Sen. Phil Gramm, chairman of the Senate Committee on Banking, Housing and Urban Affairs, issued the following statement at the first meeting of the House and Senate conferees on S. 900, the Financial Services Modernization Act:
"I do believe that we have come further, faster than any Congress in history in terms of taking action to modernize the banking structure of the country.
"Obviously, we have set out on a difficult task since there has been an active effort for some 25 to 30 years to modernize the financial structure by knocking down the barriers that separate banking and insurance and banking and securities.
"If this were easy, it would have been done a long time ago. But I think we have come a long way. I think we have an opportunity to put the ball over the goal line, and I want to reaffirm my willingness to do the hard work to see that that happens.
"I want to raise several issues. The first issue is, I know how our House colleagues are committed to bipartisanship. I think that's always commendable. But our parliamentarian tells us that the only rule of the conference is that a majority of conferees have to sign the conference report for it to go back to the two houses.
"Under our reading of the appointment of your conferees, you have 22 Democrats and 20 Republicans. While I know some conferees are appointed for only some sections of the bill, our parliamentarian is concerned that at the end of the day, when we have to meet that statutory requirement of a majority of the conferees signing, that we might have a problem in terms of the partisan makeup of your conference.
"My suggestion, Mr. Chairman, would be for the parliamentarians of the House and Senate to meet and for us to come up with a solution. My guess would be that you could simply name conferees in the appropriate proportion, and then, if some Democrats want to step aside for others to sit in and participate in that discussion, they could.
"But, obviously, in the end we don't want to end up with a situation where one party is in the majority and yet the other party has the majority of conferees in terms of signing the conference report.
"I don't want to disappoint anybody, but basically, I believe that problem needs to be solved.
"Let me turn to the bill itself. Throughout our deliberations in the Senate, I have operated under a very simple test, and that is the reason for doing this bill is to expand both the volume and the quality of financial services, and to do it in a way that will end up producing lower prices for the American consumer. I do not have any other objectives in the bill other than those joint objectives.
"I do want to raise six issues very briefly that I believe that we are going to have to deal with, and I wanted to get them out on the table.
"The first issue is how a bank should provide these expanded financial services. Should they provide them within the structure of the bank in what we call operating subsidiaries or should they provide them through affiliates of holding companies? This is obviously a very big issues. The chairman of the board of the Federal Reserve Bank has said that while he is very much in favor of us passing this bill, that he would rather have no bill -- and he believes that it would be better for the country to have no bill -- than to have operating subsidiaries as the form or the structure in which the expanded services would occur.
"Obviously, we are going to have to find a way to solve this problem. I feel very strongly about this. I believe that Chairman Greenspan is correct. I believe there are safety and soundness problems. I believe there are subsidy problems. I believe there are competitive problems with operating subsidiaries.
"In terms of privacy, this is a very important issue. We have held one hearing on privacy in the Senate. We have had members of Congress testify, including members of the two committees here from the House. I believe that this ought to be dealt with separately on a separate bill. I think it is too important to be a rider in this bill, and while I know there are strong feelings about it -- I have strong feelings about privacy -- I believe it is a big enough issue that we need to complete our hearings, and we need to legislate separately in my opinion on this subject.
"In terms of unitary thrift companies, I believe the provision in the House does represent a compromise that perhaps we could support in the Senate. I believe that moving from the Fed to maybe the FDIC as the determining agency as to whether there are safety and soundness concerns about the sale of thrift charters that are affiliated with commercial interests would be a better approach, but this is a very serious issue for those of us who remember that we had thrifts that went broke before Congress provided money for the closure of troubled thrifts. Commercial interests came into states like mine and literally put billions of dollars into troubled thrifts, saving us that money, and there are many of us who are concerned about going back now and changing their charter.
"We all know the Community Reinvestment Act dispute. The good news is that we adopted an amendment unanimously in the Senate on a voice vote that provides sunshine in this area by requiring that future CRA agreements be made public. I do not think there will be any objection in the conference to that provision. This is an area where there are very strong feelings, and I think we are going to have to try to work to see if we can reach a consensus in this area.
"Let me just mention very briefly two other areas. The whole bank securities activities issue is, I believe, a very contentious issues, at least from my point of view. I cannot imagine that we would give an agency like the Securities and Exchange Commission the unilateral power to determine what is a security and what is a banking product. I think our approach in the Senate -- which is when the Fed and the SEC agree, they have got a determination, but where they do not agree, they would both present their case before an appellate Federal court -- it is simply a better way to do it. I think we have very real concerns about getting the SEC into regulating swaps which have primarily been banking products. I think there is a real concern about trust functions, especially in smaller banks, and a potential effort by the Securities and Exchange Commission to basically get in the business of regulating trust departments.
"Finally, I have a very great concern about your association of registered agents and brokers. I see this as really a step toward federalizing the regulation of insurance. I am concerned that this is a first step and may be an irreversible step toward repealing McCarran-Ferguson, and I think this is an area that is going to take a lot of effort on our part to try to deal with.
"Having that said, there is a lot of work to be done, but I think the payoff for getting it done is big. I want to say to you that we in the Senate are willing to meet as often as we have to meet, as long as we have to meet, to work these things out. I think we can, if we focus on what we are trying to achieve here, work out many of these differences, and I think in many areas, we have got to differentiate between items that are directly related to the goals of this bill -- knocking down these barriers between banking and insurance and banking and securities -- and those items that are not directly related to achieving this objective are items that we ought to look at simply dropping out of the bill.
"I cannot help but notice that your bill is much, much longer than ours, twice as long, and probably a good beginning would simply be to throw away half of your bill, and then we could begin with our bill and begin to take things out of it. Then, pretty soon, we would be down to the things that we agree on, and then we could get our pictures taken and celebrate the passage of this bill."
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