Paul Sarbanes

Mr. SARBANES

Mr. SARBANES. It is interesting. The current system I think is seen by most people as working fairly well. In fact, many fine financial institutions do not complain about it. They are prepared to continue to work under the current system, and many of them have even said they see strong positive value in it. So it seems to me this is an effort to institute an important change that would really cut off open comment. You see, none of this is done, as I understand it, in the committee bill with respect to management or capital or any of the other issues the regulators look at when they undertake to consider one of these mergers or affiliations. It is being applied only to CRA. I mean CRA is being singled out for the application of this kind of prescreening, as it were, of people's ability to come in and make their comments.

Mr. SARBANES. I think that is an extremely important point. The chairman has said they have court opinions. I have not seen these cases that interpret ``substantial'' to mean ``a scintilla of evidence.''

Mr. SARBANES. The chairman corrects me and says ``more than a scintilla.'' I don't know how much more, but more than a scintilla. In any event, isn't it the case that no full hearings have been held on CRA? We come to the floor, and we get all of these assertions about abuses of one sort or another, sort of radical changes in a program that is seen as having been the lifeblood, enabling communities to renew themselves. To my knowledge, we have not had within the committee any sort of comprehensive hearings to examine those questions; is that the Senator's understanding?

Mr. SARBANES. Isn't it also the case, I ask the Senator, that in the mid-1990s, when a number of banks were complaining about the regulatory burden associated with CRA, Secretary Rubin undertook a major effort to address the question of regulatory burden and made very substantial changes in the requirements, which were greeted by the various banking associations at the time as being very forthcoming in dealing with this question of overregulation?

Mr. SARBANES. The Senator has been very patient. Will he indulge me for one further question?

Mr. SARBANES. How long would the Senator expect to go?

Mr. SARBANES. Could we then put Senator Bayh and Senator Edwards in line to speak after you finish?

Mr. SARBANES. Senator Grams spoke for you.

Mr. SARBANES. Then I guess our colleagues know in about 30 minutes they could hope to get recognition to speak. I thank the Senator.

Mr. SARBANES. Senator Bryan.

Mr. SARBANES. Will the Senator yield for a question?

Mr. SARBANES. Will the Senator yield? I understood the Greenspan letter compared the provisions in the House bill with the committee bill, not the provisions of the substitute.

Mr. SARBANES. They are not identical. There are some significant differences between the two, and I will develop them after the Senator finishes his presentation. But as I understand it, your request to the Fed and their response was to compare the House bill with the committee bill. Am I correct in that?

Mr. SARBANES. Will the chairman yield on this point?

Mr. SARBANES. I am looking at a table from the Federal Deposit Insurance Corporation, from 1990 through 1998, that those 320 institutions were given a ``needs to improve'' rating which, of course, is below compliance, and 18 institutions were given ``substantial noncompliance.'' The Senator is using this ``three'' figure, and I don't know where that comes from.

Mr. SARBANES. Mr. President, what is the parliamentary situation?

Mr. SARBANES. I thank the Chair. Mr. President, I rise in very strong support of the substitute amendment, which is the provisions contained in S. 753, introduced by Senator Daschle and all of the Democratic members of the Senate Banking, Housing, and Urban Affairs Committee. We have been at this for a long time--those on the committee and other Members who have been interested in the issue of financial services modernization. We have been seeking to find a way to pass a bill to protect safety and soundness, to protect consumers, to ensure that CRA not be undercut or eroded; and that permits financial service institutions within the realm of financial services, in effect, to enter into new arrangements in terms of affiliations and the activities they can conduct. This is something that has been urged on us. Those in the industry think it would be helpful to them. Some of this has been taking place without statute, but it is uncertain, unsure. It happens through regulation; it happens through court decision. I think most people think if we could arrive at a statutory framework in which to place these developments that that would be a desirable objective. That is why we introduced S. 753. That is why we are offering it as a substitute amendment to the committee bill. It essentially tracks the language of the bill that was reported last year on a vote of 16-2 from the committee with one exception with respect to operating subsidiaries. This substitute permits banks to conduct some activities in an operating subsidiary--not all of the activities they can now engage in--and that reflects, in part, an effort by Secretary Rubin to try to reach an accommodation to ensure that some of the concerns that were raised are addressed. There is a conflict, a difference of view here, a very strong difference of view here between Secretary Rubin and Chairman Greenspan, both of whom are saying to have a bill we have to have a good bill, and their definition of a good bill, each of them, is one that corresponds to their views, particularly on this important issue of the op-sub versus the affiliate, as far as carrying on activities. In this regard, I point out as we listen to Secretary Rubin that we are also listening, of course, to the possibilities of a Presidential veto. We can't get a bill into law without the President's signature-- that is obvious and clear--and the President has taken a very strong position on this legislation. In fact, he has sent a letter to the committee stating in the clearest possible terms that he would veto the committee bill if it was presented to him in its current form. That is when we began the markup in the committee. The committee has issued a statement of administration policy in which they say: Nevertheless, because of crucial flaws in the bill, the President has stated that if the bill were presented to him in its current form, he would veto it. We have had extended debate on the differences between the committee bill and the substitute amendment. Senator Gramm and I and others are participating in that. I am frank to say I thought the minority leader, Senator Daschle, just laid out a very clear, concise, extremely well- stated position with respect to the differences between these approaches. We differ in banking and commerce. The substitute seeks to, in effect, reaffirm, make clearer, the division between banking and commerce. We differ, as I indicated, with respect to the operating subsidiary issue, which of course involves the sharp difference between the Secretary of the Treasury and the Chairman of the Federal Reserve. We differ very strongly on CRA. It is asserted that the substitute expands CRA. In fact, what the substitute seeks to do is to ensure that if banks move into securities and insurance, that those banks should have a satisfactory CRA rating before they can undertake such a merger or affiliation. It requires the banks to be in compliance with CRA. It in effect says that a bank with an unsatisfactory CRA rating is not going to be able to use this additional power now being given to them to move into securities and to move into insurance. At the moment, they do a limited amount of that activity. But if they are going to actually go into it in a full-scale way, which is what this legislation offers--which both pieces of legislation offer to the banks, we do not differ on that proposition; both as a part of the financial services modernization approach are prepared to permit that--but we feel very strongly that they should be in compliance, the banks should be in compliance with CRA, if they intend to do that. A number of very important groups in the community support the substitute. I will have printed in the Record letters from civil rights organizations--from Hispanic organizations, which have been very strong in perceiving that CRA has made a big, big difference in their community in terms of home ownership and in terms of investment, and that there has been very significant benefit for Native American organizations that report on what has happened on the Indian reservations, from farm and rural groups, and from over 200 mayors, all of whom prefer the substitute amendment. I ask unanimous consent those letters be printed in the Record.

Mr. SARBANES. Therefore, I urge Members to vote against the motion to table the substitute, thereby giving us the opportunity to then go forward and adopt the substitute. I thank the Chair and yield the floor.

Mr. SARBANES. First of all, I commend the able Senator from Nevada for an extremely fine statement in support of this amendment which I very strongly back. The Senator made reference--I think it is an extremely important point--to the fact that the decisions with respect to complying with CRA are made by the regulators. As I understand it, community groups or anyone else can come in and make comments when some of these steps are to be taken for which an institution would have to meet CRA muster, and some of those comments, I assume, can be right on point, others may wander about. But whatever the case, it is not the people who comment who make the judgment; it is the regulators who make the judgment. So they can take it into account, give it some weight, give it no weight-- isn't that correct?

Mr. SARBANES. The Senator's amendment, I think, has an extremely important provision which says that if a banking institution wishes to go into securities or into insurance, which would be permitted in a comprehensive way for the first time by this legislation, that banking institution must pass the CRA test in order to do that. It is asserted that this is a, I think the language was used by my colleague, the chairman, a massive expansion of CRA. I take a very different view of that. It seems to me it is only keeping CRA abreast of the developments that are taking place with respect to financial modernization, because heretofore banks could not reach out and do--they did some of those activities within the bank of a very limited nature that had been permitted either by regulation or by court opinion but which were highly controversial and contested, and one of the things this bill is intended to do is to resolve those questions in terms of the structure of the financial services industry. Both the Senator and I are supportive of trying to do that. It seems to me that if the bank is now going to be permitted to move out to do these other activities, it is not some massive expansion of CRA. That CRA requirement would be placed upon the bank before they could move to do those other activities. Otherwise, it seems to me, over time, you will erode CRA, as institutions begin to shift their assets out from under the banking activity into the securities and the insurance activities. This amendment, the proposal the Senator has, does not extend CRA to the securities and insurance affiliates; am I correct on that point?

Mr. SARBANES. Which in fact has been strongly urged by a number of the community groups that are supportive of CRA. They in effect want to extend it out. If that were to be done, I would recognize that as an expansion, and we could fight that issue, as it were. But that is not what is in this amendment. This amendment puts the requirement only on the bank, if it seeks to go out and do those activities. That seems to me to be perfectly reasonable. In fact, it seems to me failure to do that is really a setback or an erosion of CRA. I ask the Senator his view on that question.

Mr. SARBANES. In fact, unless we do this, you could have a bank in substantial noncompliance with respect to the CRA test which would then be able to reach out and exercise these additional powers?

Paul Sarbanes

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