one hits me the hardest. I was wondering why we were getting these
letters from banks in favor of CRA when the bank officers were telling
me--and in some cases saying publicly--that CRA was blackmail. Yet, I
was getting letters from these banks saying CRA is great. Well, here is
the reason:
Blank will work with the blank to establish a clear, written
declaratory statement indicating support for the Community Reinvestment
Act and the Home Mortgage Disclosure Act, and the party's opposition to
any attempts to weaken the law. Blank will send the final copy of this
statement to the blank.
In other words, they will let them go over and rewrite the letter
they are going to send. And they are going to send the letter to the
American Bankers Association, Federal Reserve Board, Office of the
Comptroller of the Currency, the whole congressional delegation of
their State, and to all members of the House and Senate Banking
Committees.
So, Senator Bennett, when you got a letter from this bank telling you
that CRA is the greatest thing that has ever been, you probably did not
know that was the result of a CRA agreement so that a bank could do
business in America. And we are not talking about Honduras; we are not
talking about Thailand. We are talking about the United States of
America, and we have banks--some of the richest and most powerful
institutions in America--that are having dictated to them at this very
moment that they have to write us letters telling us things they do not
believe. How is that happening? How can that be happening in America? I
ask you, how can it happen?
Not only is it happening, it is being condoned because, as the law
professor from Cornell said, we have given the patina of Government
support to something that if it happened to an American bank in
Thailand, we would file an unfair trade practice against them.
So when you are getting all these letters telling you how wonderful
CRA is from banks, remember this agreement. In fact, I received such a
letter from a particular bank. Fortunately, to show you this is a very
good and honorable bank, they say in their letter they have been forced
to send this letter as a result of a CRA agreement.
I discovered this letter because there was an editorial written
attacking the bill quoting this bank, or this letter, interestingly
enough. There was an editorial written quoting a letter from First
Union Corporation, a wonderful, great bank. They were quoted in the
editorial as saying how great CRA was and why we should not be making
any changes to the bill. Well, I said I want to see this letter. So we
got the letter. Let me read the first paragraph:
As part of a CRA pledge we made during our merger with
CoreStates, First Union National Bank committed to send a
written statement to certain individuals or organizations
clearly expressing our position on CRA and HMDA regulations.
We, as an organization, are very committed to serving all of
our communities, including underserved areas. We are happy to
provide this statement.
Then they go on to say that nothing in the letter is meant to be an
endorsement or opposition to any particular bill. I know we have one of
the most distinguished former prosecutors in America sitting in the
Chair. I have to say--not to speak for him, because in his role as
Presiding Officer, he can't speak until he comes down here--what is the
difference between this and the old protection racket that existed when
I was a child? I am proud to say that my uncles, as sheriffs and police
officers, broke up some of those protection rackets. But the only
difference is that this is Government; this is the Federal Government
that is basically allowing this to happen.
Now, we are not talking about repealing CRA. We are not talking about
ending a program that obviously has had many successes. We are talking
about trying to deal with abuse. So what are the two things we do? No.
1, we say that if a bank has a history of being in compliance with the
law, if they have been evaluated 3 years in a row and been found to be
in compliance with CRA, and if they are presently in compliance with
CRA, then any individual or group can protest, file a complaint; and
under the existing regulations of the Comptroller of the Currency,
there has to be a hearing for any complaint that is lodged.
But what our amendment adds is the requirement that if this bank has
a long history of being in compliance, before the regulator can stop
the action that they have earned the right to undertake, the protester
must present some substantial evidence. In other words, if you are a
good actor and you have been evaluated 3 years in a row and were found
to be in compliance, you are innocent until proven guilty. Somebody
can't just walk in and say a banker is a racist and a loan shark.
Some protesters have done exactly that. There is a CRA protester who
calls himself an ``urban terrorist,'' who used those charges against a
bank, harassed them for 4 years, went to a speech of the president of
the bank at Harvard University, disrupted the speech, made this man's
life miserable for 4 long years, until the bank gave him $1.4 million
and a $200,000 grant and set up an organization that now lends $3.5
billion, totally unregulated by the Federal Government. He gets a 2.75-
percent rake-off of each one of those loans, and nobody knows what he
does with the money. He is not accountable to anybody.
Now, all we want to do is say if a bank has consistently been in
compliance and you want to stop them from merging with another bank, or
opening a branch, you have to present some evidence. Now, what is the
standard we have used? The Presiding Officer, as a distinguished
attorney and former prosecutor, knows that substantial evidence is the
most defined term in American law. It is referred to over 900 times in
the United States Code.
There have been 400 court decisions that have defined ``substantial
evidence.''
So what standard do we require a protester to meet if he tries to
impose potentially hundreds of millions of dollars in costs on a bank,
and to stop a bank from doing what it appears to be qualified to do?
They have to present evidence.
Here are four standards set by the Supreme Court as to what
``substantial evidence'' means:
They have to present evidence that is understood to mean ``more than
a mere scintilla.''
That is a standard we are setting. You can't come in and stop a bank
with a consistent record of CRA compliance. You can't automatically
stop, shut down, and delay the process unless you present evidence that
is ``more than a mere scintilla.''
Unless you present such relevant evidence as a ``reasonable mind
might''--
[[Page S4771]]
notice it didn't say ``would,'' but ``might''-- ``accept as adequate to
support a claim.''
You have to present evidence that is real, material, not ``seeming or
imaginary,'' and considerable in amount, value, and worth.
Why in the world would we stand by and allow a bank that has complied
with the law of the land and been evaluated three times in a row as
being in compliance to be prevented from exercising a right they have
earned unless somebody presents credible evidence, substantial
evidence, to the contrary? I don't understand. Why would anybody be
against this change?
I continue to be stunned that our colleagues talk about CRA and how
wonderful it is. That is not what we are talking about.
Should you have to present some evidence if you are going to try to
deny people the rights they earned under the law? How can that be
unfair? How can that be reaching? How can that be burdensome? Who could
be against that?
The second provision of the bill provides relief to small banks in
rural areas. I have gone through the figures: $1.3 billion later, in
this decade of audits and costs imposed on the banks, three small rural
banks--three one-hundredths of 1 percent--are bad actors. Is that not
regulatory overkill?
We have forced little banks, many with just 6 to 10 employees, to pay
$1.3 billion in compliance costs, and in 16,380 examinations, only 3 of
them have been deemed to be substantially out of compliance. Does that
make sense? Is that crazy? Did I miss something?
I could read to you letter after letter. We have had 488 letters from
banks urging the committee to take this action. I have read them
before; I will not do so again.
Finally, let me remind my colleagues that the amendment that is
pending doesn't just strike these two provisions--the ``integrity and
relevance'' provisions--it does far more than that. It would create a
situation where individual officers and directors of a bank could
potentially be fined up to $1 million a day for noncompliance.
Remember, in these little banks you have 16,380 examinations over the
decade, and just 3 banks have been found to be substantially out of
compliance. What is the justification for this $1-million-a-day fine?
I have letters from the American Bankers Association, and from the
Independent Bankers Association, pointing out the obvious.
This provision that has been offered by our colleague from Nevada,
and was offered in committee by Senator Sarbanes, will make it
virtually impossible for small banks to get quality directors, because
who can afford that potential liability? It will make it virtually
impossible for small banks, who can't buy the insurance to protect
people from liability, to hire quality bank officials.
The bill goes on and on and on in the most massive overkill of
expanding CRA to nonbanking activities. Currently, a bank can sell
insurance without CRA approval. This substitute that is now pending
would require CRA approval for that. Banks can sell securities without
CRA approval. This takes CRA out of banking and into other areas.
What is the justification for that? The justification for requiring
CRA was that banks have a federal subsidy through deposit insurance. So
that is public insurance, and making banks do things in the public
interest could be justified. But how does expanding that requirement
outside banking make any sense? Are we simply going to keep writing
laws telling people what to do with this money?
Basically we have a choice. The choice is the following:
Both of these provisions concern CRA. The bill that was adopted by
the Banking Committee has two reforms--one an integrity provision, and
one a relevancy provision. The amendment that has been offered strikes
both of those reforms and imposes all of these new regulations.
So I think it is as clear a choice as you can make.
Just a couple of other points, and I will stop, because I know that
others want to speak. One of our colleagues quoted the Wall Street
Journal. The Wall Street Journal has editorialized not once but twice
in favor of the position the committee has taken here.
I urge my colleagues again to look at the debate--not get carried
away or be confused by people who say the committee has gutted CRA, is
killing CRA, or is repealing CRA. We are not doing any of those things.
But we are dealing with abuses of CRA. They need to be dealt with. They
scream out to be dealt with.
If I could make a plea to the other side, it would be a simple and
short plea: If we don't fix the abuses of CRA, by the time we are
through letting people know what is happening in terms of these $9
billion of cash payments, and by the time we finally do run down and
know where all of this money is going, and we find that much of it--or
some of it--is not being used to benefit people who are supposed to be
benefiting from community loans, I think it is going to undercut CRA.
If I were a strong proponent of CRA, I would be for these reforms,
because they clean up a program that clearly has had an impact. But our
colleagues--as they did on welfare--it was abused and abused and abused
and abused and abused. But they would never ever, ever, ever say that
it should be fixed. Finally, the American people rose up and elected a
new Congress. We are probably in the majority because of their
intransigence. So God does provide His services from time to time. And
then it was fixed. They probably could have had it closer to what they
wanted had they been willing to fix it.
But the position we have heard today over and over is, never ever,
ever, ever will we allow any change whatsoever, no matter how bad the
abuse is in CRA.
I don't understand it. I think it is an extreme view. I hope that
even yet, by the time we get through conference, by the time we have
had a chance to discuss this over many more times, perhaps there can be
a compromise.
I yield the floor.
Mr. DODD addressed the Chair.
The PRESIDING OFFICER. The Senator from Connecticut.
Privilege Of The Floor
Mr. DODD. Mr. President, I ask unanimous consent that Karen Brown of
my office, a fellow, be granted floor privileges during the
consideration of S. 900.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SARBANES. Mr. President, will the Senator yield to me for 2
minutes without losing his right to the floor?
Mr. DODD. Fine.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, I have refrained from taking a lot of
debate time this afternoon, because a lot of our colleagues want to
speak. I recognize that. Of course, the temptation is very great to
sort of rise every time the chairman of the committee speaks. He has
done that at some length here this afternoon. So I am not going to do
it now, because I have colleagues here. I hope before we get to 7
o'clock I will get a chance to have a few minutes to make a statement.
But I want to say that there is kind of an Alice-in-Wonderland
quality to this debate. The chairman pulls these figures out of the
air. I don't really know where they come from. I asked him where they
come from. He says there have been 16,000 something examinations of
banks under $100 million in nonmetropolitan areas.
I don't know where he gets that figure. The figure from the Federal
Deposit Insurance Corporation is 11,445. He says only 3 have been found
in substantial noncompliance; the figure is 18, and another 320 have
been found a need to improve. This chart is from the FDIC.
The Chairman says only three--it is not only three. I want to make
that point.
Mr. GRAMM. Will the Senator yield?
Mr. SARBANES. I yield.
Mr. GRAMM. These are figures from the interagency CRA rating.
Mr. SARBANES. The Senator said earlier today that the cost this is
imposing on small banks is $1.3 trillion.
I am thinking to myself, $1.3 trillion from these examinations? So I
asked him, How did you get that figure? He took the number of
examinations--about which we have just disagreed--and he multiplied it
by 80,000. I am not sure where he got the 80,000 figure. Someone must
have written in and said: That is what it costs our bank.
Mr. GRAMM. That is right, a small bank said that.
[[Page S4772]]
Mr. SARBANES. I don't know any study that validates that figure as
the right figure.
Even assuming for the purpose of this Alice-in-Wonderland discussion
that both the number of exams and the costs which we were then told
came to a $1.3 trillion burden, the fact is, it is $1.3 billion. That
is still a lot of money. I don't pretend to the contrary, but it is a
lot different from $1.3 trillion. It was escalated 1,000 times.
Let me give one other example. We were told the CRA is allocating
more money each year than the gross domestic product of Canada. The CRA
commitments are over a 10-year period. Those commitments, factored out
over a 10-year period, do not begin to approach the gross domestic
product of Canada.
These are only a few examples. We could give a lot more. I want to
underscore these figures that come floating in out of the air, and we
hear this long disquisition. When we start probing these figures, we
discover it is not there; it is Alice in Wonderland.
I thank the distinguished Senator.
Mr. DODD. Mr. President, I rise in support of the Bryan amendment. My
fervent hope is that we can adopt this amendment and move on with
passage of this bill. There are other outstanding issues that need to
be resolved. No issue is as galvanizing or as important as this issue
of the Community Reinvestment Act and how it is to be handled.
My friend from Texas, the chairman of the committee, and I have
worked very closely together over many years. We have been each other's
chairman and ranking minority member, depending on who was in control
of this August body. We have dealt with securities matters, we have
written legislation together, passed it together here on the floor,
carried it through conference, overrode the President's veto--the only
time a veto by this President has been overridden.
It is not easy for me to disagree with a man with whom I have agreed
on many occasions in dealing with financial issues. However, on this we
have a fundamental disagreement. I listened for a good part of the
chairman's presentation, especially the last part of the presentation
dealing with the alleged abuses that have occurred. I know of nothing
in the bill violating existing federal laws on extortion. We may do
some things in this bill Members do not want, but to the best of my
knowledge the criminal code is left intact. Nowhere in this bill do we
touch on the issue of whether or not people are going to be excused
from engaging in extortion, blackmail, green mail--call it what you
will.
The suggestion that there are serious violations of law--State and
Federal that I know of--ought to be brought to the proper authorities.
If someone believes they have been extorted, then we have Federal
prosecutors and State prosecutors to bring those matters to the light
of day and those accused can be brought to the bar of justice.
Second, I have never known the banking community to be terribly shy
about things that they want. They are usually pretty vociferous. They
are never reluctant to tell us how they want us to vote on matters that
affect their institutions. They lobby quite effectively. They do a good
job. The idea that the banking constituency, the thousands of banks all
across this country, are somehow afraid of some community-based groups,
and would not bring to light their concerns because of fear of some
retribution, just doesn't hold up when it comes to how the banking
community generally makes its concerns known.
The fact of the matter is, here on this issue there really is not a
constituency for the provisions in this bill dealing with CRA. Usually
we have a litany of organizations that are in favor of or against a
provision, organizations and groups which have felt outraged or
discriminated against in some way and will stand up and defend in a
very loud and clear voice their rights or how their rights are being
infringed upon.
In the last almost 6 hours of debate, I defy anyone to show me a list
of organizations here across the country that feel as though the
Community Reinvestment Act is somehow a great infringement on their
ability to conduct their business. It is nonexistent. In fact, the only
time we have ever actually voted on these matters prior to today is
when the House Banking Committee recently voted--51-8, Democrats and
Republicans, voted for provisions we are seeking here contained within
the Bryan amendment. The Banking Committee last year voted 16-2,
Democrats and Republicans, in favor of the provisions that we are
trying to reinsert into this legislation. There is overwhelming
evidence from the Federal Reserve Board, the banking regulators, banks
all across the country, that the Community Reinvestment Act is working,
and working well.
Let me quickly add I have never met any institution which was overly
enthusiastic about any regulation--State, local or Federal. They
usually do not welcome these and I understand why. There is a cost
associated with it. I appreciate that they try to keep their costs
down.
Most banks, certainly in my State, have been active in our community
and do a great deal of good. However, as the Presiding Officer who has
been identified as a distinguished scholar of the legal codes of our
country knows, we do not write laws for the overwhelming majority of
Americans who obey the law, who try to do the right thing. Laws are
written for those who try to abuse what we believe is proper behavior.
Only a small percentage of Americans violate the law. But that is not
an excuse for not writing laws, because, unfortunately, some do in fact
break the law.
So when it comes to the Community Reinvestment Act, we seek here not
to lay a burden on the overwhelming majority of banks who do a good
job. We must recognize that there are institutions which have
discriminated against various groups in this country based on race,
religion, ethnicity. So several years ago, we decided to enact the
Community Reinvestment Act to require that lending institutions,
depository institutions, pay attention to our nation's underserved, pay
attention to our small farmers, and pay attention to our small
businesses. If you are going to do business in Alabama or business in
Connecticut as a depository institution, we do not want you to neglect
the people in your communities, in your States, on any basis.
So we passed CRA and it has worked well. My colleague from Texas has
said that there are extortionate practices ongoing. Let me quote him,
from a statement made last October. The chairman of the committee said:
It has now become common practice in CRA for professional
protest groups to protest a bank's community service record
and in turn to use the leverage of those protests to extract
bribes, kickbacks, set-asides in purchases, quotas, hiring
and promotion, none of which has anything to do with CRA and
the lending practices of banks in the communities that they
serve.''
It is a pretty broad statement. Now, let me give you the facts. Mr.
President, four-tenths of 1 percent--let me repeat that, four-tenths of
1 percent of applications have resulted in agreements with community
groups; four-tenths of 1 percent have resulted in these agreements. We
have had them up here on placards and the easel here today. A great
amount of time has been spent talking about these outrageous provisions
in these agreements. If one sort of casually tuned into the debate the
assumption would be, as the Senator from Texas has said: It is common
practice. Common practice? Four-tenths of 1 percent of all the
applications? Under any estimation that is not a common practice, less
than 1 percent of all the applications.
During the past 21 years, there have been approximately 360
agreements reached. How many applications do you think there have been
in the past 21 years? Mr. President, 86,000; 86,000 applications and
360 agreements. When you stand up here for an hour and a half or so and
list these agreements that have been reached, you leave our colleagues
and others with the impression that this has, to quote my friend from
Texas, ``become common practice in CRA.'' That is an exaggeration. That
is an extreme exaggeration.
I do not like what I heard in these agreements. It bothers me a bit.
I would like to know more about it. A great deal of information was
redacted. We do not have the whole agreement. But I tell my friend from
Texas, I am concerned about it, too, and we ought to take a good look
at this. Let us remember, however, that we ought to take a look at the
360 agreements, and
[[Page S4773]]
many of those probably are proper and worthwhile agreements. In fact,
many lenders also require counseling for certain loan practices because
they improve the quality of loans. To meet commitments, banks sometimes
provide payments to community groups for services provided. It is not
some outrageous behavior. It goes on all the time. But, nonetheless, if
problems exist, let's look at them.
But with all due respect to my good friend from Texas, it appears as
though we were sort of squirrel hunting with a machine gun here. That
is not what his amendment or the language of the bill does. All we are
saying here is we want to preserve the Community Reinvestment Act in a
new financial framework. This modernization bill allows for the
consolidation of financial services. If we are going to do that--and I
think we should, I am a strong supporter of it--then it seems to me we
should be preserving the Community Reinvestment Act to ensure that we
do not have discrimination in lending. We must ensure that Hispanics,
African Americans, Asian Americans, and Native Americans, as well as
small businesses and small farmers, are not going to get short shrift.
We are going to have a lot of large institutions, a lot of large banks.
We want to make sure the average citizen is not going to find himself
or herself denied fair access to credit. That is what the Community
Reinvestment Act has been able to do for millions of Americans.
I listened to my colleague from Massachusetts and others here today
go over the statistics of how vastly the availability of credit has
increased to groups who in the past were denied those opportunities. We
in this country cherish the notion of equal opportunity. We have never
achieved the perfection that our Constitution and our Founding Fathers
sought in creating equal opportunity for every citizen in this country,
regardless of where they come from or the color of their skin. We all
know, painfully, the discrimination that existed for a long time in all
parts of our country.
Let me reiterate--all parts of our country. I could take you to the
Northeast. You do not have to go to the home of my friends from the
South in this country to find discrimination in lending. In
Connecticut, a year or two ago, you could see the redlining that went
on. People talked about this being a southern issue. That is untrue. I
could take you to places all across this land where redlining occurred,
where neighborhoods and communities were denied equal opportunity. If
they are creditworthy people, they ought to get the credit and
financing to buy a home, start a business, and get on their feet.
Because of these discriminatory practices, we passed the Community
Reinvestment Act. It has made quite a difference in our country. It is
not a perfect condition yet, but we have reached into the communities
of people who never had a chance before and they have a chance today.
Now we are going to allow these institutions to affiliate, and engage
in new financial activities. With this legislation, are we now going to
deny them the very benefit that the Community Reinvestment Act has
afforded during the past 22 years? I do not think we ought to deprive
them of that.
That is what the Bryan amendment attempts to address in part. It says
we ought not to exclude certain creditworthy consumers in the process
of allowing banks to expand in these new financial areas. To suggest
that the extortion of banks by community groups is somehow a common
practice--again, four-tenths of 1 percent, 360 applications out of
86,000, is not legitimate. Under anyone's estimation, that is not
justification for weakening the Community Reinvestment Act in the 21st
century.
Again, there is no constituency here. Most people, I think most of my
colleagues from all across this country, believe the Community
Reinvestment Act is doing a good job. Nobody here wants to be on the
side of an equation that says: Having made these gains now we are going
to turn back the clock. We should not do that. I do not believe the
people who have communicated with us, who write us--bankers,
consumers--said that.
One of the things we need to keep in mind as we talk about banking
legislation and financial institutions in general, is that one of our
major responsibilities is to ensure that our nation's financial
institutions are going to work well. So we pay a lot of attention to
their needs, as we should. But we also need to pay attention to the
people who do business with our financial institutions. They are an
important part of the equation here as well. Let us not forget the
people who show up at that bank window, who go in nervous about whether
or not they can get a home loan. Let us not forget the person with a
good idea to start a business who needs to know if that local banker
will take a chance on him, back him, give him a chance to get on his
feet. Those are our constituents, too. They are a fundamental part of
this equation.
It is not just the person behind the grate; it is the person in front
of the grate, too, who we have an obligation to watch out for when we
pass financial services modernization legislation. It is those people
out there tonight who would like to start a new business, buy a new
home, get a chance to share in the American dream. And the Community
Reinvestment Act has been the engine for many achieving those desired
results.
Again, in the past, we have seen votes of support on CRA by our
colleagues, Democrats and Republicans. It would be a great pity,
indeed, for this bill to fail over this issue.
It would be a great pity, indeed. This issue ought not to be the one
that causes this bill either to be defeated or to be vetoed by a
President and sent back after all the years we tried to get this done.
We are 240 days away from the next millennium, the year 2000. The
world and its financial markets are getting more complicated. The
United States of America has always been a leader in financial
services. I do not want to see us lag behind because we couldn't come
to terms with what is essentially a fundamental civil rights issue. I
do not want to see us lose our leadership role in the global
marketplace because we decided we were not going to expand the equal
opportunities that are so much a part of this country's heritage. I am
concerned that we are willing to give up all the other things we are
trying to achieve in financial modernization over CRA provisions that
are not supported by the banks they purport to help.
In fact, Mr. President, I will include in the Record, and others have
already, countless statements from many others-- the Federal Reserve
Chairman, the Treasury, and major banks in all parts of this country
who have said the Community Reinvestment Act is working. Sometimes
conflicts occur; it is difficult. Sometimes we have two groups we
admire and support, that are fighting hard for their points of view,
and we are asked to make a choice between them. That can be a hard
decision.
This is not a hard decision. There is no one on the other side of
this equation. Yet we are dangerously close to killing an otherwise
great bill that does a lot of good things.
As I said a moment ago, we have an obligation to make sure our
financial institutions are strong. We have an obligation as well to see
to it that the users of these financial institutions are not going to
be adversely affected by legislation we pass.
Let me focus for a second on the small, rural bank exemption that is
included in this bill. The bill exempts rural banks with less than $100
million in assets from the requirement of CRA. This exemption addresses
that there is some undue burden imposed on small banks complying with
CRA, and there may be some merit in that. But the provision in this
bill which the Bryan amendment would take out exempts 76 percent of
rural banks from CRA, 38 percent of all the banks and thrifts in the
United States.
Again, I can understand if you just hate CRA, you just think it is a
bad idea and we ought to get rid of it. Then I accept that--I disagree
with it, but I accept your position. But if you believe CRA makes a
difference and it actually helps rural people have greater access to
fair credit, then you must acknowledge that this bill exempts 76
percent of rural banks in this country. Virtually one out of every
three banks in the country will be exempt from CRA. That seems to me to
go too far.
CRA loans in rural areas assist small farmers in obtaining credit.
Small bankers have historically received
[[Page S4774]]
lower CRA ratings, quite candidly, than larger banks and have invested
less in their communities. On average, 50 percent of large banks have a
loan-to-deposit ratio below 70 percent. 25 percent of small banks have
a loan-to-deposit ratio of less than 58 percent.
The supporters of the small bank exemption contend the CRA creates an
onerous regulatory burden. However, the federal banking regulators
specifically reduced the regulatory burden on banks when the new CRA
enforcement rules went into effect 3 years ago. These efforts
streamlined CRA, facilitated easier compliance by lenders, and reduced
paperwork requirements.
Addressing the specific point the Senator from Texas made that
sometimes these banks have a few employees--and, again, I do not want
to overload that small bank--in 1996 we streamlined that process
considerably for them.
If there are some other ideas that will help achieve that, I think we
ought to listen to them. Again, think not only about the 8 or 10
employees of that small bank, but think about those small farmers who
do not have any other choice but to do business at that bank. Small
communities do not give you much of a choice. Your local farmers in
Alabama or Connecticut have one bank to go to. It is not like living in
New York City or Washington, DC, where you can walk down the street and
compare which bank will give you the better deal.
Under this bill, if you have only one bank window to go to, and you
are living in rural America, you will be told that your bank is exempt
from having to see to it that you are going to be dealt with fairly.
There is something seriously wrong here.
Streamlining the process for rural small banks is something I
applaud; it is something we ought to move ahead on to make it easier. I
do not want people to be denied options, denied choices, and to be
discriminated against when it comes to getting the credit they need.
According to Christopher Williston, the president of the Independent
Bankers Association of Texas:
Most small banks are really very accustomed to complying
with CRA. . .. Now they know exactly what the regulators are
looking for, many of my members would say CRA is here and I
can live with it.
Mr. President, again, if there are specific problems with the
implementation of CRA, if there are certain activities that should be
considered that are not considered, then the appropriate way to address
those specific concerns is to work with the regulators or come up with
a specific legislative approach.
The Senator from Texas, our distinguished chairman, should remember
our conversations to address this and have some hearings to look into
the issues he raised.
Again, don't exaggerate and turn four-tenths of 1 percent of the
applications into a common practice, and then miss the opportunity to
include reasonable CRA provisions in this consolidation of financial
services.
I hope there will be enough votes on the other side to support the
Bryan amendment. I am fearful if we do not do so, this bill is doomed.
I mentioned at the outset of my remarks the other day that my colleague
from Maryland and I have been at this together for the full 18 years I
have served in the Senate. He has been at it longer than that, having
served a bit longer than I have in the Senate. Nothing--nothing--would
make me happier than to pass this bill and expand and consolidate
financial services to serve consumers' needs and keep America in a
leadership position on these issues.
However, I cannot support a bill that turns its back on my
constituents at home. I want to help my financial institutions in
Connecticut. I want to help banks across the country. But I cannot, in
doing so, turn the clock back on the gains, on the strengthening of
America that we have made with the Community Reinvestment Act.
Whatever shortcomings it has--and I am certain they are there, CRA is
not perfect--let's fix the shortcomings. Let's deal with those, but do
not deprive people in this country of the increased opportunities. We
have a CRA bill on the books that has worked well, even by those who
must bear the burden of implementing these regulations. We must no
place in jeopardy an otherwise fine bill that, in my opinion, deserves
broad-based support in this Chamber and the other body.
I hope that we will stand at 7 p.m. tonight when the votes are cast,
in what may be the only civil rights vote of this Congress, and the
Bryan amendment will be adopted. Maybe other civil rights votes will
come along, but as of right now, this will be the only test as to where
people stand when it comes to seeing that equal opportunity in America
is going to be at least preserved in this Congress and not set back.
I hope at 7 o'clock, when the vote begins and as Members come to the
Chamber to cast their ballots, they will keep in mind the importance of
this bill. And to a far greater extent, keep in mind those who depend
upon us to see to it that they are going to have equal opportunity in
America, a chance to participate in the American dream in the 21st
century, and will not be denied because of an action we take tonight by
denying the preservation of CRA in a new financial services framework.
The PRESIDING OFFICER (Mr. Smith of Oregon). The Senator from Utah.
Mr. BENNETT. Mr. President, I have listened to this debate with some
interest. I have enormous respect for members of the Banking Committee
on which I have served since I came to the Senate. I know there is good
intention on both sides of the issue, on both sides of the aisle.
I echo the comments of the chairman of the committee in that much of
the debate that I have heard has been focused on the wrong issue; that
is, you would think that this was an attempt on the part of the
majority in the committee to repeal CRA. I do not condone redlining. I
recognize that the decision which was made by the Congress in 1977 to
create CRA was motivated by a genuine abuse that required a genuine
Federal fix.
At the same time, I recognize also that under Secretary Rubin's
leadership, attempts have been made to alleviate the regulatory burden
of CRA, that there has been a recognition on the part of this
administration--I think belatedly, but nonetheless I will accept it
whenever I can get it--a recognition that CRA has gotten out of hand
and has become, in some instances, a paperwork burden that is
nonproductive and anticompetitive and puts an undue burden on places
where it should not be.
The question is not, Should we abolish CRA? The answer to that is
clearly no. The question is not, Should we turn our backs on those
people who have been benefited by CRA? The answer to that is no.
The question is, Can we streamline CRA, as we are going through the
process of modernizing our financial institutions, in a way that
recognizes the reality of the marketplace? And there the answer is yes.
One of the criticisms which has been made, and I think with some
justification, is that a good part of the debate has been anecdotal;
that is, one situation has been described, and we extrapolate from
that, and then another has been described, and we extrapolate from
that.
I agree with those members of the committee who have suggested at
some point it would be well for the committee to have hearings on the
whole CRA matter and examine it at great detail. I think that is a
salutary thing to do.
But we have an opportunity here in this bill to take some steps which
I consider to be relatively modest and relatively straightforward. The
one I want to focus on is the exemption of CRA, the CRA requirement for
institutions that have $100 million or less in aggregate assets.
I want to share with the Senate the reaction of banks from my home
State that have been contacted about this. And this is their
information. This is not some professor at some university. This is the
everyday banker doing business in the everyday community. And I will go
beyond simply quoting the letters because I want to put it in context
so you can understand the market.
I have said around here before--and undoubtedly in the spirit of the
Senate where there is no such thing as repetition--I will say, again,
that if I could control what we engrave in the marble around here to
remind us of our duty--not to denigrate the marvelous phrases
[[Page S4775]]
that are here--I would have engraved in stone, at least in our
committee rooms, the phrase: ``You cannot repeal the law of supply and
demand.''
We try to do that continually in Congress. We try to think that
markets do not matter, that governments are smarter than markets, that
governments can make decisions that interfere with the law of supply
and demand and produce beneficial results with no side effects. People
have been trying to do that in government not only for centuries but
for millennia. And they always fail.
Here are the market realities with respect to CRA.
I first quote from a letter of the Cache Valley Bank. No one in this
Chamber knows where Cache Valley is; but I know where Cache Valley is.
I have spent a lot of time there. My family has done business there. We
have owned a business there. The president of the Cache Valley Bank
says in his letter:
Our community is a middle class farming community with a
university. Most all of our customers are of modest income,
small businesses and small farms. The rich professionals have
gravitated to the local credit unions where they know they
can get something for nothing.
That last sentence indicates how he feels about the competitive
impact of credit unions in Cache Valley.
He says:
We are chartered to serve our community. We have no
business going outside our community. We live off the ability
to say we are a hometown institution.
Let me underscore that last sentence again. ``We live off the ability
to say we are a hometown institution.''
In Cache Valley, there are branches of large banks, large banks that
are located someplace else. There are, as an earlier somewhat sarcastic
comment indicated, credit unions. They happen to be very large credit
unions. We have some of the largest credit unions in the United States
in Utah because of Utah's law. There is competition in Cache Valley for
the banking customer.
How does he deal with that competition? He says:
My bank is . . . a $90 million institution operating from
one office . . .
One office--so he does not have branches around the city. The credit
union does. He does not have the reach of advertising that the large
banks which are there as his competition do. He has one office. And he
makes his living advertising himself as a hometown institution.
This, in marketing, is what is known as a marketing niche. He
recognizes that he cannot compete with the big banks throughout the
entire city. He recognizes that he has a particular niche in the market
that he can fill, and he goes after it and he fills it.
He says:
We do what the CRA regulation intended us to do because it
makes good sense. The documentation and time spent telling
the regulators that that is what we do is just wasted by both
us and the regulators. I have never had a customer come in
and ask to see our CRA file.
Then, with the optimism that comes from every small businessman, he
says:
As I will probably [pass] the $100 million proposed limit
some day, I can see that not having to comply would give
smaller institutions a slight advantage from costs they would
save. The real issue is if the whole rule for community
oriented institutions makes any sense. It doesn't and no one
has provided any evidence that it does.
He is not operating in a vacuum. He is not operating in a situation
where there is no credit available to anybody else if he does not serve
his niche. He is operating in a highly competitive situation, and yet
he is examined as if he is the only institution, and he is looked at in
terms of his lending to his market niche.
All right. Let me go down the highway a little from Cache Valley to
the First National Bank of Morgan. This is a smaller bank. This is a
smaller community. The president of this bank says that they have $37
million in current assets. They serve a county, the population of which
is approximately 7,000. In Utah, given our family size, a total
population of 7,000 means that there are probably about 2,000 families
there. I do not know how many of those are borrowers. This is a
relatively small base for him to serve.
Once again, while it is an isolated farming community, in today's
modern world there is competition there. The big banks can go after his
customers on the Internet if they want. They can open ATM stations or
put branches there, if they want. There is a big bank just down the
highway, within 20 miles of this small institution. How does he survive
under these competitive conditions? He survives by serving the
community. This is what he has to say:
Exempting our institution from CRA requirements would allow
bank personnel to spend more time with our customers in
developing new products rather than gathering information to
satisfy CRA documentation requirements. Competition is the
greatest enforcer of CRA. The delivery of financial services
is a highly competitive business. If my institution is not
offering free checking or mortgage loans, then my competitor
down the road will be taking advantage of my financial
institution's shortcomings.
I think he is absolutely right. In today's competitive world, you do
not operate in a vacuum. If he wasn't doing his job, even though he is
in a small, rural community, with Internet banking and advertising over
television, the large institutions would come in.
It is interesting, again, referring to Utah's somewhat unique
situation, in many communities where the local bank was perceived as
having something of a monopoly or a free ride in the community because
of the physical isolation, it was not another bank that came in to
offer competition; it was a credit union, operating under Utah's credit
union laws. The competition produced the kinds of challenges that
competition always produces. Once again, you cannot repeal the law of
supply and demand. If there was demand in that community that was not
being met by the local institution, competition came in and met it.
Now, a little further down the highway, I want to refer to the
Frontier Bank of Park City. Here the president of the bank says:
As president of a nonmetropolitan community bank, I am of
the opinion that existing CRA regulations are largely
superfluous for both my institution and its direct
competitors. The fact remains that we have and will continue
to lend to all segments of our community because it is good
business, not because it has been defined by regulation.
Additionally, the time spent documenting our community
lending efforts for regulatory purposes is in itself
counterproductive as we could instead redirect our energies
towards additional lending and community development
activities.
An interesting quote, Mr. President. He feels that CRA gets in the
way of community developing activities that he would otherwise engage
in.
When I first went on the Banking Committee, some 6 years ago, I had
never heard of the CRA. I heard at that time institutions coming in and
complaining that the CRA documentation burden was overwhelming and that
CRA had become more of a documentation issue than it had been a lending
issue, that if they could fill out the documents in such a way as to
satisfy the regulators, it didn't matter what their lending practices
were.
We had some testimony--I can't go back and put my hand on it now--
that made it clear that CRA was failing in its purpose to produce a
meaningful impact for those in need in communities where they were not
getting served.
I am hoping that the reforms established by Secretary Rubin have
begun to lift that burden and change that situation, but I am satisfied
now that we have enough evidence that indicates that the vast majority
of small banks with capitalization under $100 million are spending
their time on CRA, filling out documents and meeting with regulators,
spending their time performing the bureaucratic chores necessary to
file a report, where they could be spending their time better serving
their communities.
Therefore, I will vote to see to it that the language that was
adopted in the committee report remains there. I will oppose the Bryan
amendment.
Mr. LEVIN. Mr. President, I rise to speak about the Community
Reinvestment Act. The CRA was enacted in 1977 to encourage banks to
serve the credit needs of the entire community including low and middle
income areas. The obligations that banks owe to the entire community
stem from their charters and the public benefits they receive through
the Federal Reserve. The CRA is a way to encourage banks to live up to
their public obligation.
Nationwide the CRA has been recognized as an effective way to
increase credit availability in underserved
[[Page S4776]]
areas. In his testimony before the House Banking Committee in February,
Federal Reserve Chairman Greenspan remarked, that the CRA has ``very
significantly increased the amount of credit in communities'' and the
changes have been ``quite profound.'' In 1997 alone, almost 2,000 banks
and thrifts reported $64 billion in CRA loans, including 525,000 small
business loans worth $34 billion; 213,000 small farm loans totaling $11
billion; and 25,000 community development loans totaling $19 billion.
Those loans went to affordable housing projects, economic development
through financing small businesses or farms, and activities that
revitalize or stabilize low or moderate income areas. CRA has also
encouraged a dramatic increase in home ownership by low and moderate
income individuals. Between 1993 and 1997, private sector conventional
home mortgage lending in low and moderate income census tracts
increased by 45%.
And the CRA has done so without forcing a large paperwork burden onto
banks and without forcing banks to make bad loans. During the same
House hearing, Chairman Greenspan alluded to the mutual benefit of the
CRA to consumers and banks when he said, ``CRA has helped financial
institutions to discover new markets that may have been underserved
before.''
While there are countless examples of the Act's effectiveness in
encouraging lending in underserved areas all over the country. Here's
some examples from Michigan. Lake Osceola State Bank in Baldwin just
completed their CRA exam under the reformed 1996 regulations. They said
it was not a burden, and they received a rating of outstanding. Under
the terms of S. 900, the bill before us today, Lake Osceola State Bank
would qualify for an exemption from the CRA because of their size and
location, but the bank has told my office that they are not seeking a
CRA exemption. To the contrary, they are justifiably proud of the
contributions they are making to community development in the Baldwin
area.
We Care, Inc. is a small non-profit that rehabilitates a few houses a
year in Detroit's Van Dyke and 7 Mile area. They say the CRA and
National City Bank have been their life-line for credit.
Northwest Detroit Neighborhood Development, Inc. is yet another
nonprofit organization that has contacted me in support of the CRA.
They praised the National Bank of Detroit and Comerica for extending
credit to them and supporting their mission of homebuilding in the
Brightmore area of Detroit.
The Local Initiatives Support Corporation (LISC), a nationally
prominent community development group that operates in five Michigan
cities, considers the CRA critical to their efforts. In an effort to
boost their CRA scores, lenders have sought out groups like LISC and
the Neighborhood Reinvestment Corporation to develop ``shared risk''
loan pools that offer financing to first time home buyers. Over the
past 5 years, more than 400 mortgages were written in six Michigan
cities. This has generated over $16 million in direct public and
private investment in central city neighborhoods. According to LISC,
without the CRA ``these types of programs would not have been
established.'' Other Michigan community development groups like U-SNAP-
BAC, SWAN and New Hope also rely on loans encouraged by the CRA.
Many Michigan mayors have expressed their support for the CRA. They
praise the CRA for encouraging private business investment and creating
new jobs and businesses in their communities. In addition, money from
federal grants is leveraged to obtain millions of dollars in private
investment. There are twelve mayors from all over Michigan on this
letter from the U.S. Conference of Mayors supporting the CRA. I oppose
the provisions weakening the CRA included in S. 900, a bill intended to
modernize the financial sector of our economy. Both small and large
banks in Michigan have received outstanding CRA ratings. The community
groups and nonprofits make great use of the resources which are made
available through the CRA. The federal independent agency that oversees
the nation's banking system says its not onerous and has been very
successful. Therefore, I will not support a bill that weakens a program
that has been so important to community development efforts in Michigan
and nationally.
Mr. KOHL. Mr. President, I rise in strong support of the Bryan
amendment. While my comments today will be brief, my conviction on the
issue of the Community Reinvestment Act (CRA) is strong.
CRA came into being in 1977 thanks to my Wisconsin colleague, Senator
Bill Proxmire. While there's been talk of CRA as merely an urban
concern, in fact, it has enriched and addressed inequities in both
urban and rural areas in Wisconsin and across the country. We are all
familiar with the numbers--more than $1 trillion in community
development, small business and home mortgage loans--to communities
that were once deemed unworthy.
CRA has been, and remains, vital to our common efforts of ensuring
that credit is extended to all Americans without prejudice. But CRA
lending has also proven that the ability and willpower of a borrower is
often just as important, if not more important, than a loan
determination based solely on income or economic history. In other
words, new and innovative lending inspired by CRA has promoted
fairness, but also made good business sense and delivered profits to
lending institutions. And, fortunately, we've made substantial progress
at making CRA compliance less burdensome.
While impressive, this progress has not reduced the need for an
effective CRA. In 1977, Senator Proxmire's legislation was timely and
appropriate, but in 1999, it has proven timeless and visionary. We are
contemplating an era of more diversified, and potentially bigger,
actors in the financial marketplace--one in which vigilance to ensure
fair lending is all the more important. Overall, with adequate safety
and soundness protections and an effective CRA, this new financial
marketplace will yield benefits for consumers--more financial products
delivered more conveniently and rapidly and at a better price.
I strongly support financial modernization and want to help send a
signable, bipartisan and well-balanced piece of legislation to the
President's desk. Last year, we secured a compromise bill that passed
out of Committee by a vote of 16 to 2 that would have had my support.
It is regrettable that this year we find this legislation and the
financial industry held hostage to a counterproductive agenda to scale
back CRA.
Financial modernization is about moving forward, paving the way for
marketplace innovation and consumer benefits. But Senator Gramm's bill
and his proposed CRA restrictions move us backward. I urge my
colleagues to support the Bryan amendment and ensure that CRA will
remain strong and viable for all American communities, whether urban or
rural, in the new financial era that we hope to create.
Mr. HARKIN. Mr. President, I rise today in strong support for
preserving current law with regard to the Community Reinvestment Act
(CRA) and striking the provisions of S. 900 which will harm this
important and worthwhile program. CRA was enacted in 1977 to help
prevent ``redlining'' of poor neighborhoods by banks, which denied
loans to residents and businesses in those areas.
For more than twenty years, CRA has been a key means of increasing
capital and credit to underdeveloped areas through market based loans.
CRA has created jobs and contributed to the economic revitalization of
many depressed urban and rural areas. It has been a force for the
capital needed to increase home ownership and business development. CRA
has contributed greatly toward the revitalization of many areas,
helping to generate an estimated one trillion dollars in lending over
22 years. Put simply, CRA is good public policy.
Mr. President, community groups, housing groups, farm groups,
minority groups, civil rights groups, mayors and rural organizations
all support a vibrant CRA and are opposed to S. 900's CRA provisions.
In my State of Iowa, many rural residents remain in desperate need of
affordable capital, especially during the farm crisis gripping the mid-
West. Under S. 900, as it is now written, 276 of the 325 banks and
thrifts in rural Iowa counties would be exempt from CRA requirements.
That's 85 percent of all the
[[Page S4777]]
rural banks in Iowa. If the provision exempting banks under 100 million
dollars in assets remains, the benefits of CRA would not be available
to a large share of the rural communities in Iowa.
I have here a letter from the Iowa Coalition for Housing and the
Homeless, which describes the importance CRA has for our communities.
It reads, in part, ``Through increasing the access to capital and
credit, CRA provides a market-based solution for economic
revitalization and even job creation. A strong and vibrant CRA has
meant that hundreds of billions worth of new home mortgage loans and
small business loans have been made in low and moderate income, urban
and rural communities throughout the country in the past several
years.''
I ask unanimous consent that the text of this letter be printed in
the Record.
The PRESIDING OFFICER. Without objection, so ordered.
(See Exhibit 1.)
Mr. HARKIN. Mr. President, I would just like to mention briefly the
CRA reforms already in place to protect small and rural banks. In 1995,
new regulations dramatically simplified the CRA exam process for small
banks under 250 million dollars in assets. Under the new rules, small
banks are not subject to the lending, investment and service tests
applied to large institutions. Additionally, for small banks, examiners
look at only five factors: loan to deposit ratio; percentage of loans
inside bank's CRA assessment area; record of lending to borrowers of
different income levels and businesses of different sizes; geographic
distribution of loans; and a bank's record of taking action in response
to written complaints about its CRA performance. Finally, small banks
are not subject to any data collection requirements for CRA. So, we
have already addressed these issues. This Senator would certainly
welcome hearings on the current state of those reforms and their
effectiveness. In fact, I would ask the Banking Chairman to consider
holding such hearings on CRA before we make changes to an important and
effective program.
Mr. President, CRA has provided jobs, helped our economy to grow, and
ensured all of our citizens are considered for loans based on their
financial history, not their address. I urge all my colleagues to
support removal of these provisions.
Exhibit 1
Iowa Coalition for Housing
and the Homeless,
Des Moines, IA, May 3, 1999.
Rep. Tom Latham,
Cannon House Office Building,
Washington, D.C.
Dear Congressman Latham: As organizations that work with
and on behalf of low-income and homeless individuals, we join
today to share our concerns regarding the proposed financial
modernization legislation currently being considered in
Congress. By combating discrimination and promoting bank-
community partnerships, the Community Reinvestment Act (CRA)
extends the American dream of home and small business
ownership to millions of Americans. Without this sustained
access to capital and credit, our neighborhoods die. We ask
that you support a strong CRA and the benefits it has brought
our communities.
Through increasing the access to capital and credit, CRA
provides a market-based solution for economic revitalization
and even job creation. A strong and vibrant CRA has meant
that hundreds of billions worth of new home mortgage loans
and small business loans have been made in the low- and
moderate-income urban and rural communities throughout the
country in the past several years. Any bill that threatens to
eviscerate the effectiveness and application of CRA will only
destroy this promotion of wealth creation and entrepreneurial
development in minority and working-class neighborhoods.
While the various versions of financial modernization that
have been introduced and contemplated may not directly attack
CRA, they will eventually undermine the law by preventing its
evolution with the rapid changes in the financial industry.
The current versions of financial modernization only
demonstrate its fundamental problem: the ability of financial
conglomerates to offer loans through their holding company
affiliates, without having to conform to CRA requirements.
Stated simply, holding companies will be able to shift assets
from CRA-covered banks to mortgage and insurance companies,
securities firms, and other institutions exempt from CRA-like
requirements. Banks, therefore, will be left with fewer
resources with which to make affordable housing economic
development, and small business loans. If any financial
modernization bill fails to extend CRA to the lending and
bank services activities of mortgage companies and other
non-depository affiliates, CRA will cover an ever-
shrinking amount of traditional banking products and
services.
In addition to the expansion of CRA, financial
modernization could further serve low-income consumers if it
improved upon data disclosure requirements. Such data
disclosure requirements help communities identify missed
market opportunities and eliminate discriminatory practices.
These requirements help leverage reinvestment by making
financial institutions publicly accountable to serve all
borrowers in a fair and equitable manner. Insurance companies
and others affiliating with banks should be required to
report data on policies and services issued by income and
race and small business data should include the race and
gender of the borrower as well as the neighborhood in which
the business is located.
We would also urge you to fight attempts to directly attack
or weaken CRA; specifically, proposals such as safe harbors,
small bank exemptions, and ``anti-greenmail'' bills or
amendments. Mergers and acquisitions can disrupt the lives of
thousands of citizens in a community through job losses,
closing of offices, decreases in lending, and higher fees.
CRA reviews are critical to ensure that lenders involved in
mergers can preserve their CRA performance after such
enormous institutional changes. Moreover, affected citizens
ought to have the right to speak up and have their concerns
addressed before a merger application is approved, regardless
of the pre-merger CRA ratings.
Small bank exemptions would also be extremely harmful to
communities because they eliminate community reinvestment
requirements for most of the banks in the country. Small
towns and rural areas that depend on these banks for home and
small business lending would only suffer a new round of
credit and capital flight. as proposed, the current
legislation would exempt small rural banks under $100 million
in assets from CRA altogether. Almost 40% of all lenders in
the country will then have no obligation to serve minority
and working-class neighborhoods. Seventy-two percent of all
rural banks would be exempt from CRA. In Iowa, this exemption
would include 85% of the lenders in non-metropolitan areas,
many of whom enjoy a near monopoly in their service areas.
It would be detrimental to the wealth-building efforts in
this country to pass a financial modernization bill that
would halt community reinvestment progress by failing to keep
CRA on pace with the evolution in the financial industry.
Congress has required that banks serve ``the convenience and
needs'' of the communities in which they are chartered
because of the vital role they play in our lives. We believe
that this same standard should be applied to the entire
financial industry. A financial modernization bill that
carefully modernizes the Community Reinvestment Act to the
entire financial industry could have a profound effect in
democratizing access to credit and capital accumulation tools
in our society. Clearly, that would be good for America.
Sincerely,
Sandi Murphy,
Policy Director.
The organizations listed below support the position of the
Iowa Coalition for Housing and the Homeless and strongly
encourage you to oppose the current financial modernization
legislation and demand a strong, and protected, CRA.
John Boyne, United Action for Youth, Street Outreach, Iowa
City.
Crissy Canganelli, Emergency Housing Project of Iowa City.
Jan Capaccioli, Domestic Violence Intervention Program.
Amy Covreia, Iowa City, Iowa.
Mike Coverdale, Iowa Community Action Network.
Bill Holvoet, Southeast Iowa Community Action.
Greg Jaudon, Iowa Homeless Youth Centers.
Gene Jones, Des Moines Coalition for the Homeless.
Mike Kratz, Veteran Affairs Medical Center.
Lora J. Morgan, Goodwill Industries of S.E. Iowa.
Mark Patton, Muscatine Center for Strategic Action.
Linda Severson, Johnson County LHCB.
Lisa Wageman, Operation Threshold, Waterloo.
____
Mr. REED. Mr. President, I rise in strong support of the Bryan CRA
amendment. This amendment would strike the small bank exemption and the
CRA safe harbor provisions included in S. 900 and require banks to have
a ``satisfactory'' CRA rating as a condition for engaging in the
expanded powers allowed under this bill.
The language of this amendment is similar to language that was
included in the financial modernization bill which passed the House and
Senate Banking Committee by a vote of 16 to 2 last year and which
enjoyed broad industry support. Similar language has also been
incorporated in the H.R. 10 bill that recently passed the House Banking
Committee and is pending in the House Commerce Committee.
In short, the Community Reinvestment Act requires financial
institutions to meet the credit needs of the
[[Page S4778]]
local communities in which they are chartered, including low- and
moderate-income communities, consistent with safe and sound practices.
Let me reiterate, CRA requires banks to make credit-worthy loans. It
does not require banks to make bad loans.
Despite this fact, some have argued that CRA is tantamount to
government-mandated credit allocation. Nothing could be further from
the truth. Neither the Act nor its regulations specify the number of
loans, the type of loans, or the parties to CRA loans. To the contrary,
CRA relies on market forces and private sector ingenuity to promote
community lending. This is evidenced by the tremendous flexibility that
financial institutions have in satisfying CRA. For example, loans to
low-income individuals; loans to nonprofits serving primarily low- and
moderate-income housing needs; loans to financial intermediaries such
as Community Development Financial Institutions; and loans to local,
state, and tribal governments may qualify for CRA coverage. Moreover,
loans to finance environmental clean-up or redevelop industrial sites
in low- and moderate-income areas also qualify as CRA loans.
In addition to lending, CRA is satisfied through investments by
financial institutions in organizations engaged in affordable housing
rehabilitation, and facilities that promote community development such
as child care centers, homeless centers, and soup kitchens.
Even Federal Reserve Chairman Alan Greenspan has weighed in on this
issue, arguing, ``The essential purpose of the CRA is to try to
encourage institutions who are not involved in areas where their own
self-interest is involved, in doing so. If you are indicating to an
institution that there is a foregone business opportunity in an area X
or loan product Y, that is not credit allocation. That, indeed, is
enhancing the market.''
As illustrated by these examples and Chairman Greenspan's comments,
it is clear that CRA is a far cry from government-mandated credit
allocation. To be sure, CRA is predicated on two simple assumptions
that were well-articulated by the legislative architect of CRA, former
Senate Banking Committee Chairman Proxmire, who stated, ``(1)
Government through tax revenues and public debt cannot and should not
provide more than a limited part of the capital required for local
housing and economic development needs. Financial institutions in our
free economic system must play the leading role, and (2) A public
charter for a bank or savings institution conveys numerous benefits and
it is fair for the public to ask something in return.''
In the words of former Comptroller of the Currency Eugene Ludwig,
``CRA is in many respects a model statute. It requires no public
subsidy, no private subsidy, and no massive Washington bureaucracy.''
It is this simple concept that has resulted in more than $1 trillion
in loan commitments for low- and moderate-income borrowers since CRA's
enactment in 1977. Indeed, the record home ownership rate that the U.S.
is now enjoying--66.3 percent of Americans own their homes--is in large
measure due to CRA lending to minorities and low-income individuals.
Minorities have accounted for a disproportionately large share of home
ownership growth since 1994--roughly 42 percent.
Also, since 1993, home mortgage loans to low- and moderate-income
census tracts have risen by 22 percent, which is more than twice as
fast as the rate of growth in all home mortgage loans. In view of these
statistics, it is clear that CRA has played a tremendous role in the
home ownership boom.
In addition to increases in home mortgage lending, CRA has also been
responsible for an increase in community development lending. In the
past four years, banks have invested four times as much in community
development projects, as they did in the previous thirty years.
This increased investment in community development by banks has also
furthered the evolution of a secondary market for community development
loans, which ultimately provides additional capital for community
development. For many years, the development of a secondary market for
community development loans had been limited. This development was
limited for a number of reasons including the lack of conformity in the
underlying loans, as well as the fact that community development
securities typically do not receive a rating from a nationally-
recognized rating agency. Also, the underlying loans lacked long-term
performance data, making them difficult to rate.
However, because of CRA, a secondary market for community development
securities is beginning to emerge. This is happening for two specific
reasons: (1) The federal banking regulators have interpreted CRA to
allow banks to get CRA credit for purchasing community development
securities, even if they lack ratings or performance data, if the
purchases are consistent with safe and sound banking practices, (2)
Also, as banks have increased their community development lending, they
have been able to draw on this experience to improve underwriting
standards and create greater conformity in underwriting, which is
important for investors in the secondary market. Also, this experience
has provided banks with greater empirical data on loan performance,
which is another important consideration for secondary market
investors. These are trends that we should clearly be excited about and
should seek to further.
Instead, S. 900 would undermine this progress. Specifically, one
provision of S. 900 would exempt rural banks with assets under $100
million from CRA. Although this exemption is limited to the smallest
institutions, over 76 percent of rural banks would be covered. This is
of great concern since small banks have historically received the
lowest CRA ratings. In fact, institutions with less than $100 million
in assets accounted for 92 percent of institutions receiving ``non-
compliance'' CRA ratings in 1997-1998.
I am also concerned about this exemption because smaller banks are
typically the primary sources of credit in rural communities. Hence,
absent CRA, it is likely that many rural communities could become
credit-starved.
The bill also includes a provision that would provide a safe harbor
for banks with a ``satisfactory'' or better CRA rating. Specifically,
institutions receiving a satisfactory CRA rating at their most recent
examination would be presumptively in compliance with CRA,
unless ``substantial verifiable information'' to the contrary was
presented. I am concerned about this provision because it establishes a
very difficult-to-satisfy burden of proof for individuals or groups
wishing to protest a bank merger on CRA grounds. Indeed, I fear this
provision will greatly inhibit the ability of groups to get the
necessary information from banks to protest a merger. Also, when
considering the fact that 97 percent of institutions receive a
satisfactory or better CRA rating, it is clear that this provision will
effectively eliminate CRA comment on a bank merger.
If these provisions of S. 900 are not eliminated, I fear a return to
the days prior to CRA's enactment when access to credit was limited for
many minorities and those living in low-income neighborhoods. In fact,
testimony before the Senate Banking Committee during the consideration
of CRA in 1977 revealed how bad things were. Witnesses recounted
stories of financial institutions that had previously been active in
urban lending, that disinvested in those same urban neighborhoods as
minorities increasingly moved in. Testimony before the Senate Banking
Committee also brought to light a 1974 study of six Chicago banks. In
the study, it was found that these banks, which held $144 million in
deposits from low-income and minority communities, returned one-half
cent on the dollar in home loans. Such was the deplorable state of
lending in low-income and minority communities before CRA.
While certainly we have come a long way since CRA's passage in 1977,
lending discrimination, unfortunately, persists. In a study published
earlier this year by the Fair Housing Council of Greater Washington, it
was revealed that Washington area lenders discriminate against two out
of five African American and Hispanic mortgage applicants. In one
incident cited in the study, a Rockville lender advised a black tester
that the lender did not make loans to first-time home buyers. The same
lender later met with a white tester, also posing as a first-time home
buyer, giving the tester an appointment and encouraging him to apply
for a mortgage loan. Lending studies by
[[Page S4779]]
other organizations reveal similar findings. These studies have shown
that minority borrowers receive fewer bank loans even when their
financial status is the same as or better than white borrowers.
By encouraging lenders to extend credit to all communities, CRA has
been an important weapon in fighting lending discrimination. The Bryan
amendment will ensure the potency of CRA in fighting lending
discrimination and providing fair access to credit to low-income and
minority communities.
In closing, Mr. President, let me reiterate how important it is to
include CRA in any modernization legislation that passes. It is very
likely that if S. 900 is enacted, we will see increased consolidation
in the financial services industry. As we know from recent experience,
this consolidation will likely lead to layoffs and bank branch
closings. Absent the CRA language included in the Bryan amendment, I
fear that this consolidation could have a significant and adverse
impact on access to banking services and credit in low-income and
minority communities. By adopting the Bryan amendment, we will at least
ensure that industry consolidation will not decrease access to credit
in these communities.
In fact, I feel so strongly about these provisions that I plan on
opposing the bill if this amendment is not adopted. I would hope my
colleagues can support this amendment.
Mrs. BOXER. I have been a longstanding supporter of financial
services modernization and affirmed such support in a letter to
Secretary Rubin about two years ago, and last year, as a member of the
Banking Committee, I voted in support of H.R. 10--the Financial
Services Modernization bill reported out of the Banking Committee with
strong bi-partisan support.
I believe it is important that our financial services sector adapt to
contemporary market conditions, marketplace innovations and to growing
financial competition from abroad. Moreover, I understand and
appreciate the desire of our financial services industries--banks,
securities firms, and insurance firms--to further expand their
traditional lines of business.
I joined the Banking Committee in 1993 when I was first elected to
the Senate, and I proudly served on that Committee until this year. So
I realize the process of financial services reform has been long,
tedious, and often quite contentious. I also realize that many
financial services firms are looking forward to the Senate putting an
end to that long process by passing a financial services modernization
bill. And I would like to see us pass a good bill--a fair and balanced
bill.
Nonetheless, it is important to remember that the U.S. already has
the best banking system in the world. It is the best capitalized, the
most transparent, has the highest accounting standards, is very
innovative and its safety and soundness is unsurpassed.
Therefore, it is appropriate to ask, ``why is financial services
modernization necessary?'' It is necessary because the financial
marketplace has changed, brought on by, among other things, a
combination of new and innovative products and services, as well as
technological advances.
Regulators must keep pace with these innovations, and we, as
legislators must set the appropriate parameters for this changed
financial services marketplace. We cannot leave it up to piecemeal
regulation and legislation as, all to often, has been the case.
Our goal should be to create a regulatory framework which provides
measurable benefits to consumers and businesses, enhances
competitiveness of the financial services sector on a global basis, and
ensures the continued safety and soundness of our financial
institutions. While the bill before us goes a long way toward achieving
that goal, unfortunately I believe, it falls short.
It falls short, principally in my opinion, because it fails to ensure
the continued strength of the Community Reinvestment Act. CRA has been
invaluable in helping to assure low and moderate income consumers,
communities and small businesses have sufficient access to credit.
The Community Reinvestment Act has been important to both urban and
rural communities. Every CRA dollar is a loan--it is the leveraging of
capital. Over the past seven years or so, approximately $400 billion of
community development has been leveraged. It has proven to be
an effective tool in my home state of California and in states
throughout the country.
CRA encourages federally insured financial institutions to help meet
the credit needs of the communities in which they do business. As
Senator Proxmire said in 1974, ``CRA is intended to establish a system
of regulatory incentives to encourage banks and savings institutions to
more effectively meet the credit needs of the localities they are
chartered to serve, consistent with sound lending practices.''
CRA does not, despite many implications to the contrary, impose any
requirement upon banks to make unsound or unsafe loans. CRA does not
require banks to engage in risky lending or investments. It does not
require banks to make loans outside of the lending criteria they have
established. I would suggest, in fact, that given how well banks are
doing these days, one would be hard pressed to make a reasonable case
that CRA has been detrimental to the bottom line of banks or to their
safety and soundness.
I think it is wonderful banks are doing so well, I appreciate the
contributions they are making to our economy. I remember all too well
when banks were not doing so well. Thus, I would not support CRA, or
any other requirement, which encouraged banks to engage in unsafe
lending practices.
My specific concerns as relate to the CRA provisions in this bill are
as follows. First, as I understand it, there are no enforcement
mechanisms or penalties for failing to maintain a ``satisfactory'' CRA
rating. By contrast, the bill passed last year by the Senate Banking
Committee required all banks in a holding company structure to have a
satisfactory CRA rating as a condition of affiliation, and maintain a
satisfactory CRA rating in order to continue to engage in new financial
activities.
Second, this bill provides for a CRA ``safe harbor.'' Under this
provision, all institutions which received at least a satisfactory CRA
rating on their most recent examination, and received a satisfactory
rating in each of the past 3 years, would be deemed to be in compliance
with CRA. Such a safe harbor, I believe, would often effectively
eliminate the opportunity for public comment. Banks and thrifts are
usually examined every two to three years. CRA performance can change
in the interim.
Third, S. 900 exempts those banks with less assets of less than $100
million, and those that are not located in metropolitan areas, from
CRA. While I think we can all agree that institutions with assets of
less than $100 million are small, the amendment would exempt more than
75 percent of rural institutions from CRA requirements--that is almost
40 percent of all U.S. banks and thrifts. Ironically, I would note, it
has traditionally been these smaller institutions that have had the
worst CRA records. Moreover, the new CRA rules, which went into effect
in January 1996, provide a streamlined examination for banks and
thrifts with assets less than $250 million. In fact, pursuant to the
changes which took effect in 1996, small banks do not have any data
collection or reporting requirements.
I do not believe the CRA changes envisioned in S. 900 are
appropriate, or needed at this time. If there are abuses or specific
problems, let's deal with them--let regulators, and, if appropriate,
law enforcement deal with them. Such abuses are hurtful to CRA and to
those who can potentially benefit from CRA. These abuses, I would
suggest however, are extraordinarily rare. On the whole, bankers have
found CRA to be an extremely minimal intrusion at most.
CRA has not been a problem to most bankers in my home state of
California. BankAmerica, Wells Fargo and others have made important CRA
commitments in my state.
Between 1992 and 1997, BankAmerica made $3 billion in conventional
small business loans and lines of credit for less than $50,000. In
1997, it made more than $1 billion in loans and lines of credit for
$100,000 or less. And BankAmerica has often noted their CRA loans have
performed as well as other more traditional loans made by the bank.
These loans have also been profitable for the bank. In fact, Hugh
[[Page S4780]]
McColl, the Chairman and CEO of BankAmerica Corp. has said, ``My
company supports the Community Reinvestment Act both in spirit and in
fact. We have had fun doing it. We've made a business out of it.''
Moreover, in Los Angeles, as a result of CRA, loans to African
American owned businesses increased a whopping 171 percent between 1992
and 1997. However, it is important to note that small business owners
of every race have obtained credit as a result of CRA-related programs.
For example, in San Diego, at least 25 percent of the loans made by
local community development organizations were to white business
owners.
So Mr. President, although I am a enthusiastic supporter of financial
services modernization, I cannot support S. 900 if the CRA provisions
contained in the bill are maintained. Access to capital and economic
development, I believe, will potentially be some of the most important
tools available to low and moderate income Americans in the coming
century. Without such access to capital, far too many Americans,
particularly those in urban and rural areas, will not be able to share
in the economic wealth of our remarkably exuberant economy.
Mr. SARBANES addressed the Chair.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, I have refrained from speaking all day.
I do need to speak for a brief period of time, but I want to try to
accommodate colleagues as well. If I can inquire of Senator Schumer,
how much time would he need to speak, 5 minutes or thereabouts?
Mr. SCHUMER. Yes, that would be fine.
Mr. SARBANES. And Senator Shelby?
Mr. SHELBY. About 10.
Mr. SARBANES. I would like to propound a request that Senator Schumer
be allowed to speak and then Senator Shelby and then after Senator
Shelby that I would be recognized.
Mr. GRAMM. Could we add to it that, after the Senator from Maryland,
I be recognized?
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from New York.
Mr. SCHUMER. Mr. President, I thank my friend, the Senator from
Maryland, as well as the Senators from Alabama and Texas for their
courtesy here this evening.
I also thank Senator Sarbanes for his indefatigable efforts to defend
the Community Reinvestment Act.
And I'd like to thank my Democratic colleagues as well as Secretary
Rubin for their strong commitment to CRA.
In 1977 when CRA was enacted, the thinking was that banks--though
privately owned--receive public benefits in the form of deposit
insurance and access to the Federal Reserve's discount window and
payments system.
And in return, they would have an obligation to ``serve the
convenience and needs'' of their communities.
Over 20 years later, banks still CRA as an obligation--but as an
obligation that a minimum they can live with--and in many cases, that
they endorse.
Does CRA work?
The answer has been a resounding yes.
Since its enactment, CRA has resulted in $1 trillion of investments
in underserved communities. It's been a driving force for community
economic development; one of the best ways to bring people together, to
bring poor people and people of color upward, which we all want to do.
It's also driven a 30 percent increase in home ownership among low-
income families since 1990, making the American Dream of home ownership
a more commonplace reality for our minority communities.
And in 1997, large banks and thrifts made approximately 525,000 small
business loans totaling $34 billion to entrepreneurs located in low and
moderate communities.
CRA works.
And we know it works because banks who have never been shy in
fighting what they view as burdensome or intrusive Federal regulation
are not pushing to repeal CRA or even to roll it back.
In fact, they're supporting it. Every major bank in my State has
contacted me in favor of CRA.
Some have been honest enough to admit that because of CRA they are
reaching out to communities that they would not otherwise have served.
And they're serving them profitably.
Hugh McColl, Jr., Chairman and CEO of BankAmerica Corp., stated
earlier this year; ``My company supports the Community Reinvestment Act
in spirit and in fact. To be candid, we have gone way beyond its
requirements * * *. We're quite happy living with the existing rules.''
A Federal Reserve study showed that banks with higher volumes of
loans to low-income communities were on average more profitable than
those with a lower volume.
And we know that banks have had some of their most profitable years
even as CRA loans have reached record heights.
Finally, our regulators, who are committed to ensuring the safety and
soundness of our financial institutions, have been very vocal in their
support of CRA.
So there's more evidence that CRA has been effective in communities'
edification than in any invidious exploitation of banks, as some of its
critics have been charging.
The question is, then, with everyone in support of CRA, why do we
want to throw away our best chance to pass financial modernization
solely to end a law that we know is working?
The President has stated very clearly that with these CRA provisions,
this bill will end in veto. His veto letter states:
We cannot support the ``Financial Services Modernization
Act of 1999'' * * *. In its current form, the bill would
undermine the effectiveness of the Community Reinvestment Act
(CRA), a law that has helped to build homes, create jobs, and
restore hope in communities across America. The CRA is
working, and we must preserve its vitality as we write the
financial constitution for the 21st Century.
Contrary to what many think, this amendment does not expand CRA. It
simply maintains the status quo.
First, it requires that banks have at least a ``satisfactory'' CRA
rating as a precondition for affiliation with securities and insurance
firms. Today our insured depository institutions have this obligation.
And 97 percent of them meet it. They meet it precisely because it is
not a tremendous burden.
Second, this amendment would remove the small bank exemption that
narrowly passed the Banking Committee. Small banks account for 70
percent of the ``needs improvement'' ratings handed out to banks by the
regulators last year. So the idea that we should exempt the
institutions that are most likely to be in noncompliance seems ill-
advised.
Finally, the amendment eliminates the safe harbor provisions in the
Committee print. The safe harbor sets up an unnecessary burden of proof
that is simply unnecessary.
In sum, these provisions would restore CRA to today's potency.
As I said yesterday, I say, it is my hope that we can set aside our
partisanship for the sake of pragmatism.
And set aside confrontation for the sake of compromise.
Mr. President, I strongly support this amendment, and I urge my
colleagues to support it.
A vote for this amendment is a vote for modernization.
The PRESIDING OFFICER. The Senator from Alabama is recognized.
Mr. SHELBY. Mr. President, I rise in opposition to the Bryan CRA
amendment. This amendment not only strikes the small rural bank
exemption that we have in the Banking Committee bill and that we
adopted on a bipartisan vote, but it also replaces that language with a
significant expansion in CRA--the same language Chairman Gramm and I
vehemently opposed on the Senate floor this past year.
Community banks, as the Presiding Officer knows, by their very
nature, serve the needs of their communities and do not need a
burdensome Government mandate to force them to allocate credit or to
originate profitable loans. And, contrary to the assertions of critics,
there is no evidence whatsoever that the small bank exemption would
have ``devastating consequences'' for low- and moderate-income rural
communities. There remains no documented evidence to prove such an
assertion, just as there is no tangible evidence that CRA has ever
helped rural communities in America.
What is documented, though--and Chairman Gramm has worked tirelessly
to do so--is the kinds of blackmail agreements and extortion practices
[[Page S4781]]
that the Community Reinvestment Act enables community groups to engage
in. The truth of the matter is that the small bank exemption would
exempt less than 3 percent of bank assets nationwide. Thus, 97 percent
of all bank assets would still be subject to the Community Reinvestment
Act.
Just bear with me a minute on this chart. We have bank assets of
$5.711 trillion. But banks above $100 million, rural and nonrural,
control 97 percent of the bank assets in America. The small banks in
America that we are talking about, those under $100 million in assets--
there are 3,667 of them--control only $165 billion, or 2.9 percent of
all the banking assets. Can you imagine? BankAmerica, for example, has
$614 billion in assets. And I commend them for that. They are a well-
run bank. But that is more than all 3,667 small rural banks in America
put together; it is about 4 times more. So let's look at this in a
realistic situation, as this chart here depicts.
Mr. President, critics will point out that the small rural bank
exemption which I and Senator Gramm have in the bill would exempt 3,700
banks. That is true. But to put that into context again, and to
reiterate, one needs to understand that BankAmerica, as I have just
shown, is four times the size of all small rural banks in America.
Indeed, BankAmerica possesses $614 billion in assets, or 10.7 percent
of all bank assets in this country. If one looks at the list of large
banks, one will soon realize that the vast majority of bank assets are
concentrated in the large, multibillion-dollar banks that can most
easily shoulder the burden of CRA.
The assertions of those who oppose the small bank exemption that we
have in the banking legislation also do not comport with the comments I
have received from small banks across the country. In fact, I have many
letters from small bankers who complain about the burden of CRA, as
well as the regulators' subjective reporting requirements dealing with
CRA.
I would like to take a moment to read some letters from some small
bankers in Alabama. I believe they have a right to be heard. I will
quote from some of these. The first one says:
I don't think, in these small community banks, that we have
to be examined by people who usually don't understand our
purpose, to enforce us to service our community * * *.
Small community banks are a Service Institution. I know
because I have just completed 39 years this month. All
this time in small home-owned banks that deliver services
that are essential to rural life. Where services have been
rendered over the years even before we knew anything about
CRA.
That was from Charles Willmon, chairman of the First Bank of the
South in the small town of Rainsville, AL.
I have another letter, from John Mullins, president and CEO of First
Commercial Bank of Cullman, AL, which says:
Exempting small banks would be a wonderful opportunity for
me to spend less time on unnecessary and nonproductive
paperwork and more time helping the citizens of my market
area improve their financial well-being . . . CRA examiners
spend many unnecessary hours examining our loan track record.
Banks our size are an integral part of the local community
and we are always sensitive to the needs of our citizens.
They are not faceless names, but people whom we know. We
don't need a law to require us to help them with credit, we
do it anyway.
I have another letter from a small banker in Clanton, AL. He is
Leland Howard, Jr., of Peoples Southern Bank. He says:
We in the community banks feel that the CRA exception for
banks with aggregate assets of $100 million or less is a very
good start on the road to easing the regulatory burden.
I have a letter from John Hughes, CEO of First National Bank of
Hartford, AL, a small town in south Alabama. He says:
Extra work created by the CRA is tremendous. Most rural
banks know at least 95 percent of all their customers, their
family, and their situation. The rating system that most
examiners used is highly subjective and the rural banks have
a hard time to achieve a grade higher than satisfactory.
Again, it would be a great day in Alabama if you . . . could
get this amendment passed.
Those are just a few letters, and they come from all over the Nation.
Mr. President, the Federal Reserve Bank of Richmond published its
1994 annual report on ``Neighborhoods and Banking,'' where it reported
its findings on the costs of CRA. The report found:
The regulatory burden [of CRA] would fall on bank-dependent
borrowers in the form of higher loan rates and on bank-
dependent savers in the form of lower deposit rates. And to
the extent that lending induced by the CRA regulations
increases the risk exposure of the deposit insurance funds,
taxpayers who ultimately back those funds bear some of the
burden as well.
The report goes on to say that, basically, the CRA imposes a tax on
banks. CRA, then, is a tax on community banks and raises the costs of
inputs to banks by increasing their regulatory burden and compliance
costs. Mr. President, in addition, CRA forces banks to make loans
according to a Federal quota, increasing the risks, and therefore the
costs, of borrowing to consumers. Make no mistake about it, the
Community Reinvestment Act raises the cost of borrowing through higher
loan rates and punishes savers in the form of lower savings rates.
Critics of the small bank exemption claim that small banks get the
worst CRA ratings. The truth of the matter is that one size does not
fit all in any business. These critics point to lower than average
loan-to-deposit ratios of small banks as evidence that they are not
serving their communities. That is nonsense. That is like saying the
average male wears a size 42 regular suit and that every male in
America who does not fit in that size suit should be reprimanded by the
Federal Government.
Every community in this great country is different. Most of us take
pride in such diversity. That is the foundation on which this country
was built.
However, the Community Reinvestment Act punishes banks who do not
comport with national averages. Indeed, the loan demand in Prattville,
AL, is not the same as in Lafayette, LA. Nor is it the same as in
Shelbyville, TN. Nonetheless, CRA judges banks based largely on their
loan-to-deposit ratios that the regulators deem to be appropriate.
That, my friends, is nothing but a quota. When everything is said and
done, CRA promotes quotas and creates a regulatory burden.
As if that is not bad enough, Mr. President, the Bryan amendment
would also expand the reach and the scope of the Community Reinvestment
Act.
Specifically his amendment would:
One, increase administrative enforcement authority of the regulators
to fine directors and officers up to $1 million a day for CRA
noncompliance. Just think about that.
Two, it would make expanded activities subject to CRA compliance on
all depository institution affiliates on an ongoing basis.
And it would give the regulators the authority to shut down any
affiliate within the holding company if just one subsidiary depository
institution falls out of CRA compliance.
The Bryan amendment dramatically expands, Mr. President, CRA
enforcement authority to allow civil money penalties for bank directors
and officers, as I have pointed out.
The amendment would require bank holding companies who seek to become
financial holding companies to be compliant with the Community
Reinvestment Act of 1977 just in order to be eligible. If even one
subsidiary depository institution ever falls out of compliance, the
holding company, including the nonbank affiliate, would then be subject
to section 8 of the Federal Deposit Insurance Act, which is 12 U.S.C.
1818, which authorizes bank regulators to invoke cease and desist
orders, civil penalties, and fines.
Regulators would be authorized to fine bank directors and officers up
to $1 million a day. This, Mr. President, is a dramatic expansion in
the enforcement authority and reach of bank regulators.
Such authority does not exist today. The Clinton Justice Department
even agrees.
In late 1994, Comptroller of the Currency, Eugene Ludwig, tried to
invoke the administrative enforcement powers under Section 8 of FDIA
(12 U.S.C. 1818) to enforce CRA. The Justice Department issued a
memorandum stating:
[T]o move from an enforcement scheme that relies upon a
system of regulatory incentives to a scheme that entails
cease-and-desist orders and potentially substantial monetary
penalties is a leap that we do not believe can be justified
on the basis of the text, purpose, and legislative history of
CRA. We therefore conclude that enforcement under 12 U.S.C.
1818 is not authorized by CRA.
[[Page S4782]]
Bank trade associations were very pleased with the Justice Department
decision. The Bankers Roundtable, the American Bankers Association, the
Consumer Bankers Association, and the Savings and Community Bankers of
America, filed joint letters focusing in substantial part on the
regulators claims of enforcement authority.
The Bryan amendment also permits regulators to force divestiture
since banks cannot ``retain shares of any company'' if ever out of CRA
compliance. This provision also explicitly states that a bank holding
company may not ``engage in any activity'' unless the institution is
CRA compliant always and forever.
Think about it.
If just one subsidiary depository institution of a financial holding
company falls out of compliance with CRA, the substitute authorizes the
Federal Reserve Board to ``impose such limitations on the conduct or
activities of the company or any affiliate of the company as the Board
determines to be appropriate * * * '' This, too, is a dramatic
expansion of enforcement authority under CRA. For the first time,
regulators will be able to impose restrictions on activities throughout
the entire holding company. This means a bank regulator could prohibit
a securities affiliate from underwriting securities or an insurance
affiliate from underwriting insurance.
Regulators do not have such authority today. Currently, CRA only
allows regulators to prohibit the merger, acquisition or branch
expansion of an institution that is not compliant with CRA.
Current law does not give bank regulators the authority to prohibit
eligible activities of a given charter due to CRA non-compliance. The
Bryan amendment requires an operating subsidiary who wants to engage in
agency activities to maintain CRA compliance on all depository
institution affiliates.
Thus, non-banking financial agency activities would be held hostage
to CRA, with the bank regulators given the authority to enforce such
law. This is the first time CRA has ever been expanded to cover the
approval of non-depository activities.
I urge my colleagues to vote against the Bryan amendment and support
what is in the bill.
I yield the floor.
Mr. SARBANES addressed the Chair.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, shortly we will be voting with respect
to the Bryan amendment.
I, again, want to underscore the very strong and powerful statement
which I think Senator Bryan made shortly after noon at the outset of
this debate, and I am deeply appreciative to him for the strong
leadership he has shown with respect to this amendment.
We have tried to give all Members a chance to speak. I, in fact, have
refrained from doing so in the course of the day in order to make sure
that our colleagues had a chance to speak. I would like to take just a
few minutes now.
I want to speak in support of the amendment. But I really do not want
to repeat a lot of the extensive discussion of the issues which have
taken place, both during opening statements on the bill, and on the
alternative amendment, and now on this amendment itself, although they
may well bear repeating.
I want to make sure my colleagues appreciate the intense feeling and
the critical importance which civil rights groups, mayors, rural
groups, Hispanic groups, and Native American groups attach to this
issue of CRA. They have all sent letters to the committee.
I ask unanimous consent those letters be printed in the Record at the
conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 1.)
Mr. SARBANES. Mr. President, these letters reflect how CRA has
benefited communities all over this country--small, urban, and rural.
They demonstrate how CRA has expanded economic opportunities for people
of all races, colors, and ethnic affiliations.
Yesterday morning, the Leadership Conference on Civil Rights, our
preeminent civil rights group, held a press conference in support of
CRA. I would like briefly just to quote some of the comments made by
civil rights leaders at the press conference, as well as comments made
by individuals who benefited from CRA.
Dr. Dorothy Height, chairman of the Leadership Conference on Civil
Rights, president emeritus of the National Council of Negro Women,
spoke, and said:
Since its enactment in 1977, the Community Reinvestment Act
has served as one of the crowning achievements in the civil
rights movement.
The premise of the legislation is simple--to make sure that
economic opportunity for families and communities is
available to every American.
Opportunities for home ownership, small business
development, and sustaining rural communities are critical to
the strength of this Nation.
With CRA our neighborhoods have a chance. Without it, they
are discriminated against.
Just as civil rights legislation enacted a decade ago
sought to break down the walls of discrimination that
separated us in schools, restaurants, and places of work by
the color of our skin, the CRA has meant opportunity for
everyone, whatever race or color. As a result of CRA,
millions of minorities across this Nation now have access to
the capital that will allow them to build new homes, to
create new businesses, and to improve education.
She concluded her introductory remarks at the press conference by
saying:
Leaders you see before you represent dozens of
organizations galvanized by an assault on the Community
Reinvestment Act. Those organizations represent millions of
Americans who have been touched by CRA and millions more
who deserve the same opportunity.
Make no mistake about it, this issue is seen by the civil rights
community as a critical civil rights issue. Fair access to credit is
fundamental to hopes for economic progress in our minority communities.
Another speaker at the press conference was Hugh Price, president of
the National Urban League, who said:
We of the National Urban League strongly support financial
services modernization because we believe it is in tune with
the times. But we staunchly oppose any effort to gut the CRA.
We at the Urban League work with the leaders of many
financial institutions. Just last week I talked with Kenny
Lewis, president of Bank America, who said that his bank
stands strongly behind the renewal of CRA.
I know that belief is echoed by many leaders in the financial
services and banking community who see it as good business for their
corporations.
Charles Kamasaki, senior vice president of the National Council of La
Raza, stated:
The National Council of La Raza is the Nation's largest
Hispanic civil rights organization. We represent more than
200 local community-based organizations who provide a range
of services, many of them supported by CRA-related funds in
over 32 States.
Mr. Kamasaki, the head of the National Council of La Raza, introduced
Richard Farias as president of the Tejano Center for Community Concerns
in Houston, a member organization of La Raza. Mr. Farias stated, in
speaking of the importance of CRA:
Now because of CRA, a number of banks in Houston created a
consortium to help us purchase a $2.1 million school
building. The building has 7.5 acres and 80,000 square feet
of space, including a gymnasium, a cafeteria, an auditorium
and 25 classrooms. They now have a charter school for success
that houses 400 students and is expected to grow to 650
students.
He goes on to say that it is very important to understand that CRA is
not just about community development; it is about empowerment of the
people; it is about being able to give low-income children and families
the right that they have to not only good housing but to good education
and to good health services.
Daphne Kwok, executive director of the Organization of Chinese
Americans, also took part in the press conference. She stated that the
Organization of Chinese Americans supports the Community Reinvestment
Act because it has enabled home ownership among minority and low- and
moderate-income individuals:
Asian Pacific-Americans, especially Chinese-Americans,
Korean-Americans, Vietnamese-Americans, Asian Indian-
Americans are small business owners, and many of them are
seeking to open up businesses in low and moderate income
areas.
JoAnn Chase, executive director of the National Congress of American
Indians, then spoke and stated:
Founded in 1944, the National Congress of American Indians
is the oldest, largest and most representative national
organization
[[Page S4783]]
devoted to promoting and protecting the rights of American
Indian tribal governments and their citizens. One of our key
missions has been to continuously advocate for Indian self
determination and self sufficiency, and toward that end from
its very inception, our communities, our governments, our
people have supported the Community Reinvestment Act, which
has proven to be an effective means of encouraging federally
insured financial institutions to extend prudent and
profitable loans in traditionally underserved areas,
particularly in Indian country.
Specifically, the CRA has helped focus attention to the
challenges of extending credit to reservations and has acted
as a catalyst to reservation-based economic development.
Since the implementation of the CRA, Native American
governments and citizens and our own banks have negotiated
agreements for lending more than $155 million within the
Indian country which has substantially advanced efforts
toward economic self-sufficiency. It is a law that has helped
build homes for our people, has inspired hope and has created
jobs in many native communities.
The final speaker at the press conference was Hillary Shelton,
Washington bureau director of the NAACP, who stated:
* * * on behalf of the NAACP * * * we are honored to
strongly support and continue to endorse the Community
Reinvestment Act and consequently oppose any attempts to
weaken it.
The CRA has been instrumental in the revitalization of
literally tens of thousands of communities nationwide, and
continues to be an important tool in the NAACP's ongoing
efforts to help people and communities achieve the goals of
community resurrection, development, and growth, at no cost
to American taxpayers.
Mr. President, there has been printed in the Record a letter from the
U.S. Conference of Mayors which was quoted from earlier, a letter from
a coalition of 19 family farm and rural groups, which states:
Rural areas continue to suffer from a serious shortage of
affordable housing. Farmers are facing the worst financial
conditions in more than a decade due to declining commodity
prices. Rural Americans continue to need the tools of the CRA
to ensure accountability of their local lending institutions.
CRA helps to meet the credit demands of millions of family
farmers, rural residents and local businesses.
Mr. President, I ask unanimous consent to have printed in the Record
other letters from a number of organizations which have written to us
in very strong support of the CRA, as well as editorials.
There being no objection, the material ordered to be printed in the
Record, as follows:
Mischief From Mr. Gramm
Cities that were in drastic decline 20 years ago are
experiencing rebirth, thanks to new homeowners who are
transforming neighborhoods of transients into places where
families have a stake in what happens. The renaissance is due
in part to the Federal Community Reinvestment Act, which
requires banks to reinvest actively in depressed and minority
areas that were historically written off. Senator Phil Gramm
of Texas now wants to weaken the Reinvestment Act,
encouraging a return to the bad old days, when banks took
everyone's deposits but lent them only to the affluent.
Sensible members of Congress need to keep the measure intact.
The act was passed in 1977. Until then, prospective home or
business owners in many communities had little chance of
landing loans even from banks where they kept money on
deposit. But according to the National Community Reinvestment
Coalition, banks have committed more than $1 trillion to
once-neglected neighborhoods since the act was passed, the
vast majority of it in the last six years.
In New York City's South Bronx neighborhood, the money has
turned burned-out areas into havens for affordable homes and
a new middle class. The banks earn less on community-based
loans than on corporate business. But the most civic-minded
banks have accepted this reduced revenue as a cost of doing
business--and as a reasonable sacrifice for keeping the
surrounding communities strong.
Federal bank examiners can block mergers or expansions for
banks that fail to achieve a satisfactory Community
Reinvestment Act rating. The Senate proposal that Mr. Gramm
supports would exempt banks with assets of less than $100
million from their obligations under the act. That would
include 65 percent of all banks. The Senate bill would also
dramatically curtail the community's right to expose what it
consider unfair practices. Without Federal pressure, however,
the amount of money flowing to poorer neighborhoods would
drop substantially, undermining the urban recovery.
Mr. Gramm argues that community groups are ``extorting''
money from banks in return for approval, and describes the
required paperwork as odious. But community organizations
that build affordable housing in Mr. Gramm's home state
heartily disagree. Mayor Ron Kirk of Dallas disagrees as
well, and told the Dallas Morning News that he welcomed the
opportunity to explain to Mr. Gramm that ``there is no
downside to investing in all parts of our community.''
In a perfect world, lending practices would be fair and the
Reinvestment Act would be unnecessary. But without Federal
pressure the country would return to the era of redlining,
when communities cut off from capital withered and died.
____
[From the Washington Post, May 4, 1999]
Banking on Reform
The Senate today is scheduled to begin considering a bill
that would remake the financial services industry, allowing
banks and insurance companies and investment firms to merge
and compete. Similar legislation is making its way through
the House. The thrust of both bills is sound. But while the
industries have lobbied hard to shape a law satisfactory to
them, the current legislation doesn't adequately protect low-
income communities or consumers' privacy. Financial
modernization should apply to them, too.
Since the Depression, federal law has sought to keep the
banking, insurance and securities industries separate. The
idea, in part, was to make sure that federally insured bank
deposits didn't wind up somewhere risky and unregulated. But
in recent years, even without a change in the law, that
separation has eroded. Banks have found ways to offer mutual
funds to their customers; investment firms function like
deposit institutions; etc. It makes sense now to bring
legislation--and regulation--in line with reality.
Congress has been trying to do so, and failing, for more
than a decade, and may again. But on the major issues, the
administration, the Federal Reserve and Congress have pretty
well agreed. They would let the financial services industries
meld while for the most part keeping them out of other
businesses, a wise decision. They've come up with fire walls
and regulatory schemes that, while still not entirely agreed
upon, have satisfied most concerns about protecting federally
insured deposits.
But there is no consensus yet on safeguarding the interests
of underserved communities. Since 1977 federally insured
banks have been subject to the Community Reinvestment Act,
requiring them to seek business opportunities in poor areas
as well as middle-class and wealthy neighborhoods. The law, a
response originally to clear evidence of bias in lending, has
worked well. It doesn't force banks to make unprofitable
loans, but it encourages them to look beyond traditional
customers, and it's had a beneficial effect on home ownership
and small-business lending.
Sen. Phil Gramm, chairman of the Banking Committee, now
wants to scale the law way back. He argues that community
groups use it to extort money from banks; there's scant
evidence for that. The real danger is that, with financial
modernization, banks will gradually escape their community
obligations by transferring capital to affiliates that aren't
covered by the law. The law should be extended and modernized
to keep pace with a changing industry.
Consumer privacy also could be in danger as barriers among
industries break down. An example: Should your life insurance
medical records be shipped over, without your knowledge, to
the loan officer considering your mortgage application? Sen.
Paul Sarbanes of Maryland and Rep. Ed Markey of
Massachusetts, among others, would give consumers more
control over the sale and sharing of personal data. As the
financial industry moves into a new era, privacy laws should
also keep pace.
____
Jesuit Conference, The Society of Jesus in the United
States.
Washington, DC, March 3, 1999.
Hon. Paul Sarbanes,
Seante Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
Dear Senator Sarbanes: We are writing you on behalf of the
Jesuit Conference Board of the Society of Jesus in the United
States. With the House and Senate Banking Committees
scheduled to mark-up financial modernization legislation this
week and vigorous discussions already underway we call your
urgent attention to the status of the Community Reinvestment
Act (CRA) in this debate. We urge your vocal and
unconditional support for safeguarding and effectively
applying CRA to any proposed financial modernization
legislation. By maximizing the capital available to
undeserved urban and rural areas, CRA has proven to be an
exceptional means of promoting vital and sustainable
communities. CRA should be allowed to continue its invaluable
work.
There are approximately 4,000 U.S. Jesuit priests and
brothers working abroad and in our domestic projects which
include: 28 Jesuit-affiliated universities and colleges, more
than 50 Jesuit high schools and middle schools, nearly 100
Jesuit parishes, and various other apostolic programs
throughout the country. We have an overriding commitment to
empower individuals, families and communities who are most
at-risk in our society. In essential ways, CRA enables these
marginalized groups to fully integrate into society.
Propelled by a mission of justice and social progress,
Jesuit institutions have CRA-type goals of investing in the
communities where they are located. For example, Fordham
University is situated in one of the poorest urban counties
in the nation. In 1983, Fordham formalized a long-standing
partnership
[[Page S4784]]
with the Northwest Bronx Community and Clergy Coalition to
form the University Neighborhood Housing Corporation (UNHP).
UNHP believes in working aggressively to develop and preserve
innovative, community-controlled, affordable housing. With
the strength and leverage of CRA, UNHP, has built a positive,
working relationship with Chase Manhattan Bank. From the late
1980s, this relationship has resulted in millions of dollars
of capital for affordable housing and economic development in
the northwest Bronx. Recently, this successful partnership
yielded $25 million in housing rehabilitation funding from
Fannie Mae. The force of community leaders working with
university, banking and Fannie Mae representatives is not
merely a lifeline for the northwest Bronx; it has added self-
sustaining stability and growth to an historically
distressed, densely populated neighborhood. This is one
example of an estimated $1 trillion in CRA-leveraged
financial commitments since 1977.
We ask for your continued support for national economic
development policies which equip people with the means to
lead respectful and dignified lives. CRA is in the interest
of underserved communities; it is in the interest of our
Jesuit institutions; and it is in our collective, national
interest.
Thank you for your consideration and efforts.
Sincerely,
Rev. Richard Ryscavage, S.J.,
Secretary, Jesuit Social & International Ministries.
Ms. British Robinson,
National Director, Jesuit Social & International
Ministries.
____
Department of Social Development
and World Peace
Washington DC, March 4, 1999.
Hon. Paul Sarbanes,
Banking, Housing, and Urban Affairs Committee, U.S. Senate,
Washington, DC.
Dear Senator Sarbanes: I write to ask that you oppose any
provisions in the Financial Services Act of 1999 that may
eliminate consumer protections and/or dilute the fair lending
laws.
The United States Catholic Conference has vigorously
supported the disclosure of lending patterns since 1975 and
was one of the original supporters of the Home Mortgage
Disclosure Act. We believe people must have access to
information about the lending practices and patterns of the
financial institutions in their communities that are seeking
their business. In the past banks, mortgage companies,
insurance brokers and other financial institutions have
discriminated against minority populations, low-income
individuals and the communities in which they live with
virtual impunity. The Community Reinvestment Act (CRA) and
the effective enforcement of its regulations have proved
significant tools in ensuring that financial institutions
meet the credit needs of the local communities in which they
are located, particularly by increasing the flow of credit to
low-income and minority communities.
Since 1977, CRA has channeled tens of billions of dollars
profitably back into rural and urban communities. This
success of local communities gaining access to private
capital should not be jeopardized. Communities and
neighborhoods need the investment of private capital
particularly as government curtails its spending on housing
and social services programs and local communities are being
asked to assume more responsibility for their own
development. Low and moderate income families of all races
and ethnicities have benefited from CRA with increased
opportunities to purchase homes, open small businesses or
operate farms.
As Congress seeks to modernize the banking and financial
industry, fair lending laws must not be undermined. Once
more, we urge you to oppose any efforts to diminish consumer
protections and to weaken fair lending laws.
Sincerely,
Cardinal Roser Mahony,
Archbishop of Los Angeles, Chairman, Domestic Policy
Committee.
____
National Low Income Housing
Coalition/LIHIS
Washington, DC, April 6, 1999.
Hon. Paul S. Sarbanes,
United States Senate, Washington, DC.
Dear Senator Sarbanes: On behalf of the National Low Income
Housing Coalition, I must express in the strongest terms
possible our objection to the evisceration of the Community
Reinvestment Act in the Financial Services Modernization Act
of 1999 recently reported out of the Senate Banking
Committee.
The National Low Income Housing Coalition represents
thousands of local housing organizations that are doing the
hard work at the local level to rebuild neighborhoods that
have been depleted by disinvestment, and to produce safe,
decent, and affordable housing for people at the low end of
the economic spectrum. These are organizations that are
masterful at the management of multiple funding streams,
bringing together the public and private resources required
to stimulate and produce new housing and economic development
initiatives at the local level. Each of our members can
attest to the necessity of the Community Reinvestment Act in
putting together the resources required to do the job we all
expect of them. At a time when responsibility for solving
serious community problems is being devolved to local
organizations, it is mystifying as to why one of their most
critical resource development tools would be pulled out from
underneath them.
Especially serious is the provision in the Senate bill
which allows banks not in compliance with CRA to expand their
affiliations and engage in new powers. This would essentially
render the CRA useless in the new world of financial
modernization.
We also object to the creation of so-called ``safe
harbors'' for institutions with at least a satisfactory CRA
rating, which in effect eliminates opportunity for public
comment on the community reinvestment activities of the
banks, while maintaining opportunity for public comment on
all other aspects of the institutions' functioning.
Finally, the small bank exemption would mean that rural
communities have no options for acquiring credit, as small
banks are often the only source of credit in many rural parts
of the country.
The Community Reinvestment Act is a model of the Federal
government at its best, stimulating investment in poor
neighborhoods and creating a true partnership among the
private, for profit sector; the private, not for profit
sector, and the public sector. As we move into an era of a
bigger and more comprehensive banking system, building on,
not tearing down, this core element of community reinvestment
should be an essential principle.
We urge that the Senate not take this action, and prevent
the dire consequences that would result in its wake of its
passage.
Sincerely,
Sheila Crowley,
President.
Mr. SARBANES. Mr. President, as I draw to a close, let me again say
to the distinguished Senator from Nevada we very much appreciate his
very strong and powerful statement.
Exhibit 1
April 8, 1999
Hon. Paul S. Sarbanes,
Senate Hart Office Building,
U.S. Senate, Washington, DC.
Dear Senator Sarbanes: The undersigned organizations write
to express strong opposition to the Financial Services
Modernization Act of 1999 as reported out of the Senate
Banking Committee on March 4th. The Act would restructure the
financial services industry in the United States by allowing
broad affiliations among banks, insurance companies, and
security firms. Currently, the law strictly limits ownership
among different financial entities and between financial
companies and commercial corporations. The Act seeks to ease
these restrictions, without commensurate expansion of the
Community Reinvestment Act (CRA) to cover insurance
companies, securities firms, mortgage companies, and other
financial entities allowed to affiliate with banks. The Act
would undermine one of the most effective revitalization
vehicles for underserved low-income and minority communities,
including Hispanic American communities across the country.
We have found, and research confirms, that all too often
the credit and financial needs of these communities are
severely underserved. Historically, many financial
institutions have avoided investing in these communities due
to their perceived higher level of risk. Unfortunately,
``perceived higher level of risk'' is often code for ``low-
income'' or ``minority.'' But the facts show that low-income
and minority communities are not inherently riskier than
other communities. In fact, most financial institutions find
them to be quite profitable, once they begin investing in
them. Unfortunately, without the CRA, many financial
institutions have not and would not be encouraged to do so.
As the data show, Hispanics are the fastest-growing
population in the United States. We are a growing force in
the expansion of homeownership and small business
development, two leading indicators of the economic well-
being of this country. For example, between 1987 and 1992,
Hispanic-owned business grew by over 76%, compared to 26% for
U.S. businesses overall. According to a 1997 Harvard study,
``the number of Hispanic homeowners has shown the most
spectacular rise'' in recent years compared to that of Whites
and of other minority groups. Population projections forecast
Hispanics to be the largest minority group in the U.S. by the
year 2005, causing the U.S. economy to be increasingly
dependent on the continued prosperity of the Hispanic
American community. Without the CRA, this growth may be
impeded.
As reported out of the Senate Banking Committee, the
Financial Services Modernization Act of 1999 would hinder
that growth by weakening the CRA in the following three ways.
First, ``satisfactory'' CRA rating is not required in order
for financial institutions to enjoy the new powers
afforded to them by the legislation, thereby allowing
banks to exercise their privilege, even if they are not
meeting the credit needs of the communities where they do
business.
Second, banks receiving a ``satisfactory'' CRA rating would
be given a ``safe harbor'' from public comment on CRA
performance. Since over 95% of banks receive a
``satisfactory'' rating, this would undermine the
effectiveness of the law by restricting a community's right
to voice its experience with
[[Page S4785]]
banks. While a ``satisfactory'' rating provides a helpful
guide to a bank's overall performance, it may not provide an
accurate picture at the neighborhood level.
Third, the Act proposes to exempt all small rural banks
(those with less than $100 million in assets) from CRA,
thereby releasing 76% of all rural banks from their CRA
obligations. As with the safe harbor provision, this
undermines the spirit and the effectiveness of the law by
exempting most rural banks. This would have particularly
adverse consequences in low-income rural communities where
often the only source of credit is a small bank. Moreover,
researchers have found that small banks have
disproportionately poor CRA records compared to larger banks,
thereby highlighting the need for CRA in rural communities
and small towns.
CRA is one of the strongest incentives to encourage
investment in low-income and minority communities. Over the
last twenty-two years, neighborhoods across the country have
benefited from CRA-encouraged investments. This has resulted
in increases in homeownership and business development,
leading to the rebirth of many American neighborhoods.
However, many communities remain underserved by capital and
investment vehicles. For this reason, reinforcement, not
weakening, of CRA is critically needed. We urge you to
support the continued strengthening of America's communities
by vigorously opposing the Financial Services Modernization
Act of 1999 as reported out of Committee, and supporting
amendments that would strengthen the Bill's CRA protections.
Thank you.
Sincerely,
Rick Dovalina, National President, League of United Latin
American Citizens; Arturo Vargas, Executive Director,
NALEO Educational Fund; Ruth Pagani, Executive
Director, National Hispanic Housing Council (NHHC);
Juan Figueroa, President and General Counsel, Puerto
Rican Legal Defense and Education Fund (PRLDEF);
Antonia Hernandez, President and General Counsel,
MALDEF; Raul Yzaguirre, President and Chief Executive
Officer, National Council of La Raza (NCLR); Manuel
Mirabal, President and Chief Executive Officer,
National Puerto Rican Coalition (NPRC).
____
National Farmers Union,
Washington, DC, March 24, 1999.
Dear Senator: On behalf of the 300,000 farm and ranch
families of the National Farmers Union, I write to express
our strong opposition to the Financial Services Modernization
Act of 1999, as reported out of the Senate Banking Committee
earlier this month. Specifically, we are concerned that the
bill would undercut the Community Reinvestment Act (CRA)--a
law that has significantly expanded access to credit in rural
communities across the nation.
The Community Reinvestment Act prohibits redlining, and
encourages banks to make affordable mortgage, small farm and
small business loans. Under the impetus of CRA, banks and
thrifts made $11 billion in farm loans in 1997. CRA loans
assisted small farmers in obtaining credit for operating
expenses, livestock and real estate purchases. Low- and
moderate-income residents in rural communities also benefited
from $2.8 billion in small business loans in 1997.
In 1999, access to credit is tighter than usual, making it
critical to maintain the CRA. There are three provisions in
the pending legislation that jeopardize the CRA.
First, the bill exempts banks and thrifts that are located
in rural areas and have less than $100 million in assets,
from CRA requirements. This provision would exempt 76 percent
of all banks and thrifts in rural communities. A
Congressional Research Service study of data from 1997 to
mid-1998 found that banks with less than $100 million in
assets receive 70 percent of the ``below satisfactory'' CRA
ratings.
Second, the banking bill fails to require that banks have a
satisfactory CRA rating in order to affiliate with securities
and insurance firms. In the absence of this requirement,
banks could ignore local credit needs in favor of expanding
to other areas.
Third, the bill has the effect of eliminating the public's
opportunity to comment on a bank's performance pending
expansion, if that bank has had a satisfactory CRA rating
during the previous 36 months.
There is no compelling reason to weaken the CRA. In fact,
CRA regulations were revised in 1995 to reduce compliance
burdens on small banks and allow for streamlined examination.
The CRA has been extremely successful in encouraging
financial institutions to help meet the credit needs of rural
communities across the nation. Therefore, we urge you to
oppose the Financial Services Modernization Act of 1999 until
the provisions against the CRA are removed.
Sincerely,
Leland Swenson,
President.
____
Small Business Administration,
Washington, DC, May 3, 1999.
Hon. Paul S. Sarbanes,
Ranking Member, Committee on Banking, Housing and Urban
Affairs, U.S. Senate, Washington, DC.
Dear Senator Sarbanes: I am writing to express my concern
with provisions of the Financial Services Modernization
legislation that would weaken the Community Reinvestment Act
(CRA). The President has made clear that he would veto
legislation that weakens CRA, and it is my hope that the U.S.
Senate will not move to undermine this important statute.
The CRA is a vital tool in providing access to capital in
communities traditionally underserved and once perceived as
high-risk lending areas. Financial institutions have found,
through CRA, that creditworthy borrowers and sound
investments do exist in these areas. The CRA has resulted in
viable small businesses creating jobs and stimulating local
economies. Without CRA, lending institutions might never
realize the maximum potential of these marketplaces, and many
communities could lose access to bank credit, which is so
important to small businesses.
The CRA focus for banks strikes at the heart of fulfilling
the U.S. Small Business Administration's (SBA) mission. SBA
is in the business of providing credit to those who cannot
obtain it elsewhere, and we do this largely through our
partners--local financial institutions. Everyday, SBA and
banks across the country help entire communities grow through
SBA-backed equity investments and guaranteed loans, many of
which fall under CRA goals. Additionally, studies analyzing
CRA data identify and quantify what would have been only
hunches just 4 years ago, and the result is a more accurate
depiction of the patterns and gaps of small business lending
across the Nation. The CRA is essential in meeting the credit
and investment needs of our America's small businesses.
Weakening CRA could reverse the progress we have made in
small business lending in this country. As you seek to
modernize the financial industry, I urge you to oppose any
provision that actually moves us back in time.
Sincerely,
Aida Alvarez
Administrator.
____
Chairman Greenspan Comments on CRA
``Anecdotal information seems to suggest that loans to low-
and moderate-income people perform, with respect to
repayment, as well as loans to others, though some studies
have suggested that delinquency rates on some types of
affordable mortgage loans are higher. . . . there is little
or no evidence that banks' safety and soundness have been
compromised by such lending, and bankers often report sound
business opportunities.''--January 12, 1998.
``When conducted properly by banks who are knowledgeable
about their local markets, who use this knowledge to develop
suitable products, and have adequately promoted those
products to the low- and moderate-income segments of the
community, CRA can be a safe, sound and profitable
business.''--May 17, 1995.
Chairman Greenspan noted during testimony before the House
Banking Committee on February 11, 1999 that CRA has ``very
significantly increased the amount of credit in communities''
that the changes have been ``quite profound.''
``CRA has helped financial institutions to discover new
markets that may have been underserved before.''--May 17,
1995 repeated January 12, 1998.
____
CRA Administration and Democratic Supporters
``We must pass a stronger Community Reinvestment Act that
challenges to lend to entrepreneurs and promotes development
projects that reinforce community and neighborhood goals.''--
Governor Bill Clinton and Senator Al Gore, ``Putting People
First,'' 1992.
``[T]he town banker is doing pretty well where you live--in
a big city or a small town. And yet, unbelievably enough,
when we are proving it is working, the Community Reinvestment
Act is under fire again.''--President Clinton to the U.S.
Conference of Mayors, January 29, 1999.
The CRA has ``helped to build homes, create jobs, and
restore hope in communities across America.''--President
Clinton, Letter to Senator Paul Sarbanes and Senator Phil
Gramm, March 2, 1999.
``We must protect the Community Reinvestment Act, which
expands access to capital from mainstream financial
institutions. We have greatly improved CRA by streamlining
its regulations so that they focus on performance, not
paperwork. CRA has been an enormous success.''--Treasury
Secretary Robert Rubin, Letter to Senator Phil Gramm,
February 1, 1999.
``It's very significantly increased the amount of credit
that's available in the communities, and if one looks at the
detailed statistics, some of the changes have been quite
profound.''--Federal Reserve Chairman Alan Greenspan,
Testimony before the House Banking and Financial Services
Committee, February 11, 1999.
``[C]redit is the key to the American dream. Without it,
people cannot share the tremendous wealth of our free market
system--cannot buy a home, own a car, or send a child to
college.''--Former Rep. Joseph Kennedy (D-MA), House Floor
Statement during the Debate on the Financial Institutions
Safety and Consumer Choice Act, November 1, 1991.
What Senator Gramm Has Said About CRA
``I believe that perhaps the greatest national scandal in
America . . . is a scandal
[[Page S4786]]
where a law is being used in such a way as to extract bribes
and kickbacks and in such a way as to mandate the transfer of
literally hundreds of millions of dollars and to misallocate
billions and tens of billions of dollars of credit.''--Senate
Floor Statement, October 5, 1998.
``[A]ll over the country banks that have exemplary records
in community lending and that have received the highest
ratings on CRA are routinely shaken down every time they want
to open a branch, every time they want to start a new bank,
every time they want to engage in a merger.''--Senate Floor
Statement, October 5, 1998.
``[CRA] 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.' ''--Senate Floor Statement,
September 30, 1998.
``Let this evil, like slavery in the pre-Civil War period,
let it exist, but do not expand it.''--Senate Banking
Committee Markup Hearing, September 11, 1998.
``CRA has since been corrupted into a system of legalized
extortion, often with the assistance of regulators. Moreover,
it has increasingly replaced market-directed financial
activity with politically directed and motivated channeling
of private sector financial resources. . . . This cronyizing
(sic) of the American economy is more typical of a third
world economy and will undoubtedly be damaging to our
national economic growth.''--Letter to Senate Committee on
the Budget, March 5, 1999.
____
The White House,
Washington, March 2, 1999.
Hon. Paul S. Sarbanes,
U.S. Senate, Washington, DC.
Dear Paul: This Administration has been a strong proponent
of financial legislation that would reduce costs and increase
access to financial services for consumers, businesses and
communities. Nevertheless, we cannot support the ``Financial
Services Modernization Act of 1999,'' as currently proposed
by Chairman Gramm, now pending before the Senate Banking
Committee.
In its current form, the bill would undermine the
effectiveness of the Community Reinvestment Act (CRA), a law
that has helped to build homes, create jobs, and restore hope
in communities across America. The CRA is working, and we
must preserve its vitality as we write the financial
constitution for the 21st Century. The bill would deny
financial services firms the freedom to organize themselves
in the way that best serves their customers, and prohibit a
structure with proven advantages for safety and soundness.
The bill would also provide inadequate consumer protections.
Finally, the bill could expand the ability of depository
institutions and nonfinancial firms to affiliate, at a time
when experience around the world suggests the need for
caution in this area.
I agree that reform of the laws governing our nation's
financial services industry would promote the public
interest. However, I will veto the Financial Services
Modernization Act if it is presented to me in its current
form.
Sincerely,
Bill Clinton.
____
National Association for the
Advancement of Colored People,
Washington, DC, March 2, 1999.
Re the Financial Services Modernization Act and the Community
Reinvestment Act.
Hon. Paul S. Sarbanes,
U.S. Senate, Washington, DC.
Dear Senator Sarbanes: The National Association for the
Advancement of Colored People (NAACP), the nation's oldest
and largest grassroots civil rights organization, strongly
supports the Community Reinvestment Act (CRA) and opposes any
attempts to weaken it. The CRA has been instrumental in the
revitalization of literally tens of thousands of communities
nationwide, and is an important tool in the NAACP's efforts
to help people and communities achieve their goals at no cost
to the taxpayer.
Through CRA, financial institutions are discovering that
there are benefits to working in and with low to moderate
income and minority communities. Since its enactment in 1977,
CRA has helped lenders tap into previously unchartered areas
and consequently they are learning what a viable, profitable
market the low-moderate and minority communities are.
One example of a CRA success story would be the NAACP's
Community Development and Resource Centers (CDRCs). The
NAACP, working together with NationsBank, opened our first
CDRC in 1992 in part to help NationsBank comply with CRA.
Since that time, NAACP-CDRCs have made mortgage, consumer and
small business loan referrals amounting to over $100 million,
and more than 10,000 individuals and businesses have received
counseling or technical assistance through CRDCs.
Due to the vital role the banking industry plays in the
success or failure of every American neighborhood, CRA is a
necessary tool for the sustained economic development of our
nation. Thus the NAACP urges you, in the strongest terms
possible, to oppose any amendments or bills that would in any
way weaken the effectiveness of CRA. The NAACP also urges
you, again in the strongest terms possible, to support any
move to expand or modernize CRA as the financial services
industry is allowed to change and grow. By not including CRA
in any restructuring of the financial services industry, you
would effectively be denying whole communities access to
much-needed mortgages, consumer or small business loans, or
basic financial assistance.
I hope that you will feel free to contact me if you have
any questions regarding the NAACP position on CRA, or if
there is any way that I can work with you to ensure that CRA
is allowed to continue to prosper and provide assistance to
people and communities across the nation.
Sincerely,
Hilary O. Shelton,
Director.
Mr. BRYAN. I note that the distinguished chairman wants to speak. The
Senator from Nevada would like to get 5 to 6 minutes at some point, if
that can be accommodated.
Mr. GRAMM. Mr. President, under the unanimous consent request, I was
to be recognized next.
I suggest we let Senator Mack speak for 4 minutes, have the
distinguished Senator from Nevada speak for 4 minutes, and then I will
speak for 4 minutes and we will be through. Would that work?
Mr. BRYAN. That is fine.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from Florida.
Mr. MACK. Mr. President, I thank Senator Gramm and the other Members
on the floor for this time. I will be brief.
I have spoken on this issue throughout my time in the Senate serving
on the Banking Committee which now is into its 11th year. I also make
these comments from the perspective of an individual who was president
of a small bank in southwest Florida for 5 years out of a 16-year
banking career.
One would think, listening to the comments that have been made by the
distinguished Senator from Maryland, that we were proposing to repeal
CRA. We are not proposing that at all. There may be Members who want to
do that, but that is not what the issue is about. The issue is about
regulatory overkill.
This little bank that I was president of had about $60 million in
assets--very small bank--in a community that was developed, one of
these Florida developments, that began in the late 1950s. To suggest
that this small community bank in a very well-defined and confined
market was not providing resources to that market is just absurd. If we
did not lend money into that market, we would, in fact, have gone
broke. So all I am suggesting is the amendment being proposed here is
being sold as if we were trying to repeal CRA. The information I have
is with the committee position: Only 2.8 percent of the total assets of
the banking industry in America are affected by this carve-out, 2.8
percent. There were 16,000 banks audited over a 9-year period and only
three of those banks--I am talking about small banks now--only three of
those banks were found to be significantly out of compliance.
Small banks in America need some regulatory relief. That is all we
are suggesting here. Again, my experience was this little bank of $60
million in assets had to assign one individual whose job it was to put
pins into a map in our market showing where we had made real estate
loans. That is all we had to do. But I had to assign one person to do
that. She had to put programs into effect in the bank to make sure we
were complying with lending to our community. It was the only place we
could have loaned.
So the idea that we needed to have the Community Reinvestment Act for
my bank and for small community banks is absurd. I ask my colleagues to
reject the amendment and to support the committee position.
I yield the remainder of my time.
The PRESIDING OFFICER. The Senator from Nevada.
Mr. BRYAN. I thank the chairman for accommodating me and allowing me
to speak for 4 minutes.
Let me say we had much debate and much discussion. There are
amendments on bills that come and go. They really do not impact the
overall outcome. This amendment is the most important amendment that
will be considered in this debate. If the Bryan amendment loses, we
convert what can be a bipartisan effort to get this legislation, which
I strongly support and supported in the last Congress--and it becomes
immediately a partisan vote, and that legislation has no chance in that
form of becoming law. Whatever
[[Page S4787]]
one's view is on CRA, and I understand we have widely different views,
I respectfully submit this is not the vehicle to make this the issue.
If, as the distinguished chairman and others have said, CRA needs to be
revisited, let's do so in the context of some type of other legislation
that is presently before the Banking Committee. We have had no hearings
at all on this.
The Bryan amendment does two very simple things. One, it retains the
current CRA provisions, including those provisions which relate to
small banks that eliminate their need to even file a report. All they
have to do is to point for the bank examiner and say the records are in
the file cabinet. They need do no more. So this is not, in my judgment,
an onerous burden.
And with respect to the new services that we permit banks to
participate in, if Secretary Rubin and other experts who are looking at
the banking field are correct, that is the wave of the future. If we do
not require CRA as the condition of availing oneself of these new
financial services, securities and insurance, in effect we marginalize
and relegate CRA to a much lesser role.
What is accomplished? Hundreds of millions of dollars have been
invested in the inner cities in our country. Thousands of minority
businesses have had an opportunity to participate, which they would not
otherwise have gotten, and home ownership opportunities have expanded
for literally millions of Americans. It would seem to me those are the
kind of issues we can agree on--Democrats, Republicans, conservatives
and liberals. CRA has accomplished much.
We have gone through this before. A year ago, we nearly got a bill.
It passed by a bipartisan majority in the House, with virtually the
identical provisions that relate to CRA as contained in the Bryan
amendment. It passed 16 to 2 out of the Banking Committee in this
session of Congress; in the House Banking Committee by a vote of 51 to
8. This legislation has progressed with, again, virtually the identical
provisions as it relates to CRA that the Bryan amendment contains.
So why are we going through this? The protagonists, the bankers, the
insurance companies and the securities industry, do not oppose this
legislation. We are going through this because our able chairman, whom
we all greatly respect, says he needs leverage in dealing with the
House. The last time I looked at the record of the composition of the
House, the Republican Party was in the majority. Among its leaders were
people such as Tom Delay and Dick Armey, not exactly what you would
call liberal exponents, bleeding-heart types.
It seems to me the argument that we need leverage makes no sense at
all.
Finally, let me say this may be the only opportunity in this Congress
to vote on a civil rights amendment, a process that has worked well and
has served the nation well. It is not objected to by those who are
struggling to reach the compromises on this piece of legislation. We
should enact the Bryan amendment and move forward and get this bill
over to the House, get it to conference and signed into law by the
President. We have that opportunity only if the Bryan amendment
prevails.
The PRESIDING OFFICER. The Senator's time has expired. The Senator
from Texas.
Mr. GRAMM. Mr. President, this has been a long debate and I think a
good debate. Rather than trying to go back and answer specific points
that have been made, and correct statements, let me just try to cut to
the heart of this. This is not about banks, even though the Independent
Bankers, the American Bankers Association, the Bankers Roundtable
oppose this amendment and support the underlying bill.
This is not about insurance companies. This is not about securities
companies. This is about right and wrong. I have presented today, from
redacted agreements, secret agreements that have been entered into by
community groups and banks, three examples, the only three we have,
where over and over again community groups are paid cash payments in
return for them withdrawing objections which they have made to banks
taking specific action, or where they have agreed not to raise an
objection.
So the first thing we are trying to do is bring integrity to the
process by preventing people, in essence, from paying witnesses. How do
we try to do that? We try to do it in the following way: If you are a
bank and you have an excellent CRA record, you have been in compliance
for three audits in a row and you are in compliance now--we do not in
any way limit the ability of anybody to object to that bank doing what
it has a right to do under law--all we are saying is you are innocent
until proven guilty if you have a long record of compliance. If you are
going to come in and prevent a bank from taking an action they have
earned the right to do based on audits on community lending, and you
come in and say they are racists, or they are loan sharks, that is not
enough. What we require is you present substantial evidence.
How is that defined? The Supreme Court defines substantial evidence
as ``more than a mere scintilla . . . such relevant evidence as a
reasonable mind might accept as adequate to support a claim.''
That is not a high standard. That is simply a credibility standard.
And all over America--we have professional protesters in Boston who are
protesting bank mergers in Illinois. What do they have to do with
community lending in Illinois? Nothing. But they file a protest. The
bank is deathly afraid of being held up in its merger, for example.
Obviously, they do not want to be called bad names by people who are
professionals at calling people bad names. So they end up paying these
groups cash. That is not right.
This is an issue of right and wrong. The second issue is the issue
relating to small banks. Little banks in rural communities in total
hold only 2 percent of the assets of banks, but in 16,300 audits of
these banks, each one of them on average cost the bank $80,000 to
comply with. They found three banks in 9 years that are substantially
out of compliance. They made these little banks pay $1.3 billion to
find three bad actors. And little banks all over America are threatened
by this regulatory burden. So we exempt them from it.
Mr. President, 44 percent of the enforcement effort is going to banks
with 2.8 percent of the capital. Take that enforcement effort and put
it where the money is and you will get more community lending, not
less.
Finally, it is not as if the Sarbanes amendment simply strikes our
provisions. But the Sarbanes amendment is the largest expansion of CRA
in American history.
It would impose a million-dollar-a-day fine on bank officers and
board members if they fell out of compliance. The American Bankers
Association and the Independent Bankers Association have urged us not
to do this, because they will not be able to get board members to serve
and they will not be able to hire officers if they have to buy
insurance to potentially pay a million-dollar-a-day fine if they fall
out of compliance with this regulation.
What is the justification for this regulatory overkill when you have
had three cases of substantial noncompliance out of 16,300 audits over
9 years? What is wrong with this picture?
What is wrong with the picture is, sadly, that many of our Democrat
colleagues have decided, even though the spokesman for CRA testifying
before our committee said, yes, there are abuses and, yes, they hurt
the process and, yes, there is what they call green mail. Most people
call it blackmail. But our colleagues have taken the extreme position
that not only will they not address these abuses, they are going to
vastly expand this to insurance, to securities and, with these million-
dollar-a-day fines, producing a situation where every abuse we are
concerned about today is going to be greatly expanded.
I urge our Democrat colleagues, if you support CRA, to help us bring
an end to these abuses. If you support CRA, end the regulatory
paperwork burden overkill so we can focus in this law on the real
problem. While groups claim we are endangering CRA, it is those who
will not fix clear wrongs that scream out that endanger it.
Mr. President, I move to table the pending amendment and ask for the
yeas and the nays.
The PRESIDING OFFICER (Mr. Brownback). Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion
[[Page S4788]]
to table amendment No. 303. The yeas and nays have been ordered. The
clerk will call the roll.
The legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
Mr. REID. I announce that the Senator from New Jersey (Mr.
Lautenberg) is necessarily absent.
I also announce that the Senator from Louisiana (Ms. Landrieu) is
absent attending a funeral.
I further announce that, if present and voting, the Senator from New
Jersey (Mr. Lautenberg) and the Senator from Louisiana (Ms. Landrieu)
would each vote ``no.''
The result was announced--yeas 52, nays 45, as follows:
[Rollcall Vote No. 101 Leg.]
YEAS--52
Abraham
Allard
Ashcroft
Bennett
Bond
Brownback
Bunning
Burns
Campbell
Chafee
Cochran
Collins
Coverdell
Craig
Crapo
DeWine
Domenici
Enzi
Frist
Gorton
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Helms
Hutchinson
Hutchison
Inhofe
Kyl
Lott
Lugar
Mack
McCain
McConnell
Murkowski
Nickles
Roberts
Roth
Santorum
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Stevens
Thomas
Thompson
Thurmond
Voinovich
Warner
NAYS--45
Akaka
Baucus
Bayh
Biden
Bingaman
Boxer
Breaux
Bryan
Byrd
Cleland
Conrad
Daschle
Dodd
Dorgan
Durbin
Edwards
Feingold
Feinstein
Graham
Harkin
Hollings
Inouye
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Leahy
Levin
Lieberman
Lincoln
Mikulski
Moynihan
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Schumer
Specter
Torricelli
Wellstone
Wyden
ANSWERED ``PRESENT''--1
Fitzgerald
NOT VOTING--2
Landrieu
Lautenberg
The motion was agreed to.
Mr. GRAMM. Mr. President, I move to reconsider the vote.
Mr. SARBANES. I move to lay that motion on the table.
The motion to table was agreed to.
Mr. BUNNING. Mr. President, I rise today in support of S. 900, which
will modernize our financial services laws.
If our financial industries are going to be able to compete in the
world market in the next century, we must modernize our depression-era
banking laws.
The next century is almost here. We all talk about a Y2K problem.
What about the antique banking law problem? Entering the new century
with antiquated banking laws would be foolhardy. We have to reform our
financial service system.
Most of the financial services and bank laws that are on the books
today are based on the Glass-Steagall Act, legislation passed in 1935,
over 60 years ago!
The world has changed a great deal since then, and it is going to
change further and faster as we move into the 21st century. We need to
update our outdated laws to account for this change and to give
flexibility to American companies.
At the same time, we must make sure that any bill we pass treats all
the segments of the financial industry fairly, and that there is a
level playing field for all of the groups involved.
If history is any indication, any new law we pass will be with us for
a long time, so we had better get it right.
We've been working to get it right for a long time. Eleven years ago,
when I was a member of the House Banking Committee, we were able to
report a financial services modernization bill to the floor.
Last year the House passed a bill and the Senate was able to pass a
bill out of committee.
As a Member of the House last year, I supported the bill that passed
by one vote in the House. It wasn't perfect. There were things I would
have liked to change.
But I believed at the time that we couldn't allow the search for
perfection to block real progress.
That's even more true this year.
We can talk about banking reform--and negotiate issues--for another
twelve years--and we won't ever be able to make everyone totally happy.
There are too many competing interests and too much complexity is
involved in the rapidly changing financial services industry for us
ever to find a regulatory framework that will completely satisfy all of
the players involved.
It's not going to happen.
At some point, we just have to do the best we can and move ahead. I'm
convinced we have reached that point now--we should pass this bill.
Fortunately, the bill our committee approved this year is even better
than the bills we considered last year. Chairman Gramm and his staff
did a good job--the committee did a good job.
It is time to move ahead.
We should pass a clean bill quickly and send a message to the other
body that we are serious about financial services reform.
This bill has many important provisions. And I'm not going to talk
about them all, but I would like to mention one issue in particular.
The one issue my bankers bring up every time they come to visit is
Community Reinvestment Act or CRA reform.
I am very pleased the chairman has agreed to put CRA provisions in
the bill and that we were able to pass Senator Shelby's amendment in
committee that will provide CRA relief, especially to small banks in my
State and across the Nation.
Senator Shelby's amendment will exempt 154 small banks in Kentucky
from Federal CRA burdens.
These banks have always invested in the community. That is where
their business is. A bank in Clinton, Kentucky does not lend in
Louisville or Lexington, it lends in Clinton.
I have a letter from Robert Black, president and CEO of the Clinton
Bank. Mr. Black says: ``We were using good CRA practices long before
the burdensome regulation was passed. This regulation is now requiring
much of our time preparing documentation and placing pins in a map just
to prove that we made loans in every community.''
I should mention that Clinton, Kentucky was not named after Bill
Clinton.
I would also like to read a passage from a letter from E.L. Williams,
president of the Citizens Deposit Bank of Arlington, in Arlington
Kentucky.
Mr. Williams states: ``In our opinion, the time and money afforded to
CRA compliance in small banks could be used to a much greater
advantage, such as lending and assisting the low to moderate income
population for which the CRA was originally implemented.''
These small banks will lend in their own communities with or without
CRA. They don't need Federal regulators breathing down their necks to
make sure they are doing what they would be doing anyway.
I would personally like to see even greater reform of CRA--across the
board--but our small banks really need and deserve relief and this bill
provides it.
In closing, Mr. President, I repeat that this bill is not perfect.
But it is a dramatic improvement over the antique financial laws we are
operating under now and it is a dramatic improvement over the Sarbanes
substitute.
We must enter the 21st century ready to compete and this bill will
make that possible.
It is a good bill--I urge my colleagues to support it.
____________________