Phil Gramm

Mr. GRAMM

Mr. GRAMM. Mr. President, I have a little technical correction that has been cleared, as I understand. I call up amendment No. 310 and ask unanimous consent that amendment No. 310 be modified by the text I am sending now to the desk.

Mr. GRAMM. Mr. President, I suggest the absence of a quorum.

Mr. GRAMM. I move to lay that motion on the table. The motion to lay on the table was agreed to.

Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the order for the yeas and nays.

Mr. GRAMM. Mr. President, I ask for the yeas and nays on the amendment.

Mr. GRAMM

Mr. GRAMM. I know the Senator, and I know he would not want to state something that is incorrect. I will be brief. The amendment says if a bank has a long history of compliance, they have been in compliance for 3 years in a row, they are currently in compliance, in order for the regulator to prevent them from taking the action that they are allowed to take by being in compliance, that a person who protests has to present some substantial evidence. ``Substantial evidence'' is defined in the law as more than a scintilla. It does not in any way say they are deemed to be in compliance, other than that they are innocent until proven guilty if they have a good record. Anybody can protest, anybody can file a complaint, but the regulator can't stop the process or delay it unless the challenging party presents some ``substantial evidence.'' This isn't for everybody. It is only for the banks that have a long history of compliance. I didn't want to have any confusion. That is exactly what it says. I thank the Senator.

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. I will.

Mr. GRAMM. Mr. President, let me begin by noting that not one single organization which represents anyone who makes a living in any industry directly affected by this bill supports the Sarbanes substitute. The Sarbanes substitute is opposed by insurance companies, by those who represent the companies; it is opposed by the American Bankers Association, by the Bankers Roundtable, and by the Independent Bankers of America. It is opposed by every organization that represents any facet of the securities industry. This substitute is literally a substitute which has no support by anyone who is going to be directly affected by these laws. What are the major problems with it? There are more problems than I can possibly outline in 6 minutes, so let me just take a couple of them. We all know Alan Greenspan. We know he is the most respected person in America on economic matters. We all know if there is anybody on this planet who can lay any legitimate claim to the current level of prosperity in America, it is Alan Greenspan, because of his banking and monetary policies. We also know that Alan Greenspan is not someone who goes out looking for a fight. If he has to say something that anybody does not want to hear, he tends to go all around the barn before he says it. You need to know those things to understand how strongly Chairman Greenspan feels in his opposition to the Sarbanes substitute. In fact, he has said, ``I and my colleagues''--and by ``colleagues'' he means every member of the Board of Governors of the Federal Reserve, most of whom were appointed by Bill Clinton--``are firmly of the view that the long-term stability of the U.S. financial markets and the interests of the American taxpayer would be better served by no financial modernization bill rather than one that allows the proposed new activities to be conducted by the bank. . ..'' Alan Greenspan says in the strongest way possible, in the most passionate terms that he has ever spoken on any issue in his public life: You would be better not to pass a bill than to pass the Sarbanes substitute. Why? Because the Sarbanes substitute lets banks engage in these expanded financial services within the bank, thereby putting at risk the taxpayer through FDIC insurance. By performing these services in banks, they get an implicit subsidy from FDIC insurance, from the discount window, from the Federal wire, that will make banks able--not because they are more efficient, but because of this subsidy-- ultimately able to dominate the securities industry and all other industries which would be affected. We would end up with a banking system that looks very much like the Japanese banking system, totally dominating our financial markets. Alan Greenspan is opposed to that. It is very dangerous for the American economy. It is dangerous for the taxpayer. I urge my colleagues to reject this substitute. A second issue I want to talk about is CRA. The current bill preserves CRA. The current bill makes two modest changes. One, it says that if a bank has a long-term history of compliance --has been in compliance three years in a row and is currently in compliance--that if a protest group or individual wants to inject themselves into the process, they can do it. They can say whatever they want to say. But the regulator can't hold up the bank's action in the name of CRA, given their long history of compliance and given that they are currently in compliance, unless the protester has more than a scintilla of evidence; unless the protester can present such relevant evidence as a reasonable mind might accept as adequate to support the claim; unless the protester has real, material--not seeming or imaginary--evidence. In other words, if you are going to stop a bank from doing something that it has been found qualified to do, you have to present some evidence-- hardly, a demanding constraint. Second, we exempt very small rural banks from CRA. Why? We exempt very small rural banks from CRA for a very simple reason:

Mr. GRAMM. Mr. President, I want 1 minute to respond.

Mr. GRAMM. We have had 16,380 examinations of small, rural institutions since 1990. Those small, rural institutions report to us that it costs them about $80,000 a year to keep the records to comply with these examinations, and that is where the number came from.

Mr. GRAMM. Look, let me go ahead. I will explain the difference in what you are saying and what I am saying. OK. So let me start at the top. I will go all the way down, make my point, and then I want to go on and give my presentation. You all have had many opportunities to give yours today. And I listened to them faithfully. But here is the point, if you take every bank in America that has less than $100 million of deposits, and that is also outside a standard metropolitan area, they make up 38 percent of the financial institutions in the country. They have 44 percent of the audits. In fact, they were audited for CRA 16,380 times from 1990 through 1998. In those 16,380 audits, that cost, on average--cost the bank; I am not talking about the Government regulator; but cost the bank to comply with gathering all the information, spending the week in the audit, keeping all the records, designating a CRA officer--and I will later in my presentation read actual letters from the banks--these little banks and these little communities spent $1.3 billion of their money complying with this law. Of these 16,380 examinations, only three banks, over a period of 9 years, only three banks were found to be substantially out of compliance. Our colleague has taken a different definition, ``marginally out of compliance,'' and the number was bigger, maybe 70 out of 16,380. The point being, my statement is true, that only three banks, out of all of these that are audited, have turned out to be substantially out of compliance. On the basis of that, our colleague would impose a $1 million-a-day fine on officers and board members. And I stand by my point that that is the biggest overkill I have seen. I think I have dealt with the proposals made which would be added by the amendment that is pending. These proposals really boil down to punitive, crushing, regulatory burden and fines, imposing a $1 million-a-day fine on bank officers and bank board members, massively expanding CRA. The justification in 1977 for CRA was, ``Well, you've got deposit insurance. That's a good subsidy. We ought to be able to force these institutions to allocate capital for a public purpose.'' But for the first time, this substitute would expand CRA to a noninsured institution where there is no logic for its expansion. For the first time, CRA approval would be necessary for selling insurance and selling securities within a bank or at an affiliate of a bank holding company. These are massive expansions of regulatory burden. They are totally unjustified based on any facts, no matter how you read them. I cannot believe that a majority of the Senators would vote to do those things. Let me talk about what we undo if we adopt the Senator's amendment. And I want to take some time to go through this. I have not done this at great length. I want people to understand what is the problem with CRA that we are trying to deal with in these two very modest amendments which the Banking Committee has written. First of all, let me talk about what you can view as good news. In 1977, there was a rider to a bill that was written by Senator Proxmire that created what we today call CRA. It said that banks should lend in the communities where they collect deposits. There was no enforcement mechanism. It was simply to be used when evaluating approval for bank mergers and branches. A Democrat Senator raised an objection to the provision, worrying about redtape and paperwork. Interestingly enough, the distinguished chairman at that time said, ``No problem. The redtape and paperwork will be nominal. No big deal.'' We have all heard it millions of times when thousands of programs have become law. There was a vote in the Banking Committee to strip out this provision. And that vote failed on a 7-7 tie. We then had the bill come to the floor of the Senate. There was another vote. And I do not have the total here, but I think it was 41- 30. We had some huge number of Members of the Senate who were absent. So the bill became law. So here is the point I want to make. In 1977, we started out with a CRA requirement. And in that year--and these figures are all from the National Community Reinvestment Coalition--in that year there were about $50 million of CRA loans or cash payments or commitments to lend. And that number was relatively small, until 1992. Now, what happened in 1992? Well, two things happened. One, we started having a rash of mergers, so that these very large banks and also some small banks had to get CRA approval to merge. What happened is this number started to grow very rapidly. Last year, in loans, commitments to lend, cash payments, the total was $694 billion. Now, to put that in perspective, the loans, commitments to lend, and cash payments, and commitments to pay cash--and I am going to talk about cash payments at some great length here in a moment--totaled $694 billion last year. That is bigger than the Canadian economy. That is bigger than the combined assets of Ford, General Motors, and Chrysler. That is bigger than the discretionary budget of the Federal Government. Yet our colleagues, who will oppose these two very simple amendments, say there is no need to look at a potential reform in CRA. CRA is now bigger than General Motors. It has grown from virtually nothing to become larger than the discretionary budget of the Federal Government, and yet our Democrat colleagues refuse to admit the possibility--or many of them do--that we might need some degree of effort to deal with abuses which would naturally occur in a program that grew in a very short time from $50 million to $694 billion. Why do I think this is a relevant point? Well, let me give you one fact. According to the community groups, $9 billion has been paid or committed in cash. Had you gone to that committee hearing in 1977 and said to the then chairman of the Banking Committee, Senator Proxmire, ``Well, what about cash payments, what about people literally giving community groups and individuals money not to testify against their merger or not to oppose it or actually paying them to support it,'' what he would think about that? I can tell you: he would have said, ``It is not possible.'' This bill in no way contemplates that cash payments would be made, but the fact remains that as this program has exploded, $9 billion of cash payments and cash commitments have been made. This basically represents an abuse that needs to be dealt with. In fact, in the one hearing we had on this subject, the spokesman for these reinvestment coalitions admitted there were abuses. He called it ``green mail,'' and he said that it hurt the program. Most people would call it blackmail. The point is, if these abuses exist--and no one disputes they do--why shouldn't we begin to try to do something about them? Now, let me turn to a quote, and then I will get into some of these abuses. This is a quote from a Cornell University law professor, Jonathan Macey, who specializes in banking law and is one of the most respected lawyers in banking law in the country. Here is what he said about CRA, as it exists in 1999: You see really weird things when you look at the Code of Federal Regulations . . . like Federal regulators are encouraged to leave the room and allowing community groups to negotiate ex parte with bankers in a community reinvestment context . . . Giving jobs to the top five officials of these communities or shake-down groups is generally high up on the list (of demands). So what we really have is a bit of old world Sicily brought into the United States, but legitimized and given the patina of government support. It has never been stated more clearly than that. Now, let me give you an example, if you would give me those agreements. Part of our problem--and this will be discussed later, and I hope people will listen to this point--part of our problem is that community groups, in negotiating with banks, in virtually every case negotiate for and insist on the confidentiality of these agreements. So one of the problems in evaluating this $9 billion is, we do not have any of the facts as to where this money goes, who it goes to, and what they do with it when they get it. One of the amendments that Senator Bennett or someone else will be offering later in the Senate's consideration of financial services modernization is a sunshine amendment, which says that in the future these agreements have to be made public, that they have to go to the regulator, that the regulator has to require that the information be provided, and that they be made public. The logic of that is, nothing disinfects like sunshine. Now, it so happens that we have three of these agreements that we have obtained on the condition that we not disclose the names of the bank or community group involved. We have redacted those names. I just want to give you a flavor of what these agreements looks like, and I have pieces of three of them here. This is Bank A: Provide blank--and this is a community group--with a grant of up to $20,000. Provide blank--another community group--with a grant of up to $50,000. Provide blank with a grant of up to $25,000 to pay reasonable and necessary ``soft costs'' to be incurred by blank. Provide blank with a grant of a reasonable amount. . . . That is the quid; now the quo: Blank agrees to withdraw on the date hereof the comment letter, dated blank 28, 19 blank, and any related materials collectively, the comment letter filed with the Office of the Comptroller of the Currency, the Federal Reserve Bank, and the board. I don't have the second sheet. The point is, the community groups gets all of these cash grants and then agrees to withdraw the complaints they have filed, a classic quid pro quo. Now, what happened to these complaints? Were they not meritorious or did the community groups suddenly no longer care about the people they were protesting against? What did all of those cash grants do that induced them to withdraw their comment? Bank A, one more thing, blank and blank agree--this is the community group and the bank--agree not to disseminate or otherwise make available to the public copies of this agreement. So the community group gets these cash payments and in return agrees to withdraw their protests, and then the bank and group agree that they will keep the agreement secret. Now, let's look at Bank B: Blank will receive a fee of 2 and three- quarters percent of the face amount of each program loan made by blank. This is an agreement whereby a community activist and their community group receive a rake-off of 2.75 percent of the face value of every loan made under this agreement. Do you think people receiving that loan know that this individual and this group will get 2.75 percent? In fact, they don't. And, as you will see later, unless we open up this process, they never will. No one will ever know what is happening. Continuing with the Bank B's agreement: Blank will receive a fee of $200,000 as reimbursement; according to blank, $100,000 is payable upon execution and delivery and $100,000 six months later. We have the quid, now the quo. The community group or the individual agrees to withdraw all pending protests of blank regulatory applications and related materials and not to sponsor, either directly or indirectly, the protest or to supply information in connection with any protest relating to pending or future blank applications with regulators. In other words, the community group is agreeing that in return for this 2.75 percent of the face value of all loans that are made, not only will they withdraw the complaint they have already filed, but they will never make another one. They will never make another one, no matter what. At blank's request--listen to this one. Many of you wonder why you have gotten letters from banks, and I got a letter from a big North Carolina bank, might I say, and I was shocked. Then I read the letter and it, in essence, said that they are required by a CRA agreement to send me this letter saying they support CRA. I said, how is it possible that somebody could be required to send me a letter? And this is a different bank altogether and a different agreement. Here is how it happens: In addition, the bank agrees to send letters to customers of blank previously contacted by blank--well, I will get to the point on the next sheet. And then the community group agrees to purge their files and database of all information related to this bank's customers. In other words, they get this breakoff; they get these cash payments. They agree to withdraw their objection. They will never do another objection. They are even going to destroy the computer database they used to do it. Now I think we are getting to the thing I mentioned. The community group agrees to: immediately cease and desist all activities directed against blank; to maintain the confidentiality of this agreement, to maintain the confidentiality of this agreement and any other agreements; to cooperate with them in getting agreements with other banks. And then is the thing about sending letters. This is called ``public policy partnership.'' In this public policy partnership: blank will work with the blank to establish a clear written declaratory statement indicating support for the Community Reinvestment Act and the Home Mortgage Disclosure Act, and the party's opposition to any attempts to weaken the law. Blank will send the final copy of this statement to the blank, the American Bankers Association, the Federal Reserve Board, the Office of the Comptroller of the Currency, the blank Congressional delegation, and all Members of the House and Senate banking committees. So when you have letters from banks telling you what great things CRA is doing, many of those were dictated by commitments they made as part of contracts, secret agreements they signed with protesters in order to get them out of the way to do their work. Now, I could go into a hundred other examples--someone who graduates from college, goes to graduate school, and goes to work for the Federal Reserve in acquisitions and mergers, quits and goes into business, spends 4 years harassing a bank and bank presidents, and finally the bank craters and gives them $1.4 million, gives them $200,000 to set up their organization; they now have 20 offices, lending $3.5 billion, getting 2.75 percent of every penny they lend right off the top, that nobody knows about, forcing people to participate in their program and pay $50 a month for 5 years in order to get the loan, and the bank actually collects the money for them as if somehow it were part of the loan. I could go on and on. But we are not here to debate dramatic reforms in CRA. We are only trying to do two things, and here they are; here is the concern. You have heard the number. Only in 1 percent of the cases is a protest filed. Well, remember that in 90-some-odd percent of the cases, where somebody wants to open or close a branch, regulators generally get no comments. Where the protests come are in the big mergers, and in some of the smaller ones that get contentious. But what happens more often than not is that rather than filing a protest, the protest group simply goes to the bank and says: I am going to file a protest and I am going to say--to quote one of the protesters in what they said about a bank in New England--I am going to say, A, you are a racist; and, B, you are a loan shark. That is my charge. I am going to make that charge, and you can either reach an agreement with me, or I am going to do that. Now, here is the problem, and I don't think it is that hard to visualize. You have a bank and it has agreed to merge with another bank. And people don't know whether the merger is going to be approved or whether it is good or bad for the bank. So during that period, the stocks of these two banks are just fluttering. The bank literally has hundreds of millions--and sometimes billions with these big bank mergers--at risk. So it doesn't take a lot of imagination to see that when a protester shows up and says, ``Look, I am going to go to the Comptroller of the Currency and tell him you are a racist and that you are a loan shark; I am going to file a complaint and I am going to hold up this merger,'' the bank is under immense pressure to act as quickly as possible. What is happening in America today is that banks that are risking hundreds of millions, or billions, of dollars are settling these threats with secret agreements that the public knows nothing about, and they are often paying thousands, or hundreds of thousands, of dollars in cash payments. Now, who ever said CRA had anything to do with cash? Yet, according to the CRA groups, $9 billion of cash payments have been made under CRA. I would like to ban cash payments, quite frankly. I don't think they are what CRA is about. I don't think some protester getting a rake-off of interest or getting a cash payment is what community lending is about. I think it is wrong, but I don't have the votes to do it and I didn't try to do it. So, here are the two modest changes in our bill. Number 1, consider a bank that has been consistently in compliance with CRA. In fact, in its last 3 evaluations it has consistently been in compliance and is in compliance now. What do we require that Senator Sarbanes and others so strenuously object to? We require that if a bank has historically been in compliance, if it has been evaluated for meeting its community lending requirements by its Federal regulator three times in a row and was found to be in compliance, and if it is currently in compliance, then somebody can still protest. They can call the bank all the nasty names they want to call them. In fact, the regulator is required to hold a hearing if they provide any complaint just saying ``I oppose it.'' There is a hearing. None of that has changed. Anybody can say whatever they want to say. All our amendment says, however, is that before you can stop the action from going forward in the normal timeframe, the objector has to present substantial evidence. In other words, a bank that is historically in compliance, and is in compliance now, is deemed to still be innocent until proven guilty. And a protester can protest all they want to. But the regulator can't stop or delay the process unless some substantial evidence is presented. Now, I know we have some distinguished attorneys here, and I am not going to get into any kind of legal debate with distinguished attorneys. Number 1, I object to duels between armed and unarmed men, especially when I am the unarmed man. Every once in a while, I have mercy on other types of issues where I am armed and others are not. I don't shoot down unarmed men. But I want to remind those who aren't legal experts that ``substantial evidence'' is not a trivial phrase. It was chosen because it is not trivial. It is referred to 900 times in the United States Code. There have been over 400 instances in case law where the term ``substantial evidence'' has been defined. Let me give you some definitions that came from the Supreme Court, and they are important because they give examples of the evidence that is required to be submitted by a protester in order to stop a bank from doing something that they are qualified to do based on their record. In other words, what do you have to have in order to say, ``This person is not meeting the requirement of law and I want him stopped''? Knowing that it may cost them hundreds of millions of dollars, even billions of dollars, what is the standard you have to meet? What does ``substantial evidence'' mean? Here is what it means. Here are four definitions from Supreme Court rulings. ``Substantial evidence'' is understood to mean: No. 1, ``more than a mere scintilla.'' More than a mere scintilla. No. 2, ``such relevant evidence as a reasonable mind might accept as adequate to support a claim.'' Not that they have to accept it. Notice that the Court said that substantial evidence is ``such relevant evidence as a reasonable mind might accept.'' They might not accept it. But they might accept it as adequate to support a claim. No. 3, ``real, material, not seeming imaginary.'' And, finally, ``considerable in amount, value and worth.'' I fail to understand why there is an objection when a protester wants to come into a bank which has been in compliance with the lending laws of this country for three evaluations in a row and is currently in compliance, why anyone would object to saying that in order to stop the bank from exercising the right they have earned, the protester has to provide some evidence. I cannot understand why anybody would object to that. Why is it important? I have spent a lot of time talking about why it is reasonable. But why is it important? It is important because it eliminates the worst abuses where someone comes in, they have no evidence, they have no facts, there is no abuse. They simply say, ``I will go away if you can give me some money.'' In this case, if they can't provide substantial evidence, they can't stop the process. But it doesn't prevent the regulator from saying, ``You have to do a new CRA review.'' Our colleague talked about what regulators could do. Nothing in our amendment would prevent the regulator from saying, ``Every time you want to merge, we have to have a new CRA evaluation.'' We don't stop that. All we are trying to do is to require some substance--and require someone to have the evidence--before they can stop the application process and cost taxpayers and investors hundreds of millions of dollars. It is a strange thing to say in America. But I am going to say it, because I believe it. I will never forget when the American Airline pilots were getting ready to go on strike. I met with some Members of Congress to talk about what Congress could do because of the disruption that might be caused by the strike. I finally said, ``Look. You know, it is no secret that most unions do not love me, but I believe in freedom. And people have a right to strike, if they want to strike. And I am not voting for a bill that prevents them from striking.'' One Member of Congress, who will go unnamed, said, ``Well, wait a minute. These pilots make $150,000 a year. I am not worried about their rights.'' Let me tell you why that is relevant. One of the reasons this is so hard to discuss is that everybody has the idea that these bankers are rich. So we are not worried about their rights. When do our rights end based on how much money we have? I can understand and I accept that you ought not have more rights because you have more money, but you ought not have less. The idea that we would let someone or some group impose hundreds of millions of dollars of costs on other citizens, many of whom are stockholders--my teacher retirement fund, I am sure, is invested in some financial institution, or in a thrift. I don't know, because I don't keep up with what they are invested in. But every teacher in America is invested in stocks of some of these companies. How is it right to let somebody literally deprive them of millions of dollars without providing any evidence? So that is the substance of the first committee provision. I don't know why it requires so much discussion, but it does. I don't mind discussing it, though, because it is something that I feel strongly about. This is about abuse. This is about a wrong that is going on in America today, right now. The fact that there are many success stories in CRA, the fact that there are probably wonderful people in almost every circumstance, does not justify looking the other way at the kind of abuses that are occurring. We are not trying to fix them here. We are going to have a lot of hearings this summer. We are going to bring a lot of people in and put them under oath. We are going to have a major GAO study. We are going to look at this thing in great detail. We are just trying to deal with two little commonsense things that ought to be done in the bill. I talked about the first. What is the second? The second committee provision exempts little banks in rural areas from CRA. Why? Because the regulatory burden on these very small banks in very rural areas is oppressive. First of all, these are banks that are not in standard metropolitan areas. They are by and large serving areas that do not have a city, much less an inner city to serve. So making them comply with these laws that are really aimed at inner-city lending makes absolutely no sense. Why is this provision important? Because these banks--as documented in the letters they have written to us--are spending $60,000 to $80,000 a year complying with CRA. I have used the figure before, but it fits here, and I want to use it again. Since 1990, there have been 16,380 CRA examinations of these little banks in rural areas, and only three of them have been found to be substantially noncompliant. But even though three bad actors have been found, $1.3 billion in compliance costs has been imposed on these little banks that have only between 6 and 10 employees. It is a very heavy regulatory burden. Let me read just a couple of letters from the banks that are affected. Our colleague from Illinois was here. I am sorry he left. We probably have more letters from Illinois than any other State. But he won't get to hear it. But I am going read three of his letters, and then the others. This is a letter from Franklin Bank in Franklin, IL. I don't know how big the bank is, but it is small. Their building looks like a house. Here is what he says: Were it not for the time-consuming paperwork involved, we in small banks in rural America would find CRA laughable. Our community is our business. We wrote this book long before the government did. Offering us exemption from the requirements of the Community Reinvestment Act would not change the way we do business, but it would relieve us of the mounting paperwork from this examination for one day every other year. In other words, relief by exempting them--they don't change their business. They are just not going to have the examination to do and the paperwork and cost of about $80,000 involved in it. This is from Security Bank of Hamilton, IL: Our experience is that regulators struggle to fill out their questionnaires when we are being examined as most sections do not apply. Then we really have to stretch to imagine our community of 3,000 having the same problem as Chicago or Los Angeles as none of the demographic stratifications fit. This is the First National Bank of Nokomis, IL. It doesn't say how big they are: I truly believe we could free up one-half to one employee in our banking operation to put in positive service thereby expanding our service to the community we serve. That is what they believe they could do if we could reduce the regulatory burden on them. They don't say in their letter, but my guess is they don't have even 10 employees. So when they are talking about freeing up one half of one employee, they are talking about a tremendous reduction in their cost and their regulatory burden. Let me read a couple of other letters. This is from the Cattle National Bank in Seward, NE: Since the origination of public disclosure of CRA examinations, we have not had one person from our community ever request the information. I remind Members that CRA went into effect in 1977 and public disclosure went into effect about a decade after that. So for about 12 years nobody in this little community has ever raised a CRA question. The only people who have raised those questions are bank consultants. The next bank is Copiah Bank from Crystal Springs, MS: Our compliance officer, Gerry Broome, and his assistant have spent many research hours and reams of paper in their efforts to comply with mandated requirement's paper work. We have even had to outsource some of its checkpoints to a compliance consultant from time to time. * * * * * As an $83 million community bank, we feel an obligation to help you in your efforts toward easing our paper work burden. Lakeside State Bank, New Town, ND: As a former bank examiner for the Federal Deposit Insurance Corporation, which included consumer compliance experience, and as a banker for over 15 years I believe I have a good understanding of the intent and the workings of the CRA. * * * * * Over the 47 years of our existence we have provided financing to virtually every main street business in our town, our customer base includes approximately 80 percent of the area farmers and for the last several years over 50 percent of our loans have been to American Indians. The law [he means the CRA law] is a heavy burden because of the expansiveness of the regulations and the paper requirements of compliance. We spend hours documenting what we have already done, rather than spending that time more efficiently by doing more for our community. The Farmers and Merchant Bank of Arnett, OK: I am the CEO as well as the chief loan officer, compliance officer and CRA officer. I have to wear so many hats because we are small and have a staff of only 7 including myself. CRA compliance, done correctly, takes a lot of time, which takes me away from my primary responsibility of loaning money to my community. It has almost gotten to the point that lending is a secondary function. It seems like we have the choice of lending to our community or writing up CRA plans showing how we would loan to the community if we had time to make loans. * * * * * Large banks can hire full time CRA officers and other compliance personnel to administer CRA programs but, small banks cannot. . . . Redlands Centennial Bank: We spent approximately $80 thousand of our shareholders' money last year supporting this ill-defined regulation. Even the regulators who examined us were hard pressed to give us specific definition on how we might better implement this regulation. * * * * * I am urging you to get rid of the nonsensical CRA yoke. Keep up the fight because there are a lot of us out here who are too busy balancing, making a living with government regulation in this crazy business. Chemical Bank North is a bank of $74 million in Grayling, MI: As it is, we must devote disproportionate resources to creating and maintaining the ``paper trail'' that the current CRA regulations require. Our board members must attend time consuming CRA Committee meetings and our officers and staff members spend significant valuable time preparing reports and keeping records that serve no purpose other than to keep us in compliance with a regulation that attempts to enforce from a regulatory standpoint what we do everyday in the normal course of our business. . . . I would estimate that we devote the equivalent of a full time employee to all aspects of CRA compliance. The First National Bank of Wamego, KS--I mispronounced Wamego yesterday; the Presiding Officer was from Kansas and I appreciate him correcting me. This is a $65 million bank, which means this bank probably has five or six employees. Our bank was listed two years in a row as the ``best'' bank in Kansas to obtain loans for small businesses. . . . [This bank also was rated outstanding on CRA.] * * * * * [O]ur outstanding grade did not make us a better bank. The CRA did not make us make loans we wouldn't have made. The CRA did take a lot of employees' time to document that we were an outstanding bank. This is from Nebraska National in Kearney, NE. This is a very small bank. In fact, I think this might be one of the smallest banks in America that was not a recent start. This bank has $34 million in assets, so we are talking about probably four or five employees working in this bank: We do not make foreign loans, we don't speculate in derivatives, and we don't siphon deposits from this area to fund loans elsewhere. Instead, like virtually all the banks under $250 million in assets we provide home loans, business loans, farm loans, and construction loans. We don't do this because of the Community Reinvestment Act but because it makes good business sense. . . . I bitterly resent every minute of my time and that of my staff spent to comply with this regulation because it takes time away from productive duties. I feel the regulation is now being used by consumer activist groups to ``shakedown'' banks seeking regulatory approval for expansion or merger. Finally, from American State Bank, an independent bank, from Portland, OR: As one of the oldest and most strongly capitalized African American-owned banks west of the Mississippi River, Portland- based American State Bank supports your position on CRA exemption for non-metropolitan banks. We also urge you to explore exempting from CRA requirements minority-owned commercial banks. . . . Today, minority-owned banks still maintain their focus on serving our nation's minority communities and their citizens. It is redundant, at best, to impose CRA requirements on banks whose sole purpose is to serve minority citizens. At worst, it compels minority banks to sustain burdensome expenses and administrative costs and subjects banks to a bureaucracy largely unaware of the realities of the inner-city marketplace. I have covered a lot of territory. Let me sum up with the following points. The Bryan amendment before us has two parts. It does a whole bunch of bad things, and it undoes two little good things. What are the whole bunch of bad things it does? It is the largest expansion in the regulatory burden of CRA in American history; it would expand CRA to noninsured institutions, violating the very logic of CRA, which is, banks get deposit insurance that is partly subsidized by the Government, so it is reasonable for the Government to force them to do things that have a community benefit. The proposed substitute would expand CRA to institutions that are not insured. It would expand CRA approval as being necessary to sell insurance and securities in a bank, something that is not required today and it is occurring every day today without CRA approval. The proposed amendment would impose a potential fine of $1-million-a- day on bank officers and bank board members without any evidence whatsoever that abuses occur. In fact, as I pointed out over and over again, with small banks in rural areas having 16,380 examinations at a cost of about $80,000 in annual compliance, where the banks had to pay $1.3 billion to comply with all this regulation, all this paperwork-- all of these evaluations, 16,380 of them, found only three banks that were substantially out of compliance. So, the regulatory overkill already exists. Why you would want to come in and subject small banks and large banks, and their officers and board members, to a million- dollar-a-day for if their institution fell out of compliance with CRA, I cannot understand. In fact, I have never heard an explanation for this draconian change in law. I read earlier, and I will not read again, letters from the American Bankers Association and the Independent Bankers Association saying how the pending amendment will make it virtually impossible for them to get quality people who will serve on bank boards. They also talk about the cost of liability insurance, which will explode if you are going to impose these new potential penalties on banks, their officers and directors, all in the name of abuses that apparently exist at the extreme level in .03 percent of all CRA examinations. Those are all the bad things the substitute does. What are the good things that it undoes? Is that a word, ``undoes''? I guess so. To try to curb some of the abuses--and the abuses are very similar to the strike lawsuit that we dealt with 2 years ago, and again last year. The abuse basically occurs during the critical moment when a bank is trying to merge with another bank or sell or engage in some new activity: it's at that moment the bank has a lot at stake and is most vulnerable. Under current law, any protester can come in and threaten to hold the whole thing up. This creates immense pressure on the bank to settle with that protester and either commit some bank action or pay the protester cash in return for not filing a protest. A lot of rhetoric has been used on this, and I am being redundant because when other people say something wrong, you have to say it right twice to get people to get it straight. Our amendment does not prevent people from protesting. They can protest. Our amendment does not prevent people from filing complaints. They can file complaints whether they have any facts or whether not. Our amendment does not prevent the regulator from holding a hearing. Under current law, the regulator has to hold a hearing if somebody complains. We do not change that. Our amendment does not prevent the regulator from forcing an entirely new CRA evaluation. All our amendment says is: If you have a bank that has been in compliance with CRA over a 3-year period, and if they are currently in compliance, a protester can still file a protest, but in order to stop the bank's application from going forward, the protester has to provide substantial evidence. Then I went through and read from Supreme Court cases, how you define ``substantial evidence''--more than a scintilla; enough that a reasonable person might believe that what you are saying is true. Those are not high standards. Why anybody would want to let protesters potentially impose hundreds of thousands of dollars or millions of dollars in losses on a bank and their stockholders, many of whom are members of teacher retirement programs and other broad investment groups, without providing any evidence whatsoever to back up their claim, I don't know. But that is the debate we are having. So, that is what the amendment does and does not do. It is not a safe harbor. It is not a safe harbor. It is not a safe harbor. The Secretary of the Treasury came up with the use of that term and now all critics use it, even though it is verifiably false. This is a rebuttable presumption. Stated another way, if a bank has a good record of compliance and it is deemed by the regulator to be in compliance, it is innocent until proven guilty. You have to present some facts to substantiate your claim if you are going to stop it from going forward. You don't have to have any facts to state your opinion. You don't have to have any facts to declare that there ought to be a hearing. You don't have to have any facts to protest. But before the regulator can stop it, you have to present some facts. The final provision that would be undone here is the eminently reasonable exemption of very, very small, very, very rural banks that on average have a regulatory burden of about $80,000 a year in complying with CRA, even though in the last 9 years, with 16,380 examinations of these small, rural banks, only three have been deemed to be substantially out of compliance with CRA. If you were from a small town like I am, or you represented a State that had a lot of little bitty towns and a few little bitty banks left and you went to those banks, you would discover why only .03 percent have been found out of compliance in 9 years. If you are from a small town and you have a bank with four or five employees, your bank ends up lending to everybody in town because they have nobody else to lend to. That is basically what the debate is about. I wish every person could, in some simple form, get all these facts. But it takes time to debate them, and I am grateful to have the opportunity. I am sure we will get some more opportunity today. But I thank my colleagues for their patience, and I yield the floor.

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. More than a scintilla.

Mr. GRAMM. If it is a billion or a trillion, it is a lot of money.

Mr. GRAMM

Mr. GRAMM. Mr. President, I yield 3 minutes to the distinguished Senator from Florida.

Mr. GRAMM

Mr. GRAMM. To accommodate the Senator, why don't we just take 5 minutes off each side. We are going to have the vote at noon, so we will have less time. Senator Sarbanes and I had an opportunity to plow this ground in some depth, so why don't we yield to the distinguished Senator 10 minutes now, and then we will begin the debate on the financial services modernization bill.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent the resolution be agreed to, the preamble be agreed to, and the motion to reconsider be laid upon the table.

Mr. GRAMM

Mr. GRAMM. Mr. President, if there is no further business to come before the Senate, I now ask unanimous consent the Senate stand in adjournment under the previous order.

Mr. GRAMM

Mr. GRAMM. For the information of all Senators, tomorrow the Senate will resume consideration of the Financial Services Modernization Act, with Senator Gramm immediately recognized to offer his amendment. It is hoped that the bill will be completed during Thursday's session of the Senate. Therefore, rollcall votes will occur throughout tomorrow's session of the Senate.

Mr. GRAMM

Mr. GRAMM. Mr. President, I understand that Senator Boxer has amendments to the resolution and the preamble at the desk. I ask unanimous consent that the amendments to the resolution be agreed to, that the resolution, as amended, be agreed to, and the motion to reconsider be laid upon the table, that the amendment to the preamble be agreed to, and the preamble, as amended, be agreed to with no intervening action.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Senate proceed to the immediate consideration of Calendar No. 75, S. Res. 68.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the bill be considered read a third time and passed, the motion to reconsider be laid upon the table, and that the statements relating to the bill appear in the Record.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Senate now proceed to the consideration of Calendar No. 73, H.R. 432.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the Senate now proceed to a period of morning business, with Senators permitted to speak therein for up to 10 minutes each.