[Congressional Record (Bound Edition), Volume 145 (1999), Part 19]
[Senate]
[Pages 28092-28100]
[From the U.S. Government Publishing Office, www.gpo.gov]



    FINANCIAL SERVICES MODERNIZATION ACT OF 1999--CONFERENCE REPORT

  Mr. GRAMM. Mr. President, it is with great pleasure that under the 
previous agreement I call up the conference report to accompany S. 900, 
the Financial Services Modernization Act of 1999.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The committee of conference on the disagreeing votes of the 
     two Houses on the amendments of the House to the bill (S. 
     900), to enhance competition in the financial services 
     industry by providing a prudential framework for the 
     affiliation of banks, securities firms, insurance companies, 
     and other financial service providers, and for other 
     purposes, having met, after full and free conference, have 
     agreed to recommend and do recommend to their respective 
     House as follows:
       That the Senate recede from its disagreement to the 
     amendment of the House to the text of the bill and agree to 
     the same with an amendment and the House agree to the same.
       That the House recede from its amendment to the title of 
     the bill; signed by a majority of the conferees on the part 
     of both Houses.

  The PRESIDING OFFICER. Without objection, the Senate will proceed to 
the consideration of the conference report.
  (The conference report is printed in the House proceedings of the 
Record of November 2, 1999.)
  Mr. GRAMM. Mr. President, in case any of our colleagues are watching, 
let me try to outline what we were going to do tonight.
  Senator Sarbanes and I are going to make opening statements tonight. 
It is our understanding that no one else wishes to speak tonight. Then 
it would be our objective to reserve the remainder of our time for the 
debate tomorrow. Then the Senate would begin the process of shutting 
down for the evening.
  Mr. SARBANES. Mr. President, will the chairman yield?
  Mr. GRAMM. I am happy to yield.
  Mr. SARBANES. Mr. President, as I understand it, there is a time 
agreement which has been entered into, which I hope all Members are 
aware of, with 4 hours equally divided between the chairman and the 
ranking member. There is an hour for Senator Shelby, and an hour for 
Senator Wellstone, 30 minutes for Senator Bryan, and 20 minutes for 
Senator Dorgan.
  I understand Senator Wellstone intends to be here in the morning at 
9:30 to start using his time, which is when the Senate will come in. I 
presume we will then work right straight through.
  I think we ought to say to Members that we intend to try to carry 
this thing through to completion and run our time straight through, 
which would enable us to finish this bill by mid afternoon.
  I understand the House would like to act on this matter yet tomorrow. 
Of course, that would be assisted, if we could move it through the 
Senate in a reasonable time.
  Parliamentary inquiry: If quorum calls are registered, is the time 
then drawn down equally from allocations of time?
  The PRESIDING OFFICER. Only by unanimous consent. Otherwise, it is 
charged to the side to which it is assigned.
  Mr. SARBANES. I am sure the chairman and I can work that out between 
us. I think it would be our intention not to have quorum calls. We want 
people to come and use this time, and not end up drawing it down.
  I think we ought to, in effect, alert our Members to that effect, and 
also of our desire to be able to move straight through. So for Members 
who wish to speak beginning about 10:15 or 10:30, the thing will be 
open for Members to get time and speak on this conference report.
  Mr. GRAMM. Mr. President, I join Senator Sarbanes in urging Senators 
who want to speak on the bill, and I know there will be many, to be 
here. The clock will run. We will have to take a break right before 12 
o'clock to swear in Senator Chafee, but except for that period of time 
where we will be off this bill, it will be my intention, and I know it 
is the intention of the leadership on both sides of the aisle, to stay 
on the bill until we finish it.
  Today we are bringing to the floor a bill that has been a long time 
in the making. When Glass-Steagall was adopted, Franklin Roosevelt 
called it the most important and far-reaching legislation ever enacted 
by the American Congress. In fact, Time magazine just yesterday called 
it the defining financial legislation of the 20th century. Yet, while 
it is both of those, or has become both of those, Senator Glass almost 
immediately after the adoption of the Act bearing his name began to 
have second thoughts and started the process of overturning Glass-
Steagall.
  We are here today with a bill which I believe will prove to be the 
most important banking bill in 60 years. It does overturn the key 
provision of Glass-Steagall that basically divided the American 
financial system into securities and banking halves. In the process an 
unnatural competitive environment was created, and over time, the 
market and the regulators have through a variety of innovations sought 
to undo this separation.
  This bill we bring to the floor of the Senate basically knocks down 
the barriers in American law that separate banking from insurance and 
banking from securities. These walls, over time, because of innovative 
regulators and because of the pressure of the market system, have come 
to look like very thin slices of Swiss cheese. As a result, we already 
have substantial competition occurring, but it is competition that is 
largely inefficient and costly, it is unstable, and it is not in the 
public interest for this situation to continue.
  The Financial Services Modernization Act strikes down these walls and 
opens up new competition. It will create wholly new financial services 
organizations in America. It will literally bring to every city and 
town in America the financial services supermarket.
  Americans today spend about $350 billion on financial services--on 
fees and charges and interest. Most people who have looked at the 
capacity for our markets under a more rational system believe, as I 
believe, that there are tens of billions of dollars of savings for the 
American consumer that will be produced by the reforms of this bill.
  This bill will allow Dicky Flatt, a printer in Mexia, Texas, to go to 
the bank and take the checks he has received in his print shop that day 
and do his banking, deal with his insurance business, work on the 
retirement program that he and his wife and his employees have, all in 
one location with all the efficiencies and synergies that come from 
that.
  This is a dramatic bill that will produce new products. It will 
produce a diversity of financial services and products that we have 
never seen before. Because of the competition in allowing these three 
major industries to compete head on, these products will be produced 
and these services will be provided at lower prices than we have ever 
seen.
  There has been great debate in the media, and it will go on until the 
facts are in, as it should. That is what happens in a free society. But 
when people ask me who benefits from this bill, I answer, everybody who 
uses financial services will benefit from this bill: Everybody who 
borrows money, everybody who has a checking account or a credit card, 
everybody who buys insurance or securities, everybody who is engaged in 
modern financial transactions. When you sum all that up,

[[Page 28093]]

that is everybody in America, for all practical purposes.
  Once we had decided to tear down these barriers, the logical question 
was, in providing these new financial services and these new products, 
how were they going to be provided? Were they going to be provided 
within the bank itself, or were they going to be provided in a holding 
company, separated from the bank? We had a very heated debate and, I 
believe, a debate with very high intellectual content on that subject 
on the floor of the Senate. It was decided in the Senate by a 
relatively close vote. It is one of these issues on which everybody's 
eyes glaze over, but it is an issue that has profound importance.
  What we have produced in this bill, which is what is always produced 
in the legislative process, is a compromise. I think the compromise on 
the question of whether banks should provide these new services within 
the bank or outside the bank is a good compromise, and I strongly 
support it. I want to congratulate Larry Summers, the Secretary of the 
Treasury, and Alan Greenspan, the Chairman of the Board of Governors of 
the Federal Reserve System, for working out this compromise. I very 
strongly support it.
  The compromise allows banks, under very limited circumstances, to 
provide some of these expanded services within the bank. Basically, 
those circumstances try to deal with two problems about which many have 
been concerned. I have been concerned about them, Alan Greenspan was 
concerned about them, and others were as well. We were concerned about 
safety and soundness and concentration of financial activities within a 
bank, driven by the potential for a bank benefiting from a subsidy 
because deposits are insured by the taxpayer, because the bank has 
access to the Fed window in borrowing money at lower rates than anybody 
else, and because of the bank's access to the Fed wire, and 
transferring funds risk free.
  I believe the compromise deals with that by very severely limiting 
what banks can do within the bank, requiring that banks, in order to 
provide even limited financial services within the bank, be extremely 
well managed and well capitalized. That is, they have to have at least 
an A rating on their subordinated debt. Subordinated debt is the last 
debt to be paid, so if you are a bank and you have outstanding 
subordinated debt, that obligation is paid after the depositors, after 
the creditors, after everybody. For a bank to have an A or an AA or an 
AAA rating, it has to be extraordinarily well managed and well 
capitalized, and banks will not be able to engage in activities within 
the bank unless they meet that test.
  We eliminate the double counting of assets that is inherent in 
providing these services within the bank. If you provide securities 
activities and services within the bank by setting up a securities 
operating subsidiary in the bank, you put capital into that securities 
business, but because it is under the umbrella of the bank, it counts 
as part of the capital of the bank even though it is committed to 
capitalizing the securities business. What we require in this 
compromise--and I think wisely require--is that we eliminate this 
double counting by saying the capital that is invested in the 
subsidiary cannot count as part of the capital of the bank.
  We limit all subsidiaries that banks can engage in, and the 
investments they can make within the bank itself, to no more than 20 
percent of the capital of the bank.
  So these are very strict limitations. We have an outright prohibition 
on many activities. In terms of where we started and in terms of the 
legitimate concerns that were raised on both sides, I think this is a 
very strong and a very good compromise.
  The second major feature of the bill is that we promote and 
strengthen functional regulation. Under the bill, the general rule is 
that if you are a bank and you are in the securities business, you are 
regulated by the Securities and Exchange Commission. If you are a bank 
and you are in the insurance business, you are regulated by the state 
insurance commissioner in the area where you are engaged in the 
insurance business. If you are a bank and you are engaged in banking, 
you are regulated by the bank regulator. By opting for functional 
regulation, we preserve consumer protection, we lower costs.
  One of the issues on which an extraordinary amount of time was spent 
and which for 99.99 percent of the American people would be meaningless 
is the whole issue about swaps and derivatives. We currently have 
literally trillions of dollars of swaps and derivatives in the global 
economy that have become the underpinnings of the financial structure 
of the country. They are used by sophisticated parties. We went to 
great lengths in this bill not to upset the current regulatory 
environment for these products, to see that we did not create any new 
law giving anybody any new, or removing any existing, jurisdiction over 
swaps or derivatives. I thank Chairman Levitt and Chairman Greenspan 
for their help on this issue.
  Probably the most contentious issue in the bill, as it turned out, 
was not the decision to repeal Glass-Steagall but what to do with the 
so-called Community Reinvestment Act, or CRA. The CRA was a bill 
created in 1977, that started out as a very small program, but over the 
years it has grown to be a very large program with increased 
enforcement and with greater impact due to the tremendous mergers 
taking place among financial institutions in America. CRA has literally 
become bigger than General Motors, Ford, and Chrysler combined. It has 
evolved in such a way that it not only involves loans but cash 
payments.
  Concerns were raised--and I as chairman of the committee raised many 
of those concerns--that we needed to begin to see a reform process. We 
have two changes in the bill that are related to reforming CRA. By far 
the most important is the sunshine provision. The sunshine provision is 
very important because it recognizes that banks are making CRA payments 
as part of compliance practices, that while these payments are made 
with private funds, they are made under public direction. As a result, 
this money takes on a very clear government tint because it is paid 
substantially in part as a way of complying with a Federal mandate that 
has become a cost of business for people who are engaged in commercial 
banking in America. Because of the fact that these funds are paid as a 
result of a Federal mandate and a Federal law and a Federal regulatory 
process, these funds do take on the characteristic of public funds.
  A decision was made in this bill to make two fundamental changes that 
I believe will change CRA's operation in America. The first was a 
decision to require a public disclosure and reporting of CRA 
agreements. I believe this is fundamentally important. If I am a 
community activist and I am paid $175,000 in cash by a bank to promote 
objectives within the community, if people who live in the community 
don't know that I received the $175,000, purportedly to serve the needs 
of the community, how can they hold me accountable as to how I used the 
money?
  Second, we require on an annual basis both the bank and the recipient 
of money and things of value under the Community Reinvestment Act to 
disclose in a report what was done with the money. The language of the 
bill is very precise and quite demanding on this subject. While we have 
made a strong effort to give the regulators the ability within this 
language to reduce regulatory burden and paperwork, the language of the 
law is very clear, and regulators are given no power to decide to 
negate or refuse to implement this law as it is written. The language 
is very clear. The language says in setting out the reporting 
requirement: ``The accounting referred to in [the report] shall include 
a detailed, itemized list of the uses to which such funds have been 
made, including compensation, administrative expenses, travel, 
entertainment, consulting and professional fees paid, and such other 
categories, as determined by regulation by the appropriate Federal 
banking agency with supervisory responsibility over insured depository 
institution.''

[[Page 28094]]

  It is our intent that the regulators clearly have the authority 
within reason to try to minimize regulatory burden. If some of this 
information is included in someone's tax return and they want to submit 
their tax return in lieu of the report, clearly the regulator has the 
power to allow that to be done and to make the tax return public. If 
the tax return did not include this information, it could not be 
accepted in lieu of this information.
  The flexibility is flexibility in a reasonable enforcement of the 
law; it is not flexibility on the part of the regulator to decide to 
negate the law. As chairman, I say when we wrote ``detailed'' and 
``itemized,'' we meant it.
  As I have discussed with other Members, if one is talking about 
taking somebody to lunch at McDonald's--we are talking about de minimus 
amounts--obviously the regulator has the ability to set rules of 
reason. If one is talking about expenditures of substantial amounts of 
money either in individual expenditures or the aggregate of those 
expenditures, or talking about reporting items specifically listed in 
the law when we wrote it, we meant it. This is critically important. If 
one is a CRA activist in a city, and they go to Atlanta to a CRA 
conference, that is a legitimate expenditure to be reported. People 
expect to see that on their report. If they went to Hawaii for 3 weeks, 
that should be reported, and people at the local newspaper would have a 
right, and I think a responsibility, to ask what they were doing with 
that expenditure.
  What we are trying to do is reasonable. I urge the regulators to 
comply with the law and enforce it as it has been written.
  The second reform of CRA we undertake is regulatory relief. Our 
ranking member and I got a good laugh out of my arithmetic. Senator 
Byrd objected to people bringing calculators or computers on the floor, 
so without the aid of my trusty calculator, I estimated the cost of 
compliance with CRA was $1 trillion when I meant to say $1 billion. The 
point is, for small banks, many of whom have fewer than 10 employees, 
$1 billion is a lot of money. What we have done in regulatory relief is 
this. We said that every bank in America with less than $250 million in 
assets will be audited for CRA compliance once every 4 years as the 
normal audit process if they had a satisfactory rating on their last 
CRA evaluation. If they had the highest CRA rating, an outstanding, 
then they would be audited every 5 years. People who work hard to get 
an outstanding rating would thereby be rewarded.
  We put into the language the flexibility, for reasonable cause, that 
the regulators could go back on a case-by-case basis and reduce or 
increase the intervals at which such audits would occur. By reasonable 
cause, we mean based on the actions of the bank, the record of the 
bank. We are not here giving or intending to give, nor can it be 
reasonably construed to give to the regulators, any kind of blank check 
to alter the intention of this law. If they have a finding on a factual 
basis that something has changed, they have the right, as anyone would 
expect, to go in and to audit more or less frequently. However, they 
have to have a finding based on facts.
  When this bill came to the floor of the Senate about a year ago, it 
had two provisions expanding CRA. One was a provision that said that 
being out of compliance with CRA was a violation of banking law and 
could have, in extreme circumstances, subjected a bank officer or 
director to fines of up to $1 million, and could have given the 
regulator the ability to impose strong sanctions against the bank as 
well. That provision is not present in this bill.
  The second provision of the old bill required a maintenance of a CRA 
rating in order for a bank to conduct certain activities. That 
provision is not in this bill. That is critically important, because 
that would literally have given the regulator the ability to force a 
financial services holding company, that might have hundreds of 
billions of dollars in assets in the holding company, to unwind 
investments as a result of literally one branch being out of compliance 
with CRA.
  This bill is very simple and, again, the language is very precise, 
and meant to be. It says that on the day you become a financial 
services holding company, you have to have been in compliance with your 
last CRA report. In other words, with the last audit that was done, you 
have to have had one of those two ratings, satisfactory or outstanding. 
This would be in the last CRA report that was filed, and if you had 
that rating, you are automatically qualified.
  Once a company becomes a financial services holding company, they can 
invest any amount of their money and grow any activity already in 
engaged in within the financial services holding company, without 
regard to CRA. If they want to commence a new activity, on the date 
they make that undertaking they have to have been in compliance with 
CRA as certified on their last CRA report. This does not trigger a new 
audit. This does not entertain any new protest. It simply is a 
verification by the regulator that on that day of commencing their new 
activity, their most recent evaluation will have shown that they had at 
least a satisfactory CRA rating.
  The next issue we dealt with was financial privacy. When we dealt 
with the bill in the Senate, this had not yet become an issue that had 
inflamed the public's consciousness. We adopted the provisions of the 
minority substitute related to privacy, and it basically had to do with 
people who willfully misrepresent themselves to get financial data. We 
come down on them like a ton of bricks, as we should. But by the time 
the House acted, financial privacy had become a substantial issue, and 
the House included very extensive privacy provisions.
  We have made changes to those privacy provisions, and I believe we 
have strengthened them, and we have made the bill better. I want to 
very briefly say a couple of things about privacy.
  Obviously, in the new world in which we live, we have become 
accustomed to people knowing a great deal about us. The day I turned 
50, I got a kit from AARP with all kinds of applications for AARP and a 
tube of Preparation H. One might say my privacy was invaded, that 
somehow AARP found out I was 50 years old. My children got a great 
laugh out of the Preparation H. One could say that somehow my privacy 
had been breached, but do we really want a society where an 
organization such as AARP cannot get access to information about when 
we turn 50 and invite us to join? I chose not to join because 50 
sounded younger every minute to me; 57 sounds younger than it used to.
  I have hunting dogs, and like many people who have enlightened 
habits, I subscribe to Gun Dog magazine. I guess because I subscribe to 
Gun Dog magazine, I get every hunting catalog, every fishing catalog, 
every dog food catalog, every dog accessory catalog on the planet. I 
literally get two or three of them a week. Quite frankly, I love 
getting them.
  Did Gun Dog magazine violate my most intimate secrets by selling the 
list so that I get, every once in a while, free samples of dog food or 
dog bones or a dried pig's ear? I get a lot of things in the mail. I do 
not think my privacy is being violated. Maybe some people object to 
that, but I do not.
  What I have tried to do, and what I think we have done in this bill, 
is we tried to set a rule of reason. Above the archway going into 
Delphi, the ancient Greeks wrote: Moderation in all things. It is a 
hard thing for somebody who feels as strongly about things as I do to 
remember, but everyone should remember it.
  We did not want to kill off the information age before it was ever 
born. We are not writing the final word on privacy. This is something 
we want to watch and follow and see where abuses are and, when they 
occur, try to fix them. But, on the other hand, we all benefit. Some 
people could say we lose.
  I do not get a Neiman Marcus catalog. One might ask: How come I do 
not? Neiman Marcus catalogs cost a lot of money to print and mail, and 
they have somehow figured out enough about me to figure that I do not 
buy luxury items, so they do not send me a Neiman Marcus catalog. 
Again, is that

[[Page 28095]]

an invasion of my privacy? Is my freedom somehow diminished? I do not 
think so. The point is, if Neiman Marcus can get the catalog to people 
who are likely to buy something, they can sell it at a lower price, so 
society benefits.
  This is what we did on privacy: The most important thing we did was 
not in the House bill. It was an amendment that was offered by Senator 
Grams and Senator Santorum that put into the bill for the first time a 
full disclosure requirement. It requires every bank in America, when 
you open your account, to tell you precisely what their policy is: Do 
they share personal financial information within the bank? Do they 
share it outside the bank? We have a comprehensive listing of the 
conditions they have to meet. Do they disclose nonpublic information 
once you are no longer a customer? And what do they do to protect 
information?
  Why is this important? This is important because this is the ultimate 
protection of privacy. If I do not believe a bank protects my privacy, 
I do not want to bank with them. I can bank with somebody else. If 
millions of people feel the way I do, you will get banks that will set 
out policies of not sharing information, and they will attract 
customers.
  For example, I am proud to have an American Express card. American 
Express is a great American company. And I am proud I have been a 
member since 1970 something. They say that they do not share my 
information on that card with anybody.
  I do not get that same guarantee from another card, but I get that 
guarantee from American Express. I happen to have a variety of credit 
cards. Obviously, I am not very worried about it, but if I were worried 
about it, I could just use my American Express Card. So I have an opt-
in when people give me full information. If I do not like their policy, 
I do not become their customer. I can opt out. That is the basic 
freedom.
  I just add, freedom is based on knowledge and the right to choose, 
not based on government. I believe that we are guaranteeing that with 
full disclosure.
  Second, we adopted the House provision that said if the bank was 
going to use, or the financial services holding company was going to 
let people outside the bank have access to, the information, they have 
to give you the right to opt out. That provision was adopted.
  Finally, we have a provision in the language which will allow 
financial institutions to partner with other financial services 
providers. This will give flexibility that we hope will be implemented 
to allow, in particular, small banks to share information with their 
business partners in a manner so that they can compete with a larger 
corporation that does a variety of activities within the corporation or 
among its affiliates.
  Let me talk about one other issue, and then I want to say some thanks 
and stop, because I know Senator Sarbanes wants to speak, and we want 
to go home.
  This is not the end of the process. I believe this is the most 
important banking bill in 60 years. But there will be another banking 
bill within 10 years, and it will deal with commerce. Banking and 
commerce is already a reality. This bill is a pause, and it is only a 
pause, and it is not going to last very long.
  One of the things that is in this bill, which I am opposed to--it was 
adopted by a two-thirds vote in the Senate, and here we live by 
majority rule, by and large--but basically this was a provision that 
said if you went in and invested money as a commercial company, in a 
thrift--and many people did when many thrifts were in trouble and we 
did not have money enough to shut them down--that now you cannot sell 
your charter unless the charter is broken apart into its component 
parts.
  I do not believe this provision and other prohibitions against 
commerce and banking will last very long. It is just my opinion. I do 
not view with any great horror the possibility of going to Wal-Mart and 
having them sell financial services. In fact, I view it as something 
that would be good. They now do it all over America in partnership with 
city banks in those towns, but they can only get partners where they 
have enough customers to make it worthwhile to the bank.
  The idea they might someday be able to provide the service as part of 
the overall functioning of Wal-Mart, through a thrift charter or 
through a credit union charter or a banking charter, I see that as a 
positive thing. I suspect that a very substantial number of Wal-Mart 
employees do not have a banking relationship with a credit union or an 
S&L or a bank. Many of their customers do not. And taking services to 
them, I would view as a public good, not a public evil. But other 
people see it differently.
  What we are doing in this bill is agreeing that we have a pause. I do 
not believe it will last long. I think in 10 years we will have 
widespread commerce and banking in America.
  I want to just say some thanks.
  I thank Al D'Amato. I do not want people to forget that this bill did 
not start on my watch as chairman. This bill started when Al D'Amato 
was chairman of the Senate Banking Committee. And while that bill did 
not become law, and while in some ways this bill is very different from 
that bill, in other ways the two bills are very similar.
  Al D'Amato did probably his best legislative work in his career in 
helping to move this process forward. When we started, we started where 
Al D'Amato left off. So I think the former chairman of this committee 
is due a substantial amount of the credit. I wanted to be sure that I 
began with that, and I did not want to forget to say that.
  I thank Senator Lott for his strong, committed support. I think it is 
clear, without his support, with the long and difficult negotiations we 
have had, that this bill would be very different from what it is today. 
I can assure you, as every Member of the Senate knows, when you have 
your leadership's support, it is like having a good stone wall to your 
back in a gun fight. It does not keep you from getting killed, but at 
least nobody shoots you in the back. It has been a very important thing 
to me as we have negotiated out this bill, very important in a 
difficult process.
  I thank Senator Sarbanes, who is very knowledgeable and experienced 
on these issues. I thank him for his input, and that has been input 
that has varied, from issues to issues themselves, to advice on how, as 
a brand new chairman, I was conducting my part of the conference. I 
would have to say that more often than not I think he was right in the 
comments he made. I believe I have learned from that process.
  I thank Senator Johnson, the first Democrat who signed the conference 
report.
  I thank Senators Dodd and Edwards and Schumer and Bayh. They were 
real catalysts in getting the administration together with us to push 
the ball over the goal line. I think they contributed significantly in 
doing that.
  I thank Chairman Leach, the chairman of the House Banking Committee, 
who also served as the chairman of the conference. There have been 
people in the media who tried to portray this conference as a contest 
somehow between Congressman Leach and me. I do not think that is fair 
to me or to Congressman Leach. I think Chairman Leach did a great job. 
I think he contributed to the process. I would have to say there were 
difficult times in trying to work things out. Our approaches were very 
different. But in the end, it worked. And the great thing about success 
is, it has a thousand parents, and we can all claim credit; and we 
would have all rightly gotten blamed had we failed.
  I thank Chairman Bliley. I knew Tom much better than I knew 
Congressman Leach when we started the process. I thank him for his 
leadership on securities issues and on the bill itself.
  I thank Congressmen LaFalce and Vento, the ranking Democrat members 
of the House Banking Committee, for their input and their knowledge and 
their leadership.
  I thank Congressman Richard Baker, who I believe is a very talented 
young man, and certainly one of the most knowledgeable people in the 
House of Representatives on banking issues.

[[Page 28096]]

  I thank Larry Summers and Gene Sperling. I had many hours of 
negotiating with them and others, and alone with them. If you could 
make a living selling them something or buying something from them to 
resell, you would be pretty good. They negotiated hard. They were 
totally honorable in their negotiations. I am glad that we reached a 
product that they have enthusiastically endorsed and I have endorsed.
  I thank Arthur Levitt, Chairman of the Securities and Exchange 
Commission. Chairman Levitt raised legitimate security concerns that I 
thought should be addressed. I and others sat down with Chairman Levitt 
and heard him out, and he had a substantial impact on the bill.
  I thank Federal Reserve Board Chairman Alan Greenspan. I have said it 
on many occasions--and I am always happy to say it again--Alan 
Greenspan is the greatest central banker in American history; therefore 
by definition, the greatest central banker in the history of the world. 
He probably had as much impact on this bill as any non-Member did. His 
input and impact were always positive. And from the operating 
subsidiary issue, to virtually hundreds of other issues, his input was 
critically important.
  And his general counsel, Virgil Mattingly, is one of these 
indispensable people who the public never knows about--thinks of them 
as faceless bureaucrats--but the reality is, his institutional 
knowledge and good sense had a substantial impact on this bill.
  I thank all of my Republican colleagues on the conference. We had, at 
least in my opinion, an effort on the part of some on the House side to 
try to satisfy everybody. As a result, we got all sorts of amendments 
that came over to our side of the conference which basically were in 
conflict with the underlying logic of the bill, many of them popular, 
as various interest groups tried to go back and recut their deal once 
more or gain some special privilege or special advantage. I thank 
Senator Shelby, Senator Mack, Senator Bennett, Senator Grams, Senator 
Allard, Senator Hagel, Senator Enzi, Senator Santorum, Senator Bunning, 
and Senator Crapo for consistently and courageously voting down every 
one of those amendments.
  We have one of the cleanest pieces of major legislation I have seen 
and, I believe, one of the cleanest bills that has passed Congress in 
the last 20 years, in large part because these Members knew what they 
wanted to do. They took a position, and they stuck with it consistently 
throughout the process.
  I thank Senator Bennett, who was chairman of the Subcommittee on 
Financial Institutions, the subcommittee with jurisdiction over major 
portions of this bill. I thank Senator Hagel for his leadership on 
Federal Home Loan Bank issues. I thank Senators Grams and Santorum on 
privacy issues.
  Finally, I want to thank some people on my staff. I thank Dina Ellis, 
who has done all the hard work on CRA. She is a very sweet lady with a 
very soft voice, but she is a very serious, tough person. Much of our 
success in bringing sunshine to CRA and regulatory relief to smaller 
banks has been due to her great work.
  I thank Christi Harlan, who has taken the dullest of issues that are 
totally incomprehensible to most people and done an excellent job in 
trying to communicate to the media in a form they could understand what 
was going on and why it mattered.
  I thank Steve McMillin, who is an indispensable staff member to me. 
He came to work for me right out of college from the University of 
Texas. I am from Texas A&M, so I didn't start with any kind of 
overwhelming expectations. But Steve McMillin has become an 
indispensable person to me as a legislator. It would be virtually 
impossible to run my office and do what I do without him.
  I thank Geoff Gray for his legal work in burrowing in on the issues 
that didn't seem important until he spoke up. But when he spoke up, 
they became very important.
  I thank Linda Lord. Linda Lord, throughout this process, has known 
more about this bill and more about the underlying law that it changed 
than all the staff members of all the Members of the House and Senate, 
of all the staff members of the Treasury and the Federal Reserve Bank 
and the Securities and Exchange Commission, and all of the outside 
lawyers who were hired by people to represent their interests, all 
combined. Her knowledge and the force with which she has presented it 
have had a dramatic impact on this bill. In fact, the words of this 
bill are largely her words. She has been an indispensable person in 
doing this bill.
  I thank Joe Kolinski, who organized the conferences. It was a 
nightmare, moving from place to place. He was able to do it all. The 
mikes always worked. There was plenty of water. It was always crowded, 
which made people uncomfortable and got them to move on, which was very 
helpful.
  Finally, I thank our staff director, Wayne Abernathy. Wayne started 
on the Banking Committee as an intern and is now the staff director. He 
knows everything about these issues. I trust his judgment as well as I 
trust my own judgment. I think I can sum up his contribution--the way I 
feel about him--by simply quoting a great philosopher who once said: In 
no way can you get a keener insight into the true nature of a leader 
than by looking at the people with whom he surrounds himself. I would 
be very proud to have anybody on Earth judge me by Wayne Abernathy. I 
think they would be giving me mercy and not justice by doing it.
  I thank everybody for their contribution, and I yield the floor.
  The PRESIDING OFFICER (Mr. Brownback). The Senator from Maryland.
  Mr. SARBANES. Mr. President, I rise in support of the conference 
report on the Financial Services Modernization Act of 1999.
  The Congress has struggled for over two decades with the issue of 
whether to permit banks to affiliate with securities firms and 
insurance companies. This issue raises important questions for the 
safety and soundness of the financial system, important questions about 
the concentration of economic power, important questions about consumer 
protection, and important questions about access to credit for all 
Americans.
  These are far-reaching and difficult public policy issues. The fact 
that they are so far-reaching and difficult, combined with differences 
among affected financial sectors--sectors of the financial industry 
over what should be contained in legislation and how to balance the 
concerns of consumers, the important consideration of safety and 
soundness and of assuring that the credit system will work to the 
benefit of all Americans--has made the enactment of a bill a 
significant challenge over an extended period of time.
  In recent years, actions by regulators have permitted significant 
affiliations between banks and nonbank financial companies to take 
place. It is very important to keep that in mind as we consider 
enacting a piece of legislation because one has to be very much aware 
of what has transpired and the changes that have taken place in the 
financial arena as they consider the changes this legislation would now 
permit. Very frankly, the issue for Congress is not whether these 
affiliations should occur, because they have occurred one way or 
another, but whether they should take place on an orderly basis in the 
context of a responsible statutory framework or, instead, on an ad hoc 
basis as permitted by the regulators.
  In my view, the preferable circumstance is for these affiliations to 
take place in the context of a responsible statutory framework 
established by the Congress, a framework that provides the regulators 
sufficient authority to protect the safety and soundness of the 
financial system, which maintains the separation of banking and 
commerce, protects consumers, preserves the relevance of the Community 
Reinvestment Act, and provides a choice to banks to conduct their 
expanded activities either through a holding company or a subsidiary of 
the bank.
  It was not clear at the beginning of this Congress whether these 
goals could be achieved. The Senate passed a

[[Page 28097]]

bill by the relatively close margin of 54-44 that, in my judgment, did 
not meet these objectives and was the object of a strong veto threat by 
the President. The House of Representatives, on the other hand, had 
passed a bill that largely met these objectives and that the 
Administration was prepared to support.
  Today I am pleased to say to my colleagues that, in my view and in 
the view of the Administration, the bill produced by the conference 
committee is perceived as basically meeting the necessary standards. It 
is for that reason I am prepared to support the conference report. It 
is my understanding that the President is prepared to sign this 
legislation into law.
  I ask unanimous consent that a letter from Secretary Summers to 
Senator Daschle stating the Administration's position, indicating their 
strong support for this legislation and urging its adoption, be printed 
in the Record at the end of my statement.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. SARBANES. Mr. President, I want to take a few minutes to lay out 
why, on balance, I believe the enactment of this conference report is 
in the public interest.
  First, the legislation gives the regulators significant authority to 
supervise newly affiliated financial companies and protect the safety 
and soundness of the financial system. I started with the safety and 
soundness issue because I think it is paramount. I think the U.S. 
economy, in large part, depends on the confidence in the safety and 
soundness of our economic and financial institutions. If we are to lose 
that confidence, which exists not only in this country, but around the 
world, I think we would be in severe difficulties in a very broad and 
fundamental economic sense. So safety and soundness, I think, always 
has to be at the very top of the list of our concerns.
  Specifically, section 114 of the conference report provides the 
Federal Reserve, the Comptroller of the Currency, and the FDIC 
authority to place restrictions or requirements on relationships or 
transactions between a bank and an affiliated company or a subsidiary, 
appropriate to prevent an evasion of any provision of law applicable to 
depository institutions, or--and I quote the bill now, soon to become a 
statute, I hope--``to avoid any significant risk to the safety and 
soundness of depository institutions, or any Federal deposit insurance 
fund, or other adverse effects, such as undue concentration of 
resources, decreased or unfair competition, conflicts of interest, or 
unsound banking practices.''
  This important and broad delegation of authority to require 
``firewalls'' to protect the federally insured bank from nonbank 
affiliates or subsidiaries emphasizes the important burden being placed 
on the regulators by this legislation to develop a coherent, 
responsible, safe and prudent approach to the supervision of the 
financial system. The permission contained herein for the expansion of 
activities calls for vigilant supervision of the financial system by 
the regulators. The legislation, in my view, provides the regulators 
the authority to do the job, but the responsibility will be on them to 
carry it out.
  So this ``firewall'' provision that is in the conference report, 
which was actually taken from the House bill--we had no comparable 
provision on this side--gives the regulators the authority, I believe, 
to ensure a responsible, safe, and prudent approach. But it places, I 
think, a significant responsibility upon the regulators to exercise 
this authority in a way that it ensures that these objectives are 
realized.
  This legislation also codifies a principle of functional regulation 
under which bank activities are generally supervised by bank 
regulators, securities activities by securities regulators, and 
insurance activities by insurance regulators. New financial activities 
are the joint responsibility of the Federal Reserve and the Treasury, 
which also serve as the umbrella regulators respectively of a financial 
holding company or a bank and its operating subsidiaries.
  Now, secondly, the conference report strengthens the separation that 
currently exists in our financial system between banking and commerce. 
Financial authorities, including Federal Reserve Chairman Alan 
Greenspan, Treasury Secretary Larry Summers, former Treasury Secretary 
Bob Rubin, former Federal Reserve Board Chairman Paul Volcker, and many 
other commentators, such as Henry Kaufman, Gerald Corrigan--and the 
list goes on--have expressed strong concerns about the mixing of 
banking and commerce, particularly in light of the recent experiences 
in Asia.
  The conference report, therefore, closes the so-called unitary thrift 
holding company loophole to the separation of banking and commerce. The 
report before us prohibits all unitary thrift holding companies from 
having commercial affiliates. In addition, it prohibits exists unitary 
thrift holding companies from being transferred to commercial 
companies. This prohibition on transfer to commercial companies was 
added to the Senate bill on the floor by an amendment offered by my 
colleague, Senator Johnson of South Dakota, and it carried in the 
Senate by a 2-to-1 vote and was subsequently adopted by the conference 
committee.
  In addition, the conference report contains important limitations 
similar to the House bill on merchant banking activities and activities 
complementary to financial activities that are designed to maintain the 
separation of banking and commerce.
  In regard to merchant banking, the conference report allows a 
financial holding company to retain a merchant banking investment only 
for a limited period of time and generally prohibits the company from 
routinely managing or operating a nonfinancial company held as a 
merchant banking investment. Importantly, the conference report also 
gives the Federal Reserve and the Treasury the authority to jointly 
develop implementing regulations on merchant banking activities that 
they deem appropriate to further the purposes and prevent evasions of 
the conference report and the Bank Holding Company Act. Under this 
authority, the Federal Reserve and the Treasury may define relevant 
terms and impose such limitations as they deem appropriate to ensure 
that this new authority does not foster conflicts of interest or 
undermine the safety and soundness of depository institutions, or the 
conference report's general prohibition on the mixing of banking and 
commerce.
  In regard to activities determined by the Federal Reserve Board to be 
complementary to financial activities, it is expected that such 
activities will not be significant in size, and determinations will be 
made on a case by case basis.
  Third, with respect to consumer protections, the conference report 
contains important protections for consumers regarding the sale of 
uninsured financial products by banks. The conference report provides 
the Securities and Exchange Commission significant authority to 
supervise the securities activities of banks and includes several 
crucial investor protections. The conference report incorporates 
provisions to ensure the SEC can adequately regulate bank-sponsored 
mutual funds. These provisions are necessary to ensure that the SEC has 
adequate information about and inspection authority over bank 
investment advisers to inspect for trading violations, such as front-
running and personal trading.
  The provisions also address potential significant conflicts of 
interest that may impact banks that advise registered investment 
companies. The conference report also ensures SEC protections for new 
hybrid products and for most sales of securities by banks. It also 
includes protections for sales of sophisticated securities instruments 
to retail investors.
  Similarly, the conference report requires the Federal banking 
agencies to issue consumer protection regulations within one year, 
applicable to the sale of insurance by any bank or other depository 
institution, or by any person on behalf of such an institution. The 
regulations will give protection over several aspects of insurance 
sales, such as sales practices, including anti-tying

[[Page 28098]]

and anti-coercion rules; advertising; location, limiting sales to an 
area physically segregated from where deposits are taken; and 
qualification and licensing of sales personnel.
  The conference report also preserves important authorities for the 
States to provide consumer protection on bank sales of insurance 
products. These protections were in the House bill and were included in 
the Senate bill by an amendment offered by Senator Bryan during the 
markup in the Banking Committee. It was in the legislation that came to 
the Senate floor, and was passed by the Senate.
  Fourth, with respect to the operating subsidiary issue, the 
conference report contains a provision authorizing banks to conduct 
certain new activities through an operating subsidiary of the bank. I 
will not go into this provision in detail. I simply note that it was 
worked out between the Treasury and the Federal Reserve over an 
extended period of time, and was crucial to the Administration giving 
its support to this bill. It will give financial services firms some 
latitude in choosing the corporate structure that best serves their 
customers.
  In regard to the Community Reinvestment Act, this legislation 
establishes a fundamental principle: No bank or financial holding 
company can engage in any new activities authorized by the bill, or 
engage in any new merger or acquisition authorized by the bill, if the 
bank or financial holding company does not have a satisfactory CRA 
rating.
  This requirement on a bank or financial holding company for a 
satisfactory CRA rating in order to benefit from the new powers 
provided by the legislation was necessary to preserve the relevance of 
CRA in the new financial world which will be created by this bill. 
Without it, a bank's CRA performance would have become irrelevant to 
what will likely be the most intense area of activity in the financial 
industry. And the acceptance of this provision was essential for the 
Administration, and indeed for the Democratic members of the conference 
committee, to support the conference report.
  The conference report does not contain two provisions with respect to 
CRA that were in the Senate bill, and I think would have been very 
damaging. One would have provided a safe harbor for banks from public 
comment on their CRA performance when they submitted an application to 
a regulator. The second exempted rural banks with assets under $100 
million from CRA altogether.
  The conference report does contain a provision providing for banks 
with assets under $250 million to have CRA examinations once every 4 
years if they have a satisfactory rating, and once every 5 years if 
they have an outstanding rating. The regulators do retain authority to 
examine a bank at any time for reasonable cause.
  The conference report also contains a provision requiring public 
disclosure and reporting on CRA agreements. The conference report 
explicitly directs the regulators to ensure that regulations prescribed 
by the agencies do not impose an undue burden on parties. In this 
regard, the statement of managers specifically provides that the 
reporting requirements of the provision can be fulfilled by the 
submission of a group's annual audited financial statement, or its 
Federal income tax return.
  This was a provision that was intensely discussed and negotiated. The 
concept of public disclosure which was in the Senate bill was accepted 
by the conferees. The question that had to be worked out was exactly 
what did that mean and what was the reach of it and the requirements of 
it. As with many other provisions of this bill, the regulators will 
carry a particular responsibility to implement these provisions in a 
reasonable and responsible way.
  Finally, let me point out where the conference report does not fully 
address two important areas. First, I do not think that the right of an 
individual to financial privacy is adequately protected. I expect that 
issue will be discussed at some length by some of my colleagues in the 
course of the debate on this conference report. Second, we have not 
dealt with what I think is a very important issue of what is called 
``too big to fail.''
  On the issue of privacy, last January I introduced the ``Financial 
Information Privacy Act of 1999'' together with a number of my 
colleagues, some of whom serve on the Banking Committee. I am frank to 
say I believe the central issue in this debate on privacy boils down to 
answering the question: To whom does this personal financial 
information belong, the individual, or the financial institution? I 
think upon reflection most people would answer the individual.
  This legislation introduced earlier this year would have given an 
individual the right to ``opt out'', which would mean the right to say 
``no'' to the sharing of or selling of his or her personal information 
to an affiliate within a financial services holding company. It also 
would have required an ``opt-in'' for the selling of such information 
to a third party. An ``opt-in'' would require a customer's informed 
consent before selling or sharing confidential customer information 
with an unaffiliated third party.
  Neither of these provisions are included in the legislation before 
us. However, we were able to include in the conference report an 
amendment that I proposed which ensures that the Federal Government 
will not preempt stronger State financial privacy laws that exist now 
or may be enacted in the future. As a result, States will be free to 
enact stronger privacy safeguards if they deem it appropriate.
  I am very frank to say that I think Americans are becoming 
increasingly concerned about this issue of financial privacy 
protection. I predict that this issue of privacy will not go away with 
the passage of this legislation. I know Senators Bryan and Shelby took 
a very strong lead in the conference committee on the privacy issue, 
along with a number of their colleagues from the House. Many of those 
who were very supportive of that effort will want to speak at some 
length on this subject during the discussion of this conference report, 
and they have specifically reserved time in order to do that.
  The conference report also fails to deal with the creation of 
institutions which may be deemed ``too big to fail.'' The legislation 
before us substantially transforms the structure of the financial 
services industry by eliminating restrictions on the affiliations of 
banks, insurance companies, and securities firms. Despite the benefits 
which may accrue from such affiliations, there continue to be 
legitimate concerns that mergers permitted under this bill would create 
financial organizations so large that they would be deemed ``too big to 
fail.''
  Organizations as diverse as the American Enterprise Institute, the 
Brookings Institution, and the former Bankers Roundtable have 
repeatedly encouraged us to address the ``too big to fail'' problem by 
requiring large banking organizations to back some portion of their 
assets with subordinated debt. Regrettably, the conference report 
contains no such mandatory subordinated debt requirement or other 
market policing mechanisms. The report does contain an 18-month study 
to be conducted by the Federal Reserve Board and the Treasury 
Department regarding the use of subordinated debt to protect the 
financial system, and to protect federally ensured deposit funds from 
the ``too big to fail'' institutions.
  While obviously I think it would have been better to address this 
issue directly in the legislation, I certainly hope that 18 months from 
now, if not sooner, the Federal Reserve Board and the Treasury will 
present the Congress with a joint recommendation together with 
legislative proposals on how best to deal with the issue of ``too big 
to fail.'' In trying circumstances, the consequences of failing to deal 
with this issue could be extremely severe. I am hopeful that the 
Federal Reserve Board and the Treasury will come back with a joint set 
of recommendations we can place into law.
  These issues--dealing comprehensively with privacy and with ``too big 
to fail''--remain to be addressed as we move into the future.
  Finally, I want to make a brief observation about the context in 
which we are working and have to consider this

[[Page 28099]]

legislation. The need for this legislation has been influenced by the 
marketplace. In seeking to respond to the financial needs of their 
customers, securities firms have offered bank-like products, banks have 
offered insurance-like products, and both banks and insurance companies 
have engaged in significant securities activities. This blurring of the 
lines among banks, securities, and insurance products has been taking 
place in the marketplace since at least the mid-1970s.
  Those who look at this endeavor and say we don't want to allow any of 
this affiliation to take place need to appreciate and understand, it 
has been happening in a significant way. A development which began the 
blurring of the distinction between securities and bank products was 
the offering by securities firms of cash management accounts. That 
development added a bank deposit transaction feature to a securities 
account. It allows customers to write checks on their money market 
funds, enabling those accounts to function much like the traditional 
checking account. Subsequently, marketplace changes, regulatory 
actions, and court decisions have enabled banks to sell insurance and 
to develop annuity products that have insurance characteristics but are 
defined as bank products.
  On the commercial banking side, interpretations of existing laws have 
brought about a significant shift in ownership of firms underwriting 
securities. As of this past September, all the top 20 bank holding 
companies had what are known as section 20 subsidiaries that may engage 
under certain conditions in securities underwriting.
  Updating our financial services laws is not only important to enable 
financial services firms to respond to the financial service needs of 
their customers, it is also important in order to ensure that 
appropriate regulatory oversight is maintained in the evolving 
marketplace.
  In my view, this conference report will put in place a rational 
legislative framework for the future evolution of the U.S. financial 
services industry. It is a framework that will preserve safety and 
soundness, maintain the separation of banking and commerce, provide 
meaningful consumer protections, and preserve the relevance of the 
Community Reinvestment Act. I urge my colleagues to support this 
legislation.
  I extend my congratulations to the chairman of the Banking Committee, 
Senator Gramm. It has been a long ride, as one might say, with its ups 
and downs. However, the ship has been brought into port, so to speak. 
With the various accommodations worked out in the course of the 
conference, I expect the very close vote on the Senate bill will shift 
very markedly in the direction of support for this conference report.
  I echo Senator Gramm's commendation of House Banking Committee 
Chairman Leach who was chairman of the conference committee. Chairman 
Leach showed great fairness and calm under pressing circumstances. He 
kept the process working at times when it might otherwise have been in 
some jeopardy. Congressman LaFalce as ranking member of the House 
Banking Committee, Congressman Bliley and Congressman Dingell, the 
chairman and ranking member of the House Commerce Committee, and indeed 
all the members of the conference who in one way or another played very 
constructive roles in trying to work this situation out deserve 
commendation.
  I am particularly grateful to my Democratic colleagues on the 
Banking, Housing, and Urban Affairs Committee for working through and 
joining together as we sought to achieve legislation that would meet 
our desires and meet the perceptions of the Administration and 
therefore bring about a Presidential signature at the end of this 
process. All Members on both sides of the aisle did not want to go 
through this very extended process and then have it vetoed and have to 
start all over again. Fortunately, we have accomplished that.
  Federal Reserve Board Chairman Greenspan played a significant role, 
as did the members of his staff who are extremely able, as did Treasury 
Secretary Summers and the members of his Treasury staff. I also 
acknowledge the role Bob Rubin has played in shaping where we are 
today, although he is no longer Secretary of the Treasury. Chairman 
Gramm appropriately recognized the role Chairman D'Amato played in 
moving this legislation along. The Chairman of the SEC, Arthur Levitt, 
was important on the investor protection provisions.
  Finally, I thank the staff on this side of the aisle. Chairman Gramm 
has recognized staff on his side of the aisle. I have high respect for 
their commitment and their competency. I don't think people fully 
appreciate the kind of dedication staff provides when Members are 
working through a very complex, complicated piece of legislation such 
as this. In this we have not only the concepts on which to reach 
agreement, but we have to work the concepts in the statutory language 
in a way that embodies what the understanding was that will also work 
in a technical and complex way. We are dealing with the sort of issues 
where, if it does not work, there are problems. I am hopeful we won't 
have to come back with extended technical corrections with respect to 
this legislation. If that is the case, obviously, we bow our heads to 
the staff.
  On our side, I acknowledge our staff director Steve Harris, Marty 
Gruenberg, Patience Singleton, Dean Shahinian, Mitchell Feuer, Michael 
Beresik, Jonathan Miller, Yael Belkind, Erin Hanson, and Christen 
Schaefer. That is a long list, but it is a long list because some of 
the people are no longer on the staff. This issue has been going on 
long enough that people have come and gone. A number of those I listed 
are no longer on the staff, but they were here through at least part, 
if not a lot, of this effort. They made a significant contribution. It 
would be an oversight not to reference them.
  Tomorrow, obviously, we will resume the debate. We will have the 
opportunity to hear from a number of our colleagues on this issue. I 
anticipate we will be able to go to a vote by midafternoon on this very 
important piece of legislation.
  I yield the floor.

                               Exhibit 1


                                   Department of the Treasury,

                                 Washington, DC, November 3, 1999.
     Hon. Tom Daschle,
     U.S. Senate,
     Washington, DC.
       Dear Tom: The Administration strongly supports passage of 
     S. 900, the Gramm-Leach-Bliley Act of 1999. This legislation 
     will modernize our financial services laws to better enable 
     American companies to compete in the new economy.
       The bill makes the most important legislative changes to 
     the structure of the U.S. financial system since the 1930s. 
     By allowing a single organization to offer any type of 
     financial product, the bill stimulate competition, thereby 
     increasing choice and reducing costs for consumers, 
     communities and businesses. Americans spent over $350 billion 
     per year on fees and commissions for brokerage insurance, and 
     banking services. If increased competition yielded savings to 
     consumers of even 5 percent, they would save over $18 billion 
     per year.
       Removal of barriers to competition will also enhance the 
     stability of our financial services system. Financial firms 
     will be able to diversify the product offerings and thus 
     their sources of revenue. They also will be better able to 
     compete in global financial markets.
       The President has strongly supported the elimination of 
     barriers to financial services competition. He has made 
     clear, however, that any financial modernization bill must 
     also preserve the vitality of the Community Reinvestment Act, 
     enhance consumer protection to the privacy and other areas, 
     follow financial services firms to choose the corporate 
     structure that best serves their customers, and continue the 
     traditional separation of banking commerce. As approved by 
     the Conference Committee, S. 900 accomplishes each of these 
     goals.
       With respect to CRA, S. 900 establishes an important, 
     prospective principle: banking organizations seeking to take 
     advantage of new, non-banking authority must demonstrate a 
     satisfactory record of meeting the credit needs of all the 
     communities they serve, including low and moderate income 
     communities. Thus, S. 900 for the first time prohibits a bank 
     or holding company from expanding into newly authorized 
     businesses such as securities and insurance underwriting 
     unless all of its insured depository institutions have a 
     satisfactory or better CRA rating. Furthermore, CRA will 
     continue to apply to all banks, and existing procedures for 
     public comment on, and CRA review of, any application to 
     acquire or merge

[[Page 28100]]

     with a bank will be preserved. The bill offers further 
     support for community development in the form of a new 
     program to provide technical help to low- and moderate-income 
     micro-entrepreneurs.
       The bill includes other measures affecting CRA that have 
     been narrowed significantly from their earlier Senate form. 
     The bill includes a limited extension of the CRA 
     examinational cycle for small banks with outstanding or 
     satisfactory CRA records, but expressly preserves the ability 
     of regulators to examine a bank any time for reasonable 
     cause, and does not affect regulators ability to inquire in 
     connection with an application. Finally, the bill includes a 
     requirement for disclosure and reporting of CRA agreements. 
     We believe that the legislation and its legislative history 
     have been constructed to prevent undue burdens from being 
     imposed on banks and those working to stimulate investment in 
     underserved communities.
       In May, the President stressed the importance of adopting 
     strong and enforceable privacy protections for consumers 
     financial information. S. 900 provides protections for 
     consumers that extend far beyond existing law. For the first 
     time, consumers will have an absolute right to know if their 
     financial institution intends to share or sell their personal 
     financial data, and will have the right to block sharing or 
     sale outside the financial institutions' corporate family. Of 
     equal importance, these restrictions have teeth. S. 900 gives 
     regulatory agencies full authority to enforce privacy 
     protections, as well as new rulemaking authority under the 
     existing Fair Credit Reporting Act. The bill also expressly 
     preserves the ability of states to provide stronger privacy 
     protections. In addition, it establishes new safeguards to 
     prevent pretext calling, by which unscrupulous operators seek 
     to discover the financial assets of consumers. In sum, we 
     believe that this reflects a real improvement over the status 
     quo; but, we will not rest. We will continue to press for 
     even greater protections--especially effective choice about 
     whether personal financial information can be shared with 
     affiliates.
       We are pleased that the bill promotes innovation and 
     competition in the financial sector, by allowing banks to 
     choose whether to conduct most new non-banking activities, 
     including securities underwriting and dealing, in either a 
     financial subsidiary or an affiliate of a bank.
       The bill also promotes the safety and soundness of the 
     financial system by enhancing the traditional separation of 
     banking and commerce. The bill strictly limits the ability of 
     thrift institutions to affiliate with commercial companies, 
     closing a gap in existing law. The bill also includes 
     restrictions on control of commercial companies through 
     merchant banking.
       Although the Administration strongly supports S. 900, there 
     are provisions of the bill that concern us. The bill's 
     redomestication provisions could allow mutual insurance 
     companies to avoid state law protecting policyholders, 
     enriching insiders at the expense of consumers. The 
     Administration intends to monitor any redomestications and 
     state law changes closely, and return to the Congress if 
     necessary. The bill's Federal Home Loan Bank provisions fail 
     to focus the System more on lending to community banks and 
     less on arbitrage activities short-term lending that do not 
     advance its public purpose.
       The Administration strongly supports S. 900, and urges its 
     adoption by the Congress.
           Sincerely,
                                              Lawrence H. Summers.

  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, I thank Senator Sarbanes for his kind 
remarks and for remembering Bob Rubin, who was a very major contributor 
to this bill. Let me also say that I think it would be helpful if in 
the morning everyone will come over so we do not have long pauses. My 
concern is that we do have a lot of people who are going to want to 
speak on this bill. We are going to be forced to try to stay with the 
schedule because the House wants to vote on this tomorrow afternoon. So 
I hope people will come over and speak so we do not end up with this 
problem where people are given 1 or 2 minutes when they have something 
they need to say.
  I think that can be avoided if people come over early.
  Mr. SARBANES. If the chairman will yield, I want to echo the 
chairman's comments. I say to our colleagues, if Senators will come 
early on and we can perhaps sequence them, we can give them more time 
than if some of the time is used up in quorum calls. Waiting for people 
to come becomes lost time. Then, when people come over, we may be very 
limited in how much time we have available to give them.
  If Senators have statements they want to make of some consequence, we 
very much hope they will come over and do that.
  Mr. GRAMM. Mr. President, we both want to reserve the remainder of 
our time for use tomorrow.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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