[Congressional Record Volume 145, Number 65 (Thursday, May 6, 1999)]
[Senate]
[Pages S4848-S4878]
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.
  The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson, 
has 3 minutes.


                     Amendment No. 309, As Modified

  Mr. JOHNSON. Mr. President, I have a modification of my amendment at 
the desk and I ask unanimous consent that it be so modified.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment, as modified, 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--

[[Page S4849]]

       ``(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 May 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 May 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 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 May 4, 1999, or a subsequent date, 
     pursuant to an application pending before the Office on or 
     before May 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 May 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. JOHNSON. Mr. President, financial modernization should go forward 
but without mixing financial services and commerce. Preserving the 
unitary thrift loophole should not be allowed. Who believes this should 
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed 
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary 
Rubin, and banking and consumer organizations. There is bipartisan and, 
frankly, overwhelming support for loophole closure. I think there is a 
sense we do not want to go down the road of financial services and 
commerce mixing at this particular juncture. Allowing financial 
modernization to go forward should occur, but allowing unitary thrifts 
to merge with other financial institutions is the road to go rather 
than allowing merger with commerce at large.
  I think we need to heed the urgent warnings of our Nation's leading 
economic minds. We appreciate that this issue is arcane in the minds of 
many in this body, no doubt. But when we have the support for closure 
of this loophole coming from the chairman of the House Banking 
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that 
ought to be compelling support for taking this step to make sure, in 
fact, we get a financial modernization bill out of this body that will, 
in fact, be signed by the President and will serve this country in good 
stead.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
  Mr. GORTON. Mr. President, financial modernization should be about 
expanding chartering options and choices for consumers, not about 
stripping away the fundamental characteristics of consumer-oriented 
institutions. It is a paradox that the banks that are here seeking more 
powers wish to restrict the powers of their competitors in the same 
bill and are using this amendment to do so.
  Proponents of this amendment contend that the unitary thrift charter 
is a ``loophole'' that allows for the mixing of banking and commerce. 
Those concerns are both misplaced and impossible under the very 
conditions of charter.
  Federal law now expressly prohibits a unitarian thrift from lending 
to a commercial affiliate. By law, a thrift must focus on providing 
mortgage, consumer, and small business credit, and its commercial 
lending is severely restricted.
  The thrift charter is unique. Martin Mayer, who is a guest scholar at 
the Brookings Institution and a foe of mixing banking and commerce, 
supports the commercial ownership of thrifts because of their unique 
lending focus on consumers and small businesses. In the more than 3 
decades that unitary thrift charters have existed, there is a total 
absence of any evidence that unitary thrifts' commercial affiliations 
have either led to a concentration of economic power or posed a risk to 
the consumer or the taxpayer. To the contrary, the FDIC has testified 
that limits such as those proposed in this amendment would restrict ``a 
vehicle that has enhanced financial modernization without causing 
significant safety-and-soundness problems.''
  The issue under debate is not the creation of a banking-commerce 
Frankenstein. It is, rather, about the proper treatment of longstanding 
institutions focused on serving local communities. Congress should not 
limit the authorities of existing consumer-oriented companies without a 
compelling reason. To do so would be anticompetitive and anticonsumer.
  I am adamantly opposed to any initiative that eviscerates the unitary 
thrift charter and urge Senators to oppose the Johnson amendment as a 
serious step backwards in our efforts to modernize our Nation's 
financial services laws.
  I yield back the remainder of my time, and I move to table the 
Johnson amendment.
  Mr. GRAMM. Mr. President, 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 amendment No. 309. 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.
  The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in 
the Chamber desiring to vote?
  The result was announced--yeas 32, nays 67, as follows:

                      [Rollcall Vote No. 103 Leg.]

                                YEAS--32

     Akaka
     Allard
     Bennett
     Breaux
     Bunning
     Campbell
     Chafee
     Cochran
     Coverdell
     Dodd
     Domenici
     Enzi
     Gorton
     Gramm
     Hagel
     Inouye
     Kyl
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Murray
     Nickles
     Reed
     Robb
     Roth
     Smith (NH)
     Smith (OR)
     Stevens
     Warner

                                NAYS--67

     Abraham
     Ashcroft
     Baucus
     Bayh
     Biden
     Bingaman
     Bond
     Boxer
     Brownback
     Bryan
     Burns
     Byrd
     Cleland
     Collins
     Conrad
     Craig
     Crapo
     Daschle
     DeWine
     Dorgan
     Durbin
     Edwards
     Feingold
     Feinstein
     Frist
     Graham
     Grams
     Grassley
     Gregg
     Harkin
     Hatch
     Helms
     Hollings
     Hutchinson
     Hutchison
     Inhofe
     Jeffords
     Johnson
     Kennedy
     Kerrey
     Kerry
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lincoln
     Mikulski
     Moynihan
     Murkowski
     Reid

[[Page S4850]]


     Roberts
     Rockefeller
     Santorum
     Sarbanes
     Schumer
     Sessions
     Shelby
     Snowe
     Specter
     Thomas
     Thompson
     Thurmond
     Torricelli
     Voinovich
     Wellstone
     Wyden

                        ANSWERED ``PRESENT''--1

       
     Fitzgerald
       
  The motion was rejected.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  Mr. GRAMM. Mr. President, I ask for the yeas and nays on the 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There is a sufficient second.
  The yeas and nays were ordered.
  Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the 
order for the yeas and nays.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The question is on agreeing to the amendment.
  The amendment (No. 309), as modified, was agreed to.
  Mr. SARBANES. Mr. President, I move to reconsider the vote.
  Mr. GRAMM. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative assistant proceeded to call the roll.
  Mr. SHELBY. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.


                           Amendment No. 315

  Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf 
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator 
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
  The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
  The legislative assistant read as follows:

  The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr. 
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu, 
proposes an amendment numbered 315.

  Mr. SHELBY. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       Redesignate sections 123, 124, and 125 as sections 125, 
     126, and 127 respectively, strike section 122, and insert the 
     following:

     SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE 
                   IN FINANCIAL ACTIVITIES.

       Chapter one of title LXII of the revised statutes of United 
     States (12 U.S.C. 21 et seq.) is amended--
       (1) by redesignating section 5136A (12 U.S.C. 25a) as 
     section 5136B; and
       (2) by inserting after section 5136 (12 U.S.C. 24) the 
     following new section:

     ``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

       ``(a) Activities Permissible.--
       ``(1) In general.--A subsidiary of a national bank may--
       ``(A) engage in any activity that is permissible for the 
     parent national bank;
       ``(B) engage in any activity authorized under section 25 or 
     25A of the Federal Reserve Act, the Bank Service Company Act, 
     or any other Federal statute that expressly by its terms 
     authorizes national banks to own or control subsidiaries 
     (other than this section); and
       ``(C) engage in any activity permissible for a bank holding 
     company under any provision of section 4(k) of the Bank 
     Holding Company Act of 1956 other than--
       ``(i) paragraph (4)(B) of such section (relating to 
     insurance activities) insofar as such paragraph permits a 
     bank holding company to engage as principal in insuring, 
     guaranteeing, or indemnifying against loss, harm, damage, 
     illness, disability, or death, or to engage as principal in 
     providing or issuing annuities; and
       ``(ii) paragraph (4)(I) of such section (relating to 
     insurance company investments).
       ``(2) Limitations.--A subsidiary of a national bank--
       ``(A) may not, pursuant to subparagraph (C) of paragraph 
     (1)--
       ``(i) underwrite insurance other than credit-related 
     insurance;
       ``(ii) engage in real estate investment or development 
     activities (except to the extent that a Federal statute 
     expressly authorizes a national bank to engage directly in 
     such an activity); and
       ``(B) may not engage in any activity not permissible under 
     paragraph (1).
       ``(b) Requirements Applicable to National Banks With 
     Financial Subsidiaries.--
       ``(1) In general.--A financial subsidiary of a national 
     bank may engage in activities pursuant to subsection 
     (a)(1)(C) only if--
       ``(A) the national bank meets the requirements, as 
     determined by the Comptroller of the Currency, of Section 
     (4)(l)(1) of the Bank Holding Company Act of 1956 (other than 
     subparagraph (C));
       ``(B) each insured depository institution affiliate of the 
     national bank meet the requirements, as determined by the 
     Comptroller of the Currency, of Section (4)(l)(1) of the Bank 
     Holding Company Act of 1956 (other than subparagraph (C)); 
     and
       ``(C) the national bank has received the approval of the 
     Comptroller of the Currency by regulation or order.
       ``(2) Corrective Procedures.--
       ``(A) In general.--The Comptroller of the Currency shall, 
     by regulation prescribe procedures to enforce paragraph (1).
       ``(B) Stringency.--The regulation prescribed under 
     subparagraph (A) shall be no less stringent than the 
     corresponding restrictions and requirements of section 4(m) 
     of the Bank Holding Company Act of 1956.
       ``(c) Definitions.--For purpose of this section, the 
     following definitions shall apply;
       ``(1) Affiliate.--The term `affiliate' has the same meaning 
     as in section 3 of the Federal Deposit Insurance Act.
       ``(2) Financial Subsidiary.--The term `financial 
     subsidiary' means a company that--
       ``(A) is a subsidiary of an insured bank; and
       ``(B) is engaged as principal in any financial activity 
     that is not permissible under subparagraph (A) or (B) of 
     subsection (a)(1) of this section.
       ``(3) Subsidiary.--The term `subsidiary' has the same 
     meaning as in section 2 of the Bank Holding Company Act of 
     1956.
       ``(4) Well capitalized.--The term `well capitalized' has 
     the same meaning as in section 38 of the Federal Deposit 
     Insurance Act.
       ``(5) Well managed.--The term `well managed' means--
       ``(A) in the case of an insured depository institution that 
     has been examined, the achievement of--
       ``(i) a composite rating of 1 or 2 under the Uniform 
     Financial Instutitions Rating System (or an equivalent rating 
     under an equivalent rating system) in connection with the 
     most recent examination or subsequent review of the insured 
     depository institution; and
       ``(ii) at least a rating of 2 for management, if that 
     rating is given; or
       ``(B) in the case of an insured depository institution that 
     has not been examined, the existence and use of managerial 
     resources that the appropriate Federal banking agency 
     determines are satisfactory.''.

     SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND 
                   THEIR FINANCIAL SUBSIDIARIES.

       (a) Purposes.--The purposes of this section are--
       (1) to protect the safety and soundness of any insured bank 
     that has a financial subsidiary;
       (2) to apply to any transaction between the bank and the 
     financial subsidiary (including a loan, extension of credit, 
     guarantee, or purchase of assets), other than an equity 
     investment, the same restrictions and requirements as would 
     apply if the financial subsidiary were a subsidiary of a bank 
     holding company having control of the bank; and
       (3) to apply to any equity investment of the bank in the 
     financial subsidiary restrictions and requirements equivalent 
     to those that would apply if--
       (A) the bank paid a dividend in the same dollar amount to a 
     bank holding company having control of the bank; and
       (B) the bank holding company used the proceeds of the 
     dividend to make an equity investment in a subsidiary that 
     was engaged in the same activities a the financial subsidiary 
     of the bank.
       (b) Safety and Soundness Firewalls Applicable to 
     Subsidiaries of Banks.--The Federal Deposit Insurance Act (12 
     U.S.C. 1811 et seq.) is amended by adding at the end the 
     following new section:

     ``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO 
                   SUBSIDIARIES OF BANKS.

       ``(a) Limiting the Equity Investment of a Bank in a 
     Subsidiary.--
       ``(1) Capital deduction.--In determining whether an insured 
     bank complies with applicable regulatory capital standards--
       ``(A) the appropriate Federal banking agency shall deduct 
     from the assets and tangible equity of the bank the aggregate 
     amount of the outstanding equity investments of the bank in 
     financial subsidiaries of the bank; and
       ``(B) the assets and liabilities of such financial 
     subsidiaries shall not be consolidated with those of the 
     bank.
       ``(2) Investment limitation.--An insured bank shall not, 
     without the prior approval of the appropriate Federal banking 
     agency, make any equity investment in a financial subsidiary 
     of the bank if that investment would, when made, exceed the 
     amount that the bank could pay as a dividend without 
     obtaining prior regulatory approval.
       ``(b) Operational and Financial Safeguards for the Bank.--
     An insured bank that has a financial subsidiary shall 
     maintain procedures for identifying and managing any 
     financial and operational risks posed by the financial 
     subsidiary.
       ``(c) Maintenance of Separate Corporate Identity and 
     Separate Legal Status.--
       ``(1) In general.--Each insured bank shall ensure that the 
     bank maintains and complies with reasonable policies and 
     procedures to preserve the separate corporate identity and 
     legal status of the bank and any financial subsidiary or 
     affiliate of the bank.
       ``(2) Examinations.--The appropriate Federal banking 
     agency, as part of each examination, shall review whether an 
     insured

[[Page S4851]]

     bank is observing the separate corporate identity and 
     separate legal status of any subsidiaries and affiliates of 
     the bank.
       ``(d) Financial Subsidiary Defined.--For purposes of this 
     section, the term `financial subsidiary' has the same meaning 
     as section 5136A(c)(2) of the Revised Statutes of the United 
     States.
       ``(e) Regulations.--The appropriate Federal banking 
     agencies shall jointly prescribe regulations implementing 
     this section.''.
       (c) Limiting a Bank's Credit Exposure to a Financial 
     Subsidiary to the Amount of Permissible Credit Exposure to an 
     Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C. 
     371c) is amended--
       (1) by redesignating subsection (e) as subsection (f); and
       (2) by inserting after subsection (d), the following new 
     subsection:
       ``(e) Rules Relating to Banks With Financial 
     Subsidiaries.--
       ``(1) Financial subsidiary defined.--For purposes of this 
     section and section 23B, the term `financial subsidiary' has 
     the same meaning as section 5136A(c)(2) of the revised 
     statutes of the United States.
       ``(2) Application to transactions between a financial 
     subsidiary of a bank and the bank.--For purposes of applying 
     this section and section 23B to a transaction between a 
     financial subsidiary of a bank and the bank (or between such 
     financial subsidiary and any other subsidiary of the bank 
     that is not a financial subsidiary), and notwithstanding 
     subsection (b)(2) and section 23B(d)(1)--
       ``(A) the financial subsidiary of the bank--
       ``(i) shall be deemed to be an affiliate of the bank and of 
     any other subsidiary of the bank that is not a financial 
     subsidiary; and
       ``(ii) shall not be deemed a subsidiary of the bank; and
       ``(B) a purchase of or investment in equity securities 
     issued by the financial subsidiary shall not be deemed to be 
     a covered transaction,
       ``(3) Application to transactions between financial 
     subsidiary and nonbank affiliates.--
       ``(A) In general.--A transaction between a financial 
     subsidiary and an affiliate of the financial subsidiary (that 
     is not a subsidiary of a bank) shall not be deemed to be a 
     transaction between a subsidiary of a bank and an affiliate 
     of the bank for purposes of section 23A or section 23B of 
     this Act.
       ``(B) Certain affiliates excluded.--For purposes of this 
     paragraph, the term `affiliate' shall not include a bank, or 
     a subsidiary of a bank that is engaged exclusively in 
     activities permissible for a national bank to engage in 
     directly or authorized for a subsidiary of a national bank 
     under any federal statute other than section 5136A of the 
     Revised Statutes of the United States.''.

     SEC. 124. FUNCTIONAL REGULATION.

       (a) Purpose.--The purpose of this section is to ensure 
     that--
       (1) securities activities conducted in a subsidiary of a 
     bank are functionally regulated by the Securities and 
     Exchange Commission to the same extent as if they were 
     conducted in a nondepository subsidiary of a bank holding 
     company; and
       (2) insurance agency and brokerage activities conducted in 
     a subsidiary of a bank are functionally regulated by a State 
     insurance authority to the same extent as if they were 
     conducted in a nondepository subsidiary of a bank holding 
     company.
       (b) Functional Regulation of Financial Subsidiaries.--The 
     Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is 
     amended by inserting after section 45 (as added by section 
     123 of this subtitle) the following new section:

     ``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES 
                   AND INSURANCE AGENCY SUBSIDIARIES OF INSURED 
                   DEPOSITORY INSTITUTIONS.

       ``(a) Broker or Dealer Subsidiary.--A broker or dealer that 
     is a subsidiary of an insured depository institution shall be 
     subject to regulation under the Securities Exchange Act of 
     1934 in the same manner and to the same extent as a broker or 
     dealer that--
       ``(1) is controlled by the same bank holding company as 
     controls the insured depository institution; and
       ``(2) is not an insured depository institution or a 
     subsidiary of an insured depository institution.
       ``(b) Insurance Agency Subsidiary.--Subject to Section 104 
     of the Act, an insurance agency or brokerage that is a 
     subsidiary of an insured depository institution shall be 
     subject to regulation by a State insurance authority in the 
     same manner and to the same extent as an insurance agency or 
     brokerage that--
       ``(1) is controlled by the same bank holding company as 
     controls the insured depository institution; and
       ``(2) is not an insured depository institution or a 
     subsidiary of an insured depository institution.
       ``(c) Definitions.--For purposes of this section, the terms 
     `broker' and `dealer' have the same meanings as in section 3 
     of the Securities Exchange Act of 1934.''.

  Mr. SHELBY. Mr. President, I rise today to offer this amendment, 
entitled the American Bank Fairness Amendment, to S. 900, the pending 
bill.
  This amendment, which, as I have said, is cosponsored by Senator 
Daschle, the minority leader, and Senators Grams, Reed, Bennett, 
Edwards, Hagel, and Landrieu, would permit national banks to conduct 
equity securities underwriting and merchant banking activities in an 
operating subsidiary, much as their foreign bank competitors that are 
allowed to conduct such activities in the United States today. I note 
that six of the seven sponsors of this amendment are members of the 
Banking Committee.
  We are talking this afternoon about defining a fair and an efficient 
framework to allow all--yes, all--financial institutions to better 
provide service to their customers in America. This country needs 
financial modernization. I support national modernization.
  I have great respect for the chairman, the Senator from Texas, Mr. 
Gramm, and I supported the chairman in the committee. He helped to get 
this bill to the floor.
  Unfortunately, this bill does more for the institutions in the top 
world financial centers--New York, Hong Kong, London--than it does for 
the average bank that serves the average person in America. That is the 
issue at hand.
  I know many of my colleagues have made up their mind on this issue. 
Besides, in all honesty, the chairman of the Federal Reserve, Alan 
Greenspan, may not even be the Chairman of the Federal Reserve after 
next year, although I wish that he would continue. It is often reported 
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant 
will be the next person President Clinton nominates to the Federal 
Reserve Board. Therefore, I do not believe it is fair for the issues of 
this debate to revolve around any one individual, although it is an 
individual I hold in great respect.
  The truth is, we are here today to write the laws that will determine 
the future of the American financial system for the next 60 years. We 
are talking about the issues of banking law, corporate law, industrial 
organization.
  Senators Grams, Reed, and Bennett have been the lead proponents of 
the operating subsidiary for several years and they should be commended 
for their deep understanding of the issue and the banking expertise 
they bring to the Senate Banking Committee.
  Let me say from the very beginning, this debate is not about Chairman 
Alan Greenspan. It should never be. As I said, I have a deep respect 
for Chairman Greenspan. I hold him in very high regard. He is a 
tremendous central banker. I am not here to dispute that in any way.
  The operating subsidiary amendment is not about monetary policy. Let 
me repeat, the operating subsidiary amendment is not about monetary 
policy. It is not about inflation, the money supply, or even the 
unemployment rate. I plead with Senators to listen to the facts. The 
key banking committee Senators supporting this amendment are not from 
big cities. They are not doing this for Citigroup or Merrill Lynch, 
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial 
institutions want a bill so badly, they have forced their associations 
to oppose this amendment based on press reports that this bill will be 
pulled if it passes. We all know it is the multibillion-dollar 
financial institutions that control the associations, and they are the 
ones pushing this bill.

  I just do not believe that, in passing a financial modernization 
bill, we should forget about the smaller, midsized, and regional banks 
that serve our local communities and our States. Those banks--the 
smaller, midsized, and regional banks--are the ones that are not being 
heard on this issue. They are being shut out and they have been 
discounted.
  I am sorry, but I do not believe financial modernization should be 
only for the folks on Wall Street. I do not understand why this body 
would knowingly pass a financial modernization bill that would 
intentionally discriminate against domestic banks in favor of foreign 
banks.
  If you want to talk about competition, free markets, and fair and 
equal treatment under the law, Senators should seriously consider the 
amendment that is before the Senate. The Shelby-Daschle and others 
amendment would provide more fair and equitable treatment of our 
national banks in comparison with our foreign competitors.
  The American Bank Fairness Amendment, as we called it, would ensure

[[Page S4852]]

that foreign banks receive no competitive advantage over our banks here 
in America.
  S. 900, at the moment, as it is written, discriminates against 
domestic banks. Ask yourself, Why are we even here in the first place? 
Why are we even considering financial modernization, if it is to be 
globally competitive? Is it to ensure that our banks can compete on an 
international scale?
  I received a letter from John Reed and Sanford Weill, cochairmen of 
Citigroup, this morning. They wrote to inform me that passage of 
financial modernization is imperative.
  They said,

       As our financial services firms contort to comply with the 
     current legal and regulatory structure, we become much less 
     competitive with our non-U.S. counterparts. Our country's 
     competitive position as the world's leader in financial 
     services is at risk of being lost if we don't act now.

  So, according to our friends at Citigroup, it appears we have become 
less competitive with our foreign competitors, and that our position as 
a world leader is at risk.
  I received a similar letter from Phil Purcell, chairman of Morgan 
Stanley Dean Witter & Co. He said that Congress needs to pass this bill 
because:

       Financial modernization legislation is critical to the 
     maintenance of the preeminence of American financial firms in 
     global markets.

  American preeminence, Mr. President? Is that the reason we are 
considering this legislation? If these are, indeed, the reasons, I must 
confess I am really confused. The reason for my confusion is S. 900, 
the bill we are debating today actually discriminates against domestic 
banks in favor of foreign banks. Simply put, national banks are not 
allowed to conduct merchant banking activities or equity underwriting 
activities in an operating subsidiary. Foreign banks, however, can 
conduct those activities today, and will actually expand their range of 
activities to include insurance underwriting, if this bill becomes law.
  I actually have some charts to share with you to help demonstrate the 
blatant discriminatory treatment of our own national banks versus those 
of foreign banks' operating subsidiaries in America. Under current law, 
national bank subsidiaries are not permitted to conduct merchant 
banking activities. Merchant banking basically means that banks are 
permitted to make investments in a company subject to conditions 
designed to maintain the separation between banking and commerce. 
Foreign subsidiaries operating today in America can, however. Under 
current law, national bank subsidiaries are not permitted to underwrite 
any deal in equity securities. However, foreign bank subsidiaries can.
  The last row under the ``current law'' is blank. That is, neither 
foreign bank subsidiaries nor national bank subsidiaries may underwrite 
noncredit-related insurance.
  Let's look at a chart of permitted subsidiary activities that I have 
here if this financial modernization bill were enacted into law. Please 
notice that under the first column, here, national bank subsidiaries 
still will not enjoy the ability to conduct merchant banking activities 
or conduct equity securities underwriting. Foreign bank subsidiaries 
will not only be allowed to conduct those activities--merchant banking, 
underwriting and dealing in equity securities and insurance 
underwriting, as shown on the chart--but S. 900, as currently written, 
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole 
rationale for the bill.
  That is the major flaw with this bill. How can the supporters of this 
bill say this will help our national banks compete when they are 
clearly put at a disadvantage by their own Federal Government? How can 
we in good conscience support a bill that discriminates against our own 
national banks?
  Senator Gramm and Chairman Greenspan say if national banks are 
allowed to conduct such activities in an operating subsidiary, these 
banks would have a funding advantage over their competitors because of 
an alleged ``subsidy.''
  However, neither Senator Gramm nor Chairman Greenspan can reconcile 
this argument with the competitive advantage of foreign bank 
subsidiaries. Since 1990, the Federal Reserve Board has issued 
approvals for 18 foreign banks to own subsidiaries that engage in 
securities underwriting activities in the United States. In fact, the 
size of these subsidiaries exceeds $450 billion in assets. The Federal 
Reserve admits that foreign banks may enjoy a ``home country'' subsidy. 
In approving the section 20 subsidiary application for the Canadian 
Imperial Bank of Commerce in 1990, the Federal Reserve noted:

       Although as banks, applicants [that is foreign banks] are 
     not supported to any significant extent by the U.S. federal 
     safety net, they have access to any benefits that are 
     associated with their respective home country safety nets, 
     from which they may derive some competitive advantage over 
     U.S. bank holding companies operating under the section 20 
     framework or other U.S. securities firms.

  Not only does the board basically admit there may be home country 
advantages, they also admit:

       . . .  a foreign bank may establish and fund a section 20 
     subsidiary, while a U.S. bank may not.

  Further, in their 1992 joint report on foreign bank operations 
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board 
and the Department of Treasury agreed that, ``. . . subject to 
prudential considerations, the guiding policy for foreign bank 
operations should be the principle of investor choice. The right of a 
foreign bank to determine whether to establish a branch or a subsidiary 
is consistent with competitive equity, national treatment and equality 
of competitive opportunity.''
  Why is investor choice the guiding principle for foreign banks but 
not for our domestic banks? Why do foreign banks have the right to 
choose their own corporate structure but domestic banks do not?
  The Federal Reserve Board stated that while a subsidy for foreign 
banks may exist:

       [T]he Board believes that any advantage would not be 
     significant in light of the effect on them of the overall 
     section 20 framework and the circumstances of these cases, 
     and should not preclude foreign bank ownership of section 20 
     subsidiaries.

  Basically, that means the rules and the regulations that apply to 
foreign section 20 subsidiaries should contain any possible subsidy.
  Why do the rules and regulations in place contain any possible 
subsidy for foreign banks but not domestic banks, our banks? Why should 
any alleged subsidy preclude operating subsidiaries for U.S. banks but 
not for foreign subsidiaries? Fundamental fairness would suggest that 
foreign banks not be allowed to have a competitive advantage over 
domestic banks. It just makes no sense. Fundamental fairness suggests 
domestic banks should also have the choice of an operating subsidiary 
that our foreign banks have.
  Critics of the operating subsidiary have voiced concerns about safety 
and soundness. But this is a red herring, I believe, and really no 
issue at all. Even Chairman Greenspan testified that safety and 
soundness is really not the issue with regard to operating 
subsidiaries, when asked by Congressman Bentsen in the House. I will 
quote the chairman:

       My concerns are not about safety and soundness. It is the 
     issue of creating subsidies for individual institutions which 
     their competitors do not have. It is a level playing field 
     issue. Non-bank holding companies or other institutions do 
     not have access to that subsidy, and it creates an unlevel 
     playing field. It is not a safety and soundness issue.

  The amendment before us, the operating subsidiary proposal, includes 
the same safety and soundness protections and lending restrictions as 
the Federal Reserve imposes on section 20 subsidiaries. But to further 
address any safety and soundness concerns, the amendment would also 
require that the parent bank deduct--yes, deduct--its entire equity 
investment in the subsidiary from its own capital and still remain well 
capitalized.
  Furthermore, under the operating subsidiary, any alleged ``subsidy'' 
transferred to the subsidiary would be identical to that transferred to 
an affiliate because investments in the subsidiary would be limited to 
that which the bank could transfer to holding company affiliates in the 
form of dividends.
  Lastly, the current Chairman of the Federal Deposit Insurance 
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound 
than the affiliate structure.

[[Page S4853]]

  The FDIC chairmen argue that forcing activities in an affiliate 
actually exposes insured banks to greater risks than that of an 
operating subsidiary.
  I want to respond to a letter Chairman Alan Greenspan wrote to 
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May 
3. I believe this is a great letter in support of the operating 
subsidiary. In Chairman Greenspan's effort to explain why foreign bank 
subsidiaries do not have a competitive advantage and are justified, he 
actually makes the case for an operating subsidiary and confirms 
everything proponents have been saying all along.
  In paragraph 2, Chairman Greenspan says that the International 
Banking Act requires foreign banks be allowed to operate in this 
country through operating subsidiaries. His major point is that it is 
not his choice, but that the law makes him do it, and this is due to 
the national treatment principles to which he refers in paragraph 3.
  I understand the national treatment principles. However, those 
principles are not and should not be interpreted to mean that foreign 
banks be given advantages over U.S. banks.
  In both the International Banking Act and the Bank Holding Company 
Act, the Federal Reserve Board is mandated to deny an application by a 
foreign bank to establish a U.S.-subsidiary if the Board finds that the 
proposal will result in ``decreased or unfair competition, conflicts or 
interests, or unsound banking practices.''
  This is a very important point, I submit to my colleagues. By law, 
the Federal Reserve must have determined that foreign bank subsidiaries 
conducting securities underwriting and equity underwriting does not 
result in unsound banking practices.
  Otherwise, the Federal Reserve would be in violation of the 
International Banking Act and the Bank Holding Company Act. That very 
fact supports our argument that conducting such activities in an 
operating subsidiary is both safe and sound.
  In the third paragraph, Chairman Greenspan says:

       In the absence of any evidence that foreign banks are using 
     their government subsidy to an unfair competitive advantage 
     in the United States, there does not seem to be any 
     compelling reason to abandon the current approach to foreign 
     bank participation in this country.

  Chairman Greenspan once again admits there is a government subsidy 
for foreign banks. He confirms what I shared with everyone in my ``Dear 
Colleague'' letter in the Senate. He then changes the subject to say 
there is no reason to abandon foreign banks subsidiaries. I never 
suggested such a thing in my ``Dear Colleague'' letter. In only asked 
that if it is appropriate for foreign banks, why isn't it appropriate 
for national banks?
  The fifth paragraph of the letter states that, ``foreign banks have 
not been able to exploit their home country subsidy . . .'' and that 
foreign bank subsidiaries ``have substantially underperformed U.S. 
owned section 20 companies.'' He actually admits that ``the subsidy 
does not travel well.'' In other words, foreign banks have not been 
successful transferring their home country subsidy to their subsidiary 
in the U.S.
  But wait a minute. You cannot have it both ways. I do not care who 
you are.
  Chairman Greenspan just presented evidence to us in the fifth 
paragraph that foreign bank subsidiaries, which in the third paragraph 
he admits receive a home country subsidy, underperform their American 
competitors. Thus, if there is a subsidy, it must either be (1) 
insignificant, and not enough to affect market performance or (2) 
contained in the section 20 regulatory framework and therefore not an 
issue. In either case, the Chairman has just confirmed the arguments 
that proponents of operating subsidiaries have made.
  To sum up, Chairman Greenspan, just 2 days ago, confirmed that: 
foreign bank subsidiaries receive home country subsidies; conducting 
such activities in a subsidiary does not result in unsound banking 
practices, otherwise the Fed is violating the law with regard to 
foreign bank subsidiaries; and the subsidiary does not ``travel well,'' 
that is, it is not easily transferred from the bank to the sub.
  The logic and the evidence presented by Chairman Greenspan in defense 
of foreign bank subsidiaries is the exact same logic and evidence that 
supports the Shelby-Daschle operating subsidiary amendment.
  To be honest, I am quite surprised at the Chairman's uncompromising 
position on the issue. As a student of Public Choice economics, I am 
sure he is aware of the benefits of competition among regulators. I am 
surprised he supports making the Federal Reserve the monopoly umbrella 
regulator. Monopolies restrict output and increase prices.
  There is no doubt in my mind that making the Federal Reserve the 
monopoly regulator will create even more bottlenecks in bank 
applications thereby increasing the regulatory cost of banks doing 
business with the Federal Reserve.
  For the sake of competition, for the sake of free markets, for the 
sake of choice, I respectfully request that you support the Shelby 
amendment.
  Mr. GRAMM addressed the Chair.
  The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
  Mr. GRAMM. Mr. President, I think if anyone knows me and knows 
Richard Shelby, they know that we came to Congress on the same day. We 
served on the House Energy and Commerce Committee together. We were 
both Democrats then. We both changed parties. We both ran for the 
Senate. And Richard and I have been very close friends since the first 
day we came. I think you always regret when you have these kinds of 
tough battles, but this is a tough battle. This is vitally important.
  Let me basically outline what I want to say and then let me go about 
trying to say it.
  First of all, there has been some speculation about whether or not, 
as chairman of the Banking Committee and a new chairman, chairman only 
for a few months, whether or not I would pull my own bill, which, as 
the Presiding Officer knows as a member of the committee, has been a 
great labor of mine for all these many months and has been the labor of 
Congress for 25 years. As to whether I would pull the bill over this 
issue, let me leave no suspense: I will pull this bill if the Shelby 
amendment is adopted.
  You might think that is a very strong statement to make, but I think 
when you hear my presentation, you will understand why I make it, 
because with all the good things in the bill, I want people to 
understand that all of them combined together would not undo the harm 
that would be done by this amendment.
  What I will do is answer Senator Shelby on foreign banks. I will then 
go through and talk about the real issue: What is the issue for 
Democrats who are hearing from the Secretary of the Treasury? What is 
the issue for Republicans who are hearing from big banks? What is the 
public interest?
  I will try to answer those issues. Let me begin with the foreign 
banks.
  Senator Shelby would have us believe that we need to start 
subsidizing American banks because foreign banks are subsidized. He 
would have us believe that somehow we have given foreign banks a 
different set of regulations to abide by in America than American banks 
have had and that therefore we need to do something about it.
  Let me address that. And I want to address it first by reading Alan 
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby 
referred to part of it. But I think it goes right to the heart of the 
issue.
  Reading his letter of May 4:

       First, the Board did not simply choose to let foreign banks 
     operate in this country through subsidiaries. The law 
     required it. The International Banking Act . . .

  That was passed in 1978--

       . . . provides that a foreign bank shall be treated as a . 
     . . holding company for purposes of nonbanking acquisitions.

  That is the law of the land. That was adopted by Congress. That was 
signed by the President. The Chairman of the Board of the Federal 
Reserve had nothing to do with that. He simply had the responsibility 
of implementing it.

       Therefore, when the Board allowed U.S. bank holding 
     companies to own securities companies, the Board was required 
     to permit foreign banks that met the statutory conditions 
     also to acquire such companies.
       The law treating foreign banks as holding companies was a 
     practical response to an existing situation: most foreign 
     banks do not have holding companies.


[[Page S4854]]


  And I will get to that point in a minute because it is important.

       Without the [International Banking Act's] approach, foreign 
     banks generally would be excluded from the U.S. market, in 
     violation of the national treatment principles embedded in 
     U.S. law. . . .
       The Board stated it would monitor, and in fact has 
     monitored, this situation to assure that foreign banks do not 
     in fact operate to the detriment of U.S. banking 
     organizations. . . .
       A recent Federal Reserve study of the performance of 
     section 20 companies over the last eight years demonstrates 
     that foreign bank-owned section 20 companies have 
     substantially underperformed U.S.-owned section 20 companies. 
     . . .
       To cite the fact of foreign bank structure to support a 
     similar structure in the United States is not only 
     misleading, it is potentially harmful.

  Let me explain what all that means in English. What it means is, we 
passed a law, and the law said that since foreign banks do not use 
holding companies--they use operating subsidiaries because it is 
permitted under their law--that for treatment purposes, they would be 
treated as holding companies in the United States. Senator Shelby says 
this is unfair.
  I would like to note that the Federal Reserve, noting a potential 
problem with it, set out a monitoring process to see if these foreign 
banks are benefiting relative to our banks in promoting unfair 
competition.
  What the Fed found in 1995 was that not only were they not 
benefiting, but they lost 11 percent. In 1996, their rate of return was 
minus 8 percent. In 1997, their rate of return was 18 percent. And in 
1998, their rate of return was 25 percent.
  So the plain truth is, these foreign banks are poorly run, their 
subsidiary operations are a disaster, but if they were well run, and if 
they were getting a competitive advantage, we would do something about 
it. The point is, it has not created a problem.
  Nineteen of these foreign banks are in the securities business. 
Together, they make up less than 2.6 percent of the American market. In 
terms of underwriting revenues, they earn 3.8 percent of the revenues. 
So the point is, these foreign banks are not effective in competing 
against American banks. The point is, because foreign governments 
subsidize their banks, do we want to subsidize our banks? As chairman 
of the Banking Committee, I can tell you, if these foreign subsidies 
started having an unfair effect in our market, we would take action to 
change the law and prevent this advantage.

  But we have allowed this situation to exist for two reasons: One, it 
has not done us any harm, and, two, we sell $10 of financial services 
abroad for every $1 of financial services sold in America. So the last 
thing we wanted to do is get into a trade war in banking, because we 
are the world's greatest bankers, we are the world's greatest exporters 
of banking services. And so it was to our advantage to allow this to 
happen as long as it was doing no harm.
  What is the real issue at stake in this amendment? I want to begin 
with a quote from Secretary Rubin. In fact, many people on the Democrat 
side of the aisle have been called by Secretary Rubin in the last few 
days. Some people on our side of the aisle have been called. I want to 
read you a quote from Secretary Rubin. And then I want to pose a 
question: What could this quote possibly be referring to?
  This is a quote from the Secretary of the Treasury, Robert Rubin, on 
May 5, 1999, before the Finance Subcommittee of the House Commerce 
Committee. And I will read you the quote:

       [O]ne of an elected Administration's critical 
     responsibilities is the formation of economic policy, and an 
     important component of that policy is banking policy. In 
     order for the elected Administration to have an effective 
     role in banking policy, it must have a strong connection with 
     the banking system.

  I remind my colleagues that the Comptroller of the Currency, who 
works for Robert Rubin, regulates national banks. And national banks 
make up 58 percent of the assets in American banks. Why isn't that ``an 
effective role in banking policy''? Why is it not ``a strong connection 
with the banking system''? I can tell you, Secretary Rubin is right: It 
is not a strong connection. The Comptroller of the Currency is an 
accountant. Banking policy is run by the Federal Reserve. And I thank 
God for that every single day.
  I thank God every single day that in 1913, after the Treasury had run 
monetary policy in this country--we had a giant panic in 1907; the 
country had gone through continuing economic convulsions--the Congress 
put an end to it by setting up an independent monetary authority called 
the Federal Reserve.
  The Federal Reserve, with an independent board--appointed by the 
President, confirmed by the Senate for very long terms--exercises 
independent monetary policy. So when the President wants to inflate the 
economy to get reelected, the Fed says no. When Congress feels we need 
to print more money to get things moving to help them in their 
elections, the Fed says no. We have an independent monetary authority.
  So while the Comptroller of the Currency is an accountant that 
primarily audits national banks, he has no policy authority at all. 
Why? Because the Federal Reserve regulates the holding companies, and 
there are 6,867 holding companies in America that together make up 
about 96 percent of bank assets.
  So sure enough, the Treasury sends out all of the accountants and 
auditors, but the Federal Reserve sets the policy. And what Robert 
Rubin is saying, in the clearest possible terms, is he wants to set 
banking policy, he wants to set monetary policy. That is exactly what 
he is saying.
  The question is, Do we want to put the Treasury back in the position 
of setting banking policy in America? Do we want the President to have 
the ability to use banking policy as a political tool? Are we not 
talking about repealing the Federal Reserve Act?

  Now, how all this comes about is a little complicated, but with a 
teeny bit of detective work, it becomes very, very clear.
  Remember, the Fed does not regulate banks. Not a single bank in 
America is regulated directly by the Fed. But it regulates holding 
companies that control banks, and those holding companies have 97 
percent of the assets of banks. Why do they have it? Because our law 
requires that banks not provide other financial services within the 
bank, for safety and soundness reasons, and so big banks and banks that 
have large assets are holding companies and they come under the Federal 
Reserve.
  Now, if we adopted the Shelby amendment, let me read what Alan 
Greenspan and the Board of Governors of the Federal Reserve say would 
happen:

       As I have testified, if profit is their goal, there is no 
     choice. Because of the subsidy implicit in the Federal safety 
     net, profit-maximizing management will invariably choose the 
     operating subsidiary. As a consequence, the holding company 
     structure will atrophy in favor of bank operating 
     subsidiaries. Our [and ``our'' being the Federal Reserve] 
     current ability rests principally on our role as holding 
     company supervisor.

  So here is the point: If you let banks perform these services within 
the bank itself, their securities affiliate or, in the future, their 
insurance affiliate or any other thing you allow them to do can get the 
advantage of the bank's FDIC insurance and the ability to borrow money 
from the Fed, which is the lowest interest rate in the world, and if 
they can use the Fed wire, the Fed has estimated that doing these 
things within the bank creates about a 14 basis points advantage over 
doing them outside the bank. Those little margins make a very big 
difference.
  So, obviously, the Treasury and the Federal Reserve believe and both 
agree that if you let banks perform these functions inside the bank, 
banks will tend to close down their holding companies and bring these 
functions inside the bank.
  Now, I am going to talk about that issue separately. But what does 
that mean in terms of monetary policy? It means that the Comptroller of 
the Currency, who will be regulating banks that will no longer be 
holding companies, will become the banking authority in the country, 
and the Federal Reserve will see the number of holding companies it 
regulates decline, decline, decline, and decline.
  Now, interestingly, the Treasury and the Shelby amendment, one and 
the same, recognize this. They say, OK, for the 43 largest holding 
companies, we will force them to maintain their holding company, so 
that the Fed will continue to regulate them. That means that 6,824 
other holding companies will be allowed to change their structure. They 
will be driven by the profit motive to do it. Therefore, over time the

[[Page S4855]]

control of banking policy and ultimately monetary policy--because bank 
regulation is a source of strength for the Fed in implementing much of 
its policy--will shift from the Federal Reserve to the Treasury, from 
an independent agency to an arm of the President of the United States.
  Now, you might say, well, the Federal Reserve still regulates 43 
holding companies. But the holding companies have every incentive to 
conduct all of their activities within the bank, so the holding 
companies, the 43 left that the Fed would regulate, will be empty 
shells.
  The Fed's power comes from the power to regulate banks. Their ability 
to get banks together to prevent a financial collapse--such as the Long 
Term Capital Management case in New York--was their ability, using 
moral suasion by the fact that they regulated the holding companies 
that were involved, to get people together and basically nudge them, 
encourage them, and, if you like, pressure them into dealing with that 
crisis before it got moving.
  Now, I ask my colleagues on the first point: Do you want this 
administration, or any administration, to control banking policy? The 
Secretary of the Treasury says they should; it is part of the tools 
they say they need to conduct economic policy.

  Let me tell you something, Mr. President. We had this debate in 1913. 
We decided we didn't want the President, in 1913, controlling banking 
policy. We have decided we do not want any President or did not want 
any President since that time.
  Would we have been better off in the last 2 years of the Reagan 
administration if the Treasury had controlled banking policy instead of 
the Federal Reserve? I do not think so. When the Bush administration 
was in a reelection campaign and losing the election because the 
economy was recovering slowly, would we have wanted the Secretary of 
the Treasury and the Comptroller of the Currency--appointed by the 
President, removable by the President--would we have wanted them to 
have the ability to turn on the printing presses or to use expansionary 
policy with the banks? I do not think we would.
  Do we want this President to have the ability to control banking 
policy when he orders the Comptroller of the Currency, who would be the 
new central banking regulatory authority under the Shelby amendment, to 
come to the White House for a fundraiser with bankers?
  This is not a partisan matter. Bill Clinton is going to be President 
for 18 more months. We may well then have a Republican President. I 
hope so. But I do not want a Republican or Democratic President to 
control banking policy. We set up an independent Fed to do that, and I 
want them to do it. Have no doubt about it, when Robert Rubin is saying 
that this amendment is a way of expanding the administration's 
effective role in banking policy, he means transferring from the Fed to 
the Treasury the ability to set banking policy.
  Now, if you are for that, if you believe the executive branch of 
American government ought to set banking policy, you should vote for 
the Shelby amendment. But if you believe we have done pretty well under 
Alan Greenspan and the Federal Reserve, if you believe that since 1913 
the American economy has performed pretty well by taking banking policy 
away from Congress and away from the executive branch of government and 
putting it in an independent agency, if you believe that, do not vote 
for this amendment. This amendment is clearly an effort to transfer 
regulatory authority over banking from the Federal Reserve to the 
Treasury. That would be a disaster for America. That would be far more 
important in its negative impact than anything we could possibly do in 
terms of letting banks get into a few other areas of providing 
services.
  This is a fundamental issue. I urge my colleagues not to get caught 
up on the Democrat side of the aisle with the fact that there is a 
Democrat President or that we have a very friendly, nice, and competent 
Secretary of the Treasury who is calling them up and saying, ``We need 
you to vote with us.'' This is not a partisan matter. An independent 
control of banking policy in America, an independent agency controlling 
banking policy, is not a partisan matter, it is a matter that this 
Congress, on a bipartisan basis, has stood for since 1913. I don't want 
to take any step, and I don't believe America, if it understood this 
issue, would want to take a step backward from that.

  Let me talk to my Republican colleagues. We have written a bill, and 
I think it is a good bill. I had a lot to do with writing it, so 
obviously I think that. But I think other people are beginning to think 
it, too. This is a big bank, big securities, big insurance bill. That 
is just a reality. And I have to say that there is something a little 
bit obscene about big banks calling up Members of the Senate and 
saying: ``Well, you know we only got 95 percent of what we wanted in 
that bill. We could get another 15 percent and go up to 110 percent if 
you could let us provide these services within the bank, rather than 
doing it outside the bank.''
  Now, the banks are not caught up in who is going to conduct banking 
policy. They are caught up in the fact that they are going to make more 
money if they can provide these services inside the bank, because they 
get the subsidies from the FDIC insurance, the Fed window and the Fed 
wire.
  I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say. 
We have all heard: What is good for General Motors is good for America. 
That is not right. What is good for America is good for General Motors. 
I just say to my colleagues, whatever commitments you have made on 
this, whatever partisanship you feel on this, ask yourself a question: 
Is it good for America to give the Treasury--an agency controlled by 
the President--control over banking policy in this country and take 
that control, at least partially, away from the Federal Reserve?
  Do we want monetary policy to continue to be based on an objective 
set out to maintain stable prices and economic growth, or do we want to 
bring politics into it? Obviously, Secretary Rubin wants the 
administration to conduct banking policy, and that is why he asked for 
this amendment. He says it in clear English. I don't want this 
administration to conduct banking policy, but at least you have to say 
I am a little broad-minded. I don't want any administration to conduct 
monetary policy.
  To try to summarize, because it gets complicated: The Secretary of 
the Treasury wants this amendment adopted because banks, by providing 
these new services inside the bank, will find it cheaper to do that, 
more profitable, and they will fold their holding companies, which they 
only set up because the law required them for safety and soundness to 
undertake these riskier activities outside the bank. As they fold up 
these holding companies, the Federal Reserve loses regulatory control 
over them and the Comptroller of the Currency, and therefore the 
President, gains regulatory control over them. So what Secretary Rubin 
is talking about is basically giving the Treasury regulatory authority 
that the Federal Reserve now has.
  Nothing in our bill takes power away from the Treasury. A lot of 
people have gotten confused that this is just a power struggle, where 
this bill would give the Federal Reserve more authority, and the 
Treasury wants to share it, or the Treasury wants more. Look, the Fed 
regulates bank holding companies. Virtually all the wealth is already 
in bank holding companies. The Comptroller audits national banks. There 
is no shift in the regulatory authority in our underlying bill.
  But the amendment that Senator Shelby has offered with Senator 
Daschle, supported by the Clinton administration, is the biggest 
regulatory shift, the biggest power grab, by a Federal bureaucracy that 
I have seen in my 20 years in Congress. And it is absolutely critical 
that we slam the door on this power grab, not because Rubin is a bad 
guy and Greenspan is a good guy, but because Rubin is a political 
appointee controlled by a President who, by the very nature of the 
Presidency--whether it is President Ronald Reagan or President William 
Clinton--he has political concerns to deal with, as he should.

  We decided in 1913 to take banking policy out of the hands of 
politicians and put it into the Federal Reserve. We dare not take 
action to take it back.

[[Page S4856]]

 Maybe Robert Rubin would do a good job with it. Maybe Bill Clinton 
might fire Rubin and appoint somebody else, or maybe Rubin might leave. 
But the point is, the Fed, whoever is there--and I hope Alan Greenspan 
will be there forever--will be independent, with a long term, and will 
be independent of the President, and so will the board members who 
share that power.
  If this issue doesn't move you, then I have done a poor job, because 
I have been standing on the floor for 3 days and I am tired. If this 
issue doesn't move you, it is not because the issue is not moving; it 
is because I am not moving. I want to urge my colleagues to think long 
and hard before we take an action that, in reality, is a step toward 
repealing the essence of the Federal Reserve Act.
  Let me turn to the other side of the story. It is an important story. 
I have explained first how this amendment is a step toward repealing 
the Federal Reserve Act by giving the control of bank regulation to the 
Treasury instead of the Federal Reserve. But let me explain that, for 
safety and soundness, for the well-being of the taxpayer, and for 
competition, this amendment is also a bad thing. Banks receive a 
subsidy from the Government because they have their principal asset--
deposits--insured by the FDIC. They have deposit insurance. No other 
nonbanking institution has that guarantee. Your insurance salesman 
doesn't have it. Your securities broker doesn't have it. The stock 
exchange doesn't have it. The bank has it.
  The bank also has the ability to go to the Federal Reserve and borrow 
at the lowest interest rates in the country. And they have the ability 
to use the Fed wire to transfer money that is guaranteed. What all that 
means is that if you let banks provide broad-based financial services, 
which this bill does--but it requires them to do it outside the bank--
if you let them do it inside the bank, these huge banks with massive 
capital, when they are selling securities or underwriting them--or, 
ultimately, because if you let them do securities today, in 5 or 10 
years, you are going to let them do insurance within the bank, and we 
all know it--these banks will have an enormous and unfair competitive 
advantage due entirely to the Federal subsidies they are receiving.
  When they are selling securities, or selling insurance or 
underwriting it, they are going to have a competitive advantage because 
they can borrow money more cheaply than an insurance company or an 
independent stockbroker. So what is going to happen over time is, with 
that competitive advantage, they are going to end up dominating the 
securities industry, and in the long run, dominating the insurance 
industry.
  I ask you the question: Do we want a banking industry that dominates 
the entire financial services industry? I helped write this bill to 
promote more competition. I did not write this bill so that 20 years 
from now we look like Japan, with 10 banks dominating the entire 
financial services area. I know about the Presiding Officer, but I 
don't know about other people. I happen to love my independent 
insurance agents and they love me, and I appreciate it. I happen to 
love my little independent stockbroker in my hometown; he was my 
campaign manager the first time I ever ran for Congress. I don't want 
to force these people out of business by giving an unfair competitive 
advantage to banks.
  We are not talking about foreign banks who don't know how to do it, 
even with a Government subsidy; we are talking about American banks 
that know how to do it.
  Now, Mr. President, the next problem is that we are going to create 
an unlevel playing field, and banks are going to dominate these 
industries not because they are better, but because their structure of 
being able to provide these services within banks is one that is 
cheaper to operate in.
  The third and final problem is selling insurance--underwriting 
insurance--which ultimately will happen if we go this direction with 
op-subs on securities--selling securities; underwriting securities is 
risky business.
  What we are doing, if we put that power within the structure of the 
bank, is that taxpayers are underwriting it, at least implicitly with 
Federal deposit insurance. So we are putting the taxpayer on the hook.
  The alternative in the bill is, except for very small banks that 
can't afford to have holding companies, to require banks that have 
holding companies--and they are large enough to have them, they can 
provide all these new services--but they have to do them outside the 
banks. So the taxpayer is not on the hook for the deposit insurance for 
these activities, and the banks don't get a subsidy to conduct these 
activities due to the fact that capital is cheaper inside the bank, and 
we don't create a structure where the Treasury--a political 
institution--exercises more banking regulation and the Fed less.
  Alan Greenspan, testifying before the House Commerce Committee last 
week, made a very strong statement. Those of you who know Alan 
Greenspan know that he is not prone to get to the point. In fact, we 
have reporters in this town who have become very successful by figuring 
out what Alan Greenspan is saying. He will go around the barn and the 
outhouse, and all over the barnyard, before he finally gets to the 
point. And, if he is saying something that he knows somebody isn't 
going to like, he is even more roundabout so as not to hurt anyone's 
feelings. Quite frankly, he does it perfectly. Every central banker in 
the world models himself after Alan Greenspan, who is the greatest 
central banker probably in the history of the world.
  But he wasn't beating around the bush when he talked to the House 
Commerce Committee. He said, ``I and my colleagues''--he means members 
of the Federal Reserve Board--``are firmly of the view that the long-
term stability of 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. . . .''
  This is not just an average kind of Joe talking.
  It is interesting to me that we talk to a few bankers on the 
telephone, and all of a sudden we think we know as much about banking 
policy as Alan Greenspan. This is the most successful central banker in 
history who is saying that when you look at the three problems with 
this approach, one, you put the taxpayer on the hook in a risky 
business that ought not to be inside the bank; that, two, you create an 
unfair playing surface that will create unfair competition and hurt the 
economy, and make the economy more vulnerable; and, finally, you 
transfer control of bank regulations from an independent agency--the 
Fed--to the Treasury and, therefore, to the President.
  Based on those three things, Alan Greenspan--who is a strong 
supporter of this bill; he is for this bill; at the end of the last 
Congress, he spent numerous hours trying to get it passed, and he is 
for it now--says, if you adopt this amendment then the country would be 
better off with no bill at all.
  My colleagues, it has been a long 3 days of debating. I never 
challenge anybody's sincerity. But I want to urge my colleagues, my 
Democrat colleagues who are getting all this pressure now, you know--
Republicans have won on many of these issues, this is an opportunity 
for Democrats to win; the Secretary of the Treasury has said that the 
President will veto the bill if you do not give the Treasury control 
over banking policy. And I know that my Democrat colleagues are under a 
lot of pressure.
  But I want to urge my colleagues to look at what we are doing here in 
terms of moving away from an independent banking authority toward 
putting the control of banking policy under the President. It is a 
very, very dangerous thing to do.
  I urge my colleagues to resist the pressure and vote against this. 
Ordinarily two-thirds of the Democrat Members of Congress would oppose 
this amendment. But what is happening here, in part because the issue 
has become so partisan--and I am partly to blame for this--but what is 
happening is we have a dynamic where an amendment that should not be 
even seriously considered is going to have a very, very close vote, and 
could very well pass.
  I just urge my colleagues, if you are not swayed by risk to the 
taxpayer, if you are not swayed by unfair competition and concentration 
of industry--and many of my Democrat colleagues are swayed by those 
things in most of the issues--if you are not swayed by

[[Page S4857]]

that, be swayed by Secretary Rubin who thinks the administration ought 
to control banking policy. We decided in 1913 not to let him do it. Do 
we want to go back and change that decision today? I don't think so.
  I want to conclude by saying to my Republican colleagues--I know 
Senator Shelby is very persuasive. That is one of the reasons that I 
love him and that we are very good friends. I know a lot of people have 
been torn with me grabbing them and screaming in one ear, and Senator 
Shelby grabbing them and screaming in their other ear. I know they are 
ready for this thing to be over. But this is not a parochial issue, or 
a personal issue, or a regional issue.
  When we are talking about reversing a policy established in 1913 for 
independent banking authority because the Secretary of the Treasury 
wants the President to conduct banking policy, something we rejected in 
1913, this goes way beyond hearing from your bank back home that says, 
``Gee, I would rather do it this way. I appreciate the bill. You have 
done it. It is going to help me. But you could help me more by letting 
me do it this way.'' I think we have to resist that siren song.
  I don't want to sound too preachy, so let me just stop and urge my 
colleagues to give some long and prayerful deliberation on this 
amendment, because I think it is very important. I know it is a hard 
vote. I wish it weren't so hard.
  But I think it is a very clear vote. I think if you stand back and 
look at it, it is hard to think of a vote we have cast around here that 
was much clearer in terms of what is the national interest. It can't be 
good for your bank back home if it is bad for America. I think that is 
the key issue I would like people to remember.
  Mr. President, can you tell me how much time I have left, and how 
much time Senator Shelby has?
  The PRESIDING OFFICER. The Senator from Texas has 19 minutes 53 
seconds; the Senator from Alabama has 37 minutes.
  Mr. GRAMM. I had better let him talk more. I yield the floor.
  Mr. SHELBY. Mr. President, I yield such time as the Senator may 
consume to the distinguished Senator from Rhode Island, Mr. Reed.
  The PRESIDING OFFICER. The Senator from Rhode Island.
  Mr. REED. Mr. President, I thank the Senator for yielding. I am 
pleased to support his amendment, together with Senator Daschle.
  I think it underscores the bipartisan nature of this amendment that 
both Senator Shelby and Senator Daschle are here today to advance a 
very important issue. It is a very important issue that I have been 
working on for over a year.
  In fact, in the last Congress, I had an amendment in the Banking 
Committee that was very similar to this, and my impetus is to suggest 
this amendment was based upon my experience as not only a Senator but 
also as someone who was a lawyer and involved in banking matters in my 
home State of Rhode Island.
  It is very important to clear up a misconception that might be 
operating at the moment that the Federal Reserve is the exclusive 
repository of banking direction and regulation in the United States. 
Such a claim is just wrong. Banking policy in the United States is the 
province of many different organizations. The Federal Reserve 
principally, starting in 1956 with the Bank Holding Company Act, 
regulates the operations of bank holding companies.
  Here is a simple schematic of what a bank holding company is. It is a 
holding company--a corporation under State law usually owning a bank, 
and also owning the other affiliates.
  This bank holding structure became an issue in the 1950s, and as a 
result the Federal Reserve was empowered by Congress--I should emphasie 
``by Congress,'' not by its own direction--to regulate bank holding 
companies. But long before that, beginning in the 1860s, national banks 
were regulated under the Department of the Treasury and the Comptroller 
of the Currency. Indeed, other financial entities, other depository 
entities, are regulated by the Office of Thrift Supervision.
  We should be very clear. This is not an attempt to wrench away from 
the Federal Reserve their exclusive prerogative to run the banking 
system in the United States. This amendment is attempting to provide 
flexibility to banking organizations so they can conduct a limited 
range of activities in either a subsidiary of the bank or an affiliate 
of the bank.
  If they are conducted in the affiliate, they will be regulated under 
current law and under our anticipated legislation by the Federal 
Reserve; if they are conducted in the subsidiary, they will be 
regulated by the Office of the Comptroller of the Currency or the other 
regulator of this particular bank.
  It is also important to note that there are only two rather narrowly 
defined activities that could be conducted under the Shelby-Daschle 
amendment: Securities underwriting or merchant banking activities. I 
should hasten to add that these two activities would also be regulated 
by the functional regulator. If it is securities activities, it would 
be regulated by the Securities and Exchange Commission. We are talking 
about a very narrow band of activities. It is important to keep that in 
mind.
  We are in no way talking about displacing the Federal Reserve as a 
principal regulator of bank holding companies. What we are talking 
about is giving banking organizations the flexibility to decide, based 
upon their own analysis, whether they want to conduct these two limited 
activities, either an affiliate or a subsidiary of the bank.
  What the underlying legislation, S. 900, would do essentially is give 
the Federal Reserve all the authority. It would cut out effectively 
what currently exists, the regulating authority of the Comptroller of 
the Currency to determine a limited range of activities that either 
could or could not be done either in the bank itself or a subsidiary 
bank.
  Many have described this as a turf fight. I don't think that is a 
proper description. What we should be doing and what the Shelby 
amendment is attempting to do is to provide the type of regulatory 
balance necessary, first, to guarantee safety and soundness; and, 
second, to give banking institutions the flexibility to conduct the 
business the way they decide rather than the way we might dictate here 
in Washington.
  Now, one of the interesting things to know is that we are attempting 
to change a high bond regulatory structure that was erected in the wake 
of the 1930s. I note that the Senator from Texas noted that all of our 
financial problems were solved in 1913 when we created the Federal 
Reserve, but there was a brief interlude in the 1930s where the economy 
was in disarray during the Depression.
  As a result of that, we created the Glass-Steagall Act that separated 
various activities. We now recognize, because of many different 
factors, that we should in fact undo this very rigid structure and 
provide flexibility for a combination of different financial 
activities--insurance activities, security activities, depository 
activities. However, this amendment, the Shelby-Daschle amendment, goes 
to the heart of that flexibility by providing the kind of business 
flexibility that banks should have in this new, very fast paced 
international economic environment.
  I explained basically the structure of the typical bank holding 
company, and I think that is useful because for the last several weeks 
we have been hearing jargon such as ``op-sub'' and ``affiliate,'' et 
cetera. It is exactly what I suggested before: A bank holding company, 
a company that is typically a commercial enterprise, a State-chartered 
company, owns a depository institution; in turn, they operate some 
activities and subsidiaries throughout the affiliate. That is basically 
what we are talking about now.
  The question is, What should we do to ensure that, first, safety and 
soundness is protected; and, two, that the banks have the kind of 
flexibility they need and the corporate governance to operate 
effectively?
  What we are proposing with this amendment is that in these two 
limited activities--securities activities and merchant banking--the 
bank holding company have the choice of either doing it in a subsidiary 
or affiliate. As I understand it, the underlying legislation would 
allow a very small bank holding company to conduct these activities in 
a subsidiary. So this is, in some respects, an issue of size. But the

[[Page S4858]]

principle already exists within the context of the underlying 
legislation that these activities can, in fact, be conducted in 
subsidiaries.
  Looking ahead at what the amendment requires, it is very important to 
note that in order to conduct these activities a bank would have to 
meet certain tests. First of all, the bank would have to be well 
managed and well capitalized. This is a requirement that would be 
similar on bank holding companies.
  In addition to this, the bank would also have to do specific things 
to allow or qualify for the conduct of these activities. First of all, 
if the bank was going to conduct the activities in a subsidiary, it 
would have to deduct its equity investment in the subsidiary from its 
own equity. As a result, this provides protections for the bank and for 
the overall depository system. In addition, it would have to remain 
well capitalized after the equity deduction.
  The point here is that the regulators essentially could be satisfied 
that even as this subsidiary failed, even if the whole investment were 
lost, it would not adversely affect the capital bank, which is at the 
heart of their notion of protecting safety and soundness.
  In addition to that, they would be limited to the amount of money 
they could invest in a subsidiary. It would be limited to this same 
amount of money they could ``dividend upwards'' to the bank holding 
company--another check on the safety and soundness provisions in this 
legislation.
  Moreover, if these activities are conducted in a subsidiary, the 
whole relationship would be governed by section 23(a) and 23(b) of the 
Federal Reserve Act. These two sections govern transactions between 
bank affiliates and other holding company affiliates. Essentially, it 
requires that there be arm's-length dealing between these two entities.
  For example, section 23(a) imposes a percentage cap on transactions 
between a bank and our operating subsidiary--the subsidiary cannot be 
the exclusive source of business for the bank, and vice versa. In 
addition, section 23(a) provides safeguards with respect to collateral 
that could and must be used for lending transactions between the bank 
and subsidiary. In sum, there are provisions in the amendment to guard 
against the self-dealing that would lead to breaches of safety and 
soundness.
  All of these things together suggest very strongly that what we are 
proposing is entirely consistent with the safety and soundness of the 
banking system. Indeed, that should be our primary legislative 
motivation, to be sure that whatever we do here is consistent with 
safety and soundness.
  There has been a great deal of discussion about the mysterious 
subsidy that Chairman Greenspan is talking about, the fact that 
``...the reason I oppose this is because of this hidden subsidy,'' 
because of this transfer.

  In his words, ``My concerns are not about safety and soundness.'' I 
am glad, because I think we have convinced or at least we have 
suggested that we have considered very thoroughly and carefully the 
safety and soundness issues.

       It is the issue of creating subsidies for individual 
     institutions which their competitors do not have. It is a 
     level playing field. . ..

  The subsidy, as explained before, rests upon essentially the 
guarantee of deposit by Federal deposit insurance.
  Now, what we have done, first, is protected safety and soundness; 
second, these subsidies are frequently offset in discussions--indeed, 
many times complaints--about the restrictions that go along with the 
depositor insurance. We debated yesterday at length about CRA. That 
adheres to a bank because of its deposit insurance. That is a cost that 
other competitors could not have.
  So when we look at this whole notion of subsidy, there is a very real 
argument, when it is balanced out, that this subsidy is not 
particularly significant, that in the margin it will not make a 
difference whether you conduct this activity in a subsidiary or in an 
affiliate. Moreover, when a bank holding company is attempting to go to 
the equity markets to raise equity through stock offerings or through 
commercial debt paper, no one looks exclusively, uniquely, solely at 
the bank; they look at the combined activities of the holding company.
  So if there is a subsidiary at the bank, that all washes out through 
the bottom line of the bank holding company balance sheet. This notion 
that the subsidiary is the driving force I don't think is entirely 
correct.
  Moreover, when you look at experts who have dealt with this whole 
issue of whether or not these activities should be conducted in a 
subsidiary, those in fact who have been responsible for the operation 
of the FDIC, most of the recent chairpersons--Ricky Halperin, William 
Isaac, and William Seidman--have argued very strongly and forcefully 
that in fact placing these activities into a subsidiary would, in fact, 
be a beneficial and not a detrimental aspect and, in fact, potentially 
could be a plus for the Bank Insurance Fund.
  It would be so because if, in fact, there was a troubled bank with a 
healthy subsidiary, either in the securities business or in the 
merchant banking business, those healthy assets would be a source of 
funds to cover depository losses, potentially in the bank. Such 
coverage from a subsidiary would offset the need for a contribution by 
the taxpayer-supported deposit insurance fund.
  It has been mentioned before that foreign banks, in fact, have these 
powers within the continental United States because of international 
banking agreements. In fact, there are 19 foreign banks with securities 
underwriting subsidiaries in the United States and these banks have 
about $450 billion in assets and they would be allowed to continue 
their operations under the S. 900 bill, the underlying legislation. As 
Senator Shelby pointed out, this is on the surface a disparate 
treatment between domestic banks and foreign banks, but I think it 
reveals something else. It goes right back to that issue of: Is there a 
subsidy? Because these foreign banks are also subsidized by deposit 
insurance, in most cases, in their country of origin, the country of 
incorporation. And they are also subsidized in the same way as are our 
banks, by government policies, by access to the central bank's discount 
window, by a whole series of governmental programs that assist banking 
institutions.
  If you put back Chairman Greenspan's words--again, let me remind you, 
he is not talking about safety and soundness. He is talking about this 
mysterious subsidy. Those are his words, but what are the actions of 
the Federal Reserve when it comes down to approving the applications of 
these foreign banks to operate security subsidies in the United States?
  First of all, the Federal Reserve, in the applications they had to 
approve, looked at the whole subsidiary issue. And they found that 
technically there was probably a subsidy to the subsidiaries. But what 
they suggested in approving these applications, which they did, is that 
by essentially imposing restrictions, as we have done, in terms of 
capital contributions, in terms of the possible transactions between 
the bank and subsidiary--that they would be offset. So essentially what 
the Chairman says and what the Federal Reserve does are two different 
things. He says this is a dangerous subsidy, yet when they have to 
approve an application of a foreign bank to operate a subsidiary in the 
United States, they say they can control that subsidy, essentially, by 
the same means that we are suggesting--capital contributions and other 
techniques.
  So, if you listen to what is being said but look at what is being 
done in the world, I think, deeds speak louder than words. And the 
deeds are that this subsidy issue is a false one. Any subsidy is either 
dissipated through the holding company system or is offset in our 
amendment by the requirements to deduct capital, by the requirements to 
limit the investment into a subsidiary to the amount that you could 
upstream to a holding company for further investment in an affiliate.

  There is another aspect which I think is telling with respect to the 
Federal Reserve, their position. I think this could come as a surprise 
to lots of people. American banks today can own operating subsidiaries 
and do own operating subsidiaries which can in fact perform merchant 
banking activities and securities activities--the activities that we 
are authorizing in this amendment. But they can only have these 
subsidiaries overseas, and interestingly enough, these subsidiaries are 
regulated by the Federal Reserve Bank. They are called Edge Act 
companies.

[[Page S4859]]

  So what we are proposing today in this amendment is no novel 
redistribution of regulatory opportunities or banking opportunities, 
really. What we are saying, essentially, is if the Federal Reserve can 
regulate and authorize American banks through foreign subsidiaries to 
conduct insurance activities and securities activities and merchant 
banking activities overseas, why do they object to American banks doing 
the same thing in the United States? The same thing--limited, of 
course, to securities activities and merchant banking.
  There are, as we estimated, subsidiaries with $250 billion in assets, 
subsidiaries of American banks operating overseas, subject to the 
regulation not of the Securities and Exchange Commission, but whatever 
foreign regulator is looking at their operation. Of course, the Fed 
concludes--they must conclude--this does not pose a threat to the 
safety and soundness of American banks. Of course, they must conclude 
that whatever subsidy they are getting through deposit insurance, it is 
not unfair for them to apply that overseas to invest in foreign 
subsidiaries to conduct these activities. In fact, the operations of 
these banks' subsidiaries overseas, these Edge Act companies, are far 
less regulated than what we are proposing in our amendment. These are 
not bound by section 23 (a) and (b). They are also not bound by our 
restrictions, by the amount of money that can be invested in the 
subsidiary.
  So I think the Federal Reserve position--in terms of the facts, not 
the rhetoric, not the appeals to the history--is very weak indeed. The 
facts establish, No. 1, that in fact they have no objection to American 
banks' operating subsidiaries' overseas securities activities. It does 
not pose a threat to safety and soundness in their view. It is not an 
unfair use of the subsidy if that subsidy exists.
  So I think we have to be very careful to conclude that what we have 
here is an amendment that gives banks flexibility, that does not 
implicate the safety and soundness of the banking system, that does not 
in any way distort the monetary policymaking role of the Federal 
Reserve. That in fact is consistent with over 100 years of banking 
regulation in the United States, which is a shared function between 
many different banking regulators in the United States. In fact, it is 
something that will provide the flexibility that is at the heart of 
this legislation.
  I hope we will, in fact, support this amendment. It represents a 
bipartisan attempt to be consistent with the overall theme of this 
legislation, which is to unshackle our banking institutions from the 
hidebound rules of the Glass-Steagall Act, to give them an opportunity 
to compete but to do so in a way that does not implicate, intimidate 
or, undermine the safety or soundness of the banking system which is 
our ultimate responsibility.
  I hope, again, we will accept, adopt and support this amendment. I 
yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. GRAMM. Mr. President, I yield 5 minutes to the distinguished 
Senator from Wyoming.
  (Mr. GRAMM assumed the chair.)
  Mr. ENZI addressed the Chair.
  The PRESIDING OFFICER. The Senator from Wyoming.
  Mr. ENZI. Mr. President, I thank you for the opportunity to address 
what we have been looking at in the Banking Committee now for a couple 
of years. We have had very detailed hearings, where both Alan Greenspan 
and Secretary Rubin have presented their case. I have to admit, during 
most of those everybody has said: What kind of a turf battle are we 
looking at here? The comments have been kind of mixed because it is an 
extremely difficult area to understand. It is an area between the 
Federal Reserve and the Treasury. But it is an area that affects the 
ways that banks will operate. We are trying to design, under this bill, 
a mechanism for the American banking system to succeed, to provide for 
security and soundness for the banking system, to provide for safety. 
Now, is that done under the Treasury or is it done under the Federal 
Reserve?
  As one of those accountants, I suggest that the Treasury handles the 
accounting function very well. They do an excellent job of auditing our 
banks. They do an excellent job of overseeing the accounting aspects of 
the bank. But the Federal Reserve does the outstanding job of 
overseeing the banking policy for our country. If we begin to establish 
a system where the administration, who can reflect to times of 
election, has control over the banks and the banking establishment and 
the banking policy, our country could be in trouble.
  If the banking policy is established by the administration with the 
benefit of the Federal wire and the Federal funds and the lower loan 
rates, our country could begin to react more to elections than to the 
economy.
  We have had a fantastic system that has brought our economy to new 
heights, and it has been working under the Federal Reserve System. 
Let's not shift all of this around and allow the banks to have another 
technique where they can put businesses under their bank and have 
transactions--and I think everybody realizes that the transactions, 
while there are generally accepted accounting principles for how those 
are done, they are not nearly as much in the open under a subsidiary as 
they are under an affiliate.
  We have some accounting techniques here that provide daylight for the 
banking industry which provide safety and soundness for the banking 
industry and the consumers.
  I suggest that Alan Greenspan and whoever holds that position has to 
have enough ability to control the economy of the banks and the power 
of the banks to keep the economy of this Nation going.
  This is an issue that is extremely difficult to understand. After all 
of the hearings we have held on it, it is possible to see it still is 
under a cloud of misunderstanding. I hear the terms brought out about 
how foreign banks are involved and how foreign banks are allowed to 
operate. The foreign banks are not the ones providing the Federal 
Deposit Insurance Corporation money. They are not the ones insuring the 
money of the consumers of this country. I opt for the safety and 
soundness provided by the Federal Reserve. I ask that you defeat the 
amendment.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. SARBANES. What is the parliamentary situation?
  The PRESIDING OFFICER. The authors of the amendment have 16 minutes, 
and the opponents of the amendment have 15 minutes.
  Mr. SARBANES. Will the Senator yield me 4 minutes?
  Mr. REED. I do not control time.
  Mr. SARBANES. Will the Senator yield me 4 minutes?
  Mr. SHELBY. I yield to the Senator from Maryland 4 minutes.
  The PRESIDING OFFICER (Mr. Enzi). The Chair recognizes the Senator 
from Maryland for 4 minutes.
  Mr. SARBANES. Mr. President, in view of the comments that were just 
made by my able colleague from Wyoming, I want to address this safety 
and soundness issue. The Federal Deposit Insurance Corporation, to 
which he referred, the regulatory agency with the most at stake in 
terms of protecting the deposit insurance funds, sees the op-sub as 
equivalent to the holding company structure for safety and soundness 
reasons.
  The argument was just made that there are some safety and soundness 
problems. The FDIC Chairman, Donna Tanoue, wrote a letter to the 
Banking Committee:

       With the appropriate safeguards, the operating subsidiary 
     and the holding company structures both provide adequate 
     safety and soundness protection. We see no compelling public 
     policy reason why policymakers should prefer one structure 
     over the other. And absent such a compelling reason, we 
     believe the Government should not interfere in banks' choice 
     of organizational structure.

  That is the current Chairman of the FDIC. Lest someone says that is 
only the current Chairman, let me refer to an article written by three 
previous FDIC Chairmen, both in Democratic and Republican 
administrations: Ricki Tigert Helfer, William Isaac, and William 
Seidman, all of them with many years of direct experience in this area. 
They all agree with the current FDIC Chairman and have offered strong 
support for the operating subsidiary approach.
  In fact, I will quote from their article. I ask unanimous consent 
that this article be printed in the Record at the conclusion of my 
statement.

[[Page S4860]]

  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. SARBANES. The article says:

       The debate on banks conducting financial activities through 
     operating subsidiaries has been portrayed as a battle between 
     the Treasury and the Federal Reserve. The Treasury believes 
     banks should be permitted to conduct expanded activities 
     through direct subsidiaries. The Fed wants these activities 
     to be conducted only through holding company affiliates.
       Curiously, the concerns of the Federal Deposit Insurance 
     Corp. have been largely ignored. The FDIC, alone among the 
     agencies, has no ``turf'' at stake in this issue, as its 
     supervisory reach extends to any affiliate of a bank. The 
     FDIC's sole motivation is to safeguard the nation's banks 
     against systemic risks.

  They go on to say:

       Every subsequent FDIC chairman, including the current one, 
     has taken the same position . . .

  In other words, allowing with the view toward bank subsidiaries 
conducting these activities.
  In fact, they point out that requiring the bank-related activities be 
conducted in holding companies will place insured banks in the worst 
possible position. They will be exposed to the risk of the affiliates' 
failures without reaping the benefits of the affiliates' successes.
  It is very clear that the regulator concerns of the Federal Deposit 
Insurance Corporation are supportive of doing it either way.
  Will the Senator yield me 1 more minute?
  Mr. SHELBY. I will be glad to yield 1 minute.
  Mr. SARBANES. Mr. President, let me quickly run through some 
important safety mechanisms that are in the Shelby-Daschle-Reed 
amendment:
  One, a full capital deduction for investments in subsidiaries so that 
all such investments would be fully deducted from the bank's regulatory 
capital. Banks must remain well capitalized after this deduction, 
meaning even if the subsidiary fails, the bank's capital will remain 
intact.
  Two, downstream investments in subsidiaries be no greater than the 
total amount that a bank could upstream as a dividend to a holding 
company. So they have exactly the same extent to which they can engage 
in new financial activities between the subsidiary or the affiliate.
  We remove any advantage for subsidiaries in terms of transactions 
with their parent banks by applying sections 23(a) and 23(b) of the 
Federal Reserve Act to subsidiaries, just like affiliates. It would 
require the maintenance of subsidiaries as separate corporate entities.
  The bank's credit exposure to a subsidiary be no greater than it 
could have been to an affiliate.
  Real estate investment and insurance underwriting is not permitted in 
the subsidiary.
  All of these features, I think, go to ensuring the safety and 
soundness of the approach contained in the Shelby-Daschle-Reed 
amendment, and I am supportive of this amendment.
  I thank the Senator for yielding time.

                               Exhibit 1

               [From the American Banker, Sept. 2, 1998]

         Ex-FDIC Chiefs Unanimously Favor the Op-Sub Structure

   (By Ricki Tigert Helfer, William M. Isaac, and L. William Seidman)

       The debate on banks conducting financial activities through 
     operating subsidiaries has been portrayed as a battle between 
     the Treasury and the Federal Reserve. The Treasury believes 
     banks should be permitted to conduct expanded activities 
     through direct subsidiaries. The Fed wants these activities 
     to be conducted only through holding company affiliates.
       Curiously, the concerns of the Federal Deposit Insurance 
     Corp. have been largely ignored. The FDIC, alone among the 
     agencies, has no ``turf'' at stake in this issue, as its 
     supervisory reach extends to any affiliate of a bank. The 
     FDIC's sole motivation is to safeguard the nation's banks 
     against systemic risks.
       In the early 1980s, when one of us, William Isaac, became 
     the first FDIC chairman to testify on this subject, he was 
     responding to a financial modernization proposal to authorize 
     banks to expand their activities through holding company 
     affiliates.
       While endorsing the thrust of the bill, he objected to 
     requiring that activities be conducted in the holding company 
     format. Every subsequent FDIC chairman, including the current 
     one, has taken the same position, favoring bank subsidiaries 
     (except Bill Taylor who, due to his untimely death, never 
     expressed his views). Each has had the full backing of the 
     FDIC professional staff on this issue.
       The bank holding company is a U.S. invention; no other 
     major country requires this format. It has inherent problems, 
     apart from its inefficiency. For example, there is a built-in 
     conflict of interest between a bank and its parent holding 
     company when financial problems arise. The FDIC is still 
     fighting a lawsuit with creditors of the failed Bank of New 
     England about whether the holding company's directors 
     violated their fiduciary duty by putting cash into the 
     troubled lead bank.
       Whether financial activities such as securities and 
     insurance underwriting are in a bank subsidiary or a holding 
     company affiliate, it is important that they be capitalized 
     and funded separately from the bank. If we require this 
     separation, the bank will be exposed to the identical risk of 
     loss whether the company is organized as a bank subsidiary or 
     a holding company affiliate.
       The big difference between the two forms of organization 
     comes when the activity is successful, which presumably will 
     be most of the time. If the successful activity is conducted 
     in a subsidiary of the bank, the profits will accrue to the 
     bank.
       Should the bank get into difficulty, it will be able to 
     sell the subsidiary to raise funds to shore up the bank's 
     capital. Should the bank fail, the FDIC will own the 
     subsidiary and can reduce its losses by selling the 
     subsidiary.
       If the company is instead owned by the bank's parent, the 
     profits of the company will not directly benefit the bank. 
     Should the bank fail, the FDIC will not be entitled to sell 
     the company to reduce its losses.
       Requiring that bank-related activities be conducted in 
     holding company affiliates will place insured banks in the 
     worst possible position. They will be exposed to the risk of 
     the affiliates' failure without reaping the benefits of the 
     affiliates' successes.
       Three times during the 1980s, the FDIC's warnings to 
     Congress on safety and soundness issues went unheeded, due 
     largely to pressures from special interests:
       The FDIC urged in 1980 that deposit insurance not be 
     increased from $40,000 to $100,000 while interest rates were 
     being deregulated.
       The FDIC urged in 1983 that money brokers be prohibited 
     from dumping fully insured deposits into weak banks and S&Ls 
     paying the highest interest.
       The FDIC urged in 1984 that the S&L insurance fund be 
     merged into the FDIC to allow the cleanup of the S&L problems 
     before they spun out of control.
       The failure to heed these warnings--from the agency charged 
     with insuring the soundness of the banking system and 
     covering its losses--cost banks and S&Ls, their customers, 
     and taxpayers many tens of billions of dollars.
       Ignoring the FDIC's strongly held views on how bank-related 
     activities should be organized could well lead to history 
     repeating itself. The holding company model is inferior to 
     the bank subsidiary approach and should not be mandated by 
     Congress.

  Mr. SHELBY. Mr. President, how much time do I have left?
  The PRESIDING OFFICER (Mr. Bennett). Ten minutes 30 seconds.
  Mr. SHELBY. I yield 5 minutes to the distinguished Senator from 
Minnesota.
  Mr. GRAMS. Thank you very much, Mr. President.
  I rise in strong support of the Shelby amendment and urge the Senate 
to approve this amendment today. I say this with utmost respect for my 
committee chairman, Senator Phil Gramm. As you know, I support Phil 
Gramm and we agree on so many issues across the board, but this is one 
time when I have to disagree with my chairman. As I say, even his 
lovely wife Wendy disagrees with Senator Phil Gramm on a few issues. I 
hope he realizes the respect I have for him and his arguments on this 
amendment, but I feel that I have to support this.
  As a Senator who worked on a bipartisan basis last year with Senator 
Reed of Rhode Island to draft a compromise operating subsidiary 
amendment, I have invested 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 in the operating subsidiary.
  This amendment preserves corporate flexibility by allowing 
subsidiaries of well-capitalized and well-managed national banks to 
conduct many of the same activities--such as securities underwriting 
and merchant banking--as bank holding companies and foreign bank 
subsidiaries.
  I would like to note that insurance underwriting and real estate 
development are not permitted in the subsidiary.
  Although some have claimed that the subsidiary approach could lead to 
a competitive advantage for banks, the amendment prevents competitive 
advantages by imposing the same prerequisites for conducting new 
financial

[[Page S4861]]

activities on national banks as are placed on bank holding companies.
  The subsidiary also is safer for national banks. First, the amendment 
includes a number of appropriate safety and soundness ``firewalls'' to 
ensure that the subsidiary remains an asset to--and not a liability 
of--the bank.
  These firewalls include: one, requiring that capital invested in the 
subsidiary be deducted from the capital of the bank and that the bank 
remains well-capitalized after the deduction; two, prohibiting the 
consolidation of assets of the subsidiary and the bank; three, limiting 
the investment the bank may make in the subsidiary to the same amount 
that the bank could ``upstream'' to holding company affiliates by way 
of dividends; four, requiring the bank to maintain procedures for 
identifying and managing financial and operational risks posed by the 
subsidiary; five, requiring the bank to maintain--and regulators to 
ensure--a separate corporate identity and separate legal status from 
the subsidiary; and six, imposing the lending restrictions found in 
Sections 23A and 23B of the Federal Reserve Act on extensions of credit 
from the bank to the subsidiary--total extensions of credit to any one 
subsidiary may not exceed 10 percent of the bank's capital and total 
extensions of credit to all subsidiaries may not exceed 20 percent of 
the bank's capital.
  The operating subsidiary approach adds another safety and soundness 
element because the subsidiary could be used as an asset to protect the 
taxpayer if the bank runs into trouble.
  FDIC Chairman Donna Tanoue--the Federal Government's point person 
protecting the taxpayer against claims on the deposit insurance fund--
testified that:

       From a safety and soundness perspective, both the bank 
     operating subsidiary and the holding company affiliate 
     structure can provide adequate protection to the insured 
     depository institution from the direct or indirect effects of 
     losses in nonbank subsidiaries or affiliation.
       Indeed, from the standpoint of benefits that accrue to the 
     insured depository institution, or to the deposit insurer in 
     the case of a bank failure, there are advantages to a direct 
     subsidiary relationship with the bank.
       When it is the bank that is financially troubled and the 
     affiliate/subsidiary is sound, the value of the subsidiary 
     serves to directly reduce the exposure of the FDIC.
       If the firm is a nonbank subsidiary of the parent holding 
     company, none of these values is available to insured bank 
     subsidiaries, or to the FDIC if the bank should fail. Thus, 
     the subsidiary structure can provide superior safety and 
     soundness protection.

  The last point made by FDIC Chairman Tanoue actually argues against 
the purported subsidy argument point put forward by some. Take for 
example two identical banks--Bank A and Bank B.
  Bank A conducts its nonbank activities in a subsidiary and Bank B 
conducts its nonbank activities in the holding company.
  In this case, the FDIC's exposure in Bank A is less than in Bank B 
because the amount of capital which could be raised either from the 
sub's assets or from the sale of the sub would actually reduce the 
losses of Bank A.
  Thus, the FDIC's exposure in Bank B is higher because, as proven in 
the Bank of New England case, the sale of the affiliate cannot be 
counted on to reduce the banks losses.
  Since both banks are identical and thus, have paid identical FDIC 
insurance premiums, Bank B receives a higher subsidy from deposit 
insurance because their return on FDIC insurance premiums paid is 
higher than Bank A, whose losses were lessened by the amount of capital 
raised by the sub.
  Therefore, the operating subsidiary structure is safer from a safety 
and soundness perspective.
  The amendment also removes the arbitrary $1 billion cap which is 
contained in the underlying bill. FDIC Chairman Donna Tanoue testified 
before the Senate Banking Committee that ``There is no valid reason to 
threat national banks differently on the basis of size or holding 
company affiliation.''
  Another benefit of this amendment is that it provides competition 
among regulators. And that is so important. 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 had been cooperative in helping his client work through 
issues and find creative ways to deal with their problems while the 
other had done nothing to help.
  If we were to eliminate the competition, regulators would have no 
incentive to be responsible to the institutions they regulate and 
American banks would have nowhere to turn if they are unhappy with 
their treatment.
  In closing, I think this amendment should not be portrayed as a 
killer amendment. And I hope and I urge the chairman and the majority 
leader to accept the will of the Senate and to allow the vote. Whether 
the amendment passes or fails, I pledge to vote for the bill--no matter 
how the amendment turns out.
  Thank you, Mr. President.
  The PRESIDING OFFICER. Who yields time?
  Several Senators addressed the Chair.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. I yield 5 minutes to the Senator from New Mexico, Mr. 
Domenici.
  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. I thank the Senator. I thank the Presiding Officer for 
recognizing me.
  First, I compliment Senator Gramm on the marvelous work he has done 
on a very complicated bill. And I hope we get new legislation in this 
area before the week is out. Coming out of conference, I hope that we 
will have something fundamentally positive for the banking industry of 
the United States.
  Mr. President, I have been in the Senate about 27 years. And I guess 
I would have to say, the institution of the United States for which I 
have the most respect is the Federal Reserve Board. In fact, I marvel 
at the 1913 act, the Federal Reserve Act. Frankly, I marvel at the 
caliber of people that have chaired the Fed and who act with total 
independence once they are appointed. Only one time in my 27 years have 
I thought that the Federal Reserve Board Chairman and the President of 
the United States were negotiating among themselves about interest 
rates and the like. For the most part, the Federal Reserve has been a 
marvelous institution for stability and nonpolitical involvement in the 
banking industry of America and for conducting the monetary policy of 
America.
  I see this issue as a very simple one. Do you want the Federal 
Reserve Board to continue to be a major, major player in the banking 
system of the United States or do you want to send responsibility over 
to the White House?
  When Congress created the Federal Reserve Board, there was a 
different problem. But we decided to create the Fed independent of the 
White House and keep it out of politics. Now we are here engaged in a 
fight, in an argument, in a close vote on sending a big part of the 
Federal Reserve Board's responsibility back to the White House. This 
amendment would allow a substantial portion of bank policy to be 
dictated by the White House. I do not believe it belongs there.
  I am not saying this because of Secretary Rubin. I have agreed with 
almost all of his policies. As a matter of fact, I have said his 
economic policies remind me of Republicans and that probably is what 
saved the President in terms of the policies that he has put into 
effect. I have told the Secretary that. I do not know whether he was 
pleased or not so pleased to hear that, but I congratulated him 
nonetheless.
  Essentially, this is the issue: Do you want to take a big piece of 
American banking policy and put it back in the political arena? Because 
no matter what we think of the Comptroller of the Currency, he is a 
political appointee. And it is most amazing, in the hierarchy of those 
who have power in America, it is not even a powerful position. It will 
be powerful if the amendment before us passes, because we will be 
giving the Comptroller tremendous control over our banking policy 
instead of vesting it where it truly belongs, with the most significant 
independent group in America's economic recovery since 1913--the 
Federal Reserve Board and its Chairman. I hope we do not do that.
  I am amazed. It seems as though the White House believes that this is 
one of

[[Page S4862]]

the most important issues it has ever faced. The lobbying pressure is 
enormous, with different levels of White House people--not the 
President,--but in the White House, Secretaries, Cabinet members. Maybe 
it is because they like Mr. Rubin so much they do not want him to lose 
this one. Maybe that is it. But it can't be that kind of issue unless 
it is seen by the executive branch as involving such power that 
Presidents might want to have it, rather than leave that power in the 
hands of the independent, successful management of the Federal Reserve 
Board.

  I thank you for yielding me time, and I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  Mr. SHELBY. How much time do I have?
  The PRESIDING OFFICER. Five minutes.
  Mr. SHELBY. How much time does the Senator from Texas have?
  The PRESIDING OFFICER. Eleven minutes, give or take a few seconds.
  Mr. GRAMM. Let me yield 5 minutes to the distinguished Senator from 
Florida, Mr. Mack.
  The PRESIDING OFFICER. The Senator from Florida.
  Mr. MACK. Thank you, Mr. President. And I thank Senator Gramm for 
yielding me time.
  This was an issue that I did not expect to be drawn into as far as 
the debate was concerned. But as I have listened to it, and as I have 
observed my colleagues over the last several days, as the lobbying on 
both sides of this issue has been going on, and seeing people move back 
and forth, I have become concerned about how people are making 
decisions.
  Finally, we have gotten down to the crux of the matter here, and that 
is, at least in my opinion, how monetary policy in the United States is 
going to be carried out.
  I believe it is so important that we focus on the issue of monetary 
policy, because one of the underlying strengths, one of the major 
factors in the economic growth that we have experienced for almost 16 
years is the role of the Federal Reserve, a Federal Reserve that has 
been committed to price stability. To do something that will weaken the 
influence of the Federal Reserve with respect to monetary policy would 
be a tragic mistake.

  Here is my reasoning as to how this will come about. The Treasury is 
selling their idea to Members that all we really want to do is give the 
bankers a choice--that seems to be a fair and reasonable thing to do--
let them decide.
  I was in the banking business. This is really not a choice. You are 
saying to the bankers, you make a choice about where you are going to 
put this. They know where the cost of capital is the cheapest, and the 
cost of capital is going to be the cheapest in an operating subsidiary.
  Why is the operating subsidiary going to be the cheapest cost to 
them? Because there is a subsidy attached to the bank, and so the 
bankers naturally will go to where their costs are the cheapest. They 
will, in fact, put these new powers into an operating subsidiary. 
Having done that, there is no longer a need for them to be involved in 
a holding company. The holding company is the vehicle, if you will, 
that allows the Federal Reserve to carry out its monetary policy.
  The second thing that is going to occur is by voting for the use of 
an operating subsidiary, you are really saying you want the taxpayers 
to expand the subsidy that goes into the banking industry or into the 
financial services industry. That is an individual decision that people 
can make. But I think it is wrong to try to approach this question 
about whether I am for the bankers or whether I am not for the bankers. 
This is an issue about whether you want to have a monetary policy that 
is of value to this country.
  I ask Members to consider what has happened in this country in these 
past 16 years as far as growth is concerned. The foundation of that 
growth has been the commitment that this Federal Reserve, and Alan 
Greenspan in particular, has had to the objective of price stability. 
We have finally reached the point where we have attained price 
stability, and we are talking about tinkering around with legislation 
that could lessen the influence of the Federal Reserve.
  As Senator Domenici indicated earlier, as you lessen that influence, 
you are going to increase the influence in the executive branch over 
the banking industry and monetary policy in this country. That would be 
a tragedy.
  I ask my colleagues who may be wavering on this issue, this is not a 
choice between Secretary Rubin or Alan Greenspan or commercial banks. 
This is a decision about monetary policy in this country and who 
should, in fact, have control of it.
  I ask you to support the position outlined by the chairman of the 
Banking Committee, Senator Gramm.
  I yield the floor.
  The PRESIDING OFFICER. Who yields time?
  The Senator from Alabama.
  Mr. SHELBY. How much time do I have?
  The PRESIDING OFFICER. Four minutes 53 seconds.
  Mr. SHELBY. Mr. President, I will be brief.
  First, I point to the fifth paragraph of the Greenspan letter to 
Chairman Gramm. It says, basically, that foreign bank-owned section 20 
companies have substantially underperformed U.S.-owned section 20 
companies. He goes on to say, ``The subsidy does not travel well.''
  Are you suggesting the subsidy travels from New York to London but 
not London to New York? In other words, not from foreign banks to the 
United States? The Federal Reserve's own letter says the subsidy is 
nontransferrable.

  Safety and soundness? In Chairman Greenspan's own words, he says:

       My concerns are not about safety and soundness. It is the 
     issue of creating subsidies for individual institutions which 
     their competitors do not have. It is a level playing field 
     issue. Nonbank holding companies or other institutions do not 
     have access to that subsidy, and it creates an unlevel 
     playing field. It is not a safety and soundness issue.

  That is Chairman Greenspan's own words.
  Lastly, is this a power grab? This legislation makes the Federal 
Reserve the monopoly umbrella regulator. I do not have to educate the 
distinguished chairman, who is a smart Ph.D. economist, on the abuses 
of a federally sanctioned monopoly. He has talked about it since I have 
known him, and he is right on that.
  My amendment would allow for competition for banks to choose their 
regulator. It does not mandate that any bank in the United States must 
conduct such activities in an operating subsidiary. It allows the bank 
to choose.
  I am sure a free market economist like Senator Gramm understands more 
than I do the benefits of market discipline. Competition among 
regulators will not allow a national bank regulator to run amok.
  Does Chairman Greenspan support the bill? Of course. We are granting 
him a monopoly. We are granting his successor a monopoly, whoever that 
is. I can't believe that Chairman Gramm, a distinguished economist in 
his own right, is advocating a monopoly.
  This amendment I am offering will promote competition. It promotes 
choice. I hope my colleagues will support it.
  I yield back the remainder of my time.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, I guess the best place to conclude is to 
quote the principals in this debate. Secretary Rubin before the House 
Commerce Committee said:

       [O]ne of an elected Administration's critical 
     responsibilities is the formation of economic policy, and an 
     important component of that policy is banking policy. In 
     order for the elected Administration to have an effective 
     role in banking policy, it must have a strong connection with 
     the banking system.

  What is being said here is that the Secretary of the Treasury 
believes that the President should exercise more control over the 
banking system. Now, if you believe the time has come to turn back the 
clock to 1913 and take banking policy away from the independent Federal 
Reserve, you agree with Secretary Rubin. I do not agree with Secretary 
Rubin. The fact that I do not agree has nothing to do with the fact 
that he is a Democrat and Bill Clinton is President. I do not believe 
any President should have control of banking policy. We decided in 1913 
to put it in an independent agency, and that should not change.
  All of you know that Alan Greenspan is not prone to overstatement--
quite

[[Page S4863]]

the contrary--but Alan Greenspan has said that he and every member of 
the Board of Governors of the Federal Reserve, most of them appointed 
by President Clinton, are firmly of the view that the long-term 
stability of U.S. financial markets and the interests of the American 
taxpayer would be better served by no financial modernization bill 
rather than adopting this amendment.
  Now, that is as clear as you can make this debate. It is partly about 
risk. It is riskier to be in the securities business inside a bank than 
it is outside the bank, when the taxpayer guarantees the bank 
depositors. That is part of the reason to vote no on the Shelby 
amendment. You do get a subsidy for a bank when they are doing 
activities inside the bank, instead of having to take capital out and 
investing it like everybody else. And if you are worried about a level 
playing surface, that is a reason to vote against the Shelby amendment. 
But finally, if you believe that the Federal Reserve ought to conduct 
banking policy, and not the Treasury, that is the strongest reason to 
vote against the Shelby amendment.

  Finally, two points: No. 1, if my colleagues will vote to table the 
Shelby amendment, we will work in conference to preserve the primacy of 
the Fed to deal with problems of unfair competition and subsidy, and 
yet try to find a way to let banks choose between operating 
subsidiaries and affiliates, to do these activities inside the bank or 
out.
  Secondly, as hard as I have worked on this, and as strongly as I feel 
about it, given Alan Greenspan's position and given that I believe he 
is right, we are not going to pass this bill tonight if we adopt the 
Shelby amendment. So I urge my colleagues, if you want this bill, if 
you want an independent banking policy, give me an opportunity in 
conference to sit the Secretary of the Treasury down and sit the head 
of the Federal Reserve down and give us a chance to come up with ways 
to do op-subs without letting the Treasury take over banking policy.
  We can do that by simply not changing the regulator based on whether 
you have a holding company or not, or what the holding company does. 
And we can find ways to require banks to have good capital and to see 
that the subsidy doesn't exist. But to do that, we need to defeat this 
amendment and pass this bill.
  I know my colleagues are tired of being cajoled. They think a lot of 
overstatements have been made. I simply would like to say, from my 
part, I believe this is a critical vote. If you think passing the 
Federal Reserve Act was a good thing, if you think we prospered under 
an independent banking authority--and I do--then you want to vote 
``no'' on this amendment.
  That doesn't mean that we can't later come up with a way of trying to 
do this that works, and I pledge to my colleagues my best effort in 
conference to do that. But we can't do that if we can't pass this bill. 
And we can't pass this amendment and pass this bill. So that is where 
we are. I know people have commitments out everywhere, and they are 
going to make somebody mad no matter what they do. But there is an old 
adage my grandmother used to say: ``If you are going to catch hell no 
matter what you do, do the right thing.'' That is what I ask my 
colleagues to do--the right thing.
  Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. All time has been yielded back.
  Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative assistant proceeded to call the roll.
  Mr. GRAMM. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  Mr. SARBANES. I object.
  The PRESIDING OFFICER. The clerk will continue to call the roll.
  The legislative assistant continued with the call of the roll.
  Mr. DASCHLE. 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. DASCHLE. Mr. President, I will use my leader time to make a few 
remarks on this amendment prior to the time we have our vote.
  I am very appreciative of the efforts made by the distinguished 
Senator from Alabama and the Senator from Maryland and for their 
extraordinary leadership in offering this amendment. I am proud to be a 
cosponsor.
  We call this proposal the American Bank Fairness Amendment. It is 
cosponsored by a number of our colleagues on both sides of the aisle. 
On this side, the Senator from Rhode Island, Mr. Reed, is a leading 
expert and a long-time champion of this measure. We are grateful to him 
for the work he has done.

  In a nutshell, this amendment, as my colleagues have noted, would 
give American banks the freedom to organize their activities in a way 
that makes the most sense to them. That is basically what it is. It is 
that simple. Let's give the banks the freedom and the opportunity to 
make their own choice. We are not going to have Government tell them 
what is the best choice; we are going to let them make up their own 
minds. Instead of forcing the banks to organize using an expensive 
holding company structure, as the underlying bill does, our proposal 
simply gives banks an option. They can conduct activities through a 
holding company, or they can conduct their activities through an 
affiliated operating subsidiary.
  By giving banks this choice, our amendment will lead to better 
services at lower costs for all sorts of financial services, from 
banking to brokerage services to insurance.
  I want to talk about two specific points--two specific and 
substantial ways in which our amendment improves on the pending bill.
  On the issue of safety and soundness, our proposal is actually 
stronger than the bill offered by the chairman. That is not my 
assertion. The current Chairman of the FDIC and his four predecessors--
three Republicans and two Democrats--all agree. They say that banks 
face greater risks if forced to use the holding company structure.
  I think everybody ought to know here that we are talking about an 
entirely new system. We are talking about moving into uncharted waters. 
We are talking about making sure that each financial institution has 
the best option available to it to make the best choice. What we are 
saying is that as a financial institution makes the choice as it goes 
into all these uncharted waters, the most important thing we can do is 
guarantee its safety and soundness.
  What are we getting? We are getting a virtually unanimous report from 
the FDIC Chairmen--the current one and four predecessors--that we are 
using an option here advocating a position that creates more safety and 
soundness than we have in this bill.
  So if you want safety and soundness, vote for this amendment.
  Mr. President, the chairman's bill exposes banks. And I have to say 
because it exposes banks, it exposes taxpayers to greater risks than 
our alternative.
  There are two reasons for that. First, subsidiaries are assets of the 
bank. They can be sold to satisfy creditors. Affiliates are not 
considered bank assets.
  The second reason subsidiaries are safer is because profits from a 
successful bank subsidiary accrue to that bank. But the profits from a 
company that is part of a holding company do not directly benefit the 
bank.
  Mr. President, it is no secret that of all the issues pending before 
us, one of those issues into which our Treasury Secretary has put the 
greatest amount of time and the greatest amount of effort, because he 
is so concerned about safety and soundness, is this. He wants a tough 
bill when it comes to safety and soundness. He agrees with the FDIC 
Chairman and her predecessors, that if we are going to have strong 
safety and soundness, it is absolutely critical that we ensure we have 
the structure available to make it happen.
  Even Fed Chairman Greenspan, who the chairman likes to cite in 
connection with this bill, agrees that safety and soundness is not the 
issue here.
  In his exact words, ``My concerns are not about safety and soundness. 
. . . It is not a safety and soundness issue.''
  Our proposal corrects a second serious flaw in the underlying bill as 
well. It does so by giving American banks the same freedom as foreign 
banks to choose their operating structure.
  It is absolutely astounding to me that the chairman, who talks so 
passionately about free markets, actually

[[Page S4864]]

dictates in his bill how financial services companies must organize 
their activities. He gives them one--and only one--choice, which means 
he gives them no choice at all.
  Forcing activities into affiliates would place American banks at a 
competitive disadvantage not only in the international markets; it 
would actually place American banks at a disadvantage in America.
  We already give foreign banks the freedom to choose the structure 
that best serves the business plan. Since 1990, the Federal Reserve has 
issued approvals for 18 foreign banks to own subsidiaries that engage 
in securities underwriting activities in the United States. All told, I 
am told these foreign-owned subsidiaries exceed $450 billion in assets.
  In a 1992 joint report on foreign bank operations, the Federal 
Reserve Board and the Treasury Department agreed that ``subject to 
prudential considerations, the guiding policy for foreign bank 
operations should be the principle of investor choice.''
  The bottom line, therefore, Mr. President, is this: The chairman's 
bill discriminates against American banks in favor of foreign banks. We 
say that is wrong. Our amendment levels the playing field. Safety and 
soundness, basic fairness, these are the important issues that are 
underlying this amendment that we will be voting on in just a couple of 
minutes.
  There is one other important point we need to consider. The President 
made it absolutely clear that he will veto the financial services 
modernization bill unless we fix the problem with operating 
subsidiaries. So the choice is ours--or perhaps I should say it is the 
chairman's choice.

  Does he really want a bill badly enough to negotiate and find some 
solution? Does he want a bill badly enough to give up some potential 
leverage he might get in conference to deal with this legislation in a 
way that allows us to focus on the real problems?
  I hope he will reconsider what threats he has made to pull this bill 
if his position does not prevail on this amendment.
  Let's recognize for the good of our country, for the good of our 
financial institutions, for the good of choice, for the good of safety 
and soundness, for moving this bill along, that we only have one 
choice. It is to pass this amendment, and I hope we will do it tonight.
  I yield the floor.
  Mr. GRAMM addressed the Chair.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, I move to table the Shelby amendment, and 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. The question is on agreeing to the motion of 
the Senator from Texas to table the amendment of the Senator from 
Alabama. On this question, the yeas and nays have been ordered, and the 
clerk will call the roll.
  The legislative clerk called the roll.
  Mr. FITZGERALD (when his name was called). Present.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
who desire to vote?
  The result was announced--yeas 53, nays 46, as follows:

                      [Rollcall Vote No. 104 Leg.]

                                YEAS--53

     Abraham
     Allard
     Ashcroft
     Bond
     Brownback
     Bunning
     Burns
     Byrd
     Chafee
     Collins
     Coverdell
     Craig
     Crapo
     DeWine
     Domenici
     Dorgan
     Enzi
     Feingold
     Frist
     Gorton
     Gramm
     Grassley
     Gregg
     Helms
     Hutchinson
     Hutchison
     Inhofe
     Jeffords
     Kyl
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Moynihan
     Murkowski
     Nickles
     Roberts
     Roth
     Santorum
     Schumer
     Sessions
     Smith (NH)
     Smith (OR)
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Voinovich
     Warner
     Wellstone

                                NAYS--46

     Akaka
     Baucus
     Bayh
     Bennett
     Biden
     Bingaman
     Boxer
     Breaux
     Bryan
     Campbell
     Cleland
     Cochran
     Conrad
     Daschle
     Dodd
     Durbin
     Edwards
     Feinstein
     Graham
     Grams
     Hagel
     Harkin
     Hatch
     Hollings
     Inouye
     Johnson
     Kennedy
     Kerrey
     Kerry
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     Mikulski
     Murray
     Reed
     Reid
     Robb
     Rockefeller
     Sarbanes
     Shelby
     Torricelli
     Wyden

                        ANSWERED ``PRESENT''--1

       
     Fitzgerald
       

  The motion was agreed to.
  Mr. GRAMM. Mr. President, I move to reconsider the vote by which the 
motion was agreed to.
  Mr. MACK. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. WELLSTONE addressed the Chair.
  The PRESIDING OFFICER. The Senate will be in order.
  Mr. SARBANES addressed the Chair.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, while there are so many Members on the 
floor, I want to engage the chairman of the committee in a discussion 
and maybe we can let Members know where we are going.
  This was the last of the very large--I do not want to suggest that 
any amendment any Member has to offer is not a large amendment; I 
recognize that, but this was the last of a series of large amendments 
that we had lined up. I know the chairman and leader's intention is to 
try to finish this evening. As I understand it, there are some 
amendments around. I guess we will find out very shortly. Maybe we can 
dispose of them or deal with them in a fairly reasonable way in a short 
period of time and then go to the final vote on this bill.
  As I understand it, the leader said that if we voted final passage 
tonight, there would be no votes tomorrow. Members, I think, would have 
to figure whether it is worth investing a little more time this evening 
in order to finish up. That is how I see the lay of the land. I just 
ask the chairman to comment.
  Mr. GRAMM. We have a cleanup amendment. I think it is ready. We can 
do it. I hope there are no other amendments, and I am ready to vote. I 
yield to Senator Bryan.
  Mr. BRYAN. If I may engage the floor manager and the distinguished 
chairman, I have an amendment, and I would like about 10 to 15 minutes. 
I do not intend to ask for a rollcall vote.
  Mr. GRAMM. Can the Senator let us move ahead for the convenience of 
everybody who have flights and have you do that after the vote? If the 
Senator can do that, it would be very much appreciated.
  Mr. BRYAN. I want to accommodate the Senator in any way I can. I want 
to make sure what I am agreeing to. There are several other Senators 
who may have amendments. I do not want to be at the end. I am simply 
willing to yield for the purpose of the amendment.
  Mr. GRAMM. If there is no other amendment, if the Senator can do 
that, I am sure Members will accommodate and I will stay and listen to 
it if he would like me to.
  Mr. BRYAN. I am not sure I understand. I want to offer the amendment 
before we have a final rollcall vote itself.
  Mr. GRAMM. Can the Senator offer it and, if he is going to withdraw 
it, withdraw it and then speak after the vote? Can that be done? If 
not, let's go ahead and start.
  Mr. BRYAN. I am willing to enter into an agreement of 10 minutes.
  Mr. GRAMM. All right. Whatever works, I am willing to do.
  Mr. WELLSTONE. Before my colleague starts, I do have an amendment.
  The PRESIDING OFFICER (Mr. Enzi). There is a pending amendment, the 
Dorgan amendment No. 313.
  Several Senators addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Utah.
  Mr. BENNETT. I have two amendments at the desk that I believe will be 
accepted by both sides after modification. I would like the opportunity 
to call those up before the final vote.
  Mr. GRAMM. If the Senator will let us just work on them and put them 
in the managers' package and we will do them all at once, if he can get 
those to us.
  Mr. BENNETT. I will do that.
  Mr. LEVIN addressed Chair.

[[Page S4865]]

  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, I have an amendment which I am likely to 
offer, but I need to engage in some floor discussion with the managers 
prior to making that decision. I think it may take about a half an hour 
to an hour to go through a discussion with the managers on this 
subject.
  It is a very important subject. It has to do with whether or not the 
SEC is going to be able to regulate the purchase and sale of stock when 
they are done by banks. The SEC sent me a letter yesterday strongly 
objecting to language in this bill, and what they are pointing out is 
that the language in the committee report is different from the 
language in the bill.
  I want to talk to the managers about an amendment which would 
incorporate in the bill what the committee report says is the intent of 
the bill. It is possible that this will be accepted because this is 
committee report language which I am trying to get into the bill, but I 
do not know until after we go through the discussion process on the 
floor. I just want to alert colleagues that could take perhaps a half 
an hour to an hour.
  The PRESIDING OFFICER. The Senator from Minnesota.
  Mr. WELLSTONE. Mr. President, just on the order of business, I have 
an amendment I was going to offer with Senator Harkin. I know 
colleagues want to leave. I need to talk with Senator Harkin and make a 
decision as to what we want to do here, if the manager can give us a 
couple of minutes.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, I have spoken to both managers of the bill. 
Senator Dorgan and I have an amendment. It is simple in nature. I think 
it is something that should be accepted. It is something that could be 
reviewed in conference. It would require an independent audit of the 
Federal Reserve Board. Otherwise, we will offer that amendment. It will 
not take long.
  Mr. GRAMM. If the Senator will give us that amendment and let us look 
at it, we might be able to include it in the managers' package.
  Mr. SARBANES. I suggest to the chairman, maybe if we take about 5 or 
10 minutes to engage in a discussion with the people who have these 
amendments, we can find a way to perhaps accept some of them and go to 
conference with them at least and deal with the others, and then we can 
still move to final passage this evening and complete this legislation, 
which I think is highly desirable.
  Mr. GRAMM. I agree with that. The thing to do is to plow ahead. Is 
the distinguished Senator from Nevada going to withdraw the amendment?
  Mr. BRYAN. Yes.
  Mr. GRAMM. Can I suggest, again, the Senator offer the amendment and 
speak for a couple of minutes and withdraw it, and then after the vote, 
if he wants to speak longer on it, he can. Will that work? If not, go 
ahead and speak.
  Mr. BRYAN. Mr. President, I will be willing to do that. Can I have a 
little flexibility, if you are still trying to work things out. I am 
not trying to delay this.
  Mr. GRAMM. Let's just start.
  The PRESIDING OFFICER. The Senator from Nevada.


                           Amendment No. 316

(Purpose: To give customers notice and choice about how their financial 
  institutions share or sell their personally identifiable sensitive 
             financial information, and for other purposes)

  Mr. BRYAN. Procedurally, I ask unanimous consent to lay aside the 
pending amendment, and I ask that an amendment dealing with personal 
privacy be sent to the desk for immediate consideration.
  The PRESIDING OFFICER. Without objection, it is so ordered. The clerk 
will report.
  The assistant legislative clerk read as follows:

       The Senator from Nevada [Mr. Bryan] proposes an amendment 
     numbered 316.

  Mr. BRYAN. Mr. President, I ask unanimous consent that the reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 150, after line 21, add the following:

                TITLE VII--FINANCIAL INFORMATION PRIVACY

     SEC. 701. SHORT TITLE.

       This title may be cited as the ``Financial Information 
     Privacy Act of 1999''.

     SEC. 702. DEFINITIONS.

       In this title--
       (1) the term ``covered person'' means a person that is 
     subject to the jurisdiction of any of the Federal financial 
     regulatory authorities; and
       (2) the term ``Federal financial regulatory authorities'' 
     means--
       (A) each of the Federal banking agencies, as that term is 
     defined in section 3(z) of the Federal Deposit Insurance Act; 
     and
       (B) the Securities and Exchange Commission.

     SEC. 703. PRIVACY OF CONFIDENTIAL CUSTOMER INFORMATION.

       (a) Rulemaking.--The Federal financial regulatory 
     authorities shall jointly issue final rules to protect the 
     privacy of confidential customer information relating to the 
     customers of covered persons, not later than 270 days after 
     the date of enactment of this Act (and shall issue a notice 
     of proposed rulemaking not later than 150 days after the date 
     of enactment of this Act), which rules shall--
       (1) define the term ``confidential customer information'' 
     to be personally identifiable data that includes 
     transactions, balances, maturity dates, payouts, and payout 
     dates, of--
       (A) deposit and trust accounts;
       (B) certificates of deposit;
       (C) securities holdings; and
       (D) insurance policies;
       (2) require that a covered person may not disclose or share 
     any confidential customer information to or with any 
     affiliate or agent of that covered person if the customer to 
     whom the information relates has provided written notice, as 
     described in paragraphs (4) and (5), to the covered person 
     prohibiting such disclosure or sharing--
       (A) with respect to an individual that became a customer on 
     or after the effective date of such rules, at the time at 
     which the business relationship between the customer and the 
     covered person is initiated and at least annually thereafter; 
     and
       (B) with respect to an individual that was a customer 
     before the effective date of such rules, at such time 
     thereafter that provides a reasonable and informed 
     opportunity to the customer to prohibit such disclosure or 
     sharing and at least annually thereafter;
       (3) require that a covered person may not disclose or share 
     any confidential customer information to or with any person 
     that is not an affiliate or agent of that covered person 
     unless the covered person has first--
       (A) given written notice to the customer to whom the 
     information relates, as described in paragraphs (4) and (5); 
     and
       (B) obtained the informed written or electronic consent of 
     that customer for such disclosures or sharing;
       (4) require that the covered person provide notices and 
     consent acknowledgments to customers, as required by this 
     section, in separate and easily identifiable and 
     distinguishable form;
       (5) require that the covered person provide notice as 
     required by this section to the customer to whom the 
     information relates that describes what specific types of 
     information would be disclosed or shared, and under what 
     general circumstances, to what specific types of businesses 
     or persons, and for what specific types of purposes such 
     information could be disclosed or shared;
       (6) require that the customer to whom the information 
     relates be provided with access to the confidential customer 
     information that could be disclosed or shared so that the 
     information may be reviewed for accuracy and corrected or 
     supplemented;
       (7) require that, before a covered person may use any 
     confidential customer information provided by a third party 
     that engages, directly or indirectly, in activities that are 
     financial in nature, as determined by the Federal financial 
     regulatory authorities, the covered person shall take 
     reasonable steps to assure that procedures that are 
     substantially similar to those described in paragraphs (2) 
     through (6) have been followed by the provider of the 
     information (or an affiliate or agent of that provider); and
       (8) establish a means of examination for compliance and 
     enforcement of such rules and resolving consumer complaints.
       (b) Limitation.--The rules prescribed pursuant to 
     subsection (a) may not prohibit the release of confidential 
     customer information--
       (1) that is essential to processing a specific financial 
     transaction that the customer to whom the information relates 
     has authorized;
       (2) to a governmental, regulatory, or self-regulatory 
     authority having jurisdiction over the covered financial 
     entity for examination, compliance, or other authorized 
     purposes;
       (3) to a court of competent jurisdiction;
       (4) to a consumer reporting agency, as defined in section 
     603 of the Fair Credit Reporting Act for inclusion in a 
     consumer report that may be released to a third party only 
     for a purpose permissible under section 604 of that Act; or
       (5) that is not personally identifiable.
       (c) Construction.--Nothing in this section or the rules 
     prescribed under this section shall be construed to amend or 
     alter any provision of the Fair Credit Reporting Act.

  Mr. BRYAN. I thank the Chair.

[[Page S4866]]

  Mr. President, earlier today, the Senate adopted an amendment offered 
by the distinguished chairman of the Banking Committee dealing with the 
fraudulent procurement of personal information by information brokers. 
Last Congress, Senator D'Amato and I offered an identical provision, 
and we were successful in incorporating that in last year's financial 
modernization bill, H.R. 10.
  Unfortunately, that measure died along with H.R. 10 which was 
filibustered at the end of the last session. I commend the Senator from 
Texas. The antifraud provision is a good first step, but as Senator 
Sarbanes articulated earlier today, it is in no way a substitute for 
meaningful privacy protections.
  The Gramm amendment deals with a small, but pernicious, group of 
information brokers that obtain personal information under false 
pretenses. This practice should be shut down. In fact, the Federal 
Trade Commission recently brought action against such practices.
  While thousands of Americans are harmed by fraudulent information 
brokers, each and every American who has a bank account, stock 
portfolio or an insurance policy is subject to a massive invasion of 
his or her personal privacy that cries out for legislative remedy.
  I applaud the fact that the chairman has indicated we are going to 
hold a series of hearings.
  I applaud the chairman's promise to hold a series of hearings on the 
financial privacy issue. Many of us who worked on the Community 
Reinvestment Act would have hoped we might have had similar 
opportunities before moving forward with the CRA changes in this bill.
  While the chairman's amendment and his hearings are good first steps, 
I encourage us to take one more step that Senator Sarbanes and Senator 
Dodd and I have been urging for some time.
  My amendment is quite simple. What we are talking about is financial 
privacy. I want to make it very clear that I am a strong supporter of 
the restructuring bill that is before us, the financial modernization. 
I freely acknowledge and recognize that we need a regulatory framework 
which comports with the realities of the marketplace today.
  So my purpose in offering this amendment is in no way to denigrate 
the need to make the kind of changes which essentially are outlined in 
S. 900, or a part of H.R. 10 in the previous session. But I think my 
colleagues and the American people would be absolutely shocked if they 
knew how little privacy they have in their personal financial 
information with the very people who are going to be players in this 
financial reorganization--banks, security brokerages, and insurance.
  Here is what the American people have to say on the issue of privacy. 
When asked recently: ``Would you mind if a company you did business 
with sold information about you to another company?'' Ninety-two 
percent said yes, they would object to it. The source of that 
information is the AARP.

  Let me cite an illustration of precisely what does occur and will 
continue to occur. This is a financial transaction, I say to my 
colleagues, that occurred at a bank. A lady came in and deposited 
$109,451.59. At this bank, teller No. 12 made the following notation: 
``She came in today,'' referring to the depositor, ``and wasn't sure 
what she would do with her money.'' That is the bank teller.
  This bank has a relationship with a brokerage house. Here is what the 
teller then did. The teller then contacts ``David''--David is the 
individual with the brokerage house--and says, ``See what you can do! 
Thank you.''
  So in effect the privacy of this individual's personal bank account 
is compromised, as the bank teller then notifies the brokerage house: 
``You'd better get ahold of this lady. She has $109,000. She doesn't 
know what she wants to do with it. You contact her.''
  This is a real-life situation. Under the current law--under the 
current law--your information with respect to your insurance accounts 
may be freely sold to a third party, or maybe transferred to an 
affiliate under the proposed arrangements that are contemplated in this 
bill. Your bank account information can be sold to a third party--a 
total stranger to you and to your financial transaction.
  So you have a situation in which all of a sudden you have a 
certificate of deposit that is coming due next month, and you start to 
get a stream of information from vendors who are marketing financial 
services and saying, ``Mrs. Smith,'' ``Mr. Jones, I know your 
certificate of deposit is due next month. Let me show you what our 
financial package can provide for you.'' And you are saying, ``How does 
this outfit know that I've got a certificate of deposit that is 
maturing next month?'' And the answer is, that information can be sold 
to a third party, and that information is valuable to a particular 
vendor of services.
  So the amendment that we propose does two things: No. 1--and I do not 
see how you can argue against this proposition--
  The PRESIDING OFFICER. The Senate is not in order. If conversations 
do not relate to the bill at hand, would you please take them into the 
other room. The Senator deserves consideration. Would conversations 
near the Senator please cease.
  Mr. BRYAN. I thank the Presiding Officer.
  The point that I was making is that your financial information with 
respect to insurance brokerage accounts and bank accounts is not 
protected under the present law. That information can be sold or 
marketed to a total stranger. An outfit, for example, that may be 
selling penny stocks all of a sudden contacts you and says, ``Look, I 
know you've got a certificate of deposit or bank account with a 
sufficient balance involved.''
  So what we are proposing in this amendment is something very hard to 
argue against. We are saying that with respect to these financial 
organizations--banking, insurance and brokerage--that they cannot sell 
to a total stranger, a third party, without your consent. What is wrong 
with that?
  So rather than being able to sell to any vendor your very personal 
and private information--your insurance coverages, whatever information 
might be available about any medical condition that you might have, 
your brokerage account, your bank account--cannot be sold to a third 
party without your prior consent. I suspect if you ask the American 
people--Democrat, Republican, independent, whether they are to the 
right of center or to the left of center or in between--you would get 
almost a unanimous vote that would say, ``That is what I want as a 
protection for my privacy.''

  I understand that in this modern consolidation of financial services 
the thrust of this bill is going to permit banks and insurance and 
brokerage to be involved in affiliated relationships. I understand 
that. So we are told, ``Do not, Senator, do anything that would impair 
or compromise the synergy of the marketplace. Don't do that.''
  Well, this is what we propose with respect to those affiliate 
arrangements. This would not be a total stranger or a third party. If 
they are going to transfer and make available that information, they 
need to notify you and give you the opportunity to opt out. They do not 
have to get your prior consent, but they have to give you the right to 
opt out.
  That concept is recognized in the law. Many of you will recall that I 
took the lead some years back in securing amendments to the Fair Credit 
Reporting Act. And we said there, with respect to information that is 
collected, with respect to your credit history, that before that 
information can be made available for marketers and others, they need 
to notify you where that information came from and that you had the 
right, after receiving a solicitation, to say, ``Look, no more. Take me 
off the list'' in effect the right to opt out.
  So that is what we are proposing in this amendment--An absolute 
requirement that if the information is made available to a total 
stranger, a third party, that has no affiliate relationship, a vendor 
of any number of financial services, they must obtain your prior 
consent; that if the information, the financial information, is to be 
transferred from one of their affiliates, they need to give you the 
opportunity to opt out if you choose to avail yourself of that 
option. Now, I am hard pressed to understand why anybody would object 
to that. I think any one of us would be somewhat surprised to know that 
our bank accounts, our insurance, and our brokerage accounts

[[Page S4867]]

can be made available to anyone under the existing law. If we are going 
to provide these new financial services, which I believe we ought to 
provide to recognize the change in the marketplace, that does not 
strike me as being an unreasonable proposition to advocate.

  So this is a provision that I think needs attention. I must say that 
the ranking member has taken a lead on this. He has been a strong 
advocate, as has the senior Senator from Connecticut. I know he had a 
question or two to which I would be happy to respond.
  Mr. SARBANES. If the Senator will yield, I commend the Senator for 
his very strong statement. This is an extremely important issue. I 
appreciate the Senator speaking out on it. We have joined together, 
actually, in introducing legislation on this privacy question, along 
with Senators Leahy and Dodd and Hollings. Earlier today we raised the 
issue with the chairman.
  I think it would probably be helpful if the chairman could provide--
the Senator may want to question him himself--the similar assurances he 
gave earlier about the committee committing itself to examining this 
issue in a comprehensive way, with hearings and with the idea in mind, 
of course, to try to bring forth legislation that will address what the 
chairman himself has conceded is an important issue that needs to be 
addressed.
  Mr. GRAMM. Will the Senator yield?
  Mr. BRYAN. The Senator is pleased to yield.
  Mr. GRAMM. The Senator was not on the floor today when I offered the 
amendment which adopted the provisions that were in the Sarbanes 
substitute. I said at the time that I did not believe it solved the 
problem. I committed to hold extensive hearings. I committed to allow 
anyone who had any kind of substantive opinion to express it, and I 
committed that we would take a hard look at it.
  This whole issue is a very serious issue, and it is one we have to 
learn to live with. It is one about which I share a great deal of 
concern with others.
  Mr. BRYAN. Mr. President, I appreciate the Senator's commitment. If I 
might engage the distinguished chairman in a follow-up inquiry--I know 
the Senator is trying to process this bill. As Henry VIII said to his 
third wife, I shall not keep you long--the question I have of the able 
chairman is, Would the Senator not agree that before a financial 
services institution sells personal information about your bank 
accounts, your insurance policies, about your brokerage accounts, it is 
not unreasonable that they get your consent before doing so?
  Mr. GRAMM. Well, if the Senator will yield, first of all, we adopted 
some provisions today from the Sarbanes substitute that were a first 
step.
  Mr. BRYAN. Yes.
  Mr. GRAMM. But I made it clear they were only a first step. I believe 
as a matter of principle they should. If the Senator will take yes for 
an answer, I will say yes.
  Mr. BRYAN. The Senator is delighted to take yes for an answer. I am 
most appreciative of the response.
  If the able chairman is saying that perhaps my time has expired, I 
will be happy to yield the floor in just a moment. I inquire whether or 
not the ranking member has further colloquy he wishes to engage me in.

  Mr. SARBANES. I simply want to underscore, the importance of this 
issue and the contribution which the very able Senator has made to it. 
Isn't it correct, most people don't realize these things can happen?
  Mr. BRYAN. I say to the senior Senator from Maryland, not only do 
they not realize it, they are absolutely dumbfounded and amazed. Most 
people believe that in the world of high finance, brokerage accounts, 
insurance and banks, there is a system of Federal law that protects 
their privacy. I say to the Senator from Maryland, we all recognize 
that we are entering a new era of financial transactions, the Internet; 
computers have transformed the way in which we transact our business; 
the old green eyeshade guys are gone.
  Today the right of privacy as we know it in America is threatened, I 
say to my friend from Maryland. More than a century ago the able, later 
Justice of the U.S. Supreme Court advocated, in a Harvard Law Review 
article, a right of privacy. That right was later enshrined in 
subsequent opinions of the U.S. Supreme Court.
  I think the very essence of a right of privacy ought to be your 
personal financial information--how much money you have in your bank 
account; to whom you choose to make payments; your insurance coverages; 
any medical conditions that might be a part of that insurance record; 
what stocks and bonds and securities you hold; when those certificates 
of deposit might mature. To say that all of that can be sold, 
transferred without your knowledge, without your consent, to some total 
stranger who may not, I say to my friend from Maryland, be a legitimate 
vendor--we don't know who these guys might be. All of a sudden you get 
a ton of mail coming in and saying: Mrs. Smith, I know your husband 
just died last year, and I know you have some certificates of deposit. 
They are getting a 5-percent return. As a widow, you need to know, if 
you invest with us, we can quadruple that rate of return.
  That is what is happening, I say to my friend from Maryland. That is 
something that I think is appropriate for the Congress and the Federal 
Government to say, that is wrong.
  I appreciate the leadership of the ranking member on this. This is 
something that ought not to divide us, Democrat or Republican, liberal 
or conservative.
  Mr. SARBANES. The Senator is absolutely right. I want to make it very 
clear, the provision that was adopted earlier today was an antifraud 
provision. It was designed to get at people who get this information by 
fraud. The fact of the matter is, under the current arrangements there 
is no restriction that precludes a financial institution from providing 
this information or selling this information to others.
  I think you are absolutely right; people would be dumbfounded to know 
that this information they are giving to their financial institution 
has no privacy protections around it. I think it is extremely 
important, as the Senator has emphasized, to establish such 
protections.
  It has an issue of some complexity to it. We need to work through it. 
I think the hearings that have now been committed to will give us the 
opportunity to do it. There are many members on the committee on both 
sides of the aisle who are interested in this issue. I hope we can move 
forward and bring a significant piece of legislation to the floor of 
the Senate.
  Mr. BRYAN. I look forward to working with the senior Senator from 
Maryland on this.

  Let me say, I am going to withdraw this amendment, because of the 
lateness of the hour and because we want to move forward to process 
this.
  I say to my friend from Maryland--I know he feels this very 
strongly--the word should go out tonight from this Chamber to the 
industry groups that believe this is an issue that is going to go away. 
It is not going to go away. What we are talking about is the essence of 
reasonableness and fairness. If you are talking about selling some 
information or making it available to a total stranger, you as an 
individual ought to have the right to make that decision. That is 
something that is fundamental and basic. As an accommodation to these 
new affiliate arrangements that can be entered into under this new 
legislation, we say, with respect to any transfers between the 
affiliates, an opt-out provision is a reasonable compromise.
  I encourage our friends from the industry to work with us on this. I 
say to the Senator from Maryland, because this is not going to go away, 
we are going to address this issue, and the American people are going 
to be thoroughly outraged when they become aware that these new 
arrangements permit this continuation of an invasion of their privacy 
in the most personal way possible.
  Mr. SARBANES. If the Senator will yield, I echo his observation that 
this is not an issue that is going to go away. Those who are involved 
need to take a constructive attitude in arriving at effective ways to 
protect the privacy of the American people. There is no doubt about it.
  Mr. BRYAN. I thank the Senator from Maryland. I am prepared to yield 
the floor.
  Mr. President, from a procedural point of view, I would like to 
withdraw

[[Page S4868]]

the amendment. May I do so, or do I need unanimous consent?
  The PRESIDING OFFICER. The amendment is withdrawn.
  Mr. WELLSTONE addressed the Chair.
  The PRESIDING OFFICER. The Senator from Minnesota is recognized.
  Mr. WELLSTONE. Mr. President, I was going to introduce an amendment 
tonight with respect to low-cost lifeline bank accounts with Senator 
Harkin from Iowa and my colleague, Senator Schumer from New York. This 
amendment would require banks that establish a bank holding company 
under the S. 900 guidelines to offer low-cost banking services to their 
customers.
  I am not going to talk about this amendment at all tonight, except to 
say I think this is a most important consumer amendment; it is very 
important to senior citizens and very important to low- and moderate-
income citizens.
  My understanding, with my colleague from Texas, the chairman, is that 
we will have an opportunity to bring this amendment up when another 
banking-related bill comes to the floor, and we will be able to debate 
this and have an up-or-down vote; am I correct, I ask my colleague from 
Texas?
  Mr. GRAMM. Mr. President, I told both of my colleagues that because 
in the past when they and others had sought to offer an amendment 
parliamentary maneuvers had been made to prevent that, on a future 
banking bill--and as Senator Sarbanes noted, we already have reported 
three banking bills out of the committee. So we will have banking 
bills--I will guarantee them an opportunity to offer the amendment and 
to have an up-or-down vote on it.
  Mr. WELLSTONE. I thank the chairman. I yield to my colleague from 
Iowa.
  Mr. HARKIN. I thank the Senator from Texas for the assurance that we 
can offer this amendment later on. Again, this is an important 
amendment and we can't let it go too much longer. So I hope we will 
have some kind of banking bill this year. I hope it doesn't go into 
next year, because consumers are getting gouged. Most people don't 
carry more than $1,000 in their checking accounts and they are the ones 
who have to pay the fees. In all my life until just recently, checking 
accounts used to be free. Now if you have less than $1,000, you pay 
fees. Who has less than $1,000? It is the elderly, the low-income 
people; they have to pay the fees to keep the checking accounts. It is 
not fair.
  Mr. SARBANES. If the Senator will yield, the committee has brought 
out--in fact, it is on the calendar--a regulatory relief bill to lessen 
the regulatory burdens on the financial institutions, and it seems to 
me in that spirit of lessening burdens, this basic banking amendment 
would certainly be an opportune amendment to offer to that bill when it 
is before the Senate. I am pleased that the chairman has committed to 
having an up-or-down vote.
  I think the Senators are onto a very important issue, and it really 
is just a basic issue of equity and fairness for small people. I very 
much appreciate not only their raising it, but insisting that at some 
reasonable point we be given an opportunity to vote up or down on this 
important matter.
  Mr. HARKIN. I thank the Senator from Maryland.
  Mr. WELLSTONE. Mr. President, I also thank the Senator from Texas and 
the Senator from Maryland. We will certainly bring this amendment to 
the floor.
  Mr. CHAFEE. Mr. President, last night the Senate approved a motion to 
table the Bryan CRA amendment by a vote of 52-45. I voted in favor of 
the tabling motion, and would like to take a moment to outline my 
position on this matter.
  What did Senator Bryan propose in his amendment? The Bryan amendment 
would have stricken two provisions in the underlying bill related to 
the Community Reinvestment Act, as follows: (1) the so-called CRA 
integrity provision and (2) the exemption for small, rural banks. In 
addition, the Bryan amendment would have conditioned approval of a 
bank's affiliation with a securities firm or insurance company on CRA 
compliance.
  On this last point, linking approval of new financial activities to 
CRA compliance, I want to acknowledge Senator Bryan's efforts to 
develop a pragmatic approach to this issue. Unlike some of the more 
far-reaching proposals that have been put forward, this provision would 
not have expanded CRA to apply to nonbank institutions, nor would it 
have required holding companies to divest themselves of a bank that 
falls out of compliance. Despite the relative appeal of this portion of 
the Bryan amendment, however, I found myself unable to support the 
overall package.
  With regard to the integrity provision, I have long thought that 
banks that do a good job under CRA should get some credit for it. Under 
current law, however, a bank with an outstanding CRA rating that seeks 
to merge or expand potentially is subject to the same challenges from 
community groups as a bank with a rating of substantial noncompliance. 
This situation simply is not fair, in my judgment.
  Now, the opponents of this provision point out that 97 percent of the 
banks receive a satisfactory CRA rating, and thus the bill offers the 
protection of the ``substantial, verifiable information'' standard to 
nearly every institution in the country. Admittedly, I would prefer to 
see the integrity provision deal only with ``outstanding'' banks. 
Unfortunately, the procedural situation did not permit an opportunity 
to make such a change.
  Turning to the small bank exemption, only one financial institution 
in my state fits the bill's description of a small, rural bank. 
Nevertheless, I'm sympathetic to the hundreds of tiny banks across the 
country--institutions with only a handful of employees--that face a 
daunting, expensive regulatory burden in terms of CRA recordkeeping. In 
addition, I found particularly persuasive Senator Gramm's observation 
that of the 16,380 audits of these small, rural banks in the past nine 
years, only three have been found to be substantially out of 
compliance.
  I fully recognize the important role CRA has played in expanding the 
availability of credit in Rhode Island and across the nation. Small 
business owners, homebuyers, and renters alike have benefitted from the 
pressure CRA exerts on banks to make loans in neighborhoods they might 
otherwise overlook. At the end of the day, however, I determined that 
Senator Gramm's proposed CRA reforms had some merit to them. For these 
reasons, I voted against the Bryan amendment.
  Mr. MOYNIHAN. Mr. President, we have been debating the subject of 
banking in the Senate since the 18th century. We began to ask ourselves 
a question, could we have a national bank, which Mr. Hamilton, of New 
York, thought we could do and should do. We created one. It had a very 
brief tenure. It went out of existence just in time that the Federal 
Government had no financial resources for the War of 1812. So it was 
reinstituted, as I recall, in 1816 for 20 years, and went out of 
existence just in time for the panic of 1837. We went through 
greenbacks. There must have been a wampum period. We went to gold 
coinage. Then a free coinage of silver dominated our politics for 
almost two decades, as farmers sought liquidity and availability of 
credit. Finally, at the end of the century of exhaustive debate, we 
more or less gave up and adopted what we now call the Federal Reserve 
System.
  To say we debated this matter for a century is certainly true. In the 
past few years, we have turned our focus to the nonbank bank. You are 
really reaching for obscurity when you define an issue as we have done, 
and yet that seems to be the term with which we have to deal.
  The issue of the nonbank banks, also referred to as financial 
modernization, is facing the Senate today. As we consider Chairman Phil 
Gramm's (R-TX) bill I would like to make two points. The first being 
that we need financial modernization, that depression era banking laws 
need to be amended. We all agree on that. The second point that I would 
like to make is that we must do this in a prudent manner--preserve the 
things which need to be preserved, and remedy the things which need to 
be remedied.
  It strikes me as odd that most corporations are free to engage in any 
lawful business. Banks, by contrast, are limited to the business of 
banking. It is generally agreed that the Glass-Steagall Act of 1933 and 
the Bank Holding Company Act of 1956 need to be

[[Page S4869]]

amended. Banks, security firms, and insurance companies should be 
allowed to offer each other's services. They already do by finding 
loopholes in the law. Congress must catch up, and pass a law that 
condones this activity. London does it. Tokyo too. Why not New York, 
which, if I may say, is one of the world's banking capitals?
  This is a real problem for the existing banks which find themselves 
under serious constraints they have lived with under depression-era 
banking laws. Suddenly, they find that their activities are encroached 
upon and they are not able to do things that they ought to do, that 
they are going to need to do, if they are going to survive in a 
competitive world economy.
  Now is the time to modernize our financial institutions. But the bill 
before us has certain problems. The most serious of which is that it 
weakens the Community Reinvestment Act. The CRA, enacted in 1977, has 
played a critical role in revitalizing low and moderate income 
communities. New York has benefited from this. A Times editorial states 
that ``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.''
  It is for this reason that I cannot support Chairman Gramm's bill. I 
voted for the Democratic substitute which was offered by Senator 
Sarbanes. This bill too amends Glass-Steagall and the Bank Holding 
Company Act. But it preserves the CRA. I want financial modernization 
as much as the next person. But we cannot do it at the detriment of the 
CRA.
  I ask unanimous consent that the New York Times editorial from March 
17, 1999 be printed in the Record.
  There being no objection, the editorial was ordered to be printed in 
the Record, as follows:

            [The New York Times, Wednesday, March 17, 1999]

                        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 
     considers 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.

  Mr. SANTORUM. Mr. President, I rise today in support of the Senate 
Banking Committee's bill, the Financial Services Modernization Act of 
1999, S. 900.
  As a new member to Banking Committee, I am pleased to be part of the 
Committee's effort to bring this bill to the floor. First, let me 
commend the Chairman for his hard work and heavy-lifting in crafting a 
bill that will frame the way financial activities are conducted as we 
move into the next century. The Chairman began this effort during a 
very busy and trying time for this body at the beginning of the 106th 
Congress, and I appreciate his leadership in keeping the Committee 
focused on our priorities and the work at hand.
  Considering the scope of activities covered by a financial services 
modernization bill, crafting a piece of legislation to update 60 year 
old laws while allowing flexibility for forward-thinking products is a 
Herculean task. At the heart of the bill is the matter of addressing 
structure and regulation of financial services firms. Even a casual 
observer has taken notice of the changing face of our domestic 
financial sector over the past several months. While merger-mania has 
dominated the news, other forces such as changing regulation, court 
decisions, and market innovation have outpaced current law. And 
although S. 900 is a work in progress, with accommodations to be made 
by all interested parties, I believe the time is ripe to pass 
legislation that allows for the affiliation among the various sectors 
of the financial services industry. This legislation provides a 
constructive framework to tackle the issue of financial services 
modernization while also including appropriate safeguards.
  As with most major legislative initiatives, this bill has not been 
without controversy. Specifically, there has been an ongoing debate 
about provisions in the bill pertaining to the Community Reinvestment 
Act (CRA). As many know, the Community Reinvestment Act was enacted by 
Congress in 1977 and required federally-insured banks and thrifts to 
make loans in their service areas, including low- and moderate- income 
communities, consistent with safe and sound banking practices. 
Compliance with CRA requirements can encompass loans made for the 
purposes of mortgage lending; business lending; consumer credit; and 
community investments. The benefit of capital investment and financing 
in such communities has strengthened parts of our nation that may not 
have otherwise known their current prosperity. To date, CRA lending has 
surpassed the $1 trillion mark for investment in low- and moderate-
income communities while private sector lending has increased 45% from 
1993 to 1997. As I have heard from many community reinvestment groups 
located throughout the Commonwealth of Pennsylvania, there has been one 
very positive additional benefit that numbers can't quantify: the 
relationships formed between members of the banking community and those 
advocating on behalf of their neighborhoods and communities. These 
working relationships now aim to meet the mutual goal of jumpstarting 
the economic viability of urban and rural regions across the United 
States.
  For those very reasons, I chose not to support the amendment offered 
during mark-up of S. 900 that would have exempted small, rural banks 
with less than $100 million in assets from CRA requirements. I 
certainly appreciate the very real concern of added regulatory and 
paperwork burdens that banks assume to comply with this law. In fact, 
reforms made in 1997 to the CRA recognized this very problem and 
streamlined the examination process for small banks with less than $250 
million in assets. However, I could not support a wholesale exemption 
from this Act.
  As the Chairman outlined from the beginning of the process of 
developing a financial services modernization bill, the role of the CRA 
will be further examined by the Committee in a separate forum. I 
suspect that a thorough evaluation of CRA successes and shortcomings 
will be addressed within the context of oversight hearings, and I look 
forward to participating in that process. While CRA has made 
significant contributions to the empowerment of marginalized 
communities, I

[[Page S4870]]

believe we still need to find the right balance to ensure prosperity 
for low- and moderate- income neighborhoods and the flexibility for 
lenders to meet community needs.
  Mr. President, while the future of this bill has been linked to the 
resolution of certain issues, like the CRA, I believe the heart of the 
debate, financial services modernization, is larger than partisanship. 
The time has come to make commonsense reform of our nation's financial 
structure a reality in order to remain the strong competitive force in 
world markets that our country has so capably demonstrated.
  Mr. REID. I rise before you today, not to complicate an already 
controversial bill, but instead to try to accomplish what I have tried 
to do through legislation in past years.
  This is, to pass legislation requiring an independent audit of the 
Federal Reserve System, as is standard in every other Government entity 
in this country.
  In fact, back in 1993, Senator Dorgan and I, requested a GAO 
investigation of the operations and management of the Federal Reserve 
System.
  We were concerned because no close examination of the Fed's 
operations had ever been conducted.
  As you may recall Mr. President, we found out quite a bit about the 
Federal Reserve.
  We found, among other things, that the Fed has a `slush fund', or 
what they refer to as a `rainy day fund,' that they have kept there for 
over 80 years.
  At the time of the GAO investigation, the Fed has squirreled away 
$3.7 Billion in taxpayer money.
  The last report that I have from January 1998, shows that this fund 
has reached $5.2 billion.
  You can bet that figure has gone up since then.
  The Fed claims that this `slush fund' is needed to cover system 
losses.
  Since its creation in 1913, however, the Fed has never operated at a 
loss.
  The report that Senate Dorgan and I requested in 1993 also found that 
the Interdistrict Transportation Service had been engaging in 
questionable business activities.
  These activities included the awarding of non-competitive contracts 
for the implementation of Interdistrict Transportation Services, gifts 
of payments for missing backup and grounded aircraft to nonperforming 
contractors and a pattern of studied indifference by supervisors to 
clear evidence of waste, fraud and abuse within its operations.
  It was further troubling to find that the activities sanctioned by 
the Federal Reserve supervisors, was intended to have the practical 
effect of distorting marketplace behavior by competing unfairly against 
private sector companies in the air courier business.
  In what remains as the first and only independent comprehensive 
review of the Federal Reserve System, the conclusions reached by the 
GAO paints a dreary picture of internal Federal Reserve operations and 
budgeting procedures.
  This GAO report that I am referring to, makes a strong case for 
increased Congressional oversight of the Federal Reserve System 
operations that are unrelated to monetary policy.
  Furthermore, only 1,600 out of nearly 25,000 Federal Reserve 
employees deal with monetary policy.
  I have a Wall Street Journal article and I ask unanimous consent it 
be printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

             [From The Wall Street Journal, Sept. 12, 1996]

  Showing Its Age: Fed's Huge Empire, Set Up Years Ago, Is Costly and 
                              Inefficient


   it has far too many banks, often in wrong places; losses in check-
                                clearing

                     ``post office problem'' looms

                           (By John R. Wilke)

       Minneapolis.--Construction cranes rising above the 
     Mississippi River hoist the final stone blocks for the 
     elegant new Federal Reserve Bank headquarters here, the 
     latest monument to the U.S. central bank's immense wealth and 
     power.
       The $100 million building site on nine acres of prime 
     riverfront, with a 10-story stone clock tower overlooking 
     terraces and gardens. It will offer fortress-like security 
     and robot-attended, automated vaults, plus an indoor pistol 
     range, a fitness center and subsidized dining. The Fed's 
     construction boom also includes the lavish new $168 million 
     Dallas Fed and a planned $178 million Atlanta Fed.
       Located in a dozen cities--with branches in another 25--the 
     Fed's palatial banks suggest permanence and importance. They 
     operate with great independence far from the Fed's power 
     center in Washington and, with $451 billion of assets, are 
     staggeringly wealthy. Their job is to run the basic plumbing 
     of the nation's economy by monitoring local banks, 
     distributing currency, processing checks and settling 
     interbank payments.
       But the plumbing at the Fed banks seems to be getting 
     rusty, despite their heavy spending. Rapid changes in 
     technology, consolidation in banking and rising competition 
     in some of their basic services threaten to make Fed banks 
     costly relics. Except for the New York Fed, the system's link 
     to world markets, many Fed functions could be centralized at 
     far less cost and some Fed banks could be closed, federal 
     auditors say.
       ``It's not about saving nickels and dimes,'' says James 
     Bothwell, a General Accounting Office auditor who recently 
     completed a two-year study of the Fed's books. ``There are 
     serious, long-term questions about their mission and 
     structure.''
       The Fed's best-known mission--steering U.S. monetary policy 
     and thus charting the course of the economy--isn't at issue. 
     Even its critics hail the Fed's success in holding down 
     inflation.
       What concerns some in Congress and its GAO watchdog agency 
     is the sprawling Fed empire, which reaches far beyond its 
     marble headquarters in Washington to maintain a presence in 
     most major American cities. The Fed has 25,000 employees, 
     runs its own air force of 47 Learjets and small cargo planes, 
     and has fleets of vehicles, including personal cars for 59 
     Fed bank managers. It publishes hundreds of reports on itself 
     each year--even Fed comic books on monetary policy for kids. 
     A full-time curator oversees its collection of paintings and 
     sculpture.
       Yet Fed spending gets little public scrutiny, even as the 
     rest of the federal government struggles to tighten its belt. 
     That's because the Fed funds itself from the interest on its 
     vast trove of government securities acquired in its conduct 
     of monetary policy. Last year, it kept $2 billion of those 
     interest earnings for itself and returned the rest, $20 
     billion, to the Treasury. Thus, every dollar spent on a new 
     building in Minneapolis--or anything else--is a dollar that 
     could have been used to cut the federal deficit. Unlike every 
     other part of government, the Fed doesn't have to ask 
     Congress for money, and that's the key to its independence 
     from political interference on monetary-policy issues.
       The Minneapolis Fed would seem a prime candidate for 
     downsizing. Its spending is in striking contrast to the 
     cutbacks and consolidations at many of the commercial banks 
     it serves; only two major banks are left in its six-state 
     district. And its biggest job, processing and clearing checks 
     for local banks, is under increasing pressure from private 
     competitors and new electronic payment technologies.
       Without check-clearing, the Minneapolis Fed might not need 
     its costly new building and the hundreds of employees who 
     work three shifts shuffling checks. It could eliminate huge 
     overhead costs and focus on distributing U.S. currency and 
     monitoring the local economy.
       The basic structure of the Federal Reserve System has 
     changed little since it was created in 1913, despite huge 
     shifts in the nation's population and economy. Back then, Fed 
     banks were sited according to the politics of the day and the 
     quaint principle that a commercial banker should be able to 
     reach a Fed branch within one-day train ride, in case he 
     needed cash for unexpected withdrawals.
       Today, these locations make little sense. Missouri, once an 
     economic and political power because of its riverboat 
     economy, has two Fed banks; booming Florida has none. 
     California and its vast economy have only one Fed bank--which 
     also serves eight other states and covers 20% of the U.S. 
     population. Yet when Fed policy makers meet in Washington, 
     the San Francisco Fed president can vote only one year of 
     three, less often than the presidents from Cleveland or 
     Chicago.
       ``It reflects the economy and politics of a long time 
     ago,'' says Robert Parry, the San Francisco Fed's president. 
     ``If you were doing it today, you'd do it differently.'' 
     Michael Belongia, a University of Mississippi professor and 
     former Fed economist, says that three Fed banks and 16 
     branches could be closed and that four other banks could be 
     downsized to branches. He calculates the savings at $500 
     million a year, even without trimming back the check-clearing 
     businesses.
       ``The taxpayer pays billions of dollars for this monolithic 
     system that isn't efficient anymore,'' he says.
       Fed Chairman Alan Greenspan rejects many GAO findings, 
     especially the idea of closing some Fed banks. He says it 
     would take years to recoup the cost of closing one. ``We're 
     strongly committed to ensuring that the Federal Reserve 
     System is managed efficiently and effectively,'' he said in 
     recent congressional testimony. Most important, he defends 
     the Fed banks' independence as crucial to keeping the Fed 
     free of political interference and aware of regional economic 
     conditions.
       Yet he has expressed some misgivings about Fed spending. 
     With the new Dallas building, for example, he said, ``My 
     first reaction was, `For God's sake, why do you have to build 
     a new building'? Dallas is in a state of commercial real-
     estate recession. You

[[Page S4871]]

     should be able to pick and choose at zero cost. But he added 
     that he was ultimately persuaded that no existing building 
     met the bank's special needs.
       The Fed banks are even less accountable to Congress than 
     the Fed Board of Governors in Washington, whose seven members 
     are appointed by the president and confirmed by the Senate. 
     The 12 Fed bank presidents, by contrast, are chosen by their 
     private-sector boards, though their annual budgets and 
     building plans are subject to review by the governors in 
     Washington. Congress has no say over who runs the regional 
     banks, despite their important role in running the nation's 
     monetary system.
       Congress doesn't even set the regional presidents' 
     salaries. The Minneapolis president gets $195,000 a year, and 
     others range as high as $229,000, far exceeding Chairman 
     Greenspan's $133,100.
       Even so, only 1,600 Fed employees, including a stable of 
     economists and statisticians, work on monetary policy. Most 
     of the rest, and the lion's share of the Fed's $2 billion 
     budget, go to the Fed banks' check-clearing and other 
     services--the jobs under the most pressure from competitors 
     and changes in banking. The Fed banks also process Treasury 
     checks, but a new law mandating electronic distribution will 
     eliminate 400 million Treasury checks annually in three 
     years.
       As their workload dwindles, Fed banks could be left with 
     what insiders delicately term ``the Post Office problem'': 
     They will be handling checks for mostly small, high-cost 
     customers such as rural banks. Already, less than 25% of Fed 
     customers create 95% of check volume. So, the Fed is 
     vulnerable as major banks begin processing more checks 
     through private clearinghouses or other cheaper alternatives, 
     such as Visa International.
       At the Minneapolis Fed, check-clearing already resembles 
     the work inside the city's main Post Office nearby. Every 
     day, trucks back up to the Fed's loading dock and drop off 
     pallets of checks. Workers feed them into 25-foot-long 
     automated sorters, and the checks, guided by codes 
     identifying the paying bank, cascade into pouches. Lately, 
     many of the tens of thousands of checks have been small--$2 
     razor-blade rebates and $4.69 drafts cashed by Huggies diaper 
     customers. Minneapolis handles three million checks a day--a 
     low-margin, labor-intensive business, not unlike delivering 
     the mail.
       In most countries, private companies or banks handle check-
     processing, with central banks playing a supervisory role to 
     ensure the payment system is sound. In the U.S., new players 
     ranging from Microsoft Corp. to Merrill Lynch & Co. are 
     racing to offer electronic alternatives to bank-based payment 
     systems, and some bankers fear the Fed's dominance will 
     impede innovation and leave them behind.
       Lee Hoskins, who once ran the Cleveland Fed and now heads 
     Ohio's Huntington National Bank, says the Fed should get out 
     of check-clearing. ``The central bank no longer has a 
     legitimate role as a provider of payment services,'' he says.
       Huntington helped start the National Clearinghouse 
     Association, which includes most large U.S. banks and has 
     begun competing head-on with the Fed at lower prices. The Fed 
     is fighting back with a new, lower-priced national check-
     sorting service and has cut prices in some cities where it is 
     losing market share. As the Fed's volumes have declined, Fed 
     officials concede, its check-clearing failed to cover costs 
     two years ago and fell short again last year. But they say it 
     turned the corner in the first half of 1996.
       Despite its problems, the Fed is a tough competitor and has 
     continued investing in check-clearing and other services. It 
     changed the formula used to figure whether or not it is 
     making a profit and made unusual transfers, including some 
     $36 million a year from an overfunded pension plan, into the 
     check business, federal auditors say. It also let at least 
     one Fed bank defer the huge cost of a new computer system so 
     the outlay wouldn't be included in profit calculations, 
     effectively understating the cost of clearing checks.
       The Fed has also squeezed smaller firms that haul bank 
     checks in competition with the Fed's own transport service, 
     which flies pouches of checks overnight from bank to bank. It 
     tried to force an aggressive rival, the U.S. Check unit of 
     AirNet Systems Inc., of Columbus, Ohio, from the Florida 
     market by providing its own contractor with subsidized jet 
     fuel, according to documents and depositions collected by 
     Rep. Henry Gonzalez. The Texas Democrat, a longtime Fed 
     critic, says the Fed also subsidizes its higher costs by 
     putting other cargo, such as its own interoffice mail, on its 
     planes, and charging Fed banks for the service.
       ``I'm not saying they are competing unfairly, but I'd like 
     to know how they cut prices when they're losing money,'' says 
     Andy Linck, administrator at the National Clearinghouse. 
     Under a 1980 law, the Fed is supposed to price services by 
     commercial standards, but its rivals are reluctant to 
     complain. ``We're forced to compete with our own regulator,'' 
     says an executive of a major Western bank with a big check 
     business. ``They can make life pretty difficult for us if we 
     make trouble.''
       Fed officials say they play by the rules and use 
     appropriate bookkeeping.
       ``We're competing fairly--and we're doing it with one arm 
     tied behind our backs,'' says Ted Umhoefer, a check-clearing 
     manager at the  Minneapolis Fed. ``I have to charge the same 
     price to the Citizen's State Bank of Pembina, North 
     Dakota, that I charge to them,'' he says, waving toward a 
     big commercial bank in a nearby skyscraper. ``Yet my 
     counterparts in the private sector can cut volume deals 
     with other big banks, leaving us with all the junk they 
     can't make money on.''
       In Washington, Fed officials reject the suggestion they 
     should leave check-clearing to private companies. ``That's 
     how the Fed banks make their living,'' says Edward Kelley, 
     the Fed governor who oversees many Fed bank activities and is 
     leading an effort to improve planning and efficiency. ``We'll 
     be in that business until checks disappear or the Congress 
     takes us out of it.'' The Fed grosses nearly $800 million a 
     year from check-clearing and bank services.
       Until recently, Chairman Greenspan spent almost all his 
     time on monetary policy and rarely focused on Fed operations. 
     But in recent testimony before Congress, he said he is now 
     ``actively reviewing the appropriate infrastructure for 
     providing certain financial services, taking into 
     consideration both cost efficiency and service quality.'' He 
     said that although he believes the Fed should have a 
     continuing role in the payments system to ensure its 
     integrity--particularly the wholesale cash-transfer system 
     known as Fedwire, which handles $1.5 trillion a day--he 
     hinted for the first time that the Fed might privatize or 
     downsize its retail check business.
       ``It is quite possible, if not likely, that as changes 
     occur in the financial services marketplace . . . our role in 
     providing other services such as check collection may 
     change.'' But he said something will have to be done to 
     ensure that small banks have access to check services 
     ``because I don't think that they believe they're going to be 
     able to pay the prices (they) will be forced to pay by the 
     market.'' He said Congress may be asked to subsidize these 
     small-bank services so that bank customers in small towns 
     don't have to pay higher check fees.
       Officials say the Fed banks already are taking steps to 
     scale back check-clearing and have cut 600 jobs at various 
     locations. But Fed critics contend that the institution is 
     unlikely to undertake the fundamental reform they say is 
     needed because it could require thousands of layoffs--and the 
     loss of substantial prestige.
       Prestige seemed important in Minneapolis when Fed officials 
     decided to abandon their grand looking but poorly designed 
     downtown tower. They considered moving to a cheaper, more 
     convenient site by the airport, but that idea was dropped 
     after it raised eyebrows at the Fed in Washington. ``What 
     would we have called it, the Federal Reserve Bank of Eagan, 
     Minnesota?'' one official asks. ``The location is written 
     into the law, and changing it would have required an act of 
     Congress.''
       Indeed, that may be what the Fed fears most. ``Do we really 
     want to have 435 congressmen tinkering with what is supposed 
     to be an independent institution?'' asks Ernest Patrikis, 
     first vice president of the New York Fed. Arthur Rolnick, 
     research director at the Minneapolis Fed, says Congress 
     ``didn't have economic efficiency in mind when it created the 
     Fed.'' Above all, he says they wanted a decentralized 
     institution, independent of both big banks and politicians.
       ``I wouldn't be surprised if a hard look at the system 
     shows that some of Fed branches should be closed,'' Mr. 
     Rolnick adds. ``The market has changed, and the technology 
     has changed. . . . [But] do we really want to fool around 
     with the Fed's independence just to save a few hundred 
     million dollars a year?''

  Mr. REID. In this article, it states that the rest of these 25,000 
employees deal with the Federal banks' check-clearing and other 
services.
  Also cited in this article is another example of extreme waste by the 
Federal Reserve--that is, that the Federal Reserve has a fleet of 47 
Learjets and small cargo planes.
  Furthermore, the Fed publishes hundreds of reports on itself each 
year that includes something that strikes me as an absurd waste of 
funds--the Fed publishes a comic book for children on monetary policy--
now, Mr. President, I know that we have advanced children in this 
country, and I'd like to think of my grandchildren as being part of 
that group, but I don't know many children that have an interest in the 
Federal Reserve's monetary policy, nor do I know any that would 
understand it.
  Mr. President, this amendment, in requiring a yearly audit, would 
help ensure, to the American taxpayers, and my constituency in Nevada, 
that the Federal Reserve is run more efficient and responsibly.
  This amendment intentionally leaves monetary policy to Chairman 
Greenspan and his team.
  It is my belief that the economy is great and that Chairman Greenspan 
is doing a great job.
  In fact, many would say that our economy has never been better, which 
brings to mind the saying ``if it ain't broke, don't fix it.''
  Well, Mr. President, while the economy is not broken, much of the 
inner workings of the Federal Reserve is, and I, along with many 
others, intend to fix it.

[[Page S4872]]

  Again, I want to make it very clear--I do not rise before this body 
today to meddle with monetary policy.
  I am not attempting to interfere with, or impugn, the monetary policy 
of the Fed.
  I am seeking greater accountability in the operating expenses and 
internal management of one of our more influential institutions.
  This amendment simply requires a yearly audit that covers the 
operations of each Federal Reserve bank, the Federal Reserve Board of 
Governors, and the Federal Reserve System in the form of a consolidated 
audit.
  As my good friend and colleague Senator Bennett pointed out to me 
last night, an audit of each of the 12 regional reserve banks is 
conducted now--however, these audits are not conducted in accordance 
with generally accepted accounting principles.
  For the audits that take place now, the accounting information is 
given to the auditor by the regional bank staff and the banks basically 
say, ``accept our figures, that's all you get.''
  In short, this amendment requires the Fed to use an independent 
auditor and for that auditor to use generally accepted accounting 
practices.
  This amendment also requires that the report be made available to 
Congress, in particular the Committee on Governmental Affairs in this 
body and the Committee on Governmental Reform in the House of 
Representatives.
  I believe that the Federal Reserve could do more to increase its cost 
consciousness and to operate as efficiently as possible.
  This amendment will be one step closer to that end.
  I encourage all Senators to support this amendment and to show our 
bosses, the American taxpayers, that we are looking out for them by 
ensuring accountability at the Federal Reserve.
  Mr. DODD. Mr. President, I congratulate Chairman Gramm for the 
fairness in which these proceedings have been held, and my colleague 
from Maryland, Senator Sarbanes should also be commended for his 
leadership.
  We will soon vote on final passage of S. 900, the Financial Services 
Modernization Act. I will, unfortunately, be unable to support what I 
believe in many ways is a very good product.
  I am a strong supporter of financial modernization. If the anti-CRA 
provisions were corrected, I would help to lead the charge in 
supporting this bill. There are important differences of opinion on 
various facets of this legislation. We have had good debates on many of 
these facets.
  Although I did not support the amendment offered by Senator Johnson 
to restrict the transferability of unitary thrifts, He should be 
congratulated for his fine work on the amendment. It is an important 
issue that I am sure that we will revisit in conference.
  The chairman earlier today staked his support of this bill on the 
outcome of the operating subsidiary amendment which was narrowly 
defeated. I admire the stand he took and the conviction with which he 
made his arguments. He should be congratulated for prevailing on his 
point of view.
  I would also like commend Chairman Gramm for broaching one of the 
most critical issues that Americans face as we approach the dawning of 
the new millennium, and that is the steady erosion of the privacy of 
consumers' personal, sensitive financial information. Although I 
supported the chairman's amendment that addresses the subject of 
pretext calling, I believe that it simply does not go far enough.
  Several factors have contributed to the erosion of financial privacy. 
We must examine each of these factors in order to craft legislation 
that will protect financial privacy in a meaningful, effective way.
  Although advances in technology have produced many positive results 
and benefits for our economy over the years, one of the potential 
drawbacks has been that they have also facilitated the collection and 
retrieval of a vast amount and array of citizens' financial 
information. That personal information has become a very valuable 
commodity and is being sold and traded among businesses all over the 
world.
  In addition, the formation of new, diversified business affiliations 
has allowed companies quick access to personal data on each other's 
customers. Financial modernization legislation, if it becomes law, will 
only make it easier for companies to share their customers' personal 
data.
  Much of the data ``mining''--searching, collecting, and sorting--and 
actual use of that personal data is nearly imperceptible to the 
consumers whose very own information is being conveyed. Companies do 
not generally tell their customers about the personal data they obtain 
and they sell or rent.
  Current Federal law permits bank affiliates to share information from 
credit reports and loan applications as long as the customer gets one 
opportunity to notify the bank not to disclose the information. Most 
consumers are unaware of this opportunity because the one notice that 
the company gives them is buried in the fine print in lengthy materials 
mailed to the customer that most never read.
  An even more critical factor causing the erosion of privacy rights is 
that no current federal law prevents banks from disclosing 
``transaction and experience data,'' which includes customers account 
balances, maturity dates of CDs, and loan payment history.
  This erosion of the privacy of our most personal, sensitive financial 
information can and must be stopped. And we must take action to stop 
it.
  We should have hearings to address these issues so that we may take a 
very careful look at all of the factors involved, so that we may 
address them in a careful, thoughtful and meaningful way. I was pleased 
to hear Chairman Gramm this morning commit to holding such hearings in 
the Senate Banking Committee.
  I am a coauthor of Senator Sarbanes' Financial Information Privacy 
Act, S. 187, introduced this Congress. This important legislation would 
require banks and securities firms to protect the privacy of their 
customers' financial records: their bank account balances, transactions 
involving their stocks and mutual funds, and payouts on their insurance 
policies. Customers would be given the important opportunity to prevent 
banks and securities firms from disclosing or selling this information 
to affiliates. Before banks or securities firms could disclose or sell 
the information to third parties, they would be required to give notice 
to the customer and obtain the express written permission of the 
customer before making any such disclosure.
  I look forward to working with Senator Gramm and Senator Sarbanes on 
this important issue.
  But like my good friend from Texas did for me earlier today, I would 
like to make something very clear to him--I will not support any bill 
that weakens the Community Reinvestment Act. Also, I will promise him 
that no bill that weakens CRA will become law. If we do pass this bill 
out of this body, let me assure you that as hard as I will fight for 
financial services modernization, I will fight even harder for 
preserving CRA.
  I know how strongly the chairman feels against the CRA. Let me tell 
him, that if it is possible, I feel even stronger about preserving the 
CRA.
  I urge my colleagues to reject any and all legislation that fails to 
preserve CRA.


                blue cross/blue shield of north carolina

  Mr. EDWARDS. Mr. President, I have a particular situation in my State 
of North Carolina that I want to make sure is not going to be affected 
by some of the insurance language in this bill.
  A few years ago, Blue Cross/Blue Shield of North Carolina was 
considering converting from non-profit status to for profit. The North 
Carolina legislature looked into the plan, and decided that if Blue 
Cross were to convert to for-profit, it should be required to set up a 
charitable foundation as part of the process. It did so in order to 
make sure that funding for medical expenses would be available to many 
North Carolinians who had benefited from the services of the non-profit 
Blue Cross. During the Banking Committee's consideration of the bill, I 
was concerned that the earlier insurance language would have preempted 
the North Carolina law if a bank wanted to affiliate or purchase Blue 
Cross after the conversion.
  As a result of the Senator's amendment during the committee markup, 
the insurance language in the bill now is quite different. But I want 
to make sure that my concern about the Blue Cross/Blue Shield of North 
Carolina conversion law is addressed by the new language in S. 900.

[[Page S4873]]

  Mr. BRYAN. Mr. President, I believe the situation the Senator 
describes would fall under Section 104(c)(2) of the bill. That language 
allows states to take action on required applications or other 
documents concerning proposed changes in or control of a company that 
sells insurance, unless the action has the practical effect of 
discriminating against an insured depository institution.
  The concern the Senator voiced is one of the situations we envisioned 
when we made the changes from the earlier text, and it is my intent 
that the current language would protect the North Carolina state law on 
the Blue Cross/Blue Shield of North Carolina conversion agreement.


                           low-income housing

  Mr. JEFFORDS. Mr. President, I thank Senator Gramm for allowing me to 
discuss an important issue that is quickly becoming a serious national 
problem--American families, elderly and disabled are increasingly 
unable to afford, or continue to live in, privately-owned housing 
units.
  Several recent studies have shown that low-income housing 
opportunities are on the decline nationwide. In Vermont, rents for 
housing have increased 11 percent in three years, making it 
increasingly difficult to find affordable shelter. The need to also 
expand the number of housing units for low-income families is critical 
as the vacancy rate in areas such as Burlington has fallen to less than 
one percent. On any given day there are only 60 available rental units 
in a city of over 40,000 people, making it simply impossible to find a 
place to live, much less one that is affordable. Such problems are 
reflected in increased rates of homelessness, as the number of families 
seeking help from Burlington's emergency shelter rose from 161 in 1997 
to 269 in 1998. Even though additional Section 8 federal subsidies will 
be available next year, the 800 Vermonters on the Section 8 waiting 
list would be hard pressed to find somewhere to use this voucher should 
they receive one.
  Fewer opportunities for affordable housing are also due to inadequate 
maintenance. Vermont and the nation desperately need legislation that 
increases new low-income housing opportunities--whether through new 
housing construction, rehabilitation of existing housing, additional 
incentives to keep landlords in the Section 8 market, and expansion of 
existing tax incentives such as the Private Activity Bond Cap and the 
Low-Income Housing Tax Credit.
  Mr. GRAMM. I thank the Senator from Vermont for his thoughtful 
remarks. As Chairman of the Committee on Banking, Housing and urban 
Affairs, which has jurisdiction over federal housing programs, I very 
much appreciate the Senator's strong interest in affordable housing.
  I commend Senator Jeffords for bringing to our attention housing 
conditions which are national in scope and affect rural and urban areas 
alike. It is very important that we protect our nation's vulnerable 
populations, particularly the elderly and disabled living on fixed 
incomes. It is also extremely important that we preserve the American 
taxpayer's existing investment in affordable housing. Congress must 
seek to preserve our existing housing stock and protect current 
residents first.
  Mr. JEFFORDS. Mr. President, I am developing legislation that will 
help preserve existing low-income housing stock, promote the 
development of new affordable housing, and increase opportunities for 
the purchase of housing projects by resident councils through a dollar-
for-dollar matching grant program. My bill will establish a grant 
program for states to promote cooperation and partnership among 
Federal, State and local governments, as well as between the private 
sector in developing, maintaining, rehabilitating, and operating 
affordable housing for low-income Americans. These types of initiatives 
are critical components to meet the growing needs of low-income housing 
in Vermont and the nation.
  While the State of Vermont has largely avoided an overwhelming 
dislocation of tenants from opt-outs and mortgage prepayments, it is 
unable to accommodate the hundreds of families that seek new federally 
subsidized housing opportunities in the State. Reform efforts must 
focus both on preservation of existing federally subsidized housing 
units, as well as the creation of new opportunities for families 
seeking an affordable place to live.
  Mr. GRAMM. Mr. President, I applaud Senator Jeffords for stepping 
forward with legislation to address affordable rental housing needs. It 
is my understanding that the bill which he plans to introduce will 
present several options for approaching solutions to complex housing 
problems.
  I pledge to work with the Senator from Vermont, Housing and 
Transportation Subcommittee Chairman Allard, and Members of the Senate 
and House to craft comprehensive solutions to our nation's housing 
ills. It is imperative that any legislative solutions be fiscally 
responsible.
  Mr. ALLARD. I would like to reiterate Senator Gramm's remarks and 
thank Senator Jeffords for his interest and insights. As chairman of 
the Subcommittee on Housing and Transportation, I plan to hold a 
hearing to examine the need for preservation of affordable rental 
housing. Specifically, I will focus on the Department of Housing and 
Urban Development (HUD) Section 8 program with particular attention to 
prepayment and opt-out issues. I also plan oversight of HUD's 
implementation of the Multifamily Assisted Housing Reform and 
Affordability Act.
  I would like to invite Senator Jeffords to testify at this hearing. I 
share many of his concerns and appreciate his willingness to work with 
me on these important issues.
  Mr. GRAMM. I thank Senator Allard for his diligence and effectiveness 
as Subcommittee Chairman. The Subcommittee Chairman and I both welcome 
Senator jeffords' willingness to be a leader for affordable rental 
housing and look forward to working with him throughout the legislative 
process.
  Mr. JEFFORDS. Mr. President, I look forward to working with the 
chairmen of the Banking Committee and the Housing Subcommittee to 
address this growing problem. I thank Senator Gramm and Senator Allard 
for their kind remarks and I appreciate the opportunity to discuss this 
issue on the floor today.
  Mr. GRAMM. Mr. President, we now have one outstanding matter. We are 
looking at several amendments. I urge staff to get together on these. 
Senator Levin is trying to work out his language right now.
  I would prefer to go ahead and pass the bill tonight rather than put 
it off. We are going to try to do it quickly. But I hope we don't lose 
so many people that we would end up not passing the bill. I guess we 
could move to reconsider and bring it back. But I urge my colleagues 
with outstanding matters to move quickly. I am going to be here all 
night. I would be willing to stay here and talk to anybody. A lot of 
people want and need to leave, but I am not going anywhere. So I am not 
asking you to accommodate me but to accommodate both our Democrat and 
Republican colleagues. Please give me your language in the next few 
minutes so we can move ahead and pass the bill.
  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. 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. GRAMM. Mr. President, let me yield to our distinguished colleague 
from Michigan.
  The PRESIDING OFFICER. The Senator from Michigan.
  Mr. LEVIN. Mr. President, in a moment I am going to send an amendment 
to the desk. But I want to explain exactly the reason for this 
amendment.
  A couple of days ago, I wrote to the Securities and Exchange 
Commission and asked them what their reaction was to the bill as 
drafted in terms of protecting investors. The answer that I got back 
from Arthur Levitt dated May 5 is that the provisions of the bill raise 
serious concerns about investors' protection, and, if adopted, could 
hamper the Commission's effective oversight of U.S. security markets.
  The letter also indicated that:

       A loophole exempting bank trust activities from Federal 
     securities laws would, therefore, seriously weaken the 
     commission's ability to protect investors.

  And:

       Adoption of the bank trust exemption in S. 900, in addition 
     to other securities provisions

[[Page S4874]]

     in the bill, would undermine the important investor 
     protections that make our markets the most transparent, most 
     liquid in the world. It is for these reasons that the 
     commission strongly opposes the bill.

  Mr. President, I ask unanimous consent that the letter from Mr. 
Levitt be printed in the Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

                           Securities and Exchange Commission,

                                      Washington, DC, May 5, 1999.
     Hon. Carl Levin,
     U.S. Senate,
     Washington, DC.
       Dear Senator Levin: Thank you for your letter of May 4 
     requesting the SEC's analysis of provisions in S. 900 related 
     to bank trust activities. As currently drafted, these 
     provisions raise serious concerns about investor protection, 
     and, if adopted, could hamper the Commission's effective 
     oversight of U.S. securities markets.
       The bank trust activities provisions in S. 900 would permit 
     banks to act as ``fiduciaries'' without being covered by 
     Federal securities laws. Virtually all bank securities 
     activities will be able to be labeled ``fiduciary'' under the 
     bill, and banks will be able to charge commissions for those 
     securities transactions without being subject to SEC 
     regulation. Under S. 900, a bank and its personnel could have 
     economic incentives--a so-called ``salesman's stake''--in a 
     customer account, without being subject to the strict 
     suitability, best execution, sales practices, supervision, 
     and accountability requirements under Federal securities 
     laws. Fiduciary law also varies by state, and, in many cases, 
     permits investor protections to be lessened, if not 
     eliminated entirely, by contractual provisions. In addition, 
     while broker-dealers are also ``fiduciaries,'' Congress has 
     determined that securities laws should apply to them to 
     provide customers with full investor protections. A loophole 
     exempting bank trust activities from Federal securities laws 
     would therefore seriously weaken the Commission's ability to 
     protect investors.
       My main concern with any financial modernization bill is 
     the consistent regulation of securities activities, 
     regardless of where they occur. Adoption of the bank trust 
     exemption in S. 900, in addition to other securities 
     provisions in the bill, would undermine the important 
     investor protections that make our markets the most 
     transparent, most liquid in the world. It is for these 
     reasons that the Commission strongly opposes this bill. 
     Moreover, as I have testified, the securities provisions in 
     all of the bills currently under consideration in both the 
     House and the Senate have been so diluted that the Commission 
     opposes all of them. I appreciate your continued interest in 
     financial modernization legislation and look forward to 
     working with you as the bill moves forward.
           Sincerely,
                                                    Arthur Levitt,
                                                         Chairman.

  Mr. LEVIN. Mr. President, I also received a letter from the North 
American Securities Administrators Association. This is the association 
that was organized in 1919, and consists of the 50 States' securities 
agencies that are responsible to protect investors.
  The letter from the North American Securities Administrators 
Association indicates very strong problems with this bill, because, in 
its words, sections 501 and 502 would allow the bank to act as an 
investment adviser if the bank receives a fee, and ``as currently 
drafted, despite the claim that S. 900 would facilitate functional 
regulation of the securities activity in banks, banks will remain 
largely exempt from regulation as either a broker or dealer under the 
Securities and Exchange Act of 1934.''
  This is very, very troubling. This is a very big issue, because it is 
stated in the report which accompanies the bill that the bill generally 
adheres to the principle of functional regulation, which holds that 
similar activities should be regulated by the same regulator, and that 
the bill is intended to ensure that banking activities are regulated by 
bank regulators, securities activities are regulated by securities 
regulators, and insurance activities are regulated by insurance 
regulators.
  The report that accompanies the bill indicates that the intent is to 
adhere to the principle of functional regulation, which would mean that 
securities regulators would indeed regulate securities transactions, 
but the securities regulators write us that that is not what the bill 
does because of the way in which the exemption is drafted in the bill; 
that in effect all purchases and sales of stock by banks could be run 
through a trust department and be exempt from the Securities and 
Exchange Commission protection and from local regulations.
  That is a major problem with the bill. When you are a securities 
regulator, and when the people who are there intending to protect the 
public who are buying stocks indicate strong opposition to the bill 
based on that, it seems to me that some alarm bells ought to be going 
off in this Chamber.
  Mr. President, I ask unanimous consent that the letter from the North 
American Securities Administrators Association be printed in the 
Record.
  There being no objection, the letter was ordered to be printed in the 
Record, as follows:

         North American Securities


                             Administrators Association, Inc.,

                                      Washington, DC, May 5, 1999.
     Hon. Carl Levin,
     Washington, DC.
       Dear Senator Levin: Thank you for requesting the views of 
     the North American Securities Administrators Association 
     (``NASAA'') on proposed Sections 501 and 502 of S. 900, the 
     Financial Services Modernization Act, and specifically, the 
     extent to which these bill provisions would exempt bank 
     securities transactions from state securities regulation and 
     oversight.
       Cumulatively, the above-referenced provisions, in 
     conjunction with the proposed repeal of the Glass Steagall 
     Act, would permit banks to offer and sell securities on bank 
     premises through bank employees almost exclusively outside of 
     the purview of federal or state securities regulations. As 
     you have correctly pointed out, Section 502 of the bill 
     proposes to exempt from the definition of securities 
     ``dealer'' activities of a bank generally involving the 
     buying or selling of securities for investment purposes in a 
     fiduciary capacity. The bill goes on to define ``fiduciary 
     capacity'' to include wide-ranging activities that far exceed 
     activities performed under the common law concept of 
     ``fiduciary duty'' traditionally tied to persons acting as 
     trustees. Specifically, in Sections 501 and 502, the term 
     ``fiduciary capacity'' is defined to permit, among other 
     things, a bank to act as ``an investment adviser if the bank 
     receives a fee for its investment advice or services.'' A 
     similar exemption exists from the definition of ``broker.''
       Thus, as currently drafted, despite the claim that S. 900 
     would facilitate functional regulation of the securities 
     activities of banks, banks will remain largely exempt from 
     regulation as either a broker or dealer under the Securities 
     Exchange Act of 1934. In fact, banks will be permitted to 
     conduct ongoing and unlimited investment advisory activities 
     well outside traditional trust department activities, yet 
     will continue to be excluded from regulation as an 
     ``investment adviser'' under the Investment Advisers Act of 
     1940. Banks would no longer need to establish separate 
     investment advisory affiliates or subsidiaries and would 
     perform such activities in-house.
       S. 900 purports to implement and foster functional 
     regulation of banks engaging in securities activities. The 
     reality is that given the breadth of the trust activities 
     exception, there will not be any such activities to 
     functionally regulate. The exception is so broad that all the 
     securities activities in which a bank may wish to engage 
     could be classified as ``trust activities,'' so that the 
     exception would consume the rule. Securities regulators would 
     have nothing to regulate. The ``trust activities'' exception 
     should be limited to those traditional banking activities by 
     a trustee involving fiduciary duty and nothing more. Retail 
     securities business should be conducted by and through 
     registered licensed broker-dealers, investment advisers and 
     their representatives regulated by state and federal 
     securities regulators.
       Thank you for your consideration of this very important 
     matter.
           Respectfully,
                                                 Philip A. Feigin,
                                               Executive Director.

  Mr. LEVIN. Mr. President, I ask unanimous consent that the testimony 
of the Secretary of Treasury Rubin before a House commerce subcommittee 
be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

  Excerpted Testimony of Treasury Secretary Robert Rubin Before House 
                   Commerce Subcommittee, May 5, 1995

       Representative Diana DeGette. [I]n your prepared testimony 
     you say that you continue to believe that any financial 
     modernization bill must have adequate protections for 
     consumers, and you point out that you are hoping that this 
     committee will add additional protections over the bill that 
     came out of the Banking Committee. Are you talking 
     specifically there about the Federal Home Loan bank system 
     and the other issue on affiliations between commercial firms 
     and savings associations, or are there additional consumer 
     protections you would like to see?
       Secretary Rubin. I was referring there primarily to trying 
     to work with the SEC in order to better enable them to 
     perform their function of regulation. Look, the SEC has 
     concerns, and I think they're well taken.
       Representative DeGette. Me, too.
       Secretary Rubin. I think they're well taken. As you know, 
     this bill was designed to eliminate the exemption from the 
     SEC of these various securities activities they conduct in 
     banks at the same time. Then there are all sorts of 
     exceptions to the exemptions. And the exceptions to the 
     exemptions--(laughs)--could be read so broadly as to 
     reestablish the exemption. And that's a concern

[[Page S4875]]

     the SEC has. We share that concern, and what we'd like to do, 
     if there's a way that it can practically be done, is to work 
     with the SEC on these issues. And that was my primary 
     reference.

  Mr. LEVIN. Mr. President, Senator Schumer is a cosponsor of an 
amendment which I am now offering which reads as follows. It is fairly 
short. I simply want to read this amendment. Then I will send it to the 
desk.
  The amendment has now been accepted by the manager of the bill. I 
think it will help somewhat to allay some concerns in this area. But 
the critical issue is what will come out of conference. That, of 
course, we don't know. But this is the language of the amendment, which 
I will be sending to the desk on my behalf and on behalf of Senator 
Schumer.

       It is the intention of this act, subject to carefully 
     defined exceptions which do not undermine the dominant 
     principle of functional regulation, to ensure that securities 
     transactions affected by a bank are regulated by securities 
     regulators notwithstanding any other provision of this act.

  The intention is to keep the principle that securities transactions 
will be regulated by securities regulators, and acknowledges that there 
could be some carefully drafted exceptions which do not undermine the 
dominant principle.
  That, it seems to me, would be an improvement in this area.
  I want to again thank my friend from Texas for looking at this 
language, indicating that it would be acceptable to him, and then, of 
course, the proof of the pudding as to whether we are really protecting 
purchasers of stock through the regulators who are there to protect 
purchasers and sellers of stock will be determined in conference. But 
the general principle enunciated in this amendment would go to 
conference as the principle that is governing this bill.
  I also want to thank my good friend from New York, because he has 
worked so closely with me on this issue.
  I can't yield the floor to him. But I will yield the floor. But, 
before doing so, and I know he does wish to speak for a few minutes, I 
will send the amendment to the desk.


                           Amendment No. 317

    (Purpose: To ensure bank securities activities are regulated by 
                         securities regulators)

  Mr. LEVIN. Mr. President, I send an amendment to the desk.
  The PRESIDING OFFICER. Without objection, the pending amendment is 
set aside, and the clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Michigan (Mr. Levin), for himself, and Mr. 
     Schumer, proposes an amendment numbered 317.

  Mr. LEVIN. 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 124, line 25, before ``Section'' insert the 
     following:
       ``(1) It is the intention of this Act subject to carefully 
     defined exceptions which do not undermine the dominant 
     principle of functional regulation to ensure that securities 
     transactions effected by a bank are regulated by securities 
     regulators, notwithstanding any other provision of this Act.
       (2)''.

  Mr. LEVIN. I yield the floor but hope the Senator from New York will 
be recognized briefly for a comment.
  The PRESIDING OFFICER. The Senator from New York.
  Mr. SCHUMER. I thank the President, and I thank both my colleague 
from Michigan and my colleague from Texas, the chairman, for their 
work.
  It is a very important amendment. In fact, if this amendment had not 
been adopted, we might have seen the virtual unraveling of the strong 
framework of securities law that we have built up in this country since 
the 1940s.
  When I see my friends on Wall Street sometimes complaining about the 
SEC--and they can be very, very strict and sometimes hardheaded on 
specific issues--I remind them that in the general framework of 
regulation, a tough and strong disclosure has made our securities 
markets the strongest in the world. It is the reason that billions of 
dollars come from overseas to the United States, because they know 
basically that our markets are on the level.
  This bill, while in the report language said that we wish to have 
what is called ``functional regulation,'' that is, having the correct 
regulator for the type of function, not by the type of institutions, 
and therefore if a bank gets securities regulation it would be 
regulated by the SEC, just as if a securities firm did securities 
regulation it would be regulated by the SEC. It is a fundamental 
principle, particularly if this bill becomes law, which, if we change 
CRA, I hope it will.
  It means very simply that if you underwrite securities, if you sell a 
security, you must abide by the SEC strict disclosure. The banking 
regulators have never been very good at this type of regulation, and 
weren't intended to be.
  The securities regulators--the SEC--have always been the tough guy 
who is an adversarial regulator. The banking regulators have always 
been a friendly regulator, sort of akin to a big brother making sure 
the banks didn't get too far into trouble--for two good reasons: One, 
the banking industry had Federal insurance, and we had to protect that 
investment; and, two, the banks were engaged traditionally in not very 
risky activity.
  The securities markets have no Federal insurance. They are raw 
capitalism, and they have had risky activities. Therefore, you really 
need full disclosure.
  The amendment which the Senator from Michigan has put forward, which 
I am proud to cosponsor, is a very simple one. It says keep that 
functional regulation.
  Let me explain to my colleagues just in a brief minute, because I 
know we all want to hurry, what would have happened if this amendment 
had not been adopted.
  First, the whole regulation--the whole SEC regimentation of 
regulation--would not have been applied to banks as they entered the 
securities industry, and they will enter it massively. Then securities 
firms, being put at an unfair competitive disadvantage because their 
banks would not be regulated, would start having their securities 
activity occur under a bank holding company.

  The entire structure of regulation which has worked so well--and 
every person on Wall Street I know admits it; it is tough, it is 
strong, but it keeps our markets on the level--would have unraveled. 
This bill in effect had a Trojan horse.
  The amendment being proposed by the Senator from Michigan and myself 
closes that door. We will have to work out the language in conference, 
but I for one, if I am lucky enough to be a conferee, or even if I am 
not, I am going to work very hard to see whatever loopholes are placed 
in there are very narrow and very limited.
  I know the hour is late but this amendment may be the most important 
amendment we are adding to the entire bill. It keeps the structure of 
functional regulation there. It has securities-type activities, 
wherever they be done, be regulated by the SEC. It is a system that has 
worked. We should not undo it right now as our capital markets are 
enjoying the tremendous success they have.
  I yield back the remainder of my time.
  The PRESIDING OFFICER. The question in on agreeing to the amendment.
  The amendment (No. 317) was agreed to.
  Mr. LEVIN. I move to reconsider the vote.
  Mrs. BOXER. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. LEVIN. Mr. President, I thank my friend from Texas, as well as 
the Senator from Maryland, for their work, but particularly the Senator 
from New York.


                     Amendment No. 310, as Modified

  Mr. GRAMM. Mr. President, I have a little technical correction that 
has been cleared, as I understand. I call up amendment No. 310 and ask 
unanimous consent that amendment No. 310 be modified by the text I am 
sending now to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Texas [Mr. Gramm], for Mr. Bennett, 
     proposes an amendment numbered 310, as modified.

  Mr. GRAMM. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.

[[Page S4876]]

  The amendment (No. 310), as modified, is as follows:

       At the appropriate place in the bill, insert the following:
       Section 23B(b)(2) of the Federal Reserve Act (12 U.S.C. 
     371c-1) is amended to read as follows:
       ``Subparagraph (B) of paragraph (1) shall not apply if the 
     purchase or acquisition of such securities has been approved, 
     before such securities are initially offered for sale to the 
     public, by a majority of the directors of the bank based on a 
     determination that the purchase is a sound investment for the 
     bank irrespective of the fact that an affiliate of the bank 
     is a principal underwriter of the securities.''

  Mr. SARBANES. Mr. President, what did this deal with?
  Mr. BENNETT. Mr. President, it is my understanding that this 
amendment has been cleared on both sides.
  It addresses the CRA issue in what I hope is a noncontroversial way 
in that it calls for reporting of what happens to the CRA loans. Many 
of these loans are being made now with no regulation at all and no 
public understanding of what is happening. I, for example, asked a 
simple question as I went through the CRA debate. I said, What is the 
rate of default of CRA loans compared to non-CRA loans? And, 
specifically, what is the rate of default of those loans that are made 
through the advocacy groups that become loan brokers?
  I was told the rate of failure for CRA loans generally is about six 
or seven times higher than normal loans but there was no information as 
to the rate of default among those loans that were made through the 
advocacy groups that have become loan brokers. I think we are entitled 
to know that.
  This is simply a sunshine amendment that will report the facts. It 
does not change the regulatory situation in any way, it does not damage 
CRA in any way; it simply says the Congress will know what is happening 
with respect to CRA loans that are currently being made in the dark.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 310), as modified, was agreed to.
  Mr. GRAMM. 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. GRAMM. Mr. President, I ask unanimous consent further proceedings 
under the quorum call be dispensed with.
  The PRESIDING OFFICER (Mr. Voinovich). Without objection, it is so 
ordered.


                           Amendment No. 318

  Mr. GRAMM. On behalf of Senator Sarbanes and myself, I send managers' 
amendments to the desk. I ask they be considered en bloc and adopted en 
bloc, and the motion to reconsider be laid upon the table.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Texas (Mr. Gramm), for himself and Mr. 
     Sarbanes, proposes an amendment numbered 318.

  Mr. GRAMM. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')
  THE PRESIDING OFFICER. Without objection, the amendment is agreed to.
  The amendment (No. 318) was agreed to.
  The motion to reconsider the motion to lay on the table was agreed 
to.
  Mr. GRAMM. It is my understanding we are now ready for a vote on 
final passage. I thank everyone for their assistance and patience.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. I guess I should state I am going to vote against this 
bill on final passage. We have had a very spirited debate. We have had 
a number of very close votes on important amendments, and in my view 
the bill has not been improved sufficiently to warrant an affirmative 
vote, therefore I intend to vote against it. I am not, obviously, going 
to lay out all the reasons at this hour of night because I know we want 
to go to a vote here.
  Mr. GRAMM. Mr. President, there are two Dorgan amendments that are 
pending. We had an agreement to have a voice vote.
  I ask that occur now.


                       Vote On Amendment No. 313

  THE PRESIDING OFFICER. If there be no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 313) was rejected.


                       Vote On Amendment No. 312

  THE PRESIDING OFFICER. If there be no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 312) was rejected.
  The PRESIDING OFFICER. The question is on the engrossment and third 
reading of the bill.
  The bill was ordered to be engrossed for a third reading and was read 
the third time.
  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.
  Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. DASCHLE. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The Democratic leader.


              SENATOR JOSEPH BIDEN CASTS HIS 10,000th VOTE

  Mr. DASCHLE. Mr. President, today I join my colleagues in recognizing 
a historic achievement by one of the Senate's most remarkable Members. 
With the vote we are about to cast, Senator Joe Biden becomes the 
youngest Member of this body ever to cast 10,000 votes.
  It should come as a surprise to none of us that Senator Biden should 
set such a record. He has always been a few steps ahead of the crowd. 
In 1972, at the age of 29, he mounted his first Senate campaign against 
a popular incumbent, Republican Senator J. Caleb Boggs. No one--not 
even his own Democratic party--thought he could do it. But in 1973 he 
was sworn in as the second-youngest person ever to be popularly elected 
to the Senate.
  The first issue Senator Biden tackled was campaign finance reform--as 
we all know, this is a difficult issue for anyone, much less a first-
year member. But as we also all know, Joe Biden has never shied away 
from a fight. His candor, strength of character and commitment to 
principle have led him through many battles over the years.
  As chairman and ranking member of the Judiciary Committee, Senator 
Biden helped this institution, and this nation, sort through the 
complexities of the most controversial issues of our day--from flag 
burning, to abortion and the death penalty,
  Senator Biden also presided over perhaps the most contentious Supreme 
Court nominations hearings in history. In the midst of the controversy 
surrounding nominee Robert Bork, Senator Biden maintained a level of 
intellectual rigor that raised the bar for committee consideration of 
all future nominations.
  We also recall his leadership and doggedness in crafting what may 
well be the most difficult and important pieces of legislation in 
recent years, the Violent Crime Control and Law Enforcement Act. This 
included the Violence Against Women Act, the very first comprehensive 
piece of legislation to specifically address gender-based crimes.
  He was also instrumental in creating the position of national ``Drug 
Czar,'' which has been invaluable in our fight against illegal drugs. 
His commitment to keeping drugs off the streets remains steadfast.
  The Senate and this nation have also benefitted from Senator Biden's 
leadership in the foreign policy arena. As ranking member on the 
Foreign Relations Committee, he is widely regarded as one of the 
Senate's leading foreign policy experts.
  He was one of the first to predict the fall of communism and 
anticipate the need to redefine our policies to fit a post-cold war 
world. And, as far back as early 1993, Senator Biden called for active 
American participation to contain the conflict in Bosnia. In his public 
service and personal life, Joe Biden sets a high standard we can all 
admire.

[[Page S4877]]

  His steel will, dedication and compassion, reinforcing a powerful 
intellect and impressive communication skills, have made Senator Biden 
an exceptional Senator and friend. The number of people he has inspired 
through his commitment to his family, his values and his beliefs is 
legion.
  Mr. President, it is indeed a pleasure to serve with Joe Biden, and 
to count him as a friend. On behalf of all the Members of this Senate, 
I congratulate Joe on this historic achievement and thank him for his 
numerous contributions to the United States Senate and to his country.
  I yield the floor.
  Mr. LOTT. Mr. President, I am pleased to congratulate my good friend 
and colleague, Senator Joe Biden, on casting his 10,000th vote in the 
United States Senate.
  All of us who have listened--and listened--to Senator Biden on the 
Senate floor have come to deeply respect his leadership and commitment 
to causes of concern.
  He led the historic effort for NATO expansion with courage and 
conviction.
  He has a deep concern for America's role in the world and is a true 
leader of our foreign policy establishment.
  Senator Biden has been a champion of victims of crime, particularly 
crimes against women.
  Most of all, those of us who know him, have watched his grace and 
courage through personal suffering and serious illness.
  I join my colleagues in recognizing Senator Biden's contributions to 
the Senate and extend my congratulations to him.
  I congratulate the Senator from Delaware. I note he is only 56. I am 
1 year older and he has already cast 10,000 votes. What an achievement.
  I yield the floor.
  Several Senators addressed the Chair.
  The PRESIDING OFFICER. The Senator from South Carolina.
  Mr. THURMOND. Mr. President, I wish to pay Senator Biden a tribute. 
He is an outstanding Senator and an outstanding man.
  When anyone reflects on their life, they do so by thinking about 
significant personal and professional benchmarks and milestones. Today, 
one of our colleagues--and my good friend--Joe Biden is marking just 
one such accomplishment, his 10,000th career vote in the Senate.
  Casting your 10,000th vote is a momentous occasion for many reasons. 
Beyond being an indication that a Senator has served in this body for a 
substantial period of time, casting 10,000 votes is a testament to an 
individual's commitment to public service. Furthermore, it is proof 
that a Senator is doing a good job, for his or her constituents have 
seen fit to keep an official in office long enough to achieve this 
accomplishment. Then again, given the type of person Joe Biden is, it 
should come as no surprise to us that the people of Delaware have 
repeatedly sent him to the Senate since 1972. He is a man who is 
motivated by a desire to help others and is dedicated to serving the 
people of his state and our nation. Joe Biden clearly entered his life 
in public service for the proper reasons and with the best of motives, 
and he is an individual who represents all that is positive about those 
who seek elected office.
  I have had the good fortune of knowing Joe Biden from the beginning 
of his Senate career and it is hard to believe that almost thirty years 
could have elapsed so quickly. During the course of his tenure, I have 
watched Joe establish an impressive and respected record of work. He 
has distinguished himself in the fields of the judiciary and foreign 
affairs, and he is considered a forceful, passionate, and articulate 
advocate on both these issues. Though he is often sought for analysis 
and insight regarding international developments, making our streets 
safe, or any number of other issues before the Senate, Joe Biden first 
and foremost works tirelessly to serve the people of Delaware. The 
people of his state are indeed fortunate to be represented by such a 
capable individual.
  As most of you already may know, Joe and I have worked closely 
together for years as members of the Judiciary Committee. We have both 
served as each other's chairmen and ranking members of this very 
important committee and I have the highest regard for Joe's intellect, 
leadership, and ability. Ironically, we not only sat next to each other 
on the committee for years, but we have been neighbors in the Russell 
Building for many years as well, our offices being literally right next 
to one another. You would be hard pressed to find a finer, more 
dedicated, or more friendly group of people than those who work for Joe 
Biden and I hope that he stays my neighbor for as long as he is in the 
Senate.
  Beyond being a congenial colleague and a good neighbor, Joe Biden is 
my friend. He is someone whose word can be trusted, who wants to do 
what is right, who is devoted to his family, and whose heart is good. 
These are rare qualities in any individual, but they can be especially 
scarce in this town. That Joe has not changed over the years is 
testament to the man he is and the son his parents raised. I am proud 
to call Joe Biden my friend as I know each of my colleagues is as well.
  I do not think I am going out on a limb when I predict that Joe Biden 
is going to be in the United States Senate for a long time to come, and 
that as long as he is a Member of this body he will continue to make 
valuable contributions to public policy and the nation. Joe, I thank 
you for your service, I thank you for all your assistance, and most of 
all I thank you for your many years as a loyal and kind friend.
  Mr. HOLLINGS addressed the Chair.
  The PRESIDING OFFICER. The Senator from South Carolina.
  Mr. HOLLINGS. Mr. President, I join in the felicitations of our 
distinguished colleague from Delaware. He suffered as a young lad a 
handicap of stuttering. He tried to overcome that by addressing the 
student body. We in the Senate can well attest to the fact that he has 
overcome it. He has led the way in foreign policy for NATO and in 
judicial matters.
  Mrs. BOXER addressed the Chair.
  The PRESIDING OFFICER. The Senator from California.
  Mrs. BOXER. Mr. President, I add my words of praise for the Senator 
from Delaware and make a point that he is going to be here a long time. 
If he matches his current record--he took office in 1973--if he does 
this, he will be only 82 when he casts approximately his 20,000th vote, 
and he will then be a kid compared to Senator Thurmond, who will be 
there at the time congratulating him on his 20,000th vote.
  Joe Biden has been such a good friend to me.
  When I was in the House, I asked him to introduce the Senate 
companion bill to my legislation to protect dolphins.
  Joe did not hesitate, and he enthusiastically took up the cause--with 
the strong support of his beautiful daughter Ashley! And he has been a 
steadfast ally in that important environmental fight. He was the Senate 
sponsor of my Ocean Protection Act. I was the House sponsor of his VAW 
Act.
  I am now a proud member of the Foreign Relations Committee, where Joe 
Biden shows why he is one of the most respected foreign policy experts 
in the country.
  Congratulations, I say to my good friend, and many, many more years 
of success and happiness with your good friends and colleagues here and 
your wonderful family at home in Delaware.
  I yield the floor.
  Mr. LEAHY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Vermont.
  Mr. LEAHY. Mr. President, the distinguished Senator from Delaware is 
the only person in this body who is younger than I am but senior to me 
at the same time. I congratulate him on his 10,000th vote. I jumped 
over the cliff with him on more than a few of those votes. I look 
forward to the day when I might match his record.
  Mr. HELMS addressed the Chair.
  The PRESIDING OFFICER. The Senator from North Carolina.
  Mr. HELMS. Mr. President, I know everybody wants to go home, but let 
me say, if we tried to review Joe Biden's accomplishments, it would 
take all night. Let me put it this way: I opposed most of them.
  (Laughter.)
  Furthermore--this is serious--Joe Biden is a caring person. I work 
with him on the Foreign Relations Committee. He is great to work with. 
Joe, I am proud of you.
  (Applause.)
  Mr. ROTH addressed the Chair.
  The PRESIDING OFFICER. The Senator from Delaware.

[[Page S4878]]

  Mr. ROTH. Mr. President, this next vote is a milestone for a friend 
of mine--a distinguished colleague and a leader in this chamber. It 
represents the ten-thousandth vote cast by Joe Biden, and I would like 
to take a moment not only to bring it to the attention of our 
colleagues, but to reflect on a career that has been--and continues to 
be--a bright legacy of service.
  To put this vote into perspective, Mr. President, only twenty 
Senators in history have reached this milestone--only twenty Senators 
out of the 1,851 who have had the honor of serving in this 
distinguished body. Each of us who has the honor of representing our 
state in the Senate understands what a rare privilege it is to cast a 
vote on this floor. In fact, the first vote we cast ranks among the 
most memorable moment in our lives--a moment not to be forgotten.
  I'm sure that when Joe cast his first vote on January 23, 1973--over 
twenty-five years ago--he could not have foreseen this moment. Through 
the years, he has achieved many distinguished honors. He has gained 
national stature, as a candidate for President. He has established 
himself as a foremost expert on judicial and foreign policy matters. 
And though I know that we often differ philosophically, I can say that 
each vote Joe has cast, his focus has been on doing what's best for 
Delaware and our Nation, at large.
  Joe, on this special occasion, I salute you. Ten thousand votes speak 
volumes about a life dedicated to public service. On behalf of our 
colleagues I congratulate you. And on behalf of our friends and 
neighbors in Delaware I thank you.
  For me, it has been an honor, a pleasure, and a privilege to serve 
these many years with Senator Biden. He always does what he thinks is 
in the best interests of our country and our people of Delaware. I am 
proud to count him a friend.
  Mr. KENNEDY. Mr. President, I join in commending our colleague from 
Delaware on reaching this major milestone in his brilliant Senate 
career.
  For nearly three decades, he has done an outstanding job serving the 
people of Delaware and the Nation in the Senate. He has been an 
effective leader on a wide range of issues in both domestic policy and 
foreign policy.
  It has been a special privilege for me to serve with our 
distinguished colleague on the Senate Judiciary Committee, and I 
particularly commend his leadership over the past quarter century on 
the many law enforcement challenges facing the nation. It is a 
privilege to serve with Senator Biden--and I am sure he will compile an 
equally outstanding record on his next 10,000 votes.
  Mr. BIDEN. Mr. President, I will respond after everyone votes so I 
get to cast my 10,000th vote.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Mr. President, unlike Senator Biden, I don't have a lot to 
say.
  I ask unanimous consent that all Senators have until the close of 
business next Thursday, a week from today, to insert their statements 
in the Record and that all statements that are submitted appear at one 
place in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The PRESIDING OFFICER. The bill having been read the third time, the 
question is, Shall the bill, as amended, pass? 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. NICKLES. I announce that the Senator from Oklahoma (Mr. Inhofe) 
is necessarily absent.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 54, nays 44, as follows:

                      [Rollcall Vote No. 105 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
     Hollings
     Hutchinson
     Hutchison
     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--44

     Akaka
     Baucus
     Bayh
     Biden
     Bingaman
     Boxer
     Breaux
     Bryan
     Byrd
     Cleland
     Conrad
     Daschle
     Dodd
     Dorgan
     Durbin
     Edwards
     Feingold
     Feinstein
     Graham
     Harkin
     Inouye
     Johnson
     Kennedy
     Kerrey
     Kerry
     Kohl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lincoln
     Mikulski
     Moynihan
     Murray
     Reed
     Reid
     Robb
     Rockefeller
     Sarbanes
     Schumer
     Torricelli
     Wellstone
     Wyden

                        ANSWERED ``PRESENT''--1

       
     Fitzgerald
       

                             NOT VOTING--1

       
     Inhofe
       
  The bill (S. 900), as amended, was passed.
  (The bill will be printed in a future edition of the Record.)
  Mr. GRAMM. Mr. President, I move to reconsider the vote.
  Mr. HATCH. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. The Senator from Utah.

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