[Weekly Compilation of Presidential Documents Volume 35, Number 45 (Monday, November 15, 1999)]
[Pages 2363-2366]
[Online from the Government Publishing Office, www.gpo.gov]

<R04>
Statement on Signing Legislation To Reform the Financial System

November 12, 1999

    Today I am pleased to sign into law S. 900, the Gramm-Leach-Bliley 
Act. This historic legislation will modernize our financial services 
laws, stimulating greater innovation and competition in the financial 
services industry. America's consumers, our communities, and the economy 
will reap the benefits of this Act.
    Beginning with the introduction of an Administration-sponsored bill 
in 1997, my Administration has worked vigorously to produce financial 
services legislation that would not only spur greater competition, but 
also protect the rights of consumers and guarantee that expanded 
financial services

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firms would meet the needs of America's underserved communities. Passage 
of this legislation by an overwhelming, bipartisan majority of the 
Congress suggests that we have met that goal.
    The Gramm-Leach-Bliley Act makes the most important legislative 
changes to the structure of the U.S. financial system since the 1930s. 
Financial services firms will be authorized to conduct a wide range of 
financial activities, allowing them freedom to innovate in the new 
economy. The Act repeals provisions of the Glass-Steagall Act that, 
since the Great Depression, have restricted affiliations between banks 
and securities firms. It also amends the Bank Holding Company Act to 
remove restrictions on affiliations between banks and insurance 
companies. It grants banks significant new authority to conduct most 
newly authorized activities through financial subsidiaries.
    Removal of barriers to competition will enhance the stability of our 
financial services system. Financial services firms will be able to 
diversify their product offerings and thus their sources of revenue. 
They will also be better equipped to compete in global financial 
markets.
    Although the Act grants financial services firms greater latitude to 
innovate, it also contains important safety and soundness protections. 
While the Act allows common ownership of banking, securities, and 
insurance firms, it still requires those activities to be conducted 
separately within an organization, subject to functional regulation and 
funding limitations.
    Both the Vice President and I have insisted that any financial 
services modernization legislation must benefit American communities by 
preserving and strengthening community reinvestment. I am very pleased 
that the Act accomplishes this goal. The Act establishes an important 
prospective principle: banking organizations seeking to conduct new 
nonbanking activities must first demonstrate a satisfactory record of 
meeting the credit needs of all the communities they serve, including 
low- and moderate-income communities. Thus, the law will for the first 
time prohibit expansion into activities such as securities and insurance 
underwriting unless all of the organization's banks and thrifts maintain 
a ``satisfactory'' or better rating under the Community Reinvestment Act 
(CRA). The CRA will continue to apply to all banks and thrifts, and any 
application to acquire or merge with a bank or thrift will continue to 
be reviewed under CRA, with full opportunity for public comment. The 
bill offers further support for community development in the form of a 
new Program for Investment in Microentrepreneurs (PRIME), to provide 
technical help to low- and moderate-income microentrepreneurs.
    The Act includes a limited extension of the CRA examination cycle 
for small banks and thrifts with outstanding or satisfactory CRA 
records, but expressly preserves the ability of regulators to examine 
these institutions at any time for reasonable cause, and does not affect 
regulators' authority in connection with an application. The bill also 
includes a requirement for disclosure and reporting of CRA agreements. 
The Act and its legislative history have been crafted to alleviate 
burdens on banks and thrifts and those working to stimulate investment 
in underserved communities. It is critical that depository institutions 
and their community partners continue efforts that have led to the 
highest home ownership rate in our history, including a particularly 
dramatic increase in recent years in minority and low-income home 
ownership. My Administration remains committed to ensuring that 
implementation of these provisions does not in any way diminish 
community reinvestment, and stands ready to remedy any problems that may 
arise.
    Last May, I proposed strong and enforceable Federal privacy 
protections for consumers' financial information. I am very pleased that 
the Act provides a number of the new protections that I proposed.
    Under the Act, financial institutions must clearly disclose their 
privacy policies to customers up front and annually, allowing consumers 
to make truly informed choices about privacy protection. For the first 
time, consumers will have an absolute right to know if their financial 
institution intends to share or sell their personal financial data, 
either within the corporate family or with an unaffiliated third-party. 
Consumers will have the right to ``opt out'' of such information sharing

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with unaffiliated third parties. These protections constitute a 
significant change from existing law, under which information on 
everything from account balances to credit card transactions can be 
shared or sold by a financial institutions without a customer's 
knowledge or consent, including the sale of information to telemarketers 
and other nonfinancial firms.
    Of equal importance, these restrictions have teeth. For the first 
time, the Act allows privacy protection to be included in regular bank 
examinations. The Act grants regulators full authority to issue privacy 
rules and to use the full range of their enforcement powers in case of 
violations. The Act grants new, and needed, rulemaking authority under 
the existing Fair Credit Reporting Act. In addition, it establishes new 
penalties to prevent pretext calling, by which unscrupulous persons use 
deceptive practices to determine the financial assets of consumers. The 
Act will specifically allow the States to provide stronger privacy 
protections if they choose to do so.
    Although these are significant steps forward, we will continue to 
press for even greater privacy protections--especially choice about 
whether personal financial information can be shared within a corporate 
family. Privacy is fundamental to Americans, and to my Administration.
    The Act also streamlines supervision of bank holding companies and 
preserves financial regulation along functional lines. Activities 
generally will be overseen by those regulators who are most 
knowledgeable about a given financial activity, including the Securities 
and Exchange Commission for securities activities and State regulators 
for insurance activities. Given the broad new affiliations permissible 
under this legislation, I fully expect our regulators to work together 
to protect the integrity of our financial system. The bill also promotes 
the safety and soundness of our financial system by enhancing the 
traditional separation of banking and commerce. The bill limits the 
ability of thrift institutions to affiliate with commercial companies.
    There are provisions of the Act that concern me. The Act's 
redomestication provisions could allow mutual insurance companies to 
avoid State law protecting policyholders, enriching insiders at the 
expense of consumers. We intend to monitor any redomestications and 
State law changes closely, returning to the Congress if necessary. The 
Act's Federal Home Loan Bank (FHLB) provisions fail to focus the FHLB 
System more on lending to community banks and less on arbitrage 
activities and short-term lending that do not advance its public 
purpose.
    The Act raises certain constitutional issues with respect to the 
insurance privacy provisions in title V. The Act might be construed as 
contrary to Supreme Court decisions that hold that the Congress may not 
compel States to enact or administer a Federal regulatory program. I 
interpret section 505(c) of the Act, however, as providing States with a 
constitutionally permissible choice of whether to participate in such a 
program. States that choose to participate will gain the powers listed 
in section 505(c); States that decline will not. I believe that the 
Congress, in giving States a choice (in section 505(c)) whether to 
``adopt regulations to carry out this subtitle,'' intended to allow 
States to accept or decline all of the rulemaking and enforcement 
obligations assigned to State authorities under sections 501-505 of the 
Act. This interpretation is consistent with the explanation in the 
conference report that both the rulemaking and enforcement roles of 
State insurance authorities are voluntary not mandatory.
    Section 332(b) of S. 900 provides for Presidential appointment of 
the board of directors of the National Association of Registered Agents 
and Brokers (NARAB), established by the bill in the event that certain 
stated conditions occur. Because members of the NARAB board would 
exercise significant Federal governmental authority under those 
conditions, they must be appointed as Officers pursuant to the 
Appointments Clause of the Constitution. Under section 332(b)(1) of the 
bill, the President would be required to make such appointments from 
lists of candidates recommended by the National Association of Insurance 
Commissioners. The Appointments Clause, however, does not permit such 
restrictions to be imposed upon the

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President's power of appointment. I therefore do not interpret the 
restrictions of section 332(b)(1) as binding and will regard any such 
lists of recommended candidates as advisory only.
    The Gramm-Leach-Bliley Act is a major achievement that will benefit 
American consumers, communities, and businesses of all sizes. I thank 
all of those individuals who played a role in the development and 
passage of this historic legislation.
                                            William J. Clinton
The White House,
November 12, 1999.

Note: S. 900, the Gramm-Leach-Bliley Act, approved November 12, was 
assigned Public Law No. 106-102.