[Congressional Record Volume 145, Number 67 (Tuesday, May 11, 1999)]
[Senate]
[Pages S5027-S5028]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                  FINANCIAL SERVICES MODERNIZATION ACT

  Mr. ENZI. Mr. President, I rise to speak briefly about the historic 
legislation passed in the Senate last week, S.900, Financial Services 
Modernization Act. I want to again commend Chairman Phil Gramm, the 
Senator from Texas for the outstanding work that he did leading us 
through the process of passing that landmark piece of banking reform 
legislation. Senator Gramm is perhaps the most knowledgeable person on 
U.S. banking law. He was diligent in seeing that the action began last 
year in the Banking Committee came to fruition this year. He also took 
to heart the admonition we've given to the entire banking community to 
keep things in plain English. He simplified last year's bill, reduced 
it from 308 pages to 150 pages. Before we

[[Page S5028]]

began the debate on the Senate floor, he even had to undergo a massive 
demonstration at his house that was aimed not only at him, but at his 
wife. Which brings me to the subject I wanted to discuss--the Community 
Reinvestment Act.
  Mr. President, I ask unamious consent that the May 11, 1999, article 
in the Wall Street Journal by former Federal Reserve Governor Lawrence 
B. Lindsey be printed in the Record.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. ENZI. Mr. Lindsey points out quite correctly that the CRA 
provisions in S.900 are very modest. In spite of this, I continue to be 
amazed that the Administration and its supporters have demonized the 
bill because of the minor changes it makes to the Community 
Reinvestment Act, CRA. Yes, included in the bill are changes to the 
CRA. However, it does not dismantle, destroy or otherwise diminish the 
CRA. In fact, the amendments included in the bill should only 
strengthen the legitimacy of CRA.
  You wouldn't suspect this, though, from the comments of the 
Administration. They claim that these provisions would utterly destroy 
the CRA. Since the Administration does not support the bill's structure 
that favors the Federal Reserve over the Treasury Department, they have 
instead garnered opposition to the bill over the CRA issue. They have 
gotten the community development industry to oppose a bill that the 
Administration opposes primarily because it does not expand the banking 
policy authority of the executive branch.
  What I have become concerned about is a government policy that 
encourages a bank, as Lawrence Lindsay stated, ``to simply pay for a 
problem to go away.'' S.900 attempts to correct the abuse of the CRA by 
declaring a bank in compliance with the law if it has earned a 
``satisfactory'' rating for three consecutive years. It would require 
individuals or groups to present some form of evidence to the contrary 
in order to prevent a merger or acquisition. This will help eliminate 
extortion, which only amounts to lining the pockets of a few select 
individuals. It should help ensure that the CRA is preserved for 
helping the communities instead of funding the extortionists.
  I urge all to read the whole Wall Street Journal editorial.

                               Exhibit 1

             [From the Wall Street Journal, Mary 11, 1999]

                Clinton's Cynical War on Banking Reform

                        (By Lawrence B. Lindsey)

       Last week the Senate passed a bill over-hauling the 
     regulation of banks, including a provision sponsored by Sen. 
     Phil Gramm (R., Texas), chairman of the Banking Committee, to 
     reform the Community Reinvestment Act. Mr. Gramm's provision 
     has stirred controversy, to say the least. Last month 
     hundreds of ``community activists'' descended on his house, 
     where they pounded on the windows, trampled the landscaping 
     and left the yard covered with garbage.
       The 20-year-old CRA requires banks to serve their entire 
     community. Regulators take banks' CRA compliance into account 
     when deciding whether to approve applications for mergers or 
     expanded services. In the recent wave of bank consolidation, 
     banks have made billions of dollars of loan commitments and 
     signed agreements with numerous community organizations in 
     order to be seen as complying with CRA.


                          Heavy-Handed Tactics

       Sen. Gramm has complained that many of these payments 
     amount to little more than extortion sanctioned by federal 
     bank regulators, a claim bolstered by the protesters' 
     behavior at the senator's house. While the great majority of 
     CRA activity is legitimate, some banks and their executives 
     have been subjected to similar personalized and heavy-handed 
     tactics with a demand that they sign agreements that, in 
     effect, fund the protesters. Other banks find their mergers 
     held up by legalistic protests until they pay up.
       I helped write the current CRA regulations when I was a 
     governor of the Federal Reserve, and I part company with Mr. 
     Gramm on the degree to which the CRA encourages extortion. In 
     fact, those regulations, implemented in 1996, were designed 
     to reduce the potential rewards for such behavior. Most 
     bankers and community development professionals agree that 
     the regulations have been successful in that regard. Yet I 
     think Mr. Gramm is getting a bum rap.
       Mr. Gramm's proposed reforms are quite modest. You wouldn't 
     know it, though, from listening to the Clinton administration 
     and its supporters. President Clinton himself attacked the 
     Gramm proposal in a February meeting with the nation's 
     mayors. Treasury Secretary Robert Rubin, the Rev. Jesse 
     Jackson and Ralph Nader all joined the chorus. The attack 
     strategy worked. Regulators with whom I spoke said they 
     believed Mr. Gramm was out to destroy CRA, although when 
     pressed, they admitted they didn't know the details of his 
     proposal.
       When I spoke to a group of community-development 
     professionals, there was stunned silence when I described how 
     mild Mr. Gramm's proposals actually are. First, he proposes 
     that a bank that has earned ``satisfactory'' ratings from the 
     regulators for three years running be presumed in compliance 
     with the law, unless evidence is presented to the contrary.
       Second, he proposes that small rural banks be exempt from 
     CRA. The banks that would be excluded under this plan have a 
     total of 2.8% of all U.S. bank assets; the banks with the 
     remaining 97.2% would remain subject to CRA. When we wrote 
     the current CRA regulations, we recognized the burden they 
     placed on small banks and carved out a streamlined 
     examination procedure for them. Mr. Gramm takes this 
     principle only a little further.
       Why, then, is the administration demonizing Mr. Gramm? As 
     with similar disinformation campaigns in the past, the attack 
     is meant to draw attention away from an issue on which the 
     administration is vulnerable. What is really at stake here is 
     a separate provision of the banking-reform bill, concerning 
     the question of which agency should regulate most banks--the 
     Fed, which is independent of the administration, or the 
     comptroller of the currency, who reports to the Treasury 
     secretary. Mr. Gramm's bill, which passed on a near-party-
     line vote, favors the Fed.
       Such a bureaucratic turf struggle is not the stuff over 
     which nonbureaucrats go to the barricades. So the 
     administration has instead rallied the troops with a campaign 
     of exaggeration about the CRA. In short, the community-
     development industry is being used as a pawn by the 
     administration in a power struggle with the Fed.
       The worst part of this is that the community-development 
     industry is finally coming of age. All around the country, 
     community-development professionals are engaged in exciting 
     partnership with forprofit organizations to rebuild the 
     physical and social infrastructure of some of America's 
     blighted areas. The best of these are run in a very 
     professional and businesslike fashion; their management teams 
     could compete with any in corporate America.
       Unfortunately, much of the industry is still quite 
     insecure, with deep memories of being caught between 
     widespread private-sector indifference and an unresponsive 
     federal bureaucracy led by the Department of Housing and 
     Urban Development. And some of the more flamboyant leaders in 
     community development, who cut their teeth in the radicalism 
     of the 1960s, are quick to lead protest marches and 
     demonstrate their feelings. They have been coopted as 
     unwitting foot soldiers in bigger wars, such as the 
     Comptroller-Fed battle and the feud between the mortgage-
     insurance industry and the secondary mortgage market.
       In the long run, there is no alternative to a zero-
     tolerance policy with regard to extortion in CRA or the type 
     of protest that occurred at Sen. Gramm's house. Such behavior 
     poisons the well of goodwill that makes community 
     reinvestment possible. The time has come for those 
     responsible for the success of CRA to break their silence and 
     make clear whether they want community development to be a 
     business success story or just some politician's sound bite.
       What is needed is a clear way to demarcate those who 
     deliver real community development from those who deliver a 
     mob outside a bank branch or senator's house. The best people 
     to do this are the leaders of community groups themselves. In 
     private, some of the most accomplished practitioners have 
     told me how embarrassed they are about the events at Mr. 
     Gramm's house. They have not shied away from using the term 
     ``extortion'' to describe activity that clearly fits the 
     definition. These people know that their good efforts are 
     made more difficult by the extortionists; who misuse 
     resources and give community development a bad name.


                               pet causes

       Banks themselves must also make clear that they will not 
     pay for political favors or meet extortionists' demands. The 
     intent of CRA is to ensure that an adequate number of loans 
     are made in low- and moderate-income neighborhoods and that 
     those areas have access to bank branches and other banking 
     services. There is no requirement that civic or community 
     leaders must say nice things about the bank or that the bank 
     must contribute to those leaders' pet causes or even their 
     own organizations.
       It is often too easy for bank management to simply pay for 
     a problem to go away. Regulators should make sure that this 
     doesn't happen, by insisting that CRA-type payments made by 
     bank management go for services rendered--such as loan 
     referrals--and are not de factor political contributions or 
     extortion payments. Regulators would not tolerate a bank 
     management that violated the Foreign Corrupt Practice Act by 
     bribing foreign officials. Nor should they allow bribes to 
     community groups in the U.S. The administration, meanwhile, 
     should stop using America's developing communities as pawns 
     in its own bureaucratic battles.

                          ____________________