[Pages S4848-S4878]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

FINANCIAL SERVICES MODERNIZATION ACT OF 1999

The Senate continued with the consideration of the bill.
The PRESIDING OFFICER. The Senator from South Dakota, Mr. Johnson,
has 3 minutes.

Amendment No. 309, As Modified

Mr. JOHNSON. Mr. President, I have a modification of my amendment at
the desk and I ask unanimous consent that it be so modified.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment, as modified, is as follows:

On page 149, strike line 12 and all that follows through
page 150, line 21 and insert the following:

SEC. 601. PREVENTION OF CREATION OF NEW S&L HOLDING COMPANIES
WITH COMMERCIAL AFFILIATES.

(a) In General.--Section 10(c) of the Home Owners' Loan Act
(12 U.S.C. 1467a(c)) is amended by adding at the end the
following new paragraph:
``(9) Prevention of new affiliations between s&l holding
companies and commercial firms.--
``(A) In general.--Notwithstanding paragraph (3), no
company may directly or indirectly, including through any
merger, consolidation, or other type of business combination,
acquire control of a savings association after May 4, 1999,
unless the company is engaged, directly or indirectly
(including through a subsidiary other than a savings
association), only in activities that are permitted--

[[Page S4849]]

``(i) under paragraph (1)(C) or (2) of this subsection; or
``(ii) for financial holding companies under section 4(k)
of the Bank Holding Company Act of 1956.
``(B) Prevention of new commercial affiliations.--
Notwithstanding paragraph (3), no savings and loan holding
company may engage directly or indirectly (including through
a subsidiary other than a savings association) in any
activity other than as described in clauses (i) and (ii) of
subparagraph (A).
``(C) Preservation of authority of existing unitary s&l
holding companies.--Subparagraphs (A) and (B) do not apply
with respect to any company that was a savings and loan
holding company on May 4, 1999, or that becomes a savings and
loan holding company pursuant to an application pending
before the Office on or before that date, and that--
``(i) meets and continues to meet the requirements of
paragraph (3); and
``(ii) continues to control not fewer than 1 savings
association that it controlled on May 4, 1999, or that it
acquired pursuant to an application pending before the Office
on or before that date, or the successor to such savings
association.
``(D) Corporate reorganizations permitted.--This paragraph
does not prevent a transaction that--
``(i) involves solely a company under common control with a
savings and loan holding company from acquiring, directly or
indirectly, control of the savings and loan holding company
or any savings association that is already a subsidiary of
the savings and loan holding company; or
``(ii) involves solely a merger, consolidation, or other
type of business combination as a result of which a company
under common control with the savings and loan holding
company acquires, directly or indirectly, control of the
savings and loan holding company or any savings association
that is already a subsidiary of the savings and loan holding
company.
``(E) Authority to prevent evasions.--The Director may
issue interpretations, regulations, or orders that the
Director determines necessary to administer and carry out the
purpose and prevent evasions of this paragraph, including a
determination that, notwithstanding the form of a
transaction, the transaction would in substance result in a
company acquiring control of a savings association.
``(F) Preservation of authority for family trusts.--
Subparagraphs (A) and (B) do not apply with respect to any
trust that becomes a savings and loan holding company with
respect to a savings association, if--
``(i) not less than 85 percent of the beneficial ownership
interests in the trust are continuously owned, directly or
indirectly, by or for the benefit of members of the same
family, or their spouses, who are lineal descendants of
common ancestors who controlled, directly or indirectly, such
savings association on May 4, 1999, or a subsequent date,
pursuant to an application pending before the Office on or
before May 4, 1999; and
``(ii) at the time at which such trust becomes a savings
and loan holding company, such ancestors or lineal
descendants, or spouses of such descendants, have directly or
indirectly controlled the savings association continuously
since March 4, 1999, or a subsequent date, pursuant to an
application pending before the Office on or before May 4,
1999.''.
(b) Conforming Amendment.--Section 10(o)(5)(E) of the Home
Owners' Loan Act (15 U.S.C. 1467a(o)(5)(E)) is amended by
striking ``, except subparagraph (B)'' and inserting ``or
(c)(9)(A)(ii)''.

Mr. JOHNSON. Mr. President, financial modernization should go forward
but without mixing financial services and commerce. Preserving the
unitary thrift loophole should not be allowed. Who believes this should
be closed? Chairman Leach, Chairman of the House Banking Committee, Fed
Chairman Greenspan, and former Fed Chairman Volcker, Treasury Secretary
Rubin, and banking and consumer organizations. There is bipartisan and,
frankly, overwhelming support for loophole closure. I think there is a
sense we do not want to go down the road of financial services and
commerce mixing at this particular juncture. Allowing financial
modernization to go forward should occur, but allowing unitary thrifts
to merge with other financial institutions is the road to go rather
than allowing merger with commerce at large.
I think we need to heed the urgent warnings of our Nation's leading
economic minds. We appreciate that this issue is arcane in the minds of
many in this body, no doubt. But when we have the support for closure
of this loophole coming from the chairman of the House Banking
Committee, Mr. Greenspan, Mr. Rubin, and Mr. Volcker, I think that
ought to be compelling support for taking this step to make sure, in
fact, we get a financial modernization bill out of this body that will,
in fact, be signed by the President and will serve this country in good
stead.
I yield the floor.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I yield my 3 minutes to Senator Gorton.
Mr. GORTON. Mr. President, financial modernization should be about
expanding chartering options and choices for consumers, not about
stripping away the fundamental characteristics of consumer-oriented
institutions. It is a paradox that the banks that are here seeking more
powers wish to restrict the powers of their competitors in the same
bill and are using this amendment to do so.
Proponents of this amendment contend that the unitary thrift charter
is a ``loophole'' that allows for the mixing of banking and commerce.
Those concerns are both misplaced and impossible under the very
conditions of charter.
Federal law now expressly prohibits a unitarian thrift from lending
to a commercial affiliate. By law, a thrift must focus on providing
mortgage, consumer, and small business credit, and its commercial
lending is severely restricted.
The thrift charter is unique. Martin Mayer, who is a guest scholar at
the Brookings Institution and a foe of mixing banking and commerce,
supports the commercial ownership of thrifts because of their unique
lending focus on consumers and small businesses. In the more than 3
decades that unitary thrift charters have existed, there is a total
absence of any evidence that unitary thrifts' commercial affiliations
have either led to a concentration of economic power or posed a risk to
the consumer or the taxpayer. To the contrary, the FDIC has testified
that limits such as those proposed in this amendment would restrict ``a
vehicle that has enhanced financial modernization without causing
significant safety-and-soundness problems.''
The issue under debate is not the creation of a banking-commerce
Frankenstein. It is, rather, about the proper treatment of longstanding
institutions focused on serving local communities. Congress should not
limit the authorities of existing consumer-oriented companies without a
compelling reason. To do so would be anticompetitive and anticonsumer.
I am adamantly opposed to any initiative that eviscerates the unitary
thrift charter and urge Senators to oppose the Johnson amendment as a
serious step backwards in our efforts to modernize our Nation's
financial services laws.
I yield back the remainder of my time, and I move to table the
Johnson amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There appears to be a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion to
table amendment No. 309. The yeas and nays have been ordered. The clerk
will call the roll.
The assistant legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER (Mr. Bunning). Are there any other Senators in
the Chamber desiring to vote?
The result was announced--yeas 32, nays 67, as follows:

[Rollcall Vote No. 103 Leg.]

YEAS--32

Akaka
Allard
Bennett
Breaux
Bunning
Campbell
Chafee
Cochran
Coverdell
Dodd
Domenici
Enzi
Gorton
Gramm
Hagel
Inouye
Kyl
Lieberman
Lott
Lugar
Mack
McCain
McConnell
Murray
Nickles
Reed
Robb
Roth
Smith (NH)
Smith (OR)
Stevens
Warner

NAYS--67

Abraham
Ashcroft
Baucus
Bayh
Biden
Bingaman
Bond
Boxer
Brownback
Bryan
Burns
Byrd
Cleland
Collins
Conrad
Craig
Crapo
Daschle
DeWine
Dorgan
Durbin
Edwards
Feingold
Feinstein
Frist
Graham
Grams
Grassley
Gregg
Harkin
Hatch
Helms
Hollings
Hutchinson
Hutchison
Inhofe
Jeffords
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lincoln
Mikulski
Moynihan
Murkowski
Reid

[[Page S4850]]

Roberts
Rockefeller
Santorum
Sarbanes
Schumer
Sessions
Shelby
Snowe
Specter
Thomas
Thompson
Thurmond
Torricelli
Voinovich
Wellstone
Wyden

ANSWERED ``PRESENT''--1

Fitzgerald

The motion was rejected.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
Mr. GRAMM. Mr. President, I ask for the yeas and nays on the
amendment.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. GRAMM. Mr. President, I ask unanimous consent to vitiate the
order for the yeas and nays.
The PRESIDING OFFICER. Without objection, it is so ordered.
The question is on agreeing to the amendment.
The amendment (No. 309), as modified, was agreed to.
Mr. SARBANES. Mr. President, I move to reconsider the vote.
Mr. GRAMM. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. SHELBY. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.

Amendment No. 315

Mr. SHELBY. Mr. President, I send an amendment to the desk on behalf
of myself, Senator Daschle, Senator Grams, Senator Reed, Senator
Bennett, Senator Edwards, Senator Hagel, and Senator Landrieu.
The PRESIDING OFFICER (Mr. Hutchinson). The clerk will report.
The legislative assistant read as follows:

The Senator from Alabama (Mr. Shelby), for himself, Mr. Daschle, Mr.
Grams, Mr. Reed, Mr. Bennett, Mr. Edwards, Mr. Hagel, and Ms. Landrieu,
proposes an amendment numbered 315.

Mr. SHELBY. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

Redesignate sections 123, 124, and 125 as sections 125,
126, and 127 respectively, strike section 122, and insert the
following:

SEC. 122. SUBSIDIARIES OF NATIONAL BANKS AUTHORIZED TO ENGAGE
IN FINANCIAL ACTIVITIES.

Chapter one of title LXII of the revised statutes of United
States (12 U.S.C. 21 et seq.) is amended--
(1) by redesignating section 5136A (12 U.S.C. 25a) as
section 5136B; and
(2) by inserting after section 5136 (12 U.S.C. 24) the
following new section:

``SEC. 5136A. SUBSIDIARIES OF NATIONAL BANKS.

``(a) Activities Permissible.--
``(1) In general.--A subsidiary of a national bank may--
``(A) engage in any activity that is permissible for the
parent national bank;
``(B) engage in any activity authorized under section 25 or
25A of the Federal Reserve Act, the Bank Service Company Act,
or any other Federal statute that expressly by its terms
authorizes national banks to own or control subsidiaries
(other than this section); and
``(C) engage in any activity permissible for a bank holding
company under any provision of section 4(k) of the Bank
Holding Company Act of 1956 other than--
``(i) paragraph (4)(B) of such section (relating to
insurance activities) insofar as such paragraph permits a
bank holding company to engage as principal in insuring,
guaranteeing, or indemnifying against loss, harm, damage,
illness, disability, or death, or to engage as principal in
providing or issuing annuities; and
``(ii) paragraph (4)(I) of such section (relating to
insurance company investments).
``(2) Limitations.--A subsidiary of a national bank--
``(A) may not, pursuant to subparagraph (C) of paragraph
(1)--
``(i) underwrite insurance other than credit-related
insurance;
``(ii) engage in real estate investment or development
activities (except to the extent that a Federal statute
expressly authorizes a national bank to engage directly in
such an activity); and
``(B) may not engage in any activity not permissible under
paragraph (1).
``(b) Requirements Applicable to National Banks With
Financial Subsidiaries.--
``(1) In general.--A financial subsidiary of a national
bank may engage in activities pursuant to subsection
(a)(1)(C) only if--
``(A) the national bank meets the requirements, as
determined by the Comptroller of the Currency, of Section
(4)(l)(1) of the Bank Holding Company Act of 1956 (other than
subparagraph (C));
``(B) each insured depository institution affiliate of the
national bank meet the requirements, as determined by the
Comptroller of the Currency, of Section (4)(l)(1) of the Bank
Holding Company Act of 1956 (other than subparagraph (C));
and
``(C) the national bank has received the approval of the
Comptroller of the Currency by regulation or order.
``(2) Corrective Procedures.--
``(A) In general.--The Comptroller of the Currency shall,
by regulation prescribe procedures to enforce paragraph (1).
``(B) Stringency.--The regulation prescribed under
subparagraph (A) shall be no less stringent than the
corresponding restrictions and requirements of section 4(m)
of the Bank Holding Company Act of 1956.
``(c) Definitions.--For purpose of this section, the
following definitions shall apply;
``(1) Affiliate.--The term `affiliate' has the same meaning
as in section 3 of the Federal Deposit Insurance Act.
``(2) Financial Subsidiary.--The term `financial
subsidiary' means a company that--
``(A) is a subsidiary of an insured bank; and
``(B) is engaged as principal in any financial activity
that is not permissible under subparagraph (A) or (B) of
subsection (a)(1) of this section.
``(3) Subsidiary.--The term `subsidiary' has the same
meaning as in section 2 of the Bank Holding Company Act of
1956.
``(4) Well capitalized.--The term `well capitalized' has
the same meaning as in section 38 of the Federal Deposit
Insurance Act.
``(5) Well managed.--The term `well managed' means--
``(A) in the case of an insured depository institution that
has been examined, the achievement of--
``(i) a composite rating of 1 or 2 under the Uniform
Financial Instutitions Rating System (or an equivalent rating
under an equivalent rating system) in connection with the
most recent examination or subsequent review of the insured
depository institution; and
``(ii) at least a rating of 2 for management, if that
rating is given; or
``(B) in the case of an insured depository institution that
has not been examined, the existence and use of managerial
resources that the appropriate Federal banking agency
determines are satisfactory.''.

SEC. 123. SAFETY AND SOUNDNESS FIREWALLS BETWEEN BANKS AND
THEIR FINANCIAL SUBSIDIARIES.

(a) Purposes.--The purposes of this section are--
(1) to protect the safety and soundness of any insured bank
that has a financial subsidiary;
(2) to apply to any transaction between the bank and the
financial subsidiary (including a loan, extension of credit,
guarantee, or purchase of assets), other than an equity
investment, the same restrictions and requirements as would
apply if the financial subsidiary were a subsidiary of a bank
holding company having control of the bank; and
(3) to apply to any equity investment of the bank in the
financial subsidiary restrictions and requirements equivalent
to those that would apply if--
(A) the bank paid a dividend in the same dollar amount to a
bank holding company having control of the bank; and
(B) the bank holding company used the proceeds of the
dividend to make an equity investment in a subsidiary that
was engaged in the same activities a the financial subsidiary
of the bank.
(b) Safety and Soundness Firewalls Applicable to
Subsidiaries of Banks.--The Federal Deposit Insurance Act (12
U.S.C. 1811 et seq.) is amended by adding at the end the
following new section:

``SEC. 45. SAFETY AND SOUNDNESS FIREWALLS APPLICABLE TO
SUBSIDIARIES OF BANKS.

``(a) Limiting the Equity Investment of a Bank in a
Subsidiary.--
``(1) Capital deduction.--In determining whether an insured
bank complies with applicable regulatory capital standards--
``(A) the appropriate Federal banking agency shall deduct
from the assets and tangible equity of the bank the aggregate
amount of the outstanding equity investments of the bank in
financial subsidiaries of the bank; and
``(B) the assets and liabilities of such financial
subsidiaries shall not be consolidated with those of the
bank.
``(2) Investment limitation.--An insured bank shall not,
without the prior approval of the appropriate Federal banking
agency, make any equity investment in a financial subsidiary
of the bank if that investment would, when made, exceed the
amount that the bank could pay as a dividend without
obtaining prior regulatory approval.
``(b) Operational and Financial Safeguards for the Bank.--
An insured bank that has a financial subsidiary shall
maintain procedures for identifying and managing any
financial and operational risks posed by the financial
subsidiary.
``(c) Maintenance of Separate Corporate Identity and
Separate Legal Status.--
``(1) In general.--Each insured bank shall ensure that the
bank maintains and complies with reasonable policies and
procedures to preserve the separate corporate identity and
legal status of the bank and any financial subsidiary or
affiliate of the bank.
``(2) Examinations.--The appropriate Federal banking
agency, as part of each examination, shall review whether an
insured

[[Page S4851]]

bank is observing the separate corporate identity and
separate legal status of any subsidiaries and affiliates of
the bank.
``(d) Financial Subsidiary Defined.--For purposes of this
section, the term `financial subsidiary' has the same meaning
as section 5136A(c)(2) of the Revised Statutes of the United
States.
``(e) Regulations.--The appropriate Federal banking
agencies shall jointly prescribe regulations implementing
this section.''.
(c) Limiting a Bank's Credit Exposure to a Financial
Subsidiary to the Amount of Permissible Credit Exposure to an
Affiliate.--Section 23A of the Federal Reserve Act (12 U.S.C.
371c) is amended--
(1) by redesignating subsection (e) as subsection (f); and
(2) by inserting after subsection (d), the following new
subsection:
``(e) Rules Relating to Banks With Financial
Subsidiaries.--
``(1) Financial subsidiary defined.--For purposes of this
section and section 23B, the term `financial subsidiary' has
the same meaning as section 5136A(c)(2) of the revised
statutes of the United States.
``(2) Application to transactions between a financial
subsidiary of a bank and the bank.--For purposes of applying
this section and section 23B to a transaction between a
financial subsidiary of a bank and the bank (or between such
financial subsidiary and any other subsidiary of the bank
that is not a financial subsidiary), and notwithstanding
subsection (b)(2) and section 23B(d)(1)--
``(A) the financial subsidiary of the bank--
``(i) shall be deemed to be an affiliate of the bank and of
any other subsidiary of the bank that is not a financial
subsidiary; and
``(ii) shall not be deemed a subsidiary of the bank; and
``(B) a purchase of or investment in equity securities
issued by the financial subsidiary shall not be deemed to be
a covered transaction,
``(3) Application to transactions between financial
subsidiary and nonbank affiliates.--
``(A) In general.--A transaction between a financial
subsidiary and an affiliate of the financial subsidiary (that
is not a subsidiary of a bank) shall not be deemed to be a
transaction between a subsidiary of a bank and an affiliate
of the bank for purposes of section 23A or section 23B of
this Act.
``(B) Certain affiliates excluded.--For purposes of this
paragraph, the term `affiliate' shall not include a bank, or
a subsidiary of a bank that is engaged exclusively in
activities permissible for a national bank to engage in
directly or authorized for a subsidiary of a national bank
under any federal statute other than section 5136A of the
Revised Statutes of the United States.''.

SEC. 124. FUNCTIONAL REGULATION.

(a) Purpose.--The purpose of this section is to ensure
that--
(1) securities activities conducted in a subsidiary of a
bank are functionally regulated by the Securities and
Exchange Commission to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company; and
(2) insurance agency and brokerage activities conducted in
a subsidiary of a bank are functionally regulated by a State
insurance authority to the same extent as if they were
conducted in a nondepository subsidiary of a bank holding
company.
(b) Functional Regulation of Financial Subsidiaries.--The
Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), is
amended by inserting after section 45 (as added by section
123 of this subtitle) the following new section:

``SEC. 46. FUNCTIONAL REGULATION OF SECURITIES SUBSIDIARIES
AND INSURANCE AGENCY SUBSIDIARIES OF INSURED
DEPOSITORY INSTITUTIONS.

``(a) Broker or Dealer Subsidiary.--A broker or dealer that
is a subsidiary of an insured depository institution shall be
subject to regulation under the Securities Exchange Act of
1934 in the same manner and to the same extent as a broker or
dealer that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(b) Insurance Agency Subsidiary.--Subject to Section 104
of the Act, an insurance agency or brokerage that is a
subsidiary of an insured depository institution shall be
subject to regulation by a State insurance authority in the
same manner and to the same extent as an insurance agency or
brokerage that--
``(1) is controlled by the same bank holding company as
controls the insured depository institution; and
``(2) is not an insured depository institution or a
subsidiary of an insured depository institution.
``(c) Definitions.--For purposes of this section, the terms
`broker' and `dealer' have the same meanings as in section 3
of the Securities Exchange Act of 1934.''.

Mr. SHELBY. Mr. President, I rise today to offer this amendment,
entitled the American Bank Fairness Amendment, to S. 900, the pending
bill.
This amendment, which, as I have said, is cosponsored by Senator
Daschle, the minority leader, and Senators Grams, Reed, Bennett,
Edwards, Hagel, and Landrieu, would permit national banks to conduct
equity securities underwriting and merchant banking activities in an
operating subsidiary, much as their foreign bank competitors that are
allowed to conduct such activities in the United States today. I note
that six of the seven sponsors of this amendment are members of the
Banking Committee.
We are talking this afternoon about defining a fair and an efficient
framework to allow all--yes, all--financial institutions to better
provide service to their customers in America. This country needs
financial modernization. I support national modernization.
I have great respect for the chairman, the Senator from Texas, Mr.
Gramm, and I supported the chairman in the committee. He helped to get
this bill to the floor.
Unfortunately, this bill does more for the institutions in the top
world financial centers--New York, Hong Kong, London--than it does for
the average bank that serves the average person in America. That is the
issue at hand.
I know many of my colleagues have made up their mind on this issue.
Besides, in all honesty, the chairman of the Federal Reserve, Alan
Greenspan, may not even be the Chairman of the Federal Reserve after
next year, although I wish that he would continue. It is often reported
in the press that Laura Tyson, Alice Rivlin, or even Catherine Bessant
will be the next person President Clinton nominates to the Federal
Reserve Board. Therefore, I do not believe it is fair for the issues of
this debate to revolve around any one individual, although it is an
individual I hold in great respect.
The truth is, we are here today to write the laws that will determine
the future of the American financial system for the next 60 years. We
are talking about the issues of banking law, corporate law, industrial
organization.
Senators Grams, Reed, and Bennett have been the lead proponents of
the operating subsidiary for several years and they should be commended
for their deep understanding of the issue and the banking expertise
they bring to the Senate Banking Committee.
Let me say from the very beginning, this debate is not about Chairman
Alan Greenspan. It should never be. As I said, I have a deep respect
for Chairman Greenspan. I hold him in very high regard. He is a
tremendous central banker. I am not here to dispute that in any way.
The operating subsidiary amendment is not about monetary policy. Let
me repeat, the operating subsidiary amendment is not about monetary
policy. It is not about inflation, the money supply, or even the
unemployment rate. I plead with Senators to listen to the facts. The
key banking committee Senators supporting this amendment are not from
big cities. They are not doing this for Citigroup or Merrill Lynch,
Dean Witter, or Chase Manhattan Bank. The truth is, the large financial
institutions want a bill so badly, they have forced their associations
to oppose this amendment based on press reports that this bill will be
pulled if it passes. We all know it is the multibillion-dollar
financial institutions that control the associations, and they are the
ones pushing this bill.

I just do not believe that, in passing a financial modernization
bill, we should forget about the smaller, midsized, and regional banks
that serve our local communities and our States. Those banks--the
smaller, midsized, and regional banks--are the ones that are not being
heard on this issue. They are being shut out and they have been
discounted.
I am sorry, but I do not believe financial modernization should be
only for the folks on Wall Street. I do not understand why this body
would knowingly pass a financial modernization bill that would
intentionally discriminate against domestic banks in favor of foreign
banks.
If you want to talk about competition, free markets, and fair and
equal treatment under the law, Senators should seriously consider the
amendment that is before the Senate. The Shelby-Daschle and others
amendment would provide more fair and equitable treatment of our
national banks in comparison with our foreign competitors.
The American Bank Fairness Amendment, as we called it, would ensure

[[Page S4852]]

that foreign banks receive no competitive advantage over our banks here
in America.
S. 900, at the moment, as it is written, discriminates against
domestic banks. Ask yourself, Why are we even here in the first place?
Why are we even considering financial modernization, if it is to be
globally competitive? Is it to ensure that our banks can compete on an
international scale?
I received a letter from John Reed and Sanford Weill, cochairmen of
Citigroup, this morning. They wrote to inform me that passage of
financial modernization is imperative.
They said,

As our financial services firms contort to comply with the
current legal and regulatory structure, we become much less
competitive with our non-U.S. counterparts. Our country's
competitive position as the world's leader in financial
services is at risk of being lost if we don't act now.

So, according to our friends at Citigroup, it appears we have become
less competitive with our foreign competitors, and that our position as
a world leader is at risk.
I received a similar letter from Phil Purcell, chairman of Morgan
Stanley Dean Witter & Co. He said that Congress needs to pass this bill
because:

Financial modernization legislation is critical to the
maintenance of the preeminence of American financial firms in
global markets.

American preeminence, Mr. President? Is that the reason we are
considering this legislation? If these are, indeed, the reasons, I must
confess I am really confused. The reason for my confusion is S. 900,
the bill we are debating today actually discriminates against domestic
banks in favor of foreign banks. Simply put, national banks are not
allowed to conduct merchant banking activities or equity underwriting
activities in an operating subsidiary. Foreign banks, however, can
conduct those activities today, and will actually expand their range of
activities to include insurance underwriting, if this bill becomes law.
I actually have some charts to share with you to help demonstrate the
blatant discriminatory treatment of our own national banks versus those
of foreign banks' operating subsidiaries in America. Under current law,
national bank subsidiaries are not permitted to conduct merchant
banking activities. Merchant banking basically means that banks are
permitted to make investments in a company subject to conditions
designed to maintain the separation between banking and commerce.
Foreign subsidiaries operating today in America can, however. Under
current law, national bank subsidiaries are not permitted to underwrite
any deal in equity securities. However, foreign bank subsidiaries can.
The last row under the ``current law'' is blank. That is, neither
foreign bank subsidiaries nor national bank subsidiaries may underwrite
noncredit-related insurance.
Let's look at a chart of permitted subsidiary activities that I have
here if this financial modernization bill were enacted into law. Please
notice that under the first column, here, national bank subsidiaries
still will not enjoy the ability to conduct merchant banking activities
or conduct equity securities underwriting. Foreign bank subsidiaries
will not only be allowed to conduct those activities--merchant banking,
underwriting and dealing in equity securities and insurance
underwriting, as shown on the chart--but S. 900, as currently written,
will actually expand their permissible activities to include noncredit-
related insurance underwriting. This completely undermines the whole
rationale for the bill.
That is the major flaw with this bill. How can the supporters of this
bill say this will help our national banks compete when they are
clearly put at a disadvantage by their own Federal Government? How can
we in good conscience support a bill that discriminates against our own
national banks?
Senator Gramm and Chairman Greenspan say if national banks are
allowed to conduct such activities in an operating subsidiary, these
banks would have a funding advantage over their competitors because of
an alleged ``subsidy.''
However, neither Senator Gramm nor Chairman Greenspan can reconcile
this argument with the competitive advantage of foreign bank
subsidiaries. Since 1990, the Federal Reserve Board has issued
approvals for 18 foreign banks to own subsidiaries that engage in
securities underwriting activities in the United States. In fact, the
size of these subsidiaries exceeds $450 billion in assets. The Federal
Reserve admits that foreign banks may enjoy a ``home country'' subsidy.
In approving the section 20 subsidiary application for the Canadian
Imperial Bank of Commerce in 1990, the Federal Reserve noted:

Although as banks, applicants [that is foreign banks] are
not supported to any significant extent by the U.S. federal
safety net, they have access to any benefits that are
associated with their respective home country safety nets,
from which they may derive some competitive advantage over
U.S. bank holding companies operating under the section 20
framework or other U.S. securities firms.

Not only does the board basically admit there may be home country
advantages, they also admit:

. . . a foreign bank may establish and fund a section 20
subsidiary, while a U.S. bank may not.

Further, in their 1992 joint report on foreign bank operations
entitled ``Subsidiary Requirements Study,'' the Federal Reserve Board
and the Department of Treasury agreed that, ``. . . subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice. The right of a
foreign bank to determine whether to establish a branch or a subsidiary
is consistent with competitive equity, national treatment and equality
of competitive opportunity.''
Why is investor choice the guiding principle for foreign banks but
not for our domestic banks? Why do foreign banks have the right to
choose their own corporate structure but domestic banks do not?
The Federal Reserve Board stated that while a subsidy for foreign
banks may exist:

[T]he Board believes that any advantage would not be
significant in light of the effect on them of the overall
section 20 framework and the circumstances of these cases,
and should not preclude foreign bank ownership of section 20
subsidiaries.

Basically, that means the rules and the regulations that apply to
foreign section 20 subsidiaries should contain any possible subsidy.
Why do the rules and regulations in place contain any possible
subsidy for foreign banks but not domestic banks, our banks? Why should
any alleged subsidy preclude operating subsidiaries for U.S. banks but
not for foreign subsidiaries? Fundamental fairness would suggest that
foreign banks not be allowed to have a competitive advantage over
domestic banks. It just makes no sense. Fundamental fairness suggests
domestic banks should also have the choice of an operating subsidiary
that our foreign banks have.
Critics of the operating subsidiary have voiced concerns about safety
and soundness. But this is a red herring, I believe, and really no
issue at all. Even Chairman Greenspan testified that safety and
soundness is really not the issue with regard to operating
subsidiaries, when asked by Congressman Bentsen in the House. I will
quote the chairman:

My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Non-bank holding companies or other institutions do
not have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.

The amendment before us, the operating subsidiary proposal, includes
the same safety and soundness protections and lending restrictions as
the Federal Reserve imposes on section 20 subsidiaries. But to further
address any safety and soundness concerns, the amendment would also
require that the parent bank deduct--yes, deduct--its entire equity
investment in the subsidiary from its own capital and still remain well
capitalized.
Furthermore, under the operating subsidiary, any alleged ``subsidy''
transferred to the subsidiary would be identical to that transferred to
an affiliate because investments in the subsidiary would be limited to
that which the bank could transfer to holding company affiliates in the
form of dividends.
Lastly, the current Chairman of the Federal Deposit Insurance
Corporation and three former chairmen--two Democrats, two Republicans--
have stated that the operating subsidiary is more safe and more sound
than the affiliate structure.

[[Page S4853]]

The FDIC chairmen argue that forcing activities in an affiliate
actually exposes insured banks to greater risks than that of an
operating subsidiary.
I want to respond to a letter Chairman Alan Greenspan wrote to
Chairman Gramm on May 4 in response to my ``Dear Colleague'' dated May
3. I believe this is a great letter in support of the operating
subsidiary. In Chairman Greenspan's effort to explain why foreign bank
subsidiaries do not have a competitive advantage and are justified, he
actually makes the case for an operating subsidiary and confirms
everything proponents have been saying all along.
In paragraph 2, Chairman Greenspan says that the International
Banking Act requires foreign banks be allowed to operate in this
country through operating subsidiaries. His major point is that it is
not his choice, but that the law makes him do it, and this is due to
the national treatment principles to which he refers in paragraph 3.
I understand the national treatment principles. However, those
principles are not and should not be interpreted to mean that foreign
banks be given advantages over U.S. banks.
In both the International Banking Act and the Bank Holding Company
Act, the Federal Reserve Board is mandated to deny an application by a
foreign bank to establish a U.S.-subsidiary if the Board finds that the
proposal will result in ``decreased or unfair competition, conflicts or
interests, or unsound banking practices.''
This is a very important point, I submit to my colleagues. By law,
the Federal Reserve must have determined that foreign bank subsidiaries
conducting securities underwriting and equity underwriting does not
result in unsound banking practices.
Otherwise, the Federal Reserve would be in violation of the
International Banking Act and the Bank Holding Company Act. That very
fact supports our argument that conducting such activities in an
operating subsidiary is both safe and sound.
In the third paragraph, Chairman Greenspan says:

In the absence of any evidence that foreign banks are using
their government subsidy to an unfair competitive advantage
in the United States, there does not seem to be any
compelling reason to abandon the current approach to foreign
bank participation in this country.

Chairman Greenspan once again admits there is a government subsidy
for foreign banks. He confirms what I shared with everyone in my ``Dear
Colleague'' letter in the Senate. He then changes the subject to say
there is no reason to abandon foreign banks subsidiaries. I never
suggested such a thing in my ``Dear Colleague'' letter. In only asked
that if it is appropriate for foreign banks, why isn't it appropriate
for national banks?
The fifth paragraph of the letter states that, ``foreign banks have
not been able to exploit their home country subsidy . . .'' and that
foreign bank subsidiaries ``have substantially underperformed U.S.
owned section 20 companies.'' He actually admits that ``the subsidy
does not travel well.'' In other words, foreign banks have not been
successful transferring their home country subsidy to their subsidiary
in the U.S.
But wait a minute. You cannot have it both ways. I do not care who
you are.
Chairman Greenspan just presented evidence to us in the fifth
paragraph that foreign bank subsidiaries, which in the third paragraph
he admits receive a home country subsidy, underperform their American
competitors. Thus, if there is a subsidy, it must either be (1)
insignificant, and not enough to affect market performance or (2)
contained in the section 20 regulatory framework and therefore not an
issue. In either case, the Chairman has just confirmed the arguments
that proponents of operating subsidiaries have made.
To sum up, Chairman Greenspan, just 2 days ago, confirmed that:
foreign bank subsidiaries receive home country subsidies; conducting
such activities in a subsidiary does not result in unsound banking
practices, otherwise the Fed is violating the law with regard to
foreign bank subsidiaries; and the subsidiary does not ``travel well,''
that is, it is not easily transferred from the bank to the sub.
The logic and the evidence presented by Chairman Greenspan in defense
of foreign bank subsidiaries is the exact same logic and evidence that
supports the Shelby-Daschle operating subsidiary amendment.
To be honest, I am quite surprised at the Chairman's uncompromising
position on the issue. As a student of Public Choice economics, I am
sure he is aware of the benefits of competition among regulators. I am
surprised he supports making the Federal Reserve the monopoly umbrella
regulator. Monopolies restrict output and increase prices.
There is no doubt in my mind that making the Federal Reserve the
monopoly regulator will create even more bottlenecks in bank
applications thereby increasing the regulatory cost of banks doing
business with the Federal Reserve.
For the sake of competition, for the sake of free markets, for the
sake of choice, I respectfully request that you support the Shelby
amendment.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER (Mr. Grams). The Senator from Texas.
Mr. GRAMM. Mr. President, I think if anyone knows me and knows
Richard Shelby, they know that we came to Congress on the same day. We
served on the House Energy and Commerce Committee together. We were
both Democrats then. We both changed parties. We both ran for the
Senate. And Richard and I have been very close friends since the first
day we came. I think you always regret when you have these kinds of
tough battles, but this is a tough battle. This is vitally important.
Let me basically outline what I want to say and then let me go about
trying to say it.
First of all, there has been some speculation about whether or not,
as chairman of the Banking Committee and a new chairman, chairman only
for a few months, whether or not I would pull my own bill, which, as
the Presiding Officer knows as a member of the committee, has been a
great labor of mine for all these many months and has been the labor of
Congress for 25 years. As to whether I would pull the bill over this
issue, let me leave no suspense: I will pull this bill if the Shelby
amendment is adopted.
You might think that is a very strong statement to make, but I think
when you hear my presentation, you will understand why I make it,
because with all the good things in the bill, I want people to
understand that all of them combined together would not undo the harm
that would be done by this amendment.
What I will do is answer Senator Shelby on foreign banks. I will then
go through and talk about the real issue: What is the issue for
Democrats who are hearing from the Secretary of the Treasury? What is
the issue for Republicans who are hearing from big banks? What is the
public interest?
I will try to answer those issues. Let me begin with the foreign
banks.
Senator Shelby would have us believe that we need to start
subsidizing American banks because foreign banks are subsidized. He
would have us believe that somehow we have given foreign banks a
different set of regulations to abide by in America than American banks
have had and that therefore we need to do something about it.
Let me address that. And I want to address it first by reading Alan
Greenspan's thoughtful letter. Interestingly enough, Senator Shelby
referred to part of it. But I think it goes right to the heart of the
issue.
Reading his letter of May 4:

First, the Board did not simply choose to let foreign banks
operate in this country through subsidiaries. The law
required it. The International Banking Act . . .

That was passed in 1978--

. . . provides that a foreign bank shall be treated as a .
. . holding company for purposes of nonbanking acquisitions.

That is the law of the land. That was adopted by Congress. That was
signed by the President. The Chairman of the Board of the Federal
Reserve had nothing to do with that. He simply had the responsibility
of implementing it.

Therefore, when the Board allowed U.S. bank holding
companies to own securities companies, the Board was required
to permit foreign banks that met the statutory conditions
also to acquire such companies.
The law treating foreign banks as holding companies was a
practical response to an existing situation: most foreign
banks do not have holding companies.

[[Page S4854]]

And I will get to that point in a minute because it is important.

Without the [International Banking Act's] approach, foreign
banks generally would be excluded from the U.S. market, in
violation of the national treatment principles embedded in
U.S. law. . . .
The Board stated it would monitor, and in fact has
monitored, this situation to assure that foreign banks do not
in fact operate to the detriment of U.S. banking
organizations. . . .
A recent Federal Reserve study of the performance of
section 20 companies over the last eight years demonstrates
that foreign bank-owned section 20 companies have
substantially underperformed U.S.-owned section 20 companies.
. . .
To cite the fact of foreign bank structure to support a
similar structure in the United States is not only
misleading, it is potentially harmful.

Let me explain what all that means in English. What it means is, we
passed a law, and the law said that since foreign banks do not use
holding companies--they use operating subsidiaries because it is
permitted under their law--that for treatment purposes, they would be
treated as holding companies in the United States. Senator Shelby says
this is unfair.
I would like to note that the Federal Reserve, noting a potential
problem with it, set out a monitoring process to see if these foreign
banks are benefiting relative to our banks in promoting unfair
competition.
What the Fed found in 1995 was that not only were they not
benefiting, but they lost 11 percent. In 1996, their rate of return was
minus 8 percent. In 1997, their rate of return was 18 percent. And in
1998, their rate of return was 25 percent.
So the plain truth is, these foreign banks are poorly run, their
subsidiary operations are a disaster, but if they were well run, and if
they were getting a competitive advantage, we would do something about
it. The point is, it has not created a problem.
Nineteen of these foreign banks are in the securities business.
Together, they make up less than 2.6 percent of the American market. In
terms of underwriting revenues, they earn 3.8 percent of the revenues.
So the point is, these foreign banks are not effective in competing
against American banks. The point is, because foreign governments
subsidize their banks, do we want to subsidize our banks? As chairman
of the Banking Committee, I can tell you, if these foreign subsidies
started having an unfair effect in our market, we would take action to
change the law and prevent this advantage.

But we have allowed this situation to exist for two reasons: One, it
has not done us any harm, and, two, we sell $10 of financial services
abroad for every $1 of financial services sold in America. So the last
thing we wanted to do is get into a trade war in banking, because we
are the world's greatest bankers, we are the world's greatest exporters
of banking services. And so it was to our advantage to allow this to
happen as long as it was doing no harm.
What is the real issue at stake in this amendment? I want to begin
with a quote from Secretary Rubin. In fact, many people on the Democrat
side of the aisle have been called by Secretary Rubin in the last few
days. Some people on our side of the aisle have been called. I want to
read you a quote from Secretary Rubin. And then I want to pose a
question: What could this quote possibly be referring to?
This is a quote from the Secretary of the Treasury, Robert Rubin, on
May 5, 1999, before the Finance Subcommittee of the House Commerce
Committee. And I will read you the quote:

[O]ne of an elected Administration's critical
responsibilities is the formation of economic policy, and an
important component of that policy is banking policy. In
order for the elected Administration to have an effective
role in banking policy, it must have a strong connection with
the banking system.

I remind my colleagues that the Comptroller of the Currency, who
works for Robert Rubin, regulates national banks. And national banks
make up 58 percent of the assets in American banks. Why isn't that ``an
effective role in banking policy''? Why is it not ``a strong connection
with the banking system''? I can tell you, Secretary Rubin is right: It
is not a strong connection. The Comptroller of the Currency is an
accountant. Banking policy is run by the Federal Reserve. And I thank
God for that every single day.
I thank God every single day that in 1913, after the Treasury had run
monetary policy in this country--we had a giant panic in 1907; the
country had gone through continuing economic convulsions--the Congress
put an end to it by setting up an independent monetary authority called
the Federal Reserve.
The Federal Reserve, with an independent board--appointed by the
President, confirmed by the Senate for very long terms--exercises
independent monetary policy. So when the President wants to inflate the
economy to get reelected, the Fed says no. When Congress feels we need
to print more money to get things moving to help them in their
elections, the Fed says no. We have an independent monetary authority.
So while the Comptroller of the Currency is an accountant that
primarily audits national banks, he has no policy authority at all.
Why? Because the Federal Reserve regulates the holding companies, and
there are 6,867 holding companies in America that together make up
about 96 percent of bank assets.
So sure enough, the Treasury sends out all of the accountants and
auditors, but the Federal Reserve sets the policy. And what Robert
Rubin is saying, in the clearest possible terms, is he wants to set
banking policy, he wants to set monetary policy. That is exactly what
he is saying.
The question is, Do we want to put the Treasury back in the position
of setting banking policy in America? Do we want the President to have
the ability to use banking policy as a political tool? Are we not
talking about repealing the Federal Reserve Act?

Now, how all this comes about is a little complicated, but with a
teeny bit of detective work, it becomes very, very clear.
Remember, the Fed does not regulate banks. Not a single bank in
America is regulated directly by the Fed. But it regulates holding
companies that control banks, and those holding companies have 97
percent of the assets of banks. Why do they have it? Because our law
requires that banks not provide other financial services within the
bank, for safety and soundness reasons, and so big banks and banks that
have large assets are holding companies and they come under the Federal
Reserve.
Now, if we adopted the Shelby amendment, let me read what Alan
Greenspan and the Board of Governors of the Federal Reserve say would
happen:

As I have testified, if profit is their goal, there is no
choice. Because of the subsidy implicit in the Federal safety
net, profit-maximizing management will invariably choose the
operating subsidiary. As a consequence, the holding company
structure will atrophy in favor of bank operating
subsidiaries. Our [and ``our'' being the Federal Reserve]
current ability rests principally on our role as holding
company supervisor.

So here is the point: If you let banks perform these services within
the bank itself, their securities affiliate or, in the future, their
insurance affiliate or any other thing you allow them to do can get the
advantage of the bank's FDIC insurance and the ability to borrow money
from the Fed, which is the lowest interest rate in the world, and if
they can use the Fed wire, the Fed has estimated that doing these
things within the bank creates about a 14 basis points advantage over
doing them outside the bank. Those little margins make a very big
difference.
So, obviously, the Treasury and the Federal Reserve believe and both
agree that if you let banks perform these functions inside the bank,
banks will tend to close down their holding companies and bring these
functions inside the bank.
Now, I am going to talk about that issue separately. But what does
that mean in terms of monetary policy? It means that the Comptroller of
the Currency, who will be regulating banks that will no longer be
holding companies, will become the banking authority in the country,
and the Federal Reserve will see the number of holding companies it
regulates decline, decline, decline, and decline.
Now, interestingly, the Treasury and the Shelby amendment, one and
the same, recognize this. They say, OK, for the 43 largest holding
companies, we will force them to maintain their holding company, so
that the Fed will continue to regulate them. That means that 6,824
other holding companies will be allowed to change their structure. They
will be driven by the profit motive to do it. Therefore, over time the

[[Page S4855]]

control of banking policy and ultimately monetary policy--because bank
regulation is a source of strength for the Fed in implementing much of
its policy--will shift from the Federal Reserve to the Treasury, from
an independent agency to an arm of the President of the United States.
Now, you might say, well, the Federal Reserve still regulates 43
holding companies. But the holding companies have every incentive to
conduct all of their activities within the bank, so the holding
companies, the 43 left that the Fed would regulate, will be empty
shells.
The Fed's power comes from the power to regulate banks. Their ability
to get banks together to prevent a financial collapse--such as the Long
Term Capital Management case in New York--was their ability, using
moral suasion by the fact that they regulated the holding companies
that were involved, to get people together and basically nudge them,
encourage them, and, if you like, pressure them into dealing with that
crisis before it got moving.
Now, I ask my colleagues on the first point: Do you want this
administration, or any administration, to control banking policy? The
Secretary of the Treasury says they should; it is part of the tools
they say they need to conduct economic policy.

Let me tell you something, Mr. President. We had this debate in 1913.
We decided we didn't want the President, in 1913, controlling banking
policy. We have decided we do not want any President or did not want
any President since that time.
Would we have been better off in the last 2 years of the Reagan
administration if the Treasury had controlled banking policy instead of
the Federal Reserve? I do not think so. When the Bush administration
was in a reelection campaign and losing the election because the
economy was recovering slowly, would we have wanted the Secretary of
the Treasury and the Comptroller of the Currency--appointed by the
President, removable by the President--would we have wanted them to
have the ability to turn on the printing presses or to use expansionary
policy with the banks? I do not think we would.
Do we want this President to have the ability to control banking
policy when he orders the Comptroller of the Currency, who would be the
new central banking regulatory authority under the Shelby amendment, to
come to the White House for a fundraiser with bankers?
This is not a partisan matter. Bill Clinton is going to be President
for 18 more months. We may well then have a Republican President. I
hope so. But I do not want a Republican or Democratic President to
control banking policy. We set up an independent Fed to do that, and I
want them to do it. Have no doubt about it, when Robert Rubin is saying
that this amendment is a way of expanding the administration's
effective role in banking policy, he means transferring from the Fed to
the Treasury the ability to set banking policy.
Now, if you are for that, if you believe the executive branch of
American government ought to set banking policy, you should vote for
the Shelby amendment. But if you believe we have done pretty well under
Alan Greenspan and the Federal Reserve, if you believe that since 1913
the American economy has performed pretty well by taking banking policy
away from Congress and away from the executive branch of government and
putting it in an independent agency, if you believe that, do not vote
for this amendment. This amendment is clearly an effort to transfer
regulatory authority over banking from the Federal Reserve to the
Treasury. That would be a disaster for America. That would be far more
important in its negative impact than anything we could possibly do in
terms of letting banks get into a few other areas of providing
services.
This is a fundamental issue. I urge my colleagues not to get caught
up on the Democrat side of the aisle with the fact that there is a
Democrat President or that we have a very friendly, nice, and competent
Secretary of the Treasury who is calling them up and saying, ``We need
you to vote with us.'' This is not a partisan matter. An independent
control of banking policy in America, an independent agency controlling
banking policy, is not a partisan matter, it is a matter that this
Congress, on a bipartisan basis, has stood for since 1913. I don't want
to take any step, and I don't believe America, if it understood this
issue, would want to take a step backward from that.

Let me talk to my Republican colleagues. We have written a bill, and
I think it is a good bill. I had a lot to do with writing it, so
obviously I think that. But I think other people are beginning to think
it, too. This is a big bank, big securities, big insurance bill. That
is just a reality. And I have to say that there is something a little
bit obscene about big banks calling up Members of the Senate and
saying: ``Well, you know we only got 95 percent of what we wanted in
that bill. We could get another 15 percent and go up to 110 percent if
you could let us provide these services within the bank, rather than
doing it outside the bank.''
Now, the banks are not caught up in who is going to conduct banking
policy. They are caught up in the fact that they are going to make more
money if they can provide these services inside the bank, because they
get the subsidies from the FDIC insurance, the Fed window and the Fed
wire.
I don't so much complain about them taking this sort of narrow self-
interested view as I complain about our responding to it, let me say.
We have all heard: What is good for General Motors is good for America.
That is not right. What is good for America is good for General Motors.
I just say to my colleagues, whatever commitments you have made on
this, whatever partisanship you feel on this, ask yourself a question:
Is it good for America to give the Treasury--an agency controlled by
the President--control over banking policy in this country and take
that control, at least partially, away from the Federal Reserve?
Do we want monetary policy to continue to be based on an objective
set out to maintain stable prices and economic growth, or do we want to
bring politics into it? Obviously, Secretary Rubin wants the
administration to conduct banking policy, and that is why he asked for
this amendment. He says it in clear English. I don't want this
administration to conduct banking policy, but at least you have to say
I am a little broad-minded. I don't want any administration to conduct
monetary policy.
To try to summarize, because it gets complicated: The Secretary of
the Treasury wants this amendment adopted because banks, by providing
these new services inside the bank, will find it cheaper to do that,
more profitable, and they will fold their holding companies, which they
only set up because the law required them for safety and soundness to
undertake these riskier activities outside the bank. As they fold up
these holding companies, the Federal Reserve loses regulatory control
over them and the Comptroller of the Currency, and therefore the
President, gains regulatory control over them. So what Secretary Rubin
is talking about is basically giving the Treasury regulatory authority
that the Federal Reserve now has.
Nothing in our bill takes power away from the Treasury. A lot of
people have gotten confused that this is just a power struggle, where
this bill would give the Federal Reserve more authority, and the
Treasury wants to share it, or the Treasury wants more. Look, the Fed
regulates bank holding companies. Virtually all the wealth is already
in bank holding companies. The Comptroller audits national banks. There
is no shift in the regulatory authority in our underlying bill.
But the amendment that Senator Shelby has offered with Senator
Daschle, supported by the Clinton administration, is the biggest
regulatory shift, the biggest power grab, by a Federal bureaucracy that
I have seen in my 20 years in Congress. And it is absolutely critical
that we slam the door on this power grab, not because Rubin is a bad
guy and Greenspan is a good guy, but because Rubin is a political
appointee controlled by a President who, by the very nature of the
Presidency--whether it is President Ronald Reagan or President William
Clinton--he has political concerns to deal with, as he should.

We decided in 1913 to take banking policy out of the hands of
politicians and put it into the Federal Reserve. We dare not take
action to take it back.

[[Page S4856]]

Maybe Robert Rubin would do a good job with it. Maybe Bill Clinton
might fire Rubin and appoint somebody else, or maybe Rubin might leave.
But the point is, the Fed, whoever is there--and I hope Alan Greenspan
will be there forever--will be independent, with a long term, and will
be independent of the President, and so will the board members who
share that power.
If this issue doesn't move you, then I have done a poor job, because
I have been standing on the floor for 3 days and I am tired. If this
issue doesn't move you, it is not because the issue is not moving; it
is because I am not moving. I want to urge my colleagues to think long
and hard before we take an action that, in reality, is a step toward
repealing the essence of the Federal Reserve Act.
Let me turn to the other side of the story. It is an important story.
I have explained first how this amendment is a step toward repealing
the Federal Reserve Act by giving the control of bank regulation to the
Treasury instead of the Federal Reserve. But let me explain that, for
safety and soundness, for the well-being of the taxpayer, and for
competition, this amendment is also a bad thing. Banks receive a
subsidy from the Government because they have their principal asset--
deposits--insured by the FDIC. They have deposit insurance. No other
nonbanking institution has that guarantee. Your insurance salesman
doesn't have it. Your securities broker doesn't have it. The stock
exchange doesn't have it. The bank has it.
The bank also has the ability to go to the Federal Reserve and borrow
at the lowest interest rates in the country. And they have the ability
to use the Fed wire to transfer money that is guaranteed. What all that
means is that if you let banks provide broad-based financial services,
which this bill does--but it requires them to do it outside the bank--
if you let them do it inside the bank, these huge banks with massive
capital, when they are selling securities or underwriting them--or,
ultimately, because if you let them do securities today, in 5 or 10
years, you are going to let them do insurance within the bank, and we
all know it--these banks will have an enormous and unfair competitive
advantage due entirely to the Federal subsidies they are receiving.
When they are selling securities, or selling insurance or
underwriting it, they are going to have a competitive advantage because
they can borrow money more cheaply than an insurance company or an
independent stockbroker. So what is going to happen over time is, with
that competitive advantage, they are going to end up dominating the
securities industry, and in the long run, dominating the insurance
industry.
I ask you the question: Do we want a banking industry that dominates
the entire financial services industry? I helped write this bill to
promote more competition. I did not write this bill so that 20 years
from now we look like Japan, with 10 banks dominating the entire
financial services area. I know about the Presiding Officer, but I
don't know about other people. I happen to love my independent
insurance agents and they love me, and I appreciate it. I happen to
love my little independent stockbroker in my hometown; he was my
campaign manager the first time I ever ran for Congress. I don't want
to force these people out of business by giving an unfair competitive
advantage to banks.
We are not talking about foreign banks who don't know how to do it,
even with a Government subsidy; we are talking about American banks
that know how to do it.
Now, Mr. President, the next problem is that we are going to create
an unlevel playing field, and banks are going to dominate these
industries not because they are better, but because their structure of
being able to provide these services within banks is one that is
cheaper to operate in.
The third and final problem is selling insurance--underwriting
insurance--which ultimately will happen if we go this direction with
op-subs on securities--selling securities; underwriting securities is
risky business.
What we are doing, if we put that power within the structure of the
bank, is that taxpayers are underwriting it, at least implicitly with
Federal deposit insurance. So we are putting the taxpayer on the hook.
The alternative in the bill is, except for very small banks that
can't afford to have holding companies, to require banks that have
holding companies--and they are large enough to have them, they can
provide all these new services--but they have to do them outside the
banks. So the taxpayer is not on the hook for the deposit insurance for
these activities, and the banks don't get a subsidy to conduct these
activities due to the fact that capital is cheaper inside the bank, and
we don't create a structure where the Treasury--a political
institution--exercises more banking regulation and the Fed less.
Alan Greenspan, testifying before the House Commerce Committee last
week, made a very strong statement. Those of you who know Alan
Greenspan know that he is not prone to get to the point. In fact, we
have reporters in this town who have become very successful by figuring
out what Alan Greenspan is saying. He will go around the barn and the
outhouse, and all over the barnyard, before he finally gets to the
point. And, if he is saying something that he knows somebody isn't
going to like, he is even more roundabout so as not to hurt anyone's
feelings. Quite frankly, he does it perfectly. Every central banker in
the world models himself after Alan Greenspan, who is the greatest
central banker probably in the history of the world.
But he wasn't beating around the bush when he talked to the House
Commerce Committee. He said, ``I and my colleagues''--he means members
of the Federal Reserve Board--``are firmly of the view that the long-
term stability of U.S. financial markets and the interests of the
American taxpayer would be better served by no financial modernization
bill rather than one that allows the proposed new activities to be
conducted by the bank. . . .''
This is not just an average kind of Joe talking.
It is interesting to me that we talk to a few bankers on the
telephone, and all of a sudden we think we know as much about banking
policy as Alan Greenspan. This is the most successful central banker in
history who is saying that when you look at the three problems with
this approach, one, you put the taxpayer on the hook in a risky
business that ought not to be inside the bank; that, two, you create an
unfair playing surface that will create unfair competition and hurt the
economy, and make the economy more vulnerable; and, finally, you
transfer control of bank regulations from an independent agency--the
Fed--to the Treasury and, therefore, to the President.
Based on those three things, Alan Greenspan--who is a strong
supporter of this bill; he is for this bill; at the end of the last
Congress, he spent numerous hours trying to get it passed, and he is
for it now--says, if you adopt this amendment then the country would be
better off with no bill at all.
My colleagues, it has been a long 3 days of debating. I never
challenge anybody's sincerity. But I want to urge my colleagues, my
Democrat colleagues who are getting all this pressure now, you know--
Republicans have won on many of these issues, this is an opportunity
for Democrats to win; the Secretary of the Treasury has said that the
President will veto the bill if you do not give the Treasury control
over banking policy. And I know that my Democrat colleagues are under a
lot of pressure.
But I want to urge my colleagues to look at what we are doing here in
terms of moving away from an independent banking authority toward
putting the control of banking policy under the President. It is a
very, very dangerous thing to do.
I urge my colleagues to resist the pressure and vote against this.
Ordinarily two-thirds of the Democrat Members of Congress would oppose
this amendment. But what is happening here, in part because the issue
has become so partisan--and I am partly to blame for this--but what is
happening is we have a dynamic where an amendment that should not be
even seriously considered is going to have a very, very close vote, and
could very well pass.
I just urge my colleagues, if you are not swayed by risk to the
taxpayer, if you are not swayed by unfair competition and concentration
of industry--and many of my Democrat colleagues are swayed by those
things in most of the issues--if you are not swayed by

[[Page S4857]]

that, be swayed by Secretary Rubin who thinks the administration ought
to control banking policy. We decided in 1913 not to let him do it. Do
we want to go back and change that decision today? I don't think so.
I want to conclude by saying to my Republican colleagues--I know
Senator Shelby is very persuasive. That is one of the reasons that I
love him and that we are very good friends. I know a lot of people have
been torn with me grabbing them and screaming in one ear, and Senator
Shelby grabbing them and screaming in their other ear. I know they are
ready for this thing to be over. But this is not a parochial issue, or
a personal issue, or a regional issue.
When we are talking about reversing a policy established in 1913 for
independent banking authority because the Secretary of the Treasury
wants the President to conduct banking policy, something we rejected in
1913, this goes way beyond hearing from your bank back home that says,
``Gee, I would rather do it this way. I appreciate the bill. You have
done it. It is going to help me. But you could help me more by letting
me do it this way.'' I think we have to resist that siren song.
I don't want to sound too preachy, so let me just stop and urge my
colleagues to give some long and prayerful deliberation on this
amendment, because I think it is very important. I know it is a hard
vote. I wish it weren't so hard.
But I think it is a very clear vote. I think if you stand back and
look at it, it is hard to think of a vote we have cast around here that
was much clearer in terms of what is the national interest. It can't be
good for your bank back home if it is bad for America. I think that is
the key issue I would like people to remember.
Mr. President, can you tell me how much time I have left, and how
much time Senator Shelby has?
The PRESIDING OFFICER. The Senator from Texas has 19 minutes 53
seconds; the Senator from Alabama has 37 minutes.
Mr. GRAMM. I had better let him talk more. I yield the floor.
Mr. SHELBY. Mr. President, I yield such time as the Senator may
consume to the distinguished Senator from Rhode Island, Mr. Reed.
The PRESIDING OFFICER. The Senator from Rhode Island.
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

[[Page S4858]]

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.

[[Page S4859]]

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.
The PRESIDING OFFICER. Who yields time?
Mr. GRAMM. Mr. President, I yield 5 minutes to the distinguished
Senator from Wyoming.
(Mr. GRAMM assumed the chair.)
Mr. ENZI addressed the Chair.
The PRESIDING OFFICER. The Senator from Wyoming.
Mr. ENZI. Mr. President, I thank you for the opportunity to address
what we have been looking at in the Banking Committee now for a couple
of years. We have had very detailed hearings, where both Alan Greenspan
and Secretary Rubin have presented their case. I have to admit, during
most of those everybody has said: What kind of a turf battle are we
looking at here? The comments have been kind of mixed because it is an
extremely difficult area to understand. It is an area between the
Federal Reserve and the Treasury. But it is an area that affects the
ways that banks will operate. We are trying to design, under this bill,
a mechanism for the American banking system to succeed, to provide for
security and soundness for the banking system, to provide for safety.
Now, is that done under the Treasury or is it done under the Federal
Reserve?
As one of those accountants, I suggest that the Treasury handles the
accounting function very well. They do an excellent job of auditing our
banks. They do an excellent job of overseeing the accounting aspects of
the bank. But the Federal Reserve does the outstanding job of
overseeing the banking policy for our country. If we begin to establish
a system where the administration, who can reflect to times of
election, has control over the banks and the banking establishment and
the banking policy, our country could be in trouble.
If the banking policy is established by the administration with the
benefit of the Federal wire and the Federal funds and the lower loan
rates, our country could begin to react more to elections than to the
economy.
We have had a fantastic system that has brought our economy to new
heights, and it has been working under the Federal Reserve System.
Let's not shift all of this around and allow the banks to have another
technique where they can put businesses under their bank and have
transactions--and I think everybody realizes that the transactions,
while there are generally accepted accounting principles for how those
are done, they are not nearly as much in the open under a subsidiary as
they are under an affiliate.
We have some accounting techniques here that provide daylight for the
banking industry which provide safety and soundness for the banking
industry and the consumers.
I suggest that Alan Greenspan and whoever holds that position has to
have enough ability to control the economy of the banks and the power
of the banks to keep the economy of this Nation going.
This is an issue that is extremely difficult to understand. After all
of the hearings we have held on it, it is possible to see it still is
under a cloud of misunderstanding. I hear the terms brought out about
how foreign banks are involved and how foreign banks are allowed to
operate. The foreign banks are not the ones providing the Federal
Deposit Insurance Corporation money. They are not the ones insuring the
money of the consumers of this country. I opt for the safety and
soundness provided by the Federal Reserve. I ask that you defeat the
amendment.
I yield the floor.
The PRESIDING OFFICER. Who yields time?
Mr. SARBANES. What is the parliamentary situation?
The PRESIDING OFFICER. The authors of the amendment have 16 minutes,
and the opponents of the amendment have 15 minutes.
Mr. SARBANES. Will the Senator yield me 4 minutes?
Mr. REED. I do not control time.
Mr. SARBANES. Will the Senator yield me 4 minutes?
Mr. SHELBY. I yield to the Senator from Maryland 4 minutes.
The PRESIDING OFFICER (Mr. Enzi). The Chair recognizes the Senator
from Maryland for 4 minutes.
Mr. SARBANES. Mr. President, in view of the comments that were just
made by my able colleague from Wyoming, I want to address this safety
and soundness issue. The Federal Deposit Insurance Corporation, to
which he referred, the regulatory agency with the most at stake in
terms of protecting the deposit insurance funds, sees the op-sub as
equivalent to the holding company structure for safety and soundness
reasons.
The argument was just made that there are some safety and soundness
problems. The FDIC Chairman, Donna Tanoue, wrote a letter to the
Banking Committee:

With the appropriate safeguards, the operating subsidiary
and the holding company structures both provide adequate
safety and soundness protection. We see no compelling public
policy reason why policymakers should prefer one structure
over the other. And absent such a compelling reason, we
believe the Government should not interfere in banks' choice
of organizational structure.

That is the current Chairman of the FDIC. Lest someone says that is
only the current Chairman, let me refer to an article written by three
previous FDIC Chairmen, both in Democratic and Republican
administrations: Ricki Tigert Helfer, William Isaac, and William
Seidman, all of them with many years of direct experience in this area.
They all agree with the current FDIC Chairman and have offered strong
support for the operating subsidiary approach.
In fact, I will quote from their article. I ask unanimous consent
that this article be printed in the Record at the conclusion of my
statement.

[[Page S4860]]

The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 1.)
Mr. SARBANES. The article says:

They go on to say:

Every subsequent FDIC chairman, including the current one,
has taken the same position . . .

In other words, allowing with the view toward bank subsidiaries
conducting these activities.
In fact, they point out that requiring the bank-related activities be
conducted in holding companies will place insured banks in the worst
possible position. They will be exposed to the risk of the affiliates'
failures without reaping the benefits of the affiliates' successes.
It is very clear that the regulator concerns of the Federal Deposit
Insurance Corporation are supportive of doing it either way.
Will the Senator yield me 1 more minute?
Mr. SHELBY. I will be glad to yield 1 minute.
Mr. SARBANES. Mr. President, let me quickly run through some
important safety mechanisms that are in the Shelby-Daschle-Reed
amendment:
One, a full capital deduction for investments in subsidiaries so that
all such investments would be fully deducted from the bank's regulatory
capital. Banks must remain well capitalized after this deduction,
meaning even if the subsidiary fails, the bank's capital will remain
intact.
Two, downstream investments in subsidiaries be no greater than the
total amount that a bank could upstream as a dividend to a holding
company. So they have exactly the same extent to which they can engage
in new financial activities between the subsidiary or the affiliate.
We remove any advantage for subsidiaries in terms of transactions
with their parent banks by applying sections 23(a) and 23(b) of the
Federal Reserve Act to subsidiaries, just like affiliates. It would
require the maintenance of subsidiaries as separate corporate entities.
The bank's credit exposure to a subsidiary be no greater than it
could have been to an affiliate.
Real estate investment and insurance underwriting is not permitted in
the subsidiary.
All of these features, I think, go to ensuring the safety and
soundness of the approach contained in the Shelby-Daschle-Reed
amendment, and I am supportive of this amendment.
I thank the Senator for yielding time.

Exhibit 1

[From the American Banker, Sept. 2, 1998]

Ex-FDIC Chiefs Unanimously Favor the Op-Sub Structure

(By Ricki Tigert Helfer, William M. Isaac, and L. William Seidman)

The debate on banks conducting financial activities through
operating subsidiaries has been portrayed as a battle between
the Treasury and the Federal Reserve. The Treasury believes
banks should be permitted to conduct expanded activities
through direct subsidiaries. The Fed wants these activities
to be conducted only through holding company affiliates.
Curiously, the concerns of the Federal Deposit Insurance
Corp. have been largely ignored. The FDIC, alone among the
agencies, has no ``turf'' at stake in this issue, as its
supervisory reach extends to any affiliate of a bank. The
FDIC's sole motivation is to safeguard the nation's banks
against systemic risks.
In the early 1980s, when one of us, William Isaac, became
the first FDIC chairman to testify on this subject, he was
responding to a financial modernization proposal to authorize
banks to expand their activities through holding company
affiliates.
While endorsing the thrust of the bill, he objected to
requiring that activities be conducted in the holding company
format. Every subsequent FDIC chairman, including the current
one, has taken the same position, favoring bank subsidiaries
(except Bill Taylor who, due to his untimely death, never
expressed his views). Each has had the full backing of the
FDIC professional staff on this issue.
The bank holding company is a U.S. invention; no other
major country requires this format. It has inherent problems,
apart from its inefficiency. For example, there is a built-in
conflict of interest between a bank and its parent holding
company when financial problems arise. The FDIC is still
fighting a lawsuit with creditors of the failed Bank of New
England about whether the holding company's directors
violated their fiduciary duty by putting cash into the
troubled lead bank.
Whether financial activities such as securities and
insurance underwriting are in a bank subsidiary or a holding
company affiliate, it is important that they be capitalized
and funded separately from the bank. If we require this
separation, the bank will be exposed to the identical risk of
loss whether the company is organized as a bank subsidiary or
a holding company affiliate.
The big difference between the two forms of organization
comes when the activity is successful, which presumably will
be most of the time. If the successful activity is conducted
in a subsidiary of the bank, the profits will accrue to the
bank.
Should the bank get into difficulty, it will be able to
sell the subsidiary to raise funds to shore up the bank's
capital. Should the bank fail, the FDIC will own the
subsidiary and can reduce its losses by selling the
subsidiary.
If the company is instead owned by the bank's parent, the
profits of the company will not directly benefit the bank.
Should the bank fail, the FDIC will not be entitled to sell
the company to reduce its losses.
Requiring that bank-related activities be conducted in
holding company affiliates will place insured banks in the
worst possible position. They will be exposed to the risk of
the affiliates' failure without reaping the benefits of the
affiliates' successes.
Three times during the 1980s, the FDIC's warnings to
Congress on safety and soundness issues went unheeded, due
largely to pressures from special interests:
The FDIC urged in 1980 that deposit insurance not be
increased from $40,000 to $100,000 while interest rates were
being deregulated.
The FDIC urged in 1983 that money brokers be prohibited
from dumping fully insured deposits into weak banks and S&Ls
paying the highest interest.
The FDIC urged in 1984 that the S&L insurance fund be
merged into the FDIC to allow the cleanup of the S&L problems
before they spun out of control.
The failure to heed these warnings--from the agency charged
with insuring the soundness of the banking system and
covering its losses--cost banks and S&Ls, their customers,
and taxpayers many tens of billions of dollars.
Ignoring the FDIC's strongly held views on how bank-related
activities should be organized could well lead to history
repeating itself. The holding company model is inferior to
the bank subsidiary approach and should not be mandated by
Congress.

Mr. SHELBY. Mr. President, how much time do I have left?
The PRESIDING OFFICER (Mr. Bennett). Ten minutes 30 seconds.
Mr. SHELBY. I yield 5 minutes to the distinguished Senator from
Minnesota.
Mr. GRAMS. Thank you very much, Mr. President.
I rise in strong support of the Shelby amendment and urge the Senate
to approve this amendment today. I say this with utmost respect for my
committee chairman, Senator Phil Gramm. As you know, I support Phil
Gramm and we agree on so many issues across the board, but this is one
time when I have to disagree with my chairman. As I say, even his
lovely wife Wendy disagrees with Senator Phil Gramm on a few issues. I
hope he realizes the respect I have for him and his arguments on this
amendment, but I feel that I have to support this.
As a Senator who worked on a bipartisan basis last year with Senator
Reed of Rhode Island to draft a compromise operating subsidiary
amendment, I have invested a great deal of time studying the pluses and
minuses of this option. I have come to the conclusion that it is
appropriate for national banks to conduct full financial activities,
with the exception of insurance underwriting and real estate
development in the operating subsidiary.
This amendment preserves corporate flexibility by allowing
subsidiaries of well-capitalized and well-managed national banks to
conduct many of the same activities--such as securities underwriting
and merchant banking--as bank holding companies and foreign bank
subsidiaries.
I would like to note that insurance underwriting and real estate
development are not permitted in the subsidiary.
Although some have claimed that the subsidiary approach could lead to
a competitive advantage for banks, the amendment prevents competitive
advantages by imposing the same prerequisites for conducting new
financial

[[Page S4861]]

activities on national banks as are placed on bank holding companies.
The subsidiary also is safer for national banks. First, the amendment
includes a number of appropriate safety and soundness ``firewalls'' to
ensure that the subsidiary remains an asset to--and not a liability
of--the bank.
These firewalls include: one, requiring that capital invested in the
subsidiary be deducted from the capital of the bank and that the bank
remains well-capitalized after the deduction; two, prohibiting the
consolidation of assets of the subsidiary and the bank; three, limiting
the investment the bank may make in the subsidiary to the same amount
that the bank could ``upstream'' to holding company affiliates by way
of dividends; four, requiring the bank to maintain procedures for
identifying and managing financial and operational risks posed by the
subsidiary; five, requiring the bank to maintain--and regulators to
ensure--a separate corporate identity and separate legal status from
the subsidiary; and six, imposing the lending restrictions found in
Sections 23A and 23B of the Federal Reserve Act on extensions of credit
from the bank to the subsidiary--total extensions of credit to any one
subsidiary may not exceed 10 percent of the bank's capital and total
extensions of credit to all subsidiaries may not exceed 20 percent of
the bank's capital.
The operating subsidiary approach adds another safety and soundness
element because the subsidiary could be used as an asset to protect the
taxpayer if the bank runs into trouble.
FDIC Chairman Donna Tanoue--the Federal Government's point person
protecting the taxpayer against claims on the deposit insurance fund--
testified that:

From a safety and soundness perspective, both the bank
operating subsidiary and the holding company affiliate
structure can provide adequate protection to the insured
depository institution from the direct or indirect effects of
losses in nonbank subsidiaries or affiliation.
Indeed, from the standpoint of benefits that accrue to the
insured depository institution, or to the deposit insurer in
the case of a bank failure, there are advantages to a direct
subsidiary relationship with the bank.
When it is the bank that is financially troubled and the
affiliate/subsidiary is sound, the value of the subsidiary
serves to directly reduce the exposure of the FDIC.
If the firm is a nonbank subsidiary of the parent holding
company, none of these values is available to insured bank
subsidiaries, or to the FDIC if the bank should fail. Thus,
the subsidiary structure can provide superior safety and
soundness protection.

The last point made by FDIC Chairman Tanoue actually argues against
the purported subsidy argument point put forward by some. Take for
example two identical banks--Bank A and Bank B.
Bank A conducts its nonbank activities in a subsidiary and Bank B
conducts its nonbank activities in the holding company.
In this case, the FDIC's exposure in Bank A is less than in Bank B
because the amount of capital which could be raised either from the
sub's assets or from the sale of the sub would actually reduce the
losses of Bank A.
Thus, the FDIC's exposure in Bank B is higher because, as proven in
the Bank of New England case, the sale of the affiliate cannot be
counted on to reduce the banks losses.
Since both banks are identical and thus, have paid identical FDIC
insurance premiums, Bank B receives a higher subsidy from deposit
insurance because their return on FDIC insurance premiums paid is
higher than Bank A, whose losses were lessened by the amount of capital
raised by the sub.
Therefore, the operating subsidiary structure is safer from a safety
and soundness perspective.
The amendment also removes the arbitrary $1 billion cap which is
contained in the underlying bill. FDIC Chairman Donna Tanoue testified
before the Senate Banking Committee that ``There is no valid reason to
threat national banks differently on the basis of size or holding
company affiliation.''
Another benefit of this amendment is that it provides competition
among regulators. And that is so important. A recent conversation I had
with a banking lawyer convinced me that this amendment is prudent
public policy.
The attorney shared with me that in his dealings with the Federal
Reserve Board and the Office of the Comptroller of the Currency, one of
the agencies had been cooperative in helping his client work through
issues and find creative ways to deal with their problems while the
other had done nothing to help.
If we were to eliminate the competition, regulators would have no
incentive to be responsible to the institutions they regulate and
American banks would have nowhere to turn if they are unhappy with
their treatment.
In closing, I think this amendment should not be portrayed as a
killer amendment. And I hope and I urge the chairman and the majority
leader to accept the will of the Senate and to allow the vote. Whether
the amendment passes or fails, I pledge to vote for the bill--no matter
how the amendment turns out.
Thank you, Mr. President.
The PRESIDING OFFICER. Who yields time?
Several Senators addressed the Chair.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. I yield 5 minutes to the Senator from New Mexico, Mr.
Domenici.
The PRESIDING OFFICER. The Senator from New Mexico.
Mr. DOMENICI. I thank the Senator. I thank the Presiding Officer for
recognizing me.
First, I compliment Senator Gramm on the marvelous work he has done
on a very complicated bill. And I hope we get new legislation in this
area before the week is out. Coming out of conference, I hope that we
will have something fundamentally positive for the banking industry of
the United States.
Mr. President, I have been in the Senate about 27 years. And I guess
I would have to say, the institution of the United States for which I
have the most respect is the Federal Reserve Board. In fact, I marvel
at the 1913 act, the Federal Reserve Act. Frankly, I marvel at the
caliber of people that have chaired the Fed and who act with total
independence once they are appointed. Only one time in my 27 years have
I thought that the Federal Reserve Board Chairman and the President of
the United States were negotiating among themselves about interest
rates and the like. For the most part, the Federal Reserve has been a
marvelous institution for stability and nonpolitical involvement in the
banking industry of America and for conducting the monetary policy of
America.
I see this issue as a very simple one. Do you want the Federal
Reserve Board to continue to be a major, major player in the banking
system of the United States or do you want to send responsibility over
to the White House?
When Congress created the Federal Reserve Board, there was a
different problem. But we decided to create the Fed independent of the
White House and keep it out of politics. Now we are here engaged in a
fight, in an argument, in a close vote on sending a big part of the
Federal Reserve Board's responsibility back to the White House. This
amendment would allow a substantial portion of bank policy to be
dictated by the White House. I do not believe it belongs there.
I am not saying this because of Secretary Rubin. I have agreed with
almost all of his policies. As a matter of fact, I have said his
economic policies remind me of Republicans and that probably is what
saved the President in terms of the policies that he has put into
effect. I have told the Secretary that. I do not know whether he was
pleased or not so pleased to hear that, but I congratulated him
nonetheless.
Essentially, this is the issue: Do you want to take a big piece of
American banking policy and put it back in the political arena? Because
no matter what we think of the Comptroller of the Currency, he is a
political appointee. And it is most amazing, in the hierarchy of those
who have power in America, it is not even a powerful position. It will
be powerful if the amendment before us passes, because we will be
giving the Comptroller tremendous control over our banking policy
instead of vesting it where it truly belongs, with the most significant
independent group in America's economic recovery since 1913--the
Federal Reserve Board and its Chairman. I hope we do not do that.
I am amazed. It seems as though the White House believes that this is
one of

[[Page S4862]]

the most important issues it has ever faced. The lobbying pressure is
enormous, with different levels of White House people--not the
President,--but in the White House, Secretaries, Cabinet members. Maybe
it is because they like Mr. Rubin so much they do not want him to lose
this one. Maybe that is it. But it can't be that kind of issue unless
it is seen by the executive branch as involving such power that
Presidents might want to have it, rather than leave that power in the
hands of the independent, successful management of the Federal Reserve
Board.

I thank you for yielding me time, and I yield the floor.
The PRESIDING OFFICER. Who yields time?
Mr. SHELBY. How much time do I have?
The PRESIDING OFFICER. Five minutes.
Mr. SHELBY. How much time does the Senator from Texas have?
The PRESIDING OFFICER. Eleven minutes, give or take a few seconds.
Mr. GRAMM. Let me yield 5 minutes to the distinguished Senator from
Florida, Mr. Mack.
The PRESIDING OFFICER. The Senator from Florida.
Mr. MACK. Thank you, Mr. President. And I thank Senator Gramm for
yielding me time.
This was an issue that I did not expect to be drawn into as far as
the debate was concerned. But as I have listened to it, and as I have
observed my colleagues over the last several days, as the lobbying on
both sides of this issue has been going on, and seeing people move back
and forth, I have become concerned about how people are making
decisions.
Finally, we have gotten down to the crux of the matter here, and that
is, at least in my opinion, how monetary policy in the United States is
going to be carried out.
I believe it is so important that we focus on the issue of monetary
policy, because one of the underlying strengths, one of the major
factors in the economic growth that we have experienced for almost 16
years is the role of the Federal Reserve, a Federal Reserve that has
been committed to price stability. To do something that will weaken the
influence of the Federal Reserve with respect to monetary policy would
be a tragic mistake.

Here is my reasoning as to how this will come about. The Treasury is
selling their idea to Members that all we really want to do is give the
bankers a choice--that seems to be a fair and reasonable thing to do--
let them decide.
I was in the banking business. This is really not a choice. You are
saying to the bankers, you make a choice about where you are going to
put this. They know where the cost of capital is the cheapest, and the
cost of capital is going to be the cheapest in an operating subsidiary.
Why is the operating subsidiary going to be the cheapest cost to
them? Because there is a subsidy attached to the bank, and so the
bankers naturally will go to where their costs are the cheapest. They
will, in fact, put these new powers into an operating subsidiary.
Having done that, there is no longer a need for them to be involved in
a holding company. The holding company is the vehicle, if you will,
that allows the Federal Reserve to carry out its monetary policy.
The second thing that is going to occur is by voting for the use of
an operating subsidiary, you are really saying you want the taxpayers
to expand the subsidy that goes into the banking industry or into the
financial services industry. That is an individual decision that people
can make. But I think it is wrong to try to approach this question
about whether I am for the bankers or whether I am not for the bankers.
This is an issue about whether you want to have a monetary policy that
is of value to this country.
I ask Members to consider what has happened in this country in these
past 16 years as far as growth is concerned. The foundation of that
growth has been the commitment that this Federal Reserve, and Alan
Greenspan in particular, has had to the objective of price stability.
We have finally reached the point where we have attained price
stability, and we are talking about tinkering around with legislation
that could lessen the influence of the Federal Reserve.
As Senator Domenici indicated earlier, as you lessen that influence,
you are going to increase the influence in the executive branch over
the banking industry and monetary policy in this country. That would be
a tragedy.
I ask my colleagues who may be wavering on this issue, this is not a
choice between Secretary Rubin or Alan Greenspan or commercial banks.
This is a decision about monetary policy in this country and who
should, in fact, have control of it.
I ask you to support the position outlined by the chairman of the
Banking Committee, Senator Gramm.
I yield the floor.
The PRESIDING OFFICER. Who yields time?
The Senator from Alabama.
Mr. SHELBY. How much time do I have?
The PRESIDING OFFICER. Four minutes 53 seconds.
Mr. SHELBY. Mr. President, I will be brief.
First, I point to the fifth paragraph of the Greenspan letter to
Chairman Gramm. It says, basically, that foreign bank-owned section 20
companies have substantially underperformed U.S.-owned section 20
companies. He goes on to say, ``The subsidy does not travel well.''
Are you suggesting the subsidy travels from New York to London but
not London to New York? In other words, not from foreign banks to the
United States? The Federal Reserve's own letter says the subsidy is
nontransferrable.

Safety and soundness? In Chairman Greenspan's own words, he says:

My concerns are not about safety and soundness. It is the
issue of creating subsidies for individual institutions which
their competitors do not have. It is a level playing field
issue. Nonbank holding companies or other institutions do not
have access to that subsidy, and it creates an unlevel
playing field. It is not a safety and soundness issue.

That is Chairman Greenspan's own words.
Lastly, is this a power grab? This legislation makes the Federal
Reserve the monopoly umbrella regulator. I do not have to educate the
distinguished chairman, who is a smart Ph.D. economist, on the abuses
of a federally sanctioned monopoly. He has talked about it since I have
known him, and he is right on that.
My amendment would allow for competition for banks to choose their
regulator. It does not mandate that any bank in the United States must
conduct such activities in an operating subsidiary. It allows the bank
to choose.
I am sure a free market economist like Senator Gramm understands more
than I do the benefits of market discipline. Competition among
regulators will not allow a national bank regulator to run amok.
Does Chairman Greenspan support the bill? Of course. We are granting
him a monopoly. We are granting his successor a monopoly, whoever that
is. I can't believe that Chairman Gramm, a distinguished economist in
his own right, is advocating a monopoly.
This amendment I am offering will promote competition. It promotes
choice. I hope my colleagues will support it.
I yield back the remainder of my time.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I guess the best place to conclude is to
quote the principals in this debate. Secretary Rubin before the House
Commerce Committee said:

What is being said here is that the Secretary of the Treasury
believes that the President should exercise more control over the
banking system. Now, if you believe the time has come to turn back the
clock to 1913 and take banking policy away from the independent Federal
Reserve, you agree with Secretary Rubin. I do not agree with Secretary
Rubin. The fact that I do not agree has nothing to do with the fact
that he is a Democrat and Bill Clinton is President. I do not believe
any President should have control of banking policy. We decided in 1913
to put it in an independent agency, and that should not change.
All of you know that Alan Greenspan is not prone to overstatement--
quite

[[Page S4863]]

the contrary--but Alan Greenspan has said that he and every member of
the Board of Governors of the Federal Reserve, most of them appointed
by President Clinton, are firmly of the view that the long-term
stability of U.S. financial markets and the interests of the American
taxpayer would be better served by no financial modernization bill
rather than adopting this amendment.
Now, that is as clear as you can make this debate. It is partly about
risk. It is riskier to be in the securities business inside a bank than
it is outside the bank, when the taxpayer guarantees the bank
depositors. That is part of the reason to vote no on the Shelby
amendment. You do get a subsidy for a bank when they are doing
activities inside the bank, instead of having to take capital out and
investing it like everybody else. And if you are worried about a level
playing surface, that is a reason to vote against the Shelby amendment.
But finally, if you believe that the Federal Reserve ought to conduct
banking policy, and not the Treasury, that is the strongest reason to
vote against the Shelby amendment.

Finally, two points: No. 1, if my colleagues will vote to table the
Shelby amendment, we will work in conference to preserve the primacy of
the Fed to deal with problems of unfair competition and subsidy, and
yet try to find a way to let banks choose between operating
subsidiaries and affiliates, to do these activities inside the bank or
out.
Secondly, as hard as I have worked on this, and as strongly as I feel
about it, given Alan Greenspan's position and given that I believe he
is right, we are not going to pass this bill tonight if we adopt the
Shelby amendment. So I urge my colleagues, if you want this bill, if
you want an independent banking policy, give me an opportunity in
conference to sit the Secretary of the Treasury down and sit the head
of the Federal Reserve down and give us a chance to come up with ways
to do op-subs without letting the Treasury take over banking policy.
We can do that by simply not changing the regulator based on whether
you have a holding company or not, or what the holding company does.
And we can find ways to require banks to have good capital and to see
that the subsidy doesn't exist. But to do that, we need to defeat this
amendment and pass this bill.
I know my colleagues are tired of being cajoled. They think a lot of
overstatements have been made. I simply would like to say, from my
part, I believe this is a critical vote. If you think passing the
Federal Reserve Act was a good thing, if you think we prospered under
an independent banking authority--and I do--then you want to vote
``no'' on this amendment.
That doesn't mean that we can't later come up with a way of trying to
do this that works, and I pledge to my colleagues my best effort in
conference to do that. But we can't do that if we can't pass this bill.
And we can't pass this amendment and pass this bill. So that is where
we are. I know people have commitments out everywhere, and they are
going to make somebody mad no matter what they do. But there is an old
adage my grandmother used to say: ``If you are going to catch hell no
matter what you do, do the right thing.'' That is what I ask my
colleagues to do--the right thing.
Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. All time has been yielded back.
Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative assistant proceeded to call the roll.
Mr. GRAMM. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
Mr. SARBANES. I object.
The PRESIDING OFFICER. The clerk will continue to call the roll.
The legislative assistant continued with the call of the roll.
Mr. DASCHLE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. DASCHLE. Mr. President, I will use my leader time to make a few
remarks on this amendment prior to the time we have our vote.
I am very appreciative of the efforts made by the distinguished
Senator from Alabama and the Senator from Maryland and for their
extraordinary leadership in offering this amendment. I am proud to be a
cosponsor.
We call this proposal the American Bank Fairness Amendment. It is
cosponsored by a number of our colleagues on both sides of the aisle.
On this side, the Senator from Rhode Island, Mr. Reed, is a leading
expert and a long-time champion of this measure. We are grateful to him
for the work he has done.

In a nutshell, this amendment, as my colleagues have noted, would
give American banks the freedom to organize their activities in a way
that makes the most sense to them. That is basically what it is. It is
that simple. Let's give the banks the freedom and the opportunity to
make their own choice. We are not going to have Government tell them
what is the best choice; we are going to let them make up their own
minds. Instead of forcing the banks to organize using an expensive
holding company structure, as the underlying bill does, our proposal
simply gives banks an option. They can conduct activities through a
holding company, or they can conduct their activities through an
affiliated operating subsidiary.
By giving banks this choice, our amendment will lead to better
services at lower costs for all sorts of financial services, from
banking to brokerage services to insurance.
I want to talk about two specific points--two specific and
substantial ways in which our amendment improves on the pending bill.
On the issue of safety and soundness, our proposal is actually
stronger than the bill offered by the chairman. That is not my
assertion. The current Chairman of the FDIC and his four predecessors--
three Republicans and two Democrats--all agree. They say that banks
face greater risks if forced to use the holding company structure.
I think everybody ought to know here that we are talking about an
entirely new system. We are talking about moving into uncharted waters.
We are talking about making sure that each financial institution has
the best option available to it to make the best choice. What we are
saying is that as a financial institution makes the choice as it goes
into all these uncharted waters, the most important thing we can do is
guarantee its safety and soundness.
What are we getting? We are getting a virtually unanimous report from
the FDIC Chairmen--the current one and four predecessors--that we are
using an option here advocating a position that creates more safety and
soundness than we have in this bill.
So if you want safety and soundness, vote for this amendment.
Mr. President, the chairman's bill exposes banks. And I have to say
because it exposes banks, it exposes taxpayers to greater risks than
our alternative.
There are two reasons for that. First, subsidiaries are assets of the
bank. They can be sold to satisfy creditors. Affiliates are not
considered bank assets.
The second reason subsidiaries are safer is because profits from a
successful bank subsidiary accrue to that bank. But the profits from a
company that is part of a holding company do not directly benefit the
bank.
Mr. President, it is no secret that of all the issues pending before
us, one of those issues into which our Treasury Secretary has put the
greatest amount of time and the greatest amount of effort, because he
is so concerned about safety and soundness, is this. He wants a tough
bill when it comes to safety and soundness. He agrees with the FDIC
Chairman and her predecessors, that if we are going to have strong
safety and soundness, it is absolutely critical that we ensure we have
the structure available to make it happen.
Even Fed Chairman Greenspan, who the chairman likes to cite in
connection with this bill, agrees that safety and soundness is not the
issue here.
In his exact words, ``My concerns are not about safety and soundness.
. . . It is not a safety and soundness issue.''
Our proposal corrects a second serious flaw in the underlying bill as
well. It does so by giving American banks the same freedom as foreign
banks to choose their operating structure.
It is absolutely astounding to me that the chairman, who talks so
passionately about free markets, actually

[[Page S4864]]

dictates in his bill how financial services companies must organize
their activities. He gives them one--and only one--choice, which means
he gives them no choice at all.
Forcing activities into affiliates would place American banks at a
competitive disadvantage not only in the international markets; it
would actually place American banks at a disadvantage in America.
We already give foreign banks the freedom to choose the structure
that best serves the business plan. Since 1990, the Federal Reserve has
issued approvals for 18 foreign banks to own subsidiaries that engage
in securities underwriting activities in the United States. All told, I
am told these foreign-owned subsidiaries exceed $450 billion in assets.
In a 1992 joint report on foreign bank operations, the Federal
Reserve Board and the Treasury Department agreed that ``subject to
prudential considerations, the guiding policy for foreign bank
operations should be the principle of investor choice.''
The bottom line, therefore, Mr. President, is this: The chairman's
bill discriminates against American banks in favor of foreign banks. We
say that is wrong. Our amendment levels the playing field. Safety and
soundness, basic fairness, these are the important issues that are
underlying this amendment that we will be voting on in just a couple of
minutes.
There is one other important point we need to consider. The President
made it absolutely clear that he will veto the financial services
modernization bill unless we fix the problem with operating
subsidiaries. So the choice is ours--or perhaps I should say it is the
chairman's choice.

Does he really want a bill badly enough to negotiate and find some
solution? Does he want a bill badly enough to give up some potential
leverage he might get in conference to deal with this legislation in a
way that allows us to focus on the real problems?
I hope he will reconsider what threats he has made to pull this bill
if his position does not prevail on this amendment.
Let's recognize for the good of our country, for the good of our
financial institutions, for the good of choice, for the good of safety
and soundness, for moving this bill along, that we only have one
choice. It is to pass this amendment, and I hope we will do it tonight.
I yield the floor.
Mr. GRAMM addressed the Chair.
The PRESIDING OFFICER. The Senator from Texas.
Mr. GRAMM. Mr. President, I move to table the Shelby amendment, and I
ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
The PRESIDING OFFICER. The question is on agreeing to the motion of
the Senator from Texas to table the amendment of the Senator from
Alabama. On this question, the yeas and nays have been ordered, and the
clerk will call the roll.
The legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
The PRESIDING OFFICER. Are there any other Senators in the Chamber
who desire to vote?
The result was announced--yeas 53, nays 46, as follows:

[Rollcall Vote No. 104 Leg.]

YEAS--53

Abraham
Allard
Ashcroft
Bond
Brownback
Bunning
Burns
Byrd
Chafee
Collins
Coverdell
Craig
Crapo
DeWine
Domenici
Dorgan
Enzi
Feingold
Frist
Gorton
Gramm
Grassley
Gregg
Helms
Hutchinson
Hutchison
Inhofe
Jeffords
Kyl
Lott
Lugar
Mack
McCain
McConnell
Moynihan
Murkowski
Nickles
Roberts
Roth
Santorum
Schumer
Sessions
Smith (NH)
Smith (OR)
Snowe
Specter
Stevens
Thomas
Thompson
Thurmond
Voinovich
Warner
Wellstone

NAYS--46

Akaka
Baucus
Bayh
Bennett
Biden
Bingaman
Boxer
Breaux
Bryan
Campbell
Cleland
Cochran
Conrad
Daschle
Dodd
Durbin
Edwards
Feinstein
Graham
Grams
Hagel
Harkin
Hatch
Hollings
Inouye
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lincoln
Mikulski
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Shelby
Torricelli
Wyden

ANSWERED ``PRESENT''--1

Fitzgerald

The motion was agreed to.
Mr. GRAMM. Mr. President, I move to reconsider the vote by which the
motion was agreed to.
Mr. MACK. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. WELLSTONE addressed the Chair.
The PRESIDING OFFICER. The Senate will be in order.
Mr. SARBANES addressed the Chair.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, while there are so many Members on the
floor, I want to engage the chairman of the committee in a discussion
and maybe we can let Members know where we are going.
This was the last of the very large--I do not want to suggest that
any amendment any Member has to offer is not a large amendment; I
recognize that, but this was the last of a series of large amendments
that we had lined up. I know the chairman and leader's intention is to
try to finish this evening. As I understand it, there are some
amendments around. I guess we will find out very shortly. Maybe we can
dispose of them or deal with them in a fairly reasonable way in a short
period of time and then go to the final vote on this bill.
As I understand it, the leader said that if we voted final passage
tonight, there would be no votes tomorrow. Members, I think, would have
to figure whether it is worth investing a little more time this evening
in order to finish up. That is how I see the lay of the land. I just
ask the chairman to comment.
Mr. GRAMM. We have a cleanup amendment. I think it is ready. We can
do it. I hope there are no other amendments, and I am ready to vote. I
yield to Senator Bryan.
Mr. BRYAN. If I may engage the floor manager and the distinguished
chairman, I have an amendment, and I would like about 10 to 15 minutes.
I do not intend to ask for a rollcall vote.
Mr. GRAMM. Can the Senator let us move ahead for the convenience of
everybody who have flights and have you do that after the vote? If the
Senator can do that, it would be very much appreciated.
Mr. BRYAN. I want to accommodate the Senator in any way I can. I want
to make sure what I am agreeing to. There are several other Senators
who may have amendments. I do not want to be at the end. I am simply
willing to yield for the purpose of the amendment.
Mr. GRAMM. If there is no other amendment, if the Senator can do
that, I am sure Members will accommodate and I will stay and listen to
it if he would like me to.
Mr. BRYAN. I am not sure I understand. I want to offer the amendment
before we have a final rollcall vote itself.
Mr. GRAMM. Can the Senator offer it and, if he is going to withdraw
it, withdraw it and then speak after the vote? Can that be done? If
not, let's go ahead and start.
Mr. BRYAN. I am willing to enter into an agreement of 10 minutes.
Mr. GRAMM. All right. Whatever works, I am willing to do.
Mr. WELLSTONE. Before my colleague starts, I do have an amendment.
The PRESIDING OFFICER (Mr. Enzi). There is a pending amendment, the
Dorgan amendment No. 313.
Several Senators addressed the Chair.
The PRESIDING OFFICER. The Chair recognizes the Senator from Utah.
Mr. BENNETT. I have two amendments at the desk that I believe will be
accepted by both sides after modification. I would like the opportunity
to call those up before the final vote.
Mr. GRAMM. If the Senator will let us just work on them and put them
in the managers' package and we will do them all at once, if he can get
those to us.
Mr. BENNETT. I will do that.
Mr. LEVIN addressed Chair.

[[Page S4865]]

The PRESIDING OFFICER. The Senator from Michigan.
Mr. LEVIN. Mr. President, I have an amendment which I am likely to
offer, but I need to engage in some floor discussion with the managers
prior to making that decision. I think it may take about a half an hour
to an hour to go through a discussion with the managers on this
subject.
It is a very important subject. It has to do with whether or not the
SEC is going to be able to regulate the purchase and sale of stock when
they are done by banks. The SEC sent me a letter yesterday strongly
objecting to language in this bill, and what they are pointing out is
that the language in the committee report is different from the
language in the bill.
I want to talk to the managers about an amendment which would
incorporate in the bill what the committee report says is the intent of
the bill. It is possible that this will be accepted because this is
committee report language which I am trying to get into the bill, but I
do not know until after we go through the discussion process on the
floor. I just want to alert colleagues that could take perhaps a half
an hour to an hour.
The PRESIDING OFFICER. The Senator from Minnesota.
Mr. WELLSTONE. Mr. President, just on the order of business, I have
an amendment I was going to offer with Senator Harkin. I know
colleagues want to leave. I need to talk with Senator Harkin and make a
decision as to what we want to do here, if the manager can give us a
couple of minutes.
The PRESIDING OFFICER. The Senator from Nevada.
Mr. REID. Mr. President, I have spoken to both managers of the bill.
Senator Dorgan and I have an amendment. It is simple in nature. I think
it is something that should be accepted. It is something that could be
reviewed in conference. It would require an independent audit of the
Federal Reserve Board. Otherwise, we will offer that amendment. It will
not take long.
Mr. GRAMM. If the Senator will give us that amendment and let us look
at it, we might be able to include it in the managers' package.
Mr. SARBANES. I suggest to the chairman, maybe if we take about 5 or
10 minutes to engage in a discussion with the people who have these
amendments, we can find a way to perhaps accept some of them and go to
conference with them at least and deal with the others, and then we can
still move to final passage this evening and complete this legislation,
which I think is highly desirable.
Mr. GRAMM. I agree with that. The thing to do is to plow ahead. Is
the distinguished Senator from Nevada going to withdraw the amendment?
Mr. BRYAN. Yes.
Mr. GRAMM. Can I suggest, again, the Senator offer the amendment and
speak for a couple of minutes and withdraw it, and then after the vote,
if he wants to speak longer on it, he can. Will that work? If not, go
ahead and speak.
Mr. BRYAN. Mr. President, I will be willing to do that. Can I have a
little flexibility, if you are still trying to work things out. I am
not trying to delay this.
Mr. GRAMM. Let's just start.
The PRESIDING OFFICER. The Senator from Nevada.

Amendment No. 316

(Purpose: To give customers notice and choice about how their financial
institutions share or sell their personally identifiable sensitive
financial information, and for other purposes)

Mr. BRYAN. Procedurally, I ask unanimous consent to lay aside the
pending amendment, and I ask that an amendment dealing with personal
privacy be sent to the desk for immediate consideration.
The PRESIDING OFFICER. Without objection, it is so ordered. The clerk
will report.
The assistant legislative clerk read as follows:

The Senator from Nevada [Mr. Bryan] proposes an amendment
numbered 316.

Mr. BRYAN. Mr. President, I ask unanimous consent that the reading of
the amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

On page 150, after line 21, add the following:

TITLE VII--FINANCIAL INFORMATION PRIVACY

SEC. 701. SHORT TITLE.

This title may be cited as the ``Financial Information
Privacy Act of 1999''.

SEC. 702. DEFINITIONS.

In this title--
(1) the term ``covered person'' means a person that is
subject to the jurisdiction of any of the Federal financial
regulatory authorities; and
(2) the term ``Federal financial regulatory authorities''
means--
(A) each of the Federal banking agencies, as that term is
defined in section 3(z) of the Federal Deposit Insurance Act;
and
(B) the Securities and Exchange Commission.

SEC. 703. PRIVACY OF CONFIDENTIAL CUSTOMER INFORMATION.

(a) Rulemaking.--The Federal financial regulatory
authorities shall jointly issue final rules to protect the
privacy of confidential customer information relating to the
customers of covered persons, not later than 270 days after
the date of enactment of this Act (and shall issue a notice
of proposed rulemaking not later than 150 days after the date
of enactment of this Act), which rules shall--
(1) define the term ``confidential customer information''
to be personally identifiable data that includes
transactions, balances, maturity dates, payouts, and payout
dates, of--
(A) deposit and trust accounts;
(B) certificates of deposit;
(C) securities holdings; and
(D) insurance policies;
(2) require that a covered person may not disclose or share
any confidential customer information to or with any
affiliate or agent of that covered person if the customer to
whom the information relates has provided written notice, as
described in paragraphs (4) and (5), to the covered person
prohibiting such disclosure or sharing--
(A) with respect to an individual that became a customer on
or after the effective date of such rules, at the time at
which the business relationship between the customer and the
covered person is initiated and at least annually thereafter;
and
(B) with respect to an individual that was a customer
before the effective date of such rules, at such time
thereafter that provides a reasonable and informed
opportunity to the customer to prohibit such disclosure or
sharing and at least annually thereafter;
(3) require that a covered person may not disclose or share
any confidential customer information to or with any person
that is not an affiliate or agent of that covered person
unless the covered person has first--
(A) given written notice to the customer to whom the
information relates, as described in paragraphs (4) and (5);
and
(B) obtained the informed written or electronic consent of
that customer for such disclosures or sharing;
(4) require that the covered person provide notices and
consent acknowledgments to customers, as required by this
section, in separate and easily identifiable and
distinguishable form;
(5) require that the covered person provide notice as
required by this section to the customer to whom the
information relates that describes what specific types of
information would be disclosed or shared, and under what
general circumstances, to what specific types of businesses
or persons, and for what specific types of purposes such
information could be disclosed or shared;
(6) require that the customer to whom the information
relates be provided with access to the confidential customer
information that could be disclosed or shared so that the
information may be reviewed for accuracy and corrected or
supplemented;
(7) require that, before a covered person may use any
confidential customer information provided by a third party
that engages, directly or indirectly, in activities that are
financial in nature, as determined by the Federal financial
regulatory authorities, the covered person shall take
reasonable steps to assure that procedures that are
substantially similar to those described in paragraphs (2)
through (6) have been followed by the provider of the
information (or an affiliate or agent of that provider); and
(8) establish a means of examination for compliance and
enforcement of such rules and resolving consumer complaints.
(b) Limitation.--The rules prescribed pursuant to
subsection (a) may not prohibit the release of confidential
customer information--
(1) that is essential to processing a specific financial
transaction that the customer to whom the information relates
has authorized;
(2) to a governmental, regulatory, or self-regulatory
authority having jurisdiction over the covered financial
entity for examination, compliance, or other authorized
purposes;
(3) to a court of competent jurisdiction;
(4) to a consumer reporting agency, as defined in section
603 of the Fair Credit Reporting Act for inclusion in a
consumer report that may be released to a third party only
for a purpose permissible under section 604 of that Act; or
(5) that is not personally identifiable.
(c) Construction.--Nothing in this section or the rules
prescribed under this section shall be construed to amend or
alter any provision of the Fair Credit Reporting Act.

Mr. BRYAN. I thank the Chair.

[[Page S4866]]

Mr. President, earlier today, the Senate adopted an amendment offered
by the distinguished chairman of the Banking Committee dealing with the
fraudulent procurement of personal information by information brokers.
Last Congress, Senator D'Amato and I offered an identical provision,
and we were successful in incorporating that in last year's financial
modernization bill, H.R. 10.
Unfortunately, that measure died along with H.R. 10 which was
filibustered at the end of the last session. I commend the Senator from
Texas. The antifraud provision is a good first step, but as Senator
Sarbanes articulated earlier today, it is in no way a substitute for
meaningful privacy protections.
The Gramm amendment deals with a small, but pernicious, group of
information brokers that obtain personal information under false
pretenses. This practice should be shut down. In fact, the Federal
Trade Commission recently brought action against such practices.
While thousands of Americans are harmed by fraudulent information
brokers, each and every American who has a bank account, stock
portfolio or an insurance policy is subject to a massive invasion of
his or her personal privacy that cries out for legislative remedy.
I applaud the fact that the chairman has indicated we are going to
hold a series of hearings.
I applaud the chairman's promise to hold a series of hearings on the
financial privacy issue. Many of us who worked on the Community
Reinvestment Act would have hoped we might have had similar
opportunities before moving forward with the CRA changes in this bill.
While the chairman's amendment and his hearings are good first steps,
I encourage us to take one more step that Senator Sarbanes and Senator
Dodd and I have been urging for some time.
My amendment is quite simple. What we are talking about is financial
privacy. I want to make it very clear that I am a strong supporter of
the restructuring bill that is before us, the financial modernization.
I freely acknowledge and recognize that we need a regulatory framework
which comports with the realities of the marketplace today.
So my purpose in offering this amendment is in no way to denigrate
the need to make the kind of changes which essentially are outlined in
S. 900, or a part of H.R. 10 in the previous session. But I think my
colleagues and the American people would be absolutely shocked if they
knew how little privacy they have in their personal financial
information with the very people who are going to be players in this
financial reorganization--banks, security brokerages, and insurance.
Here is what the American people have to say on the issue of privacy.
When asked recently: ``Would you mind if a company you did business
with sold information about you to another company?'' Ninety-two
percent said yes, they would object to it. The source of that
information is the AARP.

Let me cite an illustration of precisely what does occur and will
continue to occur. This is a financial transaction, I say to my
colleagues, that occurred at a bank. A lady came in and deposited
$109,451.59. At this bank, teller No. 12 made the following notation:
``She came in today,'' referring to the depositor, ``and wasn't sure
what she would do with her money.'' That is the bank teller.
This bank has a relationship with a brokerage house. Here is what the
teller then did. The teller then contacts ``David''--David is the
individual with the brokerage house--and says, ``See what you can do!
Thank you.''
So in effect the privacy of this individual's personal bank account
is compromised, as the bank teller then notifies the brokerage house:
``You'd better get ahold of this lady. She has $109,000. She doesn't
know what she wants to do with it. You contact her.''
This is a real-life situation. Under the current law--under the
current law--your information with respect to your insurance accounts
may be freely sold to a third party, or maybe transferred to an
affiliate under the proposed arrangements that are contemplated in this
bill. Your bank account information can be sold to a third party--a
total stranger to you and to your financial transaction.
So you have a situation in which all of a sudden you have a
certificate of deposit that is coming due next month, and you start to
get a stream of information from vendors who are marketing financial
services and saying, ``Mrs. Smith,'' ``Mr. Jones, I know your
certificate of deposit is due next month. Let me show you what our
financial package can provide for you.'' And you are saying, ``How does
this outfit know that I've got a certificate of deposit that is
maturing next month?'' And the answer is, that information can be sold
to a third party, and that information is valuable to a particular
vendor of services.
So the amendment that we propose does two things: No. 1--and I do not
see how you can argue against this proposition--
The PRESIDING OFFICER. The Senate is not in order. If conversations
do not relate to the bill at hand, would you please take them into the
other room. The Senator deserves consideration. Would conversations
near the Senator please cease.
Mr. BRYAN. I thank the Presiding Officer.
The point that I was making is that your financial information with
respect to insurance brokerage accounts and bank accounts is not
protected under the present law. That information can be sold or
marketed to a total stranger. An outfit, for example, that may be
selling penny stocks all of a sudden contacts you and says, ``Look, I
know you've got a certificate of deposit or bank account with a
sufficient balance involved.''
So what we are proposing in this amendment is something very hard to
argue against. We are saying that with respect to these financial
organizations--banking, insurance and brokerage--that they cannot sell
to a total stranger, a third party, without your consent. What is wrong
with that?
So rather than being able to sell to any vendor your very personal
and private information--your insurance coverages, whatever information
might be available about any medical condition that you might have,
your brokerage account, your bank account--cannot be sold to a third
party without your prior consent. I suspect if you ask the American
people--Democrat, Republican, independent, whether they are to the
right of center or to the left of center or in between--you would get
almost a unanimous vote that would say, ``That is what I want as a
protection for my privacy.''

I understand that in this modern consolidation of financial services
the thrust of this bill is going to permit banks and insurance and
brokerage to be involved in affiliated relationships. I understand
that. So we are told, ``Do not, Senator, do anything that would impair
or compromise the synergy of the marketplace. Don't do that.''
Well, this is what we propose with respect to those affiliate
arrangements. This would not be a total stranger or a third party. If
they are going to transfer and make available that information, they
need to notify you and give you the opportunity to opt out. They do not
have to get your prior consent, but they have to give you the right to
opt out.
That concept is recognized in the law. Many of you will recall that I
took the lead some years back in securing amendments to the Fair Credit
Reporting Act. And we said there, with respect to information that is
collected, with respect to your credit history, that before that
information can be made available for marketers and others, they need
to notify you where that information came from and that you had the
right, after receiving a solicitation, to say, ``Look, no more. Take me
off the list'' in effect the right to opt out.
So that is what we are proposing in this amendment--An absolute
requirement that if the information is made available to a total
stranger, a third party, that has no affiliate relationship, a vendor
of any number of financial services, they must obtain your prior
consent; that if the information, the financial information, is to be
transferred from one of their affiliates, they need to give you the
opportunity to opt out if you choose to avail yourself of that
option. Now, I am hard pressed to understand why anybody would object
to that. I think any one of us would be somewhat surprised to know that
our bank accounts, our insurance, and our brokerage accounts

[[Page S4867]]

can be made available to anyone under the existing law. If we are going
to provide these new financial services, which I believe we ought to
provide to recognize the change in the marketplace, that does not
strike me as being an unreasonable proposition to advocate.

So this is a provision that I think needs attention. I must say that
the ranking member has taken a lead on this. He has been a strong
advocate, as has the senior Senator from Connecticut. I know he had a
question or two to which I would be happy to respond.
Mr. SARBANES. If the Senator will yield, I commend the Senator for
his very strong statement. This is an extremely important issue. I
appreciate the Senator speaking out on it. We have joined together,
actually, in introducing legislation on this privacy question, along
with Senators Leahy and Dodd and Hollings. Earlier today we raised the
issue with the chairman.
I think it would probably be helpful if the chairman could provide--
the Senator may want to question him himself--the similar assurances he
gave earlier about the committee committing itself to examining this
issue in a comprehensive way, with hearings and with the idea in mind,
of course, to try to bring forth legislation that will address what the
chairman himself has conceded is an important issue that needs to be
addressed.
Mr. GRAMM. Will the Senator yield?
Mr. BRYAN. The Senator is pleased to yield.
Mr. GRAMM. The Senator was not on the floor today when I offered the
amendment which adopted the provisions that were in the Sarbanes
substitute. I said at the time that I did not believe it solved the
problem. I committed to hold extensive hearings. I committed to allow
anyone who had any kind of substantive opinion to express it, and I
committed that we would take a hard look at it.
This whole issue is a very serious issue, and it is one we have to
learn to live with. It is one about which I share a great deal of
concern with others.
Mr. BRYAN. Mr. President, I appreciate the Senator's commitment. If I
might engage the distinguished chairman in a follow-up inquiry--I know
the Senator is trying to process this bill. As Henry VIII said to his
third wife, I shall not keep you long--the question I have of the able
chairman is, Would the Senator not agree that before a financial
services institution sells personal information about your bank
accounts, your insurance policies, about your brokerage accounts, it is
not unreasonable that they get your consent before doing so?
Mr. GRAMM. Well, if the Senator will yield, first of all, we adopted
some provisions today from the Sarbanes substitute that were a first
step.
Mr. BRYAN. Yes.
Mr. GRAMM. But I made it clear they were only a first step. I believe
as a matter of principle they should. If the Senator will take yes for
an answer, I will say yes.
Mr. BRYAN. The Senator is delighted to take yes for an answer. I am
most appreciative of the response.
If the able chairman is saying that perhaps my time has expired, I
will be happy to yield the floor in just a moment. I inquire whether or
not the ranking member has further colloquy he wishes to engage me in.

Mr. SARBANES. I simply want to underscore, the importance of this
issue and the contribution which the very able Senator has made to it.
Isn't it correct, most people don't realize these things can happen?
Mr. BRYAN. I say to the senior Senator from Maryland, not only do
they not realize it, they are absolutely dumbfounded and amazed. Most
people believe that in the world of high finance, brokerage accounts,
insurance and banks, there is a system of Federal law that protects
their privacy. I say to the Senator from Maryland, we all recognize
that we are entering a new era of financial transactions, the Internet;
computers have transformed the way in which we transact our business;
the old green eyeshade guys are gone.
Today the right of privacy as we know it in America is threatened, I
say to my friend from Maryland. More than a century ago the able, later
Justice of the U.S. Supreme Court advocated, in a Harvard Law Review
article, a right of privacy. That right was later enshrined in
subsequent opinions of the U.S. Supreme Court.
I think the very essence of a right of privacy ought to be your
personal financial information--how much money you have in your bank
account; to whom you choose to make payments; your insurance coverages;
any medical conditions that might be a part of that insurance record;
what stocks and bonds and securities you hold; when those certificates
of deposit might mature. To say that all of that can be sold,
transferred without your knowledge, without your consent, to some total
stranger who may not, I say to my friend from Maryland, be a legitimate
vendor--we don't know who these guys might be. All of a sudden you get
a ton of mail coming in and saying: Mrs. Smith, I know your husband
just died last year, and I know you have some certificates of deposit.
They are getting a 5-percent return. As a widow, you need to know, if
you invest with us, we can quadruple that rate of return.
That is what is happening, I say to my friend from Maryland. That is
something that I think is appropriate for the Congress and the Federal
Government to say, that is wrong.
I appreciate the leadership of the ranking member on this. This is
something that ought not to divide us, Democrat or Republican, liberal
or conservative.
Mr. SARBANES. The Senator is absolutely right. I want to make it very
clear, the provision that was adopted earlier today was an antifraud
provision. It was designed to get at people who get this information by
fraud. The fact of the matter is, under the current arrangements there
is no restriction that precludes a financial institution from providing
this information or selling this information to others.
I think you are absolutely right; people would be dumbfounded to know
that this information they are giving to their financial institution
has no privacy protections around it. I think it is extremely
important, as the Senator has emphasized, to establish such
protections.
It has an issue of some complexity to it. We need to work through it.
I think the hearings that have now been committed to will give us the
opportunity to do it. There are many members on the committee on both
sides of the aisle who are interested in this issue. I hope we can move
forward and bring a significant piece of legislation to the floor of
the Senate.
Mr. BRYAN. I look forward to working with the senior Senator from
Maryland on this.

Let me say, I am going to withdraw this amendment, because of the
lateness of the hour and because we want to move forward to process
this.
I say to my friend from Maryland--I know he feels this very
strongly--the word should go out tonight from this Chamber to the
industry groups that believe this is an issue that is going to go away.
It is not going to go away. What we are talking about is the essence of
reasonableness and fairness. If you are talking about selling some
information or making it available to a total stranger, you as an
individual ought to have the right to make that decision. That is
something that is fundamental and basic. As an accommodation to these
new affiliate arrangements that can be entered into under this new
legislation, we say, with respect to any transfers between the
affiliates, an opt-out provision is a reasonable compromise.
I encourage our friends from the industry to work with us on this. I
say to the Senator from Maryland, because this is not going to go away,
we are going to address this issue, and the American people are going
to be thoroughly outraged when they become aware that these new
arrangements permit this continuation of an invasion of their privacy
in the most personal way possible.
Mr. SARBANES. If the Senator will yield, I echo his observation that
this is not an issue that is going to go away. Those who are involved
need to take a constructive attitude in arriving at effective ways to
protect the privacy of the American people. There is no doubt about it.
Mr. BRYAN. I thank the Senator from Maryland. I am prepared to yield
the floor.
Mr. President, from a procedural point of view, I would like to
withdraw

[[Page S4868]]

the amendment. May I do so, or do I need unanimous consent?
The PRESIDING OFFICER. The amendment is withdrawn.
Mr. WELLSTONE addressed the Chair.
The PRESIDING OFFICER. The Senator from Minnesota is recognized.
Mr. WELLSTONE. Mr. President, I was going to introduce an amendment
tonight with respect to low-cost lifeline bank accounts with Senator
Harkin from Iowa and my colleague, Senator Schumer from New York. This
amendment would require banks that establish a bank holding company
under the S. 900 guidelines to offer low-cost banking services to their
customers.
I am not going to talk about this amendment at all tonight, except to
say I think this is a most important consumer amendment; it is very
important to senior citizens and very important to low- and moderate-
income citizens.
My understanding, with my colleague from Texas, the chairman, is that
we will have an opportunity to bring this amendment up when another
banking-related bill comes to the floor, and we will be able to debate
this and have an up-or-down vote; am I correct, I ask my colleague from
Texas?
Mr. GRAMM. Mr. President, I told both of my colleagues that because
in the past when they and others had sought to offer an amendment
parliamentary maneuvers had been made to prevent that, on a future
banking bill--and as Senator Sarbanes noted, we already have reported
three banking bills out of the committee. So we will have banking
bills--I will guarantee them an opportunity to offer the amendment and
to have an up-or-down vote on it.
Mr. WELLSTONE. I thank the chairman. I yield to my colleague from
Iowa.
Mr. HARKIN. I thank the Senator from Texas for the assurance that we
can offer this amendment later on. Again, this is an important
amendment and we can't let it go too much longer. So I hope we will
have some kind of banking bill this year. I hope it doesn't go into
next year, because consumers are getting gouged. Most people don't
carry more than $1,000 in their checking accounts and they are the ones
who have to pay the fees. In all my life until just recently, checking
accounts used to be free. Now if you have less than $1,000, you pay
fees. Who has less than $1,000? It is the elderly, the low-income
people; they have to pay the fees to keep the checking accounts. It is
not fair.
Mr. SARBANES. If the Senator will yield, the committee has brought
out--in fact, it is on the calendar--a regulatory relief bill to lessen
the regulatory burdens on the financial institutions, and it seems to
me in that spirit of lessening burdens, this basic banking amendment
would certainly be an opportune amendment to offer to that bill when it
is before the Senate. I am pleased that the chairman has committed to
having an up-or-down vote.
I think the Senators are onto a very important issue, and it really
is just a basic issue of equity and fairness for small people. I very
much appreciate not only their raising it, but insisting that at some
reasonable point we be given an opportunity to vote up or down on this
important matter.
Mr. HARKIN. I thank the Senator from Maryland.
Mr. WELLSTONE. Mr. President, I also thank the Senator from Texas and
the Senator from Maryland. We will certainly bring this amendment to
the floor.
Mr. CHAFEE. Mr. President, last night the Senate approved a motion to
table the Bryan CRA amendment by a vote of 52-45. I voted in favor of
the tabling motion, and would like to take a moment to outline my
position on this matter.
What did Senator Bryan propose in his amendment? The Bryan amendment
would have stricken two provisions in the underlying bill related to
the Community Reinvestment Act, as follows: (1) the so-called CRA
integrity provision and (2) the exemption for small, rural banks. In
addition, the Bryan amendment would have conditioned approval of a
bank's affiliation with a securities firm or insurance company on CRA
compliance.
On this last point, linking approval of new financial activities to
CRA compliance, I want to acknowledge Senator Bryan's efforts to
develop a pragmatic approach to this issue. Unlike some of the more
far-reaching proposals that have been put forward, this provision would
not have expanded CRA to apply to nonbank institutions, nor would it
have required holding companies to divest themselves of a bank that
falls out of compliance. Despite the relative appeal of this portion of
the Bryan amendment, however, I found myself unable to support the
overall package.
With regard to the integrity provision, I have long thought that
banks that do a good job under CRA should get some credit for it. Under
current law, however, a bank with an outstanding CRA rating that seeks
to merge or expand potentially is subject to the same challenges from
community groups as a bank with a rating of substantial noncompliance.
This situation simply is not fair, in my judgment.
Now, the opponents of this provision point out that 97 percent of the
banks receive a satisfactory CRA rating, and thus the bill offers the
protection of the ``substantial, verifiable information'' standard to
nearly every institution in the country. Admittedly, I would prefer to
see the integrity provision deal only with ``outstanding'' banks.
Unfortunately, the procedural situation did not permit an opportunity
to make such a change.
Turning to the small bank exemption, only one financial institution
in my state fits the bill's description of a small, rural bank.
Nevertheless, I'm sympathetic to the hundreds of tiny banks across the
country--institutions with only a handful of employees--that face a
daunting, expensive regulatory burden in terms of CRA recordkeeping. In
addition, I found particularly persuasive Senator Gramm's observation
that of the 16,380 audits of these small, rural banks in the past nine
years, only three have been found to be substantially out of
compliance.
I fully recognize the important role CRA has played in expanding the
availability of credit in Rhode Island and across the nation. Small
business owners, homebuyers, and renters alike have benefitted from the
pressure CRA exerts on banks to make loans in neighborhoods they might
otherwise overlook. At the end of the day, however, I determined that
Senator Gramm's proposed CRA reforms had some merit to them. For these
reasons, I voted against the Bryan amendment.
Mr. MOYNIHAN. Mr. President, we have been debating the subject of
banking in the Senate since the 18th century. We began to ask ourselves
a question, could we have a national bank, which Mr. Hamilton, of New
York, thought we could do and should do. We created one. It had a very
brief tenure. It went out of existence just in time that the Federal
Government had no financial resources for the War of 1812. So it was
reinstituted, as I recall, in 1816 for 20 years, and went out of
existence just in time for the panic of 1837. We went through
greenbacks. There must have been a wampum period. We went to gold
coinage. Then a free coinage of silver dominated our politics for
almost two decades, as farmers sought liquidity and availability of
credit. Finally, at the end of the century of exhaustive debate, we
more or less gave up and adopted what we now call the Federal Reserve
System.
To say we debated this matter for a century is certainly true. In the
past few years, we have turned our focus to the nonbank bank. You are
really reaching for obscurity when you define an issue as we have done,
and yet that seems to be the term with which we have to deal.
The issue of the nonbank banks, also referred to as financial
modernization, is facing the Senate today. As we consider Chairman Phil
Gramm's (R-TX) bill I would like to make two points. The first being
that we need financial modernization, that depression era banking laws
need to be amended. We all agree on that. The second point that I would
like to make is that we must do this in a prudent manner--preserve the
things which need to be preserved, and remedy the things which need to
be remedied.
It strikes me as odd that most corporations are free to engage in any
lawful business. Banks, by contrast, are limited to the business of
banking. It is generally agreed that the Glass-Steagall Act of 1933 and
the Bank Holding Company Act of 1956 need to be

[[Page S4869]]

amended. Banks, security firms, and insurance companies should be
allowed to offer each other's services. They already do by finding
loopholes in the law. Congress must catch up, and pass a law that
condones this activity. London does it. Tokyo too. Why not New York,
which, if I may say, is one of the world's banking capitals?
This is a real problem for the existing banks which find themselves
under serious constraints they have lived with under depression-era
banking laws. Suddenly, they find that their activities are encroached
upon and they are not able to do things that they ought to do, that
they are going to need to do, if they are going to survive in a
competitive world economy.
Now is the time to modernize our financial institutions. But the bill
before us has certain problems. The most serious of which is that it
weakens the Community Reinvestment Act. The CRA, enacted in 1977, has
played a critical role in revitalizing low and moderate income
communities. New York has benefited from this. A Times editorial states
that ``in New York City's South Bronx neighborhood, the money has
turned burned-out areas into havens for affordable homes and a new
middle class. The banks earn less on community-based loans than on
corporate business. But the most civic-minded banks have accepted this
reduced revenue as a cost of doing business--and as a reasonable
sacrifice for keeping the surrounding communities strong.''
It is for this reason that I cannot support Chairman Gramm's bill. I
voted for the Democratic substitute which was offered by Senator
Sarbanes. This bill too amends Glass-Steagall and the Bank Holding
Company Act. But it preserves the CRA. I want financial modernization
as much as the next person. But we cannot do it at the detriment of the
CRA.
I ask unanimous consent that the New York Times editorial from March
17, 1999 be printed in the Record.
There being no objection, the editorial was ordered to be printed in
the Record, as follows:

[The New York Times, Wednesday, March 17, 1999]

Mischief From Mr. Gramm

Cities that were in drastic decline 20 years ago are
experiencing rebirth, thanks to new homeowners who are
transforming neighborhoods of transients into places where
families have a stake in what happens. The renaissance is due
in part to the Federal Community Reinvestment Act, which
requires banks to reinvest actively in depressed and minority
areas that were historically written off. Senator Phil Gramm
of Texas now wants to weaken the Reinvestment Act,
encouraging a return to the bad old days, when banks took
everyone's deposits but lent them only to the affluent.
Sensible members of Congress need to keep the measure intact.
The act was passed in 1977. Until then, prospective home or
business owners in many communities had little chance of
landing loans even from banks where they kept money on
deposit. But according to the National Community Reinvestment
Coalition, banks have committed more than $1 trillion to
once-neglected neighborhoods since the act was passed, the
vast majority of it in the last six years.
In New York City's South Bronx neighborhood, the money has
turned burned-out areas into havens for affordable homes and
a new middle class. The banks earn less on community-based
loans than on corporate business. But the most civic-minded
banks have accepted this reduced revenue as a cost of doing
business--and as a reasonable sacrifice for keeping the
surrounding communities strong.
Federal bank examiners can block mergers or expansions for
banks that fail to achieve a satisfactory Community
Reinvestment Act rating. The Senate proposal that Mr. Gramm
supports would exempt banks with assets of less than $100
million from their obligations under the act. That would
include 65 percent of all banks. The Senate bill would also
dramatically curtail the community's right to expose what it
considers unfair practices. Without Federal pressure,
however, the amount of money flowing to poorer neighborhoods
would drop substantially, undermining the urban recovery.
Mr. Gramm argues that community groups are ``extorting''
money from banks in return for approval, and describes the
required paperwork as odious. But community organizations
that build affordable housing in Mr. Gramm's home state
heartily disagree. Mayor Ron Kirk of Dallas disagrees as
well, and told The Dallas Morning News that he welcomed the
opportunity to explain to Mr. Gramm that ``there is no
downside to investing in all parts of our community.''
In a perfect world, lending practices would be fair and the
Reinvestment Act would be unnecessary. But without Federal
pressure the country would return to the era of redlining,
when communities cut off from capital withered and died.

Mr. SANTORUM. Mr. President, I rise today in support of the Senate
Banking Committee's bill, the Financial Services Modernization Act of
1999, S. 900.
As a new member to Banking Committee, I am pleased to be part of the
Committee's effort to bring this bill to the floor. First, let me
commend the Chairman for his hard work and heavy-lifting in crafting a
bill that will frame the way financial activities are conducted as we
move into the next century. The Chairman began this effort during a
very busy and trying time for this body at the beginning of the 106th
Congress, and I appreciate his leadership in keeping the Committee
focused on our priorities and the work at hand.
Considering the scope of activities covered by a financial services
modernization bill, crafting a piece of legislation to update 60 year
old laws while allowing flexibility for forward-thinking products is a
Herculean task. At the heart of the bill is the matter of addressing
structure and regulation of financial services firms. Even a casual
observer has taken notice of the changing face of our domestic
financial sector over the past several months. While merger-mania has
dominated the news, other forces such as changing regulation, court
decisions, and market innovation have outpaced current law. And
although S. 900 is a work in progress, with accommodations to be made
by all interested parties, I believe the time is ripe to pass
legislation that allows for the affiliation among the various sectors
of the financial services industry. This legislation provides a
constructive framework to tackle the issue of financial services
modernization while also including appropriate safeguards.
As with most major legislative initiatives, this bill has not been
without controversy. Specifically, there has been an ongoing debate
about provisions in the bill pertaining to the Community Reinvestment
Act (CRA). As many know, the Community Reinvestment Act was enacted by
Congress in 1977 and required federally-insured banks and thrifts to
make loans in their service areas, including low- and moderate- income
communities, consistent with safe and sound banking practices.
Compliance with CRA requirements can encompass loans made for the
purposes of mortgage lending; business lending; consumer credit; and
community investments. The benefit of capital investment and financing
in such communities has strengthened parts of our nation that may not
have otherwise known their current prosperity. To date, CRA lending has
surpassed the $1 trillion mark for investment in low- and moderate-
income communities while private sector lending has increased 45% from
1993 to 1997. As I have heard from many community reinvestment groups
located throughout the Commonwealth of Pennsylvania, there has been one
very positive additional benefit that numbers can't quantify: the
relationships formed between members of the banking community and those
advocating on behalf of their neighborhoods and communities. These
working relationships now aim to meet the mutual goal of jumpstarting
the economic viability of urban and rural regions across the United
States.
For those very reasons, I chose not to support the amendment offered
during mark-up of S. 900 that would have exempted small, rural banks
with less than $100 million in assets from CRA requirements. I
certainly appreciate the very real concern of added regulatory and
paperwork burdens that banks assume to comply with this law. In fact,
reforms made in 1997 to the CRA recognized this very problem and
streamlined the examination process for small banks with less than $250
million in assets. However, I could not support a wholesale exemption
from this Act.
As the Chairman outlined from the beginning of the process of
developing a financial services modernization bill, the role of the CRA
will be further examined by the Committee in a separate forum. I
suspect that a thorough evaluation of CRA successes and shortcomings
will be addressed within the context of oversight hearings, and I look
forward to participating in that process. While CRA has made
significant contributions to the empowerment of marginalized
communities, I

[[Page S4870]]

believe we still need to find the right balance to ensure prosperity
for low- and moderate- income neighborhoods and the flexibility for
lenders to meet community needs.
Mr. President, while the future of this bill has been linked to the
resolution of certain issues, like the CRA, I believe the heart of the
debate, financial services modernization, is larger than partisanship.
The time has come to make commonsense reform of our nation's financial
structure a reality in order to remain the strong competitive force in
world markets that our country has so capably demonstrated.
Mr. REID. I rise before you today, not to complicate an already
controversial bill, but instead to try to accomplish what I have tried
to do through legislation in past years.
This is, to pass legislation requiring an independent audit of the
Federal Reserve System, as is standard in every other Government entity
in this country.
In fact, back in 1993, Senator Dorgan and I, requested a GAO
investigation of the operations and management of the Federal Reserve
System.
We were concerned because no close examination of the Fed's
operations had ever been conducted.
As you may recall Mr. President, we found out quite a bit about the
Federal Reserve.
We found, among other things, that the Fed has a `slush fund', or
what they refer to as a `rainy day fund,' that they have kept there for
over 80 years.
At the time of the GAO investigation, the Fed has squirreled away
$3.7 Billion in taxpayer money.
The last report that I have from January 1998, shows that this fund
has reached $5.2 billion.
You can bet that figure has gone up since then.
The Fed claims that this `slush fund' is needed to cover system
losses.
Since its creation in 1913, however, the Fed has never operated at a
loss.
The report that Senate Dorgan and I requested in 1993 also found that
the Interdistrict Transportation Service had been engaging in
questionable business activities.
These activities included the awarding of non-competitive contracts
for the implementation of Interdistrict Transportation Services, gifts
of payments for missing backup and grounded aircraft to nonperforming
contractors and a pattern of studied indifference by supervisors to
clear evidence of waste, fraud and abuse within its operations.
It was further troubling to find that the activities sanctioned by
the Federal Reserve supervisors, was intended to have the practical
effect of distorting marketplace behavior by competing unfairly against
private sector companies in the air courier business.
In what remains as the first and only independent comprehensive
review of the Federal Reserve System, the conclusions reached by the
GAO paints a dreary picture of internal Federal Reserve operations and
budgeting procedures.
This GAO report that I am referring to, makes a strong case for
increased Congressional oversight of the Federal Reserve System
operations that are unrelated to monetary policy.
Furthermore, only 1,600 out of nearly 25,000 Federal Reserve
employees deal with monetary policy.
I have a Wall Street Journal article and I ask unanimous consent it
be printed in the Record.
There being no objection, the article was ordered to be printed in
the Record, as follows:

[From The Wall Street Journal, Sept. 12, 1996]

Showing Its Age: Fed's Huge Empire, Set Up Years Ago, Is Costly and
Inefficient

it has far too many banks, often in wrong places; losses in check-
clearing

``post office problem'' looms

(By John R. Wilke)

Minneapolis.--Construction cranes rising above the
Mississippi River hoist the final stone blocks for the
elegant new Federal Reserve Bank headquarters here, the
latest monument to the U.S. central bank's immense wealth and
power.
The $100 million building site on nine acres of prime
riverfront, with a 10-story stone clock tower overlooking
terraces and gardens. It will offer fortress-like security
and robot-attended, automated vaults, plus an indoor pistol
range, a fitness center and subsidized dining. The Fed's
construction boom also includes the lavish new $168 million
Dallas Fed and a planned $178 million Atlanta Fed.
Located in a dozen cities--with branches in another 25--the
Fed's palatial banks suggest permanence and importance. They
operate with great independence far from the Fed's power
center in Washington and, with $451 billion of assets, are
staggeringly wealthy. Their job is to run the basic plumbing
of the nation's economy by monitoring local banks,
distributing currency, processing checks and settling
interbank payments.
But the plumbing at the Fed banks seems to be getting
rusty, despite their heavy spending. Rapid changes in
technology, consolidation in banking and rising competition
in some of their basic services threaten to make Fed banks
costly relics. Except for the New York Fed, the system's link
to world markets, many Fed functions could be centralized at
far less cost and some Fed banks could be closed, federal
auditors say.
``It's not about saving nickels and dimes,'' says James
Bothwell, a General Accounting Office auditor who recently
completed a two-year study of the Fed's books. ``There are
serious, long-term questions about their mission and
structure.''
The Fed's best-known mission--steering U.S. monetary policy
and thus charting the course of the economy--isn't at issue.
Even its critics hail the Fed's success in holding down
inflation.
What concerns some in Congress and its GAO watchdog agency
is the sprawling Fed empire, which reaches far beyond its
marble headquarters in Washington to maintain a presence in
most major American cities. The Fed has 25,000 employees,
runs its own air force of 47 Learjets and small cargo planes,
and has fleets of vehicles, including personal cars for 59
Fed bank managers. It publishes hundreds of reports on itself
each year--even Fed comic books on monetary policy for kids.
A full-time curator oversees its collection of paintings and
sculpture.
Yet Fed spending gets little public scrutiny, even as the
rest of the federal government struggles to tighten its belt.
That's because the Fed funds itself from the interest on its
vast trove of government securities acquired in its conduct
of monetary policy. Last year, it kept $2 billion of those
interest earnings for itself and returned the rest, $20
billion, to the Treasury. Thus, every dollar spent on a new
building in Minneapolis--or anything else--is a dollar that
could have been used to cut the federal deficit. Unlike every
other part of government, the Fed doesn't have to ask
Congress for money, and that's the key to its independence
from political interference on monetary-policy issues.
The Minneapolis Fed would seem a prime candidate for
downsizing. Its spending is in striking contrast to the
cutbacks and consolidations at many of the commercial banks
it serves; only two major banks are left in its six-state
district. And its biggest job, processing and clearing checks
for local banks, is under increasing pressure from private
competitors and new electronic payment technologies.
Without check-clearing, the Minneapolis Fed might not need
its costly new building and the hundreds of employees who
work three shifts shuffling checks. It could eliminate huge
overhead costs and focus on distributing U.S. currency and
monitoring the local economy.
The basic structure of the Federal Reserve System has
changed little since it was created in 1913, despite huge
shifts in the nation's population and economy. Back then, Fed
banks were sited according to the politics of the day and the
quaint principle that a commercial banker should be able to
reach a Fed branch within one-day train ride, in case he
needed cash for unexpected withdrawals.
Today, these locations make little sense. Missouri, once an
economic and political power because of its riverboat
economy, has two Fed banks; booming Florida has none.
California and its vast economy have only one Fed bank--which
also serves eight other states and covers 20% of the U.S.
population. Yet when Fed policy makers meet in Washington,
the San Francisco Fed president can vote only one year of
three, less often than the presidents from Cleveland or
Chicago.
``It reflects the economy and politics of a long time
ago,'' says Robert Parry, the San Francisco Fed's president.
``If you were doing it today, you'd do it differently.''
Michael Belongia, a University of Mississippi professor and
former Fed economist, says that three Fed banks and 16
branches could be closed and that four other banks could be
downsized to branches. He calculates the savings at $500
million a year, even without trimming back the check-clearing
businesses.
``The taxpayer pays billions of dollars for this monolithic
system that isn't efficient anymore,'' he says.
Fed Chairman Alan Greenspan rejects many GAO findings,
especially the idea of closing some Fed banks. He says it
would take years to recoup the cost of closing one. ``We're
strongly committed to ensuring that the Federal Reserve
System is managed efficiently and effectively,'' he said in
recent congressional testimony. Most important, he defends
the Fed banks' independence as crucial to keeping the Fed
free of political interference and aware of regional economic
conditions.
Yet he has expressed some misgivings about Fed spending.
With the new Dallas building, for example, he said, ``My
first reaction was, `For God's sake, why do you have to build
a new building'? Dallas is in a state of commercial real-
estate recession. You

[[Page S4871]]

should be able to pick and choose at zero cost. But he added
that he was ultimately persuaded that no existing building
met the bank's special needs.
The Fed banks are even less accountable to Congress than
the Fed Board of Governors in Washington, whose seven members
are appointed by the president and confirmed by the Senate.
The 12 Fed bank presidents, by contrast, are chosen by their
private-sector boards, though their annual budgets and
building plans are subject to review by the governors in
Washington. Congress has no say over who runs the regional
banks, despite their important role in running the nation's
monetary system.
Congress doesn't even set the regional presidents'
salaries. The Minneapolis president gets $195,000 a year, and
others range as high as $229,000, far exceeding Chairman
Greenspan's $133,100.
Even so, only 1,600 Fed employees, including a stable of
economists and statisticians, work on monetary policy. Most
of the rest, and the lion's share of the Fed's $2 billion
budget, go to the Fed banks' check-clearing and other
services--the jobs under the most pressure from competitors
and changes in banking. The Fed banks also process Treasury
checks, but a new law mandating electronic distribution will
eliminate 400 million Treasury checks annually in three
years.
As their workload dwindles, Fed banks could be left with
what insiders delicately term ``the Post Office problem'':
They will be handling checks for mostly small, high-cost
customers such as rural banks. Already, less than 25% of Fed
customers create 95% of check volume. So, the Fed is
vulnerable as major banks begin processing more checks
through private clearinghouses or other cheaper alternatives,
such as Visa International.
At the Minneapolis Fed, check-clearing already resembles
the work inside the city's main Post Office nearby. Every
day, trucks back up to the Fed's loading dock and drop off
pallets of checks. Workers feed them into 25-foot-long
automated sorters, and the checks, guided by codes
identifying the paying bank, cascade into pouches. Lately,
many of the tens of thousands of checks have been small--$2
razor-blade rebates and $4.69 drafts cashed by Huggies diaper
customers. Minneapolis handles three million checks a day--a
low-margin, labor-intensive business, not unlike delivering
the mail.
In most countries, private companies or banks handle check-
processing, with central banks playing a supervisory role to
ensure the payment system is sound. In the U.S., new players
ranging from Microsoft Corp. to Merrill Lynch & Co. are
racing to offer electronic alternatives to bank-based payment
systems, and some bankers fear the Fed's dominance will
impede innovation and leave them behind.
Lee Hoskins, who once ran the Cleveland Fed and now heads
Ohio's Huntington National Bank, says the Fed should get out
of check-clearing. ``The central bank no longer has a
legitimate role as a provider of payment services,'' he says.
Huntington helped start the National Clearinghouse
Association, which includes most large U.S. banks and has
begun competing head-on with the Fed at lower prices. The Fed
is fighting back with a new, lower-priced national check-
sorting service and has cut prices in some cities where it is
losing market share. As the Fed's volumes have declined, Fed
officials concede, its check-clearing failed to cover costs
two years ago and fell short again last year. But they say it
turned the corner in the first half of 1996.
Despite its problems, the Fed is a tough competitor and has
continued investing in check-clearing and other services. It
changed the formula used to figure whether or not it is
making a profit and made unusual transfers, including some
$36 million a year from an overfunded pension plan, into the
check business, federal auditors say. It also let at least
one Fed bank defer the huge cost of a new computer system so
the outlay wouldn't be included in profit calculations,
effectively understating the cost of clearing checks.
The Fed has also squeezed smaller firms that haul bank
checks in competition with the Fed's own transport service,
which flies pouches of checks overnight from bank to bank. It
tried to force an aggressive rival, the U.S. Check unit of
AirNet Systems Inc., of Columbus, Ohio, from the Florida
market by providing its own contractor with subsidized jet
fuel, according to documents and depositions collected by
Rep. Henry Gonzalez. The Texas Democrat, a longtime Fed
critic, says the Fed also subsidizes its higher costs by
putting other cargo, such as its own interoffice mail, on its
planes, and charging Fed banks for the service.
``I'm not saying they are competing unfairly, but I'd like
to know how they cut prices when they're losing money,'' says
Andy Linck, administrator at the National Clearinghouse.
Under a 1980 law, the Fed is supposed to price services by
commercial standards, but its rivals are reluctant to
complain. ``We're forced to compete with our own regulator,''
says an executive of a major Western bank with a big check
business. ``They can make life pretty difficult for us if we
make trouble.''
Fed officials say they play by the rules and use
appropriate bookkeeping.
``We're competing fairly--and we're doing it with one arm
tied behind our backs,'' says Ted Umhoefer, a check-clearing
manager at the Minneapolis Fed. ``I have to charge the same
price to the Citizen's State Bank of Pembina, North
Dakota, that I charge to them,'' he says, waving toward a
big commercial bank in a nearby skyscraper. ``Yet my
counterparts in the private sector can cut volume deals
with other big banks, leaving us with all the junk they
can't make money on.''
In Washington, Fed officials reject the suggestion they
should leave check-clearing to private companies. ``That's
how the Fed banks make their living,'' says Edward Kelley,
the Fed governor who oversees many Fed bank activities and is
leading an effort to improve planning and efficiency. ``We'll
be in that business until checks disappear or the Congress
takes us out of it.'' The Fed grosses nearly $800 million a
year from check-clearing and bank services.
Until recently, Chairman Greenspan spent almost all his
time on monetary policy and rarely focused on Fed operations.
But in recent testimony before Congress, he said he is now
``actively reviewing the appropriate infrastructure for
providing certain financial services, taking into
consideration both cost efficiency and service quality.'' He
said that although he believes the Fed should have a
continuing role in the payments system to ensure its
integrity--particularly the wholesale cash-transfer system
known as Fedwire, which handles $1.5 trillion a day--he
hinted for the first time that the Fed might privatize or
downsize its retail check business.
``It is quite possible, if not likely, that as changes
occur in the financial services marketplace . . . our role in
providing other services such as check collection may
change.'' But he said something will have to be done to
ensure that small banks have access to check services
``because I don't think that they believe they're going to be
able to pay the prices (they) will be forced to pay by the
market.'' He said Congress may be asked to subsidize these
small-bank services so that bank customers in small towns
don't have to pay higher check fees.
Officials say the Fed banks already are taking steps to
scale back check-clearing and have cut 600 jobs at various
locations. But Fed critics contend that the institution is
unlikely to undertake the fundamental reform they say is
needed because it could require thousands of layoffs--and the
loss of substantial prestige.
Prestige seemed important in Minneapolis when Fed officials
decided to abandon their grand looking but poorly designed
downtown tower. They considered moving to a cheaper, more
convenient site by the airport, but that idea was dropped
after it raised eyebrows at the Fed in Washington. ``What
would we have called it, the Federal Reserve Bank of Eagan,
Minnesota?'' one official asks. ``The location is written
into the law, and changing it would have required an act of
Congress.''
Indeed, that may be what the Fed fears most. ``Do we really
want to have 435 congressmen tinkering with what is supposed
to be an independent institution?'' asks Ernest Patrikis,
first vice president of the New York Fed. Arthur Rolnick,
research director at the Minneapolis Fed, says Congress
``didn't have economic efficiency in mind when it created the
Fed.'' Above all, he says they wanted a decentralized
institution, independent of both big banks and politicians.
``I wouldn't be surprised if a hard look at the system
shows that some of Fed branches should be closed,'' Mr.
Rolnick adds. ``The market has changed, and the technology
has changed. . . . [But] do we really want to fool around
with the Fed's independence just to save a few hundred
million dollars a year?''

Mr. REID. In this article, it states that the rest of these 25,000
employees deal with the Federal banks' check-clearing and other
services.
Also cited in this article is another example of extreme waste by the
Federal Reserve--that is, that the Federal Reserve has a fleet of 47
Learjets and small cargo planes.
Furthermore, the Fed publishes hundreds of reports on itself each
year that includes something that strikes me as an absurd waste of
funds--the Fed publishes a comic book for children on monetary policy--
now, Mr. President, I know that we have advanced children in this
country, and I'd like to think of my grandchildren as being part of
that group, but I don't know many children that have an interest in the
Federal Reserve's monetary policy, nor do I know any that would
understand it.
Mr. President, this amendment, in requiring a yearly audit, would
help ensure, to the American taxpayers, and my constituency in Nevada,
that the Federal Reserve is run more efficient and responsibly.
This amendment intentionally leaves monetary policy to Chairman
Greenspan and his team.
It is my belief that the economy is great and that Chairman Greenspan
is doing a great job.
In fact, many would say that our economy has never been better, which
brings to mind the saying ``if it ain't broke, don't fix it.''
Well, Mr. President, while the economy is not broken, much of the
inner workings of the Federal Reserve is, and I, along with many
others, intend to fix it.

[[Page S4872]]

Again, I want to make it very clear--I do not rise before this body
today to meddle with monetary policy.
I am not attempting to interfere with, or impugn, the monetary policy
of the Fed.
I am seeking greater accountability in the operating expenses and
internal management of one of our more influential institutions.
This amendment simply requires a yearly audit that covers the
operations of each Federal Reserve bank, the Federal Reserve Board of
Governors, and the Federal Reserve System in the form of a consolidated
audit.
As my good friend and colleague Senator Bennett pointed out to me
last night, an audit of each of the 12 regional reserve banks is
conducted now--however, these audits are not conducted in accordance
with generally accepted accounting principles.
For the audits that take place now, the accounting information is
given to the auditor by the regional bank staff and the banks basically
say, ``accept our figures, that's all you get.''
In short, this amendment requires the Fed to use an independent
auditor and for that auditor to use generally accepted accounting
practices.
This amendment also requires that the report be made available to
Congress, in particular the Committee on Governmental Affairs in this
body and the Committee on Governmental Reform in the House of
Representatives.
I believe that the Federal Reserve could do more to increase its cost
consciousness and to operate as efficiently as possible.
This amendment will be one step closer to that end.
I encourage all Senators to support this amendment and to show our
bosses, the American taxpayers, that we are looking out for them by
ensuring accountability at the Federal Reserve.
Mr. DODD. Mr. President, I congratulate Chairman Gramm for the
fairness in which these proceedings have been held, and my colleague
from Maryland, Senator Sarbanes should also be commended for his
leadership.
We will soon vote on final passage of S. 900, the Financial Services
Modernization Act. I will, unfortunately, be unable to support what I
believe in many ways is a very good product.
I am a strong supporter of financial modernization. If the anti-CRA
provisions were corrected, I would help to lead the charge in
supporting this bill. There are important differences of opinion on
various facets of this legislation. We have had good debates on many of
these facets.
Although I did not support the amendment offered by Senator Johnson
to restrict the transferability of unitary thrifts, He should be
congratulated for his fine work on the amendment. It is an important
issue that I am sure that we will revisit in conference.
The chairman earlier today staked his support of this bill on the
outcome of the operating subsidiary amendment which was narrowly
defeated. I admire the stand he took and the conviction with which he
made his arguments. He should be congratulated for prevailing on his
point of view.
I would also like commend Chairman Gramm for broaching one of the
most critical issues that Americans face as we approach the dawning of
the new millennium, and that is the steady erosion of the privacy of
consumers' personal, sensitive financial information. Although I
supported the chairman's amendment that addresses the subject of
pretext calling, I believe that it simply does not go far enough.
Several factors have contributed to the erosion of financial privacy.
We must examine each of these factors in order to craft legislation
that will protect financial privacy in a meaningful, effective way.
Although advances in technology have produced many positive results
and benefits for our economy over the years, one of the potential
drawbacks has been that they have also facilitated the collection and
retrieval of a vast amount and array of citizens' financial
information. That personal information has become a very valuable
commodity and is being sold and traded among businesses all over the
world.
In addition, the formation of new, diversified business affiliations
has allowed companies quick access to personal data on each other's
customers. Financial modernization legislation, if it becomes law, will
only make it easier for companies to share their customers' personal
data.
Much of the data ``mining''--searching, collecting, and sorting--and
actual use of that personal data is nearly imperceptible to the
consumers whose very own information is being conveyed. Companies do
not generally tell their customers about the personal data they obtain
and they sell or rent.
Current Federal law permits bank affiliates to share information from
credit reports and loan applications as long as the customer gets one
opportunity to notify the bank not to disclose the information. Most
consumers are unaware of this opportunity because the one notice that
the company gives them is buried in the fine print in lengthy materials
mailed to the customer that most never read.
An even more critical factor causing the erosion of privacy rights is
that no current federal law prevents banks from disclosing
``transaction and experience data,'' which includes customers account
balances, maturity dates of CDs, and loan payment history.
This erosion of the privacy of our most personal, sensitive financial
information can and must be stopped. And we must take action to stop
it.
We should have hearings to address these issues so that we may take a
very careful look at all of the factors involved, so that we may
address them in a careful, thoughtful and meaningful way. I was pleased
to hear Chairman Gramm this morning commit to holding such hearings in
the Senate Banking Committee.
I am a coauthor of Senator Sarbanes' Financial Information Privacy
Act, S. 187, introduced this Congress. This important legislation would
require banks and securities firms to protect the privacy of their
customers' financial records: their bank account balances, transactions
involving their stocks and mutual funds, and payouts on their insurance
policies. Customers would be given the important opportunity to prevent
banks and securities firms from disclosing or selling this information
to affiliates. Before banks or securities firms could disclose or sell
the information to third parties, they would be required to give notice
to the customer and obtain the express written permission of the
customer before making any such disclosure.
I look forward to working with Senator Gramm and Senator Sarbanes on
this important issue.
But like my good friend from Texas did for me earlier today, I would
like to make something very clear to him--I will not support any bill
that weakens the Community Reinvestment Act. Also, I will promise him
that no bill that weakens CRA will become law. If we do pass this bill
out of this body, let me assure you that as hard as I will fight for
financial services modernization, I will fight even harder for
preserving CRA.
I know how strongly the chairman feels against the CRA. Let me tell
him, that if it is possible, I feel even stronger about preserving the
CRA.
I urge my colleagues to reject any and all legislation that fails to
preserve CRA.

blue cross/blue shield of north carolina

Mr. EDWARDS. Mr. President, I have a particular situation in my State
of North Carolina that I want to make sure is not going to be affected
by some of the insurance language in this bill.
A few years ago, Blue Cross/Blue Shield of North Carolina was
considering converting from non-profit status to for profit. The North
Carolina legislature looked into the plan, and decided that if Blue
Cross were to convert to for-profit, it should be required to set up a
charitable foundation as part of the process. It did so in order to
make sure that funding for medical expenses would be available to many
North Carolinians who had benefited from the services of the non-profit
Blue Cross. During the Banking Committee's consideration of the bill, I
was concerned that the earlier insurance language would have preempted
the North Carolina law if a bank wanted to affiliate or purchase Blue
Cross after the conversion.
As a result of the Senator's amendment during the committee markup,
the insurance language in the bill now is quite different. But I want
to make sure that my concern about the Blue Cross/Blue Shield of North
Carolina conversion law is addressed by the new language in S. 900.

[[Page S4873]]

Mr. BRYAN. Mr. President, I believe the situation the Senator
describes would fall under Section 104(c)(2) of the bill. That language
allows states to take action on required applications or other
documents concerning proposed changes in or control of a company that
sells insurance, unless the action has the practical effect of
discriminating against an insured depository institution.
The concern the Senator voiced is one of the situations we envisioned
when we made the changes from the earlier text, and it is my intent
that the current language would protect the North Carolina state law on
the Blue Cross/Blue Shield of North Carolina conversion agreement.

low-income housing

Mr. JEFFORDS. Mr. President, I thank Senator Gramm for allowing me to
discuss an important issue that is quickly becoming a serious national
problem--American families, elderly and disabled are increasingly
unable to afford, or continue to live in, privately-owned housing
units.
Several recent studies have shown that low-income housing
opportunities are on the decline nationwide. In Vermont, rents for
housing have increased 11 percent in three years, making it
increasingly difficult to find affordable shelter. The need to also
expand the number of housing units for low-income families is critical
as the vacancy rate in areas such as Burlington has fallen to less than
one percent. On any given day there are only 60 available rental units
in a city of over 40,000 people, making it simply impossible to find a
place to live, much less one that is affordable. Such problems are
reflected in increased rates of homelessness, as the number of families
seeking help from Burlington's emergency shelter rose from 161 in 1997
to 269 in 1998. Even though additional Section 8 federal subsidies will
be available next year, the 800 Vermonters on the Section 8 waiting
list would be hard pressed to find somewhere to use this voucher should
they receive one.
Fewer opportunities for affordable housing are also due to inadequate
maintenance. Vermont and the nation desperately need legislation that
increases new low-income housing opportunities--whether through new
housing construction, rehabilitation of existing housing, additional
incentives to keep landlords in the Section 8 market, and expansion of
existing tax incentives such as the Private Activity Bond Cap and the
Low-Income Housing Tax Credit.
Mr. GRAMM. I thank the Senator from Vermont for his thoughtful
remarks. As Chairman of the Committee on Banking, Housing and urban
Affairs, which has jurisdiction over federal housing programs, I very
much appreciate the Senator's strong interest in affordable housing.
I commend Senator Jeffords for bringing to our attention housing
conditions which are national in scope and affect rural and urban areas
alike. It is very important that we protect our nation's vulnerable
populations, particularly the elderly and disabled living on fixed
incomes. It is also extremely important that we preserve the American
taxpayer's existing investment in affordable housing. Congress must
seek to preserve our existing housing stock and protect current
residents first.
Mr. JEFFORDS. Mr. President, I am developing legislation that will
help preserve existing low-income housing stock, promote the
development of new affordable housing, and increase opportunities for
the purchase of housing projects by resident councils through a dollar-
for-dollar matching grant program. My bill will establish a grant
program for states to promote cooperation and partnership among
Federal, State and local governments, as well as between the private
sector in developing, maintaining, rehabilitating, and operating
affordable housing for low-income Americans. These types of initiatives
are critical components to meet the growing needs of low-income housing
in Vermont and the nation.
While the State of Vermont has largely avoided an overwhelming
dislocation of tenants from opt-outs and mortgage prepayments, it is
unable to accommodate the hundreds of families that seek new federally
subsidized housing opportunities in the State. Reform efforts must
focus both on preservation of existing federally subsidized housing
units, as well as the creation of new opportunities for families
seeking an affordable place to live.
Mr. GRAMM. Mr. President, I applaud Senator Jeffords for stepping
forward with legislation to address affordable rental housing needs. It
is my understanding that the bill which he plans to introduce will
present several options for approaching solutions to complex housing
problems.
I pledge to work with the Senator from Vermont, Housing and
Transportation Subcommittee Chairman Allard, and Members of the Senate
and House to craft comprehensive solutions to our nation's housing
ills. It is imperative that any legislative solutions be fiscally
responsible.
Mr. ALLARD. I would like to reiterate Senator Gramm's remarks and
thank Senator Jeffords for his interest and insights. As chairman of
the Subcommittee on Housing and Transportation, I plan to hold a
hearing to examine the need for preservation of affordable rental
housing. Specifically, I will focus on the Department of Housing and
Urban Development (HUD) Section 8 program with particular attention to
prepayment and opt-out issues. I also plan oversight of HUD's
implementation of the Multifamily Assisted Housing Reform and
Affordability Act.
I would like to invite Senator Jeffords to testify at this hearing. I
share many of his concerns and appreciate his willingness to work with
me on these important issues.
Mr. GRAMM. I thank Senator Allard for his diligence and effectiveness
as Subcommittee Chairman. The Subcommittee Chairman and I both welcome
Senator jeffords' willingness to be a leader for affordable rental
housing and look forward to working with him throughout the legislative
process.
Mr. JEFFORDS. Mr. President, I look forward to working with the
chairmen of the Banking Committee and the Housing Subcommittee to
address this growing problem. I thank Senator Gramm and Senator Allard
for their kind remarks and I appreciate the opportunity to discuss this
issue on the floor today.
Mr. GRAMM. Mr. President, we now have one outstanding matter. We are
looking at several amendments. I urge staff to get together on these.
Senator Levin is trying to work out his language right now.
I would prefer to go ahead and pass the bill tonight rather than put
it off. We are going to try to do it quickly. But I hope we don't lose
so many people that we would end up not passing the bill. I guess we
could move to reconsider and bring it back. But I urge my colleagues
with outstanding matters to move quickly. I am going to be here all
night. I would be willing to stay here and talk to anybody. A lot of
people want and need to leave, but I am not going anywhere. So I am not
asking you to accommodate me but to accommodate both our Democrat and
Republican colleagues. Please give me your language in the next few
minutes so we can move ahead and pass the bill.
Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. GRAMM. Mr. President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. GRAMM. Mr. President, let me yield to our distinguished colleague
from Michigan.
The PRESIDING OFFICER. The Senator from Michigan.
Mr. LEVIN. Mr. President, in a moment I am going to send an amendment
to the desk. But I want to explain exactly the reason for this
amendment.
A couple of days ago, I wrote to the Securities and Exchange
Commission and asked them what their reaction was to the bill as
drafted in terms of protecting investors. The answer that I got back
from Arthur Levitt dated May 5 is that the provisions of the bill raise
serious concerns about investors' protection, and, if adopted, could
hamper the Commission's effective oversight of U.S. security markets.
The letter also indicated that:

A loophole exempting bank trust activities from Federal
securities laws would, therefore, seriously weaken the
commission's ability to protect investors.

And:

Adoption of the bank trust exemption in S. 900, in addition
to other securities provisions

[[Page S4874]]

in the bill, would undermine the important investor
protections that make our markets the most transparent, most
liquid in the world. It is for these reasons that the
commission strongly opposes the bill.

Mr. President, I ask unanimous consent that the letter from Mr.
Levitt be printed in the Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:

Securities and Exchange Commission,

Washington, DC, May 5, 1999.
Hon. Carl Levin,
U.S. Senate,
Washington, DC.
Dear Senator Levin: Thank you for your letter of May 4
requesting the SEC's analysis of provisions in S. 900 related
to bank trust activities. As currently drafted, these
provisions raise serious concerns about investor protection,
and, if adopted, could hamper the Commission's effective
oversight of U.S. securities markets.
The bank trust activities provisions in S. 900 would permit
banks to act as ``fiduciaries'' without being covered by
Federal securities laws. Virtually all bank securities
activities will be able to be labeled ``fiduciary'' under the
bill, and banks will be able to charge commissions for those
securities transactions without being subject to SEC
regulation. Under S. 900, a bank and its personnel could have
economic incentives--a so-called ``salesman's stake''--in a
customer account, without being subject to the strict
suitability, best execution, sales practices, supervision,
and accountability requirements under Federal securities
laws. Fiduciary law also varies by state, and, in many cases,
permits investor protections to be lessened, if not
eliminated entirely, by contractual provisions. In addition,
while broker-dealers are also ``fiduciaries,'' Congress has
determined that securities laws should apply to them to
provide customers with full investor protections. A loophole
exempting bank trust activities from Federal securities laws
would therefore seriously weaken the Commission's ability to
protect investors.
My main concern with any financial modernization bill is
the consistent regulation of securities activities,
regardless of where they occur. Adoption of the bank trust
exemption in S. 900, in addition to other securities
provisions in the bill, would undermine the important
investor protections that make our markets the most
transparent, most liquid in the world. It is for these
reasons that the Commission strongly opposes this bill.
Moreover, as I have testified, the securities provisions in
all of the bills currently under consideration in both the
House and the Senate have been so diluted that the Commission
opposes all of them. I appreciate your continued interest in
financial modernization legislation and look forward to
working with you as the bill moves forward.
Sincerely,
Arthur Levitt,
Chairman.

Mr. LEVIN. Mr. President, I also received a letter from the North
American Securities Administrators Association. This is the association
that was organized in 1919, and consists of the 50 States' securities
agencies that are responsible to protect investors.
The letter from the North American Securities Administrators
Association indicates very strong problems with this bill, because, in
its words, sections 501 and 502 would allow the bank to act as an
investment adviser if the bank receives a fee, and ``as currently
drafted, despite the claim that S. 900 would facilitate functional
regulation of the securities activity in banks, banks will remain
largely exempt from regulation as either a broker or dealer under the
Securities and Exchange Act of 1934.''
This is very, very troubling. This is a very big issue, because it is
stated in the report which accompanies the bill that the bill generally
adheres to the principle of functional regulation, which holds that
similar activities should be regulated by the same regulator, and that
the bill is intended to ensure that banking activities are regulated by
bank regulators, securities activities are regulated by securities
regulators, and insurance activities are regulated by insurance
regulators.
The report that accompanies the bill indicates that the intent is to
adhere to the principle of functional regulation, which would mean that
securities regulators would indeed regulate securities transactions,
but the securities regulators write us that that is not what the bill
does because of the way in which the exemption is drafted in the bill;
that in effect all purchases and sales of stock by banks could be run
through a trust department and be exempt from the Securities and
Exchange Commission protection and from local regulations.
That is a major problem with the bill. When you are a securities
regulator, and when the people who are there intending to protect the
public who are buying stocks indicate strong opposition to the bill
based on that, it seems to me that some alarm bells ought to be going
off in this Chamber.
Mr. President, I ask unanimous consent that the letter from the North
American Securities Administrators Association be printed in the
Record.
There being no objection, the letter was ordered to be printed in the
Record, as follows:

North American Securities

Administrators Association, Inc.,

Washington, DC, May 5, 1999.
Hon. Carl Levin,
Washington, DC.
Dear Senator Levin: Thank you for requesting the views of
the North American Securities Administrators Association
(``NASAA'') on proposed Sections 501 and 502 of S. 900, the
Financial Services Modernization Act, and specifically, the
extent to which these bill provisions would exempt bank
securities transactions from state securities regulation and
oversight.
Cumulatively, the above-referenced provisions, in
conjunction with the proposed repeal of the Glass Steagall
Act, would permit banks to offer and sell securities on bank
premises through bank employees almost exclusively outside of
the purview of federal or state securities regulations. As
you have correctly pointed out, Section 502 of the bill
proposes to exempt from the definition of securities
``dealer'' activities of a bank generally involving the
buying or selling of securities for investment purposes in a
fiduciary capacity. The bill goes on to define ``fiduciary
capacity'' to include wide-ranging activities that far exceed
activities performed under the common law concept of
``fiduciary duty'' traditionally tied to persons acting as
trustees. Specifically, in Sections 501 and 502, the term
``fiduciary capacity'' is defined to permit, among other
things, a bank to act as ``an investment adviser if the bank
receives a fee for its investment advice or services.'' A
similar exemption exists from the definition of ``broker.''
Thus, as currently drafted, despite the claim that S. 900
would facilitate functional regulation of the securities
activities of banks, banks will remain largely exempt from
regulation as either a broker or dealer under the Securities
Exchange Act of 1934. In fact, banks will be permitted to
conduct ongoing and unlimited investment advisory activities
well outside traditional trust department activities, yet
will continue to be excluded from regulation as an
``investment adviser'' under the Investment Advisers Act of
1940. Banks would no longer need to establish separate
investment advisory affiliates or subsidiaries and would
perform such activities in-house.
S. 900 purports to implement and foster functional
regulation of banks engaging in securities activities. The
reality is that given the breadth of the trust activities
exception, there will not be any such activities to
functionally regulate. The exception is so broad that all the
securities activities in which a bank may wish to engage
could be classified as ``trust activities,'' so that the
exception would consume the rule. Securities regulators would
have nothing to regulate. The ``trust activities'' exception
should be limited to those traditional banking activities by
a trustee involving fiduciary duty and nothing more. Retail
securities business should be conducted by and through
registered licensed broker-dealers, investment advisers and
their representatives regulated by state and federal
securities regulators.
Thank you for your consideration of this very important
matter.
Respectfully,
Philip A. Feigin,
Executive Director.

Mr. LEVIN. Mr. President, I ask unanimous consent that the testimony
of the Secretary of Treasury Rubin before a House commerce subcommittee
be printed in the Record.
There being no objection, the material was ordered to be printed in
the Record, as follows:

Excerpted Testimony of Treasury Secretary Robert Rubin Before House
Commerce Subcommittee, May 5, 1995

Representative Diana DeGette. [I]n your prepared testimony
you say that you continue to believe that any financial
modernization bill must have adequate protections for
consumers, and you point out that you are hoping that this
committee will add additional protections over the bill that
came out of the Banking Committee. Are you talking
specifically there about the Federal Home Loan bank system
and the other issue on affiliations between commercial firms
and savings associations, or are there additional consumer
protections you would like to see?
Secretary Rubin. I was referring there primarily to trying
to work with the SEC in order to better enable them to
perform their function of regulation. Look, the SEC has
concerns, and I think they're well taken.
Representative DeGette. Me, too.
Secretary Rubin. I think they're well taken. As you know,
this bill was designed to eliminate the exemption from the
SEC of these various securities activities they conduct in
banks at the same time. Then there are all sorts of
exceptions to the exemptions. And the exceptions to the
exemptions--(laughs)--could be read so broadly as to
reestablish the exemption. And that's a concern

[[Page S4875]]

the SEC has. We share that concern, and what we'd like to do,
if there's a way that it can practically be done, is to work
with the SEC on these issues. And that was my primary
reference.

Mr. LEVIN. Mr. President, Senator Schumer is a cosponsor of an
amendment which I am now offering which reads as follows. It is fairly
short. I simply want to read this amendment. Then I will send it to the
desk.
The amendment has now been accepted by the manager of the bill. I
think it will help somewhat to allay some concerns in this area. But
the critical issue is what will come out of conference. That, of
course, we don't know. But this is the language of the amendment, which
I will be sending to the desk on my behalf and on behalf of Senator
Schumer.

It is the intention of this act, subject to carefully
defined exceptions which do not undermine the dominant
principle of functional regulation, to ensure that securities
transactions affected by a bank are regulated by securities
regulators notwithstanding any other provision of this act.

The intention is to keep the principle that securities transactions
will be regulated by securities regulators, and acknowledges that there
could be some carefully drafted exceptions which do not undermine the
dominant principle.
That, it seems to me, would be an improvement in this area.
I want to again thank my friend from Texas for looking at this
language, indicating that it would be acceptable to him, and then, of
course, the proof of the pudding as to whether we are really protecting
purchasers of stock through the regulators who are there to protect
purchasers and sellers of stock will be determined in conference. But
the general principle enunciated in this amendment would go to
conference as the principle that is governing this bill.
I also want to thank my good friend from New York, because he has
worked so closely with me on this issue.
I can't yield the floor to him. But I will yield the floor. But,
before doing so, and I know he does wish to speak for a few minutes, I
will send the amendment to the desk.

Amendment No. 317

(Purpose: To ensure bank securities activities are regulated by
securities regulators)

Mr. LEVIN. Mr. President, I send an amendment to the desk.
The PRESIDING OFFICER. Without objection, the pending amendment is
set aside, and the clerk will report.
The assistant legislative clerk read as follows:

The Senator from Michigan (Mr. Levin), for himself, and Mr.
Schumer, proposes an amendment numbered 317.

Mr. LEVIN. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
The amendment is as follows:

On page 124, line 25, before ``Section'' insert the
following:
``(1) It is the intention of this Act subject to carefully
defined exceptions which do not undermine the dominant
principle of functional regulation to ensure that securities
transactions effected by a bank are regulated by securities
regulators, notwithstanding any other provision of this Act.
(2)''.

Mr. LEVIN. I yield the floor but hope the Senator from New York will
be recognized briefly for a comment.
The PRESIDING OFFICER. The Senator from New York.
Mr. SCHUMER. I thank the President, and I thank both my colleague
from Michigan and my colleague from Texas, the chairman, for their
work.
It is a very important amendment. In fact, if this amendment had not
been adopted, we might have seen the virtual unraveling of the strong
framework of securities law that we have built up in this country since
the 1940s.
When I see my friends on Wall Street sometimes complaining about the
SEC--and they can be very, very strict and sometimes hardheaded on
specific issues--I remind them that in the general framework of
regulation, a tough and strong disclosure has made our securities
markets the strongest in the world. It is the reason that billions of
dollars come from overseas to the United States, because they know
basically that our markets are on the level.
This bill, while in the report language said that we wish to have
what is called ``functional regulation,'' that is, having the correct
regulator for the type of function, not by the type of institutions,
and therefore if a bank gets securities regulation it would be
regulated by the SEC, just as if a securities firm did securities
regulation it would be regulated by the SEC. It is a fundamental
principle, particularly if this bill becomes law, which, if we change
CRA, I hope it will.
It means very simply that if you underwrite securities, if you sell a
security, you must abide by the SEC strict disclosure. The banking
regulators have never been very good at this type of regulation, and
weren't intended to be.
The securities regulators--the SEC--have always been the tough guy
who is an adversarial regulator. The banking regulators have always
been a friendly regulator, sort of akin to a big brother making sure
the banks didn't get too far into trouble--for two good reasons: One,
the banking industry had Federal insurance, and we had to protect that
investment; and, two, the banks were engaged traditionally in not very
risky activity.
The securities markets have no Federal insurance. They are raw
capitalism, and they have had risky activities. Therefore, you really
need full disclosure.
The amendment which the Senator from Michigan has put forward, which
I am proud to cosponsor, is a very simple one. It says keep that
functional regulation.
Let me explain to my colleagues just in a brief minute, because I
know we all want to hurry, what would have happened if this amendment
had not been adopted.
First, the whole regulation--the whole SEC regimentation of
regulation--would not have been applied to banks as they entered the
securities industry, and they will enter it massively. Then securities
firms, being put at an unfair competitive disadvantage because their
banks would not be regulated, would start having their securities
activity occur under a bank holding company.

The entire structure of regulation which has worked so well--and
every person on Wall Street I know admits it; it is tough, it is
strong, but it keeps our markets on the level--would have unraveled.
This bill in effect had a Trojan horse.
The amendment being proposed by the Senator from Michigan and myself
closes that door. We will have to work out the language in conference,
but I for one, if I am lucky enough to be a conferee, or even if I am
not, I am going to work very hard to see whatever loopholes are placed
in there are very narrow and very limited.
I know the hour is late but this amendment may be the most important
amendment we are adding to the entire bill. It keeps the structure of
functional regulation there. It has securities-type activities,
wherever they be done, be regulated by the SEC. It is a system that has
worked. We should not undo it right now as our capital markets are
enjoying the tremendous success they have.
I yield back the remainder of my time.
The PRESIDING OFFICER. The question in on agreeing to the amendment.
The amendment (No. 317) was agreed to.
Mr. LEVIN. I move to reconsider the vote.
Mrs. BOXER. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
Mr. LEVIN. Mr. President, I thank my friend from Texas, as well as
the Senator from Maryland, for their work, but particularly the Senator
from New York.

Amendment No. 310, as Modified

Mr. GRAMM. Mr. President, I have a little technical correction that
has been cleared, as I understand. I call up amendment No. 310 and ask
unanimous consent that amendment No. 310 be modified by the text I am
sending now to the desk.
The PRESIDING OFFICER. The clerk will report.
The assistant legislative clerk read as follows:

The Senator from Texas [Mr. Gramm], for Mr. Bennett,
proposes an amendment numbered 310, as modified.

Mr. GRAMM. Mr. President, I ask unanimous consent reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.

[[Page S4876]]

The amendment (No. 310), as modified, is as follows:

At the appropriate place in the bill, insert the following:
Section 23B(b)(2) of the Federal Reserve Act (12 U.S.C.
371c-1) is amended to read as follows:
``Subparagraph (B) of paragraph (1) shall not apply if the
purchase or acquisition of such securities has been approved,
before such securities are initially offered for sale to the
public, by a majority of the directors of the bank based on a
determination that the purchase is a sound investment for the
bank irrespective of the fact that an affiliate of the bank
is a principal underwriter of the securities.''

Mr. SARBANES. Mr. President, what did this deal with?
Mr. BENNETT. Mr. President, it is my understanding that this
amendment has been cleared on both sides.
It addresses the CRA issue in what I hope is a noncontroversial way
in that it calls for reporting of what happens to the CRA loans. Many
of these loans are being made now with no regulation at all and no
public understanding of what is happening. I, for example, asked a
simple question as I went through the CRA debate. I said, What is the
rate of default of CRA loans compared to non-CRA loans? And,
specifically, what is the rate of default of those loans that are made
through the advocacy groups that become loan brokers?
I was told the rate of failure for CRA loans generally is about six
or seven times higher than normal loans but there was no information as
to the rate of default among those loans that were made through the
advocacy groups that have become loan brokers. I think we are entitled
to know that.
This is simply a sunshine amendment that will report the facts. It
does not change the regulatory situation in any way, it does not damage
CRA in any way; it simply says the Congress will know what is happening
with respect to CRA loans that are currently being made in the dark.
The PRESIDING OFFICER. The question is on agreeing to the amendment.
The amendment (No. 310), as modified, was agreed to.
Mr. GRAMM. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. GRAMM. Mr. President, I ask unanimous consent further proceedings
under the quorum call be dispensed with.
The PRESIDING OFFICER (Mr. Voinovich). Without objection, it is so
ordered.

Amendment No. 318

Mr. GRAMM. On behalf of Senator Sarbanes and myself, I send managers'
amendments to the desk. I ask they be considered en bloc and adopted en
bloc, and the motion to reconsider be laid upon the table.
The PRESIDING OFFICER. The clerk will report.
The legislative clerk read as follows:

The Senator from Texas (Mr. Gramm), for himself and Mr.
Sarbanes, proposes an amendment numbered 318.

Mr. GRAMM. Mr. President, I ask unanimous consent that reading of the
amendment be dispensed with.
The PRESIDING OFFICER. Without objection, it is so ordered.
(The text of the amendment is printed in today's Record under
``Amendments Submitted.'')
THE PRESIDING OFFICER. Without objection, the amendment is agreed to.
The amendment (No. 318) was agreed to.
The motion to reconsider the motion to lay on the table was agreed
to.
Mr. GRAMM. It is my understanding we are now ready for a vote on
final passage. I thank everyone for their assistance and patience.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. I guess I should state I am going to vote against this
bill on final passage. We have had a very spirited debate. We have had
a number of very close votes on important amendments, and in my view
the bill has not been improved sufficiently to warrant an affirmative
vote, therefore I intend to vote against it. I am not, obviously, going
to lay out all the reasons at this hour of night because I know we want
to go to a vote here.
Mr. GRAMM. Mr. President, there are two Dorgan amendments that are
pending. We had an agreement to have a voice vote.
I ask that occur now.

Vote On Amendment No. 313

THE PRESIDING OFFICER. If there be no further debate, the question is
on agreeing to the amendment.
The amendment (No. 313) was rejected.

Vote On Amendment No. 312

THE PRESIDING OFFICER. If there be no further debate, the question is
on agreeing to the amendment.
The amendment (No. 312) was rejected.
The PRESIDING OFFICER. The question is on the engrossment and third
reading of the bill.
The bill was ordered to be engrossed for a third reading and was read
the third time.
Mr. GRAMM. Mr. President, I ask for the yeas and nays.
The PRESIDING OFFICER. Is there a sufficient second?
There is a sufficient second.
The yeas and nays were ordered.
Mr. SARBANES. Mr. President, I suggest the absence of a quorum.
The PRESIDING OFFICER. The clerk will call the roll.
The legislative clerk proceeded to call the roll.
Mr. DASCHLE. Mr. President, I ask unanimous consent that the order
for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
The Democratic leader.

SENATOR JOSEPH BIDEN CASTS HIS 10,000th VOTE

Mr. DASCHLE. Mr. President, today I join my colleagues in recognizing
a historic achievement by one of the Senate's most remarkable Members.
With the vote we are about to cast, Senator Joe Biden becomes the
youngest Member of this body ever to cast 10,000 votes.
It should come as a surprise to none of us that Senator Biden should
set such a record. He has always been a few steps ahead of the crowd.
In 1972, at the age of 29, he mounted his first Senate campaign against
a popular incumbent, Republican Senator J. Caleb Boggs. No one--not
even his own Democratic party--thought he could do it. But in 1973 he
was sworn in as the second-youngest person ever to be popularly elected
to the Senate.
The first issue Senator Biden tackled was campaign finance reform--as
we all know, this is a difficult issue for anyone, much less a first-
year member. But as we also all know, Joe Biden has never shied away
from a fight. His candor, strength of character and commitment to
principle have led him through many battles over the years.
As chairman and ranking member of the Judiciary Committee, Senator
Biden helped this institution, and this nation, sort through the
complexities of the most controversial issues of our day--from flag
burning, to abortion and the death penalty,
Senator Biden also presided over perhaps the most contentious Supreme
Court nominations hearings in history. In the midst of the controversy
surrounding nominee Robert Bork, Senator Biden maintained a level of
intellectual rigor that raised the bar for committee consideration of
all future nominations.
We also recall his leadership and doggedness in crafting what may
well be the most difficult and important pieces of legislation in
recent years, the Violent Crime Control and Law Enforcement Act. This
included the Violence Against Women Act, the very first comprehensive
piece of legislation to specifically address gender-based crimes.
He was also instrumental in creating the position of national ``Drug
Czar,'' which has been invaluable in our fight against illegal drugs.
His commitment to keeping drugs off the streets remains steadfast.
The Senate and this nation have also benefitted from Senator Biden's
leadership in the foreign policy arena. As ranking member on the
Foreign Relations Committee, he is widely regarded as one of the
Senate's leading foreign policy experts.
He was one of the first to predict the fall of communism and
anticipate the need to redefine our policies to fit a post-cold war
world. And, as far back as early 1993, Senator Biden called for active
American participation to contain the conflict in Bosnia. In his public
service and personal life, Joe Biden sets a high standard we can all
admire.

[[Page S4877]]

His steel will, dedication and compassion, reinforcing a powerful
intellect and impressive communication skills, have made Senator Biden
an exceptional Senator and friend. The number of people he has inspired
through his commitment to his family, his values and his beliefs is
legion.
Mr. President, it is indeed a pleasure to serve with Joe Biden, and
to count him as a friend. On behalf of all the Members of this Senate,
I congratulate Joe on this historic achievement and thank him for his
numerous contributions to the United States Senate and to his country.
I yield the floor.
Mr. LOTT. Mr. President, I am pleased to congratulate my good friend
and colleague, Senator Joe Biden, on casting his 10,000th vote in the
United States Senate.
All of us who have listened--and listened--to Senator Biden on the
Senate floor have come to deeply respect his leadership and commitment
to causes of concern.
He led the historic effort for NATO expansion with courage and
conviction.
He has a deep concern for America's role in the world and is a true
leader of our foreign policy establishment.
Senator Biden has been a champion of victims of crime, particularly
crimes against women.
Most of all, those of us who know him, have watched his grace and
courage through personal suffering and serious illness.
I join my colleagues in recognizing Senator Biden's contributions to
the Senate and extend my congratulations to him.
I congratulate the Senator from Delaware. I note he is only 56. I am
1 year older and he has already cast 10,000 votes. What an achievement.
I yield the floor.
Several Senators addressed the Chair.
The PRESIDING OFFICER. The Senator from South Carolina.
Mr. THURMOND. Mr. President, I wish to pay Senator Biden a tribute.
He is an outstanding Senator and an outstanding man.
When anyone reflects on their life, they do so by thinking about
significant personal and professional benchmarks and milestones. Today,
one of our colleagues--and my good friend--Joe Biden is marking just
one such accomplishment, his 10,000th career vote in the Senate.
Casting your 10,000th vote is a momentous occasion for many reasons.
Beyond being an indication that a Senator has served in this body for a
substantial period of time, casting 10,000 votes is a testament to an
individual's commitment to public service. Furthermore, it is proof
that a Senator is doing a good job, for his or her constituents have
seen fit to keep an official in office long enough to achieve this
accomplishment. Then again, given the type of person Joe Biden is, it
should come as no surprise to us that the people of Delaware have
repeatedly sent him to the Senate since 1972. He is a man who is
motivated by a desire to help others and is dedicated to serving the
people of his state and our nation. Joe Biden clearly entered his life
in public service for the proper reasons and with the best of motives,
and he is an individual who represents all that is positive about those
who seek elected office.
I have had the good fortune of knowing Joe Biden from the beginning
of his Senate career and it is hard to believe that almost thirty years
could have elapsed so quickly. During the course of his tenure, I have
watched Joe establish an impressive and respected record of work. He
has distinguished himself in the fields of the judiciary and foreign
affairs, and he is considered a forceful, passionate, and articulate
advocate on both these issues. Though he is often sought for analysis
and insight regarding international developments, making our streets
safe, or any number of other issues before the Senate, Joe Biden first
and foremost works tirelessly to serve the people of Delaware. The
people of his state are indeed fortunate to be represented by such a
capable individual.
As most of you already may know, Joe and I have worked closely
together for years as members of the Judiciary Committee. We have both
served as each other's chairmen and ranking members of this very
important committee and I have the highest regard for Joe's intellect,
leadership, and ability. Ironically, we not only sat next to each other
on the committee for years, but we have been neighbors in the Russell
Building for many years as well, our offices being literally right next
to one another. You would be hard pressed to find a finer, more
dedicated, or more friendly group of people than those who work for Joe
Biden and I hope that he stays my neighbor for as long as he is in the
Senate.
Beyond being a congenial colleague and a good neighbor, Joe Biden is
my friend. He is someone whose word can be trusted, who wants to do
what is right, who is devoted to his family, and whose heart is good.
These are rare qualities in any individual, but they can be especially
scarce in this town. That Joe has not changed over the years is
testament to the man he is and the son his parents raised. I am proud
to call Joe Biden my friend as I know each of my colleagues is as well.
I do not think I am going out on a limb when I predict that Joe Biden
is going to be in the United States Senate for a long time to come, and
that as long as he is a Member of this body he will continue to make
valuable contributions to public policy and the nation. Joe, I thank
you for your service, I thank you for all your assistance, and most of
all I thank you for your many years as a loyal and kind friend.
Mr. HOLLINGS addressed the Chair.
The PRESIDING OFFICER. The Senator from South Carolina.
Mr. HOLLINGS. Mr. President, I join in the felicitations of our
distinguished colleague from Delaware. He suffered as a young lad a
handicap of stuttering. He tried to overcome that by addressing the
student body. We in the Senate can well attest to the fact that he has
overcome it. He has led the way in foreign policy for NATO and in
judicial matters.
Mrs. BOXER addressed the Chair.
The PRESIDING OFFICER. The Senator from California.
Mrs. BOXER. Mr. President, I add my words of praise for the Senator
from Delaware and make a point that he is going to be here a long time.
If he matches his current record--he took office in 1973--if he does
this, he will be only 82 when he casts approximately his 20,000th vote,
and he will then be a kid compared to Senator Thurmond, who will be
there at the time congratulating him on his 20,000th vote.
Joe Biden has been such a good friend to me.
When I was in the House, I asked him to introduce the Senate
companion bill to my legislation to protect dolphins.
Joe did not hesitate, and he enthusiastically took up the cause--with
the strong support of his beautiful daughter Ashley! And he has been a
steadfast ally in that important environmental fight. He was the Senate
sponsor of my Ocean Protection Act. I was the House sponsor of his VAW
Act.
I am now a proud member of the Foreign Relations Committee, where Joe
Biden shows why he is one of the most respected foreign policy experts
in the country.
Congratulations, I say to my good friend, and many, many more years
of success and happiness with your good friends and colleagues here and
your wonderful family at home in Delaware.
I yield the floor.
Mr. LEAHY addressed the Chair.
The PRESIDING OFFICER. The Senator from Vermont.
Mr. LEAHY. Mr. President, the distinguished Senator from Delaware is
the only person in this body who is younger than I am but senior to me
at the same time. I congratulate him on his 10,000th vote. I jumped
over the cliff with him on more than a few of those votes. I look
forward to the day when I might match his record.
Mr. HELMS addressed the Chair.
The PRESIDING OFFICER. The Senator from North Carolina.
Mr. HELMS. Mr. President, I know everybody wants to go home, but let
me say, if we tried to review Joe Biden's accomplishments, it would
take all night. Let me put it this way: I opposed most of them.
(Laughter.)
Furthermore--this is serious--Joe Biden is a caring person. I work
with him on the Foreign Relations Committee. He is great to work with.
Joe, I am proud of you.
(Applause.)
Mr. ROTH addressed the Chair.
The PRESIDING OFFICER. The Senator from Delaware.

[[Page S4878]]

Mr. ROTH. Mr. President, this next vote is a milestone for a friend
of mine--a distinguished colleague and a leader in this chamber. It
represents the ten-thousandth vote cast by Joe Biden, and I would like
to take a moment not only to bring it to the attention of our
colleagues, but to reflect on a career that has been--and continues to
be--a bright legacy of service.
To put this vote into perspective, Mr. President, only twenty
Senators in history have reached this milestone--only twenty Senators
out of the 1,851 who have had the honor of serving in this
distinguished body. Each of us who has the honor of representing our
state in the Senate understands what a rare privilege it is to cast a
vote on this floor. In fact, the first vote we cast ranks among the
most memorable moment in our lives--a moment not to be forgotten.
I'm sure that when Joe cast his first vote on January 23, 1973--over
twenty-five years ago--he could not have foreseen this moment. Through
the years, he has achieved many distinguished honors. He has gained
national stature, as a candidate for President. He has established
himself as a foremost expert on judicial and foreign policy matters.
And though I know that we often differ philosophically, I can say that
each vote Joe has cast, his focus has been on doing what's best for
Delaware and our Nation, at large.
Joe, on this special occasion, I salute you. Ten thousand votes speak
volumes about a life dedicated to public service. On behalf of our
colleagues I congratulate you. And on behalf of our friends and
neighbors in Delaware I thank you.
For me, it has been an honor, a pleasure, and a privilege to serve
these many years with Senator Biden. He always does what he thinks is
in the best interests of our country and our people of Delaware. I am
proud to count him a friend.
Mr. KENNEDY. Mr. President, I join in commending our colleague from
Delaware on reaching this major milestone in his brilliant Senate
career.
For nearly three decades, he has done an outstanding job serving the
people of Delaware and the Nation in the Senate. He has been an
effective leader on a wide range of issues in both domestic policy and
foreign policy.
It has been a special privilege for me to serve with our
distinguished colleague on the Senate Judiciary Committee, and I
particularly commend his leadership over the past quarter century on
the many law enforcement challenges facing the nation. It is a
privilege to serve with Senator Biden--and I am sure he will compile an
equally outstanding record on his next 10,000 votes.
Mr. BIDEN. Mr. President, I will respond after everyone votes so I
get to cast my 10,000th vote.
The PRESIDING OFFICER. The Senator from Nevada.
Mr. REID. Mr. President, unlike Senator Biden, I don't have a lot to
say.
I ask unanimous consent that all Senators have until the close of
business next Thursday, a week from today, to insert their statements
in the Record and that all statements that are submitted appear at one
place in the Record.
The PRESIDING OFFICER. Without objection, it is so ordered.
The PRESIDING OFFICER. The bill having been read the third time, the
question is, Shall the bill, as amended, pass? The yeas and nays have
been ordered. The clerk will call the roll.
The legislative clerk called the roll.
Mr. FITZGERALD (when his name was called). Present.
Mr. NICKLES. I announce that the Senator from Oklahoma (Mr. Inhofe)
is necessarily absent.
The PRESIDING OFFICER. Are there any other Senators in the Chamber
desiring to vote?
The result was announced--yeas 54, nays 44, as follows:

[Rollcall Vote No. 105 Leg.]

YEAS--54

Abraham
Allard
Ashcroft
Bennett
Bond
Brownback
Bunning
Burns
Campbell
Chafee
Cochran
Collins
Coverdell
Craig
Crapo
DeWine
Domenici
Enzi
Frist
Gorton
Gramm
Grams
Grassley
Gregg
Hagel
Hatch
Helms
Hollings
Hutchinson
Hutchison
Jeffords
Kyl
Lott
Lugar
Mack
McCain
McConnell
Murkowski
Nickles
Roberts
Roth
Santorum
Sessions
Shelby
Smith (NH)
Smith (OR)
Snowe
Specter
Stevens
Thomas
Thompson
Thurmond
Voinovich
Warner

NAYS--44

Akaka
Baucus
Bayh
Biden
Bingaman
Boxer
Breaux
Bryan
Byrd
Cleland
Conrad
Daschle
Dodd
Dorgan
Durbin
Edwards
Feingold
Feinstein
Graham
Harkin
Inouye
Johnson
Kennedy
Kerrey
Kerry
Kohl
Landrieu
Lautenberg
Leahy
Levin
Lieberman
Lincoln
Mikulski
Moynihan
Murray
Reed
Reid
Robb
Rockefeller
Sarbanes
Schumer
Torricelli
Wellstone
Wyden

ANSWERED ``PRESENT''--1

Fitzgerald

NOT VOTING--1

Inhofe

The bill (S. 900), as amended, was passed.
(The bill will be printed in a future edition of the Record.)
Mr. GRAMM. Mr. President, I move to reconsider the vote.
Mr. HATCH. I move to lay that motion on the table.
The motion to lay on the table was agreed to.
The PRESIDING OFFICER. The Senator from Utah.

____________________