Despite a frenzied effort by the leadership of the Banking and Commerce Committees, the House of Representatives plans to adjourn the first session of the 105th Congress without taking up a 300-page omnibus banking and financial services bill.The failure to move the legislation through the House in the first session is a significant setback for proponents of a bill which would have allowed banks, insurance companies, securities firms and industrial corporations to link ownership in mega conglomerates.
The legislation must now be re-started in the second session under election-year pressure. Many of the contentious issues which have divided competing industry lobbyists will undoubtedly be reopened in the second session. Under the press of time, some industry groups have agreed tentatively and, in many cases, reluctantly to accept what they considered less than attractive compromises.
Faced with a new session, many of these tenuous compromises may fall apart. This could again delay floor action until later in the spring or summer of the second session. Supporters of the legislation had hoped to gain passage in the late hours of the first session and to have the bill neatly wrapped on Senate Banking Committee Chairman Alfonse D'Amato's desk when the bells sounded for the second session of the 105th Congress in January.
Only a select group of Members participated in the last-minute House negotiations. It is unknown whether the other Members of the two Committees will demand regular order when the second session begins and insist that the changes in the legislation be considered by the full Committee membership in open session before it goes to the floor.
As the House adjourned, staff of the Banking and Commerce Committees were working into the night to settle differences between the two Committee's bills and to meet last minute compromises fashioned for industry groups by the leadership of the Committees. Republican Conference Chairman John Boehner of Ohio, although not a Member of either Committee, was serving as referee as disputes arose in sessions closed to the public.
There were reports that the Commerce Committee negotiators were unhappy that Boehner had sided with the Banking Committee on several key provisions. Significantly, the Commerce Committee team failed to show for a scheduled continuation of negotiations on the last weekend of the session. That, along with a long list of difficult issues still on the table, apparently prompted Boehner to take off his referee's uniform, and issue a "wait until next year" pronouncement.
Still contentious at the end were long-standing differences between the insurance and banking industries over regulation of insurance and the authority of banks to move further into the insurance business.
Also heated were major questions about the survival of the thrift charter. The Banking Committee wiped out the charter and adopted provisions that would convert thrifts into banks and merge the deposit insurance funds of the two industries. Also at stake was the future of so-called "unitary" thrifts which currently have broad powers to engage in non-financial enterprises.
There were also reports that disputes remained concerning the overlapping jurisdiction of the Securities and Exchange Commission (SEC) and the Federal Reserve Board over securities affiliates of the new holding companies.
At the end of the negotiations between the two Committees, provisions were still on the table which would allow a breaching of the wall between banking and commerce -- a major change in the nation's economic system. This would allow banks to own industrial firms as well as securities and insurance companies.
Community, consumer, small bank, rural, labor and senior citizen groups were strongly opposed to the breaching of the commerce/banking wall on the grounds that the move would lead to economic concentration and mis-allocation of banking credit, and limit resources available to communities and neighborhoods across the nation.
The versions on the negotiating table at the end of the session contained only sparse recognition of community and consumer needs. Community and consumer groups are expected to launch a major effort in the second session to include the rights of consumers and communities in the massive changes in the financial industry contemplated in the legislation.
Community groups, in particular, are insisting that the bank affiliates -- insurance, securities and industrial corporation-- be required to meet a community responsibility test similar to the requirements of the Community Reinvestment Act (CRA) for banks.
Both the Commerce and Banking Committees ignored this issue in the first session, and no one pushed for the concept during the closed door negotiations in the closing hours.
Two liberal Democratic Congressmen raised hopes of consumer and community groups high during a markup financial services legislation (HR 10) in the House Commerce Committee in October.Representative Bobby Rush of Chicago offered an amendment which would have required affiliates of bank holding companies -- such as insurance companies and securities firms -- to meet a community responsibility test similar to that required of banks under the Community Reinvestment Act (CRA).
But, even before he completed the explanation of his amendment, Rush announced that he was withdrawing it from consideration. That put the amendment in the trash can and left in doubt where the 51 Members of the Committee stood on an issue critical to community groups all over the nation.
Later in the same markup, Representative Ed Markey -- third ranking Democrat on the Committee -- raised consumer hopes again by offering amendments that would have provided "life line" bank accounts for low-income citizens, combatted redlining of neighborhoods by insurance companies, and protected privacy rights of consumers by limiting the exchange of information among affiliates of holding companies.
But, like his colleague from Chicago, Markey folded his tent and withdrew the amendments without requiring a vote.
The idea of breaching long-standing walls separating banking and commerce created a furor throughout much of official Washington in early 1997.The debate delayed the submission of the Treasury Department's plan for financial modernization. It generated a flurry of activity by consumer, community, small bank, labor, senior citizen, small business and rural groups warning against the economic concentration that would flow from common ownership of banks and industrial firms and other non-financial companies.
It was a major point of controversy when the House Banking Committee took up the financial services legislation in June. But in late October, Chairman Tom Bliley included the proposal in a grab bag enbloc amendment opening the markup of financial services legislation (HR 10) in the House Commerce Committee.
An uproar? A demand for debate? A request for a roll call vote? An urgent appeal for a "no" vote?
None of the above. In fact, not even a whimper. Only a quick voice vote blessing the Chairman's amendment including the precedent shattering approval of breaching the walls of banking and commerce.
On October 30, the Committee on Commerce of the House of Representatives voted out HR 10, an omnibus banking and financial services bill which will allow the formation of conglomerates containing insurance companies, securities firms, banks and non-financial and industrial corporations under common ownership.
Republicans Voting Yes
Tom Bliley, VA
Billy Tauzin, LA
Michael Oxley, OH
Michael Bilirakis, FL
Dan Schaefer, CO
J. Dennis Hastert, IL
Bill Paxon, NY
Paul Gillmor, OH
Michael Crapo, ID
Christopher Cox, CA
Nathan Deal, GA
Steve Largent, OK
Ed Whitfield, KY
Greg Ganske, LA
Charlie Norwood, GA
Rick White, WA
Rick Lazio, NY
James Rogan, CA
John Shimkus, IL
Democrats Voting Yes
John Dingell, MI
Edward Markey, MA
Thomas Manton, NY
Edolphus Towns, NY
Frank Pallone, NJ
Sherrod Brown, OH
Peter Deutsch, FL
Anna Eshoo, CA
Bart Stupak, MI
Eliot Engel, NY
Thomas Sawyer, OH
Karen McCarthy, MO
Ted Strickland, OH
Diane DeGette, CO
Republicans Voting No
Fred Upton, MI
Joe Barton, TX
Richard Burr, NC
Cliff Stearns, FL
Democrats Voting No
Rick Boucher, VA
Elizabeth Furse, OR
Bobby Rush, IL
Ron Klink, PA
Albert Wynn, MD
Gene Green, TX
Ralph Hall, TX
Democratic Abstentions
Bart Gordon, TN
Republican Abstentions
Brian Bilbray, CA
In its two decades of existence, the Community Reinvestment Act has faced numerous attacks.In 1991, the House Banking Committee almost wiped out CRA. In 1995, the new Republican majorities in the Senate and House of Representatives placed CRA on the endangered list.
In these and other lesser assaults through the years, community groups have been able to summon enough support from progressive Members of Congress to hold the line against CRA opponents. Slowly, sectors of the banking industry, particularly some of the larger institutions, have seemed to accept, perhaps reluctantly, that CRA is here to stay
Now, CRA faces a new danger -- the changing nature of the banking system. No longer will community groups be knocking on the doors of traditional banking corporations. In many communities across the nation, the financial center will no longer be just a bank, but giant conglomerates that may contain a big securities firm, a big insurance company and, possibly, a sizeable industrial corporation -- along with a bank.
That's all part of the revolution taking place in the nation's financial community. It's the driving force behind omnibus financial legislation pending in the Congress -- legislation which would authorize common ownership of banks, securities firms, insurance companies and an unspecified array of non-financial firms. Even without legislation, the Federal Reserve and the Office of the Comptroller of the Currency are using their existing authority to combine banks and other financial entities.
CRA applies only to banks (and other depository institutions), not to these new affiliates and subsidiaries that will form the core of financial conglomerates. In many cases, the banks housed in these new conglomerates will be smaller than big brothers in the securities and insurance arenas.
As more emphasis is placed on financial services, and less on banking, will the effectiveness of CRA decline?. Will resources -- financial and managerial -- be shifted from banks to activities of the affiliates? And will this mean fewer resources will be available and evaluated for Community Reinvestment Act purposes?
Only one official in the Clinton Administration -- Comptroller Eugene Ludwig -- has stepped forward to argue that the affiliates should have a community responsibility similar to that required of banks under CRA. He and his General Counsel Julie Williams have been raising the issue in speeches around the nation. The Treasury Department, the Administration's policy arm on financial issues, has remained silent.
The idea of extending a CRA-like test to the affiliates got a cold shoulder during the deliberations on the omnibus financial services legislation in the Commerce and Banking Committees.
Representatives Joe Kennedy, Maxine Waters and Luis Gutierrez offered amendments in the Banking Committee which would have placed a limited community responsibility on the insurance and securities firms. The efforts failed.
If the concept got a chilly reception in the Banking Committee, the response was freezing cold in the Commerce Committee. There, Representative Bobby Rush of Chicago offered an amendment that would have placed a community responsibility on the affiliates, but inexplicably withdrew it without a vote. No one in the Commerce Committee even bothered to engage Rush in a dialogue on the issue.
Outside the Committee rooms, some lobbyists argued that insurance and securities firms do not have the deposit insurance and safety net protections of commercial banks and, therefore, there was no reason to extend a CRA-like responsibility to these firms.
But, this argument ignores the fact that these new conglomerates -- including the securities and insurance firms -- will be wrapped around one or more federally insured banks.
No less an authority than the conservative Chairman of the Federal Reserve Board -- Alan Greenspan -- argues that the subsidy flowing from the federal safety net for banks also benefits non-bank affiliates and subsidiaries. He pressed this argument repeatedly in testimony before the Banking and Commerce Committees.
In the real world of bank regulation, the benefits of the links to banking corporations could be sizeable for subsidiaries of a holding company. Invariably, bank regulators are nervous when an affiliate falls on bad times for fear that the public and the markets will perceive that this also means trouble for the insured bank.
Thus, it is likely that non-bank affiliates will be potential candidates for federal bailouts to protect the insured bank and the taxpayer-backed deposit insurance funds. This fail-safe factor could mean big bucks for non-bank affiliates in the markets.
So, there is a clear rationale for non-bank affiliates -- as well as the banks -- to be required to meet a community responsibility test.
But, a rationale without legislation doesn't buy much for communities. Judging from the attitudes of the Commerce and Banking Committees, community groups have a daunting task in extending a community responsibility test to big securities and insurance companies that are linking hands with the banks to form these new conglomerates.
Some community groups -- and some progressive Members of Congress -- may feel that the issue can be pressed later, after the universe of financial conglomerates grows.
But, this "wait until tomorrow" timetable ignores economic and political realities.
Many of these new conglomerates, authorized under the pending legislation, will be massive collections of financial power. In many communities and regions, if not nationwide, the conglomerates will be dominant economic and political forces.
If community groups think banks wield inordinate power in the legislative halls now, just wait until that banking power is combined with insurance, securities and non-financial firms in a single conglomerate.
How many Members of Congress will be ready to challenge this kind of power, particularly when it is perched in their backyards? Now, these powers want something -- it's feeding time and community groups may be looking at the last chance to really get attention on extending CRA-like responsibilities to the conglomerates.
Under the rules of the House of Representatives, hearings and consideration of legislation are required to be open the public.But, most of the seats at hearings and markup of major legislation are occupied by lobbyists, not the public.
Law firms, trade associations and assorted lobbyists representing corporate interests simply buy every seat in the Committee rooms by employing couriers and others to arrive in the pre-dawn hours to hold places in line. Lobbyists, themselves, arrive just before hearings begin, collect tickets from the couriers and take the seats in the hearing rooms. When the public arrives, they find all the seats occupied.
In a recent markup of financial services legislation in the House Commerce Committee, citizens arriving more than two hours in advance of a markup were told that all the tickets had already been passed out. Clutching the tickets were couriers who later handed the tickets over to lobbyists in return for wads of cash.
"The hearing rooms, for all practical purposes, are being bought by the lobbyists while the public, consumer and community groups, some traveling from long distances to their Congress, are effectively pushed out," Consumer Advocate Ralph Nader wrote in a letter to Speaker of the House Newt Gingrich in late October.
"As leader of the House of Representatives, you -- along with the individual Committee Chairmen -- have a responsibility to maintain the Congressional buildings, including the hearing rooms, as public places, not as arenas for lobbyists," Nader told the Speaker.
Fee income is becoming a huge part of the rosy profit picture that continues among the nation's biggest banks.But, few banks are matching the skyrocketing fee income of First Union Corporation headquartered in Charlotte, North Carolina.
First Union saw its earnings grow by a whopping 41 percent to $505 million in the third quarter. Fee income represented 36 percent of total revenues.
The figures tend to lend weight to the complaints of consumer groups about excessive fees at First Union, which has been expanding rapidly through acquisitions on the east coast from Florida to New Jersey.
Not only are fees an issue, but First Union is also in a rising pool of hot water about questions concerning community reinvestment, employee layoffs and branch closings involved in its acquisition of Signet.
Community groups are not appeased by a last-minute promise by First Union to commit two billion dollars by 2001 for community development in Virginia, District of Columbia and Maryland.
Martin Jeffries, a community leader in Roanoke, Virginia told reporters he was "unimpressed" by the offer, describing it as "as quick and dirty response so regulators can approve this thing [the acquisition of Signet]."
The Federal Reserve has given its approval to the First Union acquisition. It still must pass muster at the Office of the Comptroller of the Currency.
Was it efficiency or backroom deal-making that helped a massive 300-page financial services bill fly through the Commerce Committee in late October?Only one amendment was pushed to a roll call vote throughout separate markups of the legislation in the Finance and Hazardous Materials Subcommittee and the full Commerce Committee. Three other amendments were adopted on voice vote.
The rest of the time, the Members sat like well-behaved school children, accepting only amendments and substitutes prepackaged by the Committee leadership.
In what looked more like a "show and tell" session than a committee markup, a few members did venture forth to offer amendments. But, just as quickly, the Members -- as if on cue -- politely withdrew the amendments without requiring their colleagues to reveal their views in a roll call vote.
Only on final passage, when the outcome was no longer in doubt, did Members suggest that there was any difference of opinion. The Subcommittee reported the bill on a 23 to 2 vote and the full Committee on a 33 to 11 vote with two abstentions.
The quickie markup of the Commerce Committee -- which consumed less than three hours -- was in sharp contrast to full participation by Members of the House Banking Committee, which reported its version of the legislation on June 20.
The Banking Committee's markup covered four long days with Members offering more than 100 amendments followed by two dozen roll call votes and lots of full-throated debate. There was little question where each Member stood on the complex issues involved in banking and financial services when the markup concluded on a 28 to 26 vote approving the package.
The two Committees have substantial areas of overlapping jurisdiction, and this fact has created a great deal of competition -- and sometimes bitterness -- between the bodies over the years. But, on a scale measuring democratic and open processes, the Banking Committee clearly had the edge in the 1997 wars over financial legislation.
The public may not like the end product of either Committee, but at least they have an inkling of how, when and why provisions did or did not emerge in the Banking Committee bill -- and more importantly, the role of individual members in the process. The same can't be said for the Commerce Committee.
THE NATION'S BANKING industry, enjoying year after year of record profits and growing political and economic dominance, has a simple corporate strategy about competition -- "don't meet it, just eliminate it."The industry's current legal battle against the smallest segment of the financial community in terms of assets -- credit unions -- has a wonderful David vs. Goliath character, but it is also a revealing story of just how far banking corporations will go in a reckless campaign to control the financial services playing field to the detriment of consumers.
At stake in the fight is the right of consumers from multiple employee groups to band together to form a single credit union. This right, granted under regulations issued in President Reagan's Administration, has been a huge benefit to workers in small businesses where the number of employees is often too small to support a credit union. By banding together with other employee groups, workers in these small firms can enjoy the benefits of credit union membership.
In a lawsuit brought by the banking industry, the U.S. Supreme Court currently is reviewing a D. C. Court of Appeals ruling that prohibits credit unions from accepting any new employee groups into their field of membership. If the banks prevail in the Supreme Court and the National Credit Union Administration (NCUA) is prohibited from granting charters for multiple-employee credit unions, millions of consumers would be denied the right to form and join credit unions.
The Filene Research Institute estimates that 62 percent of American workers are employed by companies which are too small to support a credit union. Several thousand credit unions, representing more than 150,000 employee groups could be forced to close their doors if the banks win in the Supreme Court. In the process, the right of financial choice would be denied for an estimated 30 million workers and their families.
The battle has spread outside the courts with banks and credit unions bombarding the public with competing television advertisements. Watching the campaign, many citizens may regard the issues as someone else's fight.
But, the reality is that almost all consumers -- not just credit union members -- have a big stake in maintaining a viable credit union movement.
Credit unions make up only a little more than two percent of the assets of depository institutions. In fact, the nation's two largest banks have more assets than the entire universe of 12,000 credit unions.
Despite their small market share, credit unions do provide "competition by example." On average credit union fees are less than half those of the major banks, and many credit unions don't impose any fees for basic banking services. In addition, rates on credit union loans and credit cards are often lower and interest rates on savings higher than the banks in the same communities.
Consumers save an average of $250 to $500 annually by carrying out their financial transactions with credit unions, according to data compiled by Bank Rate Monitor and Sheshunoff Information Services.
All of this provides, at a minimum, a source of embarrassment for a banking industry which has been gouging its customers with a growing list of excessive and arbitrary fees in recent years. Record bank earnings are, in large part, the direct result of the industry's ability to impose fees on everything from telephonic inquiries to the use of counter checks. Nothing moves in today's banking industry without a fee being attached.
But, the banks don't want to give up the lucrative fee income in order to meet the pro-consumer performance of credit unions. Instead, they see the legal challenge to the "common bond" of small occupational units as the route to weaken member-owned credit cooperatives. Eliminating competition is a lot easier than matching it.
If the Supreme Court wipes out the ability of multiple employee groups to form a single credit union under a common bond, the Congress needs to immediately adopt legislation that will allow these credit unions to operate.
Already, 110 members of the House of Representatives have co-sponsored the Credit Union Membership Access Act which would validate the current interpretation of the common bond and allow the multiple-occupation credit unions to continue.
With big banks moving across the nation under the Interstate Branching Act and with new mega mergers announced almost daily, the need to maintain consumer choice in financial services is critically important. Credit unions formed by consumers should be among the choices for citizens who don't want to accept the services and prices that will be handed out on a "take it or leave it" basis by a handful of big banks.
If anyone doubts that the nation is headed towards a highly concentrated financial industry, they should listen closely to the words of Hugh McColl, chief executive of NationsBank -- a corporation rapidly consolidating its dominant position over banking in the east, the south and the southwest sectors of the nation.
Here's the way, McColl describes the future shape of the banking industry:
"...a barbell-shaped industry with a dozen or half-dozen very large players on one end and four or five thousand boutiques on the other..."
Clearly, consumers need a vibrant credit union movement to provide services, price competition and choices in a world dominated by a few big corporations as envisioned by McColl.