H.R. 10--the Financial Services Modernization Act of 1999 : hearings before the Committee on Banking and Financial Services, U.S. House of Representatives, One Hundred Sixth Congress, first session, February 10, 11, 12, 1999

892 Pages·1999·29.4 MB·English

by  United States. Congress. House. Committee on Banking and Financial Services

H.R. 10—THE HNANCIAL SERVICES
MODERNIZATION ACT OF
1999
Y 4.B 22/1:106-2 "
—
H.R. 10 - The Financial Services Modernization Act of
1999, Serial No. 106-2, February 10, 1^1, m12,i199/9 uvl^.N^G^Sr>.
BEFORE THE
COMMITTEE ON BANKING AND
FINANCIAL SERVICES
U.S. HOUSE OP REPRESENTATIVES
ONE HUNDRED SDCTH CONGRESS
FIRST SESSION
FEBRUARY
10, 11, 12, 1999
Printed for the use of the Committee on Banking and Financial Services
Serial No. 106-2
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H.R. 10—THE HNANCIAL SERVICES
MODERNIZATION ACT OF 1999
HEARINGS
BEFORE THE
COMMITTEE ON BANKING AND
FINANCIAL SERVICES
HOUSE OF REPRESENTATIVES
U.S.
ONE HUNDRED SDCTH CONGRESS
FIRST SESSION
FEBRUARY 10, 11, 12, 1999
Printed for the use of the Committee on Banking and Financial Services
Serial No. 106-2
U.S. GOVERNMENT PRINTING OFFICE
54-744CC WASHINGTON : 1999
ForsalebytheU.S.GovernmentPrintingOffice
SuperintendentofDocuments,CongressionalSalesOffice.Washington,DC 20402
ISBN 0-16-059392-1
HOUSE COMMITTEE ON BANKING AND FINANCIAL SERVICES
JAMES A. LEACH, Iowa, Chairman
BILL McCOLLUM. Florida, Vice Chairman
MARGE ROUKEMA, New Jersey JOHN J. LaFALCE, New York
DOUG K. BEREUTER, Nebraska BRUCE F. VENTO, Minnesota
RICHARD H. BAKER, Louisiana BARNEY FRANK, Massachusetts
RICK LAZIO, New York PAUL E. KANJORSKI, Pennsylvania
SMPIECNHCAEERL BN.ACCAHSUTSLEII.I,DAellaabwaarmea MCAAXRIONLEYNWAB.TEMRASL,ONCaElYif,orNnieaw York
PETER T. KING, New York LUIS V. GUTIERREZ, Illinois
TOM CAMPBELL, CaUfomia NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma GARY L. ACKERMAN, New York
JACK METCALF, Washington KEN BENTSEN, Texas
ROBERT W. NEY, Ohio JAMES H. MALONEY, Connecticut
BOB BARR, Georgia DARLENE HOOLEY, Oregon
SUE W. KELLY, New York JULIA M. CARSON, Indiana
RON PAUL, Texas ROBERT A. WEYGAND, Rhode Island
DAVE WELDON, Florida BRAD SHERMAN, California
JIM RYUN, Kansas MAX SANDLIN, Texas
MERRILL COOK, Utah GREGORY W. MEEKS, New York
BOB RILEY, Alabama BARBARA LEE, California
RICK HILL, Montana VIRGIL H. GOODE Jr., Virginia
STEVEN C. LaTOURETTE, Ohio FRANK R. MASCARA, Pennsylvania
DONALD A. MANZULLO, Illinois JAY INSLEE, Washington
WALTER B. JONES Jr., North Carolina JANICE D. SCHAKOWSKY, Illinois
PAUL RYAN, Wisconsin DENNIS MOORE, Kansas
DOUG OSE, California CHARLES A. GONZALEZ, Texas
JOHN E. SWEENEY, New York STEPHANIE TUBBS JONES, Ohio
JUDY BIGGERT, IlUnois MICHAEL E. CAPUANO, Massachusetts
LEE TERRY, Nebraska
MARK GREEN, Wisconsin BERNARD SANDERS, Vermont
PATRICK J. TOOMEY, Pennsylvania
(II)
CONTENTS
Page
Hearings held on:
February 10, 1999 1
February 11, 1999 101
February 12, 1999 197
Appendixes:
February 10, 1999 253
February 11, 1999 480
February 12, 1999 623
WITNESSES
Wednesday, February 10, 1999
Beard, E. Lee, President and CEO, First Federal Bank, Hazleton, PA, and
Chair, America's CommunityBankers 46
Creighton, David O. Sr., President, Bryton Companies, West Des Moines,
lA, onbehalfofthe NationalAssociation ofProfessional InsuranceAgents .. 84
Fink, MatthewP., President, InvestmentCompany Institute 48
Greenwood, William B., President, Lawton Insurance, Central City, KY, and
President, Independent InsuranceAgents ofAmerica 77
Huber, Richard L., Chairman, Presidentand CEO,Aetna Inc 14
Jones, R. Scott, Chairman and CEO, Goodhue County National Bank, Red
Wing, MN, and President,American BankersAssociation 42
Kilbride, James J., Chairman and CEO, Morse, Payson & Noyes Insurance,
Portland, ME, and Chairman, Council ofInsurance Agents and Brokers 82
Komansky, David H., Chairman and CEO, Merrill Lynch & Co., Inc 7
McCoy, John B., PresidentandCEO, BANKONE CORPORATION 11
McQiullan, William L., Chairman, President and CEO, The City National
Bank, Greely, NE, and President, Independent Bankers Association of
America 43
Menefee, W. Neal, President and CEO, Rockingham Group of Insurance
Companies, on behalf of the National Association of Mutual Insurance
Companies 86
Patterson, Michael E., Vice Chairman, J.P. Morgan & Co. Inc., and Chair-
man, Financial Services Council 9
Pope, Mark A., Vice President and Director of Federal Relations, Lincoln
National Corporation, Ft. Wayne, IN, on behalf of the American Council
ofLife Insurance 78
Rhulen, Hany, Chairman, President and CEO, Frontier Insurance Group
Inc., Rock Hill, NY, onbehalfoftheAmerican InsuranceAssociation 80
ZSumciktehr,bMerigc,haReolyP.J,.,PrLeismiidteendt,PNaretwneYro,rGkoBladnmkaenr,sSAascshoscia&tiCoon., and Chairman, 50
Securities IndustryAssociation 39
APPENDIX
Prepared statements:
Leach, Hon. JamesA. 254
Gutierrez,Hon. LuisV 255
Hooley, Hon. Darlene 256
Kanjorski, Hon. WPaul E 257
KeUy, Hon. Sue 258
Mascara, Hon. Frank 259
(III)
Page
—
Prepared statements Continued 260
Paul, Hon. Ron 261
Weygand, Hon. Bob g-^Q
Beard, E. Lee 453
CFrienikg,hMtoant,thDeavwiPd O. Sr g4-0^3g
Greenwood, William B " g04
Huber, Richard L 322
Jones, R. Scott 442
KKiolmbarindsek,yJ,aDmaevsiJd H 226927
McCoy, John B •• ••• 356
McQmllan, William L. (with attachments) ^gg
Menefee, W. Neal 282
Patterson, Michael E 4JY
MarkA
Pope, 43^
Rhulen, Harry 393
Smith, Michael P 3J0
Zuckerberg, RoyJ
Additional Material Submitted for the Record
Jones, R. Scott: 335
ABAInsurance Association, policy statement
ABASecuritiesAssociation, policy statement
^°"?^Fei'n^an'criSalnfLUanwesrifcoar'tsheF2i1nsatncCieanlturCyo,m"oJetaintuiavreyne1s9s9.9 Modernizing U.S. ^o»
^""^R^s^S^slt^questions from Hon. RickHill and Hon. StephanieJones 401
Alliance ofAmerican Insurers, policy statement •
NationalAssociation ofIndependent Insurers, pohcy statement
(IV)
WITNESSES
Thursday, February 11, 1999
Cuny, Hon. Thomas J., Commissioner of Banks, Commonwealth of Massa-
chusetts, onbehalfofthe Conference ofState Bank Supervisors 146
hbleihra;litfofANtorJt'h^ATm^eri?c•'anCSoemcmuirsitsiieosnAedrmionfisOthriaotorDsivAisssioocniaotfionSe,cuIrnicties,"on 148
GoCldebnetregr,toDrebCoormahm,umNteiyghCbhoarnhgoeod....Reinvestment Specialist, on behalf of the 174
Greenspan, Hon. Alan, Chairman, Board"ofGovemors7Federki"R^^^^^
system ..
MGriiReferfszinew,airnMcsahkriyG,roEIudnpsmuurnadn,ceCCoounnssueml,erCoPnrsougmrearmsUDniiroenc"t.o".r', U.Sr'PiibUc"interest -if^i^o
Nader, Ralph, consumeradvocate ."."... j^^
Reider, Hon. George M. Jr., Connecticut Commissioner of"insiii^ance'Presi^
dent, NationalAssociation ofInsurance Commissioners i«sn
&tion President and CEO, National Community"Reinvestment
APPENDIX
Prepared statements:
Cuny, Hon. ThomasJ
494
Geyer, Hon. Thomas E. (with attachment) t^o
Goldberg, Deborah 5^f
Greenspan, Hon. Alan T^i
Griffin, Mary l°l
Mierzwinski, Edmund ^k^o
Nader, Ralph
Reider, Hon. George M. Jr =07
Taylor,John E 0^/^17
Additional Material Submitted for the Record
National PeoplesAction, policy statement 619
(V)
WITNESSES
Friday, February 12, 1999
Goldschmid, Harvey J., General Counsel, Securities and Exchange Commis-
sion 236
Hawke, Hon. John D. Jr., Comptroller, Office ofthe Comptroller ofthe Cur-
rency 231
Rubin, Hon. Robert E., Secretary, Department ofthe Treasury, accompanied
by Richard S. Camell, Assistant Secretary of the Treasury for Financial
Institutions 197
Seidman, Hon. Ellen, Director, OfficeofThrift Supervision 234
Tanoue, Hon. Donna, Chairman, Federal DepositInsuranceCorporation 229
APPENDIX
Prepared statements:
Leach, Hon. JamWesA 624
KeUy, Hon. Sue 635
Goldschmid, HarveyJ 853
Hawke, Hon. JohnD. Jr. (with attachment) 747
Rubin, Hon. RobertE 687
Seidman, Hon. Ellen (with attachment) 825
Tanoue, Hon. Donna (with attachment) 705
Additional Material Submitted for the Record
Bachus, Hon. Spencer:
1988 reportofS.1886 as reported from the Senate BankingCommittee .... 633
Testimony of Hon. Donald T. Regan, Secretary of the Treasury, before
the Senate BankingCommittee, July 18, 1983 andJan. 16, 1984 625
LaFalce, Hon. JohnJ.:
"Explodingthe Subsidy Myth,"BNA'sBankingReport, Jan. 11, 1999 636
"The Federal Safety Ne1>—Subsidy Effects In and Outside of Banks,"
TheBankersRoundtahle, May 1997 639
Roukema, Hon. Marge:
Comptrollerofthe Currencyletter, March 24, 1999 676
FDeedpearratlmReensterofvethSeyTsrteeamsvleutytelre,ttMear,rcFheb.3,213,9919999 , 666618
Federal Reserve System letter, April 30, 1999 682
Goldschmid, HarveyJ.:
Written response to questions from Hon. KenBentsen 870
Hawke, Hon. John D.:
OCC news release, Oct. 26, 1987 758
"Piercing the Corporate Veil: An Empirical Study," Cornell Law Review,
July, 1991 759
Testimony of Hon. Emory W. Rushton, Deputy Comptroller of the Cur-
rency, before the Committee on Energy and Commerce, Feb. 3, 1988 795
"The OCC's Primary Concerns AboutH.R. 10," Feb. 12, 1999 807
Written response to a question from Hon. Sue W. Kelly 824
Rubin, Hon. RobertE.:
"Subsidiariesv. Affiliates: Questions and Answers,"Feb. 11, 1999 695
Written response toquestions from Hon. SueW. Kelly 692
Seidman, Hon. Ellen:
Writtenresponse toquestions from Hon. Sue W. Kelly 851
Tanoue, Hon. Donna:
Writtenresponse toquestions from Hon. SueW. Kelly 745
NationalAssociation ofIndependentInsurers, prepared statement 874
The Bankers Roundtable, prepared statement 877
(VI)
H.R. 10—THE FINANCIAL SERVICES
MODERNIZATION ACT OF
1999
WEDNESDAY, FEBRUARY 10, 1999
U.S. House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.
The committee met, pursuant to call, at 10:00 a.m., in room
2128, Raybum House Office Building, Hon. James A. Leach,
[chairman ofthe committee], presiding.
Present: Chairman Leach; Representatives McCollum, Roukema,
Baker, Lazio, Royce, Metcalf, Ney, Barr, Kelly, Paul, Weldon,
Ryun, Hill, Manzullo, Ryan, Ose, Sweeney, Biggert, Terry, Green,
Toomey, LaFalce, Vento, Frank, Kanjorski, Waters, Watt, Bentsen,
J. Maloney of Connecticut, Hooley, Weygand, Sherman, Lee, Mas-
cara, Inslee, Schakowsky, Moore, Gonzalez, Jones, and Capuano.
Chairman Leach. The hearing will come to order. Today we
begin the first of three days of public hearings on legislation to
modernize our Nation's archaic. Depression-era banking laws
which were long ago overtaken by market developments. This is,
as everyone here knows, an issue which has been under consider-
ation in Congress for several decades. Last fall we came close to
achieving consensus and the bill before us reflects compromises
hammered out over four years ofconsideration.
Today we are starting offthese hearings with broader support for
the legislation than has ever existed before. An impressive number
of large and small commercial banks, regional and money center
securities firms, insurance companies and agents support the
approach on the table.
The bill before us was introduced by myself. Vice Chairman
McCollum, the chairs of all of our subcommittees and other Mem-
bers. A bill with similar goals will apparently be introduced later
today by Mr. LaFalce, which reportedly will largely have Adminis-
tration support. I consider this to be a constructive addition to the
policy dialogue.
Thus, I hope we are in the final lap in winning congressional ap-
proval offinancial services modernization.
In conclusion, let me stress that ifwe fail to move on legislation
of this nature, American international preeminence in financial
markets will come into question, the American consumers will be
denied the benefits which would flow from greater competition
within the financial arena, and many rural areas will be precluded
access to a broad range of financial products. Here, let me remind
everyone that two years ago Treasury Secretary Rubin estimated
(1)
the consumers could save an estimated $15 billion annually as a
result ofpassage ofmodernization legislation.
In the interest of time to hear from our distinguished witnesses,
I will recognize Mr. LaFalce for an opening statement. Following
Mr. LaFalce, I will recognize the Chairman and the Ranking Mem-
ber ofthe two subcommittees with primaryjurisdiction.
John, you are recognized.
Mr. LaFalce. Thank you very much, Mr. Chairman. First I
would like to commend you personally and your efforts to move for-
ward expeditiously on this very important issue of financial mod-
ernization. This is something that I have pursued the entirety of
my tenure in Congress, and that is over two decades now, and it
has eluded us. And I hope it will not elude us this Congress. I hope
we will pass it this year.
As a result of the deliberations of the last Congress, most espe-
cially in the Senate, consensus emerged regarding many ofthe cen-
tral components of viable modem legislation, and you have intro-
duced legislation which in large part reflected that consensus.
However, I do have some doubts whether the best vehicle at the
end ofthe last session is the most appropriate vehicle for beginning
what will necessarily be a new process involving new players and
possibly new issues.
As a result, this afternoon I will be introducing legislation along
with Financial Institutions Subcommittee Ranking Member Bruce
Vento, and Capital Markets Subcommittee Chairman Richard
Baker, he takes a somewhat different approach. And while there
are some differences in starting points, what is clear upon exam-
ination of both bills, is that we agree on far, far more than we dif-
fer on. For example, we agree new affiliation authority for financial
services providers; the nature of those products and services we
consider financial in nature, the appropriate regulatory framework,
the importance offunctional regulations, to namejust a few.
As we proceed and even before markup, I think the best ap-
proach for us is to obtain as broad a bipartisan support as we can
to maintain consensus where we clearly have it, to avoid conten-
tious issues that are not central to the changes we must make and
achieve compromises that I believe are readily obtainable on those
few but vital issues where we differ.
If we are to get beyond committee and have a bill that actually
can be enacted into law, there is one central player in this discus-
sion that we cannot ignore, and that is the Administration. And so
most importantly the bill we will introduce this afternoon will in-
clude language on the controversial operating subsidy issue that
the Treasury can enthusiastically support.
Now, that is very important, because without Administration
support, we risk legislating in vain. And without that support, it
will prove extremely difficult to obtain the broad bipartisan support
that is essential if we are to succeed. There are a few issues that
are going to be difficult, Mr. Chairman, and one deals with the
thrift charter. Our bill is going to be silent on that.
I think modernization should be about moving forward, not tak-
ing existing authority from institutions when there is no real legiti-
mate case, in my judgment, that there is a problem that they pose
safety and soundness risks.