[Congressional Record (Bound Edition), Volume 145 (1999), Part 6]
[Senate]
[Pages 8202-8218]
[From the U.S. Government Publishing Office, www.gpo.gov]




              FINANCIAL SERVICES MODERNIZATION ACT OF 1999

  The Senate resumed consideration of the bill.
  Mr. ALLARD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Colorado.
  Mr. ALLARD. Mr. President, I rise in support of S. 900, the financial 
modernization bill. I supported this legislation as a member of the 
Banking Committee, and I commend Chairman Gramm for the excellent work 
he has done in bringing this bill to the floor. The chairman has worked 
very hard to craft a bill that makes sense. It is balanced and will 
benefit our economy.
  This legislation is designed to modernize America's financial 
services industry by providing a sensible framework for the affiliation 
of banks, securities firms, insurance companies, and other financial 
institutions. It is, of course, very difficult to craft a compromise 
that is acceptable to many diverse interests, but it is necessary that 
we do so.
  Much of our financial services industry is governed by laws written 
in the 1930s. Congress has struggled with this issue for many years. I 
am hopeful that this is finally the year we enact this legislation.
  I will focus my comments on several issues concerning community 
banks.
  In Colorado, the community bank is an important institution. It is 
the center of many of our towns and rural areas. I have worked hard to 
represent their interests in the Banking Committee. I am a supporter of 
the provisions in this bill to exempt small rural banks from the 
Community Reinvestment Act. For small banks, the CRA, or Community 
Reinvestment Act, is a regulatory burden. While a large bank can often 
devote an entire department to CRA compliance, a small bank has to 
divert scarce resources toward compliance. Each of these small banks is 
required to undergo regular exams and actually designate a CRA 
compliance officer. This makes little sense when one recognizes that 
small rural banks could not survive if they did not invest in the 
community. Frankly, where else could they put their money?
  I will read a few excerpts from Colorado banks on this very important 
point.
  From the First National Bank of Stratton:

       Your amendment removing the CRA requirement will have a 
     positive benefit for small community banks located in 
     nonmetropolitan areas. As a small community bank in a town of 
     700, the employees and the bank's officers are already 
     involved in literally everything going on in the town. The 
     CRA requirement provides a burdensome paper and personnel 
     requirement for small community banks.

  Remember, this is coming from a bank in a town of only 700 people.
  Then from the First National Bank of Cortez:

       In our bank, our compliance officer spends a great deal of 
     time preparing documents for the CRA file and Bank Examiners. 
     We estimate that it takes 80 to 100 hours each year to update 
     the CRA file, and to date, we have never had a customer ask 
     to see the file.

  Then from the First National Bank in Las Animas and La Junta:

       I strongly support the provision to remove the onerous 
     requirements of the CRA from small rural banks. We serve our 
     communities well and if we do not serve the needs of our 
     community we will not exist.

  From the Kirk State Bank:

       As a small rural bank, the CRA is a burdensome regulation. 
     In reality, small banks and small communities have to be good 
     community citizens to be successful and a bureaucratic 
     regulation does nothing to improve the situation.

  Mr. President, I ask unanimous consent to have the text of these 
letters and others from Colorado bankers printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                           The First National Bank


                                                  of Stratton,

                                     Stratton, CO, March 29, 1999.
     Hon. Phil Gramm,
     Chairman, Committee on Banking, Housing and Urban Affairs, 
         U.S. Senate, Washington, DC.
       Dear Senator Gramm: Your amendment removing the CRA 
     requirement will have a positive benefit for small community 
     banks located in Non-metropolitan areas. As a small community 
     bank in a town of 700, the employees and the bank's officers 
     are already involved in literally everything going on in the 
     town. The CRA requirement provides a burdensome paper and 
     personnel requirement for small community banks.
       Your support of this amendment is greatly appreciated.
           Yours Truly,
                                                  Dana M. Siekman,
     Vice President.
                                  ____



                                  First National Bank, Cortez,

                                       Cortez, CO, March 30, 1999.
     Hon. Phil Gramm,
     Chairman, Committee on Banking, Housing and Urban Affairs, 
         Washington, DC.
       Dear Senator Gramm: Thank you for your letter of inquiry 
     regarding our position on your amendment to exempt banks less 
     than $100 million in aggregate assets from the CRA 
     regulation.
       Needless to say, I am very proud of you and your committee 
     and strongly desire that this amendment be passed.
       In our bank, our compliance officer spends a great deal of 
     time preparing documents for the CRA file and Bank Examiners. 
     We estimate that it takes 80 to 100 hours each year to update 
     the CRA file, and to date, we have never had a customer 
     request to see the file. Of course the Bank examiners do 
     request this information. We find that this regulation is 
     completely worthless and of no benefit at all.
       Also, in my opinion the whole CRA regulation should be 
     disposed of, since it does not apply to others in the 
     financial industry.
           Very truly yours,
                                                  Donald G. Haley,
     President.
                                  ____



                                      The First National Bank,

                                   Las Animas, CO, March 29, 1999.
     Hon. Phil Gramm,
     Chairman, U.S. Senate Committee on Banking, Housing and Urban 
         Affairs, Washington, DC.
       Dear Senator Gramm: I appreciated your letter of March 22, 
     inquiring about the financial services modernization bill and 
     the exemption from the requirements of CRA for smaller rural 
     banks, such as our own. Although I do not believe many of the 
     aspects of the financial services modernization bill are in 
     the best interest of our nation I strongly support the 
     provision to remove the onerous requirements of the CRA from 
     small rural banks. We serve our communities well and if we do 
     not serve the needs of our communities we will not exist. The 
     CRA requirements, are in many cases, counter-productive and 
     anything that can be done to remove the bureaucracy involved 
     in that would be appreciated. Thank you again for soliciting 
     input.
           Sincerely,
                                                  Dale L. Leighty,
                                                        President.

[[Page 8203]]

     
                                  ____
                                          The Kirk State Bank,

                                         Kirk, CO, March 31, 1999.
     Senator Phil Gramm,
     U.S. Senate, Committee on Banking, Housing and Urban Affairs, 
         Washington, DC.
       Dear Senator Gramm: Thank you for your letter of March 22, 
     1999 regarding the CRA Amendment.
       As a small rural bank, the CRA is a burdensome regulation. 
     In reality, small banks in small communities have to be good 
     community citizens to be successful and a bureaucratic 
     regulation does nothing to improve the situation.
           Very truly yours,
                                                       L.E. House,
     President.
                                  ____



                                               Foothills Bank,

                                  Wheat Ridge, CO, April 13, 1999.
     Hon.  Phil Gramm,
     Chairman, Banking Committee, U.S. Senate, Washington, DC.
       Dear Senator Gramm: The Community Reinvestment Act has 
     outlived it's usefulness, and was never fairly implemented to 
     included all financial institutions. It was a government 
     hammer to force banks to make loans and open branches that 
     were not prudent. Enforcement of discrimination laws produces 
     better results.
       Please hold firm on exempting banks with less than $100 
     million in assets from CRA requirements during your 
     consideration of the Financial Services Modernization bill. 
     The exemption should be at the $500 million level, if not 
     removed altogether, and all financial institutions (lenders) 
     should be included; such as Credit Unions.
       Finally, please remember, this great Country's economic 
     health is largely based on the freedom of individuals who 
     take the risk of opening a small business, and a small bank 
     is a small business. The less government regulation for small 
     banks the better we can compete with large banks who have 
     full time staffs to handle regulatory requirements. As the 
     President of a small bank that I started after a large bank 
     purchased the bank I had worked at for 20+ years, and let me 
     go at the ripe old age of 49 years, I wear many hats and 
     spend much of my mornings reviewing stacks of regulatory 
     correspondence. Any relief will be appreciated.
           Sincerely,
                                                  Joe L. Williams,
     President & CEO.
                                  ____

                                               First National Bank


                                                of Canon City,

                                    Canon City, CO, April 7, 1999.
     Hon. Phil Gramm,
     Chairman, Committee on Banking, Housing and Urban Affairs, 
         U.S. Senate, Washington, DC.
       Dear Senator Gramm: We support your thoughts that rural 
     banks of less than $100 million in assets should be exempt 
     from the provisions of CRA. In my thirty years of banking, I 
     can honestly say that CRA compliance issues in a bank of this 
     size ($95 million in assets in a community of less than 
     50,000 people)are unnecessary. This bank and every other 
     rural bank, by their very nature, are leaders and innovators 
     in meeting the credit needs of the citizens and businesses in 
     communities in which they are located.
       Our directors, officers and employees, for the most part, 
     were born and raised in this community and they volunteer 
     untold numbers of hours to community organizations and 
     governmental agencies. While attending these events, we have 
     and take the opportunity to listen to the needs of the 
     community and to communicate our products and services 
     accordingly. We often develop new products and services, or 
     actually sponsor events, to satisfy specific needs based on 
     feed-back we have received from the community.
       The present CRA examination procedures for small banks have 
     already been simplified to the point, that the remaining 
     procedures are nothing more than an exercise in futility. The 
     results prove nothing that the examiner doing the work and 
     the bank being examined does not already know. The bank is 
     truly meeting the community's credit needs and there is no 
     discrimination or redlining taking place. Eliminating small 
     rural banks from any and all CRA requirements would be cost 
     effective and will permit bank examiners to focus on safety 
     and soundness areas that are truly meaningful and effective 
     in the examination process.
           Respectfully yours,
                                               William H. Paolino,
     Sr. V.P. and Cashier.
                                  ____



                                            Paonia State Bank,

                                        Paonia, CO, April 1, 1999.
     Senator Phil Gramm,
     Chairman, Committee on Banking, Housing, & Urban Affairs, 
         U.S. Senate, Washington, DC.
       Dear Senator Gramm: Thank you for your letter of March 22, 
     1999, received today. Please be advised that we do support 
     the amendment to the Financial Services Modernization bill, 
     to exempt banks with less than $100 million in assets and in 
     non-metropolitan areas, from CRA requirements.
       We believe that mall community banks have more than 
     demonstrate that we must reinvent in our communities on a 
     wide basis, simply to continue in business. With the high 
     levels of competition in the marketplace, we do not have any 
     alternative but to complete rigorously, and that means 
     covering all areas and segments of our population and service 
     areas, with full and complete banking services. The costs of 
     doing so are enormous without the added costs of 
     documentation of compliance with CRA. It will be more helpful 
     to small community banks like ours to be relieved of such 
     burden, and we thank you for pursuing the amendment.
           Sincerely,
                                                 Clinton W. Booth,
     President & CEO.
                                  ____

                                                 The Gunnison Bank


                                            and Trust Company,

                                      Gunnison, CO, April 9, 1999.
     Hon. Phil Gramm,
     Committee on Banking, Housing, and Urban Affairs, Washington, 
         DC.
       Dear Senator Gramm: Thank you for your letter regarding the 
     pending financial modernization legislation. While I applaud 
     your support of regulatory relief from the burdens of the 
     Community Reinvestment Act for small rural banks, there 
     continue to be provisions of the financial modernization 
     legislation that concerns me. I believe, as does the 
     Independent Bankers of Colorado on whose Board I am a member, 
     that the financial modernization bill as it is currently 
     written is harmful to community bank interests.
       We support the closure of the unitary thrift holding 
     company loophole through which an increasing number of non-
     banking firms are acquiring thrifts. We agree with the 
     Federal Reserve, Independent Bankers' of America Association 
     and American Bankers' Association that this loophole allows 
     the mixing of banking and commerce and the entry of non-
     federally insured entities to the payments system and 
     discount window. Without a payments system reserved solely 
     for federally insured financial institutions the future of 
     community banking is doubtful. Community banks cannot compete 
     effectively against a combination of the country's largest 
     banking, financial and commercial firms. These combined 
     entities would own and control products and services vital to 
     the continuing viability of community banks. Moreover, they 
     would control access to the payments system the lifeblood of 
     community banks and communities throughout Colorado and the 
     nation, especially of our rural community banks and 
     communities.
       For these same reasons, we oppose any commercial basket 
     that allows a bank to invest its revenues in commercial 
     firms-the mixing of banking and commerce. Community banks 
     cannot compete effectively against financial and commercial 
     conglomerates that will control a variety of commercial and 
     consumer markets.
       We support an increase in community bank access to the 
     Federal Home Loan Bank (FHLB) by according membership to the 
     FHLB for all banks less than $500 million in assets and by 
     including agricultural and small business paper as eligible 
     collateral. Alternative sources of funding are becoming 
     increasingly expensive for community banks to acquire. 
     Increased access to the FHLB will help to ensure an 
     additional, affordable source of funds for community bank 
     lending, particularly rural community bank lending. Without 
     affordable sources of funding, community banks cannot 
     adequately support their local communities.
       Community banks remain concerned about the insurance 
     provisions that may be included in financial modernization 
     legislation. We urge that Congress not take any legislative 
     steps that would hinder community bank insurance activities. 
     Community banks must retain the authority to engage in 
     insurance activities to be able to compete effectively 
     against big banks, insurance companies and financial 
     conglomerates controlled by unitary thrift holding companies 
     that are increasingly in pursuit of community bank customers.
       Thank you for seeking my input into your laudable efforts 
     to reach a comprise on financial modernization that benefits 
     all parties.
           With Sincere Regards,
                                                    Tom L. Havens,
     President.
                                  ____

                                           The First National Bank


                                                  of Stratton,

                                     Stratton, CO, March 26, 1999.
     Hon. Phil Gramm,
     Chairman, Committee On Banking, Housing & Urban Affairs, U.S. 
         Senate, Washington, DC.
       Dear Senator Gramm: I would like to thank you for your 
     support in the Senate Banking Committee, concerning your 
     proposal to exempt Banks with under one hundred million in 
     assets, from the Community Reinvestment Act.
       We strongly support this exemption. We are all over 
     burdened with regulatory requirements and CRA is at the top 
     of this list. We have devoted countless hours and thousands 
     of reams of paper to be outstanding in our CRA Reports.
       It is a well known and documented fact that any Bank 
     surviving in the 80's and into the 90's who is not meeting 
     the requirements of the Community Reinvestment Act, is not 
     succeeding. Most small Banks not in the

[[Page 8204]]

     metropolitan setting perform all the acts, required under 
     CRA, in their daily survival.
       It might be further interesting to note that due to the 
     change in the matrix and composition of the requirements for 
     an outstanding CRA rural Banks find it very difficult to 
     receive an outstanding. We had worked diligently and 
     faithfully to maintain an outstanding CRA Rating and then 
     with the change of rules we are almost excluded by a 
     definition form being able to obtain an outstanding rating 
     and have to be satisfied with merely a satisfactory.
       This again points up the fact that there is no reason to go 
     through that gyration to be only satisfactory, as we 
     certainly are satisfied in the daily performance of our 
     Banking lives. We are all concerned about the Community and 
     daily make every effort to enhance the Communities which we 
     serve.
       We therefore highly support the exemption of this 
     requirement on the smaller institutions. It would save us 
     dollars and cents, but more importantly would allow us the 
     time to get out of the office, away from the paper work 
     requirements and actually serve the customers as we intend 
     to. It would also help provide one less unfair advantage to 
     small Banks concerning our Credit Union struggles and brings 
     us one step closer to a level playing field. Credit Unions 
     are not required to be under any CRA requirements.
       I thank you for the opportunity to be heard and to support 
     your efforts on the Financial Modernization Bill. We also 
     would ask for your support in closing the unitary thrift 
     loophole which is detrimental to the small Banks and the 
     Banking payment system in general. We believe these two items 
     are of the highest priority in the up coming Modernization 
     Bill.
           Respectfully,
                                                   Robert L. Todd,
                                                        President.

  Mr. ALLARD. Mr. President, these letters contain a number of views on 
the CRA and other provisions of the bill.
  Now I want to talk about taxes. For over a year now, I have been 
working on legislation to reduce the tax burden on small banks. Last 
week, I introduced S. 875 along with Chairman Gramm and Senators 
Bennett, Abraham, Hagel, Enzi, Mack, Grams and Shelby.
  This legislation expands the subchapter S option for small banks. 
Subchapter S is a portion of the Tax Code designed for small businesses 
with a modest number of shareholders. The most important feature of 
subchapter S is that it eliminates the double taxation faced by 
corporations. Subchapter S businesses are taxed only at the shareholder 
level.
  Congress made this provision available to banks 3 years ago. Since 
then, nearly 1,000 small banks have converted from C corporations to S 
corporations. Unfortunately, many more would like to convert. They are 
prevented from doing so by a number of remaining obstacles in the tax 
law.
  My legislation would change this by making subchapter S available to 
many more banks. I will be working closely with Senator Gramm and the 
Finance Committee in the months to come in an attempt to include this 
legislation in a tax bill.
  Mr. President, I will include a full description of the provisions of 
my bill at the end of these comments.
  I also want to talk briefly about one additional matter that has come 
to my attention. This is a proposal to permit banks to be organized as 
limited liability companies, or LLCs. LLCs were first created in the 
mid-1980s and have spread throughout the Nation. Virtually every State 
now permits businesses to be organized as LLCs, as well as corporations 
and partnerships. The tax benefit of an LLC is similar to that of a 
subchapter S corporation. Double taxes are eliminated and taxes are 
paid at the level of the owners. Up to this point, Federal law had 
limited banks to the corporate form.
  In recent years, a number of experts have questioned this 
restriction, and there appear to be good reasons why we may wish to 
examine permitting small banks to be organized as LLCs.
  I will provide the chairman with language on this point and ask that 
he take a good look at it. I want to thank Chairman Gramm, once again, 
for his hard work on this bill. I have been pleased to be a member of 
the Banking Committee, and I am pleased to support the legislation.
  Mr. President, I ask unanimous consent that an explanation of my 
legislation be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

   Small Business and Financial Institutions Tax Relief Act of 1999 
      Legislation To Reduce the Federal Tax Burden on Small Banks

       This legislation expands Subchapter S of the IRS Code. 
     Subchapter S corporations do not pay corporate income taxes, 
     earnings are passed through to the shareholders where income 
     taxes are paid, eliminating the double taxation of 
     corporations. By contrast, Subchapter C corporations pay 
     corporate income taxes on earnings, and shareholders pay 
     income taxes again on those same earnings when they pass 
     through as dividends. Subchapter S of the IRS Code was 
     enacted in 1958 to reduce the tax burden on small business. 
     The Subchapter S provisions have been liberalized a number of 
     times over the last two decades, significantly in 1982, and 
     again in 1996. This reflects a desire on the part of Congress 
     to reduce taxes on small business.
       This S corporation legislation would benefit many small 
     businesses, but its provisions are particularly applicable to 
     banks. Congress made S corporation status available to small 
     banks for the first time in the 1996 ``Small Business Job 
     Protection Act'' but many banks are having trouble qualifying 
     under the current rules. The proposed legislation:
       Permits S corporation shares to be held as Individual 
     Retirement Accounts (IRAs), and permits IRA shareholders to 
     purchase their shares from the IRA in order to facilitate a 
     Subchapter S election.
       Clarifies that interest and dividends on investments 
     maintained by a bank for liquidity and safety and soundness 
     purposes shall not be ``passive'' income. This is necessary 
     because S corporations are restricted in the amount of 
     passive investment income they may generate.
       Increases the number of S corporation eligible shareholders 
     from 75 to 150.
       Provides that any stock that bank directors must hold under 
     banking regulations shall not be a disqualifying second class 
     of stock. This is necessary because S corporations are 
     permitted only one class of stock.
       Permits banks to treat bad debt charge offs as items of 
     built in loss over the same number of years that the 
     accumulated bad debt reserve must be recaptured (four years) 
     for built in gains tax purposes. This provision is necessary 
     to properly match built in gains and losses relating to 
     accounting for bad debts. Banks that are converting to S 
     corporations must convert from the reserve method of 
     accounting to the specific charge off method and the 
     recapture of the accumulated bad debt reserve is built in 
     gain. Presently the presumption that a bad debt charge off is 
     a built in loss applies only to the first S corporation year.
       Clarifies that the general 3 Year S corporation rule for 
     certain ``preference'' items applies to interest deductions 
     by S corporation banks, thereby providing equitable treatment 
     for S corporation banks. S corporations that convert from C 
     corporations are denied certain interest deductions 
     (preference items) for up to 3 years after the conversion, at 
     the end of three years the deductions are allowed.
       Provides that non-health care related fringe benefits such 
     as group-term life insurance will be excludable from wages 
     for ``more-than-two-percent'' shareholders. Current law taxes 
     the fringe benefits of these shareholders. Health care 
     related benefits are not included because their deductibility 
     would increase the revenue impact of the legislation.
       Permits Family Limited Partnerships to be shareholders in 
     Subchapter S corporations. Many family owned small businesses 
     are organized as Family Limited Partnerships or controlled by 
     Family Limited Partnerships for a variety of reasons. A 
     number of small banks have Family Limited Partnership 
     shareholders, and this legislation would for the first time 
     permit those partnerships to be S corporation shareholders.
       Permits S corporations to issue preferred stock in addition 
     to common. Prohibited under current law which permits S 
     corporations to have only one class of stock. Because of 
     limitations on the number of common shareholders, banks need 
     to be able to issue preferred stock in order to have adequate 
     access to equity.
       Reduces the required level of shareholder consent to 
     convert to an S corporation from unanimous to 90 percent of 
     shares. Non-consenting shareholders retain their stock, with 
     such stock treated as C corporation stock. The procedures for 
     consent are clarified in order to streamline the process.
       Clarifies that Qualified Subchapter S Subsidiaries (QSSS) 
     provide information returns under their own tax id number. 
     This can help avoid confusion by depositors and other parties 
     over the insurance of deposits and the payer of salaries and 
     interest.

  Mr. ALLARD. Mr. President, I yield back my time.
  Mr. SCHUMER addressed the Chair.
  The PRESIDING OFFICER. The Senator from New York is recognized.
  Mr. SCHUMER. Mr. President, I rise to address the issue of the 
financial services legislation now before us. Like many of my 
colleagues, Mr. President, this marks my 19th year of trying to improve 
financial services. We haven't

[[Page 8205]]

done much in 19 years, but I am hoping this 20th year is the charm.
  Today, however, regrettably I have a few doubts. As much as anyone in 
the Senate, I want to see modernization pass, and I want to see it pass 
now. The bill is critical to the vitality of New York's economy. New 
York City is the financial capital of the world.
  As I have said time and time again, financial modernization 
legislation is critical to ensuring that our financial institutions are 
competitive at home and abroad. Because of the entrepreneurialness of 
America, particularly in financial services, we dominate the world. 
Hundreds of thousands, if not millions, of people are employed in every 
one of the 50 great States because of our dominance in this area. And 
even as things that have happened in America spread to Europe and Asia, 
it is more and more American companies that are taking the lead and 
doing them. That is because we are technologically, entrepreneurially, 
and in innovation ahead of just about every other country in the world 
in financial services. So today we are the financial capital. We are 
the leaders. But we may not be tomorrow. Our superiority is not some 
historical inevitability. We need to compete in order to win. And we 
cannot compete in the present context of the laws.
  Mr. President, when I came to the Congress in 1981, I was strongly 
supportive of the Glass-Steagall law. It seemed to me very simple--that 
while my inclination would be to allow financial institutions to do 
whatever they chose, they should not take part in risky activities with 
insured dollars. In those days, many of the banking institutions in the 
country wanted to use their insured dollars for the riskiest of 
activities. Some of us, even back in the early eighties, warned against 
it, and we were like voices against the wind.
  I will never forget an amendment of the Banking Committee in the 
House, sponsored by the gentleman from Louisiana, Mr. Roemer, and 
myself, that said no S&L, for instance, could use insured dollars for 
equity investments in real estate. It lost by one vote. Had it passed, 
America would have saved $200 billion.
  But as a result of the awful S&L crisis, we were able to come closer 
together on financial services. One of the great ironies is that in the 
early eighties, when many had said let everybody do everything, even 
with insured dollars, and they deadlocked with those of us who felt--
some felt that each institution should be pigeon-holed, but others felt 
don't pigeon-hole institutions but pigeon-hole insured dollars and make 
sure they only go to low-risk types of activities. But the S&L crisis 
allowed us to come together because everyone realized that insured 
dollars should not be used for risky activities.
  And so in the early and middle nineties, legislation was crafted that 
allowed institutions to underwrite, sell, and even be agents for all 
varieties of financial services, but that successfully walled off 
insured dollars from the rest. This is good legislation. And so in the 
last few years, I--who was regarded, I guess, as one of the leading 
opponents of modernization--became an advocate. I was proud to support 
the modernization bill that reached the floor of the House last year. 
In fact, I persuaded a good number of my New York colleagues to support 
it and it passed by one vote.
  We found a good model, Mr. President; we ought to stick with it. 
There was balance in that model. There was bipartisanship in that 
model. It worked. Yet, we come here to the floor of the Senate today, 
with financial services at risk. They are at risk because even though 
we had a plan that had almost everyone's support, that is not the bill 
coming to the floor today.
  One of the main sticking points is CRA. CRA is supported by most of 
the financial institutions in my State, while those who seek to lift 
CRA say that it is a terrible burden for the financial institutions. I 
seem to hear that more from some of my colleagues in the Senate than 
from the institutions that it is supposed to help. In fact, if you 
surveyed the major banks and major insurance companies and major 
securities firms in my State of New York, almost every one would say 
they were happy to support last year's H.R. 10 and would be happy to 
support it again this year.
  They realize that CRA has been an important tool for building 
communities across America. It has been at work in my State, whether it 
be in the inner city, which in the past was starved for capital, or 
whether it be in rural areas, also starved for capital. Individuals, 
homeowners, small builders, small business people, from the Adirondack 
Mountains and from the South Bronx, have come and said, ``Senator, make 
sure we keep CRA.''
  The amazing thing is that CRA has worked. While in the past financial 
institutions, banks, would write off whole areas because it was hard to 
find the good loans, the economical loans, CRA forced them to go in and 
now they find they are making money by lending money in rural areas and 
inner-city areas. So it works. All of a sudden, we see that these 
provisions, widely accepted by the industry, widely accepted in a 
bipartisan measure in the House this year, accepted last year by the 
Senate Banking Committee by a 16-2 vote margin, are ready to scuttle 
the whole bill.
  Let me say this: I fear that the Community Reinvestment Act 
provisions in the bill before us would doom modernization's failure 
once again, doom modernization to partisanship, doom modernization to a 
Presidential veto. It cannot and should not be the monkey wrench that 
grinds modernization to a halt. CRA or removing CRA should not be the 
monkey wrench that grinds modernization to a halt.
  I greatly respect the views of our chairman. He is a towering 
intellect--somebody I joust with on many occasions and have always done 
it in a respectful way so that we each enjoyed it and went away shaking 
hands.
  I say to my chairman that I understand his strongly held views. But 
if you believe that financial modernization is important, given the 
consensus that CRA has built through most parts of this country and 
among most Members of both parties--the House, for instance, passed a 
bill with a similar CRA provision as the Sarbanes substitute by a 51 to 
8 margin--I ask the chairman to reexamine it, and again not have his 
strong feelings about CRA be the monkey wrench that undoes the whole 
financial services construct.
  Strangely enough, it is not the passions of the many in the House but 
rather the passions of the few in the Senate that are causing us 
problems today. This is a reversal of what has usually happened.
  The bill's provisions that undermine CRA will clearly cause a 
Presidential veto. It caused all of the Democrats on the committee to 
vote against the bill.
  One thing we have learned in financial services in this long, 
tortuous, and sad history is that unless we have bipartisan support, a 
bill such as this with so many conflicting interests will fail. It is 
my hope we can today move this bill forward by setting aside 
partisanship and confrontation and replacing it with pragmatism and 
compromise.
  There are certain provisions in the Democratic substitute that I 
don't particularly like. I am giving serious thought to the affiliate 
op-sub issue. In the past I have strongly been for the affiliates for 
the same Glass-Steagall reasons I mentioned before. I talked to the 
Secretary of the Treasury, who feels strongly on the other side, and he 
has modified the bill to meet some of the objections I have. But I 
don't want to let my views on that issue hold up the bill.
  It is my hope similarly with CRA that we will act with dispatch. It 
is my hope that the Senate will adopt the CRA provisions of the 
Democratic substitute and we can move this bill forward to conference 
assured that we have created a bill that has sufficient support to pass 
the Senate on a bipartisan basis, assured that we have created a bill 
that will finally, after 20 years, be signed into law.
  Thank you, Mr. President.
  Mr. SARBANES addressed the Chair.
  The PRESIDING OFFICER. The Senator from Maryland.
  Mr. SARBANES. Mr. President, we have been trying to accommodate

[[Page 8206]]

Members who wish to make opening statements. We have been forbearing on 
offering the substitute, which is in order under the agreement as the 
first amendment. I guess I am really just trying to let colleagues know 
that I am sort of close to being ready to offer the substitute. I don't 
know whether there are others who want to make an opening statement 
before we get to that. I see the Senator from Nebraska may be 
interested in doing so. I withhold. Obviously, Members, once the 
substitute is offered, can make statements, too. But I withhold. I see 
the Senator is seeking recognition.
  Mr. ALLARD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Colorado.
  Mr. ALLARD. Mr. President, on this side I think we have at least two 
Members right now who want to be recognized to make opening statements. 
I request we go ahead and give them an opportunity to do that.
  Mr. HAGEL addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nebraska.
  Mr. HAGEL. Thank you, Mr. President.
  Mr. President, I rise today in support of S. 900, the Financial 
Services Modernization Act of 1999. As a member of the Senate Banking 
Committee, I am proud to have played a small role in writing this bill.
  America's financial services companies operate under a regulatory 
regime that dates back to the Great Depression. Our banks, insurance, 
and securities firms are bound by artificial barriers that do not 
recognize the current realities of the global marketplace. The reality 
is this: That the line separating these industries have been blurred by 
the evolution of new financial products and technology.
  Securities firms, insurance companies, and banks already affiliate 
with one another, because the marketplace demands it. However, these 
affiliations cannot lead to full and fair competition or the full 
potential benefits for consumers because of the Glass-Steagall Act and 
its legal barriers.
  Clearly, it is time for Congress to modernize U.S. financial service 
regulations and introduce full and open competition across the banking 
securities and insurance industries. S. 900 would accomplish that.
  Passage of this bill will benefit consumers in two basic ways: First, 
allowing competition among banks, securities firms, and insurance 
companies will lead to lower costs and higher savings for consumers. 
Second, this competition will strengthen our financial service firms 
that are integral to the health of the American economy.
  A 1995 Bureau of Economic Analysis report estimated that increased 
competition in the financial services industry would save consumers 
nearly $3 billion a year. I realize, Mr. President, that $3 billion may 
not seem to be a large figure around here, but in places such as 
Scottsbluff, NE, and other towns in my State that is real money.
  If we don't modernize our laws governing the delivery of financial 
services, then we will put our companies and our industries at a severe 
disadvantage in the global arena.
  Today, the United States is the world leader in financial services. 
We must not jeopardize this position through congressional inaction. 
Just as exports of manufactured goods and commodities have become 
increasingly important to the growth of our Nation's economy, so are 
our exports of financial services very important to our economy's 
growth.
  Our global position was strengthened by the conclusion of a historic 
financial services side agreement to the Uruguay Round of GATT. It is 
ironic that the United States pushed hard for this agreement to reduce 
barriers to competition abroad while our domestic market continues to 
operate under a 1930s regulatory regime. It is time to tear down 
barriers to competition in our domestic markets and ensure that our 
industries are able to continue to compete at home and abroad.
  The members of the Senate Banking Committee took a hard look at this 
important issue surrounding financial modernization. S. 900 balances 
the sense of urgency surrounding passage of financial services reform 
legislation with the need to ensure that the legislation responds to 
future marketplace dynamics and not just to today's realities and 
political pressures.
  Is this legislation perfect? No, it is not perfect. There are far too 
many competing and important interests involved in this legislation. 
And perfection means different things to different people. But this 
bill does achieve a very workable and relevant and realistic balance 
between the politics of financial modernization and sound public 
policy.
  Some of my colleagues have alleged that this bill is only going to 
help large financial institutions and will not help small banks. This 
is not true. S. 900 includes some very important changes, for example, 
to the Federal home loan bank system. These changes are very important 
to small banks everywhere across this country, not just in the rural 
States, such as my State of Nebraska, but in urban communities and 
large cities as well.
  The Federal home loan bank provisions in S. 900 will strengthen local 
community banks that are vital to the economic growth and viability of 
all communities. They will ensure that in an era of banking 
megamergers, smaller banks are able to compete effectively and continue 
to serve their customers' lending needs.
  These provisions are supported by all of the major banking trade 
organizations. There are many specific dynamics to improving the 
marketplace and the ability for the small institutions to compete. Many 
of my colleagues this afternoon have detailed those changes rather 
well.
  It is important, Mr. President, to modernize our financial service 
laws to ensure that our companies can compete in this new global 
marketplace. As barriers to trade come down, our financial service 
firms must be prepared to take advantage of new global opportunities.
  Congress can help them prepare by giving them the flexibility they so 
desperately need. S. 900 provides this flexibility. I urge my 
colleagues to support its speedy passage.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. Mr. President, I am not a member of the Banking 
Committee, although I have served there from time to time. I don't have 
an opening statement in the normal sense of the word because I don't 
intend to address the specific provisions in the bill, but rather to 
say to those who are on the committee, and in particular the chairman 
of the committee, Senator Gramm, while many may not understand and 
appreciate the significance of the banking and financing institutions 
of the United States, and some may even come to the floor, as my good 
friend, Senator Wellstone, and talk about when we might get on to some 
business in the Senate that really helps people, that prompted me to 
come down and talk about something that I think is very, very people-
oriented.
  As a matter of fact, I have given a number of talks to fellow 
Americans. When I have asked, what do you think is the most significant 
thing institutionally about the United States that contributes to the 
opportunities we have in our daily lives to live better lives? Then I 
answer for them and say, it is the financing system in the United 
States.
  There is no doubt about what helps the average man buy a car, buy a 
house, make renovations to his house, perhaps even buy a second cabin, 
or a second car for his children, those things which, when added up, 
make America the most prosperous Nation on Earth, the country that has 
people with more material wealth--if that is what measures the validity 
of a society--than any other nation in the world. It is that we can 
finance purchases. We can finance what we buy, we can pay for it over 
time, and of late we are getting the interest rates down where they 
ought to be, as low as possible.
  This is the best thing for Americans in their day-by-day life which 
permits them to use their salary and their earnings in a way that will 
let them spread out the costs of items that they

[[Page 8207]]

need over a period of time, with a reasonable and rational finance 
plan.
  It is absolutely important that from time to time, even though in the 
Congress we don't like to legislate items like a brand-new banking and 
finance bill--it is tedious for some, it is difficult, and for many it 
doesn't even seem like anything exciting we ought to be doing in the 
Senate. However, realizing what it does for our people, it ought to be 
full speed ahead to get to the floor with a good bill to modernize the 
banking and financing system of this country.
  Earlier in our history, almost everything was financed through banks 
and the type of institutions that are principally the subject matter of 
this bill. Because we didn't modernize the system soon enough, 
financing is done in various ways--perhaps there is more financing done 
outside the banking system than there is in the banking system per se. 
Insurance companies do financing; companies that are big enough do 
their own financing of appliances; clearly, institutions that are not 
banks and not subject to banking rules or financing purchases.
  When it comes to measuring a country's long-term success and the 
international markets and the day-by-day availability of good credit 
and soundness of our economy, we have to always look to the banking 
system. As a matter of fact, just think a moment of the past 3 years 
when things have gone wrong in other countries, when some of these 
countries went almost totally bankrupt. What led such failures? It was 
frequently led by the failure of their banking system. That should say 
something when we see that all around us.
  Why is the country of Japan, that many people 15 years ago said we 
should mimic--obviously we don't choose to speak that way today; I 
never spoke about it even 15 years ago--what has happened to Japan 
today? They don't want to face up to the fact their financing 
institutions are in a state of chaos, if not bankruptcy. It is tough 
for them to admit.
  We didn't want to admit it when our savings and loans were going 
bankrupt. We didn't want to come up with the money it took to bail out 
the depositors who were guaranteed their money, up to $100,000, who 
financed the S&L banking system in the United States, but we finally 
did it. We saved it. We spent a lot of money doing it.
  In a very real sense, those who are managing this bill, including my 
good friend from Maryland, Senator Sarbanes, and obviously the 
chairman, who I have already mentioned, are contributing a very vital 
quality to American life by trying to modernize the financial and 
banking system of the United States.
  As my good friend from Nebraska said, what we have is too old, too 
ancient. It is not modern. It is not taking care of modern problems. It 
is not helping banks grow in a way they can and should to be modern 
institutions of financing.
  I commend and laud those on the committee who have worked hard. I 
hope even with our differences we will get a bill. I read a letter from 
the President saying if certain things are in the bill, he will veto 
it. This letter was directed to the distinguished chairman, Senator 
Gramm. We know the executive branch has a couple of strong feelings 
about this bill; perhaps the Senate has equally strong feelings about 
the same items.
  On the other hand, I believe when we are finished and go to 
conference and work this through with the House and with the 
administration in an effort to get a bill that is sound, reform-minded, 
modern and yet protects certain interests that the banking system is 
currently helping and protecting, we will get a bill. The opportunity 
doesn't come very often for Congress to reform a significant portion of 
our capitalist system.
  I will make one other observation. For anyone who doesn't think 
capital--which is the substance of banks--isn't important to a 
capitalist society, let me suggest that the last 3 years ought to prove 
it up in America in spades. While many economies in the world were in a 
state of bankruptcy, couldn't buy our goods and were having great 
economic difficulty, what happened to America? Our consumers bought 
more rather than less. Interest rates went down rather than up. There 
was more money for almost any venture desired because the banking 
system in our country was the greatest safe haven for capital that the 
world has ever seen. That meant anyone with extra money sent it here. 
Thus, that money was available to finance purchases in America, bring 
interest rates down rather than up.
  The question is, What will happen when the world economy goes the 
other direction? Frankly, we ought to have a modernized banking system 
when that occurs. It is predicted that America's prosperity may turn a 
little bit in the wrong direction within 3 to 5 years. If it lasts 5 
years, it will be astronomical in terms of a previous growth period. We 
have learned that the availability of a lot of capital in a capitalist 
system such as ours can make this economy grow and prosper in a way we 
had never quite figured out until we became almost totally dependent 
upon that.
  There are signs all over the place that this great opportunistic land 
of ours needs a good, sound, solvent, and modern banking system. I came 
down to make sure those listening understand this is not a bill for 
bankers. This is not a bill for rich people. This is a bill to let a 
banking and finance system work for Americans--whether they are 
financing a home, whether they are moderate-income people, whether they 
are financing an education for their kids, whatever it may be. We have 
to have a sound set of financial rules in America for Americans to grow 
and prosper.
  American business needs to borrow money, and clearly a banking system 
has to be ready and able to do that for the American business people 
here and abroad. It cannot be done with a system that is hog tied with 
ancient rules and regulations that don't meet today's times.
  The PRESIDING OFFICER. The Senator from Colorado.
  Mr. ALLARD. I thank both my Republican colleagues for great 
statements. I think the Senator from New Mexico reminded us of the 
successes of our banking system and how we should appreciate it. I 
think he made a very good statement. My colleague from Nebraska, who is 
working real hard on the Banking Committee with the chairman and all 
members on the Banking Committee, I appreciate his effort and help on 
these very important issues. He has contributed considerably to this 
legislation.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maryland.


                           Amendment No. 302

  Mr. SARBANES. Mr. President, pursuant to the order that is governing 
our consideration of this bill, at least currently, I send an amendment 
in the nature of a substitute to the desk and ask for its immediate 
consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Maryland [Mr. Sarbanes], for Mr. Daschle, 
     for himself, Mr. Sarbanes, Mr. Dodd, Mr. Kerry, Mr. Bryan, 
     Mr. Johnson, Mr. Reed, Mr. Schumer, Mr. Bayh and Mr. Edwards 
     proposes an amendment numbered 302.

  Mr. SARBANES. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (The text of the amendment is printed in today's Record under 
``Amendments Submitted.'')
  The PRESIDING OFFICER (Mr. Smith of Oregon). The Senator from 
Maryland.
  Mr. SARBANES. Mr. President, as I have indicated earlier in the 
course of the opening debate on this issue, we are very anxious on our 
side to have financial service modernization legislation, and most of 
us subscribe to the proposition of allowing affiliations between banks, 
security firms, and insurance companies.
  However, as I have indicated, that is not the only issue before us. 
We have to consider that question in the context of addressing 
important questions

[[Page 8208]]

of providing credit in all communities in our country; namely, the 
Community Reinvestment Act issue. We have to consider how these 
activities are to be done, whether they are to be done solely in an 
affiliate, outside of the banking structure, or whether banks will have 
the opportunity either to use the affiliate or to do it in an operating 
subsidiary. We have the important issue of the long historical 
separation between banking and commerce, which has prevailed in this 
country. And we have other aspects of the legislation which I think are 
of importance, including important provisions with respect to consumer 
protection.
  As we have indicated earlier, we were not able to support this 
legislation in the committee and the legislation was brought to the 
floor on an 11-to-9 vote. The alternative, which we have now offered, 
just offered, and which is at the desk, is, in effect, the bill that 
the committee reported last year on a 16-to-2 vote with the one 
substantial change of providing for the operating subsidiary approach. 
That is now contained in the alternative, the substitute amendment 
which I have sent to the desk.
  Last year some very careful compromises were worked out in order to 
move this legislation forward on a consensus basis. Unfortunately, that 
has not been the case this year, and the legislation that was developed 
in the committee was reported by the majority but contained no 
supporting vote from any of the Democratic members of the committee. 
The proposal before us, S. 900, the bill from the committee, is 
strongly opposed by a great number of civil rights groups, community 
groups, consumer organizations, and local government officials. People 
within the financial services industry have mixed views on some of the 
provisions of S. 900, and of course the President has indicated that he 
will veto the committee bill.
  Unfortunately, we have this sharp contrast with last year's 
bipartisan approach. I think it is fair to say that none of the 
industry association groups oppose the substitute. They have been 
caught in the switches, so to speak, on this issue, and subjected to 
considerable persuasion. But I think it is fair to say that the 
provisions that are in the substitute will pass muster. These 
provisions also are fairly close to what the House Banking Committee 
has done by a 51-to-8 bipartisan vote. So we think the approach 
contained in the substitute just sent to the desk stands the greatest 
chance of finally being enacted into law. This substitute amendment, in 
effect, would put us on a path, at the end of which we could obtain the 
President's signature and get legislation.
  Let me briefly seek to contrast the substitute and S. 900, the bill 
brought from the committee. It should be clearly understood that there 
is an intense view on this side of the aisle, and I believe shared by 
at least a few on the other side of the aisle, that the Community 
Reinvestment Act has really been a very significant and constructive 
public policy. It has improved the availability of credit in low- and 
moderate-income communities. There is example after example, and we 
will put those in the Record as this debate develops, where the CRA 
lending and investments have brought life to previously neglected 
communities and given people not only hope, but the ability to move up 
the American ladder of opportunity. It has helped to alleviate credit 
needs and improve services in rural areas and on Native American 
reservations. It has had a significant impact on home ownership amongst 
minority groups, African Americans and Hispanic Americans, whose 
numbers in terms of home ownership have increased dramatically, and 
everyone who goes and observes that phenomenon reports back that the 
CRA has had a considerable role to play in that very important 
objective.
  The President has stated:

       [W]e should all be proud of what [CRA] has meant for low 
     and moderate-income Americans of all races. Although we still 
     have a long way to go in bringing all Americans into the 
     economic mainstream, under CRA the private sector has pumped 
     billions of dollars of credit to build housing, create jobs 
     and restore hope in communities left behind.

  It is for this reason that farm groups, labor unions, mayors all 
across the country, community development corporations, Hispanic 
organizations, Asian American, Native American--this has had a 
significant impact on the Indian reservations across the country--and 
civil rights groups all support retaining the effectiveness of CRA.
  I will include in the Record at the end of my remarks letters from 
these various organizations detailing their very strong view about CRA, 
and in effect their support for this substitute.
  The substitute requires that banks should have at least a 
satisfactory CRA rating before they can affiliate with securities and 
insurance firms, and that they would have to maintain that rating to 
continue the new affiliation. These provisions are essential in order 
to maintain the effectiveness of CRA within the expanded holding 
company structure. Capital, management, and CRA performance are at 
issue when an institution files an application for deposit insurance, a 
charter, a merger, an acquisition or other corporate reorganization, a 
branch or the relocation of a home office or branch.
  If you are going to allow banks for the first time in a comprehensive 
way to engage in insurance and securities activities, then it is 
important that those banks, before they can do that, meet the CRA test. 
Otherwise, you are going to have a situation in which financial 
institutions could enter into additional activities, even if they were 
deficient in their CRA performance.
  As the FDIC Chairman, Donna Tanoue stated:

       The bank and thrift regulatory agencies consistently take 
     into account an insured institution's record of performance 
     under CRA when considering an application to open or relocate 
     a branch, a main office, or acquire or merge with another 
     institution. As this legislation would enable institutions to 
     enter into additional activities, it would seem consistent 
     that CRA compliance should continue to be a determining 
     factor.

  Last year, we worked out these CRA provisions in the bill that was 
reported out of the committee. And the consensus, a 16-2 vote, 
contained these important CRA provisions.
  This year, the provision requiring a satisfactory rating as a 
precondition of expanded affiliations is absent from the committee-
reported bill. There are two provisions in the committee-reported bill 
which we feel very strongly contribute to undermining the application 
of CRA.
  This substitute amendment, unlike the committee bill, requires banks 
have and maintain satisfactory CRA ratings in order to engage in and 
maintain expanded affiliations. To fail to do so would allow banks, for 
the first time, to move out in terms of the activities they can engage 
in, in a comprehensive way--both securities and insurance--without the 
bank that is going to do that having to meet the CRA test.
  It does not apply, the CRA, to the insurance and securities 
activities, although many CRA advocates want to do exactly that. It 
only requires that the bank, as a condition of affiliation, meet the 
CRA performance standards.
  As Secretary Rubin has stated:

       If we wish to preserve the relevance of CRA at a time when 
     the relative importance of bank mergers may decline and the 
     establishment of non-bank financial services will become 
     increasingly important, the authority to engage in newly 
     authorized activities should be connected to a satisfactory 
     CRA performance.

  Let me turn to the other CRA issues that are, in effect, posed by the 
substitute as compared to the committee-reported bill.
  The second provision of the committee bill that weakens CRA is its 
safe harbor for banks with a ``satisfactory'' or better CRA rating. 
This is, banks would be deemed in compliance with CRA if they had in 
each of their three preceding examinations received a satisfactory 
rating. Groups, in fact, would not be able to comment about CRA 
performance unless they could carry the very heavy burden of providing 
substantial, verifiable information to the contrary.
  The Federal bank regulatory agencies oppose this provision. They 
agree that a satisfactory CRA rating is not conclusive evidence that a 
bank is

[[Page 8209]]

meeting the credit needs of all of its communities. On the contrary, 
they welcome comments from the public regarding the CRA performance of 
the institutions they supervise.
  For example, Ellen Seidman, Director of the Office of Supervision 
said:

       [w]e generally find that the information received from 
     those few who do comment on applications is relevant, 
     constructive, and thoughtful, and frequently raise issues 
     that need to be considered. In order for us to reach a 
     supportable disposition on an application, and satisfy our 
     statutory responsibilities, we need to have public input.

  Public comment is especially useful in the case of large banks 
serving multiple markets, because regulators sample only a portion of 
these markets to determine the institution's CRA rating. Public comment 
provides an opportunity for community members to point out facts and 
data that may have been overlooked in a particular examination.
  In fact, the provision that is in the committee bill would preclude 
looking at anything that took place prior to the past examinations if 
those examinations produced a satisfactory rating.
  It is very clear that this safe harbor provision of the committee 
bill would stifle public comment on banks' and thrifts' CRA 
performance. This is so because nearly all banks and thrifts receive 
satisfactory or better CRA ratings, well up into the 90s, 90-percentile 
figures.
  The committee majority asserts that the public comment process has 
been routinely abused, but that assertion is not supported by the 
record. We get these sort of examples that are brought in. There has 
never been a full-scale hearing on this issue. All of the statistical 
information from the regulatory agencies indicate that there has not 
been abuse of the public comment process. The vast majority of 
applications reviewed on CRA grounds are approved in a timely manner. 
Many do not receive any adverse comments. Very few applications that 
receive adverse CRA comments are delayed.
  The substantial, verifiable information would really knock community 
groups and ordinary citizens out of being able to comment in any 
meaningful way. As the FDIC Chairman Tanoue stated, ``Public comments 
relating to CRA should not bear a burden of proof that is not imposed 
on public comment related to any other aspect of a bank's 
performance.''
  The regulators take in all these comments and then they make their 
judgment. There seems to be a presumption here that when people come in 
and make a comment that somehow they then carry the day. Nothing could 
be further from the truth. The regulators collate all these comments, 
consider them, and proceed to make their judgment. And the number of 
instances in which CRA has been raised is a very small percentage of 
the total.
  The third way in which the committee bill attacks CRA is the 
exemption for rural institutions with less than $100 million in assets. 
This would obviously have very severe consequences for low- and 
moderate-income rural communities which depend heavily on small banks 
for their credit needs.
  It is asserted that these small banks, by their nature, serve the 
credit needs of their local communities. However, historically, in the 
ratings made by the regulators, small banks have received the lowest 
CRA ratings. Although many small banks do serve the needs of their 
communities, observers note that some small banks often invest in 
Treasury bonds rather than in their own communities.
  Some have argued that you need an exemption in order to relieve the 
regulatory burden. The fact of the matter is, as the Federal bank 
regulators revised the CRA regulations in 1995 to reduce the cost of 
compliance for small banks, the new rules provided a streamlined 
examination for small banks. They exempted small banks from reporting 
requirements. And they emphasized the institution's actual performance 
rather than paperwork.
  The FDIC, the OTS, and the OCC support the application of CRA to 
small banks. FDIC Chairman Tanoue stated:

       Although the vast majority of institutions satisfactorily 
     help to meet the credit needs of their communities, not all 
     institutions may do so over time, including small 
     institutions. Some institutions may unreasonably lend outside 
     of their communities, or arbitrarily exclude low- and 
     moderate-income areas or individuals within their 
     communities. We believe that periodic CRA examinations for 
     all insured depository institutions, regardless of asset-
     size, are an effective means to ensure that institutions help 
     to meet the credit needs of their entire communities, 
     including low- and moderate-income areas.

  Before I turn to that subject, let me again stress how critical the 
flow of credit, which has resulted from CRA, has been to the 
redevelopment of low- and moderate-income areas. The bill brought out 
of the committee, S. 900, would really close down opportunity for large 
numbers of people in these low- and moderate-income communities to 
really improve themselves, to move to home ownership, to open small 
businesses, to carry out the sort of community renewal which gives them 
a better neighborhood in which to live.

  I have heard these assertions, but we can take you through instance 
after instance in which the impact of CRA has been such as to provide 
hope to communities and to lift them up and to enable people to move up 
the ladder of opportunity. I do not know what could be more consistent 
with an American goal or objective than to give people this opportunity 
to advance. And particularly the financial institutions, which are 
subject to these CRA requirements, are prepared to abide by them. Many 
of them have given testimony about the beneficial impact it has had on 
the community and the beneficial impact on their relationship with the 
community.
  Let me turn to the banking and commerce issue. Another aspect of the 
committee bill--and this is an important part of the substitute--that 
differs significantly from the substitute amendment is its approach to 
the separation of banking and commerce. In an important respect, the 
committee bill breaches the separation of banking and commerce, and 
this could lead to biased lending decisions and may well ultimately put 
the taxpayer-backed deposit insurance funds at risk.
  Now, this separation of banking and commerce is a longstanding 
principle in American law, dating back over now almost 140 years to the 
National Bank Act of 1864, which specifically forbids banks to engage 
in or invest in commercial or industrial activities. Under existing 
law, a commercial firm, such as General Motors or Microsoft, may not 
own a bank or be owned by a bank. We have tried to draw a line there. 
There has been some fuzzing of that line, but not much.
  In 1956, the Congress enacted the Bank Holding Company Act, which 
prohibited commercial firms from owning banks and prohibited holding 
companies owning two or more banks from owning commercial firms. This 
policy was strengthened by the Bank Holding Company Act Amendments of 
1970, which extended the prohibition on owning commercial firms to 
holding companies owning just one bank. In other words, it drew a very 
sharp line.
  In submitting the 1970 amendments, President Nixon said:

       The strength of our banking system depends largely on its 
     independence. Banking must not dominate commerce or be 
     dominated by it.

  Now, why do we have this principle of separating banking and commerce 
in U.S. law? Because allowing banks to affiliate with commercial firms 
raises concerns relating to risk to the deposit insurance fund, the 
impartial granting of credit, unfair competition, and concentration of 
economic power. A bank affiliated with a commercial firm would have an 
incentive to make loans to that firm, even if the firm were less 
creditworthy than other borrowers. The bank would have a similar 
incentive not to lend to the firm's competitors, even if they were 
creditworthy.
  Financial experts have pointed out these dangers. Secretary Rubin 
testified that mixing banking and commerce:

       . . . might pose additional, unforeseen and undue risk to 
     the safety and soundness of the financial system, potentially 
     exposing the federal deposit Insurance funds and taxpayers to 
     substantial losses. . . . Equally uncertain is the effect 
     such combinations might have on the cost and availability of

[[Page 8210]]

     credit to numerous diverse borrowers and on the concentration 
     of economic resources.

  The leading economist Henry Kaufman warned that mixing banking and 
commerce would lead to conflicts of interest and unfair competition in 
the allocation of credit. In his view:

       . . . a large corporation that controls a big bank would 
     use the bank for extending credit to those who can benefit 
     the whole organization. . . . The bank would be inclined to 
     withhold credit from those who are or could be competitors to 
     the parent corporation. Thus, the cornerstone of effective 
     banking, independent credit decisions based on objective 
     evaluation of creditworthiness, would be undermined.

  Public interest groups have made the same point. Consumers Union 
testified that it opposes:

       . . . permitting federally-insured institutions to combine 
     with commercial interests because of the potential to skew 
     the availability of credit, conflict of interest issues, and 
     general safety and soundness concerns from expanding the 
     safety net provided by the government.

  The difficulties experienced in Asia demonstrate the risks associated 
with mixing banking and commerce. Both Secretary Rubin and Chairman 
Greenspan testified that the financial crisis in Asia was made worse by 
imprudent lending by banks to affiliated commercial firms. In other 
words, if you cross that line and put the commercial firm in the bank--
as it were, in the same pot--you run a heavy risk, as was exemplified 
in the Asian financial crisis, of imprudent lending.
  Former Federal Reserve Chairman Paul Volcker wrote, recent experience 
with the banking crises in countries as different in their stages of 
development as Japan, Indonesia and Russia demonstrate the folly of 
permitting industrial financial conglomerates to dominate financial 
markets in potentially large areas of the economy.
  The substitute amendment tries to sustain this line between banking 
and commerce. The committee bill crosses this line in a number of 
respects.
  First of all, it permits bank affiliates to acquire any type of 
company in connection with merchant banking activities. However, the 
committee bill drops certain safeguards that are in the substitute and 
that were in last year's bipartisan bill. Those safeguards allowed 
merchant banking investment to be held only for such period of time as 
would permit the sale of the investment on a reasonable basis. It 
precluded the bank affiliate from actively participating in the day-to-
day management of the company.
  The committee bill drops those safeguards. In effect, it would allow 
a bank holding company to operate commercial companies of any size and 
in any industry for an unlimited period of time. This would break down 
the separation of banking and commerce.
  The substitute restores the safeguards that were in last year's bill.
  Secondly, both the committee bill and the substitute amendment allow 
holding companies that own banks to engage in activities that are 
financial in nature or incidental to such financial activities. But the 
committee bill goes further by authorizing holding companies to engage 
in activities that are complementary activities that are financial in 
nature. It provides no definition or limitation of these complementary 
activities and, therefore, raises the danger that these complementary 
activities would be commercial in nature and cross the separation 
between banking and commerce. The substitute does not permit those 
complementary activities.
  Finally, the committee bill does not close the unitary thrift company 
loophole. That loophole refers to the fact that a company that owns 
just one thrift, called a unitary thrift holding company, may also own 
a commercial firm. There are currently over 500 thrifts owned by 
unitary holding companies. The vast majority of these are owned by 
financial firms. Now, both the committee bill and the substitute would 
prohibit the creation of new unitary thrift holding companies by 
commercial firms. However, there is a sharp difference in that the 
committee bill would allow a commercial company to acquire any of the 
500 existing unitary thrift holding companies.
  Now, obviously, if they can do that, if hundreds of commercial firms, 
in effect, can acquire a unitary thrift holding company, they can 
effectively obliterate the separation between banking and commerce. 
Financial leaders and banking industry groups advise the committee to 
prohibit commercial firms from acquiring control of thrifts. Chairman 
Greenspan recommended that financial services modernization legislation 
at least prohibit, or significantly restrict, the ability of 
grandfather unitary thrift holding companies to transfer their 
legislatively created grandfather rights to another commercial 
organization.
  Secretary Rubin observed that, ``without such a limit on 
transferability, existing charters may tend to migrate to commercial 
firms and could become a significant exception to the general 
prohibition against commercial ownership of depository institutions.''
  Both the ABA and IBAA--the American Bankers Association and the 
Independent Bankers Association of America--wrote to Senators yesterday 
expressing their support for closing the unitary thrift holding company 
provision, including restricting transferability of existing unitaries.
  Now, let me turn briefly to some important consumer protection 
provisions that are in the substitute amendment, but that are not in 
the committee bill, and which we think make the substitute more 
desirable legislation than the committee bill.
  Obviously, if you are going to have a financial services 
modernization bill, you must ensure adequate consumer protection. We 
need to be sure that consumer protections keep pace with changes taking 
place in the financial market. In recent years, banking securities and 
insurance products have become more similar. A wider variety of 
financial products is available through banks. This increases potential 
customer confusion about the risks of the product the customer is 
buying, who is selling it, and whether or not it is insured by the 
FDIC. Measures such as disclosure to customers and licensing of 
personnel can help keep such misunderstandings to a minimum, and such a 
provision should be included in any financial services modernization 
bill.
  Unfortunately, the committee bill fails to include a number of 
important consumer protection provisions that passed the committee 
overwhelmingly last year, and which we have now included in the 
substitute that is now before the body.
  Very quickly, on insurance sales, while some of the provisions of 
last year's bill relating to insurance sales have been substituted into 
the committee bill--that was done in the committee--but more remains to 
be done. The substitute amendment would require Federal bank regulators 
to establish mechanisms for receiving and addressing consumer 
complaints--something that is completely absent in the committee bill.
  The substitute amendment would provide that Federal regulations would 
supersede State regulations when the Federal regulations afforded 
greater protection for consumers. The committee bill allows State 
regulations to prevail even if it offers less protection to consumers.
  With respect to securities activities, the committee bill provides 
less protection for consumers than does the substitute amendment.
  Currently, banks enjoy a total exemption from the definitions of 
``broker,'' ``dealer'' and ``investment advisor'' under the Federal 
securities law. Because of this blanket exemption, consumers who 
purchase securities from banks do not receive any of the protections of 
the securities laws, which in many ways are superior to those offered 
by the banking laws. For example, broker-dealer personnel have an 
obligation to recommend to their clients only transactions that are 
suitable based on their client's tolerance for risk, overall portfolio, 
and so forth.
  Bank personnel have no such obligation. Broker-dealer personnel must 
pass licensing exams and are subject to continuing education 
requirements. Bank personnel are exempt from these requirements. 
Disciplinary histories of broker-dealer personnel are made publicly 
available to investors. No such

[[Page 8211]]

history is available regarding bank personnel. Broker-dealer managers 
have a duty to supervise their sales personnel, which is enforceable 
under the Federal securities laws. Bank managers do not.
  Finally, customer disputes with brokerage firms are subject to 
arbitration, which offers a specialized, quicker and cheaper forum for 
settling disputes. No arbitration exists for customer disputes with 
banks.
  Now, the committee bill, like the substitute amendment, would repeal 
the total exemption banks enjoy from the definition of broker and 
dealer. Also, like the substitute amendment, the committee bill 
contains a number of exceptions that allow certain securities 
activities to continue to take place directly within banks. However, 
the exceptions in the committee bill are significantly wider than those 
in the substitute amendment. Let me just mention some of those 
important differences.
  The committee bill allows a bank trust department conducting 
securities transactions to be compensated on a transaction-by-
transaction basis, just like a broker. Where the substitute amendment 
allows a bank to sell unregistered securities exclusively to 
sophisticated investors, the committee bill allows a bank to sell 
unregistered securities to all investors.
  Finally, the committee bill prohibits the SEC from determining that a 
new product is a security and, therefore, must be sold by an SEC-
registered broker-dealer, unless the Federal Reserve concurs. Over 
time, this will move even more securities activities directly into 
banks. The substitute amendment would afford the SEC the first 
opportunity to define new products as securities.
  The committee bill also leaves the SEC with less authority over bank-
advised mutual funds and with less ability to protect investors in 
those funds.
  Now, the substitute amendment requires the Federal banking regulators 
to issue regulations regarding the sale of securities by banks and bank 
affiliates. The bank regulators would have established mechanisms to 
review and address consumer complaints. The committee bill does not 
include this provision.
  No one of these provisions that I made reference to may seem to be of 
major import. But all of them taken together, I think, indicate that 
the protections for consumers that are contained in the substitute 
amendment significantly exceed those that are in the committee-reported 
bill.
  Another area in which the committee bill departs from last year's 
agreement regards a special deposit insurance assessment paid by 
thrifts.
  Prior to 1996, thrifts paid a higher assessment rate than banks did 
for interest payments on certain bonds issued to pay for the resolution 
of the savings and loan crisis, so-called ``FICO bonds.'' In 1996, 
Congress acted to close this assessment differential on FICO bonds. The 
rates were to be equalized until January 1, 2000, and the bill that we 
reported last year left the 1996 agreement intact. The committee bill 
now before us would extend this assessment differential for another 3 
years, so that thrifts would continue to pay a higher assessment rate 
for another 3 years.
  This may well lead institutions to shift their deposits from the 
thrift insurance fund to the bank insurance fund, which might well 
create stability problems for the thrift insurance fund.
  Chairman Tanoue has written that this provision serves no positive 
public policy purpose. And it is not in the substitute amendment that 
is now before us.
  Let me now turn to an issue in which my colleague, the chairman of 
the committee, has spent a considerable amount of time here on the 
floor today in pointing out the differences between the substitute that 
is now before us and the committee bill.
  All of these provisions I have thus far enumerated were essentially 
contained in the bill that was reported last year by the committee on a 
16-to-2 vote. The one area in which the substitute amendment differs 
from last year's bipartisan bill is its treatment of operating 
subsidiaries and banks.
  Last year's bill contemplated that principal activities, such as 
underwriting securities and insurance, would take place in a holding 
company's subsidiary rather than bank subsidiaries. Certain agency 
activities such as sales of insurance were permitted in bank 
subsidiaries.
  This approach was supported by the Federal Reserve. It was opposed by 
the Treasury Department. That was an important difference last year. It 
remains an important difference this year.
  As the legislative process has proceeded, the Treasury Department has 
agreed to significant additional safeguards regarding the scope and 
regulation of bank subsidiaries' activities. With these safeguards, it 
appeared to us that banks should be given the option of conducting 
financial activities in operating subsidiaries. That approach is 
contained in the substitute amendment now before the Chamber.
  President Clinton has indicated that he will veto the reported bill 
in part because ``it would deny financial services firms the freedom to 
organize themselves in a way that best serves their customers.''
  Let me talk a bit about the safeguards, the changes in the sense that 
the Treasury has agreed to, which I think now warrant allowing the 
banking institution to have a choice. They wouldn't be required to do 
it in an op-sub. They could still do it in an affiliate. They could 
have a choice between the two as a matter of their own organizational 
preference.
  Last year, the Treasury was clear that they would not do real estate 
in the operating-sub. And they continue to hold to that position this 
year. In addition, the Treasury last year agreed that insurance 
underwriting may not take place in a bank subsidiary. This prohibition 
on insurance underwriting would be in addition to an explicit 
prohibition on real estate development conducted by bank subsidiaries 
to which the Treasury agreed last year. So we have these two areas now 
that were provided for and placed outside of the op-sub umbrella.
  On merchant banking, the Treasury has agreed that the Federal Reserve 
shall have the authority to define merchant banking activities and bank 
subsidiaries. This meaningful step on the part of the Treasury will 
contribute to bank subsidiary activities being structured in a prudent 
fashion.
  Merchant banking presents a potential breach in the separation of 
banking and commerce. The possible dangers would be increased if two 
different regulators were to define separately the dimensions of 
permissible merchant banking activities. Then to avoid the possibility 
that would happen--that the dimensions of the permissible merchant 
banking activities would be defined by two different regulators who 
would have different concepts--in the substitute, we have the provision 
that the Federal Reserve would have the exclusive authority to define 
merchant banking activities and bank subsidiaries.
  The Treasury has also agreed that the Secretary and the Federal 
Reserve should jointly determine which activities are financial in 
nature, both for a holding company subsidiary and for a bank 
subsidiary. Both the Secretary and the Federal Reserve would jointly 
issue regulations and interpretations under ``the financial in nature'' 
standard. This would eliminate a potential competition between bank 
regulators.
  Further, to place activities on an equal footing, the same conditions 
would apply to a national bank seeking to exercise expanded affiliation 
through a subsidiary as a holding company seeking to exercise those 
affiliations. These conditions are that banks be well capitalized, well 
managed, and in compliance with CRA.
  The Treasury also supports the application of the functional 
regulation of securities and insurance activities taking place in bank 
subsidiaries just as it applies to holding company subsidiaries.
  These provisions are all reflected in the substitute amendment.
  In addition, the Treasury supports a requirement that national banks 
with total assets of $10 billion or more retain a holding company, even 
if they choose to engage in expanded financial

[[Page 8212]]

activities through subsidiaries. This is designed to preserve the 
oversight that the Federal Reserve now has over the Nation's largest 
commercial banks through their holding company. So this was an effort 
by the Treasury to accommodate one of the concerns that had been 
repeatedly expressed by the Federal Reserve.
  Furthermore, the substitute amendment contains certain additional 
safeguards that the Treasury Department now supports for financial 
services modernization legislation. Every dollar of a bank's investment 
in a subsidiary would be deducted from the bank's capital for 
regulatory purposes. In this way, the bank would have to remain well 
capitalized, even after deducting the investment in the subsidiary, and 
even should it lose its entire investment.
  Secondly, a bank could not invest in a subsidiary in an amount 
exceeding the amount the bank would pay to a holding company as a 
dividend.
  And, thirdly, the strict limits that now apply to transactions 
between banks and their affiliates would apply to transactions between 
banks and their subsidiaries.
  These restrict extensions of credit from banks to their affiliates 
guaranteed by banks for the benefit of their affiliates and purchases 
of assets by banks from their affiliates. All such transactions must be 
at arm's length, and fully collateralized, and the total amount of such 
transactions between a bank and all of the affiliates is limited.
  In total, these safeguards pertaining to the regulation of bank 
subsidiaries should eliminate any economic benefit that may exist when 
activities are conducted in bank subsidiaries rather than holding 
company subsidiaries.
  The provisions regarding the scope of activities permitted for bank 
subsidiaries should remove any opportunity for regulators to compete 
with one another to the detriment of the safety and soundness of the 
banking system, or the separation of banking and commerce.
  FDIC Chairman Tanoue testified:

       From a safety-and-soundness perspective, both the bank 
     operating subsidiary and the holding company affiliate 
     structures can provide adequate protection to the insured 
     depository institution from the direct and indirect effects 
     of losses in nonbank subsidiaries or affiliates.

  This position of the current FDIC Chairman was echoed by three former 
Chairmen of the FDIC in an editorial that I printed earlier in the 
remarks.

       On the basis of the provisions agreed to by the Treasury 
     Department and the testimony given by the FDIC--

  And I want to underscore the efforts on the part of the Treasury 
Department to address questions that had been raised last year; in 
other words, what we are containing in the substitute differs from what 
the Treasury was putting forward last year and has encompassed all of 
these various safeguards which they have sought to develop--

       [it was our judgment that] permitting bank operating 
     subsidiaries can be consistent with the goals of preserving 
     safety and soundness, protecting consumers, and promoting 
     comparable regulation.

  Therefore, we have included the operating subsidiary provisions in 
this substitute amendment and regard it as a meaningful step toward 
enactment of financial services modernization legislation.
  Let me simply close with these observations. The substitute amendment 
now before the body achieves the primary objective of financial 
services modernization; namely, allowing affiliation of banks, 
securities firms, and insurance companies. It does so while preserving 
safety and soundness, protecting consumers, providing for regulatory 
parity, and promoting the availability of financial services to all 
communities.
  The committee bill, S. 900, falls short of these goals. It undermines 
the Community Reinvestment Act. It does not provide bank operating 
subsidiaries with the scope sought by the Treasury Department. Its 
protections for consumers are substantially less than in the 
substitute. And, finally, it enables the separation of banking and 
commerce to be breached with respect to the unitary thrift holding 
companies.
  For all of these reasons, the President has declared he will veto it 
in its current form. I believe that the substitute amendment, the one 
that is now before the Senate and on which at the conclusion of this 
debate we will vote, represents a balanced, prudent approach to 
financial services modernization. It is legislation which has broad 
acceptance within the industry. In many ways, it is comparable to the 
activities of the legislation of the House Banking Committee.
  I am frank to say that I clearly think it is the approach most likely 
to achieve the enactment of financial services modernization 
legislation. If Members want financial services modernization 
legislation, if Members want to manufacture a legislative vehicle that 
can go all the way through to Presidential signature and become law, 
then Members should vote for the substitute amendment.
  I yield the floor.
  Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative assistant proceeded to call the roll.
  Mr. GRAMM. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRAMM. Mr. President, let me talk about simplicity and clarity in 
the two bills. I know that seldom in writing laws do we hear lawmakers 
talk about what makes sense and what is simple and what is readable.
  I begin by asking people to look at the bill adopted by the Senate 
Banking Committee modernizing financial services. That bill is 150 
pages long. The substitute which has been offered by Senator Sarbanes 
is 349 pages long. Members might ask, What is the extra 200 pages for? 
The extra 200 pages is for a convoluted process that breaks the 
simplicity of the bill adopted by the Banking Committee.
  What is very good about our bill is, it is very easy to understand. 
If a securities firm wants to set up a bank holding company and engage 
in securities activities, banking activities, and insurance activities, 
it can set up a bank holding company, and outside the bank it can be 
involved in insurance and securities and it can be involved in banking 
under the bank holding company. It is a very simple organization. It is 
an organization that provides any one of the three financial industries 
to become bank holding companies and participate in providing a broad 
array of services, including banking services. And it is an 
organization that is very easy to understand. It is an organization 
that you can set out in 150 pages with all the whistles and bells and 
all the icing on the cake.
  The Sarbanes substitute is 200 pages more complicated, and it is more 
complicated because it goes about things in a very different way. You 
can have a bank holding company that can be in the banking business and 
in the securities business under the basic framework of the bank. You 
can have a financial services holding company, a totally new entity, 
and it can have an insurance company, a bank holding company, and a 
securities firm. And under the bank holding company, you can have a 
bank, and that bank can be in the securities business, and it creates 
another totally new entity, a wholesale financial holding company, and 
it can be in the insurance business, wholesale financial institution 
business, and securities firms. Finally, banks can be in the securities 
business.
  So the first argument I want to make is based on simplicity--not that 
anybody ever gauged a Federal law based on, ``Does it make sense, is it 
simple, could people actually employ it, what kind of roadmap is it for 
the development of new financial institutions in America?'' But the 
reason our bill can do what it sets out to do in 150 pages, and the 
reason the substitute takes 300 pages, is the underlying bill adopted 
by the Banking Committee has a simple structure that everybody can 
understand and that securities firms, banks, and insurance companies 
could all participate in. Under our bill, it is easy for any one of the 
three to set up a bank holding company.

[[Page 8213]]

  The substitute is a lot more complicated and brings in a lot of new 
institutions. It would be very hard, in terms of a user-friendly 
roadmap, as to how to do this. I do not know that sways anybody in the 
private sector or in any real world activity. But simplicity, and the 
sort of clear approach that people can follow--if they are buying a 
roadmap or if they are buying a computer program--is an important 
thing. Unfortunately, it is not something that is often mentioned in 
making the law of the land; but, quite frankly, it should be.
  I am going to try to take less time in responding than I did in my 
opening statement on this. I want to break the proposal into eight 
areas and discuss the proposal in that way. There are eight key ways 
that this substitute is fundamentally different from the bill which was 
adopted by the Banking Committee and which is before us.
  The first and most important difference is that the substitute before 
us--offered by Senator Sarbanes, which is different from the bill that 
Senator Sarbanes supported last year, different from the bill that was 
adopted by the Banking Committee last year, and far different from the 
bill that is before the Senate now--allows banks to engage in broad 
financial services within the legal framework of the bank.
  Alan Greenspan, the Chairman of the Board of Governors of the Federal 
Reserve, has said--and I want to read this quote because I think it is 
important. I think, No. 1, everybody in America takes Alan Greenspan 
seriously. Second, I want to remind people that the majority of the 
Governors of the Federal Reserve Board were appointed by this 
President, Bill Clinton. This is a statement that Chairman Greenspan 
made just last week before the House Commerce Committee in opposition 
to exactly the proposal which is the heart of the Sarbanes substitute. 
When Chairman Greenspan refers to ``colleagues,'' he means every member 
of the Federal Reserve Board, including those appointed by Bill 
Clinton:

       I and my colleagues are firmly convinced of the view that 
     the long-term stability of U.S. financial markets and the 
     interests of the American taxpayer would be better served by 
     no financial modernization bill rather than one that allows 
     the proposed new activities to be conducted by the bank. . . 
     .

  I want to be sure everybody understands this quote. It is as clear as 
you can be clear. The most respected economic mind in America, the man 
who more than any other person on this planet has been responsible for 
the financial stability that has created over 20 million jobs and 
enriched working Americans by driving up equity values and by creating 
unparalleled prosperity in America, said last week that he and every 
member of the Board of Governors of the Federal Reserve believe it 
would be better to have no financial services modernization bill than 
to adopt the Sarbanes substitute.
  That is pretty clear. I think it is a profound position to take. Let 
me make the point: Everybody who knows Alan Greenspan knows that Alan 
Greenspan goes out of his way not to be confrontational. Everybody who 
knows Chairman Greenspan knows that if there is a way of saying 
something around the barn, something which might be offensive to 
somebody, he sort of walks all the way around the barn and let's you 
understand--where you can hope nobody else understands--that he said 
your idea is a bad idea. That is the way Alan Greenspan works.
  But in front of God and everybody at the House Commerce Committee 
last week, Alan Greenspan said if the alternative is the Sarbanes 
substitute or no bill, he and every member of the Board of Governors of 
the Federal Reserve are convinced that ``no bill'' is better than the 
Sarbanes substitute.
  Why does he say this? In a dozen other quotes, he basically says two 
things: No. 1, since we have deposit insurance, where the taxpayer is 
on the hook for bank failures that threaten insured deposits, he is 
concerned that allowing banks to get into these other kinds of 
financial businesses within the framework of the bank itself endangers 
deposit insurance and threatens the taxpayer. So the first reason that 
Chairman Greenspan made this extraordinary statement--in fact, the 
strongest statement he has made as Chairman of the Board of Governors 
of the Federal Reserve--is concern about the insurance fund and the 
taxpayer being on the hook.
  The second concern is that if banks provide these expanded 
activities, such as securities and insurance or whatever activities are 
ultimately allowed within banks, the subsidy that banks have in deposit 
insurance--something no other institution has besides banks, S&Ls, and 
other institutions that have Federal guarantees, and when I am saying 
banks I mean broadly defined--plus the ability to borrow from the 
Federal Reserve at the lowest interest rates at which anybody in the 
world borrows, and the ability to use the Fed wire, where they can wire 
money that instantly becomes bank reserves and it is guaranteed by the 
Federal Reserve bank, Chairman Greenspan and the Federal Reserve have 
estimated that if banks were allowed to provide these services within 
the bank, they probably have an effective subsidy of around 14 basis 
points. And this subsidy is due to the access to these three items: 
Deposit insurance, the Fed window, the Fed wire.
  Chairman Greenspan has explained to anybody who would listen that if 
you let banks perform these services within the banking structure 
itself, banks will have an advantage over those who are providing 
securities services and selling securities outside of banks; that if 
you allowed banks to do insurance within the bank, they would have an 
advantage over insurance companies that are not banks.
  Chairman Greenspan has tried to alert us to the fact that if we 
adopted the Sarbanes substitute we could literally, within 10 or 20 
years, have a financial system where virtually all of the securities 
activities and all of the insurance activities, if banks were allowed 
to do insurance within the bank itself, would be dominated by a handful 
of big banks. In other words, our economy would look very much like the 
Japanese economy, in terms of its financial structure.
  Chairman Greenspan says, if your choice is no bill or doing what the 
Sarbanes substitute wants to do, for safety and soundness reasons, for 
the protection of the taxpayer, for the protection of competition, for 
the protection of the competitiveness of the American economy, Chairman 
Greenspan says: Kill the bill before you do what the Sarbanes 
substitute would do, in terms of letting banks in these other lines of 
financial services within the structure of the bank.
  Chairman Greenspan said let banks do these things--let them sell 
insurance, let them provide securities services--but make banks do them 
outside the bank where they have to take capital out of the bank to 
capitalize these companies and where they compete with nonbanks on an 
equal footing.
  This is a critically important issue, and it is an incredible 
paradox, an absolutely astounding paradox that Senator Sarbanes, who 
supported Chairman Greenspan's position in the bill last year, is now 
taking exactly the opposite position. It is my understanding that 
perhaps all the Democrat Members of the Senate may be inclined to take 
this position, a position that many of them, perhaps two out of every 
three, would have opposed as any kind of freestanding measure. I hope 
that is not the case, but perhaps it is.
  If for no other reason, if you do not have 101 other reasons to vote 
against the Sarbanes substitute, listen to Alan Greenspan: Spare the 
taxpayer, spare deposit insurance, and spare the economy by rejecting 
this proposal.
  The pending substitute dramatically expands CRA. It dramatically 
expands CRA in several ways. For the first time in the history of CRA, 
the Sarbanes substitute provides that financial institutions that fall 
out of compliance with CRA will now be deemed to be in violation of 
banking law and, therefore, potentially subject to fines of up to $1 
million a day.
  Let me remind those who do not follow these issues--and why would you 
unless you are in this line of work?--

[[Page 8214]]

currently under the Community Reinvestment Act, while banks are 
evaluated every year and while banks take a legitimate pride in getting 
good scores on their evaluations, they are not required to be in 
compliance. The only time CRA imposes a ``penalty'' is if a bank wants 
to take an action that requires CRA evaluation--such as the opening or 
closing of a branch, or selling or buying a bank, or merging with 
another bank.
  The Sarbanes substitute would vastly expand CRA by making it a 
violation of Federal banking law simply to be out of compliance with 
CRA and, in the process, potentially subject not just the bank, but an 
individual bank officer and an individual board member, to a fine of $1 
million a day.
  The Independent Community Bankers of America sent a letter today 
raising a very important issue. Little banks have trouble getting 
people of substance to serve on their bank boards. It is hard because 
there are liability issues involved, and one of the big struggles that 
little banks have is getting city leaders to be on the bank board. We 
want the best people to serve on bank boards because they are the 
people who ultimately make decisions that affect safety and soundness, 
that affect the well-being of the depositor, that affect lending 
policy, and that affect the taxpayer through Federal deposit insurance.
  I want you to listen to the president of the Independent Community 
Bankers of America. This is an organization that represents small, 
independent banks all over America. Listen to this paragraph:

       We also have grave concerns about expanding CRA enforcement 
     authority to include the levying of heavy fines and penalties 
     against banks or their officers and directors. An ongoing 
     challenge for many community banks in small communities is 
     finding willing and qualified bank directors. Legislation 
     following the savings and loan crisis of the 1980s and early 
     1990s greatly increased the amount of civil monetary 
     penalties to which bank officers and directors may be 
     subject. Any increase in the potential for fines and 
     penalties could provide further disincentive for serving on a 
     bank board.

  All Members should realize that this does not apply just to small 
banks, it applies to big banks. If you had a bank with 200 branches and 
just one branch fell out of compliance, you could potentially be 
subjected to this fine. This is regulatory overkill. This is totally 
unjustified.
  Our colleague, Senator Sarbanes, says we have not presented enough 
data about abuses. Where is the abuse that could possibly call for such 
a provision? This is punitive legislation at its worst, and if you 
think we have a problem now with community groups intervening and 
demanding cash payments, you add to it a possibility that a bank 
officer or board member could be fined $1 million a day and you are 
going to multiply the abuse a thousandfold. This is a proposal which 
was clearly written, and I can tell you where and when, when there was 
a desperate effort in the House to get their bill passed last year. It 
passed by one vote, and they basically gave this provision to groups 
that wanted to massively expand CRA. That is how it got into this whole 
debate.
  I cannot believe anybody seriously would want to subject bank 
officers and bank directors to a potential $1-million-a-day fine for 
temporarily falling out of compliance with CRA.
  The Sarbanes substitute expands CRA by requiring CRA compliance to 
engage in new financial activities, including insurance and securities. 
No CRA test is now required for such banking activities.
  Here is the whole issue. Today, some banks do sell insurance. Today, 
some 20 banks engage in securities activities, and virtually every 
bank, through their holding company, engages in activities which, under 
the Sarbanes substitute, would be pushed out of the trust department 
and into an affiliate or an operating sub and, therefore, would subject 
that bank to this new regulation.
  The point is, current law does not require a bank to get CRA approval 
to sell insurance. Current law does not require a bank to get CRA 
approval to sell securities. This is, again, a massive expansion in 
CRA. And if the Senator is justified in questioning our justification 
for wanting to adopt two modest reforms of CRA, I think it is 
reasonable to ask what is the justification for this massive expansion 
in CRA.
  Finally, on CRA, for the first time in American history, the Sarbanes 
substitute would expand CRA to a noninsured institution. The 
justification for CRA was that banks and other banking-type 
institutions, S&Ls, have deposit insurance.
  And that is a subsidy to the bank. Therefore, asking the bank to 
provide these resources, on a broad basis, to the community or to 
allocate capital based on a Government dictate rather than the market 
had a justification. That was the justification for CRA.
  The Sarbanes substitute would expand CRA coverage to a new 
institution, the wholesale financial institution, or WFI, which does 
not have FDIC insurance. This is a clear expansion of CRA beyond 
anything that has ever been enacted into law. In addition, the Sarbanes 
substitute would repeal the two reform provisions that are in the bill.
  I am not going to get into a long dissertation on this subject, 
because we are going to have an opportunity to debate this subject at 
length tomorrow--and believe me, I am ready to debate it--but I just 
want to make a couple points about the provisions that would be 
stricken by the Sarbanes substitute.
  First of all, our first provision is an integrity provision. Put 
simply, consider a bank that is in compliance and has been in 
continuing compliance with CRA for 3 years in a row, so that in the 
mind of the regulator, based on the information they have been 
presented--and any group in America can have an input into those 
evaluations--this bank is a good actor, they have a good record of 
compliance.
  The Sarbanes substitute would strike our provision that says that 
while anybody can present any information they want to the regulator--
and the regulator can demand a new evaluation when the bank in question 
seeks, for example, to merge with another bank or sell or buy a bank--
but unless the protesting group presents some substantial evidence that 
this bank is out of compliance--something that their regulators had 
said three times in a row they were not--unless they can present some 
substantial evidence, then based on that objection alone, the regulator 
cannot turn down the proposal or delay it.
  I went through earlier today--and I hope people heard it and remember 
it--but I went through what ``substantial evidence'' means. The most 
important thing to remember about it is, the law already requires it. 
All banking law requires decisionmaking to be based on ``substantial 
evidence,'' and bars decisionmaking based on arbitrary and capricious 
action. All banking law currently requires it. All appeals of banking 
regulator decisions must be based on the absence of substantial 
evidence.
  So really what we are trying to do here is force the regulator to 
comply with the normal administrative convention, which is, if somebody 
wants to enter a process--at the last moment, in this case--and demand 
that someone not be allowed to do something that they have earned a 
right to do, then they must present substantial evidence to show that 
they are not complying.
  Senator Sarbanes suggested that the evidence can only be on items 
which have occurred since the last evaluation. Not so. In fact, what 
our bill says is that the regulator may not delay or deny an 
application unless ``substantial verifiable information arising since 
the time of [the bank's] most recent examination under that Act 
demonstrating noncompliance is filed with the appropriate Federal 
[regulator].''
  Our provision provides that any new information may be presented. It 
is not something that has occurred since the last evaluation. It is 
something that the banking examiners did not have before when they said 
the bank was complying with the law.
  I went through at great length the 900--I did not go through all 900 
of them--but 900 times in Federal statutes we refer to ``substantial 
evidence.'' We have 400 court cases that have defined it. What does it 
mean?

[[Page 8215]]

``More than a scintilla of information,'' a factual basis under which a 
reasonable person might reach a conclusion--not that they would reach a 
conclusion, but that they might reach a conclusion.
  So what Senator Sarbanes is determined to kill is a simple proposal 
that certainly does not repeal CRA or overturn CRA or do violence to 
CRA. All it says is, if a bank has a long record of being in compliance 
with CRA, if they are in compliance with CRA now, and they want to 
undertake an action that requires CRA evaluation, that if somebody 
wants to come in and object, they can say anything they want, they can 
present any information they want, but the regulator cannot overturn 
their established record unless the protester presents substantial 
information or data to back up their claim.
  You might ask, why could anybody be opposed to that? Can you imagine 
that you have a bank which is trying to buy another bank, and they have 
been in compliance with CRA for three evaluations in a row and are 
currently in compliance, they have hundreds of millions of dollars at 
stake in consummating this agreement, a decision that can affect 
thousands of people, and you let one protester, who often is from not 
just another State but another region of the country--a protester from 
Brooklyn, NY--and he comes in and protests a bank merger in Illinois 
and will not go away until he gets his ``expenses paid'' and until he 
gets a cash payment? Now, under our provision, anybody can come in and 
protest, but in order for them to be able to stop the process, they 
have to provide substantial information.
  I cannot understand how anybody can be opposed to that.
  The second provision of our bill that would be overturned by the 
Sarbanes substitute is the small bank exemption. Let me try to explain 
this, I think, in a way that everybody can understand.
  I have two colleagues here. Let me say that I am sorry, but Senator 
Sarbanes took an extended period of time to present this, and I have to 
go through and be sure it is responded to comprehensively. So I am 
probably going to talk for another half an hour or 45 minutes. If 
either one of my colleagues has just a few minutes, I will stop and let 
them speak. But I do not want them staying around here, standing up and 
thinking that I am about to finish. So with that, if either one of you 
just has an announcement you want to make or a unanimous consent 
request, I will yield. OK.
  Here is the problem. You have little banks in rural areas. They have, 
most of them, between 6 and 10 employees. They are serving communities 
that do not even have a city, much less an inner city, and they are 
being forced to comply with this law called CRA.
  It would be one thing if there were a record showing that these 
small, rural banks are not lending in their communities. But the plain 
truth is, as I pointed out earlier, since 1990 there have been 16,380 
examinations conducted by bank regulators of small banks and S&Ls in 
rural areas, that is, outside standard metropolitan areas. And in those 
16,380 examinations, only 3 rural banks have been found to be in 
substantial noncompliance. These examinations and the regulatory burden 
imposed in complying with this law costs the average rural bank between 
$60- and $80,000. Imagine, you have a bank with 6 to 10 employees and 
they have to pay $80,000 to comply with a law that has found, since 
1990, 3/100 of 1 percent of them out of compliance.
  You might ask, is this overkill? It is interesting, because in other 
financial laws that relate to similar issues, we exempt banks outside 
standard metropolitan areas. In the HMDA statute related to similar 
areas, if you are very small, you are exempt if you are outside a 
standard metropolitan area. And that is what we are talking in our 
provision--exempting very small banks in very rural areas.
  Instead of my speaking for the problem, let me let the people who are 
affected speak. They are a lot more articulate on these issues than I 
am. Let me just run over some numbers with you.
  We have received hundreds of letters from small banks all over 
America urging us to adopt the provision in this bill; we have received 
488 as of today. What these small banks tell us is that CRA compliance 
is costing them between $60- and $80,000 a year.
  The First National Bank of Seiling, OK, has estimated it takes the 
equivalent of one full-time employee to comply with CRA. The Chemical 
Bank of Big Rapids, MN--with assets of $94 million--agrees that it 
takes one full-time employee. Crosby State Bank of Crosby, TX, agrees 
with the one full-time employee. The First National Bank of Cortez, CO, 
thinks that they spend a minimum of 100 hours annually of CRA 
compliance officer time.
  Let me read from some of the letters that have been submitted to the 
committee. I am only going to read from five or six of them, but I 
think they tell the story.
  The first letter is from the Cattle National Bank. The Cattle 
National Bank, for those of you who don't know, and you should, is in 
Seward, NE. Here is what the vice president and cashier of the Cattle 
National Bank in Seward, NE, says:

       Let me add that since the origination of public disclosure 
     of CRA examinations we have not had one person from our 
     community ever request the information. The only requests 
     that we have had have come from bank consultants wanting to 
     glean some tidbit from our disclosure.

  This is a letter from Copiah Bank, which is a national bank in 
Crystal Springs, MS. This is written by the president and chief 
executive officer.

       Our Compliance Officer, Gary Broome, and his assistant have 
     spent many research hours and reams of paper in their efforts 
     to comply with the mandated requirement's paper work. We have 
     even had to outsource some of its checkpoints to a compliance 
     consultant from time to time. As an $83 million community 
     bank . . . that means they probably have 6 or 7 employees . . 
     . we feel an obligation to help in your efforts toward easing 
     our paper work burden.

  Lakeside State Bank, ND.

       As a former bank examiner for the Federal Deposit Insurance 
     Corporation, which included consumer compliance experience, 
     and as a banker for over 15 years I believe I have a good 
     understanding of the intent and the workings of CRA. Over 47 
     years of our existence we have provided financing to 
     virtually every main street business in our town, our 
     customer base includes approximately 80 percent of the area 
     farms and for the last several years over 50 percent of our 
     loans have been to American Indians. The law--

  And he means CRA.

     . . . is a heavy burden because of the expansiveness of the 
     regulations and the paper requirements of compliance. We 
     spend hours documenting what we have already done rather than 
     spending that time more efficiently by doing more for our 
     community.

  This is from Farmers and Merchants Bank, and this is in Arnett, OK, 
written by the executive vice president and CEO.

       I am the CEO as well as the chief loan officer, compliance 
     officer and CRA officer. I have to wear so many hats because 
     we are small and have a staff of only 7 including myself. CRA 
     compliance, done correctly, takes a lot of time, which takes 
     me away from my primary responsibility of loaning money to my 
     community. It has almost gotten to the point that lending is 
     a secondary function. It seems like we have the choice of 
     lending to our community or writing up CRA plans showing how 
     we would lend to the community if we had time to make the 
     loans.

  It is funny how wisdom just leaps off the page.

       Large banks can hire full time CRA officers and other 
     compliance personnel to administer CRA programs, but small 
     banks cannot . . .

  This is from the Redlands Centennial Bank, and it is in Redlands, CA.

       We spent approximately $80 thousand dollars of our 
     shareholders' money last year supporting this ill-defined 
     regulation. Even the regulators who examined us were hard 
     pressed to give us specific definitions on how we might 
     better implement this regulation. I am urging you to get rid 
     of this nonsensical CRA yoke. Keep up the fight, because 
     there are a lot of us out here who are too busy balancing 
     making a living with government regulations in this crazy 
     business . . .

  Chemical Bank North, which is a little bank in Grayling, MI. It is a 
$74 million bank, which means it probably has 6 to 10 employees.

       As it is, we must devote disproportionate resources to 
     creating and maintaining the ``paper trail'' that the current 
     CRA regulations require. Our board members must attend time 
     consuming CRA Committee meetings and our officers and staff 
     members

[[Page 8216]]

     spend significant valuable time preparing reports and keeping 
     records that serve no purpose other than to keep us in 
     compliance with a regulation that attempts to enforce from a 
     regulatory standpoint what we do everyday in the normal 
     course of our business . . . I would estimate that we devote 
     the equivalent of a full time employee to all aspects of CRA 
     compliance.

  I mean, does anybody care that, for this little bank, that one-tenth 
of their payroll is needed to comply with a government regulation that 
in 9 years, in 16,000 such audits, has found only 3 banks substantially 
out of compliance? In 9 years, in 16,000 audits of banks like the 
Chemical Bank in Grayling, MI, government regulators have found only 3 
banks out of the 16,000 evaluations where there was substantial 
noncompliance. And yet, we are making these banks pay $80,000 a year. 
Does anybody care? You know, we talk about the little guy and why 
aren't we here debating this and that. Does anybody care that a little 
bank, trying to serve consumers in a small town, a little independent 
bank in an era when a lot of people are worried about all the banks 
being taken over by big banks, here is a little bitty bank trying to 
stay in business, and 1 out of every 10 people they employ--because 
they only employ 10--has to spend time complying with one regulation, 
which, over 9 years, in 16,000 audits, has found 3 violators? Yet, our 
colleague, Senator Sarbanes, is so outraged that we would lift this 
paperwork burden that he has offered a substitute. I don't understand 
it. I don't understand it. But I don't guess I have to understand it.
  First National Bank, founded in 1876, in Wamego, KS, spelled W-A-M-E-
G-O. I ask the Chair, am I pronouncing it right?
  The PRESIDING OFFICER (Mr. Brownback). The Chair notes that the 
correct pronunciation is Wamego.
  Mr. GRAMM. The occupant of the Chair knows because he knows and loves 
everybody that lives in that State, and I appreciate that. Wamego, KS. 
This is a little bitty bank, the First National Bank of Wamego, KS, 
founded in 1876. In other words, it has been in business for 123 years. 
How big do you think it is after 123 years of service? They have $65 
million in assets, and it is the lifeblood of Wamego, KS. It is 
struggling with paperwork. It is a small bank and has 6 to 10 
employees. People in that town are proud they have a bank. In a lot of 
towns that size, the bank has already gone broke and moved off to the 
big city. This bank has not deserted its customer base. They are trying 
to make a living. Let me read to you from their letter:

       Our bank was listed 2 years in a row as the best bank in 
     Kansas to obtain loans for small businesses by Entrepreneur 
     Magazine.

  They have received an outstanding rating under CRA--the best rating 
you can get.

       Our outstanding grade did not make us a better bank. CRA 
     did not make us make more loans than we would have made. CRA 
     did take a lot of employee time to document that we were an 
     outstanding bank.

  Here is the point. This is a little bank that has been doing the job 
for 123 years. It only has $65 million in assets. This is a very small 
bank. It probably does not have 10 employees. It has been evaluated as 
being outstanding. But in 16,000 evaluations over the last 9 years, 
bank regulators nationwide found only 3 banks that were in substantial 
noncompliance. Why are we tormenting this little bank in Wamego, KS, 
which is doing a great job, and imposing $60,000 to $80,000 in costs on 
them to discover that only 3 banks out of 16,000 evaluations aren't 
doing a good job?
  The next letter is from Nebraska National Bank, which is in Kearney, 
NE. They have $34 million in assets. This has to be one of the smallest 
banks in America. It has been in business for an extended period of 
time. I don't know how many employees they have, but I would guess five 
or six employees in the whole bank:

       We do not make foreign loans. We don't speculate in 
     derivatives. We don't siphon deposits from this area to fund 
     loans elsewhere. Instead, like virtually all banks under $250 
     million in assets [remember, they are only $34 million in 
     assets], we provide home loans, business loans, farm loans, 
     construction loans. We don't do this because of the Community 
     Reinvestment Act, but because it makes good business sense. I 
     bitterly resent every minute of my time and that of my staff 
     spent to comply with this regulation because it takes time 
     away from productive duties. I feel the regulation is now 
     being used by consumer activist groups to shake down banks 
     seeking regulatory approval for expansion of mergers.

  Now, that is a strong testament. Nothing I could say could give a 
stronger testament than that.
  Let me give you one final one. Like I said, we have 488 just like it. 
They don't understand why it is unreasonable to lift this heavy 
regulatory burden when only 3 substantial noncompliant banks have been 
discovered in 9 years after 16,000 audits. You take 16,000 audits at 
$80,000 apiece, for the banks, that is a lot of money for these little 
towns.
  The last letter is from American State Bank, an independent bank in 
Portland, OR. It is signed by the chairman and the CEO:

       As one of the oldest and most strongly capitalized African 
     American owned banks west of the Mississippi River, Portland 
     based American State Bank supports your position on CRA 
     exemption for nonmetropolitan banks. We also urge you to 
     explore exempting from CRA requirements minority-owned 
     commercial banks. Today, minority-owned banks still maintain 
     their focus on serving our Nation's minority communities and 
     their citizens. It is redundant at best to impose CRA 
     requirements on banks whose sole purpose is to serve minority 
     citizens. At worst, it compels minority banks to sustain 
     burdensome, expensive administrative costs and subjects banks 
     to a bureaucracy largely unaware of the realities of the 
     inner-city marketplace.

  Now, I could go on and on, Mr. President, in outlining the arguments 
related to small banks, but let me stop there on this issue and go back 
to the other provisions of the bill.
  Let me say to my colleague that to go through and respond to each of 
the points Senator Sarbanes made is probably going to take me another 
half hour. If the Senator has a unanimous consent request, or a short 
statement, I would be glad to yield. But if not, I want him and others 
to know that I should be finished maybe by 7 o'clock.
  Mr. SARBANES. Will the Senator yield?
  Mr. GRAMM. I am happy to yield.
  Mr. SARBANES. Senator Kerry has been trying to make a statement all 
day. I guess, by this process he won't be able to do it now. What is 
the Senator's intention for tomorrow? How can we carve out some time?
  Mr. GRAMM. It was my hope tonight that we could finish debate on this 
amendment, and that we would have a vote tomorrow. Our problem, as you 
know, is that we have the two Senators from Oklahoma who have flown 
home to participate in the evaluation and assistance with the terrible 
tragedy that happened there with the tornadoes. We are hopeful that 
they are going to be back tonight or in the morning. Then we are going 
to have a vote on Senator Byrd's resolution commending the Rev. Jesse 
Jackson, and other clergy leaders who participated in his trip. That 
vote is going to occur in the morning; I am not sure exactly what time. 
But the idea would be to have that vote in the morning and then, at 
that point, either I or the majority leader would move to table the 
amendment and we would have a vote on it. We would then offer one of 
our amendments at that point.
  Mr. KERRY. Will the Senator yield?
  Mr. GRAMM. I am happy to yield.
  Mr. KERRY. Unaccustomed as I am to speaking from this side of the 
aisle, maybe it will get me extra credit from the Senator from Texas. 
Would it be possible to carve out some time because of my complications 
on the schedule? I have been here a number of times today trying to get 
in on the schedule to speak prior to the vote. Would I be able to have 
20 minutes set aside for that purpose?
  Mr. GRAMM. I would assume we will have a debate in the morning and 
that we will probably have at least a half an hour on each side. I see 
nothing unreasonable about having time in the morning. I would strongly 
suggest that we do it. Any Member can object to any unanimous consent 
request. Otherwise, if the Senator wishes to have time, we will divide 
the time equally tomorrow. I don't see any reason why he couldn't have 
a chance to speak tomorrow.
  Mr. KERRY. Mr. President, if the Senator will further yield, I don't 
want

[[Page 8217]]

to disturb the schedule of the Senator from Maryland or concept of how 
he wishes to proceed managing our side of the aisle, if that would fit 
within his framework.
  Mr. SARBANES. If we have sufficient time before we vote on this 
substitute to take care of the Senator and a couple of others who want 
to speak on it, including the minority leader, I don't have a problem 
with that. But if the time period is extremely short, then we would be 
precluded from accomplishing this objective.
  Mr. GRAMM. Why don't I do this. Just reclaiming my time, why don't I 
try to finish up here in 20 minutes and yield and let the Senator 
speak?
  Mr. KERRY. Mr. President, the problem is that isn't going to work on 
the schedule I have now this evening. I simply say to the Senator, Mr. 
President, that it would seem to me, in furtherance of what the Senator 
from Maryland has said, that if we were to write in the order for the 
morning for tomorrow that X amount of time will be set on both sides, 
taking into account the amount of time I have requested from the 
Senator, we could accomplish all of the goals, if the Senator were 
willing to try to make that the order.
  Mr. GRAMM. I don't know whether we have 30 minutes equally divided or 
1 hour equally divided, but within that constraint, it seems to me, the 
Senator could speak.
  Mr. KERRY. I thank the Chair. I thank the Senator from Texas. I thank 
the Senator from Maryland.
  Mr. GRAMM addressed the Chair.
  The PRESIDING OFFICER. The Senator from Texas.
  Mr. GRAMM. Mr. President, let me just touch on four more issues in 
the Sarbanes substitute that I take strong issue with. I see Senator 
Gorton is here and he wanted to say something.
  The next concern that I have and that the majority has with the 
Sarbanes substitute is that it adopts security law revisions making it 
significantly more difficult for small banks to engage in trust and 
fiduciary activities. These activities currently make up about 15 to 20 
percent of the revenues of small banks.
  Here is the problem. Our bill goes to great lengths to say to some 
small bank in some small town that doesn't intend to get into financial 
services, that nothing in this bill is going to force them to take 
their trust department activities that they are now engaged in and 
either set up an operating subsidiary or set up an affiliate.
  I believe the provisions of the Sarbanes substitute could adversely 
affect virtually every small bank in America and endanger the 
operations that they currently can do within a bank only under 
regulation by the bank in the name of trust department activities. I 
believe the provision offered by Senator Sarbanes could force many of 
these banks to set up operating subsidiaries, or set up affiliates, and 
in the process drive up their costs and threaten their revenues.
  Now we come to the so-called unitary thrift holding company. If you 
listen to Senator Sarbanes, you get the idea that somehow we are 
expanding commercial activities of banks. The reality is that the 
Sarbanes substitute, by allowing banks to hold a commercial basket for 
15 years, expands commercial activities of banks substantially more 
than our bill does.
  Our bill restricts the ability of commercial companies--an ability 
they have under current law--our bill restricts their ability to apply 
for charters and to set up a unitary thrift.
  Unitary thrifts are legal under current law. So, for example, General 
Motors can get an S&L charter and can go into the S&L or banking 
business through that charter. That is the law of the land today. As a 
result, a substantial number of commercial companies have gotten those 
charters.
  Our bill ends that practice. And effective on the day that the 
underlying committee bill was released as a committee print, any 
application for a unitary thrift received after that date would not be 
acted upon.
  The difference between the Sarbanes substitute and what we do is 
that, in addition, the Sarbanes substitute goes back and says that 
those unitary thrifts that already exist would have an ex post facto 
change in law that would limit their ability to sell their thrift--
which is a change in the regulations under which they set up or bought 
the charter.
  I believe that this is a takings of property, that it violates the 
fifth amendment of the Constitution. In fact, we have recently had a 
Supreme Court ruling striking down another ex post facto law that 
Congress passed that took away provisions that were in contracts that 
banks--and in this case S&Ls--had negotiated with Federal S&L 
regulators.
  So we create no new commercial powers. There is nothing in our bill 
that in any way expands the ability of banks to hold commercial assets, 
whereas the substitute will allow them to hold them for 15 years under 
a grandfather provision, a provision that is not in our bill.
  I was somewhat stunned to hear the presentation by Senator Sarbanes 
that we were expanding commercial powers when in reality his substitute 
has a 15-year grandfather for existing activities, a provision that our 
bill does not have. Our bill not only does not expand commercial 
activities but it cuts off the issue of new unitary thrift licenses. 
But we do not go back and change the rules of the game on S&Ls that 
invested good money, many of them during the S&L crisis, saving the 
taxpayer billions of dollars. We don't go back and change the rules of 
the game on them.
  I talked about No. 7. That is the commercial basket issue. The 
substitute offered by Senator Sarbanes allows commercial banks to hold 
these commercial assets for up to 15 years. There is no similar 
provision in our bill.
  Finally, the Sarbanes substitute strips away power from State 
insurance regulators. Under the Sarbanes substitute, States could only 
collect information but could not act on information, nullifying the 
authority of State insurance commissioners to review and approve or 
disapprove applications.
  The National Association of Insurance Commissioners opposes this 
provision.
  So basically those are the differences. I think the differences are 
very clear and very stark. I hope my colleagues will look at them and 
will reject this substitute.
  This substitute would create a bill that Alan Greenspan and every 
member of the Federal Reserve Board, speaking as a body through the 
Chairman, has said would be worse, in terms of danger to the taxpayers, 
danger to the insurance fund, danger to the economy, than passing no 
bill at all.
  This bill would repeal two very simple, very targeted, very minor 
reforms of CRA, and would institute the most massive expansion of CRA 
in America history.
  I think if people look at any one of these eight areas that I have 
outlined, they will conclude that the committee acted properly in 
rejecting the Sarbanes substitute. But the Sarbanes substitute wasn't 
rejected just because it was deficient in, say, five of these eight 
areas. It was rejected because in each and every one of these areas it 
was inferior--in terms of the well-being of the taxpayer, the well-
being of the depository insurance system, the well-being of the 
economy--to the underlying bill that was adopted by the Banking 
Committee.
  I urge my colleagues to reject this substitute. There will be a 
tabling motion tomorrow on some basis yet to be agreed to.
  I yield the floor.
  Mr. GORTON. Mr. President, I support the distinguished Senator from 
Texas, the chairman of the Banking Committee, in his advocacy of his 
own proposal and in his desire that we defeat the substitute which is 
before the Senate at the present time.
  He has stated in great detail his reason for his support and the 
majority support for his financial reorganization bill. I mention only 
three differences that seem to me to be very significant.
  One is the arcane but vitally important difference between a holding 
company structure and a structure of making subsidiaries. In this 
respect, it

[[Page 8218]]

seems to me the holding company system has worked well for this 
country, literally for generations. The advice of the Chairman of the 
Federal Reserve Board, Alan Greenspan, overwhelmingly supports the 
proposition of the choice that has been made in this regard by the 
committee majority itself.
  Second, with respect to the Community Reinvestment Act, it also seems 
to me that the chairman's modest reforms are steps in the right 
direction. They do not destroy that system by any stretch of the 
imagination but, they do fire a warning shot across the bow of those 
who would use that bill for extortion purposes.
  Finally, and most important to me in my own State, is the way in 
which the bill, is against the proposed substitute, deals with unitary 
thrifts. A unitary thrift is authorized to affiliate with both 
financial and commercial companies. This authority is balanced both by 
lending restrictions and by safeguards prohibiting thrifts from 
extending credit to a commercial affiliate. This chartering structure 
has been available for more than 30 years. To the best of my knowledge, 
during that 30-year period of time, 30 years during which thrifts have 
been allowed to combine with commercial firms, there have been no major 
scandals, no serious corruption, no sapping of America's capitalism 
vigor. In other words, to limit the authority of thrifts while we are 
extending the authority of commercial banks in the bulk of this bill is 
to deal with an evil that simply does not exist.
  Financial modernization should be about expanding choices for 
consumers and chartering options, not constricting those options and 
stripping existing authorities from consumer-oriented institutions 
without sound policy justification.
  I do not believe we should limit the unitary thrift chartering option 
at all. Unitary thrifts have a longstanding record of serving their 
communities. There is a glaring absence of any evidence that their 
commercial affiliations have led to a concentration of economic powers 
or posed risks to consumers or taxpayers. This legislation includes a 
provision that grandfathers the commercial affiliation authorities of 
unitary thrifts chartered or applied for before February 28 of this 
year. Given the lack of any evidence that those affiliations are 
harmful, financial modernization should, at the minimum, not roll back 
the authority of existing unitary thrifts.
  Limiting the ability of commercial firms to charter thrifts in the 
future is debatable policy, but there is no question in my mind that 
the authorities of existing unitary thrifts should not be abolished.
  For these reasons, I oppose the Democratic substitute and intend to 
fight any later amendment which deals with this issue alone.
  With the expression of my support for the position taken by the 
distinguished chairman of the Banking Committee, I yield the floor.
  Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. GRAMM. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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