Nonetheless, Leach announced that the Committee would go forward with a slimmer banking bill including a regulatory rollback package that -- contrary to most press reports -- contains a major assault on the Community Reinvestment Act (CRA).
The draft of the new package creates a "safe harbor" by insulating most institutions from CRA review by the public or regulatory agencies when they file applications for mergers or consolidations. Review of an institution's community lending performance under the applications process -- with input from affected communities -- is the only effective enforcement tool available since cease and desist orders, civil money penalties and similar enforcement mechanisms do not apply to CRA.
The safe-harbor language and the HMDA exemptions came as a surprise after Leach had promised that the revised version of the legislation would delete "the most controversial" provisions of the regulatory rollback.
Democrats, who have supported CRA, did not use the open mark up session to challenge Leach on his proposal for revised regulatory rollbacks or to seek a definition of the Chairman's reference of "non-controversial." Instead, they waited for Leach to again go behind closed doors and draft the new version with a CRA poison pill. [Note to Democrats: Gutting CRA is not part of the definition of the word "controversial" in the Leach Dictionary.]
Meanwhile, a second anti-CRA anti-consumer front has been opened by Representative Doug Bereuter of Nebraska, the Committee's fourth ranking Republican. He has reintroduced his regulatory rollback legislation, containing most of the provisions adopted by the Committee a year ago and later scuttled by Leach. The new Bereuter bill contains exemptions from CRA for more than half of the nation's banks and creates a "safe harbor" to shield banks from protests.
Clearly unhappy with Leach's inability to move the original bill, Bereuter may be bypassing the Chairman in attempts to move his new version to the floor. He has approached Rules Committee Chairman Gerald Solomon for help in the effort. One possibility: the Rules Committee could adopt a rule (procedures for debate) that would allow the House of Representatives to consider the Bereuter bill as a substitute to the slimmer Leach package.
Both Leach and Bereuter have talked about combining their bills with plans to recapitalize the Savings Association Insurance Fund (SAIF), a measure which is now at the top of the agenda in the Committee. The Clinton Administration is also lobbying heavily for a legislative fix for SAIF.
But, the maneuvers over regulatory rollbacks and SAIF still face the high hurdles of competing banking and insurance interests -- the problem that has plagued banking legislation for the past year.
The insurance agents have made it clear that they will fight any banking bill that doesn't include a curb on the Comptroller of the Currency's ability to grant banks additional insurance powers.
And the banks have made it equally clear that they will attack any legislation that places a moratorium on OCC or limits banks' role in insurance -- a stand that hardened after the Supreme Court earlier this year confirmed the banks authority to sell insurance from small towns.
On the SAIF issue, the banks are spending big cash to prevent any insurance recapitalization plan that would require a contribution from banks. As a result, the Banking Committee is looking at a long list of options to avoid disturbing the bank lobby.
And with big PAC money and a difficult election year at hand, the Republican leadership doesn't want its members to be thrown headlong into the meat grinder of either lobbying power, particularly if the bills require members to choose between competing interests.
At the moment, the odds on floor action on regulatory rollbacks are less than 50-50. On a SAIF recapitalization plan, the odds are better, particularly if the Congress, as expected, wimps out on the proposal for banks to help stabilize the deposit insurance funds.
"...for all the political hullabloo, this was essentially a follow-the-money case involving white collar financial crime. An Arkansas jury figured it out and rendered a courageous and sensible judgment, sending a signal that in America no one is above the law.
"To be sure, the cost of the investigation has been high, but not as high as the losses suffered by taxpayers from the failure of the S&L and SSBIC [Specialized Small Business Investment Corp.] and, more importantly, not as high as the cost to society if insider conflicts of interest had been covered up and allowed to go unpunished.
"Care has to be taken to ensure that the established guilt of one party does not imply the guilt of political colleagues, business partners, or witnesses for the defense.
"But care must also be taken not to accept at face value any assertion that the verdict in Little Rock has 'nothing to do with Whitewater.' Careful examination of the trial record upon which the jury's decision was based suggests otherwise.
"The final witness called by the prosecution in its nine-week case was an FBI special agent who presented a detailed analysis of the disposition of the proceeds of a $300,000 loan made by the SSBIC, Capital Management Services -- the federally-subsidized small business investment company established to provide minority entrepreneurs with start-up capital -- to one of the Whitewater business partners, Susan McDougal.
"The FBI agent testified that nearly $50,000 of the total $300,000 loan was used to cover Whitewater related expenses: $25,000 went to fund a partial down payment on land purchased by Whitewater Development Corporation from the International Paper Company; and $24,455 was deposited in Whitewater's account at the McDougals' S&L, Madison Guaranty to cover a Whitewater payment to Ozark Realty Company which served as a broker on Whitewater lot sales.
"... some have suggested that the conflicts of interest at play in Whitewater are of a petty size...What Americans innately understand is that it is the principle, not dollar amount, that matters, and that there is no fail-safe inoculation against corruption which is epidemic in so many countries today.
"One of the lessons of our times is that if conflicts of interest are tolerated at any level of government, they will corrode the public trust and weaken the sinews of society. That is why public accountability for the small misdeeds of big people must never be given short shrift."
This time, the debate -- led by Senators Tom Harkin, Byron Dorgan, Harry Reid and Paul Wellstone -- raised serious questions about the performance of Federal Reserve Chairman Alan Greenspan with particular emphasis on the slow-growth, high-interest policies that have been a trademark of Greenspan's first two terms.
The three days of debate also placed a spotlight on critical issues involved in the lax management of the entire Federal Reserve System, citing a recently released study by the General Accounting Office and touching on many areas of waste and abuse that have been raised in a series of inquiries by Representative Henry Gonzalez of the House Banking Committee.
But, on the final day of the debate many in the Senate returned to form, transforming the event once again into a coronation, rather than a serious discussion of how the nation's monetary policy is conducted and the 25,000-person Federal Reserve bureaucracy is managed.
Foremost among those rising to bless the Federal Reserve Chairman was New York Senator Patrick Moynihan who declared Greenspan a "national treasure."
In the end, seven Senators -- a record number in opposition to a Federal Reserve Chairman -- voted "no" on President Clinton's renomination of Greenspan.
The seven voting for a more open, better managed and a pro-growth Federal Reserve were Senators Tom Harkin, Byron Dorgan, Harry Reid, Paul Wellstone, Kent Conrad, Bob Kerrey and Russell Feingold.
He has sent investigators from the General Accounting Office to conduct an "emergency audit" concerning discrepancies in cash reports compiled in the Los Angeles branch of the San Francisco Federal Reserve Bank.
In a letter to Federal Reserve Chairman Alan Greenspan, Gonzalez said he had received information that the Los Angeles branch had falsified reports to cover errors of more than $178 million in the records of currency placed in circulation for the last three months of 1995. Gonzalez said he had received information that there were a "number of other errors" in reports involving the misclassification of coins and paper currency.
"We cannot allow the central bank of the United States, the main custodian of the nation's currency and coin, to commit continual and serious errors in reporting its currency and coin operations, nor can falsification of reports of currency activities be permitted," Gonzalez told Greenspan.
Much of the credit for the new found stability goes to Federal District Judge Ricardo Urbina who ruled that President Clinton was within his legal authority to give Mrs. Yolanda Townsend Wheat a recess appointment on the NCUA board.
The holdover board member -- Robert Swan -- whose term expired last August had sued the President, contending that Mrs. Wheat's appointment was illegal and that he (Swan) was entitled to keep the office until the Senate confirmed a successor. Judge Urbina dismissed Swan's suit, possibly ending the long-running dispute.
Not only did the decision validate Mrs. Wheat's appointment, but it also cleared away the potential for a challenge to new regulations voted by the NCUA board to provide stronger supervision over corporate credit unions. The vote to issue the tougher regulations was 2 to 1 with Mrs. Wheat joining Chairman Norm D'Amours in support with the lone Republican member, Shirlee P Bowne, voting against.
D'Amours was under pressure from the Senate Banking Committee to strengthen the regulations when Capital Corporate Credit Union failed in 1995 after investing heavily in mortgage derivatives. D'Amours supervised the drafting of new rules, but was fearful that they would be defeated if Swan continued to insist on retaining the board seat, expiration of his term notwithstanding. Swan often opposed D'Amours on regulatory issues including the decision to close Cap Corp.
The NCUA travails still continue on two fronts (1) in the Senate Banking Committee where Mrs. Wheat needs confirmation for a full term; and (2) in the House Banking Committee where Investigations Subcommittee Chairman Jim Bachus continues to fish through documents relating to the ouster of Swan and closing of Cap Corp.
Restored in the rewrite was the requirement for depository institutions to specify the annual percentage yield (APY) on savings in advertisements and other disclosures to consumers. The APY is the main guideline used by consumers in shopping for the best return on savings. Without this standard disclosure, consumers are left with a dizzying array of terms that defeat the Act's primary purpose of providing savers consumers a clear statement of what they earn on their money.
The bill, however, continues to exempt institutions from civil liability when they mislead consumers on savings accounts. Legislation pending in the Senate contains a similar exemption.
The draft also restores disclosures on first liens that had been deleted from the "high cost" mortgage provisions of the Truth in Lending Act in last year's Committee markup of the big banking package. Instead of wiping out the disclosures, the new draft simply calls for a two-year study of high-cost mortgages by the Federal Reserve.
The provisions -- which apply to high interest-high fee loans--were added to the Truth in Lending Act in 1994 to deter aggressive and abusive lending practices that had victimized many borrowers who obtained the high cost mortgages. In addition to disclosures, the high cost mortgage provisions limit such credit terms as balloon payments, negative amortization and prepayment penalties.
But, moving quietly through the House Banking Committee is legislation that would greatly expand the role and membership of another sizeable enterprise that enjoys government sponsorship -- the Federal Home Loan Bank System and its 12 regional banks.
Under a bill sponsored by Representative Richard Baker, the mission of the Home Loan Banks would mushroom from its primary role as a provider of collaterlized advances to its member institutions for long-term housing finance into a broad-based ill-defined mission in support of "community development lending." The Clinton Treasury Department fears the proposal could lead to an open-ended source of untargeted general purpose subsidized lending.
The 12 Home Loan Banks were placed under a newly created Federal Housing Finance Board after the Federal Home Loan Bank Board was dissolved in the 1989 savings and loan reform legislation.
Since then, the System has been in search of a mission and membership to justify its existence. As part of the reform bill, the then-Chairman of the House Banking Committee -- Henry B. Gonzalez -- pushed through a provision requiring the Home Loan Banks to make funds available for an affordable housing program carefully targeted to low-income areas. He also sponsored amendments which allowed the System to expand its membership from savings and loans to include banks that had significant housing portfolios.
Apparently, Gonzalez's intent to limit the membership to housing oriented depository institutions is being circumvented by allowing mortgage backed securities (MBSs), rather than mortgage loans, to count toward membership eligibility. As Treasury has pointed out, the mortgage backed securities enjoy a well-developed and liquid market with no shortage of buyers. Thus, by funding member investments in the MBSs or allowing holdings in mortgage-backed securities to qualify an institution for membership, the System does little to expand the availability of mortgage money.
Rather than advances for housing finance, much of the System's current activity and money is involved in various investments, including securities, which generate income in the form of dividends for its member institutions. In 1995, the dividends to the members increased 20 percent over the previous year.
The System engages in a great deal of short-term lending to its members. Treasury calculations based on Housing Finance Board data indicate that more than 99 percent of the advances extended in 1995 had original maturities of five years or less, suggesting a greater use of the System as a short-term liquidity facility than for purposes of long-term mortgage financing.
The Federal Housing Finance Board, created under the 1989 savings and loan legislation, is intended to be the watchdog over the activities of the 12 Home Loan Banks. But, throughout the history of the Home Loan Bank System, the regional Banks have operated in a somewhat autonomous manner, with the presidents elected by boards of directors dominated by representatives of member institutions.
The current Chairman of the Federal Housing Finance Board Bruce Morrison, a former member of Congress from Connecticut, was appointed by President Clinton. Morrison served on the House Banking Committee when the Housing Finance Board was created in the savings and loan reform legislation.
Here are the current base salaries and incentive bonuses for the presidents of each of the 12 Banks:
Salary Incentive
Boston $279,900 $91,806
New York $279,700 $75,415
Pittsburgh $268,036 $79,833
Atlanta $300,000 $85,540
Cincinnati $283,400 $90,480
Indianapolis $245,648 $76,490
Chicago $263,175 $59,589
Des Moines $245,650 $69,412
Dallas $235,000 N/A
Topeka $247,500 $42,543
San Francisco $303,500 $94,612
Seattle $287,400 $78,100
Just before the Fourth of July recess, he fired off a memorandum to all members of the Committee calling for action on the issue this session and warning:
"...anyone who thinks the BIF-SAIF issue will simply go away or that there are any approaches to solving the problem which will not offend someone is smoking something they shouldn't. The issue cannot be responsibly ducked."
Leach followed up the warning with a new set of options--sources of funds--that could be tapped to solve the SAIF problems.
The list of possible donors includes commercial banks, the Federal Reserve System and the GSEs (government sponsored enterprises).
In addition to recapitalizing the SAIF fund, the plan must provide a means of meeting the annual interest cost of nearly $800 million on the old Financing Corporation (FICO) bonds issued in 1987 in a failed attempt to bail out the savings and loan industry without using tax funds.
A MESSAGE FROM RALPH NADER:
But, extend these First Amendment arguments to include the Federal Reserve System and much of the national media becomes defensive, and transforms itself into something that resembles more a protection society for the monetary managers than an aggressive watchdog demanding answers from government bureaucrats.
That's what happened when Senator Tom Harkin and a handful of other Senators suggested that there be a full debate on the reappointment of Alan Greenspan to a third four-year term as Chairman of the Federal Reserve Board.
Some of the major media players became apoplectic at the thought that monetary policy -- and the management of the world's single most powerful economic agency -- would be debated by the people's representatives in the U. S. Senate.
The Washington Post labeled the demand for a debate on Greeenspan's chairmanship as "obstructionist".
The New York Times blasted Senator Harkin's criticism of Greenspan as "thoughtless barbs."
"Mr. Harkin's carping is not just annoying, it is wrong," the Times told its readers.
Wall Street Journal columnist Al Hunt, appearing on CNN television, called the Senators action on the Greenspan nomination the "outrage of the week."
The Federal Reserve Protection Society was in full voice. And almost all of the media critics mislabeled the action of Senator Harkin and his colleagues as an effort to "block" the nominations and prevent a vote by the full Senate.
This claim was false, and the media had every reason to know that it was. From the start, Senator Harkin made it clear he had no illusions about defeating Greenspan's nomination. He simply wanted time to debate the management of monetary policy before Greenspan was anointed again and exited into the dark recesses of the Federal Reserve.
If there were "obstructionists" it was the Senate Republican leadership which opposed the request for debate time and delayed calling up the Greenspan nomination and that of the other nominees to the Federal Reserve Board in hopes that political -- and editorial -- pressure could discourage debate.
To their credit, Harkin and Senators Byron Dorgan, Harry Reid and Paul Wellstone resisted the pressure and ultimately the Senate leadership gave up its delaying tactics and provided three days for a debate.
As a result, Greenspan's slow-growth high-interest rate policies and the increasing concern about the quality of management of the entire Federal Reserve System got an airing on the Senate floor. While C-Span cameras recorded the event, the media -- both print and electronic -- gave only sparse mention and little substance of the debate.
The extended and vehement opposition to the debate in an institution that prides itself on its rules for open debate only serves to dramatize the protective cocoon that surrounds the Federal Reserve.
Both the Senate and House Banking Committees treat the Federal Reserve and its personnel with the softest of kid gloves. The hearings on the Board's semi-annual reports on monetary policy have become little more than public relations opportunities for the Federal Reserve and forums for members of Congress to express their knee-jerk devotion to the Fed.
Politicians in the White House and the U. S. Congress are not likely to demand openness and accountability at the Federal Reserve so long as the national media is content to take stale handouts from the Fed in lieu of press conferences and full disclosure and lend its editorial muscle to dampen debate as it did in the Greenspan renomination.