[Congressional Record Volume 145, Number 159 (Thursday, November 11, 1999)]
[Extensions of Remarks]
[Pages E2363-E2364]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




          CONFERENCE REPORT ON S. 900, GRAMM-LEACH-BLILEY ACT

                                 ______
                                 

                               speech of

                          HON. MELVIN L. WATT

                           of north carolina

                    in the house of representatives

                       Thursday, November 4, 1999

  Mr. WATT of North Carolina. Mr. Speaker, I supported the Financial 
Services Modernization bill (H.R. 10) when it was considered in the 
Housing Banking and Financial Services Committee and in the full House. 
I felt good about supporting the bill because the House Banking 
Committee had worked on a bipartisan basis to develop a consensus bill 
which was supported by the industry, federal regulators and many 
community and consumer groups. That bill overwhelmingly passed the 
House on July 1, 1999 by a vote of 343 to 86.
  Unfortunately, the bipartisan deliberations and efforts which 
characterized the consideration of H.R. 10 in the House did not 
continue when the House-Senate Conference Committee on Financial 
Services Modernization convened. The Chairmen's print, which was used 
as the base text for consideration by the Conference Committee, was 
drafted by the three Republican Chairmen of the Committees of 
jurisdiction with no input from the Democratic conferees. The conferees 
were then given a very limited period of time to review the lengthy 
document before having to begin the amendment process. During the 
amendment process, consideration was abruptly terminated and some of 
the most important provisions of the bill (the CRA provisions) were 
brokered behind closed doors in the middle of the night. This 
important, complex and historic legislation should have been the 
subject of thoughtful, bipartisan review and input. Instead, the 
process was hijacked and corrupted by a few senior Republican members.
  An unacceptable process, while objectionable, is not sufficient 
reason to oppose legislation designed to achieve important public 
policy objectives, if the flawed process results in a satisfactory 
substantives product. Unfortunately, the terrible, partisan process 
which was followed in this Conference resulted in serious substantive 
flaws. Some of these flaws include the following:
  (1) The bill needs a section stating the public policy purposes the 
bill is designed to

[[Page E2364]]

achieve. In at least nine instances \1\ the bill makes reference to the 
``purposed of the Act.'' Unfortunately, the ``purposes'' section 
contained in the bill which passed the House was stripped from the 
conference bill and no ``purposes'' section was inserted to replace it. 
The failure to include a statement of the congressional purposes for 
enacting the bill is, in my opinion, a huge error, leaves the bill's 
references to ``the purposes of the Act'' irrational and could lead to 
much conjecture and possible litigation about what, in fact, we 
intended to achieve.
---------------------------------------------------------------------------
     \1\  Section 103(a)(3)(A): the factors the Federal Reserve 
     shall use to determine whether an activity is financial in 
     nature or incidental to a financial activity. Section 
     103(a)(5)(A): the factors the Federal Reserve shall use to 
     impose regulations on financial activities. Section 
     103(a)(7)(A): the factors the Federal Reserve and the 
     Treasury may use to impose regulations on merchant banking 
     activities. Section 103(m)(3): the factors the Federal 
     Reserve may use to impose on the conduct or activities of a 
     financial holding company or any affiliate of that company. 
     Section 114(a)(1)(A: the factors the OCC may use to impose 
     regulations on the relationships or transactions between a 
     national bank and a subsidiary of a national bank. Section 
     114(b)(2)(A): the factors the Federal Reserve may use to 
     impose regulations on the relationships or transactions 
     between a depository institution subsidiary of a bank holding 
     company and any affiliate of the depository institution and 
     between a State member and a subsidiary of a bank. Section 
     114(b)(42)(A): the standards of review for the Federal 
     Reserve to impose regulations on the relationships or 
     transactions between a foreign bank in the United States and 
     any affiliate of the foreign bank in the United States. 
     Section 114(c)(1)(A): the factors the FDIC may use to impose 
     regulations on the relationships or transactions between a 
     State nonmember bank and a subsidiary of the State nonmember 
     bank. Section 121(b)(3): the factors the Treasury may use to 
     determine whether an activity is financial in nature or 
     incidental to a financial activity.
---------------------------------------------------------------------------
  (2) The privacy provisions in the bill are not strong enough. While 
the legislation will give consumers the right to ``opt-out'' of having 
their financial information disclosed to unaffiliated third parties, I 
do not believe this privacy provision goes far enough to safeguard the 
privacy of customers. It also leaves a huge loophole in the definition 
of ``unaffiliated third party.'' Because the legislation will eliminate 
the firewalls that have existed since 1933 between banks, insurance 
companies and securities firms, the newly formed financial services 
conglomerates sanctioned by the bill will be able to exchange 
information on their customers freely. While most of the businesses 
operating in this new frontier will use this ability to share 
information reasonably, some will not. The few who do not could yield 
privacy horror stories that could ultimately result in a public demand 
for much greater privacy protections. Financial services modernization 
should not come at the expense of consumers' rights to control the 
details of their private personal and financial life and the financial 
services industry should exercise these new rights carefully. 
Otherwise, this bill will not be the final chapter written on this 
point.
  (3) The bill's provisions which impose continuing reporting 
requirements on community groups which are parties to CRA agreements 
with banks are offensive and unprecedented. I am disappointed that my 
Republican colleagues who repeatedly talk about eliminating the era of 
``big government'' are now on the other side of this issue. This bill 
expands the reach of federal banking regulators and the Federal Reserve 
by obligating them to police CRA contracts between banks and community 
groups despite the fact that the regulators have no regulatory 
authority over community groups and these contracts involve no 
government money. While Senator Phil Gramm has characterized community 
groups who enter into these agreements as ``extortionists,'' no bank 
has come forward to complain about a CRA agreement and the ``sunshine'' 
requirements in the conference bill are, therefore, a solution in 
search of a problem. Even worse, the reporting provisions impose 
burdensome paperwork requirements on community groups which are unfair 
and will be a heavy disincentive to the groups to participate in 
efforts to force banks to comply with the CRA or to help achieve the 
intended results of the CRA.
  (4) The bill lengthens the time between CRA examinations for some 
banks. The CRA paperwork requirements for small banks with assets less 
than $250 million were already streamlined in 1995. Relaxing the 
current practice of CRA examinations, which occur approximately every 
two years, could reduce the effectiveness of the CRA because federal 
banking regulators will be allowed to go up to five years before 
checking to ensure that some banks are abiding by their CRA 
obligations. My Republican colleagues need to be reminded that the CRA 
has served a very important purpose by expanding access to credit and 
capital in all communities and that the CRA is not an affirmative 
action program. Rather the CRA benefits small businesses, farmers and 
people who live in low and moderate income communities throughout 
America, not just in minority communities. Congress should be working 
to strengthen and expand the CRA, not to diminish its effectiveness.
  Despite my concerns about the process and about the substantive 
provisions in the conference bill, I continue to believe that financial 
services modernization is important and necessary. While all the 
concerns I have expressed are legitimate and important, and certainly 
result in a bill which is less meritorious than it could and should be, 
in my judgment they do not outweigh the need for the bill or warrant a 
``no'' vote.
  Congress has waited too long to catch up with what is already 
occurring in the marketplace. Except for the concerns outlined above 
and several others of lesser significance, I believe the conference 
bill provides a good framework to eliminate barriers between the 
various industries in the financial market and still maintain 
sufficient safeguards to protect the safety and soundness of our 
banking system. This framework does not exist now, yet the regulators 
and businesses are breaking through the barriers without a uniform set 
of rules. A framework is needed and this bill provides it.
  While some of my colleagues who support this bill will call the bill 
a great bill and some who oppose it will call it a terrible bill, in my 
opinion, both of these positions are exaggerated. From my perspective, 
like most bills we consider, this one is either a good bill which 
contains some bad provisions or a bad bill which contains some good 
provisions. In the seven years I have served in Congress I have not yet 
seen a perfect bill. This one is no exception. I have had to learn 
``not to let the perfect be the enemy of the good.''
  I believe this is a good bill that contains some bad provisions and 
does not include some provisions I desired to have included. However, 
despite its flaws and imperfections, it represents a step forward and, 
on balance, deserves to be supported.

                          ____________________