Phil Gramm

Mr. GRAMM

Mr. GRAMM. Mr. President, I move to reconsider the vote.

Mr. GRAMM. Mr. President, under the unanimous consent request, I was to be recognized next. I suggest we let Senator Mack speak for 4 minutes, have the distinguished Senator from Nevada speak for 4 minutes, and then I will speak for 4 minutes and we will be through. Would that work?

Mr. GRAMM. Mr. President, this has been a long debate and I think a good debate. Rather than trying to go back and answer specific points that have been made, and correct statements, let me just try to cut to the heart of this. This is not about banks, even though the Independent Bankers, the American Bankers Association, the Bankers Roundtable oppose this amendment and support the underlying bill. This is not about insurance companies. This is not about securities companies. This is about right and wrong. I have presented today, from redacted agreements, secret agreements that have been entered into by community groups and banks, three examples, the only three we have, where over and over again community groups are paid cash payments in return for them withdrawing objections which they have made to banks taking specific action, or where they have agreed not to raise an objection. So the first thing we are trying to do is bring integrity to the process by preventing people, in essence, from paying witnesses. How do we try to do that? We try to do it in the following way: If you are a bank and you have an excellent CRA record, you have been in compliance for three audits in a row and you are in compliance now--we do not in any way limit the ability of anybody to object to that bank doing what it has a right to do under law--all we are saying is you are innocent until proven guilty if you have a long record of compliance. If you are going to come in and prevent a bank from taking an action they have earned the right to do based on audits on community lending, and you come in and say they are racists, or they are loan sharks, that is not enough. What we require is you present substantial evidence. How is that defined? The Supreme Court defines substantial evidence as ``more than a mere scintilla . . . such relevant evidence as a reasonable mind might accept as adequate to support a claim.'' That is not a high standard. That is simply a credibility standard. And all over America--we have professional protesters in Boston who are protesting bank mergers in Illinois. What do they have to do with community lending in Illinois? Nothing. But they file a protest. The bank is deathly afraid of being held up in its merger, for example. Obviously, they do not want to be called bad names by people who are professionals at calling people bad names. So they end up paying these groups cash. That is not right. This is an issue of right and wrong. The second issue is the issue relating to small banks. Little banks in rural communities in total hold only 2 percent of the assets of banks, but in 16,300 audits of these banks, each one of them on average cost the bank $80,000 to comply with. They found three banks in 9 years that are substantially out of compliance. They made these little banks pay $1.3 billion to find three bad actors. And little banks all over America are threatened by this regulatory burden. So we exempt them from it. Mr. President, 44 percent of the enforcement effort is going to banks with 2.8 percent of the capital. Take that enforcement effort and put it where the money is and you will get more community lending, not less. Finally, it is not as if the Sarbanes amendment simply strikes our provisions. But the Sarbanes amendment is the largest expansion of CRA in American history. It would impose a million-dollar-a-day fine on bank officers and board members if they fell out of compliance. The American Bankers Association and the Independent Bankers Association have urged us not to do this, because they will not be able to get board members to serve and they will not be able to hire officers if they have to buy insurance to potentially pay a million-dollar-a-day fine if they fall out of compliance with this regulation. What is the justification for this regulatory overkill when you have had three cases of substantial noncompliance out of 16,300 audits over 9 years? What is wrong with this picture? What is wrong with the picture is, sadly, that many of our Democrat colleagues have decided, even though the spokesman for CRA testifying before our committee said, yes, there are abuses and, yes, they hurt the process and, yes, there is what they call green mail. Most people call it blackmail. But our colleagues have taken the extreme position that not only will they not address these abuses, they are going to vastly expand this to insurance, to securities and, with these million- dollar-a-day fines, producing a situation where every abuse we are concerned about today is going to be greatly expanded. I urge our Democrat colleagues, if you support CRA, to help us bring an end to these abuses. If you support CRA, end the regulatory paperwork burden overkill so we can focus in this law on the real problem. While groups claim we are endangering CRA, it is those who will not fix clear wrongs that scream out that endanger it. Mr. President, I move to table the pending amendment and ask for the yeas and the nays.

Mr. GRAMM. If I might reclaim my time--and I think probably we would be better off to let me go through and make my presentation and let the Senator do the same--let me go back and restate the facts. What the Senator has done is basically taken a totally different classification than I am talking about. I have been very clear in what I am saying. Here is what I am saying. And it is devastating, there is no question about that. I am glad I am not on the other side of this argument. I would be trying to change the subject, if I were. But here are the devastating facts. The devastating facts are, that of the little banks in America--less than $100 million in deposits; probably have 6 to 10 employees--that are outside standard metropolitan areas--so these are banks that do not have a city to serve, much less an inner city.

Mr. GRAMM. Could we add to it that, after the Senator from Maryland, I be recognized?

Mr. GRAMM. That is right, a small bank said that.

Mr. GRAMM. These are figures from the interagency CRA rating.

Mr. GRAMM. Will the Senator yield?

Mr. GRAMM. What is wrong here? What does not make sense here?

Mr. GRAMM. I can tell you where it comes from. It comes from looking at the banks and S&Ls that meet two tests: One, they have less than $100 million of assets; and, two, they operate solely outside standard metropolitan areas. And my figure is, that those banks have been subjected, since 1990, to 16,380 examinations. And in those 16,380 examinations, the average of which has cost that little bank about $80,000, according to some 488 banks which have written us on this subject, that these 16,380 examinations--this is from the Federal Financial Institutions Examination Council--that in these 16,380 examinations, costing, on average, $80,000 apiece--so this is $1.3 billion that has been taken out of these little bitty communities and out of their banks, where people are paid higher interest rates and have gotten less credit--the result of that has been that three of these banks, over a 9-year period, have been found to be in substantial noncompliance. You do not have to have a Ph.D. in mathematics to figure out, if you have done 16,380 exams on these small, rural banks, and only three of them have been in substantial noncompliance, you are spending a tremendous amount of their money to find a very, very small number of bad actors--in fact, three one-hundredths of 1 percent. What is even more astounding is that all of these little banks combined make up only 2.8 percent of the capital of the banking system. They are getting 44 percent of the examinations. They make up only 2.7 percent of the assets of the banking system, and out of 16,380 exams, only three of them were out of compliance.

Mr. GRAMM. Mr. President, I want to respond to the amendment that has been offered. I apologize if anybody has the idea, listening to this debate, that there is not another side to the argument. We had several people who had time constraints and wanted to speak. Senator Sarbanes and I are being held hostage here, in managing the bill. So as a courtesy to others, we have let them speak first. But I now want to give a comprehensive response to this issue. Let me begin.

Mr. GRAMM. I have my trusty calculator, and I will make the calculation again. But lest my colleague be correct, let me just restate it in his terms. The term is, does it make sense to make little banks spend $1.3 billion to comply with keeping paperwork when in 9 years, only three banks out of 16,000 audits have been substantially out of compliance? Is that not overkill? Is that not bankrupting every small bank in America? The answer is yes.

Mr. GRAMM. I move to table the pending substitute, and I ask for the yeas and nays.

Mr. GRAMM. I am happy to yield.

Mr. GRAMM. I think it is going to take me probably a minimum of about 30 minutes to go through the entire group of issues.

Mr. GRAMM. I do not know that any Republican has spoken on this issue. Did Senator Enzi speak? To this point, if I might say, the distinguished Senator from Nevada spoke at length. You engaged in a lengthy colloquy with him. We then had a nonrelevant speaker.

Mr. GRAMM. By nonrelevant I do not mean the Senator was irrelevant on the issue. It had no relevance to this issue. It was about another issue completely. Senator Grams really talked about the bill itself. So it is my turn to speak. I intend to speak and answer the points that have been raised. Then I would like to continue going side to side. We only have one other person here. I do not know if he is going to speak at any great length.

Mr. GRAMM. Mr. President, I think it is important for people to step back and look at what is being proposed. I have to break the discussion down into two parts. No. 1, what it is that Senator Sarbanes would do with his amendment, and, second, what it is he would undo with his amendment.

Mr. GRAMM. So let me explain what he would do with his amendment, then explain what he would undo, and then explain why both what he would do and what he would undo is bad. First of all, let me begin with current law in CRA, then what I am going to do is go through what the Senator's amendment would do. I am then going to talk about the history of CRA and within that history I am going to try to explain the problems that we are trying to fix in the underlying bill. Then I want to talk at some length about those problems and about the underlying bill. I think I will have covered the whole waterfront. Let me remind our colleagues the current Community Reinvestment Act basically has two provisions. The first provision is that bank regulators have to consider how a bank has been meeting local credit needs only when a bank applies to open a new bank, branch or to merge. Second, bank regulators may deny application based on a CRA record. So basically, in terms of the existing CRA law, the way it was written, there is no violation for simply failing to comply. The enforcement mechanism is that if you apply to open a new branch or open a bank or to merge, then the bank regulator--whichever one you are subject to, based on your charter--looks to see if you are meeting the needs of your community. And community reinvestment, I would like to remind our colleagues, is focused on lending. The primary focus of community reinvestment is lending in the communities where you take deposits. A bank regulator can deny an application based on your CRA record. There is no penalty involved other than the denial of the application. That is current law in CRA. What the substitute that has been offered by Senator Bryan would do--I have ``The Sarbanes Substitute,'' because Senator Sarbanes offered this in committee and we assumed he would offer it today, but it is the same provision--is this: The Bryan substitute would add eight more requirements to CRA than the are required under current law. In fact, this would be a good opportunity to ask unanimous consent to have printed in the Record a letter from Chairman Greenspan that outlines what the CRA provisions of this substitute are, what the CRA provisions of the bill are, and exactly what they would do. Because, as I am sure all of our colleagues are aware, what tends to happen in these debates is people set up straw men. In this case the straw man is that somehow the underlying bill undoes CRA --that is straw man 1. Straw man 2 is that the substitute virtually leaves CRA as it is. The reality, as I will paint in some detail, is that the underlying bill tries to deal with two clear abuses in CRA: One, an integrity provision; and, two, a relevancy provision. It in no way does violence to the basic idea of CRA. And the second reality as compared to the straw man is that this substitute is the most massive expansion of CRA in its history and would literally impose a penalty structure that goes far beyond anything ever contemplated in CRA when it was adopted in 1977, or that has ever been discussed since. In fact, our colleague keeps wondering where the hearings are concerning the two modest changes that we have made in the underlying bill, without ever raising the question: Where are the hearings on which these massive punitive penalties would be based? Where is the abuse that they seek to address? The point is, the rhetoric of Senator Sarbanes applies more to his substitute than it does the underlying bill. So let me ask unanimous consent that the letter from Alan Greenspan with regard to the CRA provisions of the substitute and the CRA provisions of the underlying bill be printed in the Record.

Mr. GRAMM. They are virtually identical, but I stand corrected. In fact, let me yield to you to tell us the difference.

Mr. GRAMM. I think that is correct. I stand corrected. I would like it printed in the Record, but I would be happy to hear the distinguished Democratic ranking member of the committee explain to us the differences. I assert that there are no significant differences, but I would like to hear them. Let me go over basically what we have in terms of additions to CRA in the pending amendment, if the Senate decided to adopt it. No. 1, by making noncompliance with CRA or falling out of compliance with CRA a violation of banking law, officers and directors of banks for the first time could be fined up to $1 million a day for CRA noncompliance. I will come back to this in a moment. Under this substitute, banks can be fined up to $1 million a day for falling out of compliance. Under this substitute, cease and desist authority for CRA noncompliance are brought into the system. Bank regulators may place any restrictions on any banking activities for CRA noncompliance. Bank regulators may place any restrictions on any insurance activities for CRA noncompliance. Bank regulators may place any restrictions on any securities activities for CRA noncompliance. Bank regulators may place any restrictions on any other activities of the holding company for CRA noncompliance. Any violation by any one bank in the holding company can trigger penalties against any and all activities of the entire banking company. Insurance sales of bank subsidiaries can be restricted for CRA noncompliance. Finally, the provision adds new expansions of CRA far beyond the existing law. Under current law, banks sell insurance--small banks in cities of less than 5,000, other banks depending on their State regulation--and they do it without CRA approval. The substitute would expand the decision of banks or ability of banks to sell insurance to require CRA approval. Some 20 banks now provide some security services. They do it without being required to get CRA approval. The pending substitute would expand CRA approval to that activity. The first point I want to make is, contrary to the rhetoric being used, we are talking about the largest, most significant expansion of CRA in history--none of which is based on any assertion of any abuse-- and we are talking about imposing confiscatory penalties that are devastating to our banking industry. I want to read pieces of two letters on this issue of the potential for a million-dollar-a-day fine. One letter is from the Independent Community Bankers of America. This is a letter from an organization of very, very small, generally community banks, often in rural areas that would be affected by this. Let me read the paragraph: We also have grave concerns about expanding CRA enforcement authority to include the levying of heavy fines and penalties against banks or their officers and directors. An ongoing challenge for many community banks in small communities is finding willing and qualified bank directors. Legislation following the savings and loan crisis of the 1980s and 1990s greatly increased the amount of civil money penalties to which bank officers and directors may be subject. Any increase in the potential for fines and penalties could provide further disincentive for service on a bank board. Here is the point. If a small bank is going to hire somebody to be president or be an officer or recruit somebody to be on a bank board, they are going to have to buy liability insurance to protect that person from this potential fine, which would literally put thousands of rural banks in America out of compliance. If there is a problem here that needs to be fixed, if there is an abuse that should be dealt with, then one might say that perhaps this is justified. But here is the record: There have been some 16,380 examinations of small, rural banks in America since 1990, and of those 16,380 examinations, three banks and S&Ls have been found to be out of compliance to a substantial degree. Our ranking member of the committee would bring in the potential for a million-dollar-a-day fine based on the fact that in 16,380 audits on CRA since 1990--9 years--there have been three banks substantially out of compliance. What is the justification for these massive punitive fines? There is no justification. The justification basically is that this is seen as an opportunity to massively expand CRA. That is what the justification is. The second letter, on exactly the same subject, is from the American Bankers Association. Here is what they say: We would oppose amendments we understand may be offered that would contain provisions not only eliminating the two CRA provisions currently in the bill, but also adding additional new CRA requirements. One strong concern the ABA has is that the potential for such penalties could discourage directors from serving on community bank boards and increase the cost of officer and director liability insurance coverage for banks. There has been no justification given for inserting these new penalties into CRA, particularly given the outstanding record the banking industry has in serving communities across the country. I remind my colleagues, this substitute seeks to impose these massive punitive penalties against small banks in America when in 16,380 exams, which cost those banks cumulatively $1,310,400,000 to keep the records and comply with the exam--$1,310,400,000; I have the decimal points right this time--after all that money, after all those exams, three small, rural banks or S&Ls were found substantially out of compliance. If this is not regulatory overkill that drives working men and women in America crazy and that threatens little banks all over the State of Kansas, the State of the Presiding Officer, and all over Indiana and all over Texas and all over America, that threatens their very existence, I don't know what it is. First of all, this is totally unjustified, makes absolutely no sense and, to quote my colleague from Maryland, never has a hearing been held on this subject. Never has any justification been given whatsoever for imposing a million-dollar fine on bank board members and bank officers in the name of CRA. It is the most gross overkill and regulatory burden that this Senator has seen in the entire time that I have been debating banking legislation. I remind my colleagues that I spent 12 years of my life teaching money and banking in college. I have spent too long of my life, 21 years, in the House and Senate, and I have been serving on the Banking Committee every day I have been in the Senate, and I have had the privilege this year of serving as chairman. I have never seen such a massive regulatory overkill as these proposed provisions, and I am confident that they will be rejected. (Mr. SANTORUM assumed the Chair.)

Mr. GRAMM. I will be happy to yield.

Mr. GRAMM

Mr. GRAMM. Reserving the right to object, may I hear the request again?

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that when the Senate completes its business today, it stand in adjournment until the hour of 9:30 a.m. on Thursday, May 6. I further ask consent that on Thursday immediately following the prayer the routine requests through the morning hour be granted, the time for the two leaders be reserved for their use later in the day, that the Senate then resume consideration of S. 900, and Senator Gramm be recognized in order to offer an amendment as under the original consent agreement.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the Senate now proceed immediately to the consideration of S. Res. 97, submitted earlier today by Senator Coverdell for himself and others.