105th Congress: Democratic Perspectives House Committee on Energy and Commerce Democrats Welcome Page
I support H.R. 10, the Financial Services Act of 1997, as reported by the Committee on Commerce, and I commend both Mr. Bliley, the chairman of the full Committee, and Mr. Oxley, the chairman of the finance subcommittee, for their willingness to work with the Democratic Members of the Committee. The Banking Committee's version of the bill was totally unacceptable. The bipartisan bill that has come forward from our compromise is a good one.
This bill now meets the requirements that I have always felt were necessary for a proper reform of Glass-Steagall: one, true separation of financial activities, and two, functional regulation. The bill meets both of these tests. It sees to it that the playing field is level and fair. It does not afford the banks the kind of special preference that they sought, but it does allow them to complete in a fair and even manner on fair and even ground. It does not undermine the Supreme Court decision in the Barnett Bank case, nor does it impair the ability of banks to compete fairly in the marketplace.
I am one of the few people voting to report this bill who remembers the Depression. The causes of the Depression were investigated in a very lengthy fashion, and literally volumes were published. Those inquiries found that all financial powers were concentrated in banks, who abused their ability to sell securities and to manipulate the securities markets, their ability to control the deposits of their depositors, and their ability to engage in all manner of unrestrained and untrammeled economic activity. They were not constrained in the slightest degree by either good sense or by the requirements of law. A tremendous and a terrifying collapse occurred that threw one-third of American workers into unemployment and that caused the currency to simply disappear. People refused to spend money: they put it under their mattress because they did not trust the banks.
The Government went through some very heroic efforts to try and get this country going again. It first of all had to guarantee bank deposits because nobody trusted banks or bankers. Second of all, to see to it that banks and bankers did not engage again in the practices that had caused the Depression, banking was split from other financial activities. Third of all, laws were put in place to regulate the securities markets and to do other things. Yet, in spite of all of this, it took this country 10 years and a major war to pull ourselves out of the mess that had been created.
While I have lingering concerns about the thrift provisions, the bill before us is a good one. The bill resolves the legitimate complaints of people in the financial industry. At the same time, it keeps intact intelligent protections of investors and of consumers of banking and insurance services. It also protects the Federal Government and the taxpayers against games being played with Federal deposit insurance, and it sees to it that we still have a financial system which the little guy can trust.
JOHN D. DINGELL.
The stated intention of this bill is to open up our financial system and allow for financial combinations between industries, in order to promote more effective and efficient capital flows.
The restrictive state branching laws continue to prevent true competition in areas like Northern Michigan. The State of Michigan, to its credit, has adopted liberal banking laws that allow out-of-state banks to acquire existing branch facilities and to build de novo branches. Due to this opportunity, many banks from Wisconsin have come across the border and are providing banking services out of branches in Michigan. However, Wisconsin law prohibits Michigan banks from acquiring existing branches or building a de novo branch in Wisconsin. Although the Riegle-Neal Interstate Banking Act was supposed to open up our nation's banking system and tear down state impediments to competition, in the case of Northern Michigan it has been ineffective.
I offered and withdrew an amendment at Subcommittee that would prohibit banks from forming or affiliating with a Financial Services Holding Company if they are in a state that does not allow out of state banks to branch into their state, but allows their banks to branch out of state. The amendment did not pre-empt state law, nor did it require a state to permit out of state banks to branch interstate. Rather it gave states a choice of either providing for a level playing field in their banking markets or prohibiting banks in their state from taking advantage of the new affiliations we allow under this bill. Either way the choice remained in the hands of the states.
My intent was not to punish states, nor to impose a federal mandate on them. Rather I wished to ensure that banks like those in Michigan are not disadvantaged by allowing competition in their markets, while keeping them out of the markets of their competitors. To perpetuate this inequity would run counter the entire concept of H.R. 10.
I withdrew my amendment and did not reoffer at the full Committee, because I received a commitment from Chairman Leach of the Banking Committee that a representative of the Northern Michigan banks could testify at the Banking Committee's next hearing on Interstate Branching. It is my hope that their testimony will either push the Banking Committee to take action on this issue, or shame the Wisconsin State legislature to bring down their restrictive walls.
BART STUPAK.
We are pleased that the Committee has reported financial modernization legislation for consideration by the full House. H.R. 10 is an important step towards achieving our goal of modernizing the nation's financial structure. As New Yorkers, we fully understand the importance and significance of providing a proper framework where financial services can thrive. New York is the capital of the world's economy and it is important that it remain so. Any legislation that is reported by this Committee must ensure that our financial structure retains its ability to adapt to the changing needs of the public.
To this end, we urge the House to include a 10% `commercial basket' provision in the final version of H.R. 10. A 10% commercial basket would permit financial holding companies (FHC) and investment bank holding companies (IBHC) to derive 10% of their gross revenues from commercial activities. FHCs or IBHCs could acquire a company engaged in commercial activities only if, at the time of the acquisition, the company did not have consolidated assets of more than $750 million.
We believe that financial services modernization legislation must allow FHCs and IBHCs to invest some percentage of its domestic gross revenues in non-financial activities. Modernization legislation should reflect the current market and permit some form of commercial affiliation. A 10-percent commercial basket is a reasonable first step toward integrating commerce and banking.
Legislation on this matter must be flexible enough to ensure that financial service providers can continue to evolve. While we are pleased that a 5% basket was included in the bill, a 10% basket provides the proper cushion to accommodate the both normal growth of a commercial enterprise and the potential decrease of financial activity revenues. H.R. 10 represents a huge step forward in modernizing our financial structure and establishing a proper basket provides avenues for future growth and innovation.
We strongly urge the House to include a 10% basket in H.R. 10 so that financial providers can move forward as we approach the 21st century. We look forward to working with our colleagues on this matter and thank you for your consideration.
ELIOT L. ENGEL.
EDOLPHUS TOWNS.
105th Congress: Democratic Perspectives
House Committee on Energy and Commerce Democrats Welcome Page