Jack Reed

Mr. REED

Mr. REED. Mr. President, I rise today to introduce legislation to help turn the tide of gun violence by requiring greater responsibility from those in the business of selling weapons. Currently, there are over 104,000 federally licensed firearms dealers in the United States. While most of these dealers are responsible small business people, recent tracing of crime-related guns by the Bureau of Alcohol, Tobacco and Firearms (ATF) has found substantial evidence that some dealers are selling guns to minors, convicted felons, and others who are prohibited by federal law from purchasing firearms. This direct diversion of weapons from retail to illegal markets is taking place both through off-the-book sales by corrupt dealers and through so-called straw purchases, when an ineligible buyer has a friend or relative buy a firearm for him. While federal law already prohibits a person from transferring a firearm when a person knows that the gun will be used to commit a crime, it is very difficult for victims of gun violence to seek legal redress from gun dealers who sell guns to those prohibited from buying firearms. There is very little case law and no federal law giving victims of gun violence the right to sue gun dealers who make illegal gun sales. To remedy this situation, my legislation, the Gun Dealer Responsibility Act, would provide a statutory cause of action for victims of gun violence against dealers whose illegal sale of a gun directly contributes to the victim's injury. I believe this legislation will make unscrupulous gun dealers think twice about selling weapons to minors, convicted felons, or any other ineligible buyer, either directly or through straw purchases. Mr. President, I ask unanimous consent that the bill be printed in the Record.

Mr. REED

Mr. REED. Mr. President, I rise in support of the supplemental appropriations conference report. Mr. President, this bill is not perfect, and I realize that some of my colleagues do not believe it is worthy of support. I disagree. This legislation meets several pressing demands that we have a responsibility to meet. First, this compromise provides essential funding for our military operations in Yugoslavia as well as humanitarian aid for Kosovo refugees. Without this funding our fighting men and women will face equipment and material shortfalls and view a ``no'' vote as a lack of support for them and their mission. Second, this legislation follows through on a commitment we made to provide a long-overdue pay raise for our troops. Third, this legislation provides disaster assistance to help our Latin American neighbors recover from the hurricane which struck that region so viciously earlier this year, and it contains funds to aid recovery from the recent spate of tornadoes here at home. Lastly, it extends the Airport Improvement Program which helps our nation's airports reduce aircraft noise and ensure aviation safety. However, I am disappointed that the Conference Committee decided to retain the Hutchison-Graham tobacco settlement recoupment provision in this year's Supplemental Appropriations bill. This amendment clearly does not deal with an ``emergency'' situation and should, therefore, not be included in this legislation. I am also deeply concerned that we have not thoroughly considered the potential impact this provision will have on the federal budget in years to come. In essence, this provision usurps the ability of the Congress to engage in a healthy debate about the use of the federal share of the tobacco settlement. While many argue that the federal government has absolutely no claim to this money, those assertions simply are not true. Current law dictates that the federal government rightly has a say over the percentage it contributes to the Medicaid program. Yet, instead of bringing this matter to the floor and considering it in an honest fashion, we are allowing an unprecedented opportunity to make a real difference in the lives of millions of Americans completely slip away from us. It is unfortunate that proponents of turning over the federal share of the tobacco settlement to the states without any guidelines have taken this backdoor approach. In essence, we have allowed our hands to be tied by the states, who wish to use this money to cut taxes, fix roads and build new buildings, among other things. According to a recent survey conducted by the Campaign for Tobacco Free Kids, the majority of states, as of today, have no definite plans to spend a portion of the settlement on programs to prevent children from starting to smoke or to help current smokers quit the habit. This action is in direct contrast with the desires of the majority of Americans who would like to see a major portion of this money set aside for tobacco prevention and cessation programs and health care to cover the cost of tobacco related illness. In my state, Rhode Islanders have resoundingly supported dedicating a significant amount of the settlement for tobacco related activities. I am saddened that we appear to have lost sight of the fact that the process of suing the tobacco companies was not so states could get more money for roads or schools, but because for decades these companies purposefully deceived the American public about the dangers of smoking. As a result, generations of Americans have suffered the adverse health effects of this campaign of deceit, and the federal government spent billions addressing the health care needs of these folks. While states were triumphant in reaching this monumental agreement, what will the effort have been for if there is no change in teen smoking rates in this country? Lastly, I am concerned that the conference report contains a number of dubious environmental riders that should be more fully debated as well as several budgetary off-sets that raise a number of questions. In particular, as a Senator who serves on the Banking, Housing, and Urban Affairs Committee, I believe that the rescission of $350 million worth of Section 8 funds could jeopardize the renewal of affordable housing contracts for thousands of elderly and low-income Americans, which would be a step backwards in our effort to increase the amount of affordable housing in our nation. Thank you, Mr. President.

Mr. REED

Mr. REED. Mr. President, in the past week the Republican majority in the Senate finally has begun to show signs of understanding that Americans want reasonable gun control policies in this country. We have made some progress by passing a ban on juvenile possession of semiautomatic assault weapons and a ban on the importation of high- capacity ammunition clips. We saw most Republicans join all Democrats in voting to require that child safety devices be sold with all handguns. And finally, this morning, with a tie-breaking vote by the Vice President, we passed the Lautenberg amendment to firmly close the gun show loophole. These are the kinds of measures that Democrats in Congress have been advocating for years, and it is unfortunate that it took a tragedy like Littleton to bring our colleagues in the majority around to our way of thinking, but we welcome even these small steps in the right direction. But small steps they are, Mr. President, and we need to do much more. We should reinstate the Brady waiting period, which expired last November, to provide a cooling off period before the purchase of a handgun. We should pass a child access prevention law to hold adults responsible if they allow a child to gain access to a firearm and that child then uses the firearm to harm another person. And we should firmly close the Internet gun sales loophole, something the Senate failed to do last week. I also believe that we should apply the same consumer product regulations which apply to virtually every other industry and product in this country to guns. If toy guns, teddy bears, lawn mowers and hair dryers are subject to regulation to ensure that they include features to minimize the danger to children, why not firearms? I plan to introduce legislation to allow the Consumer Product Safety Commission to regulate firearms to protect children and adults against unreasonable risk of injury. I know my friend Senator Torricelli has introduced a bill to allow the Treasury Department to regulate firearms. Whichever agency ultimately has oversight, the important thing is that guns should no longer be the only consumer product exempt from basic safety regulations. Mr. President, the NRA's own estimate is that there are over 200 million guns in this country. That's nearly one for every American. But let's remember that most Americans don't own guns. For most Americans, especially in urban areas, a gun in a public place in the possession of anyone other than a law enforcement officer usually brings on a sense of fear, not a sense of protection. As the President said a few weeks ago, this fundamental difference in perspective is at the heart of this gun debate. If we are to solve the problem of gun violence in this country, we have to come to a meeting of the minds between gun owners and non-gun owners, between rural and urban America. Americans who live in urban and suburban communities need to understand the legitimate use of firearms for hunting and sports activities. But at the same time, members of Congress from mostly rural states must recognize the immense pain and suffering that guns cause in our nation's urban areas, and they should work with us to convince their constituents that reasonable, targeted gun restrictions can make a world of difference by saving lives in America's cities and suburbs. I would also add that this is not simply an eastern vs. western states issue. For example, the Washington Post recently reported that in Florida, six of the state's most urban counties have adopted measures to require a waiting period and background checks on all firearm sales at guns shows, while the rest of the state has not. Every senator, from every region of the country, has some constituents who legally use firearms, and others who want nothing to do with them and see them as a deadly threat. My state is no different, and I recognize that many of my constituents are decent people who hunt or sport-shoot safely. While much more needs to be done, and while we are still far from passing comprehensive gun safety legislation, we have seen in the past week at least a few limited examples of how, working together, we can bridge the gap and approve reasonable, targeted restrictions on gun access without taking away a law-abiding, adult citizen's ability to own a gun. I also believe that gun dealers should be held responsible if they violate federal law by selling a firearm to a minor, convicted felon, or others prohibited from buying firearms. Currently, there are over 104,000 federally licensed firearms dealers in the United States. While most of these dealers are responsible small business people, recent tracing of crime-related guns by the Bureau of Alcohol, Tobacco and Firearms (ATF) has found substantial evidence that some dealers are selling guns to juveniles and convicted felons. This direct diversion of weapons from retail to illegal markets is taking place both through off-the-book sales by corrupt dealers and through so-called straw purchases, when an ineligible buyer has a friend or relative buy a firearm for him or her. To remedy this situation, I have introduced legislation, the Gun Dealer Responsibility Act, that would provide a statutory cause of action for victims of gun violence against dealers whose illegal sale of a gun directly contributes to the victim's injury. I believe this legislation will make unscrupulous gun dealers think twice about who they are selling weapons to, particularly minors, convicted felons, or any other ineligible buyer, either directly or through straw purchases. Our nation's federal juvenile justice programs establish four core principles that have served as the foundation of federal juvenile justice policy for years. States are required to uphold these principles in order to receive federal grant funds for juvenile justice activities. These four core principles include: (1) Juveniles may not be within sight or sound of adult inmates in secure facilities. The evidence is overwhelmingly clear that youth held in adult prisons are frequently preyed upon by adult inmates. Compared to juveniles in juvenile facilities, they are 8 times more likely to commit suicide, 5 times more likely to be sexually assaulted, and 50% more likely to be attacked by a weapon. (2) States should not confine juveniles for so-called ``status'' offenses, such as truancy, that would not be punishable if committed by an adult. (3) States should remove juveniles from adult jails and lockups: For the same reasons I just mentioned, juveniles should not be held in adult jails and lockups, with very narrow exceptions and even then for very limited periods of time. And, (4) States should address the problem of disproportionate minority confinement. This last issue is one I want to talk briefly about today, because it is the area where I believe the bill before us most dramatically changes federal policy and clearly fails to uphold the longstanding principles of our juvenile justice system. Nearly seven out of ten juveniles held in secure facilities in this country are members of minority groups. African-American juveniles are twice as likely to be arrested as white youth. There is, without question, a continuing need to address minority over-representation in the juvenile justice system. We should keep the incentives in current law that encourage states to do so. Unfortunately, the bill before us would replace those incentives with language that encourages states to reduce disproportionate representation of, quote, ``segments of the population,'' an ambiguous and unlimited phrase that could be interpreted to mean men, urban groups, or virtually any ``segment'' of the population. The effective result is that over-representation of minorities would no longer be the focus of our efforts, and one of the pillars of our federal juvenile justice policy would therefore be undermined. I was disappointed that the Senate yesterday failed to pass the Wellstone amendment to ensure that states continue to address disproportionate minority confinement issues. We have been making some progress in this area, and we need to continue that effort. Another area where I think we can do much more is in the provision of mental health services for young people who come into contact with the juvenile justice system. My friend and fellow member of the Health, Education, Labor and Pensions Committee, Senator Wellstone, spoke eloquently on this subject earlier this week. As he and I have discussed many times, you cannot have a meaningful discussion about juvenile justice without talking about mental health. The two are intimately intertwined. Studies find that the rate of mental disorder is two to three times higher among the juvenile offender population than among youth in the general population. According to a 1994 Department of Justice study, 73% of juveniles in the juvenile justice system reported mental health problems, and 57% reported past treatment for those problems. In addition, over 60% of youth in the juvenile justice system may have substance abuse disorders, compared to 22% in the general population. I have prepared legislation to authorize the Substance Abuse and Mental Health Services Administration (SAMHSA), in cooperation with the Department of Justice, to award grants to state or local juvenile justice agencies to provide mental health services for youth offenders with serious emotional disturbances who have been discharged from the juvenile justice system. I believe it is critical that we help local organizations to do several things to assist young offenders: (1) develop a plan of services for each youth offender; (2) provide a network of core or aftercare services for each youth offender, including mental health and substance abuse treatment, respite care, and foster care; and (3) provide planning and transition services to youth offenders while these youngsters are still incarcerated or detained. I hope that in the context of this bill or the SAMHSA reauthorization we can find room for this important program. I believe that a community-based network of mental health services will reduce the likelihood that troubled youth will end up back in the juvenile justice system. By combining this innovative grant program with strong prevention programs to reach out to at-risk youth before they come into contact with the juvenile justice system in the first place, we can attack the problem of juvenile delinquency from both directions. In closing, let me say that we all recognize that the problem of gun violence among our young people is caused by many factors, some of which we may not fully understand. We need more resources for prevention programs to reach at-risk youth before they come into contact with the juvenile justice system in the first place, and we have seen an increased willingness on the other side of aisle to provide those resources; we need a greater focus on mentoring and counseling for troubled youth, and we've seen some movement on that front as well; and yes, we need better enforcement of firearms laws and more effective prosecution of gun criminals, and there is no question that we will see more resources provided to make that happen. But anyone who honestly considers the tragic events in Littleton one month ago, and the thirteen children who die every day in this country from gun violence, must concede that one of the biggest problems of all is that our young people have far too easy and unlimited access to guns. We must do more to keep guns away from kids and criminals by making sure that Brady Law background checks are applied across the board, by reinstating the Brady waiting period, by passing a child access prevention law, by firmly closing the Internet gun sales loophole, by holding dealers responsible for illegal sales, and by applying to firearms the same consumer product safety regulations that apply to virtually every other product in this country. Let's do the right thing and pass a juvenile justice bill that includes every means possible to protect our children and all of our citizens from youth violence. Thank you, Mr. President.

Mr. REED

Mr. REED. Mr. President, I rise today to introduce legislation that would help local communities coordinate services for juvenile offenders who are leaving the juvenile justice system and returning to their communities. This provision was included in the Robb amendment to S. 254, the Violent and Repeat Juvenile Offender Accountability and Rehabilitation Act of 1999, which was unfortunately tabled earlier this week. The problem of mental illness plagues an alarming number of youth, who too often find themselves caught up in the juvenile justice system. While overall crime rates in this country have been in decline for the past few years, we have seen alarming increases in the number of serious and violent crimes committed by minors. Each year, more than two million youngsters under the age of 18 are arrested. What's more, statistics show that thirty percent of these young people will commit another crime within a year of their initial arrest. Often, society views these young people, who have turned to crime at such an early age, as a ``lost cause'' or simply beyond hope of rehabilitation. The said fact that often gets overlooked is that many of these youngsters are battling with a serious emotional or mental disorder that winds up manifesting itself in criminal behavior. We cannot condone this behavior, yet, we as a society have failed to dedicate the resources necessary to bring these children back from the edge of self-destruction. The legislation I am introducing today would help local agencies to coordinate the array of mental health, substance abuse, vocational, and education services a youngster may need to successfully transition back into the mainstream. Once a youth has been through the juvenile or criminal justice system, we need to do all we can to prevent a similar incident. If these children have been identified as having a mental or emotional disorder, they need to have access to appropriate treatment and services while they are incarcerated, but perhaps more imperatively when they leave incarceration. Turning these young people out on the street with no services to facilitate their transition does not help these children and does not help society as a whole. Studies have found the rate of mental disorder is two to three times higher among the juvenile offender population than among youth in the general population. According to a 1994 Department of Justice study, 73 percent of juvenile offenders reported mental health problems and 57 percent reported past treatment for their condition. In addition, it is estimated that over 60 percent of youth in the juvenile justice system have substance abuse disorders, compared to 22 percent in the general population. In an effort to bring desperately needed mental health services to this terribly underserved population, my legislation would authorize the Substance Abuse and Mental Health Services Administration (SAMHSA), in collaboration with the Departments of Justice and Education, to administer a competitive grant program that responds to the array of social and educational needs of children who are leaving the juvenile justice system. These cooperative ``wrap-around services'' would enable juvenile justice agencies to work together with educational and health agencies to provide transitional services for youth who have had contact with the juvenile justice system, in order to decrease the likelihood that these young people will commit additional criminal offenses. These services, which would be targeted toward youth offenders who have serious emotional disturbances or are at risk of developing such disturbances, could include diagnostic and evaluation services, substance abuse treatment, outpatient mental health care, medication management, intensive home-based therapy, intensive day treatment services, respite care, and therapeutic foster care. I think it is important for my colleagues to note that this proposal is modeled after existing programs with a proven record of success. For instance, my home state of Rhode Island is one of four states (the others include California, Wisconsin, and Virginia) that has sought to target teens who have been diagnosed with a serious emotional disturbance and provide them with the services they need to get back on track. The Rhode Island Department of Youth and Families last year initiated a statewide program called ``Project Hope'', for youth ages 12 to 18 with serious emotional disturbances who are in the process of transitioning from the Rhode Island Training School back into their communities. The goal of the partnership is to develop a single, community-based system of care for these children to reduce the likelihood that they will re-offend. The program brings a core set of services to these young people that includes health care, substance abuse treatment, educational/vocational services, domestic violence and abuse support groups, recreational programs, and day care services. A key component in the program's strategy is to engage young people and their families in the planning and implementation of these transition services. A similar program that has been in operation in Milwaukee, Wisconsin since 1994 has reported a 40 percent decline in the number of felonies committed and a 30% decrease in misdemeanors after providing comprehensive services to children with serious emotional disorders for one year. This legislation would provide states with the resources and flexibility to start filing a critical service gap for youngsters who are leaving the juvenile justice system and re-entering their communities. The provisions of adequate transitional and aftercare services to prevent recidivism is essential to reducing the societal costs associated with juvenile delinquency, promoting teen health, and fostering safe communities. I am pleased to introduce this legislation today. The provisions outlined in this bill will help community agencies to coordinate services, which will prevent these troubled juveniles from committing additional crimes and falling into a life on the fringes of society. It is in our best interest to take responsibility for these teens instead of turning our backs on them at such a critical stage.

Mr. REED

Mr. REED. I do not control time.

Mr. REED. Mr. President, I thank the Senator for yielding. I am pleased to support his amendment, together with Senator Daschle. I think it underscores the bipartisan nature of this amendment that both Senator Shelby and Senator Daschle are here today to advance a very important issue. It is a very important issue that I have been working on for over a year. In fact, in the last Congress, I had an amendment in the Banking Committee that was very similar to this, and my impetus is to suggest this amendment was based upon my experience as not only a Senator but also as someone who was a lawyer and involved in banking matters in my home State of Rhode Island. It is very important to clear up a misconception that might be operating at the moment that the Federal Reserve is the exclusive repository of banking direction and regulation in the United States. Such a claim is just wrong. Banking policy in the United States is the province of many different organizations. The Federal Reserve principally, starting in 1956 with the Bank Holding Company Act, regulates the operations of bank holding companies. Here is a simple schematic of what a bank holding company is. It is a holding company--a corporation under State law usually owning a bank, and also owning the other affiliates. This bank holding structure became an issue in the 1950s, and as a result the Federal Reserve was empowered by Congress--I should emphasie ``by Congress,'' not by its own direction--to regulate bank holding companies. But long before that, beginning in the 1860s, national banks were regulated under the Department of the Treasury and the Comptroller of the Currency. Indeed, other financial entities, other depository entities, are regulated by the Office of Thrift Supervision. We should be very clear. This is not an attempt to wrench away from the Federal Reserve their exclusive prerogative to run the banking system in the United States. This amendment is attempting to provide flexibility to banking organizations so they can conduct a limited range of activities in either a subsidiary of the bank or an affiliate of the bank. If they are conducted in the affiliate, they will be regulated under current law and under our anticipated legislation by the Federal Reserve; if they are conducted in the subsidiary, they will be regulated by the Office of the Comptroller of the Currency or the other regulator of this particular bank. It is also important to note that there are only two rather narrowly defined activities that could be conducted under the Shelby-Daschle amendment: Securities underwriting or merchant banking activities. I should hasten to add that these two activities would also be regulated by the functional regulator. If it is securities activities, it would be regulated by the Securities and Exchange Commission. We are talking about a very narrow band of activities. It is important to keep that in mind. We are in no way talking about displacing the Federal Reserve as a principal regulator of bank holding companies. What we are talking about is giving banking organizations the flexibility to decide, based upon their own analysis, whether they want to conduct these two limited activities, either an affiliate or a subsidiary of the bank. What the underlying legislation, S. 900, would do essentially is give the Federal Reserve all the authority. It would cut out effectively what currently exists, the regulating authority of the Comptroller of the Currency to determine a limited range of activities that either could or could not be done either in the bank itself or a subsidiary bank. Many have described this as a turf fight. I don't think that is a proper description. What we should be doing and what the Shelby amendment is attempting to do is to provide the type of regulatory balance necessary, first, to guarantee safety and soundness; and, second, to give banking institutions the flexibility to conduct the business the way they decide rather than the way we might dictate here in Washington. Now, one of the interesting things to know is that we are attempting to change a high bond regulatory structure that was erected in the wake of the 1930s. I note that the Senator from Texas noted that all of our financial problems were solved in 1913 when we created the Federal Reserve, but there was a brief interlude in the 1930s where the economy was in disarray during the Depression. As a result of that, we created the Glass-Steagall Act that separated various activities. We now recognize, because of many different factors, that we should in fact undo this very rigid structure and provide flexibility for a combination of different financial activities--insurance activities, security activities, depository activities. However, this amendment, the Shelby-Daschle amendment, goes to the heart of that flexibility by providing the kind of business flexibility that banks should have in this new, very fast paced international economic environment. I explained basically the structure of the typical bank holding company, and I think that is useful because for the last several weeks we have been hearing jargon such as ``op-sub'' and ``affiliate,'' et cetera. It is exactly what I suggested before: A bank holding company, a company that is typically a commercial enterprise, a State-chartered company, owns a depository institution; in turn, they operate some activities and subsidiaries throughout the affiliate. That is basically what we are talking about now. The question is, What should we do to ensure that, first, safety and soundness is protected; and, two, that the banks have the kind of flexibility they need and the corporate governance to operate effectively? What we are proposing with this amendment is that in these two limited activities--securities activities and merchant banking--the bank holding company have the choice of either doing it in a subsidiary or affiliate. As I understand it, the underlying legislation would allow a very small bank holding company to conduct these activities in a subsidiary. So this is, in some respects, an issue of size. But the principle already exists within the context of the underlying legislation that these activities can, in fact, be conducted in subsidiaries. Looking ahead at what the amendment requires, it is very important to note that in order to conduct these activities a bank would have to meet certain tests. First of all, the bank would have to be well managed and well capitalized. This is a requirement that would be similar on bank holding companies. In addition to this, the bank would also have to do specific things to allow or qualify for the conduct of these activities. First of all, if the bank was going to conduct the activities in a subsidiary, it would have to deduct its equity investment in the subsidiary from its own equity. As a result, this provides protections for the bank and for the overall depository system. In addition, it would have to remain well capitalized after the equity deduction. The point here is that the regulators essentially could be satisfied that even as this subsidiary failed, even if the whole investment were lost, it would not adversely affect the capital bank, which is at the heart of their notion of protecting safety and soundness. In addition to that, they would be limited to the amount of money they could invest in a subsidiary. It would be limited to this same amount of money they could ``dividend upwards'' to the bank holding company--another check on the safety and soundness provisions in this legislation. Moreover, if these activities are conducted in a subsidiary, the whole relationship would be governed by section 23(a) and 23(b) of the Federal Reserve Act. These two sections govern transactions between bank affiliates and other holding company affiliates. Essentially, it requires that there be arm's-length dealing between these two entities. For example, section 23(a) imposes a percentage cap on transactions between a bank and our operating subsidiary--the subsidiary cannot be the exclusive source of business for the bank, and vice versa. In addition, section 23(a) provides safeguards with respect to collateral that could and must be used for lending transactions between the bank and subsidiary. In sum, there are provisions in the amendment to guard against the self-dealing that would lead to breaches of safety and soundness. All of these things together suggest very strongly that what we are proposing is entirely consistent with the safety and soundness of the banking system. Indeed, that should be our primary legislative motivation, to be sure that whatever we do here is consistent with safety and soundness. There has been a great deal of discussion about the mysterious subsidy that Chairman Greenspan is talking about, the fact that ``...the reason I oppose this is because of this hidden subsidy,'' because of this transfer. In his words, ``My concerns are not about safety and soundness.'' I am glad, because I think we have convinced or at least we have suggested that we have considered very thoroughly and carefully the safety and soundness issues. It is the issue of creating subsidies for individual institutions which their competitors do not have. It is a level playing field. . .. The subsidy, as explained before, rests upon essentially the guarantee of deposit by Federal deposit insurance. Now, what we have done, first, is protected safety and soundness; second, these subsidies are frequently offset in discussions--indeed, many times complaints--about the restrictions that go along with the depositor insurance. We debated yesterday at length about CRA. That adheres to a bank because of its deposit insurance. That is a cost that other competitors could not have. So when we look at this whole notion of subsidy, there is a very real argument, when it is balanced out, that this subsidy is not particularly significant, that in the margin it will not make a difference whether you conduct this activity in a subsidiary or in an affiliate. Moreover, when a bank holding company is attempting to go to the equity markets to raise equity through stock offerings or through commercial debt paper, no one looks exclusively, uniquely, solely at the bank; they look at the combined activities of the holding company. So if there is a subsidiary at the bank, that all washes out through the bottom line of the bank holding company balance sheet. This notion that the subsidiary is the driving force I don't think is entirely correct. Moreover, when you look at experts who have dealt with this whole issue of whether or not these activities should be conducted in a subsidiary, those in fact who have been responsible for the operation of the FDIC, most of the recent chairpersons--Ricky Halperin, William Isaac, and William Seidman--have argued very strongly and forcefully that in fact placing these activities into a subsidiary would, in fact, be a beneficial and not a detrimental aspect and, in fact, potentially could be a plus for the Bank Insurance Fund. It would be so because if, in fact, there was a troubled bank with a healthy subsidiary, either in the securities business or in the merchant banking business, those healthy assets would be a source of funds to cover depository losses, potentially in the bank. Such coverage from a subsidiary would offset the need for a contribution by the taxpayer-supported deposit insurance fund. It has been mentioned before that foreign banks, in fact, have these powers within the continental United States because of international banking agreements. In fact, there are 19 foreign banks with securities underwriting subsidiaries in the United States and these banks have about $450 billion in assets and they would be allowed to continue their operations under the S. 900 bill, the underlying legislation. As Senator Shelby pointed out, this is on the surface a disparate treatment between domestic banks and foreign banks, but I think it reveals something else. It goes right back to that issue of: Is there a subsidy? Because these foreign banks are also subsidized by deposit insurance, in most cases, in their country of origin, the country of incorporation. And they are also subsidized in the same way as are our banks, by government policies, by access to the central bank's discount window, by a whole series of governmental programs that assist banking institutions. If you put back Chairman Greenspan's words--again, let me remind you, he is not talking about safety and soundness. He is talking about this mysterious subsidy. Those are his words, but what are the actions of the Federal Reserve when it comes down to approving the applications of these foreign banks to operate security subsidies in the United States? First of all, the Federal Reserve, in the applications they had to approve, looked at the whole subsidiary issue. And they found that technically there was probably a subsidy to the subsidiaries. But what they suggested in approving these applications, which they did, is that by essentially imposing restrictions, as we have done, in terms of capital contributions, in terms of the possible transactions between the bank and subsidiary--that they would be offset. So essentially what the Chairman says and what the Federal Reserve does are two different things. He says this is a dangerous subsidy, yet when they have to approve an application of a foreign bank to operate a subsidiary in the United States, they say they can control that subsidy, essentially, by the same means that we are suggesting--capital contributions and other techniques. So, if you listen to what is being said but look at what is being done in the world, I think, deeds speak louder than words. And the deeds are that this subsidy issue is a false one. Any subsidy is either dissipated through the holding company system or is offset in our amendment by the requirements to deduct capital, by the requirements to limit the investment into a subsidiary to the amount that you could upstream to a holding company for further investment in an affiliate. There is another aspect which I think is telling with respect to the Federal Reserve, their position. I think this could come as a surprise to lots of people. American banks today can own operating subsidiaries and do own operating subsidiaries which can in fact perform merchant banking activities and securities activities--the activities that we are authorizing in this amendment. But they can only have these subsidiaries overseas, and interestingly enough, these subsidiaries are regulated by the Federal Reserve Bank. They are called Edge Act companies. So what we are proposing today in this amendment is no novel redistribution of regulatory opportunities or banking opportunities, really. What we are saying, essentially, is if the Federal Reserve can regulate and authorize American banks through foreign subsidiaries to conduct insurance activities and securities activities and merchant banking activities overseas, why do they object to American banks doing the same thing in the United States? The same thing--limited, of course, to securities activities and merchant banking. There are, as we estimated, subsidiaries with $250 billion in assets, subsidiaries of American banks operating overseas, subject to the regulation not of the Securities and Exchange Commission, but whatever foreign regulator is looking at their operation. Of course, the Fed concludes--they must conclude--this does not pose a threat to the safety and soundness of American banks. Of course, they must conclude that whatever subsidy they are getting through deposit insurance, it is not unfair for them to apply that overseas to invest in foreign subsidiaries to conduct these activities. In fact, the operations of these banks' subsidiaries overseas, these Edge Act companies, are far less regulated than what we are proposing in our amendment. These are not bound by section 23 (a) and (b). They are also not bound by our restrictions, by the amount of money that can be invested in the subsidiary. So I think the Federal Reserve position--in terms of the facts, not the rhetoric, not the appeals to the history--is very weak indeed. The facts establish, No. 1, that in fact they have no objection to American banks' operating subsidiaries' overseas securities activities. It does not pose a threat to safety and soundness in their view. It is not an unfair use of the subsidy if that subsidy exists. So I think we have to be very careful to conclude that what we have here is an amendment that gives banks flexibility, that does not implicate the safety and soundness of the banking system, that does not in any way distort the monetary policymaking role of the Federal Reserve. That in fact is consistent with over 100 years of banking regulation in the United States, which is a shared function between many different banking regulators in the United States. In fact, it is something that will provide the flexibility that is at the heart of this legislation. I hope we will, in fact, support this amendment. It represents a bipartisan attempt to be consistent with the overall theme of this legislation, which is to unshackle our banking institutions from the hidebound rules of the Glass-Steagall Act, to give them an opportunity to compete but to do so in a way that does not implicate, intimidate or, undermine the safety or soundness of the banking system which is our ultimate responsibility. I hope, again, we will accept, adopt and support this amendment. I yield the floor.

Mr. REED

Mr. REED. Mr. President, I rise in strong support of the Bryan CRA amendment. This amendment would strike the small bank exemption and the CRA safe harbor provisions included in S. 900 and require banks to have a ``satisfactory'' CRA rating as a condition for engaging in the expanded powers allowed under this bill. The language of this amendment is similar to language that was included in the financial modernization bill which passed the House and Senate Banking Committee by a vote of 16 to 2 last year and which enjoyed broad industry support. Similar language has also been incorporated in the H.R. 10 bill that recently passed the House Banking Committee and is pending in the House Commerce Committee. In short, the Community Reinvestment Act requires financial institutions to meet the credit needs of the local communities in which they are chartered, including low- and moderate-income communities, consistent with safe and sound practices. Let me reiterate, CRA requires banks to make credit-worthy loans. It does not require banks to make bad loans. Despite this fact, some have argued that CRA is tantamount to government-mandated credit allocation. Nothing could be further from the truth. Neither the Act nor its regulations specify the number of loans, the type of loans, or the parties to CRA loans. To the contrary, CRA relies on market forces and private sector ingenuity to promote community lending. This is evidenced by the tremendous flexibility that financial institutions have in satisfying CRA. For example, loans to low-income individuals; loans to nonprofits serving primarily low- and moderate-income housing needs; loans to financial intermediaries such as Community Development Financial Institutions; and loans to local, state, and tribal governments may qualify for CRA coverage. Moreover, loans to finance environmental clean-up or redevelop industrial sites in low- and moderate-income areas also qualify as CRA loans. In addition to lending, CRA is satisfied through investments by financial institutions in organizations engaged in affordable housing rehabilitation, and facilities that promote community development such as child care centers, homeless centers, and soup kitchens. Even Federal Reserve Chairman Alan Greenspan has weighed in on this issue, arguing, ``The essential purpose of the CRA is to try to encourage institutions who are not involved in areas where their own self-interest is involved, in doing so. If you are indicating to an institution that there is a foregone business opportunity in an area X or loan product Y, that is not credit allocation. That, indeed, is enhancing the market.'' As illustrated by these examples and Chairman Greenspan's comments, it is clear that CRA is a far cry from government-mandated credit allocation. To be sure, CRA is predicated on two simple assumptions that were well-articulated by the legislative architect of CRA, former Senate Banking Committee Chairman Proxmire, who stated, ``(1) Government through tax revenues and public debt cannot and should not provide more than a limited part of the capital required for local housing and economic development needs. Financial institutions in our free economic system must play the leading role, and (2) A public charter for a bank or savings institution conveys numerous benefits and it is fair for the public to ask something in return.'' In the words of former Comptroller of the Currency Eugene Ludwig, ``CRA is in many respects a model statute. It requires no public subsidy, no private subsidy, and no massive Washington bureaucracy.'' It is this simple concept that has resulted in more than $1 trillion in loan commitments for low- and moderate-income borrowers since CRA's enactment in 1977. Indeed, the record home ownership rate that the U.S. is now enjoying--66.3 percent of Americans own their homes--is in large measure due to CRA lending to minorities and low-income individuals. Minorities have accounted for a disproportionately large share of home ownership growth since 1994--roughly 42 percent. Also, since 1993, home mortgage loans to low- and moderate-income census tracts have risen by 22 percent, which is more than twice as fast as the rate of growth in all home mortgage loans. In view of these statistics, it is clear that CRA has played a tremendous role in the home ownership boom. In addition to increases in home mortgage lending, CRA has also been responsible for an increase in community development lending. In the past four years, banks have invested four times as much in community development projects, as they did in the previous thirty years. This increased investment in community development by banks has also furthered the evolution of a secondary market for community development loans, which ultimately provides additional capital for community development. For many years, the development of a secondary market for community development loans had been limited. This development was limited for a number of reasons including the lack of conformity in the underlying loans, as well as the fact that community development securities typically do not receive a rating from a nationally- recognized rating agency. Also, the underlying loans lacked long-term performance data, making them difficult to rate. However, because of CRA, a secondary market for community development securities is beginning to emerge. This is happening for two specific reasons: (1) The federal banking regulators have interpreted CRA to allow banks to get CRA credit for purchasing community development securities, even if they lack ratings or performance data, if the purchases are consistent with safe and sound banking practices, (2) Also, as banks have increased their community development lending, they have been able to draw on this experience to improve underwriting standards and create greater conformity in underwriting, which is important for investors in the secondary market. Also, this experience has provided banks with greater empirical data on loan performance, which is another important consideration for secondary market investors. These are trends that we should clearly be excited about and should seek to further. Instead, S. 900 would undermine this progress. Specifically, one provision of S. 900 would exempt rural banks with assets under $100 million from CRA. Although this exemption is limited to the smallest institutions, over 76 percent of rural banks would be covered. This is of great concern since small banks have historically received the lowest CRA ratings. In fact, institutions with less than $100 million in assets accounted for 92 percent of institutions receiving ``non- compliance'' CRA ratings in 1997-1998. I am also concerned about this exemption because smaller banks are typically the primary sources of credit in rural communities. Hence, absent CRA, it is likely that many rural communities could become credit-starved. The bill also includes a provision that would provide a safe harbor for banks with a ``satisfactory'' or better CRA rating. Specifically, institutions receiving a satisfactory CRA rating at their most recent examination would be presumptively in compliance with CRA, unless ``substantial verifiable information'' to the contrary was presented. I am concerned about this provision because it establishes a very difficult-to-satisfy burden of proof for individuals or groups wishing to protest a bank merger on CRA grounds. Indeed, I fear this provision will greatly inhibit the ability of groups to get the necessary information from banks to protest a merger. Also, when considering the fact that 97 percent of institutions receive a satisfactory or better CRA rating, it is clear that this provision will effectively eliminate CRA comment on a bank merger. If these provisions of S. 900 are not eliminated, I fear a return to the days prior to CRA's enactment when access to credit was limited for many minorities and those living in low-income neighborhoods. In fact, testimony before the Senate Banking Committee during the consideration of CRA in 1977 revealed how bad things were. Witnesses recounted stories of financial institutions that had previously been active in urban lending, that disinvested in those same urban neighborhoods as minorities increasingly moved in. Testimony before the Senate Banking Committee also brought to light a 1974 study of six Chicago banks. In the study, it was found that these banks, which held $144 million in deposits from low-income and minority communities, returned one-half cent on the dollar in home loans. Such was the deplorable state of lending in low-income and minority communities before CRA. While certainly we have come a long way since CRA's passage in 1977, lending discrimination, unfortunately, persists. In a study published earlier this year by the Fair Housing Council of Greater Washington, it was revealed that Washington area lenders discriminate against two out of five African American and Hispanic mortgage applicants. In one incident cited in the study, a Rockville lender advised a black tester that the lender did not make loans to first-time home buyers. The same lender later met with a white tester, also posing as a first-time home buyer, giving the tester an appointment and encouraging him to apply for a mortgage loan. Lending studies by other organizations reveal similar findings. These studies have shown that minority borrowers receive fewer bank loans even when their financial status is the same as or better than white borrowers. By encouraging lenders to extend credit to all communities, CRA has been an important weapon in fighting lending discrimination. The Bryan amendment will ensure the potency of CRA in fighting lending discrimination and providing fair access to credit to low-income and minority communities. In closing, Mr. President, let me reiterate how important it is to include CRA in any modernization legislation that passes. It is very likely that if S. 900 is enacted, we will see increased consolidation in the financial services industry. As we know from recent experience, this consolidation will likely lead to layoffs and bank branch closings. Absent the CRA language included in the Bryan amendment, I fear that this consolidation could have a significant and adverse impact on access to banking services and credit in low-income and minority communities. By adopting the Bryan amendment, we will at least ensure that industry consolidation will not decrease access to credit in these communities. In fact, I feel so strongly about these provisions that I plan on opposing the bill if this amendment is not adopted. I would hope my colleagues can support this amendment.

Mr. REED

Mr. REED. Mr. President, just a point of information, I presume we are going to adjourn at 12:30. Presumptively, that means Senator Enzi would be the last speaker this morning.

Mr. REED. Mr. President, I thank Senator Enzi for his graciousness in offering the unanimous consent request. I want to begin by stating how important I think it is to pass financial service modernization legislation as quickly as possible. The existing legal framework has become an anachronism over the last several years--in fact, even the last decade or so. The industry has responded to changes in this market faster than the law has responded. It is our obligation to ensure that we have appropriate legal standards, so that our financial services industry can be competitive in a worldwide market, which is highly dynamic, and which requires more flexibility and more responsiveness than is inherent in the current system, which began under Glass-Steagall more than 60 years ago. So I am a strong proponent of financial modernization. In fact, it is ironic that we were very close in the last Congress to passing financial modernization legislation, which was agreed to by all the major interest groups and which represented a balancing of the need for flexibility, the need for new and expanded powers, the need for financial services industry to be able to reach across prior lines of demarcation to the securities industry, banking industry and insurance industry, and at the same time maintain the principles of safety and soundness, and also the notion that we have to ensure community access to credit. All these things were carefully worked out. Yet, regrettably, H.R. 10 failed in the last few moments of the last Congress. We are back today to begin to address these issues again on the floor of the Senate. That is an encouraging point because I think the worse thing to do would be to continue to delay and avoid this debate. Having said that, let me also recognize that the current legislation we are considering, S. 900, significantly deviates from the principles and the compromises that were carefully worked out in the last Congress. In so doing, I think it raises serious questions about the viability of this legislation, regardless of whether it will pass this body or the other body. There is a strong question of whether it will ultimately become law. It think it should become law and, as a result, I think we need to make changes in the form of amendments. In fact, unless we can deal with some of the issues, I am prepared to oppose this legislation, even though I am strongly committed to ensuring that we ultimately achieve a modernization of our financial services industry. The critical issues that face us with respect to this bill that are troubling are, first, with respect to the Community Reinvestment Act. Over the last several decades, since 1977, over $1 trillion in loans and loan commitments have been made under the Community Reinvestment Act. It has literally helped maintain and rehabilitate communities, both urban centers and rural areas, throughout this country. Without it, this would be literally a foreign issue, particularly in urban neighborhoods and rural areas. With it, we managed to spark hope and build new communities in places that were sadly lacking in significant opportunities and significant hope. One example of the many in my State is in Woonsocket, RI. It was, at the turn of the century, a thriving mill town. In fact, the river was crowded with factory after factory after factory. With the demise of northern manufacturing, that town has seen difficult times. Through the CRA, citizens were able to avail themselves of significant assistance and credit when they formed the Woonsocket Neighborhood Development Corporation to work toward preserving the neighborhood. I have been there. I have visited these neighborhoods. They are rebuilding old homes that were built in the 1800s. They receive grants and loans from the First National Bank and the Federal Home Loan Bank Board in Boston, all under the auspices of CRA. Without these loans, they would not be able to rebuild their communities. It is necessary, it is important, and it can't be dismissed or short-circuited, as I fear S. 900 attempts to do. One of the other provisions in the bill that specifically cuts back on the scope and the effectiveness of CRA is the limitation exemption of CRA for rural financial institutions with assets under $100 million. We all admit that a $100 million bank is a small institution. But such banks represent 76 percent of rural banks in the United States, the vast majority of rural institutions. And these banks historically have the lowest CRA ratings. They are a bank that, on their own volition, aren't responsive going through the data to their local community, and by taking away the responsibility of CRA we will make this situation worse. I think what we will do, in effect, is deny to many rural areas what they think is part and parcel of the local bank in the community; that is, investment in their own community, in their own neighborhood. The reality of this is that people who run banks, which comes as no surprise to anybody, want to make money. When they look around their community and they see a loan for a community project, for housing redevelopment, or a local project to develop a community with a low rate of return, and yet they can see they can park their money someplace in a big city without CRA, the tendency, the temptation, and probably the reality is they will send that money out of that community. It is the local money that forms the basis of these banks. CRA says you have to look at the community, you have to invest in it, you have to care for it, and you have to commit to it, but you don't have to lose money. There is nothing in the CRA law that says you have to make a bad loan. There is nothing in the CRA law that says you have to do something unsafe, unsound, or foolish in banking. It does say that you have to look for appropriate lending opportunities in your community and make those commitments. That is what I think most people assume that local community banks do day in and day out. What I think will happen by the exemption is you will find in rural areas it will be harder to get the kind of credit for those types of community projects, rebuilding of housing, small businesses that do not have the kind of attraction or a track record yet to get the support of the local banks. That is something I think would represent a further demise in the community. Then there is another provision, which has been referred to as ``rebuttal of presumption'' by some and ``safe harbor'' by others, which is included in the legislation and which essentially says, if you have a satisfactory CRA rating, you are presumptively in compliance with respect to a proposed transaction unless someone can come forward with ``substantial verifiable information'' that your rating is not warranted. First, you have to ask yourself, who outside of the bank would have ``substantial verifiable information''? That is typically not in the public domain. So you are setting up in this rebuttal of presumption, or safe harbor, an impossible task that outside community groups particularly would be able to know the inner workings of the bank so well that they could come in and present ``substantial verifiable information.'' So, in effect, what you are doing is saying, if we get your satisfactory rating, we are not going to pay much attention to the CRA. The practical reality is that in major transactions, the notion that CRA is a factor that prompts first these depository institutions to behave better before the transaction and, certainly in contemplation of the transaction, review carefully their commitment to their local community, is one of the most effective and nonintrusive ways, because it doesn't represent the Government going in and directing lending or directing anything in a nonintrusive way if a bank responds to the needs of the community, and to vitiate this by this rebuttal of presumption is, I think, a mistake. One of the other aspects of this rebuttal of presumption is the fact that 97 percent of the institutions have these satisfactory ratings, which could lead to the question of how thorough these reviews are by the regulatory agencies in the first place. It might add a further argument to the fact that perhaps it is only in the context of a serious review or serious questions raised by outside parties that banking institutions take their CRA responsibilities seriously and, in fact, act upon them. But that is another factor which I think we have to consider when we are talking about dispensing with the opportunity to raise in a meaningful way CRA concerns with respect to major transactions. Frankly, everything we have read in the paper over the last several years, several days, and several months has been about major transactions between financial institutions. That has been the driving force in the industry and, coincidentally, has helped the bank be more committed and more responsive to the CRA concerns, because they know this is an item that can be looked at and challenged in a meaningful way in a transaction. If you dispense with that, I think that would be a mistake. There is another provision in the legislation which has been alluded to by the ranking member, Senator Sarbanes, and that is essentially providing very limited opportunities to conduct activities in a subsidiary of a banking institution. The bill as it stands today would establish a $1 billion asset cap on those banks that may engage in underwriting activities for securities and merchant banking in an operating subsidiary. I believe that banks of any size should have the opportunity to form themselves in such a way that they feel most competitive in the marketplace with respect to these two particular functions, securities underwriting and merchant banking. Therefore, they can choose to put them in an affiliate holding company, which would be a Federal Reserve regulation, or in a subsidiary of the depository institution which would be subject to the Office of the Comptroller of the Currency. I think giving that type of flexibility makes more sense than determining that ``one size fits all'' and all has to be done in the context of a holding company arrangement. I offered last year, because of these views, an amendment to H.R. 10 which would have allowed banks to engage in securities underwriting and merchant banking subsidiaries. I would anticipate another amendment with respect to that. In fact, this language is in the alternative which Senator Sarbanes will offer later today, or which I would expect to be offered to try to reach this point. It is an important point. It is not just a point with respect to turf allocations between Federal regulators; it is an opportunity to give the banking industry the flexibility that all say they deserve. There is another problem I see in the legislation. That is with respect to the elimination, for all practical purposes, of prior Federal Reserve Board approval before allowing a bank to merge or engage in a new activity. This once again goes to the heart of the regulatory process. It is nice to assume that banking institutions and financial institutions are responsible and appropriate in their conduct of activities and that they would only conduct a merger that would be in the best interests of not only themselves but the public. But I think that sometimes strains credulity. It is appropriate, important and, in very practical ways, necessary to have the requirement for prior approval of these major transactions by the Federal Reserve Board, because the Federal Reserve Board has a role independent of the management of the banks. They are trying to maximize shareholder value; they are trying to be competitive in a very difficult market. But it is the Federal Reserve's responsibility to ensure safety and soundness, that competition will not be adversely affected, and that this transaction will in some way serve the public interest. I don't think you can do that by implication. I don't think you can do that by checking after the fact. Again, the reality is that when multibillion-dollar institutions merge and then discover after the fact that it really was a bad idea, it is hard to unravel those transactions. To do it right, you have to do it up front. Therefore, this legislation should have prior approval by the Federal Reserve Board. All of my comments have been appropriately addressed by the Democrat substitute, which will be offered by Senator Sarbanes. Let me conclude with some specific concerns about a question that has concerned me throughout the course of our debate not only in this Congress but in the last Congress. That is whether or not the regulatory framework we are creating will be sufficient to protect the safety and soundness of institutions and ultimately protect the public interest. We are trying to expand opportunities, to break down the old hierarchies, the old barriers between different types of financial activity, to give the kind of robust, dynamic opportunities that are concomitant with this world of instantaneous transfer of information and billions of dollars across boundaries. In doing that, we have to recognize our ultimate responsibility is to ensure these institutions operate safely, that they are sound, and that regulatory responsibilities are discharged. We expand dramatically the powers of these institutions under this legislation. But in some respect we are inhibiting some of the traditional regulatory roles of our Federal regulators. For example, in section 114, there is a prohibition which prevents the Office of the Comptroller of the Currency and the Office of Thrift Supervision from examining a mutual fund operated by a bank or thrift. Currently, they have limited authority to do such examinations. We are taking that away. Section 111, another example, prohibits the Federal Reserve from examining the securities or insurance affiliate unless there is a ``reasonable cause to believe'' the affiliate is engaging in risky activity. Ask yourself, how do you reasonably believe such activity is taking place unless you have the opportunity and indeed the authority to at least go in and check periodically what is going on? Many of these provisions might create a structure of regulation which is just too porous to withstand the kind of pressures that we see in the financial marketplace. It is reasonable to conclude how we got here. We have emphasized throughout this debate this notion of functional regulation, that securities should be regulated by the SEC, depositories should be regulated exclusively by banking regulators, and that a loose, overarching regulatory provision should be discharged by the Federal Reserve. Setting up compartments with a loose umbrella invites the notion that something will go wrong, something will fall through the cracks. As we go through this process, the debate and the continued examination of this bill, we have to ask ourselves not only before the legislation is passed but if it is passed afterwards, are there any unintended loopholes that could be exploited, unfortunately, which would be detrimental to safety and soundness? There is another provision which I think is important to point out. That is the notion that in the context of the insurance business, State insurance regulators basically have a veto over Federal Reserve authority to demand that an insurance affiliate contribute to the State of a holding company. This is a reversal from the traditional authority and the traditional regulatory perspective of the Federal Reserve. For years, since their active regulation of the Bank Holding Company Act, the doctrine of the Federal Reserve has been that the holding company is a source of strength to the underlying depository institution. That ``source of strength'' doctrine is, in part, repealed by this legislation, because within the context of an insurance company, and specifically the next great round of mergers will be between depository institutions and insurance companies--that is the example that Travelers and Citicorp established when these insurance companies started merging together with banks, big banks, big insurance companies--we are going to have for the first time in our financial history, a situation where an insurance regulator can say to the Chairman of the Fed, even though that depository institution is ailing mightily and my insurance company is very healthy, I'm not going to allow any transfer of funds from the insurance entity to the depository institution because I don't have to, one; and, two, I'm concerned about the long-term viability of the insurance entity, so I will not cooperate. What that means is that rather than the present model where every subsidiary affiliate of a holding company contributes to the health of the deposit insurance, we have a situation where the taxpayer, through the insurance funds, will be bailing out a bank that very well might have a very healthy insurance affiliate. These are some of the regulatory examples which I think have to continue to be watched, examined, and thought about. I hope as we go forward that we could engage the Fed in a constructive dialog with respect to their views on how we on a practical basis deal with some of the concerns I raised today. We have the potential of passing legislation which would be terribly helpful to our financial community. I want to pass the legislation. Unless we resolve the issue of the Community Reinvestment Act, unless we resolve the issue of operating subsidiaries, unless we look more carefully and closely and make changes perhaps in some of the regulatory framework, this is not the legislation that ultimately can or should become law. I yield my time.

Mr. REED. I thank the Chair.

Mr. REED

Mr. REED. Mr. President, I rise today to express my profound concern with several provisions in the Abraham ``lock box'' amendment pending before us here today. I share many of the objectives the sponsors of this amendment portend to support, such as preserving the Social Security Trust Fund, promoting fiscal responsibility and paying down the debt. However, I fear this amendment could potentially have dangerous and disastrous effects on our nation's economy and Social Security. The Abraham ``lock box'' proposal establishes statutory annual, declining limits for debt held by the public over the next ten years, based on projections from the Congressional Budget Office (CBO). Proponents of the amendment contend that these statutory limits will force a greater degree of fiscal responsibility upon the federal government. In order to raise the debt limit, a 60-vote point of order in the Senate would be required. On the surface, this legislation may appear to provide potential benefits to the American economy and government spending. However, there are several fundamental flaws to this approach, which is why I am unable to support the proposal. First, the Abraham proposal relies upon CBO budget projections to derive the statutory public debt limits. While CBO budget projections are an insightful and beneficial tool for policymakers, they are in no way an exact measure of future budget levels. As any economist would tell you, there are too many uncontrolled factors that can come into play. By CBO's own admission, unanticipated developments in the economy, demographics, or other factors may alter the nations' budget landscape. For instance, an assessment of CBO budget projections between fiscal years 1988 and 1998 found that projections were off by an average of 13 percent per year. Looking ahead to 2004, this margin of error would mean that CBO's current budget projections could be off by as much as $250 billion. Yet, under this proposal, these inaccurate projections would become the standard. Second, the statutory debt limits proposed by the Abraham amendment could make the federal government's responsibility to meet daily financial obligations extremely difficult. Treasury Secretary Robert Rubin has stated that debt limits may drastically hinder the Treasury's ability to cover near-term shortfalls in the government balance sheet. The government receives revenues and makes payments on a daily basis. Daily, weekly, or monthly swings in cash flows can exceed balances, and under the ``lock box'' scenario, debt limits as well. If the government has reached the debt limit, it would likely become necessary to temporarily suspend unemployment benefits, or other payments, until budget cuts or tax increases are implemented to make up the difference. Third, arbitrary debt limits could exasperate economic downturns. The amendment includes a provision that its supporters claim would lift the debt limit during a recession, which is defined as two consecutive quarters where real economic growth is less than one percent. However, lags in economic reporting mean that data on GDP growth are generally not available until several months after an economic downturn has actually begun. For example, the recession that started in July 1990 was not revealed through economic data until April 1991. When the economy slows, unemployment compensation and other outlays rise, while tax revenues slow or decline. As a result, debt limits could be breached more quickly. However, unless Congress musters 60 votes to breach the debt limit, cutting government expenditures or raising taxes would be required. These delays could push an already weak economy into a recession. Fourth, effective measures are already in place to ensure fiscal restraint. Over the last ten years, pay-as-you go and discretionary spending caps have been highly successful in producing fiscal discipline without threatening budget cuts or tax increases. These enforcement mechanisms, which were enacted as part of the Budget Enforcement Act of 1990, have been key elements in maintaining fiscal discipline over the past decade. Supplementing these successful laws is unnecessary and may create greater volatility in our budget process. Lastly, I would be remiss if I did not point out that the ``lock box'' proposal does nothing to stimulate meaningful Social Security reform, nor does it extend the solvency of the program. In fact, the amendment contains a clause that would allow money dedicated to the payment of Social Security benefits to be siphoned off for other purposes, like the creation of private accounts. It also completely ignores the solvency problems facing Medicare. Mr. President, although the ``lock box'' amendment is seemingly well intended, if enacted, it could dramatically impact the federal government's ability to meet its financial obligations and react to economic downturns. Furthermore, it could exacerbate times of economic hardship and tie the hands of the federal government in meeting its financial commitments to the American people. Most importantly, the amendment does nothing to secure the solvency of Social Security and Medicare. I urge my colleagues to reject this potentially harmful amendment. Thank you, Mr. President.

Mr. REED

Mr. REED. Mr. President, it is my pleasure to inform my colleagues that the U.S. Military Academy Class of 1958 is naming the debate room at Lincoln Hall, West Point, NY, in honor of their classmate, 2d Lt. George W.P. Walker. George Walker was an outstanding soldier, scholar and leader. He graduated from the U.S. Military Academy No. 1 in his class. George Walker received many prestigious awards for his educational and military prowess. He was admired and respected by his classmates as a man of honor and a true friend. Tragically, 2d Lt. Walker died in an airplane accident in 1959 while he was en route to Oakland, CA, for an overseas assignment. I wish to recognize the remarkable life of 2d Lt. George W.P. Walker by printing in the Record the February 2, 1959, remarks of Congressman Francis Dorn who appointed 2d Lt. Walker to the U.S. Military Academy. I ask that Congressman Dorn's remarks be printed in the Record. The remarks follow. 2d Lt. George W.P. Walker Mr. DORN of New York. Mr. Speaker, it is with great sadness that I inform my colleagues of the death of 2d Lt. George W.P. Walker, son of Mr. and Mrs. George Walker of 1103 East 34th Street, Brooklyn, N.Y. Lieutenant Walker was in an aircraft accident in North Carolina while he was enroute to Oakland, Calif., for overseas assignment. Lieutenant Walker was my appointee to the U.S. Military Academy and when he was graduated from that institution in June of 1958, he stood No. 1 in his class. For the entire time he attended the Military Academy, he was carried on the dean's list. Upon graduation, he was presented with the following awards: For having the highest rating in mechanics of fluids, a portable typewriter, presented by the National Society, Daughters of the American Revolution. For excellence in intercollegiate debating, a wristwatch presented by the Consul General of Switzerland. As the No. 1 man in military topography, a wristwatch presented by the Daughters of the Union Veterans of the Civil War. The Francis Vinton Greene Memorial, caliber .45 pistol, presented in the name of Mrs. Green, for standing No. 1 in general order of merit for 4 years; a set of books presented by the American Bar Association for having the highest rating in law; a silver tray--called the Eisenhower Award--presented by the American Bar Association for having the highest rating in law; a silver tray--called the Eisenhower Award--presented by Mr. Charles P. McCormick of Baltimore, Md., for excellence in military psychology and leadership. In addition to maintaining his very high military and academic standing while at the Academy, Cadet Walker was active in extracurricular activities, and during his last year held the rank of lieutenant in the Corps of Cadets. The Nation has lost a potential outstanding military leader and the loss is indeed a great one. I was proud to have been his sponsor, and I join in grieving with his parents.

Mr. REED

Mr. REED. Mr. President, I rise to commemorate the 84th anniversary of the Armenian Genocide. This weekend, members of Armenian communities around the world will gather together to remember the spring morning of April 24, 1915, when the Ottoman Empire and the successor Turkish nationalist regime began a brutal policy of deportation and murder. Over the next eight years, 1.5 million Armenians would be massacred at the hands of the Turks and another 500,000 would have their property confiscated and be driven from their homeland. Despite having already undergone such terrible persecution and hardship, the people of the Armenian Republic still suffer today. The peace talks have regrettably made little progress toward the resolution of the Karabagh conflict. Turkey continues to blockade humanitarian aid to Armenia. However, the Armenian people look hopefully to the future. Their quest for peace and democracy continues to inspire people around the world. On May 30th, Armenia will again hold democratic elections. Armenians who have emigrated to other countries, especially those in my home state of Rhode Island, bring their traditions with them. They enrich the culture and contribute much to the society of their new homelands. Although each year's commemoration of the Armenian genocide is important, I believe this year's observance is particularly significant--because of the crisis in Kosovo. Each night the television shows images of hundreds of thousands of refugees forced from their homes and each morning the paper is filled with stories of innocent civilians robbed and killed. These stories and images are heartwrenching--but the people of Kosovo have not been abandoned. The nineteen nations of NATO are united in their resolve that another genocide will not be tolerated. One of the reasons the world could not stand idly by watching events unfold in the Balkans is because of commemorations like the observance of the Armenian Genocide. We must stand as witnesses to protect those who are persecuted because they are different. We must remain vigilant as long as hate and intolerance exist in our world. Menk panav chenk mornar. Thank you, Mr. President.

Mr. REED

Mr. REED. Mr. President, I rise to congratulate the Rhode Island Department of the Reserve Officers Association of the United States (RIROA) on the 75th Anniversary of its founding. The Reserve Officers Association was established in 1922 to link together Reserves from each of the armed services. The fighting force of the 21st century is a joint force, yet Rhode Island's Reserves implemented this concept 75 years ago when the Army, Navy Reserve, and National Guard joined together to form the RIROA. The purpose of the Reserve Officers Association is to support a military policy for the United States that will provide, promote, and develop the execution of adequate national security. The RIROA has dedicated itself to this purpose and to bringing all military services closer in a common bond. The RIROA is a leading proponent of developing strong Reserve forces in each of the uniformed services to work for the welfare of citizen soldiers in Rhode Island and the interests of the national security of the entire country. The Reserves are essential members of the national security force, facing greater challenges than ever before. Today's military is leaner, yet the number of missions has steadily increased. Therefore, the services are relying more and more on reserve forces to carry out the task of protecting the U.S. and its principles. Reservists are not only an integral part of any mobilization overseas, but are increasingly on the front lines of protecting the home front from terrorist acts, information warfare, and attacks on our critical infrastructure. With over 85,000 members nationwide, and over 600 members from Rhode Island, today's Reserves are a significant and vital part of the United States' military force. The United States military would not be the finest fighting force in the world without the commitment and professionalism of the Reserves, an integral part of the Total Force. I commend the Reserves' commitment to the nation's defense, and I salute the dedicated members of the RIROA on this historic occasion.

Mr. REED

Mr. REED. Mr. President, I rise in support of the Conference Report on the Education Flexibility Partnership Act. I am particularly pleased that the Conference Report contains my amendment to ensure that parents have a strong voice in the Ed-Flex waiver process. My amendment requires states and school districts to provide public notice and comment opportunities to parents and other interested members of the community before requesting waiver authority or waivers. As an added accountability measure to ensure that parents and communities across the nation have confidence in the waiver process, my amendment also requires states and school districts to submit these comments along with their application to the Secretary or the state as appropriate. Such requirements provide parents an opportunity to play an active role in the waiver process, and, by doing so, empower them to help their children succeed in school. I believe that it is extremely important for parents to be involved in their child's education. As the Center for Law and Education has noted, ``when parents are involved at school, their children not only go further, the schools become better for all children.'' Moreover, the implications of waiver requests are broad. Input and participation by parents and other interested members of our communities can only lead to more effective use of any waivers. Indeed, parents are more likely to be receptive to the waivers and work to see that the goals intended by the waivers are achieved if they actually know about the waivers; are involved in shaping the waivers; and have a real stake in the waiver process. With Ed-Flex, we have an opportunity to provide more flexibility to enhance state and local education reform efforts. I am pleased that the Conference Report recognizes the need to balance that flexibility with accountability by containing provisions that I worked on closely with Senators Kennedy and Dodd to ensure that the increased flexibility provided to states and school districts is tied to strong accountability. When we send scarce federal dollars to states and school districts, we need to hold them accountable for results. Indeed, too many of our children do not get the education they deserve. Without accountability, we will never reverse this situation. Mr. President, I am also pleased that the bipartisan commitment we made last year to fund the class size reduction initiative is maintained in the Conference Report. Indeed, the Republican attempt to pit the needs of children with disabilities against the general student population is both counterproductive and destructive. Lastly, I want to note that Ed-Flex alone is not going to turn around the education of our children. Ed-Flex is one of the easier and less complex education issues we may consider this year. Now it is time to begin the hard work of truly improving teacher quality, strengthening parental involvement, equipping our school libraries with up-to-date books, repairing and modernizing our schools, and reducing class size. These initiatives are the hallmarks of real education reform--not slogans about block grants and vouchers. Mr. President, the issue of education is one of the greatest challenges facing our nation. There are no quick fixes. It is only through hard work and sensible reauthorization of the Elementary and Secondary Education Act that we can begin to truly improve education.

Mr. REED

Mr. REED. Mr. President, I rise today to highlight the concerns of some of my constituents who are participating in an adult basic education program conducted by the ARC of Northern Rhode Island. Earlier in this session, John Mullaly, on behalf of his classmates, wrote to me to express his concerns regarding the use of the word ``handicapped''. Mr. President, individuals who live with disabilities are one of the nation's great untapped resources. They have much to contribute, and they deserve to be fully integrated into every aspect of society. I am proud that so many of my colleagues share this point of view and that 70 senators have joined in cosponsoring S. 331, the Work Incentives Improvement Act, legislation that allows individuals with disabilities to join the workforce while maintaining their health benefits under Medicare or Medicaid. As we debate this and other related legislation in the Senate, I hope that my colleagues will also consider the vocabulary we use. Mr. Mullaly and his classmates have suggested that we replace the term ``handicapped'' with the phrase ``persons with physical/mental challenges''. Mr. President, I ask unanimous consent that the text of Mr. Mullaly's letter be printed in the Record.

Mr. REED

Mr. REED. Mr. President, I rise to join my colleague from Maine, Senator Collins, in offering this important amendment to express the Sense of the Senate that funding for need-based student financial aid programs should be increased. The Republican budget proposal provides some welcome news when compared with past Republican budget proposals because it at least includes increased funding for elementary and secondary education. Indeed, it can be called much improved in contrast with past Republican proposals to eliminate the Department of Education. However, I am deeply concerned that this funding increase may be financed by cutting critical programs like Head Start, Summer Jobs for Youth, and job training by up to 10% in FY2000, and 20% in the following years. Moreover, this budget proposal assumes an increase for elementary and secondary education programs of $2.6 billion over a freeze. However, it only assumes a $2.4 billion overall increase for all education programs in fiscal year 2000, which means other vital education programs, like student financial aid programs, would have to be deeply cut or frozen in order to meet these assumptions. It would be a shame to limit our ability to realize the reforms we just recently enacted as part of the Higher Education Act Amendments of 1998 to enhance federal assistance to college students. That is why I have joined Senator Collins and others in offering this amendment. Mr. President, this amendment simply urges increases in funding for need-based student financial aid programs. These programs include Pell Grants, the Federal Work Study Program, the Leveraging Educational Assistance Partnership (LEAP) program, and TRIO. I strongly support a greater investment in all of these important programs than is provided by the budget resolution. And, in particular, I have long been a champion of more robust funding for the LEAP program, a federal-state partnership that is essential to our efforts to help needy students attend and graduate from college. I worked closely with Senator Collins on a successful amendment two years ago to save LEAP from elimination and on legislation to reform this program, which was included in the Higher Education Act Amendments of 1998. These reforms seek to encourage states to increase their commitments to need-based student grant aid in exchange for increased flexibility to provide a broader array of higher education assistance to needy students. We are currently working together to secure $75 million for LEAP in the Fiscal Year 2000 Labor, Health and Human Services, and Education Appropriations bill to trigger these reforms, and I urge my colleagues to join us in this important effort. LEAP and the rest of the federal financial aid programs are critical to helping students achieve their higher education goals. All higher education and student groups endorse the effort to increase funding for need-based student financial aid programs, and I strongly urge my colleagues to support our amendment in order to meet the commitment to higher education that we reaffirmed last fall by passing the Higher Education Act Amendments of 1998. amendment no. 230 (Purpose: To provide an exception for emergency defense spending) At the end of section 205 of the resolution, add the following: (f) Exception for Defense Spending.--This section shall not apply to a provision making discretionary appropriations in the defense category.''.

Mr. REED

Mr. REED. I thank the Chair.

Mr. REED. I thank the Chair. Among the first casualties of this proposed budget will be the cities and rural communities of America. This budget would cut upwards to 78 percent of money devoted to community and regional development over the next 10 years. My amendment is very straightforward. It would restore $88.7 billion over 10 years to bring up funding to the level proposed by the President. It would do so by taking a small portion of the projected tax cuts that are included in this budget. Without my amendment, we will see extreme reductions in community development block grants, the Economic Development Administration, the lead paint abatement program, the brownfields program, those programs that are essential to the cities and rural areas of this country. We cannot abandon these communities. In fact, we cannot throw them, as this budget would, into financial chaos as they try to make up the difference with the property tax. The irony here is that these tax cuts in the budget will mean tax increases for many communities. It is supported by the U.S. Conference of Mayors and the National League of Cities. I hope Senators will support this measure and not abandon the cities and rural communities of America. I ask for the yeas and nays.

Mr. REED. Mr. President, I move to waive the budget point of order.

Mr. REED. Mr. President, I ask for the yeas and nays.

Mr. REED

Mr. REED. Mr. President, today we celebrate the 178th Anniversary of the revolution that won Greece's independence from the Ottoman Empire. I am proud to join with forty-nine of my colleagues in sponsoring Senate Resolution 20 which designates today ``Greek Independence Day: A National Day of Celebration of Greek and American Democracy.'' The Greeks have been members of the community in Rhode Island for over one hundred years. Over 6,000 residents of the state claimed Greek heritage in the last Census. When the Greeks first came to the New England, they worked in factories and on the waterfront. The descendants of these first immigrants continue to prosper and enrich the Northeast and the rest of the country through their contributions to banking, medicine, the tourism industry, and the arts. Edith Hamilton praised Greeks in this quote, ``to rejoice in life, to find the world beautiful and delightful to live in, was a mark of the Greek spirit which distinguished it from all that had gone before. It is a vital distinction.'' I have been grateful for this spirit, energy, and support in the Rhode Island Greek community, and, for a very long time, I wished to visit Greece and Cyprus. This summer, I finally had that opportunity. On my trip, I had the pleasure of meeting Ambassador Burns and the U.S. Ambassador to Cyprus, Kenneth Brill. I also met and had candid conversations with Greece's Minister of Foreign Affairs and the Greek Defense Minister. In addition, I had the chance to tour the Green Line in Cyprus and speak with Dame Ann Hercus, the newly appointed Chief of the United Nations mission and General De Vagera, the force commander. During my visit, I was impressed by the beauty of these countries and the hospitality of the people of Cyprus and Greece. However, I was also overwhelmed by the consequences of Turkey's 1974 invasion of Cyprus. The division of the island saps the economic vitality of a region rich in resources. The inability to move goods, people, or services between the two parts of the island stymies growth. We must continue to work to resolve the Cyprus problem and reduce the tensions that exist between Greece and Turkey. When I was a member of the House of Representatives, I cosponsored numerous legislative initiatives to this end, and I will continue to advocate for such solutions as a Senator. For today, let us celebrate the anniversary of Greek Independence, the richness of the Greek heritage and legacy of democracy that country gave to the world.

Mr. REED

Mr. REED. Mr. President, parliamentary inquiry: Are we going back and forth to each side?

Mr. REED

Mr. REED. Ten.

Mr. REED. Thank you, Mr. President. I thank the Senator from North Dakota for yielding time to speak about his amendment, the essence of which is protecting both the Social Security trust fund and also the Medicare fund. One of the deficiencies in the Republican budget before us today is a failure to seize a historic opportunity to strengthen the Medicare program in the United States. I argue it is not just an opportunity, but it is a necessity. This is the program that benefits countless Americans, it is the program that is strongly supported by all Americans and it is the program that is facing serious challenges, serious demographic challenges, serious structural challenges. One thing we can do at this moment to ensure that we have the opportunity to effectively address the issue of Medicare is to, in fact, invest dollars into the Medicare program today. But, regretfully, the Republican budget proposal, rather than doing that, would reserve budget surpluses for tax cuts, denying us the opportunity today to strengthen the Medicare system. We have come a long way since 1993 when we were looking each year at soaring annual deficits in the order of $300 billion or more. Today, we are facing a unified surplus. With that unified surplus, we can do many things. But I believe one of the principal things we must do is strengthen both the Social Security system and the Medicare system. Senator Conrad's amendment goes a long way toward achieving that goal. Because of our prudent fiscal decisions over the last 6 years, we have seen a growing economy. We have seen growing prosperity. All of this is contributing to a future, we anticipate, of unified budget surpluses. Simply to step back now and say the work is done, now we can simply initiate tax cuts, misses the point. And that point is, we have to protect, we have to ensure the longevity, the stability, the predictability of the Social Security system and the Medicare system. Now, of the two, the Medicare system faces the most immediate threat. By the year 2008, the trust funds are projected to become insolvent. This is a situation that requires immediate action. The most prudent thing to do is to reserve the resources to meet this impending situation of insolvency. There are, as I said before, millions of Americans who depend upon it, and not just those direct beneficiaries. We have come--all of us have come--to a sense of appreciation and, in fact, consideration that if any of our relatives, our mothers, our fathers, our aunts or uncles, would be sick, they would have the Medicare system to fall back on. That allows young families the freedom to know that the health care of their parents will be protected. It gives them the freedom to concentrate on their own needs and the needs of their children. So this is not just a situation with respect to seniors; this is a situation that affects all Americans. We tried in the Balanced Budget Act of 1997 to make changes to prolong longevity of the Medicare trust fund. Today, we are beginning to realize that some of these changes have created negative consequences. In fact, we are looking to make some adjustments so that we can guarantee quality health care for all of our seniors. We have come to know that we have to make structural changes in Medicare, but it has to be done carefully and thoughtfully. We have also come to appreciate, I hope, that we must have the resources available, because the health care needs of seniors are not going to go away. In fairness, and in keeping faith with seniors, we have to make sure those resources are available. We will have to make hard choices about the structure of the Medicare program. But these choices will be infinitely more difficult if we take the path that is suggested by the budget resolution, that is, if we deny additional resources to the Medicare program. I argue that in order to keep the faith of our seniors and our whole population, we have to make sure that we use the projected surplus to strengthen the Medicare system, and that the idea of using the surplus to finance tax cuts, while we face an impending crisis in Medicare, is the wrong policy. We have to, as I said before, ensure that we have the resources to confront the situation we face. And the situation we face, frankly, is one where the demands on Medicare will increase. We know that. Part of it is as a result of demographics. Today, 39 million Americans are beneficiaries in the Medicare program. But by the year 2032, 78 million Americans will be eligible for Medicare. In terms of the sheer volume of new beneficiaries, we have to start reserving sufficient funds to meet their needs now. Not to do that, and to dissipate those funds through tax cuts, I think, might provide momentary benefits, but in the long run we will regret this. We have to also recognize the fact that seniors will live longer, probably 6 years longer than they have in the past, so that the issues of health care for seniors will not get smaller in the future; they will become more and more important. For all of these reasons, it is important today to recognize that we must maintain the strength and the resources for the Medicare program. That is why the amendments we are debating today, to a degree Senator Conrad's, in some respects Senator Kennedy's amendment, go to the simple truth: We have, through very difficult decisions over the last several years, reached a situation where we have a unified budget surplus. The question is whether we will take that surplus and strengthen Medicare, make it available for the next generation of Americans, and give us the opportunity to make structural changes, not out of dire necessity but because it will provide additional strength to the Medicare program. Or we will take these resources and dissipate them through tax cuts, which will not strengthen the Medicare system. In fact, when the system develops increased stresses and strains in the future, the budget resolution will leave us without the resources to step into the breach and do what we must do--keep the promise to our seniors, keep the promise to those who have relied upon and continue to rely upon Medicare. So I urge careful consideration of these amendments. I hope, at the end of the day, we will have a budget that recognizes the opportunity and the necessity to invest in Medicare today so that it is there tomorrow for all of our citizens. I yield the floor.