Richard Shelby

Mr. SHELBY

Mr. SHELBY. I yield the remaining time to the distinguished Senator from Oklahoma, the assistant majority leader.

Mr. SHELBY. Mr. President, there has been a lot said about the amendment that we have offered to exempt small banks from the Community Reinvestment Act. A popular mantra is that if the small bank exemption amendment passes, President Clinton will veto the bill; therefore, the Senate should not take up this amendment. I have also been told this is not the time or the place to take up an amendment to CRA. But I believe, Mr. President, that such assertions are not valid. H.R. 1151 essentially eliminates the common bond requirement, allowing credit unions to serve virtually any and every group now. In addition, H.R. 1151 explicitly authorizes credit unions to perform commercial lending activities. In doing so, this Congress is overturning a historical Supreme Court decision and the law of the land for about 60 years. While expanding the role of credit unions, we continue to protect the tax exemption credit unions now enjoy. Small community banks, Mr. President, however, serve the local community but have to compete with the higher cost of funds, a higher regulatory burden, and of course a considerable tax burden. While we increase the competitive advantage of small bank competitors in this bill, we do nothing to help small banks compete on a more level playing field. So, Mr. President, for those who suggest that this is not the time or the place for this amendment to exempt the small banks of America from the CRA, I have to disagree. Credit unions are increasing their market share over community banks in small local markets with higher savings rates and lower lending rates, rates small banks cannot match thanks to the tax and regulatory burdens that constitute the competitive disadvantage here. The small bank exemption from the Community Reinvestment Act has everything to do with the competitive equity we are talking about--leveling the playing field between local community banks and credit unions. The President, of course, has the right to veto a bill if he so chooses. That is the legislative process. We all know that. However, I do not believe the President would veto this bill if this amendment were part of it. The Senate Banking Committee worked very hard to draft a responsible bill, and, by and large, I think we did just that. Nevertheless, Mr. President, I believe H.R. 1151, the bill before us now, can be improved. And, to that extent, this is the time and this is the place to improve the bill. Yesterday, the Senate failed to table Senator Gramm's amendment to strike the community-reinvestment-like provisions on credit unions from the bill. I supported that. As a result, it appears the Senate has chosen to adopt Senator Gramm's amendment to eliminate the expansion of regulatory burden and mandated credit allocation on to credit unions, which I think is good. If the Senate votes to table the small bank exemption from CRA, the Senate will make a very hypocritical policy statement to the American people, I believe, saying, essentially, that we do not support the expansion of mandated credit allocation and regulatory burden on credit unions, but, Mr. President, on the other hand, we do support the mandated credit allocation and regulatory burden on small community banks. Now that is not what we call competitive equity. I believe the worst part about this inconsistent policy is that consumers are the ones who bear the brunt of the cost of the Community Reinvestment Act. The CRA tax on banks only gets passed on to the consumer. While the intention, Mr. President, of the Community Reinvestment Act may have been to help consumers, in practice I believe it hurts them. CRA is bad for consumers. CRA is, I believe, bad public policy. Contrary to what opponents of the amendment would have you believe, the small bank exemption would not gut CRA. Banks with less than $250 million in assets account for less than 12 percent of bank assets nationwide. This is a vote for small community banks in America. I think it is time to do it and the time is now. Mr. D'AMATO addressed the Chair.

Mr. SHELBY. Mr. President, does this side have 7\1/2\ and a half minutes and the other side 7\1/2\ minutes? That is my understanding.

Mr. SHELBY

Mr. SHELBY. Madam President, this amendment that I have offered this afternoon would authorize a small bank exemption in the Government- mandated credit requirements of the Community Reinvestment Act, known as CRA. Community banks by their very nature serve the needs of their communities. They do not need, I believe, a burdensome Government mandate to force them to allocate credit or to originate profitable loans. Friday, I spoke in this Chamber about the regulatory burden of the CRA on small community banks in the United States. I cited then statistics that show small banks are less efficient than large institutions and suffer from excessive regulations. My colleagues should know that the amendment I have just offered would exempt only 11.2 percent of bank assets nationwide. This is nearly the same amount of assets as one of the largest financial institutions in America, BankAmerica. Can you imagine that? All the small banks of America, with $250 million in deposits or assets or less, have 11.2 percent of the assets, and one bank, and probably several others, has a lot more than all of these banks put together. I thought it might be helpful to hear from a small bank with less than $80 million in assets. They have written to me to complain about the regulatory burden of the CRA. This institution is probably typical of small community banks nationwide. And the institution officer asked to remain anonymous for obvious reasons, for they are worried about repercussions from overzealous Federal regulators or bureaucrats. I would feel the same way. But the CEO of the small bank in my State wrote as follows: As a local community bank, we willingly and proudly provide banking services to all segments of the population. However, the Community Reinvestment Act is overly burdensome, costly and makes it difficult for us to compete and to offer our customers the service they deserve. Presently, [I have] an employee in the bank who spends 35 percent of his time just making sure we are in compliance with the Community Reinvestment Act. These duties include: (1) Quarterly reports to the board of directors detailing the community activities of our officers and directors; (2) Plotting each loan on a map of the county; (3) Reviewing all loans on a weekly basis for the purpose of breaking down income levels by number and total dollar volume; (4) Reviewing all loan denials and approvals weekly for the purpose of ensuring compliance with CRA; (5) Providing an on-going self-assessment of the bank's CRA plan and performance. I have dozens of letters similar to these, but the one from which I just read articulates the burden as well as any of them. Opponents of our amendment suggest here that the CRA regulations have been reduced and are not burdensome. The CRA regulations may have been reduced, but the burden is still there. Bankers have to study hundreds of pages' worth of guidance manuals and attend seminars to assure CRA compliance. In fact, some banks have staff whose only job is to ensure CRA compliance. Of course, compliance costs with small bankers are not the only costs of the CRA. The very mandate of credit allocation increases the cost of banks in and of itself, and I would like to take a moment to explain here this afternoon why the Community Reinvestment Act is nothing more than a Government-mandated credit allocation, much like the mandated credit allocation in East Asia that has caused the currency crisis, among other things. The chart would show this. What are the small bank performance standards? I will go through these. According to the Code of Federal Regulations, CFR, section 25.26, the ``Performance criteria'' for small banks depend on (i) bank's loan-to-deposit ratio; (ii) percentage of loans located in the bank's assessment area; (iii) bank's record of lending for borrowers of different income levels and businesses and farms of different sizes; (iv) geographic distribution of the bank's loans; (v) bank's record of taking action in response to written complaints about its performance in helping to meet credit needs in its assessment areas. Mandate (i) judges all small banks around the country on their loan- to-deposit ratio. However, the loan-to-deposit ratio for one bank may not be appropriate for another bank. One banker told me his record of ``community lending'' was questioned by a Federal bank regulator based on a low loan-to-deposit ratio. The banker responded, ``My bank is in the middle of a retirement community. There are not too many senior citizens applying for community development loans.'' How does the Federal Government know what the appropriate loan-to-deposit level is for Winfield, AL, or Lafayette, LA, or some other town in America? Mandate (ii) judges all small banks around the country based on the loans made in a specific assessment area. Why should the Federal Government dictate to any business who his customers should or should not be? What if there is no loan demand in that area? Mandate (iii) judges all small banks on their lending based on the ``different income levels.'' The performance criteria in Section 25.26 never mentions credit worthiness or the consideration of risk. When the free market allocates capital and credit, risk is always the distinguishing factor--and it should be. Mandate (iv) forces all small banks to lend not only in a specific assessment area, but under a geographic distribution established by the Federal Government. One banker told me the regulator was challenging his geographic distribution of lending and asked the banker why he had not made loans in a certain area. The banker responded, ``I can't make any community loans there. Nobody wants to build in the middle of a lake.'' There was a large lake there, but the bureaucracy didn't know it or recognize it. The point is simple: Federal regulators do not know the small communities across America like the people that live there, and work there every day. Mandate (v) judges a bank's record of responding to its customers. Businesses across America do this voluntarily without the Federal Government judging its performance. It is called customer service. The responsiveness of a business to its customer's needs is usually measured by the success of the business. In the free market, no business will stay in operation if it does not satisfy the needs of its customers. The costs of Government-mandated credit allocation results in increased cost to consumers. First, CRA raises the costs of inputs to banks by forcing them to comply with the regulatory burden of CRA--we are entering the 21st century and bankers are still forced to stick pins in maps on the walls of the bank in order to indicate where loans are made. Second, making loans according to a Federal formula increases the risks, and therefore the costs, of borrowing to consumers. The Federal Reserve Bank of Richmond published its 1994 Annual Report on ``Neighborhoods and Banking'' where it reported its findings on the costs of CRA. The report found: [T]he regulatory burden (of CRA) would fall on bank- dependent borrowers in the form of higher loan rates and on bank-dependent savers in the form of lower deposit rates. And to the extent that lending induced by the CRA regulations increases the risk exposure of the deposit insurance funds, taxpayers who ultimately back those funds bear some of the burden as well. The Fed report goes on to say: ``* * * CRA imposes a tax on banks * * *'' The costs and risks associated with CRA are ultimately shouldered by the consumer. We know that. There is no justification for Congress to articially increase the costs of borrowing to the consumer. By maintaining the status quo of CRA, Congress actually hampers investment and growth by increasing loan rates and lowering deposit rates. Congress should adopt policies that help reduce the cost of borrowing, that help reduce the regulatory burden. Congress should adopt a small bank exemption to the Community Reinvestment Act. That would, again, only exempt 11.2 percent of the assets in banks in America, but it would be a God save for the community banks all over America. Mr. THOMAS addressed the Chair.

Mr. SHELBY. Madam President, I ask unanimous consent that reading of the amendment be dispensed with.

Mr. SHELBY. Madam President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. SHELBY. Madam President, I send an amendment to the desk on behalf of myself and Senators Gramm, Mack, Faircloth, Grams, Allard, Enzi, Hagel, Helms, Nickles, Murkowski, Brownback, Sessions, Inhofe, Coats, and Thomas.

Mr. SHELBY

Mr. SHELBY. If the Senator will yield----

Mr. SHELBY. Mr. President, something was said just a minute ago about the threat of a veto by the President. I have heard this a lot on different bills. But I know the process should work. Especially when you have a principle that you believe in and that you know is right, you should not step aside because someone intimates that they might veto it. That is part of the legislative process. Mr. President, having said that, later in the debate--probably Monday when we get back--I will be offering an amendment to the bill dealing with the Community Reinvestment Act, or CRA. My proposed amendment would authorize a small bank exemption from the Government-mandated credit requirements of the Community Reinvestment Act, which Senator Gramm from Texas so eloquently talked about earlier this morning. Community banks, as you well know, as a Senator and present Presiding Officer, by their very nature, serve the needs of their community. They do not need a burdensome, government mandate to force them to allocate credit or originate profitable loans. Make no mistake about it. Community banks would not exist very long if they didn't take care of the whole community; and they do. Since H.R. 1151 increases the competitive advantage credit unions have over banks, we feel this amendment is necessary to reduce the inequities in this area and allow our small community banks to better meet the needs of consumers. Nine members of the Banking Committee sponsored a small bank exemption amendment to H.R. 1151 in the committee markup. The amendment resulted in a tie vote of nine to nine. The nine members of the committee that supported the amendment felt so strongly about the small bank exemption, that all nine members signed a statement of additional views to the committee report, which is unusual. Let me say from the start, CRA is a tax on community banks, CRA raises the costs of inputs to banks by increasing their regulatory burden and compliance costs. In addition, CRA forces banks to make loans according to a federal quota, increasing the risks, and therefore the costs, of borrowing to consumers. Make no mistake about it, the Community Reinvestment Act raises the cost of borrowing through higher loan rates and punishes savers in the form of lower savings rates. Congress I believe should adopt policies that lowers the cost of borrowing, and my amendment would do that. I would also point out that the federal government does not know the demand for loans any better than the local banker. CRA preempts the free market lending criteria of community banks and imposes the judgment of federal bureaucrats. CRA is government mandated credit allocation, the form of credit allocation that has proven disastrous most recently in east Asia. We have an opportunity to reduce the scope of government mandated credit allocation with this amendment, and I urge my colleagues to do so. I want to revisit, and give a little history contextually. history When the Community Reinvestment Act was introduced in 1977, the bill's chief sponsor and chairman of the Banking Committee, William Proxmire stated: The authority to operate new deposit facilities is given away, free, to successful applicants even though the authority conveys a substantial economic benefit to the applicant. Those who obtain new deposit facilities receive a semi-exclusive franchise to do business in a particular geographic area. The Government limits the entry of other potential competitors into that area if such entry would unduly jeopardize existing financial institutions. The Government also restricts competition and the cost of money to the bank by limiting the rate of interest payable on savings deposits and prohibiting any interest on demand deposits. Senator Proxmire later said: The regulators have thus conferred substantial economic benefits on private institutions without extracting any meaningful quid pro quo for the public. review The central premise on which Senator Proxmire bases his justification for ``extracting any meaningful quid pro quo'' may have existed in 1977, but absolutely does not exist today. Taken one at a time, each and every claim Senator Proxmire used to justify CRA in 1977 is no longer applicable today. Let us go through them one at a time: Chartered institutions ``receive a semi-exclusive franchise to do business in a particular geographic area.'' Congress passed the Reigle-Neal Interstate Banking and Branching Efficiency Act of 1994, which allowed one bank to acquire another bank in any other state, thus subjecting small community banks to the competition of acquisition hungry megabanks. Senator Proxmire also said: ``Government limits the entry of other potential competitors.'' That was in 1977. Clearly this is not the case. The underlying bill, H.R. 1151 does not limit, but dramatically increases the entry of potential competitors. The bill essentially says that credit unions can serve every group in a community--making them the same as community banks. Senator Proxmire said in 1977 regarding CRA justification: ``Government also restricts competition and the cost of money to the bank by limiting the rate of interest payable on savings deposits and prohibiting any interest on demand deposits.'' This is no longer true. The Depository Institutions Deregulation and Monetary Control Act of 1980 phased out the interest rate ceilings on savings deposits and introduced Negotiable Orders of Withdrawals (NOW Accounts) that allowed the payment of interest on demand deposits to consumers. Proxmire Premise no longer exists Twenty-one years later, the ``substantial economic benefit'' to which Senator Proxmire refers no longer exists. Since the benefit no longer exists, neither should the Government mandate of credit allocation. Congress should lift this mandate off small community banks. Regulatory Burden According to a recent Federal Reserve study, entitled, ``The Cost of Banking Regulation: A Review of the Evidence,'' regulatory costs account for up to ``13 percent of noninterest expenses'' of banks. That is a lot of money. In addition, the study concluded that ``(A)verage compliance costs for regulations are substantially greater for banks at low levels of output''--in other words, smaller banks--``than for banks at moderate or high levels of output''--or larger banks. This regulatory burden is borne out in the efficiency rate of banks. As you can see by the chart, small banks are less efficient than large banks. Banks with less than $250 million in assets have an efficiency ratio of 63 percent versus that of large banks over $250 million with an efficiency ratio of 60.5 percent. These inefficiencies translate into a lower return on equity for small banks. Large banks have a return on equity of 14.4 percent versus 11.3 percent for small banks. This means the average large bank has a return on equity 27 percent greater than small banks. Exemption of Bank Assets Contrary to what opponents of the amendment would have you believe, the small bank exemption would not ``gut'' CRA. Banks with less than $250 million in assets account for less than 12 percent of bank assets nationwide. Thus, 88 percent of bank assets are concentrated in banks with over $250 million in assets and would still be subject to CRA, assuming that the Shelby amendment is adopted. I have a chart that will help put that into perspective for my colleagues. Although there are 8,110 small banks below $250 million in assets, those banks account for only $593 billion in combined assets. That means small banks account for 11.7 percent of bank assets nationwide. However, one bank--BankAmerica, the new bank resulting from the merger of NationsBank and BankAmerica--possesses assets of $570 billion or 11.3 percent of total bank assets. Thus, one financial giant holds assets nearly as big as that of all 8,110 small banks across America. That begs the question, why do we have to burden 8,110 small community banks that only account for such a small portion of CRA monies? The vast majority of bank assets are concentrated in the large, billion dollar megabanks that can more easily shoulder the burden. small banks serve communities Small community banks have an excellent record of serving their communities. Since over half of all banks and thrifts below $250 million have only one or two branches, they really have no other place to go but to their community to do business. Of the 8,970 small banks and thrifts, only nine--.1 percent--received a ``substantial noncompliance'' CRA rating in 1997. In addition, small banks have a better record with regard to the most common type of community-based lending--real estate lending. Banks under $250 million had a real estate lending to assets ratio of 37 percent in 1997 versus 23.9 percent for large banks over $250 million. fair lending laws The small bank exemption from CRA is not about discrimination. The following fair lending laws will still apply, including: The Fair Housing Act of 1968 which prohibits discrimination on the basis of race, color, religion, sex, national origin, familial status and handicap in all aspects of the housing industry; the Equal Credit Opportunity Act of 1974 which prohibits creditors from discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of public assistance; and the Home Mortgage Disclosure Act of 1975 which requires banks to keep current records of its mortgage lending activity. Any assertion that small banks do not serve their communities rings hollow. Small banks must serve their communities if they want to survive. Any claim of discrimination also rings hollow given the fair lending laws that apply to all lenders. conclusion In conclusion, Mr. President, the Community Reinvestment Act was introduced in 1977 by Senator Proxmire under the premise that banks receive a ``substantial economic benefit.'' That benefit does not apply today as we enter the 21st century. The small bank exemption from CRA would go a long way in helping reduce the costs and risks of mandated credit allocation. CRA is not only a bad law for banks, but it is also a bad law for consumers. CRA forces banks to underwrite risky loans because they find that preferable to being terrorized and vandalized by so-called community groups that extort money from banks. As a result, consumers around this country are being forced to subsidize this terrorist activity in the form of higher loan rates, lower savings rates and a lower return on equity. Mr. President, I ask my colleagues to support this very important amendment on behalf of the small community banks around America but, more importantly, every bank customer who walks in to get a loan and is forced to subsidize this government mandated credit allocation. I yield the floor. Ms. MOSELEY-BRAUN addressed the Chair.

Mr. SHELBY

Mr. SHELBY. I agree with the Senator of Montana. federal lands highway program (highway 93)

Mr. SHELBY. I understand the concern expressed by my colleague from Montana. It is the intent of the Committee that the Secretary should act as we have encouraged him to and I will work with you in conference to clarify that.

Mr. SHELBY

Mr. SHELBY. Mr. President, I ask unanimous consent reading of the amendment be dispensed with.

Mr. SHELBY. Mr. President, I know of no further amendments to the bill.

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

Mr. SHELBY. Mr. President, I ask unanimous consent that the yeas and nays be ordered on final passage.

Mr. SHELBY. I ask unanimous consent that the Senate consider these amendments en bloc.

Mr. SHELBY. Mr. President, on behalf of myself and Senator Lautenberg, I send--and I will name them--a number of amendments to the desk that have been agreed to.

Mr. SHELBY. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

Mr. SHELBY. I am familiar with the Delaware River project discussed by my colleague from Pennsylvania and would note that the Delaware River Port Authority project is particularly well-suited for consideration by the Federal Highway Administration for funding under this legislation. I suggest the absence of a quorum.

Mr. SHELBY. I move to reconsider the vote.

Mr. SHELBY. The amendments have been cleared on this side.

Mr. SHELBY

Mr. SHELBY. Mr. President, I ask unanimous consent that the Environment and Public Works Committee be discharged from further consideration of H.R. 298 and the Senate proceed to its immediate consideration.

Mr. SHELBY. I ask unanimous consent the concurrent resolution be agreed to, that the preamble be agreed to, the motion to reconsider be laid upon the table, and statements relating to the resolution appear at this point in the Record.

Mr. SHELBY

Mr. SHELBY. I ask unanimous consent the bill be considered read a third time and passed, the motion to reconsider be laid upon the table, and that any statements relating to the bill be printed at the appropriate place in the Record.

Mr. SHELBY. Mr. President, I ask unanimous consent that the Senate proceed to the immediate consideration of H.R. 39, Calendar No. 435.