    [House Report 104-193]
    [From the U.S. Government Publishing Office]

    104th Congress                                            Rept. 104-193
                            HOUSE OF REPRESENTATIVES

     2d Session                                                      Part 2
    _______________________________________________________________________

              FINANCIAL INSTITUTIONS REGULATORY RELIEF ACT OF 1995

                                    _______

                     June 18, 1996.--Ordered to be printed

    _______________________________________________________________________

       Mr. Leach, from the Committee on Banking and Financial Services,
                            submitted the following

                              SUPPLEMENTAL REPORT

                            [To accompany H.R. 1858]

          [Including cost estimate of the Congressional Budget Office]

                                     Errata

        On page 92, move Mr. Fox's roll call vote from the ``NAYS''
    column to the ``YEAS'' column.
        On page 95, in the Section-By-Section Analysis of Section
    105(c), strike the words ``voluntary insurance'' and insert in
    lieu thereof the words ``voluntary noninsurance''.
        On page 115, add the following sentences to the Section-By-
    Section Analysis of Section 229:

              As part of the agencies' paperwork reduction review,
            the Committee directs the agencies to include the
            regulations and guidelines implemented under sections
            39 of the FDICIA. In reviewing these regulations and
            guidelines, the agencies should consider whether the
            regulations and guidelines are duplicative of other
            existing policies or regulations and whether it may be
            appropriate to modify the regulations and guidelines
            adopted under section 39 or to recommend that such
            section be repealed by the Congress.

        Under the Committee Consideration and Votes add the
    following votes:
        An amendment offered by Mr. Vento which strikes section 234
    of the legislation modifying the culpability standards for
    outside director was defeated 17-24.
            YEAS                          NAYS
    Mr. Leach                           Mr. McCollum
    Mrs. Roukema                        Mr. Bereuter
    Mr. Gonzalez                        Mr. Roth
    Mr. LaFalce                         Mr. Baker, (LA)
    Mr. Vento                           Mr. Lazio
    Mr. Frank                           Mr. Bachus
    Mr. Kanjorski                       Mr. Castle
    Mr. Kennedy                         Mr. King
    Mr. Flake                           Mr. Royce
    Mr. Orton                           Mr. Lucas
    Mrs. Maloney                        Mr. Weller
    Ms. Roybal-Allard                   Mr. Hayworth
    Mr. Barrett, (WI)                   Mr. Bono
    Ms. Velazquez                       Mr. Ney
    Mr. Watt                            Mr. Ehrlich
    Mr. Hinchey                         Mr. Barr
    Mr. Bentsen                         Mr. Chrysler
                                        Mr. Cremeans
                                        Mr. Fox
                                        Mr. Heineman
                                        Mr. Stockman
                                        Mr. LoBiondo
                                        Mr. Watts
                                        Mrs. Kelly

        A motion offered by Mr. Orton to reconsider the Kennedy
    Amendment which strikes section 238 concerning second mortgages
    was defeated 24-24.
            YEAS                          NAYS
    Mr. Leach                           Mr. McCollum
    Mr. Metcalf                         Mrs. Roukema
    Mr. Gonzalez                        Mr. Bereuter
    Mr. LaFalce                         Mr. Roth
    Mr. Vento                           Mr. Baker, (LA)
    Mr. Schumer                         Mr. Lazio
    Mr. Frank                           Mr. Bachus
    Mr. Kanjorski                       Mr. Castle
    Mr. Kennedy                         Mr. King
    Mr. Flake                           Mr. Royce
    Mr. Mfume                           Mr. Lucas
    Ms. Waters                          Mr. Weller
    Mr. Orton                           Mr. Hayworth
    Mr. Sanders                         Mr. Bono
    Mrs. Maloney                        Mr. Ney
    Mr. Gutierrez                       Mr. Ehrlich
    Ms. Roybal-Allard                   Mr. Barr
    Mr. Barrett, (WI)                   Mr. Chrysler
    Ms. Velazquez                       Mr. Cremeans
    Mr. Wynn                            Mr. Fox
    Mr. Watt                            Mr. Stockman
    Mr. Hinchey                         Mr. LoBiondo
    Mr. Ackerman                        Mr. Watts
    Mr. Bentsen                         Mrs. Kelly

                               CBO Cost Estimate

                                         U.S. Congress,
                                   Congressional Budget Office,
                                    Washington, DC, September 29, 1995.
    Hon. James A. Leach,
    Chairman, Committee on Banking and Financial Services,
    House of Representatives, Washington, DC.
        Dear Mr. Chairman: The Congressional Budget Office has
    prepared the enclosed cost estimate for H.R. 1858, the
    Financial Institutions Regulatory Relief Act of 1995.
        Enacting H.R. 1858 would affect both direct spending and
    receipts. Therefore, pay-as-you-go procedures would apply to
    the bill.
        If you wish further details on this estimate, we will be
    pleased to provide them.
                Sincerely,
                                                  James L. Blum
                                       (For June E. O'Neill, Director).
        Enclosure.

                   congressional budget office cost estimate

        1. Bill number: H.R. 1858.
        2. Bill title: The Financial Institutions Regulatory Relief
    Act of 1995.
        3. Bill status: As reported by the House Committee on
    Banking and Financial Services on July 18, 1995.
        4. Bill purpose: H.R. 1858 would amend several banking
    statutes, including the Community Reinvestment Act (CRA), the
    Truth in Lending Act (TILA), the Real Estate Settlement
    Procedures Act (RESPA), the Truth in Savings Act (TISA), the
    Equal Opportunity Act, and the Home Mortgage Disclosure Act. It
    also would make a number of other changes affecting banks,
    savings and loans, consumers, and federal agencies, primarily
    those responsible for regulating financial institutions. Major
    provisions are discussed below.
        Examinations.--H.R. 1858 would permit the financial
    regulatory agencies--the Federal Deposit Insurance Corporation
    (FDIC), the Office of Thrift Supervision (OTS), the Office of
    the Comptroller of the Currency (OCC), and the Board of
    Governors of the Federal Reserve--to extend from one year to 18
    months the time between examinations for safety and soundness
    for healthy institutions with assets between $175 million and
    $250 million.
        The bill also would modify the requirements for examining
    institutions for compliance with CRA. Under current law, CRA
    requires institutions to be evaluated on their success in
    meeting the credit needs of the community. The bill would adopt
    a multi-tiered approach toward examining institutions for
    compliance with CRA, exempting some small banks and savings and
    loans with assets of less than $100 million from the act's
    requirements, and allowing institutions with assets of less
    than $250 million to certify their own compliance with the act.
    These levels would be adjusted annually for inflation, as
    measured by the Consumer Price Index. Institutions receiving a
    satisfactory or better rating would be protected against
    challenges to regulatory approvals of branching or certain
    other applications, as is the case under current law.
        Foreign bank fees.--the bill would require the Federal
    Reserve to collect examination fees from U.S. offices of
    foreign banks only to the extent that it collects such fees
    from the state-chartered member banks that it also examines.
    Under current law, U.S. offices of foreign banks must pay such
    fees beginning in July 1997. Because the Federal Reserve does
    not exercise its existing authority to charge state-chartered
    member banks, the bill would effectively preclude the payment
    of these fees by the U.S. offices of foreign banks.
        Consumer banking provisions.--Current law requires banks
    and other lenders to provide information about loans in a
    simply and accurate way so as to allow borrowers to compare
    features more easily. H.R. 1858 would allow a greater degree of
    tolerance for inaccurate disclosures of loan finance charges,
    thereby limiting a borrower's right to cancel loan agreements.
    It also would make recovering damages in certain events more
    difficult. The bill would modify major portions of TISA, which
    require uniform disclosures of the terms and conditions of
    consumers' savings accounts, replacing them with a ban on
    misleading or inaccurate advertisements.
        Lender liability.--The bill would limit the environmental
    liability of private lending institutions, federal banking and
    lending agencies, and those who acquire property from them by
    exempting them from strict liability for the release of
    hazardous substances on properties that were acquired as a
    result of: receivership, conservatorship, or liquidation
    authority; loans, discounts, advances, or other financial
    assistance; and civil or criminal proceedings or administrative
    enforcement actions.
        This relief would not apply if the lending institution or
    agency directly caused or materially contributed to the release
    of a hazardous substance. In that case, it would remain liable
    for any remedial measures necessary to repair the damages.
    Finally, government agencies and subsequent purchasers would
    not be subject to any environmental lien provisions at the time
    of transfer of the property. In addition to the financial
    regulatory agencies, other agencies specifically affected by
    this provision include the Department of Housing and Urban
    Development, the Farm Credit Administration, the Farm Credit
    System Assistance Board, the Farmers Home Administration, the
    Rural Utilities Service (formerly the Rural Electrification
    Administration), and the Small Business Administration.
        Qualified thrift lenders.--The bill would allow savings
    institutions to qualify as thrift lenders by satisfying either
    the statutory test for qualified thrift lenders of the Internal
    Revenue Service test on asset composition. Currently, thrifts
    have to pass both tests.
        Appraisal Subcommittee of the Financial Institutions
    Examination Council.--Section 224 would require that the
    subcommittee repay by 1998 a $5 million loan from the Treasury.
        Reimbursement to financial institutions for information
    requests.--For certain investigatory purposes, the federal
    government now generally reimburses financial institutions for
    providing requested records related to individuals and small
    partnerships. The bill would expand this provision to require
    the Department of Justice (DOJ) and certain other federal
    investigatory agencies to reimburse financial institutions for
    the cost of providing information about corporations and other
    entities.
        Other provisions.--The bill also would: exempt well-
    capitalized and well-managed financial institutions from
    independent audits to verify compliance with safety and
    soundness regulations and internal controls; place a permanent
    moratorium on the authority of the OCC to expand the insurance
    powers of banks; allow an institution more flexibility in
    choosing membership in a particular district bank of the
    Federal Home Loan Bank System; require an annual study on the
    effect of the act on lending to small businesses; and encourage
    the banking regulatory agencies to appoint an examiner-in-
    charge to coordinate examinations conducted by the various
    agencies.
        5. Estimated cost to the Federal Government: H.R. 1858
    would increase spending subject to appropriations by requiring
    federal agencies to reimburse financial institutions for
    providing certain types of records to federal investigatory
    agencies. Over the 1996-2000 period, CBO estimates that
    spending for this purpose would total $170 million, assuming
    appropriations of the necessary amounts. In addition, the bill
    would make a number of changes that would result in a net
    decrease in the payment the Federal Reserve remits to the
    Treasury, thereby decreasing revenues by an estimated $21
    million over the 1996-2000 period. The following table displays
    the estimated budgetary impact of the bill.

    ----------------------------------------------------------------------------------------------------------------
                                                                           1996     1997     1998     999      2000
    ----------------------------------------------------------------------------------------------------------------
    Spending subject to appropriations action:
        Estimated authorization level..................................       18       36       37       39       40
        Estimated outlays..............................................       18       26       37       39       40
    Revenues:
        Estimated revenues \1\.........................................        3        4       -9       -9      -10
    ----------------------------------------------------------------------------------------------------------------
    \1\ Includes changes in the Federal Reserve surplus, net of income tax effects. A negative sign indicates a
      decrease in revenues.

        In addition, various provisions of H.R. 1858 would result
    in savings to the federal banking regulatory agencies, not
    including the Federal Reserve, of an estimated $95 million over
    the 1996-2000 period. These savings would be offset by a
    reduction in fees charged to banks and thrifts, resulting in no
    net budgetary impact.
        While the bill also could affect spending for deposit
    insurance, CBO has no clear basis for predicting the net change
    in such spending, and hence the above table does not include
    any estimated impact on the deposit insurance funds. A number
    of other provisions in the bill could have budgetary
    implications, but they are not expected to be significant.
        Spending resulting from this bill would fall primarily in
    budget functions 370 and 750.
        6. Basis of estimate: Fees for corporations.--Section 227
    would amend the Financial Privacy Act of 1978 to allow
    financial institutions to request reimbursement from federal
    agencies for the costs of providing requested records on
    corporations and other entities. The act now allows such
    reimbursement only for records related to individuals and other
    small partnerships. Typically prosecutors from the Department
    of Justice request corporate records when conducting criminal
    and civil investigations, particularly in the areas of money
    laundering and illegal drug activity. The offices of Inspectors
    General, the Treasury Department, the Securities and Exchange
    Commission, and many other agencies also request such
    information and would be affected by the provision.
        Based on information from DOJ and data from a survey
    conducted by the banking industry in 1992, CBO estimates that
    the federal agencies would spend approximately $35 million
    annually to reimburse qualified financial institutions for
    providing records to investigators and prosecutors, totaling
    $170 million over the 1996-2000 period. Such spending would be
    subject to appropriation action. The 1996 estimate is lower
    than amounts estimated for future years to allow for phasing in
    the expanded program; estimated costs in fiscal year 1997 and
    beyond have been adjusted for projected cost increases. The
    financial regulatory agencies expect that they too would have
    to pay reimbursements under section 227. Most such costs, which
    constitute mandatory spending, would be offset by charging
    higher fees to the institutions that they supervise.
        Federal Reserve.--Three changes to current law in H.R. 1858
    would affect the net income of the Federal Reserve in its role
    as bank examiner and regulator. One change, effectively
    precluding payments by offices of foreign banks for the costs
    of examinations, would reduce the income of the Federal Reserve
    System and thereby reduce governmental receipts by an estimated
    $44 million over the period from 1996 to 2000. A second change,
    exempting certain banks from some of the requirements of CRA,
    would reduce costs of the Federal Reserve System by an
    estimated $15 million over that same period. A third change,
    streamlining the process by which certain bank holding
    companies broaden their activities, would reduce the Federal
    Reserve's costs of processing applications by an estimated $8
    million from 1996 to 2000. Because the Federal Reserve System
    remits its surplus to the Treasury, those changes in its
    operating costs and income would affect governmental receipts.
    The net effect of those three changes would be to reduce
    governmental receipts by $21 million over the five-year period.
        First, H.R. 1858 would reduce operating income of the
    Federal Reserve System by effectively precluding payment by
    U.S. offices of foreign banks for the costs of examinations.
    Under current law, U.S. offices of foreign banks must pay for
    the costs of examinations begun after July 25, 1997. The bill
    would instead require the Federal Reserve to collect those
    examination fees only to the same extent that it collects such
    fees from the state-chartered member banks that it examines.
    The Federal Reserve has the authority to collect examination
    fees from those member banks, but it has never chosen to
    exercise that authority. As a result, we expect that this
    provision would forestall payments by U.S. offices of foreign
    banks for examinations. If the bill were enacted, we estimate
    that Federal Reserve income would decrease by $59 million from
    1997 to 2000. This loss to the Treasury would be partially
    offset by increased corporate income tax receipts of $15
    million from the reduction in tax-deductible fees paid by those
    banks. The net effect would be to reduce receipts by $44
    million over the 1997-2000 period.
        Second, H.R. 1858 would exempt certain financial
    institutions from the examination requirements of CRA. That act
    encourages banks and thrifts to lend in the communities in
    which their deposits originate and requires that all of them be
    examined for compliance. If H.R. 1848 were enacted, most
    institutions with assets of up to $100 million (indexed for
    inflation) would be exempt from CRA and therefore would not be
    examined. Financial institutions with assets over $100 million
    but not more than $250 million (also indexed) would be able to
    certify their own compliance and would be subject to less
    frequent and simpler examinations. Over 80 percent of the
    nearly 1,000 banks that the Federal Reserve examines have
    assets of $250 million or less, although these banks account
    for less than 10 percent of the total assets of the banks it
    examines. Based on information provided by staff members of the
    Board of Governors of the Federal Reserve System, we estimate
    that the Federal Reserve System would save $15 million over the
    period from 1996 through 2000 because of changes made by the
    bill with regard to CRA.
        Third, the bill would streamline the process by which
    certain bank holding companies engage in nonbanking activities
    (section 201), acquire banks (section 202), and merge existing
    subsidiaries (section 203). That streamlining would reduce the
    Federal Reserve's costs of processing applications by an
    estimated $8 million from 1996 to 2000.
        H.R. 1858 also would affect the Federal Reserve's
    operations in numerous other ways that are not expected to
    cause significant budgetary effects. The bill would require the
    Federal Reserve to issue several regulations, including ones to
    implement the bill's repeal of some of the disclosure
    requirements for bank accounts mandated by TISA. In addition,
    the bill would affect the number of applications the Federal
    Reserve would process--for example, by allowing some financial
    institutions to undertake certain activities without prior
    approval. Based on information provided by Federal Reserve
    staff we estimate that the budgetary effects of these and
    various other provisions affecting the Federal Reserve would be
    insignificant.
        Regulatory savings.--H.R. 1858 would make a number of
    changes that would change banking laws, for the most part
    relaxing or eliminating many regulations affecting the banks
    and savings and loans. Federal banking agencies now spend about
    $1.4 billion per year on their regulatory activities. CBO
    estimates that the provisions of this bill would reduce
    administrative costs by about $120 million over the 1996-2000
    period. The expenses of the FDIC are paid for by bank premiums;
    the OTS and the OCC charge fees to recover their costs. We
    expect those three agencies to reduce their premiums and fees
    to reflect savings totaling about $95 million, resulting in no
    net budgetary impact. About $61 million of these savings would
    result from changes related to examinations for safety and
    soundness, and $34 million would stem from changes related to
    CRA compliance. The remaining savings would be realized by the
    Federal Reserve, and were discussed above.
        Deposit insurance funds.--Enacting H.R. 1858 could affect
    the federal budget by causing changes in the government's
    spending for deposit insurance, but there is no clear basis for
    predicting the amount of such changes. The bill would relax
    current policies governing practices for ensuring the safety
    and soundness of insured depository institutions, including
    examination cycles, outside directors and accountants, and
    audit committees, and would extend the examination period from
    a 12-month to an 18-month cycle for certain institutions.
        In the 1980s, the examination cycles were lengthened for
    smaller institutions on the theory that they did not pose a
    systemic risk. In many cases, however, problems went undetected
    for significant periods of time, causing higher resolution
    costs when the institutions ultimately failed. While the
    banking sector is now relatively stable, depository
    institutions can deteriorate quickly, especially in periods of
    rapid flux and competition. Thus, lengthening the examination
    cycles poses at least a small risk of increased examination
    cycles to the maximum extent currently permissible under law.
    Assuming that the FDIC would continue this policy of balancing
    the goals of maintaining safety and soundness while minimizing
    the regulatory burden, CBO would not expect the FDIC to incur
    significant additional insurance losses as a result of this
    provision.
        In addition, the bill would repeal a requirement that
    independent public accountants confirm management's claims as
    to the effectiveness of an insured depository institution's
    internal financial controls and certain safety and soundness
    rules. It would also exempt all well-capitalized and well-
    managed banks and thrifts with assets over $500 million from
    the rule requiring that audit committees be composed entirely
    of outside directors. While we cannot estimate the budgetary
    effect resulting from enactment of these provisions, such
    changes could result in less effective oversight of an
    institution and to reduced effectiveness of the audit process,
    thereby contributing to losses in the insurance funds.
        If losses to the deposit insurance funds were to increase
    as a result of enactment of this measure, the FDIC would have
    to increase premiums that banks pay for deposit insurance.
    Thus, the net effect on the budget is not likely to be
    significant.
        Lender liability.--Under existing law, a federal department
    or agency that acquires title or control of a facility through
    means such as bankruptcy, foreclosure, tax delinquency,
    abandonment, or similar means is considered the owner or
    operator of that property and is generally liable for the costs
    incurred by the federal or state governments to clean up
    hazardous substances at that facility. H.R. 1858 would shift
    the liability for those clean-up costs from the department or
    agency to the person who owned, operated, or controlled
    activities at the facility prior to its acquisition by a
    federal entity. Such protections also would apply to the
    purchaser of the property. In the event that the federal agency
    directly caused or materially contributed to the release of a
    hazardous substance, that entity would be held liable for any
    remedial measures needed to cure the damages. In such cases,
    the bill would limit the liability of the agency under state
    law to the value of the agency's interest in the property. The
    bill would apply to any claims that have not reached final
    adjudication or settlement prior to enactment.
        The net budgetary impact of the lender liability provisions
    is not clear and cannot be estimated with any precision at this
    time because: (1) existing law continues to be modified through
    regulations and court decisions, thereby raising uncertainty
    about the extent of the federal entities' responsibility, and
    (2) federal departments and agencies lack adequate data about
    the number and value of properties that might be affected by
    the bill. Although the bill could result in potential savings
    to the individual agencies (including the FDIC) that acquire
    property or facilities through these involuntary means, the net
    impact on total federal spending is less clear. The net impact
    would depend on the interpretation of various legal issues and
    on whether the federal government ultimately would pay for
    hazardous waste clean-up at affected sites through the
    Hazardous Waste Superfund Trust Fund administered by the
    Environmental Protection Agency. Based on limited information
    from the agencies affected by the provision, CBO does not
    expect that any significant savings would result from enactment
    of this provision.
        Appraisal Subcommittee.--The Financial Institutions Reform,
    Recovery, and Enforcement Act of 1989 (Public Law 101-73)
    established the Appraisal Subcommittee of the Federal Financial
    Institutions Examination Council. The subcommittee received a
    one-time appropriation of $5 million, which H.R. 1858 would
    require be repaid by 1998. The subcommittee already plans to
    repay the loan by that date, so this provision would have no
    budgetary impact relative to current law.
        7. Pay-as-you-go considerations: Section 252 of the
    Balanced Budget and Emergency Deficit Control Act of 1985 sets
    up pay-as-you-go procedures for legislation affecting direct
    spending or receipts through 1998. CBO estimates that enacting
    H.R. 1858 would affect both direct spending and receipts;
    therefore, pay-as-you-go procedures would apply to the bill. We
    estimate that direct spending changes would be offsetting and
    no net change in spending would result.
        As a result of reductions in administrative costs of the
    Federal Reserve to implement CRA activities and to process
    certain applications, CBO estimates that governmental receipts
    would increase by $3 million in 1996 and by $5 million in 1997
    and in 1998. These savings would by offset by reduced
    examination fees paid to the Federal Reserve by foreign banks
    of $1 million in 1997 and $14 million in 1998. The net
    reduction in governmental receipts through 1998 would total $2
    million, as shown in the following table.

    ------------------------------------------------------------------------
                                                     1996     1997     1998
    ------------------------------------------------------------------------
    Change in outlays............................        0        0        0
    Change in receipts...........................        3        4       -9
    ------------------------------------------------------------------------

        8. Estimated cost to State and local governments: CBO
    estimates that the provisions of H.R. 1858 would have two
    direct impacts on state governments. First, it would increase
    the costs of administering state insurance laws in states that
    currently allow banks to sell insurance. These costs would
    likely be offset by increased receipts from examination and
    licensing fees. Second, it would reduce the cost of
    administering state banking laws. These savings would be
    partially offset by a reduction in bank examination fees.
        In total, CBO estimates that the net budgetary impact of
    H.R. 1858 on states would be negligible. Local government
    budgets would not directly be affected by H.R. 1858.
        Bank holding company sales of insurance.--Section 211 of
    the bill would allow bank holding companies to sell insurance
    in states that currently allow banks to sell insurance. As of
    May 1995, the Conference of State Banking Supervisors noted
    that there were 34 states that allowed banks to sell insurance
    in some form.
        This provision, which would take effect in April 1997,
    means that bank holding companies would be able to buy or
    establish their own insurance affiliates or form alliances with
    insurance companies to sell insurance in their banks in these
    34 states. This would result in additional work for state
    insurance regulators who would be required to perform more
    examinations of insurance companies or affiliates and license
    more agents.
        The number of bank holding companies that would take
    advantage of this provision is unknown at this time but would
    vary from state to state based on existing state laws. In some
    states there would be no increase in workload because state
    laws are the same as the existing federal law (bank holding
    companies may only sell insurance in towns with a population
    less than 5,000). In other states, workload increases would
    vary based on the state's insurance climate and laws regulating
    insurance sales by banks.
        Some states would be able to reduce their costs by
    undertaking examinations of insurance companies in conjunction
    with other states. Also some states do not separately examine
    all companies. For example, if a company is domiciled in
    another state, and has received a superior rating, some states
    do not undertake a separate examination. Other times there may
    be no cost increase because a bank holding company has bought
    an existing insurance company within the state. Finally,
    additional costs incurred by states would likely be offset by
    recoveries from examination and licensing fees.
        According to the National Association of Insurance
    Commissioners (NAIC), there were more than 8,200 domestic
    insurers (of all types) and 1.59 million insurance producers in
    1993. State insurance regulators conducted in excess of 4,200
    financial and market conduct exams during that year. NAIC
    reports that state insurance departments will spend close to
    $650 million on their regulatory activities in 1995. The
    provisions of section 211 would increase costs by at most a
    small percentage of this amount.
        Expanded regulatory discretion for small bank
    examinations.--Section 226 of the bill would allow federal
    regulators to examine banks that meet certain asset and rating
    requirements every eighteen months. Under current law, these
    banks must be examined every twelve months. The provisions of
    this section would take effect in September 1996 if federal
    regulators choose to implement them.
        These changes should reduce state bank examination costs
    because most states coordinate their bank examinations with the
    federal government. It is likely that many states would follow
    the federal government's lead in relaxing examination schedules
    for small banks. Section 226 would encourage coordinated
    examinations by requiring the FDIC to submit semiannual reports
    to Congress on progress being made to achieve this goal.
        The savings to states from this measure are difficult to
    predict, although CBO would expect them to be less than the
    savings achieved by the FDIC. Some states already allow for
    longer examination cycles than provided in this bill, while
    other states might not want to coordinate examinations with the
    federal government. Thus, it is likely that the savings from
    this provision would only represent a small percentage of the
    $300 million states spend annually regulating banks. Finally,
    savings by states would be partially offset by a reduction in
    receipts from bank examination fees.
        Sales of insurance by national banks.--Section 240 and 241
    of the bill combined to allow national banks to sell insurance
    in empowerment zones. For purposes of this bill, empowerment
    zones include enterprise communities and Indian reservations.
    There are currently nine empowerment zones and 95 enterprise
    communities. To sell insurance in these areas, however, a
    national bank must provide sufficient evidence that
    competitively priced insurance products are not adequately
    available.
        Enactment of these provisions would result in additional
    work for state insurance regulators who would be required to
    license more agents and review the new relationships between
    national banks and insurance companies. The number of national
    banks that would take advantage of this new authority and the
    cost of regulating them is difficult to predict. They would
    vary from state to state based on existing state laws, the
    state's insurance climate, and the willingness of the OCC to
    override state laws. It is likely that the cost increases from
    these provisions would be quite small, and that they would be
    offset by recoveries from examination and licensing fees.
        9. Estimate comparison: None.
        10. Previous CBO estimate: None.
        11. Estimate prepared by: Federal Costs: Mary Maginniss and
    Mark Booth. State and Local Costs: Marc Nicole.
        12. Estimate approved by: Robert R. Sunshine for Paul N.
    Van de Water, Assistant Director for Budget Analysis.
                                    ------

                                         U.S. Congress,
                                   Congressional Budget Office,
                                      Washington, DC, February 8, 1996.
    Hon. James A. Leach,
    Chairman, Committee on Banking and Financial Services,
    House of Representatives, Washington, DC.
        Dear Mr. Chairman: The Unfunded Mandates Reform Act of 1995
    (Public Law 104-4) took effect on January 1, 1996. The new law
    requires the Congressional Budget Office (CBO) and
    Congressional committees to carry out a number of new
    activities. I am writing to you today to let you know how CBO
    plans to fulfill its responsibilities under the new law and to
    provide you with mandate cost statements for those bills under
    your jurisdiction that were on the House calendar as of January
    23, 1996.
        New responsibilities under the act.--The new law requires
    CBO to provide a statement to authorizing committees as to
    whether reported bills contain federal mandates. For
    legislation that contains identifiable federal mandates, CBO is
    required to estimate their aggregate direct costs. If those
    costs are above a specified threshold in the fiscal year that
    the mandate is first effective or in any of the four following
    years, CBO must provide an estimate of the costs, if feasible,
    and the basis of the estimate. The threshold is $50 million for
    intergovernmental mandates and $100 million for private-sector
    mandates.
        Any member may raise a point of order against any reported
    bill unless the committee has published a CBO statement about
    mandates costs. A member may also raise a point of order
    against any bill, amendment, motion, or conference report that
    would increase the direct costs of federal intergovernmental
    mandates by more than $50 million unless the bill provides for
    funding (either by creating direct spending authority or by
    authorizing future appropriations) and provides a mechanism for
    terminating or scaling back mandates if agencies determine that
    there are not sufficient funds to cover those costs. We have
    enclosed with this letter a more detailed description of the
    new law and a brief summary of the new responsibilities
    assigned to CBO and Congressional committees.
        Whenever possible in future cost estimates, CBO will be
    explicit about whether a bill contains mandates. If we are
    uncertain, we will say so in the mandate statement and provide
    as much detail as possible so that the Congress can decide
    whether points of order apply to the bill.
        In order to have sufficient time to prepare mandate cost
    statements, we will need to know about potential legislation as
    early as possible, particularly those bills that might contain
    mandates. Because it takes time to prepare mandate analyses, we
    would greatly appreciate receiving early notification about
    your legislative agenda for the year. It might also be
    helpful--for both your committee and ourselves--if your staff
    would contact us early in the process of dealing with
    legislation that might contain mandates. The CBO staff contacts
    for your committee are: for intergovernmental mandates: Theresa
    Gullo; for private sector mandates: Elliot Schwartz.
        Bills on the House Calendar.--Enclosed with this letter are
    two lists of the legislation on the calendar as of January 23,
    1996, that is under your committee's jurisdiction: one for
    intergovernmental mandates and one for private-sector mandates.
    The list group the legislation into three categories: those
    that do not contain mandates as defined in Public Law 104-4;
    those that contain mandates but the direct costs are below the
    relevant thresholds; and legislation that we need to review
    further.
        We look forward to working with your committee in these new
    endeavors. Your assistance will be extremely important to us as
    we strive to provide high quality and timely statements of
    mandates costs to the Congress. If you have any questions about
    CBO's new activities or about the enclosed lists, please feel
    free to contact me or the staff contacts listed above.
                Sincerely,
                                             June E. O'Neill, Director.
        Enclosures.

    intergovernmental mandate statement for bills on the house calendar (as
                              of january 23, 1996)

        Committee: Banking and Financial Services.
        Bills that do not contain mandates: H.R. 1062, Financial
    Services Competitiveness Act of 1995; H.R. 1858, Financial
    Institutions Regulatory Relief Act of 1995.
        Bills that contain mandates, but aggregate net costs are
    below $50 million: None.
        Bills that require further review: None.

    private sector mandate statement for bills on the house calendar (as of
                               january 23, 1996)

        Committee: Banking and Financial Services.
        Bills that do not contain mandates: None.
        Bills that require further review: H.R. 1062, Financial
    Services Competitiveness Act of 1995; H.R. 1858, Financial
    Institutions Regulatory Relief Act of 1995.
                                    ------

                                         U.S. Congress,
                                   Congressional Budget Office,
                                          Washington, DC, May 30, 1996.
    Hon. Jim Leach,
    Chairman, Committee on Banking and Financial Services,
    House of Representatives, Washington, DC.
        Dear Mr. Chairman: In previous correspondence dated
    February 8, 1996, regarding The Unfunded Mandates Reform Act of
    1995 (Public Law 104-4), the Financial Institutions Regulatory
    Relief Act of 1995 (H.R. 1858) was listed as requiring further
    review for private-sector mandates. The Congressional Budget
    Office (CBO) has now completed its review of this bill.
        CBO finds that H.R. 1858 would impose several new mandates
    on the private sector. The direct costs of the private-sector
    mandates identified in this bill, however, would not likely
    exceed the $100 million threshold established in Public Law
    104-4.
        Provisions in Section 105--Ensuring Honoring of Lock-in
    Promises under Disclosures for Adjustable Rate Mortgages in the
    Truth in Lending Act--and Section 153--Notice of Adverse Action
    under the Equal Credit Opportunity Act Amendments--contain
    mandates that would impose new disclosure or reporting
    requirements on financial institutions. In order to comply with
    the new requirements in Section 105, financial institutions
    anticipate that they would need to design new forms, train loan
    officers, and change operation manuals. Industry
    representatives were unable to provide the precise data
    necessary to estimate the direct costs of these new
    requirements, but it appears that the net costs would not
    exceed the threshold level identified in Public Law 104-4. The
    new requirements under Section 153, would not involve major
    changes or costs for industry compliance.
        Section 114 revises the Truth in Lending Act in a way that
    makes consumers who exercise their right to rescission in loan
    transactions responsible for paying any charges for an
    appraisal report or credit report. Under current law, consumers
    who rescind loan transactions receive a full refund of the
    costs they incurred during the loan process. According to
    industry experts and consumer groups, consumers rarely use the
    right to rescind, therefore making the incremental costs to
    consumers as a whole small. This provision could, however,
    change the potential costs of procuring a loan in such a way as
    to preclude rescission as a cost-effective option for some
    consumers.
        A provision in Section 125--Special Purpose Financial
    Institutions--requires new standards under which special
    purpose institutions (as defined in the bill to mean a
    financial institution that does not accept deposits from the
    public of less than $100,000) may be deemed to comply with
    Community Reinvestment Act (CRA) requirements. It is unclear
    whether these new standards would have any effect on an
    institution's cost of compliance under CRA. There may also be
    new standards imposed by Section 163, which requires written
    regulations or staff commentary to update and clarify
    requirements for lease disclosures, contracts, and other issues
    related to consumer leasing under the Consumer Credit
    Protection Act. Most industry sources expect that the new
    standards would be less costly than existing rules.
        If you wish further details on this analysis, we will be
    pleased to provide them. The CBO contact is Patrice Gordon.
                Sincerely,
                                     June E. O'Neill, Director.