[Congressional Record Volume 145, Number 65 (Thursday, May 6, 1999)]
[Senate]
[Pages S4830-S4839]
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. GRAMM. Mr. President, I ask unanimous consent that following the 
11:30 vote, Senator Johnson be recognized to offer an amendment related 
to thrifts, and, further, the time on the Johnson thrift amendment--
this is the unitary thrift amendment, for those who want to engage in 
the debate--that time on the Johnson thrift amendment, prior to the 
motion to table, be limited to 60 minutes, equally divided, and no 
amendment be in order prior to the motion to table.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.

[[Page S4831]]

  The assistant legislative clerk proceeded to call the roll.
  Mr. GRAMM. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BROWNBACK. Mr. President, I rise to make a few remarks concerning 
Senate Amendment 308 to S. 900, the Financial Services Modernization 
bill. Unfortunately, I was unable to vote on this amendment because I 
was out in Wichita with Vice President Gore and FEMA director James Lee 
Witt surveying the enormous damage that was caused by the tragic 
tornadoes that passed through Kansas on Monday. These fatal tornadoes 
that swept through the Wichita area on Monday caused 5 Kansans to lose 
their lives and injured more than 70 people. More than 500 homes have 
been damaged or destroyed, leaving many people homeless and without 
power. In the town of Haysville, 27 businesses have been wiped out, 
virtually eliminating the business district of this Wichita suburb. I 
am pleased that federal relief for the Wichita area is on the way and I 
will continue to assist federal, state, and local authorities as they 
help the people of Wichita recover from this natural disaster.
  I support Senate Amendment 308 and would have voted for it if I had 
been present. This amendment was passed in the Senate by a vote of 95-2 
and I believe that it will strengthen an already strong financial 
modernization bill. The Financing Corporation bonds (FICO) provision in 
the Financial Modernization bill would require Savings Association 
Insurance Fund (SAIF) institutions, or thrifts, to pay premiums at a 
rate five times higher than that paid by banks in the Bank Insurance 
Fund (BIF) for three more years before merging both funds. Under the 
Funds Act of 1996, these funds were supposed to merge on January 1, 
2000 and all FDIC institutions were to pay an equal amount. This 
amendment would strike the FICO provisions in S. 900 and equalize the 
deposit insurance premiums of bank and thrift institutions.
  I hope we now can move forward with the passage of the Financial 
Services Modernization bill. S. 900 would permit banking, securities, 
and insurance companies to exist within a single corporate structure. 
This could lead to greater competition and more innovative and 
consumer-responsive services. Competition would not only benefit 
consumers, but will help America's employers by making it easier and 
cheaper for them to raise the capital they need for growth.
  I am especially pleased that S. 900 would modernize the Federal Home 
Loan Bank System (FHLB) by banks. Under S. 900, the FHLB System would 
be easily accessible as an important source of liquidity for community 
lenders and would enable community banks to post different types of 
collateral for various kinds of lending.
  Community banks are finding it increasingly tough to meet deposit and 
withdrawal demands as customers shift their deposits into higher-
yielding investments like mutual funds. With less liquidity, there 
isn't as much money available for lending as the community demands. A 
reduction in community lending will hurt the economies of these small 
communities. This bill will facilitate more small business, 
agriculture, rural development, and low-income community development 
lending in rural communities.
  Mr. GRAMM. Mr. President, I ask for the yeas and nays.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  The PRESIDING OFFICER. Under the previous order, the question is on 
agreeing to the amendment.
  The yeas and nays have been ordered. The clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. FITZGERALD (when his name was called). Present.
  Mr. NICKLES. I announce that the Senator from Kansas (Mr. Brownback) 
is necessarily absent.
  Mr. REID. I announce that the Senator from Delaware (Mr. Biden) is 
necessarily absent.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 95, nays 2, as follows:

                      [Rollcall Vote No. 102 Leg.]

                                YEAS--95

     Abraham
     Akaka
     Allard
     Ashcroft
     Baucus
     Bayh
     Bennett
     Bingaman
     Bond
     Boxer
     Breaux
     Bryan
     Bunning
     Burns
     Byrd
     Campbell
     Chafee
     Cleland
     Cochran
     Collins
     Conrad
     Coverdell
     Craig
     Crapo
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Edwards
     Enzi
     Feingold
     Feinstein
     Frist
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Harkin
     Hatch
     Helms
     Hollings
     Hutchinson
     Hutchison
     Inhofe
     Inouye
     Jeffords
     Johnson
     Kennedy
     Kerrey
     Kerry
     Kohl
     Kyl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     Lott
     Lugar
     McCain
     McConnell
     Mikulski
     Moynihan
     Murkowski
     Murray
     Reed
     Reid
     Robb
     Roberts
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Schumer
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Voinovich
     Warner
     Wellstone
     Wyden

                        ANSWERED ``PRESENT''--1

       
     FITZGERALD
       

                             NOT VOTING--2

     BROWNBACK
     BIDEN
       
  The amendment (No. 308) was agreed to.
  Mr. SANTORUM. Mr. President, I move to reconsider the vote, and I 
move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Under the previous order, the Senator from 
South Dakota is recognized.


                           Amendment No. 309

  (Purpose: To make an amendment with respect to the Federal deposit 
    insurance funds and unitary savings and loan holding companies)

  Mr. JOHNSON. Mr. President, I send an amendment to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The legislative assistant read as follows:

       The Senator from South Dakota (Mr. Johnson), for himself, 
     Mr. Thomas, Mr. Kerrey, Mr. Daschle, Mr. Dorgan, Mr. Kohl, 
     and Mrs. Lincoln, proposes an amendment numbered 309.

  Mr. JOHNSON. 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 149, strike line 12 and all that follows through 
     page 150, line 21 and insert the following:

     SEC. 601. PREVENTION OF CREATION OF NEW S&L HOLDING COMPANIES 
                   WITH COMMERCIAL AFFILIATES.

       (a) In General.--Section 10(c) of the Home Owners' Loan Act 
     (12 U.S.C. 1467a(c)) is amended by adding at the end the 
     following new paragraph:
       ``(9) Prevention of new affiliations between s&l holding 
     companies and commercial firms.--
       ``(A) In general.--Notwithstanding paragraph (3), no 
     company may directly or indirectly, including through any 
     merger, consolidation, or other type of business combination, 
     acquire control of a savings association after May 4, 1999, 
     unless the company is engaged, directly or indirectly 
     (including through a subsidiary other than a savings 
     association), only in activities that are permitted--
       ``(i) under paragraph (1)(C) or (2) of this subsection; or
       ``(ii) for financial holding companies under section 4(k) 
     of the Bank Holding Company Act of 1956.
       ``(B) Prevention of new commercial affiliations.--
     Notwithstanding paragraph (3), no savings and loan holding 
     company may engage directly or indirectly (including through 
     a subsidiary other than a savings association) in any 
     activity other than as described in clauses (i) and (ii) of 
     subparagraph (A).
       ``(C) Preservation of authority of existing unitary s&l 
     holding companies.--Subparagraphs (A) and (B) do not apply 
     with respect to any company that was a savings and loan 
     holding company on March 4, 1999, or that becomes a savings 
     and loan holding company pursuant to an application pending 
     before the Office on or before that date, and that--
       ``(i) meets and continues to meet the requirements of 
     paragraph (3); and
       ``(ii) continues to control not fewer than 1 savings 
     association that it controlled on March 4, 1999, or that it 
     acquired pursuant to an application pending before the Office 
     on or before that date, or the successor to such savings 
     association.
       ``(D) Corporate reorganizations permitted.--This paragraph 
     does not prevent a transaction that--
       ``(i) involves solely a company under common control with a 
     savings and loan holding

[[Page S4832]]

     company from acquiring, directly or indirectly, control of 
     the savings and loan holding company or any savings 
     association that is already a subsidiary of the savings and 
     loan holding company; or
       ``(ii) involves solely a merger, consolidation, or other 
     type of business combination as a result of which a company 
     under common control with the savings and loan holding 
     company acquires, directly or indirectly, control of the 
     savings and loan holding company or any savings association 
     that is already a subsidiary of the savings and loan holding 
     company.
       ``(E) Authority to prevent evasions.--The Director may 
     issue interpretations, regulations, or orders that the 
     Director determines necessary to administer and carry out the 
     purpose and prevent evasions of this paragraph, including a 
     determination that, notwithstanding the form of a 
     transaction, the transaction would in substance result in a 
     company acquiring control of a savings association.
       ``(F) Preservation of authority for family trusts.--
     Subparagraphs (A) and (B) do not apply with respect to any 
     trust that becomes a savings and loan holding company with 
     respect to a savings association, if--
       ``(i) not less than 85 percent of the beneficial ownership 
     interests in the trust are continuously owned, directly or 
     indirectly, by or for the benefit of members of the same 
     family, or their spouses, who are lineal descendants of 
     common ancestors who controlled, directly or indirectly, such 
     savings association on March 4, 1999, or a subsequent date, 
     pursuant to an application pending before the Office on or 
     before March 4, 1999; and
       ``(ii) at the time at which such trust becomes a savings 
     and loan holding company, such ancestors or lineal 
     descendants, or spouses of such descendants, have directly or 
     indirectly controlled the savings association continuously 
     since March 4, 1999, or a subsequent date, pursuant to an 
     application pending before the Office on or before March 4, 
     1999.''.
       (b) Conforming Amendment.--Section 10(o)(5)(E) of the Home 
     Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by 
     striking ``, except subparagraph (B)'' and inserting ``or 
     (c)(9)(A)(ii)''.

  Mr. SARBANES. Mr. President, will the Senator yield for a 
parliamentary inquiry?
  Mr. JOHNSON. Certainly.
  Mr. SARBANES. Mr. President, it is my understanding that there are 60 
minutes of debate equally divided.
  The PRESIDING OFFICER. That is correct, before a motion to table.


                         Privilege Of The Floor

  Mr. JOHNSON. Mr. President, I ask unanimous consent that Mr. Steven 
Miteff, who has served in my office for 2 months as a participant in 
USDA's Senior Executive Service Candidate Development Program, be 
provided floor privileges during today's consideration of S. 900.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. JOHNSON. Mr. President, today I am offering an amendment for 
myself and Senators Thomas and Kerrey. I thank Senators Daschle, 
Dorgan, Kohl, and Lincoln, who are also cosponsors of this amendment.
  I believe that several of my colleagues plan to speak in behalf of 
this important effort.
  This amendment addresses the issue of unitary thrift charters.
  Initially this amendment also dealt with an unnecessary owners 
provision that needlessly penalizes thrifts by removing the FICO 
insurance differential from the underlying bill. However, Chairman 
Gramm has offered an amendment that accomplishes that portion of the 
original amendment. Nonetheless, the remaining unitary thrift issue 
must be addressed, and that is what this amendment does.
  Thrifts are different from banks. Many believe that a thrift charter 
is superior to a bank charter. It gives thrifts more flexibility. It 
also demands certain specific things of them.
  We recently went through an extensive debate over the merits of the 
thrift charter. I don't want to open old debates. I do seek, however, 
to close a loophole that permits the dangerous combination of banking 
and commerce. Under current law, commercial firms can own and operate 
unitary thrifts. That is the only breach of the banking and commerce 
firewalls currently allowed under our financial services law. Of 
course, the Glass-Steagall repeal and other opponents of this 
legislation open a range of financial activities to each other. But 
this bill is carefully structured to prevent the mixing of banking and 
commerce and closes the single loophole that remains where banking and 
commerce can mix.
  Let me explain what this amendment would to. There has been some 
misperception floating around about it. But I have made the language 
available for review now for a number of days.
  The Johnson-Thomas-Kerrey amendment does not interfere with the 
current ownership of thrifts. Any commercial firms that currently own a 
unitary thrift charter will be able to continue to own and operate 
their institution without restriction. Their current status would be 
undisturbed. Existing unitary thrifts would be grandfathered and can 
still sell themselves to any of the thousands of other financial 
entities that exist in our country. There will remain a strong market 
for the sale of unitary thrifts--no doubt about that.
  The only limitation this amendment would impose involves the 
transferability of the charter. The charter would not be transferable 
to another commercial entity. Any bank, insurance company, or security 
firm that wanted to acquire a charter could do so. A new entity could 
be created to operate that thrift.

  This amendment brings the two issues that concern the thrift industry 
to a consensus compromise which addresses the issues most critical to 
average banks and average thrifts. It restores the language agreed to 
in last year's agreement effort in H.R. 10. That agreement, which is 
embodied in this amendment, was supported by the banks and by the 
thrifts. It also received the overwhelming support of the Senate 
Banking Committee. House Banking Committee Chairman Leach also supports 
closing this loophole.
  Moreover, this amendment would further the goals of financial 
modernization by leveling the playing field between banks and thrifts 
and remove the dangerous threat of further weakening the walls between 
banking and commerce.
  OTS Director Seidman acknowledges that requests have been made by 
thrifts to relax the current restrictions on commercial lending, and as 
we enter a new world of one-stop-shopping financial services, pressure 
will no doubt only increase to allow more charters to be further 
exploited.
  This amendment has the strong support of the American Bankers 
Associations and the Independent Community Banks of America. The 
amendment is the top priority of the banking associations relative to 
this bill, which is the most important legislation, as we all know, 
impacting financial institutions which Congress will address this year. 
This week, bankers from all across the country were here in Washington 
to speak with their Senators about the importance of this amendment.
  The amendment also has the strong support of the Secretary of the 
Treasury, Robert Rubin. Secretary Rubin has long articulated the 
dangers of mixing banking and commerce and expressed concern about the 
unitary thrift loophole.
  The Chairman of the Federal Reserve Board, Alan Greenspan, advocates 
closing this loophole. He testified before the Senate Banking Committee 
several times on this point. Let me quote Chairman Greenspan directly:

       In light of the dangers of mixing banking and commerce, the 
     [Federal Reserve] Board supports elimination of the unitary 
     thrift loophole, which currently allows any type of 
     commercial firm to control a federally insured depository 
     institution. Failure to close this loophole now would allow 
     the conflicts inherent in banking and commerce combinations 
     to further develop in our economy and complicate efforts to 
     create a fair and level playing field for all financial 
     service providers.

  We might keep in mind the recent experiences in Japan. Part of their 
economic and financial crisis can be directly attributable to the 
keiretsu system that closely binds banks and commercial firms. Although 
our current system is a long way from that level of mixing banking and 
commerce, I concur with Secretary Rubin and Chairman Greenspan in the 
potential dangers.
  Other observers have noted the dangers posed by the unitary thrift 
loophole, including former Federal Reserve Governor Paul Volcker, who 
said:

       Recent experience with the banking crises in countries as 
     different in their stages of development as Japan, Indonesia 
     and Russia demonstrates the folly of permitting industrial-
     financial conglomerates to dominate financial markets and 
     potentially larger areas of the economy. But we need look no 
     further than our own savings and loan crisis in the 1980s. 
     Combinations of insured depository institutions and 
     speculative real estate developers cost American taxpayers, 
     who ultimately stood behind the thrift insurance funds, tens 
     of billions of dollars.


[[Page S4833]]


  That is former Chairman Volcker.
  There are other amendments pending which will purport to address 
these issues, but we should be clear; this Johnson-Thomas-Kerrey 
amendment is the only amendment that helps average banks and average 
thrifts. It improves the safety and soundness of our financial system 
by eliminating the mix of banking and commerce.
  I urge support of this effort to join with the expression of views of 
Secretary Rubin and Chairman Greenspan in what I believe is a 
commonsense, compromise approach to this critically important issue.
  I reserve the remainder of my time.
  Mr. GORTON. Mr President, today's thrift industry is an important 
provider of mortgage loans and consumer financial services.
  The thrift industry is required to focus its resources on providing 
consumer and community-oriented credit. For example, current law 
requiries a unitary thrift to devote at least 65 percent of its assets 
to mortgage, consumer, and small business loans. In addition, the 
commercial lending authority of federal thrifts is strictly limited to 
20 percent of assets of which half must be to small businesses.
  This ``specialization'' works. The last time Money magazine published 
an article identifying ``the best bank in America'' for quality and low 
cost pricing of its services, the recognized institution was a thrift--
USAA Federal Savings Bank.
  Similarly, the last time Consumer Reports surveyed ``the best deals 
in 25 cities'' for checking accounts, 77 percent of the leading 
institutions were thrifts. This large percentage is noteworthy becasue 
less than 18 percent of the banking institutions existing at the time 
were thrifts. Thrifts are a minority of the competitor but offer a 
majority of the best deals.
  The unitary thrift structure allows the capital from commercial 
companies to support the community lending activities of the thrift 
charter.
  More than 166 applications from nonbanking firms have been filed with 
the federal thrift regulator to charter new thrift institutions since 
January 1997. These new charters, if approved, will add competition in 
the marketplace which will benefit the consumer.
  The OTS has testified that commercial firms contributed more than $3 
billion in capital to support thrift institutions in the 1980s.
  No safety and soundness issues have been presented by the unitary 
charter.
  In February 1999, the FDIC testified on the subject of financial 
modernization before the U.S. House Banking Committee. In its 
testimony, the FDIC argued that commercial companies have been a source 
of strength rather than weakness to the thrift industry and that 
limiting the non-financial activities of thrifts ``would place limits 
on a vehicle that has enhanced financial modernization without causing 
significant safety-and-soundness problems.''
  Similarly, the OTS director has testified that there is no evidence 
that the concerns about the mixing of commercial banking and commerce 
apply to thrift holding companies with commercial affiliates: 
``Congress made a deliberate distinction in the treatment of thrifts 
and their holding companies based on the fact that thrifts cannot 
engage in the traditional type of banking activity--unlimited 
commercial lending--that raises concerns with the mixing of banking and 
commerce.''
  The combinations of thrift and commercial firms have compiled an 
exemplary safety and soundness record. During the height of the thrift 
crisis, the failure rate of commercially affiliated thrifts was 
approximately half that of other thrifts. Moreover, the federal thrift 
regulator has reported that only 0.3 percent of enforcement actions 
against thrifts and thrift holding companies from January 1, 1993, 
through June 30, 1997 were against holding companies engaged in non-
banking activities. In short, the industry's experience with commercial 
affiliates has been the opposite of what the critics contend.
  Concerns about commercial banking and commerce are misplaced in the 
context of the thrift charter.
  Current federal law expressly prohibits a unitary thrift from 
extending credit to a commercial affiliate and prohibits a thrift from 
tying deposits and loan services to non-financial services.
  The statutorily mandated focus of the thrift charter on providing 
mortgage, consumer, and small business credit along with these other 
lending limitations distinguishes the thrift and commercial banking 
industries.
  Martin Mayer, a guest scholar at the Brookings Institution and foe of 
mixing banking and commerce, supports the commercial ownership of 
thrifts because of their unique lending focus on consumers and small 
businesses.
  Financial modernization should be about expanding chartering options 
and choices for consumers, not contracting these options.
  While I believe there is a very strong case for fully maintaining the 
unitary thrift charter as a viable chartering option going forward, 
this Congress should, at a minimum, not limit the authorities of 
existing companies in the absence of any compelling safety and 
soundness evidence about this charter.
  The grandfather provision in S. 900 accomplishes this minimum 
treatment for these existing companies that are focused on delivering 
consumer and small business credit in our communities.
  The Senate and House Banking Committees both have adopted 
substantially identical unitary thrift grandfather provisions, which 
already represents a delicate compromise taken by both committees on 
this issue. We should not reopen this issue.
  I urge you to oppose the Johnson amendment as a serious step 
backwards in our efforts to modernize our nation's financial services 
laws.
  Mr. GRAMM. Mr. President, I rise in opposition to this amendment. Let 
me try to set the record straight in terms of this amendment. The 
argument on the amendment is very simple, and I think it will not take 
very long to make the case against the amendment.
  First of all, we hear the statement made that the unitary thrift 
provision in current law is a loophole, that somehow commercially owned 
savings and loans have come into existence as a result of a loophole--
hence, as Senator Johnson says, ``the unitary thrift loophole.''
  Let me remind my colleagues that a loophole had nothing to do with 
unitary thrifts. In 1967, the Congress passed the S&L Holding Company 
Act. That S&L Holding Company Act intentionally, after a very large 
number of hearings in the House and the Senate, intentionally placed 
into law the provision that allowed commercial companies to own and 
charter S&Ls. Congress did this for a very simple reason. In fact, the 
law said clearly, in black and white, the purpose of allowing 
commercial interests to own S&Ls, hence the creation of what we call a 
unitary thrift, was to encourage capital and management to come in to 
the troubled S&L business.
  So this new ``loophole'' is no afterthought. This is no mistake. This 
is no provision that was created by accident. In fact, we had an entire 
bill, the S&L Holding Company Act, which is the Unitary Thrift Act. 
That was passed in 1967 after extensive hearings in both the House and 
the Senate where strong action was taken by both parties in support of 
this provision.
  This is no loophole. This is no accident. This is a creation of 
Congress that came into existence through a well-reasoned, extensively 
debated law, and the decision was made to encourage commercial 
companies to put real capital, real money, and good management into 
S&Ls.
  Let me outline the figures, to give Members the magnitude of the 
problem. There are 561 thrift holding companies. What is a thrift 
holding company? A thrift holding company is a company that may be in 
many different businesses, but it owns a thrift charter. These are 561 
thrift holding companies that are engaged in some other business as 
well as the thrift business. Many are in insurance, many are in 
securities. There are 561 of them.
  Mr. President, 22 are now owned by nonfinancial unitary thrifts. 
Therefore, 541 of these will be legal under this bill, because it is 
legal under this bill for an insurance company and a securities company 
to own a bank, so it will be legal to own a thrift.
  What is the ``universe'' we are talking about here in terms of actual 
commercial interests that own thrifts? The universe is just 22--22 
thrift charters that are owned today by a commercial

[[Page S4834]]

interest other than insurance and securities that will be able to own 
banks under this bill.
  What is special about these 22 companies? What is special about it is 
that most of them came into existence during the S&L crisis. I remember 
vividly offering an amendment to assess the thrifts $15 billion to 
begin to close troubled thrifts, 3 years before that amendment ever 
passed. It was defeated in the Banking Committee. I remember Senator 
Dodd voting with me on it; I don't remember exactly how the vote broke 
down, but I know we lost. During that period, we were desperate to try 
to get people to put money into troubled S&Ls to try to prevent the 
taxpayer from ending up paying billions of dollars in defaulted 
deposits.
  Most of these 22 thrifts were commercial companies that were enticed 
by the Office of Thrift Supervision--the Federal Home Loan Bank Board--
to come in and buy troubled thrifts, to bring good management, and to 
bring in hard cash. And these commercial companies responded. No one 
would dispute that the S&L collapse cost tens of billions of dollars 
less than it would have had these commercial companies not come in and 
invested their hard-earned money in thrifts.
  Let me note another thing. You get the idea from this amendment that 
there is something wrong with unitary thrifts, that there is something 
wrong with commercial companies owning thrifts. First of all, during 
the S&L crisis from 1985 to 1992, the default rate of thrifts that 
ended up going into insolvency--the bankruptcy rate among thrifts that 
were owned by commercial companies--proportionately speaking, was half 
the rate of default on thrifts that were not owned by commercial 
companies. So the plain truth is, today these S&Ls that are owned by 
commercial interests are among the most stable, most secure S&Ls in 
America.
  Let me also note that in terms of the regulatory review currently 
underway, consistently those thrifts that are least subject to 
complaints about violating various provisions of Federal law--the 
thrifts that behave best in complying with the law--are consistently 
the unitary thrifts, the thrifts that are owned by a commercial 
interest.
  There is no evidence, therefore, based on any safety and soundness 
concern, that unitary thrifts are anything less than safer, sounder, 
better run and, as a result, more compliant with existing law than 
other thrifts. In fact, the Office of Thrift Supervision has indicated 
that out of 1,428 enforcement actions against thrifts from January 1993 
to June 1997, only 3 of those enforcement actions involved unitary 
thrifts. These are the best performers and they are the best in terms 
of complying with the law.
  What is the problem here? Under the bill which is pending before the 
Senate, which passed the Senate Banking Committee, we changed the law 
so there could be no more unitary thrifts. We have a cutoff date, which 
is the date the committee markup document was released to the public. 
As of that day, under our bill no commercial interest can get a new 
thrift charter.
  I think it is important to note that when you look at the 
applications that are pending--and we have a lot of applications 
pending for thrift ownership--most of them are by insurance companies 
and securities companies. They would rather own a bank, but until we 
pass this bill--and I hope we do pass this bill--they cannot do it, so 
they have applied to own a thrift. If we pass this bill, many of those 
applications will be withdrawn. But this amendment does not have 
anything to do with them.
  Of the proposals for unitary thrifts--that is, commercial companies 
that are trying to buy a thrift charter or get a thrift charter 
issued--there are only seven of them. So here is the point. This 
ability of commercial companies to get a thrift charter is over 20 
years old. It has existed for 20 years. Any commercial company--from 
General Motors to A&P, to Kroger's, to Bell Telephone, to whatever--
could apply for a thrift charter. For 20 years they have had that 
right. Mr. President, 22 have done it, 22 have gotten the charter, and 
most of them got the charter when they were basically cajoled by the 
Government to do it, to bring in billions of dollars to try to help us 
solve the S&L problem.
  My trusty staff tells me it was 30 years they have had the 
opportunity--there are 22 of them--not 20 years.
  Now, with all the talk of ``runaway unitary thrifts,'' only seven 
applications are pending. So, what does our bill do and what does the 
Johnson amendment do? Our bill says that--for the 22 commercial 
interests, most of whom got into the S&L business as part of our effort 
to stop the collapse of the S&L industry--our bill says, after the date 
we introduce the bill, any application coming after that date cannot be 
considered; that the 7 applications which are already pending can be 
considered; and the 22 which already exist can continue to operate.
  To that extent, the committee bill and the Johnson amendment are 
very, very similar. The difference is that the Johnson amendment, in 
addition, provides that if you own a unitary thrift you can't sell it 
to any other commercial interest; and if you sell a thrift holding 
company--which, in virtually every case, has a commercial interest--it 
has to be broken up upon its sale, because you cannot sell it with any 
commercial interest as part of it.

  We have a simple term for this kind of action. It is in the fifth 
amendment of the Constitution. It is called ``takings.'' This is a 
constitutional issue. This is not some philosophical position of 
competition and free enterprise. This is not an issue directly about 
how we can make the industry better or what might help or harm the 
consumer. This is about private property. This is a constitutional 
issue. If we could go back and start this whole thing over again, if we 
were starting with an absolutely clean slate, I would, in all 
probability, oppose permitting commercial companies owning thrifts--if 
we were starting with a fresh slate.
  But the problem is, we are starting with 22 companies that have 
already invested billions of dollars, most of them doing so during the 
S&L crisis when we begged them to do it. They have now built businesses 
and part of the value of their franchise is based on their ability to 
be able to sell it. If it has to be broken up when it is sold, as every 
thrift holding company would have to be, under the Johnson amendment, 
if it had any commercial interest--and almost all of them do--the net 
result is, our estimates are, that the passage of this amendment would 
destroy between 10 and 15 percent of the value of these S&L charters.
  If our colleague from South Dakota had proposed an amendment that 
would have taken money out of the insurance fund and assessed what it 
would cost these owners of thrift charters to limit their ability to 
sell them to other commercial interests, and to require they be broken 
up if they were sold, and we were going to compensate them from the 
insurance fund, I might support such an amendment. But the idea that on 
an ex post facto basis we are going to come in and destroy the value of 
charters, that we are going to lower their value estimated between 10 
and 15 percent simply because we do not have commercial ownership of 
banks, is simply unconstitutional.
  What is going to happen on this? I can tell you what is going to 
happen: We now have had a series of Supreme Court rulings related to 
takings. The Supreme Court, thank God, has suddenly awakened to the 
provision in the fifth amendment which is as important as any provision 
in the first amendment. In fact, John Locke would have said ``more 
important.'' The Founding Fathers understood its importance. And that 
provision says:

       No private property shall be taken for public purpose 
     except through compensation.

  How do I know how the Court is going to rule on this? They have 
already ruled on a similar issue. You remember something called 
``supervisory goodwill''? Here is what happened: Congress got a number 
of businesses to buy troubled thrifts--one of the things we did when we 
had no money--so the thrift was worth a negative $500 million and they 
came in, took it over for nothing and assumed its liabilities.
  So, having no money to protect the depositors, we said, if you will 
protect the depositor, we will give you $500 million of regulatory 
goodwill and for a period of time you can hold it as capital. Do you 
know what happened? Congress decided that was not a good idea. So we 
passed a bill, called FIRREA,

[[Page S4835]]

that took it back. And these thrifts went to court and argued: We made 
investments under a certain set of rules, Congress on an ex post facto 
basis came back and repealed those rules.
  They took our property. There was a taking. Congress took billions of 
dollars from us and, in fact, the Federal Claims Court on April 9 of 
this year ruled that the Federal Government owes Glendale Federal Bank 
$990 million in damages for this taking. I remind my colleagues, there 
is a list of S&Ls which takes up half a page that has exactly the same 
claim against the Federal Government.
  Whether you like the idea of a commercial company owning a thrift--
and, I remind you, they have a better record of safety and soundness, 
they have a better record of performance, they have a better record of 
complying with the laws and regulations than thrifts as a whole--but 
even if you don't like it, do you think we have a right to steal their 
property? Even if you don't like them, do you think Congress has a 
right now to change the rules and say, ``Oh, yes, you can hold your 
charter, but if you ever sell it, it will have to be broken up because 
it has a commercial interest as part of it''?
  It is estimated that this amendment, the moment it becomes law, would 
destroy 10 to 20 percent of the stock value of these companies through 
a taking.
  If we adopt the Johnson amendment, these companies are going to file 
a lawsuit against the Federal Government.
  I believe, based on the rulings that have occurred on regulatory 
goodwill, that they are going to win these lawsuits, and then where are 
these billions of dollars coming from? Are they going to come out of 
the insurance fund? Are they going to come from the taxpayers? Maybe we 
should have a second-degree amendment that says if this is a taking, we 
will raise the insurance assessment to raise the money to pay for the 
taking rather than having it foisted onto the Treasury. I don't know if 
our colleague from South Dakota would vote for such an amendment, but 
it seems to me a pretty reasonable amendment.
  If we did not have unitary thrifts, I doubt we would create them. I 
am not ready yet to have commercial companies own banks. I have no 
doubt in 20 years they will, but we are not ready yet. If we didn't 
have unitary thrifts, we would not create them.
  To sum up, here are the critical points: We did not create unitary 
thrifts by accident. There is no loophole. The 1967 bill was 
extensively debated; there were hearings and the bill was adopted 
overwhelmingly on a bipartisan vote to bring in new capital and new 
management that was desperately needed.
  Thirty-two years later, we are coming in and saying, ``Boy, you have 
given us those tens of billions of dollars and we really appreciate it, 
but we're not going to live up to our end of the bargain.'' We are 
going to say, ``Yes, we took your money and it saved us tens of 
billions of dollars of taxpayers' money, but now we don't like you 
anymore, and so if you ever sell your thrift, you are on notice right 
now your thrift holding company will have to be broken up.''
  Unitary thrifts might have become a big problem if we were not 
considering this financial modernization bill. But if we pass this 
bill, all but 22 S&Ls that are owned by commercial interests will be 
owned by insurance companies or securities firms. So this is a problem 
that some people imagined existed before this bill, but we are talking 
only about 22 companies and 7 pending applications.
  I have received calls from many banks that say they want this 
amendment passed. But when I explain to them that it might sound like a 
great idea, until you realize you are taking somebody's property and 
violating the Constitution, I have found people understand that. The 
fact that we have lobbyists calling up telling us to do this does not 
mean we have to do it.
  I urge my colleagues to reject this amendment. I preserve my ability 
to offer a constitutional point of order if the motion to table fails. 
I reserve the right to offer a second-degree amendment which would 
require the insurance rates to be raised to pay for any takings, but I 
hope those will not be necessary.
  This is not a good amendment. I know there are a lot of interests for 
it, but it is not a good amendment. I urge my colleagues to take the 
long view on this and not vote for it so we are not back here in 2 
years trying to come up with billions of dollars to pay off these 
lawsuits.
  Mr. KERREY addressed the Chair.
  The PRESIDING OFFICER. Who yields time?
  Mr. JOHNSON. Mr. President, I yield 5 minutes to my colleague from 
Nebraska, Senator Kerrey, a cosponsor of the amendment.
  Mr. KERREY. Mr. President, first, I thank the distinguished Senator 
from Texas and the Senator from Maryland. There are a number of 
provisions in this legislation for which I thank them.
  One of the things all of us have to do when looking at this piece of 
legislation is ask the question whether or not we are going to be able 
to maintain the safety and soundness of the banking system. It is a 
pretty dramatic change allowing companies that previously had been 
prohibited in certain lines of business to engage in those lines of 
business.
  I want to make it clear, I reached the conclusion that we do have the 
regulatory capacity to maintain safety and soundness, whichever piece 
of legislation emerges here. I appreciate very much the work of the 
Senator from Texas on this, as well as the work of the Senator from 
Maryland.
  I will point out a couple of things, as well, that I am very much 
grateful for, and one of them has to do with modernizing the Federal 
Home Loan Bank System that allows rural banks and other banks to have 
access to credit. I think it is a very important provision. Senator 
Hagel offered it, and I commend him for his leadership on it.
  I also want to make it clear on the CRA, at some point it is going to 
get to conference. I do support what Senator Gramm is doing to provide 
exemptions to banks under $100 million. Under urgings, I had 
conversations with my larger banks who do not find themselves with the 
kind of difficulties of being coerced into making payments, as he noted 
exists in other parts of the country. While I support under 100, I do 
not support the other changes that are being proposed.
  As to this amendment, the takings issue, Congress does this all the 
time. In fact, my guess is there could be people who make a claim that 
because the bill itself is passing, they are going to suffer a loss of 
value in their business.
  Gosh, we debate the ethanol provision and we debate tax credits for 
the oil industry all the time. Sometimes you get it, sometimes you do 
not get it, but you do not file a claim against the Government as a 
consequence of that action.
  People could file a takings action against this bill based upon what 
the Senator from Texas just argued. The Winstar case does not open up 
the door. Indeed, the Winstar case is being appealed itself. The 
Winstar case does not open up the door to prevent Congress from passing 
legislation in trying to modernize our banking system.
  Mr. JOHNSON. Will the Senator yield?
  Mr. KERREY. Yes, I yield.
  Mr. JOHNSON. Does the Senator not agree that the Winstar case was a 
contract violation case as opposed to the statutory change of 
regulation being proposed here?
  Mr. KERREY. I quite agree. Not only is it a contract case, but the 
decision by the D.C. Court of Claims is on appeal. We do not know what 
the outcome is going to be. It was a specific contract that was signed 
between the Government and these businesses. They have a legitimate 
case that they are making that a contract was broken.
  If the takings argument is going to provoke a fear every single time 
Congress proposes a change in the law, it is going to make it awfully 
difficult for Congress to do the very thing that the Senator from 
Texas, the Senator from Maryland, and the Banking Committee is 
proposing to us, which is that we ought to modernize our banking 
system. There will be losers as a consequence.

  Can you imagine coming to the floor and saying, we cannot pass fast 
track? There are losers when we have free trade. So if I vote for fast 
track, and we give the President normal trade negotiating authority, 
and somebody

[[Page S4836]]

loses, can they file a claim as a consequence and say I have taken 
their property? No.
  So I appreciate very much some of the other arguments the Senator 
from Texas is making, but I think the takings argument would cause this 
Congress a great deal of difficulty. In fact, we should withdraw the 
bill altogether if takings is the concern that we have, because there 
will be losers. There will be economic losers as a consequence of this 
piece of legislation who could, if they chose to, file a takings action 
based upon the argument that was made earlier.
  This is a fairly simple amendment. I urge colleagues to look at it. 
The concern that the Senator from Texas is raising may be a legitimate 
concern. Some of the details he was talking about may need to be 
modified. But we are saying that, ``Notwithstanding paragraph (3), no 
company may directly or indirectly, including through any merger, 
consolidation, or other type of business combination, acquire control 
of a savings association after May . . . unless the company is engaged, 
directly or indirectly (including through a subsidiary other than a 
savings association). . . .''
  It is an attempt to say, yes, we needed to do what the Senator from 
Texas described earlier in order to be able to clean up the savings and 
loan problem.
  We make no judgment here that the unitary thrifts are not safe or 
sound. We have an outstanding one in the State of Nebraska that is 
doing a tremendous amount of business, and they are a very safe 
operation, very sound operation. We make no judgment about that at all. 
But we are just saying the Banking Committee already has spoken on the 
issue by eliminating the commercial market basket.
  What we are doing with this is to prevent further kinds of 
transactions precisely because we are ending the restrictions that were 
under Glass-Steagall for 60 years. We are eliminating those. We are 
going to get all kinds of new transactions going on in that environment 
anyway. We are concerned about whether or not we are going to maintain 
safety and soundness.
  I believe we can. I believe we can in the new regulatory environment. 
I am willing to do that. But this just adds considerable new risk to 
the transaction, considerable new risk. I believe the Office of Thrift 
Supervision is down to about 1,200 employees. I am not sure they have 
the capacity to regulate. It provokes a whole new concern about this 
legislation, as to whether or not we are going to be able to maintain 
the safety and soundness that the people of the United States of 
America expect.
  To be clear, I have not had a single citizen in Nebraska come to me 
and say, ``I need financial services modernization''--that is, 
borrowers and depositors. Indeed, I have only a few banks in Nebraska 
altogether that are interested in this. The people who are interested 
in this are people who are much larger operators. They have come to me 
and asked my support for this legislation, and I have given it to them. 
I do not believe there is any more reason for us to maintain these 
barriers between these various industries. But we need to be very 
careful.
  The PRESIDING OFFICER. The Senator's 5 minutes has expired.
  Mr. KERREY. Thirty seconds.
  Mr. JOHNSON. I yield the Senator 30 more seconds.
  Mr. KERREY. I believe we need to be very careful not to increase, in 
an unnecessary fashion, that risk. And this amendment will reduce that 
risk. It will not increase takings claims against the Government. It 
will not increase litigation as a consequence of saying that we are not 
going to allow continued and new unitary thrift acquisition and new 
commercial interests to come in and purchase savings and loans.
  Mr. President, I appreciate the fine work the Senator from Texas has 
done and the Senator from Maryland has done. I hope we can get this 
legislation in a form that I can support, because I believe financial 
services modernization is something that has long been needed and is 
long overdue.
  Mr. JOHNSON. How much time remains on our side?
  The PRESIDING OFFICER. Senator Gramm has 6 minutes 20 seconds; the 
Senator from South Dakota has 17 minutes 9 seconds.
  Mr. JOHNSON. I yield 5 minutes to my colleague and cosponsor of this 
amendment, Senator Thomas from Wyoming.
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. THOMAS. Thank you, Mr. President. I thank you very much for the 
opportunity to discuss this important issue.
  First, let me, too, say that I appreciate the work that is being done 
on this whole financial modernization bill. I think it is something 
that certainly needs to be done and that I support.
  I also believe very strongly in what the Senator from Nebraska has 
just said with regard to takings--that the idea that we cannot change 
the rules in the Congress without it being exposed to takings is one 
that is very threatening. I think that is the case.
  So I am very pleased to be a sponsor of this thrift charter amendment 
with my colleagues, Senator Johnson and Senator Kerrey. I think the 
amendment will improve the underlying legislation by stopping a mixture 
of banking and commerce through the unitary thrift charter arrangement.
  This amendment freezes the number of commercially owned thrifts and 
bans the future number of sales of unitary thrift charters to 
commercial entities. Commercial firms that already own thrifts would be 
able to continue the endeavor, and they are grandfathered.
  The integration of banking and commerce raises significant questions 
about the concentration of economic resources. I happen to be chairman 
of the Subcommittee on Asia and the Pacific Rim and have had some 
opportunities recently to be in South Korea and Japan. I have to tell 
you that I am impressed with the problems they have had with that kind 
of integration, and I do not want us to get into that.
  I have already mentioned that I do not believe this is a taking. I 
believe this is actually a change in direction, one that very much 
needs to be made, and I think it will help us in terms of this mixing 
of banking and commerce. It is a significant cause for the Asian 
economic crisis.
  I believe we should learn from the lessons of the Asia financial 
crisis and be very careful about this integration. I think this will 
help do that.
  In testimony before the Banking Committee last year, Federal Reserve 
Chairman Alan Greenspan spoke to the risks that can arise if the 
relationships continue between banking and commercial firms. Both he 
and Secretary Rubin have testified to the need for closing the 
loophole. This amendment secures the safety and soundness of our 
financial system, and I urge that it be supported.

  Let me just comment on some things that very knowledgeable people 
have said.
  Secretary Rubin has said:

       [W]e support the prohibition against forming additional 
     unitary holding companies, and [we] would further support an 
     amendment terminating the grandfather rights. . . .

  Former Federal Reserve Board Governor Paul Volcker said:

       Recent experience with the banking crises in countries as 
     different in their stages of development as Japan, Indonesia, 
     and Russia demonstrates the folly of permitting industrial-
     financial conglomerates to dominate financial markets and 
     potentially larger areas of the economy.

  The American Bankers Association, which has studied this very 
carefully, said:

       [C]ommercial and banking should not be allowed to mix in 
     the wholesale fashion permitted under the unitary thrift 
     concept. . . .

  The Independent Bankers Association of America said:

       IBAA cannot support, and will oppose, any legislation that 
     does not narrow the unitary thrift holding company loophole.

  The Consumers Union said:

       We oppose permitting federally-insured institutions to 
     combine with commercial interests because of the potential to 
     skew the availability of credit. . . .

  I close by saying that a mixture of banking and commerce is widely 
considered to be a significant cause of the recent Asian economic 
crisis. As Federal Reserve Board Chairman Alan Greenspan testified last 
year before the Senate Banking Committee:

       The Asia crisis has highlighted some of the risks that can 
     arise if relationships between banks and commercial firms are 
     too close.

  Mr. President, I hope we will adopt this amendment. I think it 
strengthens

[[Page S4837]]

the overall bill. I certainly intend to support the bill and intend to 
support this amendment. I urge support of it.
  I yield the floor.
  Mr. JOHNSON. I yield 5 minutes to my ranking member of the committee, 
Senator Sarbanes.
  Mr. SARBANES. I commend the very able Senator from South Dakota and 
his colleague from Wyoming for offering this amendment. I think it is a 
very important amendment. They have made some very strong arguments for 
it.
  Both Chairman Greenspan and Secretary Rubin, who differ on other 
aspects of this legislation that is before us, are in agreement, along 
with Chairman Volcker and Henry Kaufman, and many others who have 
examined this issue, that we need to address this question.
  It is called the unitary thrift loophole, because over time the 
powers of the thrifts have been expanded. So a provision, which at an 
early time may not have appeared to be a loophole, now becomes a 
loophole through which commercial companies can acquire thrifts and, in 
effect, eliminate the line drawn between banking and commerce.
  The recent experience with banking crises in other countries--Japan, 
Korea, and so forth--where they had industrial financial conglomerates, 
indicates the difficulties and the dangers of allowing these 
arrangements.
  I want to address very specifically the argument of limiting the 
transferability of a unitary thrift holding company--and this would 
limit it only in terms of being transferred to a commercial company; it 
would not limit it in terms of being transferred to a financial 
company. It would be unfair because companies bought thrifts at a time 
when they could sell them to any commercial company, and it is now 
being asserted that this would be a taking under the fifth amendment of 
the Constitution or perhaps, alternatively, a breach of contract by the 
government.

  You cannot keep people from making any argument that is available to 
them. They can sort of reach out and grab hold of any argument that 
exists and sort of bring it in and try to set it down here in the 
middle of the Senate and say, aha, here is this argument and you have 
to pay attention to it.
  You need to look at the argument and what is involved.
  Let me just for a moment analyze this argument that it is a taking. 
The Supreme Court's rulings in the area of the fifth amendment takings 
of property have generally dealt with real property, not with business 
charters issued by the government, such as a thrift charter. However, 
even if a thrift charter did qualify as property for taking purposes, 
prohibiting transfers of thrifts to commercial companies would not give 
rise to liability under the standards which the courts have used to 
require compensation.
  It is being asserted here that this is going to be a taking; you are 
going to have to pay compensation. Then you have to take a look at it. 
Is this limitation that is involved in this amendment, this limited 
limitation with respect to the transferability of this thrift, is that 
going to be considered a taking by the court? I submit it would not 
give rise to liability under the standards which the courts have used 
to require compensation. Courts have held that no compensation is owed 
if there is not an invasion of the property or a total diminution of 
economic value of the property. Closing the loophole would not involve 
either of these two things.
  There is a considerable value in the thrift charter which would 
continue even if this limited amount of transferability is no longer 
permitted. In fact, these thrifts may be sold to thousands of other 
thrifts, banks, securities broker dealers, insurance companies and 
other financial companies under this legislation. Of course, this is 
the very kind of transfer that occurs in the vast majority of thrift 
transfers. It is to some other financial institution.
  Of course, the legislation would permit that, and this amendment does 
not touch that. The potential for change in the powers of a unitary 
thrift holding company is in fact inherent in having an S&L charter. 
The holder of a federally granted charter cannot expect that the 
government will never change the laws under which the charter operates. 
The Constitution does not guarantee that a company allowed to engage in 
some activity will have the right to continue to do so in perpetuity.
  I am as sensitive as any to the takings question. It is a very 
important part of our Constitution. It is an important part of the 
workings of our economic system. But we need to look at the cases in 
terms of what the court has interpreted as constitutional. We need to 
exercise some practical sense judgments. Clearly, the law has never 
been that a company engaged in some activities can never be limited or 
restrained by the government and has that right to go on in perpetuity. 
In the past, Congress has changed statutes governing savings 
associations and has required compliance with the amended statute.

  In 1987, Congress imposed a qualified thrift lender test requiring 
thrifts to hold a percentage of their total assets as qualified thrift 
investments. New requirement. New limitation. A unitary thrift holding 
company owning a thrift that failed to comply with those new 
requirements would have been required to divest its commercial 
activities.
  Also in 1987, we limited the transferability of nonbank banks by 
requiring that upon transfer the new owner bank would be required to 
register as a bank holding company. These actions have not been found 
to be takings.
  Let me turn to the other possible argument; that is, that there is a 
breach of contract by the government.
  The argument has been raised that closing the loophole may break a 
supposed contract. The Winstar case, U.S. v. Winstar Corporation et al, 
518 U.S. 839, a 1996 case, has been used as a basis for this concern. 
However, closing the unitary thrift loophole involves facts that are 
materially different from those on which the case of U.S. v. Winstar 
Corporation was decided. In Winstar, the Supreme Court determined that 
the United States had made specific contractual promises to acquirers 
of failed thrifts and had breached those specific contractual promises.
  The PRESIDING OFFICER. The Senator's 5 minutes have expired.
  Mr. SARBANES. How much time does the Senator have remaining?
  The PRESIDING OFFICER. Five minutes 17 seconds.
  Mr. SARBANES. Will the Senator yield me 2 more minutes?
  Mr. JOHNSON. I yield such time as the gentleman requires.
  Mr. SARBANES. The court found the government liable for breaching its 
contracts by not permitting the thrifts to count goodwill and capital 
credits toward regulatory capital requirements after the enactment of 
FIRREA. There had been a specific undertaking in the S&L cases that 
those goodwill arrangements could be counted and, in fact, they 
wouldn't have taken over the failed thrifts had they not been able to 
do so.
  It is vastly different from the situation that we are confronting 
here.
  There are no specific contracts here that promise acquirers of 
thrifts that they could sell them to commercial companies or that the 
law governing permissible thrift affiliations would never change. 
Prohibiting unitaries from affiliating with commercial companies is no 
different than many prohibitions the government legislatively imposes 
on industries each year with no financial liability to the government.
  The difference with the supervisory goodwill cases couldn't be 
clearer. Those cases were based upon contract law. No contracts are 
involved in the unitary provisions of H.R. 10. No guarantee was made by 
anyone that these affiliations with a commercial firm could continue 
and the government is entitled, in order to achieve important public 
policy objectives, to make reasonable changes. I submit to you that 
this is one such reasonable change in order to ensure that the dividing 
line between banking and commerce remain firm.
  All of the people have told us about the dangers of mixing banking 
and commerce. From the Fed, Alan Greenspan says:

       Failure to close this loophole now would allow the 
     conflicts inherent in banking and commerce combinations to 
     further develop in our economy and complicate efforts to 
     create a fair and level playing field for all financial 
     service providers.

  Secretary Rubin has echoed those comments, as has Paul Volcker and 
many other distinguished commentators.

[[Page S4838]]

  Mr. President, I reserve the remainder of our time. How much time is 
remaining?
  The PRESIDING OFFICER. Twelve minutes 26 seconds.
  Mr. GRAMM. Mr. President, how much time do we have?
  The PRESIDING OFFICER. You have 6 minutes 20 seconds.
  Mr. GRAMM. Six minutes. I yield 2 minutes of it to the distinguished 
Senator from Utah.
  The PRESIDING OFFICER. The Senator from Utah.
  Mr. BENNETT. Mr. President, 2 minutes is all I will need.
  In a perfect world, I would oppose the amendment with respect to the 
unitary thrift situation, but as the Senator from Texas has made clear, 
we do not live in a perfect theoretical world. We have existing 
institutions who have obligations to their shareholders and who have 
past history. However much I might like to see the past history be 
different, it is as it is.
  Under those circumstances, I think we cannot penalize people who have 
gone forward on assurances from the Federal Government and say that 
those assurances will not now be honored just because we do not think 
they should have been given in the first place.
  For that reason, Mr. President, I will be joining with the chairman 
of the committee and voting as he does on this issue.
  I yield the floor.
  Mr. GRAMM. Mr. President, as a courtesy to Senator Johnson, let me 
conclude my remarks, and then let him give the concluding remarks on 
the amendment.
  First of all, we have had several references to the Asian crisis. I 
want to remind my colleagues that the Asian crisis was banking and 
government, not banking and commerce.
  The second point is that Ford Motors, for example, at the strong 
urging of the Federal Home Loan Bank Board, put a billion dollars into 
Nationwide in the 1980s, and that billion dollars reduced the amount 
the taxpayer had to pay to guarantee those deposits by a billion 
dollars.
  Here is the point. Nobody makes you go into some industry where your 
tax laws might be changed ex post facto. I am not for ex post facto 
laws, but we have passed them from time to time. But in this case, 
these thrifts were requested, asked, begged to make investments in the 
S&L industry for the benefit of the taxpayer and the insurance fund. I 
just want to read a couple of lines from some letters.
  This is from the National Retail Federation:

       Seventy-nine failing thrifts were purchased and infused 
     with $3 billion of new capital. Had these institutions 
     undergone liquidation at taxpayers' expense, the cost would 
     have been billions more. Capital from our industries looked 
     pretty good at the time. We don't see what has changed.

  They put up $3 billion to go into industries that let them be in 
retailing and in the S&L business, and now we are going to say to them, 
if you sell your holding company, you are going to have to tear up your 
business, drive down its value by 10 or 15 percent. They don't 
understand how we changed the rules of the game when they were asked to 
get into the business.
  The National Association of Manufacturers wrote:

       Unitary thrifts were established in 1967 to attract private 
     capital into the thrift industry during the thrift crisis. 
     The National Association of Manufacturers' members responded, 
     saving the taxpayer billions of dollars. Putative 
     grandfathering of existing unitary thrifts serves only to 
     eliminate competition and innovation.

  I could read from the Home Builders, and others, but the bottom line 
is this: These companies have a case that they were urged to invest 
this money by the Government based on a set of rules. If we now come in 
and change the value of their companies on the equity market 
instantaneously by 10 or 20 percent, I believe there has been a taking, 
and I think most people would believe there has been a taking. As we 
all know, the Supreme Court has been increasingly willing in cases such 
as Lucas v. South Carolina and Dolan v. City to rule on takings, and to 
force the Federal Government to pay for it.
  So if this amendment is adopted, I believe it would probably be 
prudent to have a second-degree amendment, which I hope would be agreed 
to, which would simply say that if there are court rulings that there 
has been a takings, we should raise the fees for the insurance fund to 
pay those costs, rather than letting those costs fall on the taxpayer.
  Mr. President, I yield back the balance of my time.
  Mr. JOHNSON addressed the Chair.
  The PRESIDING OFFICER. The Senator from South Dakota is recognized.
  Mr. JOHNSON. Mr. President, I commend the chairman for his work on 
the differential issue, which was originally a component of the 
Johnson-Thomas amendment. But we need to go further. It is an 
opportunity for this body to implement a financial services policy 
consistent with where both the banking and consumer organizations of 
the country want to go to implement policy that is agreed upon, in the 
agreed-upon direction that Mr. Greenspan and Mr. Rubin want to go. This 
is an opportunity that we cannot allow to be missed.
  Mr. SARBANES. Will the Senator yield?
  Mr. JOHNSON. Yes.
  Mr. SARBANES. Mr. President, I commend the able Senator from South 
Dakota because the amendment, as he was going to originally propose it, 
included this closing of the unitary thrift company loophole but 
maintained the existing law on the differential payment by the S&L's 
and the banks. The chairman offered that and it was accepted earlier 
this morning. I think the fact that it was embraced--and I think the 
adoption of that amendment should be taken in the context of this 
amendment--reflects an effort to come up with a very balanced approach 
on the part of the able Senator from South Dakota.
  Mr. JOHNSON. I thank the Senator. It would seem to me at this point 
there is no constitutional mandate that for some reason we must go down 
the road of mixing banking and commerce, that that is some of an 
irretrievable decision that is made and we are unable now to change 
that policy. This is an opportunity, I believe, to do what needs to be 
done in this legislation. One, to strike the provision of the bill 
which would, as it stands, permit commercial firms to acquire any of 
the 500 existing unitary thrift holding companies. And our amendment 
inserts a provision to allow existing unitary thrift holding companies 
to be transferred only to financial firms.
  There are thousands of financial firms. The marketability of these 
unitary thrifts will remain high; there is no question about that. So I 
believe this is an amendment that is badly needed if this bill is going 
to ultimately be signed by the President. But it is also an amendment 
that is necessary for us to embark on what I think is a sensible and 
prudent fiscal policy, financial policy for this country. I ask support 
for the Johnson-Thomas amendment.
  I yield back such time as I may have remaining.
  Mr. GRAMM. Mr. President, I ask unanimous consent that following 
debate time on the pending amendment, it be temporarily set aside and 
the vote occur on or in relation to the Johnson amendment No. 309 at 
3:45.
  Let me also say, in fairness to Senator Johnson, why don't we have 5 
minutes each at that point. We can probably do it a little faster. 
Would 3 minutes work for the Senator?
  Mr. JOHNSON. Two or 3 minutes would be fine.
  Mr. GRAMM. I ask that we have 3 minutes each prior to the vote to 
give each side an opportunity to restate the issue at that point.
  Mr. SARBANES. If I could put a question to the chairman. There would 
be no intervening business between now and the vote on or in relation 
to the Johnson amendment, other than the debate time?
  Mr. GRAMM. That's correct.
  Mr. SARBANES. No intervening business with respect to this amendment?
  Mr. GRAMM. Right. We are going to do a lot of other business, though.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. Mr. President, I think we have come to the point where we 
are ready to begin debate on the question of whether or not banks 
should be able to provide broad financial services within the bank 
itself, or whether it should do so outside the bank. So let me request 
that Senator Shelby and

[[Page S4839]]

all those who wish to debate this issue come over. I am going to 
suggest the absence of a quorum for 15 minutes or so to give everybody 
an opportunity to come over.
  I am hopeful that with a good outcome on this coming vote, we will be 
well on our way to passing this bill. I urge, again, anyone who has an 
amendment, Senator Sarbanes and I are willing to look at them to see if 
we can take them, so please let us see that amendment.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. ROBB. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER (Mr. Voinovich). Without objection, it is so 
ordered.
  Mr. ROBB. Mr. President, I ask unanimous consent I be permitted to 
speak in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The remarks of Mr. Robb pertaining to the introduction of S. 973 are 
located in today's Record under ``Statements on Introduced Bills and 
Joint Resolutions.'')
  Mr. ROBB. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. LEVIN. Mr. President, I ask unanimous consent the order for the 
quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. LEVIN. Mr. President, I ask unanimous consent I be allowed to 
proceed in morning business for 5 minutes.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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