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Campaign for Justice
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This site contains copyrighted material the use of which has not always been specifically authorized by the copyright owner. I am
making such material available in my efforts to advance understanding of environmental, political, human rights, economic,
democracy, scientific, and social justice issues, etc. I believe this constitutes a 'fair use' of any such copyrighted material as provided
for in section 107 of the US Copyright Law. In accordance with Title 17 U.S.C. Section 107, the material on this site is distributed
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Mar 13, 2008 - - WASHINGTON, DC – Senator Chris Dodd (D-CT), Chairman of the Senate Committee on Banking,
Housing, and Urban Affairs, yesterday voiced his deep concerns about allegations that Alphonso Jackson,
Secretary of the Department of Housing and Urban Development (HUD), has acted improperly in granting federal
contracts. After raising the issue with Secretary Jackson at a HUD oversight hearing, the Chairman outlined his
concerns and questions in a letter sent yesterday.
“The Banking Committee takes seriously its responsibility to provide effective oversight of the Department of
Housing and Urban Development,” the letter states. “It is incumbent upon us to ensure that taxpayer funds are
used properly and legally by the Department. Unfortunately, allegations over the last two years, in addition to
findings by the Inspector General of HUD, raise troubling questions about whether the Department has abused
taxpayer funds and acted improperly in federal contracting.”
The letter continues: “It is extremely important that the duties of the Department be carried out effectively and within
the limits of the law. These allegations, if true, indicate a serious and systemic problem at the senior staff level in
effectively and properly carrying out the Department’s mission.”
Tuesday, January 22, 2008
Glass-Steagall
A chronology tracing the life of the Glass-Steagall Act, from its passage in 1933 to its death throes in the 1990s,
and how Citigroup's Sandy Weill dealt the coup de grâce.
1933
Glass-Steagall Act creates new banking landscape
Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see
market speculation engaged in by banks during the 1920s as a cause of the crash.
In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation
that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to
underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose
overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The
new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple
lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC),
insuring bank deposits, and strengthens the Federal Reserve's control over credit.
The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor,
drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and
Currency Committee to answer for their role in the stock-market crash.
In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding
companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another
state.
1960s-70s
First efforts to loosen Glass-Steagall restrictions
Beginning in the 1960s, banks lobby Congress to allow them to enter the municipal bond market, and a lobbying
subculture springs up around Glass-Steagall. Some lobbyists even brag about how the bill put their kids through
college.
In the 1970s, some brokerage firms begin encroaching on banking territory by offering money-market accounts that
pay interest, allow check-writing, and offer credit or debit cards.
1986-87
Fed begins reinterpreting Glass-Steagall; Greenspan becomes Fed chairman
In December 1986, the Federal Reserve Board, which has regulatory jurisdiction over banking, reinterprets Section
20 of the Glass-Steagall Act, which bars commercial banks from being "engaged principally" in securities
business, deciding that banks can have up to 5 percent of gross revenues from investment banking business. The
Fed Board then permits Bankers Trust, a commercial bank, to engage in certain commercial paper (unsecured,
short-term credit) transactions. In the Bankers Trust decision, the Board concludes that the phrase "engaged
principally" in Section 20 allows banks to do a small amount of underwriting, so long as it does not become a large
portion of revenue. This is the first time the Fed reinterprets Section 20 to allow some previously prohibited
activities.
In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act,
overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from
Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to
handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-
backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three "outside checks" on
corporate misbehavior had emerged since 1933: "a very effective" SEC; knowledgeable investors, and "very
sophisticated" rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower
loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it
boiled down to the issue of two different cultures - a culture of risk which was the securities business, and a culture
of protection of deposits which was the culture of banking.
In March 1987, the Fed approves an application by Chase Manhattan to engage in underwriting commercial paper,
applying the same reasoning as in the 1986 Bankers Trust decision, and in April it issues an order outlining its
rationale. While the Board remains sensitive to concerns about mixing commercial banking and underwriting, it
states its belief that the original Congressional intent of "principally engaged" allowed for some securities activities.
The Fed also indicates that it will raise the limit from 5 percent to 10 percent of gross revenues at some point in the
future. The Board believes the new reading of Section 20 will increase competition and lead to greater convenience
and increased efficiency.
In August 1987, Alan Greenspan -- formerly a director of J.P. Morgan and a proponent of banking deregulation --
becomes chairman of the Federal Reserve Board. One reason Greenspan favors greater deregulation is to help U.
S. banks compete with big foreign institutions.
1989-1990
Further loosening of Glass-Steagall
In January 1989, the Fed Board approves an application by J.P. Morgan, Chase Manhattan, Bankers Trust, and
Citicorp to expand the Glass-Steagall loophole to include dealing in debt and equity securities in addition to
municipal securities and commercial paper. This marks a large expansion of the activities considered permissible
under Section 20, because the revenue limit for underwriting business is still at 5 percent. Later in 1989, the Board
issues an order raising the limit to 10 percent of revenues, referring to the April 1987 order for its rationale.
In 1990, J.P. Morgan becomes the first bank to receive permission from the Federal Reserve to underwrite
securities, so long as its underwriting business does not exceed the 10 percent limit.
1980s-90s
Congress repeatedly tries and fails to repeal Glass-Steagall
In 1984 and 1988, the Senate passes bills that would lift major restrictions under Glass-Steagall, but in each case
the House blocks passage. In 1991, the Bush administration puts forward a repeal proposal, winning support of
both the House and Senate Banking Committees, but the House again defeats the bill in a full vote. And in 1995,
the House and Senate Banking Committees approve separate versions of legislation to get rid of Glass-Steagall,
but conference negotiations on a compromise fall apart.
Attempts to repeal Glass-Steagall typically pit insurance companies, securities firms, and large and small banks
against one another, as factions of these industries engage in turf wars in Congress over their competing interests
and over whether the Federal Reserve or the Treasury Department and the Comptroller of the Currency should be
the primary banking regulator.
1996-1997
Fed renders Glass-Steagall effectively obsolete
In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-
shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of
their business in securities underwriting (up from 10 percent).
This expansion of the loophole created by the Fed's 1987 reinterpretation of Section 20 of Glass-Steagall effectively
renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business
would be able to stay under the 25 percent limit on revenue. However, the law remains on the books, and along
with the Bank Holding Company Act, does impose other restrictions on banks, such as prohibiting them from
owning insurance-underwriting companies.
In August 1997, the Fed eliminates many restrictions imposed on "Section 20 subsidiaries" by the 1987 and 1989
orders. The Board states that the risks of underwriting had proven to be "manageable," and says banks would have
the right to acquire securities firms outright.
In 1997, Bankers Trust (now owned by Deutsche Bank) buys the investment bank Alex. Brown & Co., becoming the
first U.S. bank to acquire a securities firm.
1997
Sandy Weill tries to merge Travelers and J.P. Morgan; acquires Salomon Brothers
In the summer of 1997, Sandy Weill, then head of Travelers insurance company, seeks and nearly succeeds in a
merger with J.P. Morgan (before J.P. Morgan merged with Chemical Bank), but the deal collapses at the last
minute. In the fall of that year, Travelers acquires the Salomon Brothers investment bank for $9 billion. (Salomon
then merges with the Travelers-owned Smith Barney brokerage firm to become Salomon Smith Barney.)
April 1998
Weill and John Reed announce Travelers-Citicorp merger
At a dinner in Washington in February 1998, Sandy Weill of Travelers invites Citicorp's John Reed to his hotel room
at the Park Hyatt and proposes a merger. In March, Weill and Reed meet again, and at the end of two days of talks,
Reed tells Weill, "Let's do it, partner!"
On April 6, 1998, Weill and Reed announce a $70 billion stock swap merging Travelers (which owned the
investment house Salomon Smith Barney) and Citicorp (the parent of Citibank), to create Citigroup Inc., the world's
largest financial services company, in what was the biggest corporate merger in history.
The transaction would have to work around regulations in the Glass-Steagall and Bank Holding Company acts
governing the industry, which were implemented precisely to prevent this type of company: a combination of
insurance underwriting, securities underwriting, and commecial banking. The merger effectively gives regulators
and lawmakers three options: end these restrictions, scuttle the deal, or force the merged company to cut back on
its consumer offerings by divesting any business that fails to comply with the law.
Weill meets with Alan Greenspan and other Federal Reserve officials before the announcement to sound them out
on the merger, and later tells the Washington Post that Greenspan had indicated a "positive response." In their
proposal, Weill and Reed are careful to structure the merger so that it conforms to the precedents set by the Fed in
its interpretations of Glass-Steagall and the Bank Holding Company Act.
Unless Congress changed the laws and relaxed the restrictions, Citigroup would have two years to divest itself of
the Travelers insurance business (with the possibility of three one-year extensions granted by the Fed) and any
other part of the business that did not conform with the regulations. Citigroup is prepared to make that promise on
the assumption that Congress would finally change the law -- something it had been trying to do for 20 years --
before the company would have to divest itself of anything.
Citicorp and Travelers quietly lobby banking regulators and government officials for their support. In late March and
early April, Weill makes three heads-up calls to Washington: to Fed Chairman Greenspan, Treasury Secretary
Robert Rubin, and President Clinton. On April 5, the day before the announcement, Weill and Reed make a
ceremonial call on Clinton to brief him on the upcoming announcement.
The Fed gives its approval to the Citicorp-Travelers merger on Sept. 23. The Fed's press release indicates that "the
Board's approval is subject to the conditions that Travelers and the combined organization, Citigroup, Inc., take all
actions necessary to conform the activities and investments of Travelers and all its subsidiaries to the
requirements of the Bank Holding Company Act in a manner acceptable to the Board, including divestiture as
necessary, within two years of consummation of the proposal. ... The Board's approval also is subject to the
condition that Travelers and Citigroup conform the activities of its companies to the requirements of the Glass-
Steagall Act."
1998-1999
Intense new lobbying effort to repeal Glass-Steagall
Following the merger announcement on April 6, 1998, Weill immediately plunges into a public-relations and
lobbying campaign for the repeal of Glass-Steagall and passage of new financial services legislation (what
becomes the Financial Services Modernization Act of 1999). One week before the Citibank-Travelers deal was
announced, Congress had shelved its latest effort to repeal Glass-Steagall. Weill cranks up a new effort to revive
bill.
Weill and Reed have to act quickly for both business and political reasons. Fears that the necessary regulatory
changes would not happen in time had caused the share prices of both companies to fall. The House Republican
leadership indicates that it wants to enact the measure in the current session of Congress. While the Clinton
administration generally supported Glass-Steagall "modernization," but there are concerns that mid-term elections
in the fall could bring in Democrats less sympathetic to changing the laws.
In May 1998, the House passes legislation by a vote of 214 to 213 that allows for the merging of banks, securities
firms, and insurance companies into huge financial conglomerates. And in September, the Senate Banking
Committee votes 16-2 to approve a compromise bank overhaul bill. Despite this new momentum, Congress is yet
again unable to pass final legislation before the end of its session.
As the push for new legislation heats up, lobbyists quip that raising the issue of financial modernization really
signals the start of a fresh round of political fund-raising. Indeed, in the 1997-98 election cycle, the finance,
insurance, and real estate industries (known as the FIRE sector), spends more than $200 million on lobbying and
makes more than $150 million in political donations. Campaign contributions are targeted to members of
Congressional banking committees and other committees with direct jurisdiction over financial services legislation.
Oct.-Nov. 1999
Congress passes Financial Services Modernization Act
After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more
than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of
a Depression-era relic.
On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main
sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for
lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after
Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to
get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations
resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal
is unclear.
On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19
administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov.
4, and Clinton signs it into law later that month.
Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury
Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises
eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called
Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had
some important news, the secretary reportedly quipped, "You're buying the government?"
Committee Documents Online -- 106th Congress
________________________________________
EXECUTIVE SUMMARY
of S. 900
The Financial Services Modernization Act of 1999
(as passed by the Senate Banking Committee on March 4, 1999)
• Repeals Glass-Steagall. Allows US financial services providers, including banks, securities firms, and
insurance companies to affiliate with each other and enter each other's markets. The affiliation of financial services
providers allows open and free competition in the financial services industry.
• Bank holding company structure. Generally bank holding company affiliates will be the vehicles through which
to engage in a broad range of financial activities.
• Qualification to engage in financial activities. Requires all subsidiary insured depository institutions of the
holding company to be well capitalized and well managed in order for the holding company to engage in broader
financial activities. Divestiture and/or other restrictions and limitations may be required in the event of
noncompliance.
• Operating subsidiary activities. Allows national banks with total assets of $1 billion or less to conduct financial
activities through operating subsidiaries. In order to conduct such activities through a subsidiary, the national bank
and all insured depository institution affiliates must be well capitalized and well managed and the national bank
must receive the approval of the OCC based on those criteria. A national bank subsidiary engaging in such
activities will be subject to affiliate transaction restrictions and to anti-tying prohibitions. The bank also must deduct
from capital the amount of its investment in the subsidiary. National banks with total assets exceeding $1 billion
must conduct financial activities through holding company affiliates. National banks of any size may engage in
financial activities on an agency basis through an operating subsidiary. National banks lawfully conducting
activities through operating subsidiaries as of the date of enactment will be permitted to continue such activities.
• Municipal revenue bond underwriting. Authorized as a permissible banking activity. Therefore, this activity may
be conducted by the bank directly or in an operating subsidiary.
• Functional regulation. Relies on strong functional regulation of the banking, insurance and securities
components of the holding company, and establishes the Federal Reserve as the umbrella regulator.
• Reduces regulatory burdens. Streamlines regulatory burdens by requiring the Federal Reserve as umbrella
supervisor to rely to the extent possible on reports and examinations conducted by other functional regulators. Also
requires sharing of information among affected regulatory agencies as necessary to carry out their official duties.
• Competition protection rules. Requires the Federal banking agencies to issue joint consumer protection
regulations governing the retail sale of insurance products by banks, their employees, or others who engage in
such activities on behalf of the banks. The Federal banking regulators must consult with the States in the process
of formulating their joint rules. Provisions of Federal rules deemed more protective will preempt state law or rules
unless within three years of Federal notification the State legislatures enact laws opting out of such coverage.
• Expedited dispute resolution process. Establishes a dispute resolution process between Federal banking
regulators and state insurance regulators as to whether any product is or is not insurance. The court is directed to
decide the action on the merits, according equal deference to the Federal regulator and the State insurance
regulators.
• Elimination of SAIF special reserve funds. The FDIC will be able to reverse an accounting entry designating
about $1 billion of SAIF dollars to a SAIF special reserve, which is not available to the FDIC unless the SAIF
designated reserve ratio declines by about 50% and would be expected to remain at that level for more than one
year.
• FICO assessment. Freezes the BIF-member FICO assessment for 3 years. This represents a saving of about
$18,000 per year for a bank with total assets of $100 million. It is, therefore, important to smaller community banks.
This freeze is important because it will give Congress time to consider other important issues such as the merger
of the FDIC insurance funds, merger of bank and thrift charters, and consolidation of regulatory agencies such as
the OCC and the OTS. Since 1980, there have been at least 13 congressional hearings on the soundness of the
Federal deposit insurance system. There have been 11 proposals introduced concerning consolidation of Federal
regulation of banks and savings and loan institutions; and 5 proposals to merge bank and thrift charters. These are
significant issues that now must be addressed by the Congress.
• GAO study of S corporation revisions and impact on community banks. Provide for a GAO study to be
completed within 6 months on the impact of certain changes to S corporation rules such as increasing the number
of allowable shareholders, and the potential impact of such changes on community banks.
• CRA meaningful examinations. Establishes a rebuttable presumption of CRA compliance with respect to an
insured depository institution that has achieved a "satisfactory" or better rating in its most recent CRA exam and in
each of its CRA exams during the immediately preceding 36-month period. The presumption of compliance may be
rebutted by any person presenting substantial verifiable information to the contrary.
• CRA exemption for small rural banks and savings and loan association. Banks and savings and loan
associations with total assets less than $100 million and located in nonmetropolitan areas are exempted from the
provisions of the CRA. This exemption only applies to 38% of all banks and savings and loans, which control only
2.8% of banking assets nationwide.
• Bank securities activities. While taking away the broad exemption that banks have from registration as a
broker or dealer under the securities laws, the bill makes clear that banks serving as custodians to self-directed
IRAs will not be required to push these activities out of the bank and into a registered broker or dealer. Banks often
function as service providers to pension, retirement, profit sharing, bonus, thrift, savings, incentive and other similar
plans. The Senate Committee bill adds service providers to these plans to the definition of fiduciary, ensuring that
these activities will not have to be moved out of the bank and into a registered broker-dealer subject to SEC
regulation. The Senate Committee bill allows banks to function as stock transfer agents without having to push
these functions out to a separate subsidiary or affiliate. Stocks can be purchased easily through payroll deductions
and automatic withdrawals from bank accounts, as well as by checks. The SEC, with the concurrence of the
Federal Reserve Board, may determine by regulation those new products which, if offered or sold by a bank, would
subject it to registration with the SEC. A bank may offer or sell "traditional banking products," as defined in this
section, without becoming subject to registration with the SEC.
• Unitary thrift holding companies. Terminates current unitary savings and loan holding company authority for all
applications other than those approved or pending as of February 28, 1999. However, the bill does not restrict the
transferability of existing unitary thrift holding companies.
• Federal Home Loan Bank reforms. Includes certain provisions to modernize the operations of the Federal
Home Loan Bank System. As of June 1, 2000, membership in the Federal Home Loan Bank System will be
voluntary. Community banks (those banks with total assets less than $500 million) will be able to become
members without regard to the percentage of total assets represented by residential mortgage loans. Community
banks will be able to use advances for small business, small farm and small agribusiness lending. Also allows
community banks to collateralize advances with small business and agricultural loans. Modifies the governance
structure of the system to give more authority to the regional banks. The Senate Committee bill also changes the
financing mechanism for payment of interest on the Refinancing Corporation bonds. The flat fee amount assessed
upon each Federal Home Loan Bank will be replaced by a percentage (20.75%) of system net earnings. Rather
than address Federal Home Loan Bank System capital in this legislation, the Senate Committee bill directs the
GAO to conduct a study of possible revisions to the capital structure of the Federal Home Loan Bank System.
Recent Developments in Financial Services Modernization
Washington, DC, February 18, 1999 - On February 10, the House Banking and Financial Services Committee held
a hearing on H.R. 10, the "Financial Services Act of 1999." (The Institute's testimony is available elsewhere on this
site.) In an unexpected development shortly before the hearing, SEC Chairman Arthur Levitt informed Committee
Chairman James Leach (R-IA) that the SEC cannot support H.R. 10 as currently drafted. Chairman Levitt's
objectives for financial modernization are summarized below.
SEC Opposes Current H.R. 10
In a departure from last year's support, SEC Chairman Levitt, in a February 4 letter to Banking Committee Chairman
Leach, said that the Commission cannot support H.R. 10 as currently drafted. These concerns were reflected in the
SEC's testimony before the House Banking Committee on February 12. Chairman Levitt provided an outline of the
SEC's objectives for financial modernization, which include:
• maintaining aggressive SEC policing and oversight of all securities activities;
• protecting mutual fund investors with uniform adviser regulations and conflict-of-interest rules;
• safeguarding customers by enabling the SEC to set net capital rules for all securities businesses;
• protecting investors by applying the SEC sales practice rules to all securities activities; and
• enhancing global competitiveness through voluntary broker-dealer holding companies.
Chairman Leach has announced that the House Banking Committee markup on H.R. 10 will take place on March
4. Meanwhile, Senate Banking Committee Chairman Phil Gramm (R-TX) has scheduled hearings for February 23,
24, and 25, with Federal Reserve Board Chairman Alan Greenspan testifying on February 23. Chairman Gramm
has rescheduled markup on the legislation for March 3.
H.R. 665, "Financial Services Modernization Act"
On the same day as the hearing, Representative John LaFalce (D-NY), the ranking Democrat of the House Banking
Committee, introduced H.R. 665, the "Financial Services Modernization Act of 1999." While there are several
differences between this bill and H.R. 10, one important similarity is that in all key aspects the functional regulation
provisions are the same. The most significant difference between the two bills for the investment company industry
is the creation of a commercial basket. H.R. 665 would allow the creation of a 15 percent commercial basket.
Specifically, this would allow qualified bank holding companies to own an interest in a commercial, nonfinancial
firm, so long as that firm generates less than 15 percent of the holding company's gross domestic revenues. A
cutoff level would prohibit a qualified bank holding company from acquiring any commercial firm with consolidated
assets exceeding $750 million, effectively precluding acquisition of the top 1,000 commercial firms.
The Administration generally supports the LaFalce approach; the only exception is the Administration's continued
opposition to the commercial basket. In particular, the Treasury supports the bill's compromise on the activities of
national bank operating subsidiaries that will include all new financial activities except insurance underwriting and
real estate development. Inability to resolve this issue was the source of the Treasury Department's veto
recommendation last Congress.
HR10: Update on the Financial Services Modernization Act
Ann vom Eigen, Esq. and Joel A. Stein, Esq.
The US Senate passed S.900 its own version of the "Financial Services Modernization" legislation on May 6, 1999.
This bill explicitly allows national banks to sell title insurance through a bank holding company affiliate or from a
bank operating subsidiary.
The bill also permits the sale of insurance by agents managed from a "small-town" national bank branch because
it does not repeal the authorization for national bank insurance sales from towns of less than 5,000 in population.
Therefore, the bill would allow national banks to also sell title insurance through a bank holding company affiliate,
directly from a "small town" branch office, or from a bank operating subsidiary, as there is no specific language
dealing with the sale of title insurance in the bill.
S.900 also allows title insurance underwriting from a national bank as it fails to overturn an Office of the
Comptroller of the Currency opinion which has been interpreted as allowing national banks to underwrite title
insurance. While the bill generally provides that insurance underwriting would be done through affiliates, the bill
also would allow underwriting from an operating subsidiary for capitalized banks of up to one billion dollars in
assets.
After the passage of S.900, the House Commerce Committee turned its attention to H.R. 10, its version of the
Financial Services Modernization Act. There are presently two House versions of the bill: the House Banking
Committee’s and the House Commerce Committee’s. These versions must now be combined for floor action. All
bills considered on the House floor must be given a "rule" by the Rules Committee, which will decide which version
of the bill will be considered as base text.
The Financial Services Modernization Act of 1999 passed the House Banking Committee on March 10, 1999. It
provides as follows:
Title Insurance Underwriting
The bill would prohibit national banks from underwriting title insurance from the bank or an operating subsidiary,
although it would grandfather any national bank engaged in title insurance underwriting as of the date of enactment
of the act. It also contains language added in the last Congress which prohibits national banks which provide
insurance through affiliates or subsidiary from engaging in title insurance underwriting. It would otherwise allow
underwriting through a bank holding company affiliate.
Title Insurance Sales
The bill would grandfather any national banks engaged in sales activity as of the date of enactment of the act, would
otherwise prohibit sales from the bank or through an operating subsidiary, and would allow sales through a bank
holding company affiliate.
The Financial Services Modernization Act of 1999 reported from the House Commerce Committee on June 10,
1999 provides as follows:
Section 305 of H.R. 10
This section establishes special rules that apply to the title insurance activities of national banks and their affiliates.
Section 305(a) makes clear that, as a general matter, no national bank, and no subsidiary of a national bank, may
engage in any activity, involving the underwriting or sale of title insurance. This prohibition thus eliminates any
power that national banks and national bank subsidiaries might have to underwrite or sell title insurance products
under current law. The prohibition, however, is subject to two exceptions.
First, Section 305(b) establishes a "parity" exception to the general prohibition that applies only to title insurance
sales activities. Under the exception, national banks may sell title insurance products in any State in which state-
chartered banks are authorized to do so but such sales must be undertaken "in the same matter, to the same
extent, and under the same restrictions" that apply to such state-chartered banks. Thus, if state chartered banks in
a state must comply with licensing, "title plant’, data base financial responsibility, and where relevant, practice of
law requirements, national banks also must do so. Section 305(b) makes clear that, if the basis of the authority for
state-chartered banks to sell title insurance in any State is based on a state "wild-card" provision that authorizes
state banks to exercise any power that national banks may exercise---based on, for example a "small town" or
"incidental to banking" provision---that "authority" does not entitle national banks located in that State to take
advantage of the parity power authorized under Section 305(b).
Second, Section 305(c) establishes "grandfather" exceptions to the general title insurance activities prohibition set
forth in Section 305(a). Section (c)(1) permits any national bank, and any national bank subsidiary, that was actively
and lawfully in any title insurance activities as of the date of the enactment of this Act to continue to engage in those
activities. Section 305(c)(2) and (3) establish "push-out" provisions that apply only to title insurance underwriting
activities that are grandfathered under Section 305(c)(1).
Together, the sections require that (1) if a bank holding company affiliate is engaged in any underwriting activities
(or is otherwise providing insurance as principal), then neither the bank nor a bank subsidiary may directly engage
in title insurance underwriting activities---those activities must be instead be conducted through the affiliate; (2) if a
bank has a subsidiary that is engaged in underwriting activities (or is otherwise providing insurance as principal)
and does not have an affiliate engaged in such activities, then the bank may not directly engage in title insurance
underwriting activities but must instead conduct such underwriting activities through its underwriting subsidiary.
The American Land Title is still seeking an amendment to H.R. 10 to require that States expressly authorize title
insurance powers for its state banks before national banks can sell title insurance. The status of this legislation is
changing from week to week, and it is probable that by the time this article goes to print, the Rules Committee will
have completed its action on H.R. 10.
The MCA has been in contact with Rep. Edward Markey who is a member of the Commerce Committee and with
Rep. Joseph Moakley who is a member of the Rules Committee. We have shown that grass roots advocacy can
work. Please contact the MCA office for the latest update on H.R. 10 and contact your local Congressman.
(Editor’s Note: Ann vom Eigen is legislative counsel for the American Land Title Association; Joel Stein is a
member of the MCA Board of Directors and chairs its Title Insurance and National Affiars Committee.)
** On July 1, 1999 the House of Representatives passed H.R. 10. ALTA had sought an amendment to H.R. 10
which would require that states expressly authorize title insurance power for its state banks before national banks
could sell title insurance. This amendment was not permitted to be debated during the H.R. 10 floor debate. In
addition, the House adopted the Commerce Committee version of H.R. 10 with the “parity” exception and the
“grandfather” exceptions.
However, ALTA does note that amendments included in the House version of H.R. 10 do ensure a regulatory
framework for bank title insurance sales and state regulations. The amendments: (1) Closed the bank “small town”
loophole for title insurance that currently allows bank insurance sales (including title insurance) in places with
fewer than 5,000 people; (2) Eliminated state “wildcard” statutes---in which most state banks get national bank
powers---as a way for national banks to get parity with state bank title insurance authority; (3) Limited national bank
title insurance sales to affiliates in states whose banks can’t sell title insurance; and, (4) Bound national bank title
sales to the same manner, to the same extent and under the same restrictions under which state banks can sell
title insurance, and obtained explanatory language that bank title agencies must comply with state title plant,
licensing and financial regulation requirements. 131.109.225.33/5.93
282 milliseconds
Senate Banking Committee Approves Financial Services Reform Legislation
Washington, DC, March 18, 1999 - The Senate Banking, Housing, and Urban Affairs Committee recently approved
the Financial Services Modernization Act of 1999, legislation to modernize the nation's financial services laws. The
bill was passed 11-9 on a straight party-line vote. Among other provisions, the Senate bill would:
• repeal the Glass-Steagall Act's provisions that restrict bank and securities firm affiliations,
• amend the Bank Holding Company Act to permit affiliations among financial services companies, including
banks, registered investment companies, securities firms, and insurance companies,
• expand the authority of bank holding companies to engage in activities that are "financial in nature,"
• prescribe the existing authority of the Federal Reserve Board when exercising its general supervisory authority
to regulate, examine, or take enforcement action against regulated, non-bank subsidiaries of the holding company
(such as investment advisers, broker/dealers, and insurance companies), and require a determination by the FRB
that actions by a regulated subsidiary within the holding company pose a material risk to an affiliated bank or the
domestic or international payments system,
• apply the same provisions to the general supervisory authority of the Federal Deposit Insurance Corporation,
the Office of the Comptroller of the Currency, and the Office of Thrift Supervision,
• continue the Securities and Exchange Commission's primary examination authority over investment
companies,
• loosen Community Reinvestment Act requirements somewhat and exempt from CRA requirements banks
with less than $100 million in assets that are outside of metropolitan areas,
• permit the FRB to authorize activities that are complementary to financial activities or any other service that
does not pose a substantial safety and soundness risk (there is no provision to allow for grandfathering of existing
commercial activities of bank holding companies),
• expand "merchant banking" authority for bank holding companies which would permit investments in
nonfinancial companies as part of "bona fide underwriting or merchant banking activity,"
• bar any company engaged in commercial or nonfinancial activities from owning a thrift (there is a grandfather
provision for existing ownerships),
• amend the various exemptions for banks and their activities under the Investment Company and Investment
Advisers Acts of 1940 and the Securities Exchange Act of 1934. Thus, certain bank activities that were previously
exempt would now be required to be conducted in a broker-dealer. Also, banks will be required to register as
investment advisers to investment companies.
Banking Committee Chairman Gramm expects the bill to be considered in the full Senate in early April. President
Clinton has clearly stated that he will veto the legislation unless certain provisions of the bill are amended-
particularly those affecting the Community Reinvestment Act.
U.S. Senate Roll Call Votes 106th Congress - 1st Session
as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate
Vote Summary
Question: On the Conference Report (S.900 Conference Report )
Vote Number: 354 Vote Date: November 4, 1999, 03:30 PM
Required For Majority: 1/2 Vote Result: Conference Report Agreed to
Measure Number: S. 900
Measure Title: An Act to enhance competition in the financial services industry by providing a prudential framework
for the affiliation of banks, securities firms, and other financial service providers, and for other purposes.
Vote Counts: YEAs 90
NAYs 8
Present 1
Not Voting 1
snip
Grouped By Vote Position
YEAs —90
Abraham (R-MI)
Akaka (D-HI)
Allard (R-CO)
Ashcroft (R-MO)
Baucus (D-MT)
Bayh (D-IN)
Bennett (R-UT)
Biden (D-DE)
Bingaman (D-NM)
Bond (R-MO)
Breaux (D-LA)
Brownback (R-KS)
Bunning (R-KY)
Burns (R-MT)
Byrd (D-WV)
Campbell (R-CO)
Chafee, L. (R-RI)
Cleland (D-GA)
Cochran (R-MS)
Collins (R-ME)
Conrad (D-ND)
Coverdell (R-GA)
Craig (R-ID)
Crapo (R-ID)
Daschle (D-SD)
DeWine (R-OH)
Dodd (D-CT)
Domenici (R-NM)
Durbin (D-IL)
Edwards (D-NC)
Enzi (R-WY)
Feinstein (D-CA)
Frist (R-TN)
Gorton (R-WA)
Graham (D-FL)
Gramm (R-TX)
Grams (R-MN)
Grassley (R-IA)
Gregg (R-NH)
Hagel (R-NE)
Hatch (R-UT)
Helms (R-NC)
Hollings (D-SC)
Hutchinson (R-AR)
Hutchison (R-TX)
Inhofe (R-OK)
Inouye (D-HI)
Jeffords (R-VT)
Johnson (D-SD)
Kennedy (D-MA)
Kerrey (D-NE)
Kerry (D-MA)
Kohl (D-WI)
Kyl (R-AZ)
Landrieu (D-LA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (D-CT)
Lincoln (D-AR)
Lott (R-MS)
Lugar (R-IN)
Mack (R-FL)
McConnell (R-KY)
Moynihan (D-NY)
Murkowski (R-AK)
Murray (D-WA)
Nickles (R-OK)
Reed (D-RI)
Reid (D-NV)
Robb (D-VA)
Roberts (R-KS)
Rockefeller (D-WV)
Roth (R-DE)
Santorum (R-PA)
Sarbanes (D-MD)
Schumer (D-NY)
Sessions (R-AL)
Smith (R-NH)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA)
Stevens (R-AK)
Thomas (R-WY)
Thompson (R-TN)
Thurmond (R-SC)
Torricelli (D-NJ)
Voinovich (R-OH)
Warner (R-VA)
Wyden (D-OR)
NAYs —8
Boxer (D-CA)
Bryan (D-NV)
Dorgan (D-ND)
Feingold (D-WI)
Harkin (D-IA)
Mikulski (D-MD)
Shelby (R-AL)
Wellstone (D-MN)
Present - 1
Fitzgerald (R-IL)
Not Voting - 1
McCain (R-AZ)
Senate.gov 11/4/99
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00354
STATE OF NEW YORK
EXECUTIVE CHAMBER
GEORGE E. PATAKI, GOVERNOR
Press Office
518-474-8418
212-681-4640
http://www.state.ny.us
FOR RELEASE:
IMMEDIATE, Thursday
May 6, 1999
GOVERNOR ANNOUNCES FINANCIAL MODERNIZATION BILL
Legislation Would Protect Consumers, Enhance Competition for Financial Services
Governor George E. Pataki today unveiled the New York State Financial Services Modernization Act of 1999,
designed to ensure that New York will remain the world’s financial capital by providing a competitive and attractive
environment for both domestic and international financial institutions while maintaining and enhancing important
consumer protections.
"Modernizing our Banking Law and Insurance Law is critical to ensure that New York will remain the world’s
financial capital," Governor Pataki said. "This legislation would maintain New York’s position as the world’s
financial capital and strengthen our tradition of strong consumer protections.
"By providing a competitive and attractive environment for both domestic and international financial firms, this bill
would enhance financial services available to New Yorkers while positioning New York’s financial services industry
to benefit from federal modernization efforts currently underway in Congress," the Governor said.
The Governor’s bill would repeal New York state statutes that mirror the federal Glass-Steagall Act, a Depression-
era banking law that prohibits certain affiliations between banks and securities firms. The bill would also break
down barriers to affiliations with insurers and other financial services providers and would usher in a new era for
New York’s financial services industry.
The Governor’s proposal is similar to the financial modernization initiative being undertaken at the federal level.
This initiative, known as "H.R. 10," has been considered during the last several sessions of Congress. H.R. 10
would modernize federal banking law in several ways, but would mainly expand the permitted affiliations between
financial services industries.
Passing legislation to modernize the banking industry in New York would allow many financial services entities in
the state to reap immediate benefits through expanded powers necessary to compete in the global marketplace.
Citigroup Co-Chairmen Sandy Weill and John Reed said, "We welcome Governor Pataki’s strong leadership in this
important national debate. We have encouraged Washington to reform the regulation of the financial services
industry and bring it from the 1930s into the 21st Century. New York has a proud history as an innovator and
incubator for many regulations later adopted by the federal government.
"Today, Governor Pataki has kept that faith necessary to maintain New York as the home of the financial services
industry for the nation and the world," Mr. Weill and Mr. Reed said. "His vision and leadership will chart a new
course that reflects the changing realities to today’s competitive marketplace. We hope New York’s example
galvanizes Washington to enact a comparable bill, but if that effort fails, it’s comforting to know that New York
stands ready."
Chase Manhattan Bank Chairman and CEO Walter V. Shipley said, "Chase enthusiastically supports Governor
Pataki’s proposals. The economic vitality of New York State is directly linked to the successes of its financial
services industry. This proposal puts New York in the forefront in support of the changes needed to enable its
financial services companies to continue to compete effectively in the changing global marketplace."
Merrill Lynch and Company, Inc. Chairman and CEO David H. Komansky said, "We commend Governor Pataki for
this far-sighted initiative, which will benefit every New Yorker who invests in the securities markets, holds an
insurance policy or has a checking account. Moreover, it will help New York advance its position as the global
leader in financial services."
The bill would make significant changes in the insurance industry by removing existing New York State law barriers
that limit the ability of property/casualty insurers to own banking and banking related subsidiaries. The bill also
increases the percentage of admitted assets that property/casualty insurers may invest in all subsidiaries to 20-
percent. In 1998, similar restrictions on the ability of life insurers to invest in banking subsidiaries were removed.
The Governor’s legislation underscores the State’s commitment to the concept of functional regulation of financial
services by requiring banks that engage in the insurance business be subject to regulation by the Insurance
Department and all applicable insurance laws and regulations. Subsidiaries of insurers that participate in banking
will be subject to the supervision of the appropriate banking regulators and all applicable banking laws and
regulations.
Modernization of New York law would also be advantageous, even in the absence of a change in federal law, where
banks are only subject to New York’s laws and regulations. For example, if a New York-chartered bank was a
wholesale bank and not FDIC-insured, it would not come under certain restrictive federal laws. For such wholesale
banks, which do not take retail deposits, the powers provided by this legislation are important and attractive.
If H.R. 10 does not pass Congress, then current federal law restrictions on the activities of New York banks will
remain unchanged. Under the Governor’s proposal, New York banks that are members of the Federal Reserve
System would still be subject to the federal Glass-Steagall restrictions on affiliations with securities firms, and
other New York banks would remain subject to the restrictions on subsidiaries’ activities under the Federal Deposit
Insurance Act.
Similarly, if this bill passed authorizing New York banks to engage in insurance underwriting, FDIC-insured State-
chartered banks would still be prohibited from insurance underwriting because this activity is directly prohibited by
current federal law for FDIC-insured banks and their subsidiaries.
Federal limitations also may apply to state banks that are members of the Federal Reserve System or which have a
holding company that is subject to regulation by the Federal Reserve System. In these cases, if an activity is
prohibited under both federal and state law, repealing state law prohibitions will be of no effect because such
banks will still be prohibited by federal law from engaging in these activities.
Acting Superintendent of Banks Elizabeth McCaul said, "New York’s banking system, dating back to 1851, has
served as an important historical model for United States banking policy, and the measure unveiled today will
continue that tradition. More importantly, it immediately offers New York’s financial industry, the backbone of our
state’s economy, the types of legal and operational structures that are enjoyed elsewhere in the world, permitting
New York institutions to better compete in the global economy."
Superintendent of Insurance Neil D. Levin said, "This bill is an important step in leveling the playing field within
New York’s financial services industry. Most states allow insurance companies to invest in banks and it is
essential for New York’s insurers to have these same tools so that they can compete effectively, both with their
counterparts in other states as well as more generally in the rapidly-changing financial services industry."
Specifically, the Governor’s bill would:
• Permit banks to buy and sell directly, or in a subsidiary, equity securities; to engage in merchant banking and
venture capital activities; to invest in real property; to engage in real estate brokerage and property management
activities; to buy and sell commodities as a principal, agent or broker; to underwrite and sell annuities; to
underwrite and sell life insurance, accident and health insurance, property and casualty insurance, and any other
type of insurance; and to engage in investment banking (i.e., to underwrite, buy and sell, and distribute securities);
• Permit the chartering of non-insured wholesale banks that may engage in the full spectrum of financial
services and products allowed by the bill;
• Permit property and casualty insurance companies to own a bank as is now permitted by life insurance
companies and similarly allow banks to own such insurance companies;
• Protect consumers by explicitly providing that all insurance activities would be subject to oversight by the State
Insurance Department;
• Provide anti-tying provisions preventing financial institutions from forcing consumers to purchase other
financial services;
• Set forth stringent disclosure requirements to be followed by banks when selling insurance products;
• Permit banks, when opening foreign branch offices, to engage in the business of banking and related
financial services to the extent locally permitted, including underwriting and distributing foreign corporate or
government securities; and
• Modernize archaic provisions of the State’s insurance law so as to permit property and casualty insurance
companies to invest in banking institutions.
March 1, 2002
Masters of Mean
Filed under: Financial Services Modernization Act, Senate Voting Record — is @ 4:34 pm
As a member of the Senate Finance Committee and the recipient of enormous banking contributions, Gramm did
an even bigger favor for the financial industry in 1999 when he sponsored the Financial Services Modernization Act
allowing banks, securities firms, and insurance companies to combine. The bill weakened the Community
Reinvestment Act, which requires banks to help meet the credit needs of low- and moderate-income
neighborhoods. Gramm described community groups that use the CRA as “protection rackets” that extort funds
from the poor, powerless banks. The bill is also a disaster for the privacy of bank customers and weakens
regulatory supervision. As Gramm proudly declared, “You’re not going to find a single bank, insurance company, or
securities company that will say they were hurt financially by this bill.”
Molly Ivins, Mother Jones March/April 2002
http://www.motherjones.com/commentary/power_plays/2002/03/mean.html
Comments Off
October 3, 2000
The Merchant Banking 8
Filed under: Banking Committee, Financial Services Modernization Act — is @ 8:50 pm
“Several weeks after testifying to two subcommittees of the Senate Banking Committee, Fed Governor Laurence
Meyer received a letter from eight senators admonishing the Fed for its stance on merchant banking and
demanding a more lenient approach.
But only the Merchant Banking Eight have so wholeheartedly aligned themselves with the grievances of Chase,
Wells Fargo and the largest financial conglomerates.
Dear Governor Meyer,
On behalf of the Securities and Financial Institutions Subcommittees of the Senate Committee on Banking
Housing and Urban Affairs, thank you for appearing as a witness on June 13 to discuss the Board’s Interim and
Proposed regulations concerning merchant banking activities.
Your testimony was helpful in clarifying your intent to consider carefully the views of members of Congress, the
financial services industry and other interested parties concerning your proposed regulations. Your assurances
that the Board’s goal is to encourage Financial Holding companies (FHCs), bank holding companies and banks to
engage in innovative and progressive private equity investment activities while preserving the safety and
soundness of the financial services system is welcome….”
MERCHANT BANKING EIGHT
Jack Reed (D-RI)
Charles Schumer (D-NY)
Mike Crapo (R-ID)
Robert Bennett (R-UT)
Rod Grams (R-MN)
Jim Bunning (R-KY)
Chuck Hagel (R-NE)
John Edwards (D-NC)
Financial Markets Center Alert 10/3/00
http://www.fmcenter.org/atf/cf/%7BDFBB2772-F5C5-4DFE-B310-D82A61944339%7D/sept00.pdf
Comments Off
January 4, 2000
Top Ten Worst Corporations of 1999
Filed under: Financial Services Modernization Act — is @ 1:03 pm
Citigroup: The standard in political corruption
Citigroup played the lead role in ushering the “Financial Services Modernization Act” through the US Congress, in
the process joining with the rest of the financial services industry to set a new standard in legalized bribery. The Act
will tear down the regulatory walls between banks, and insurance companies and securities firms, paving the way
for a massive concentration of financial wealth and a future of industry bailouts, weakening the Community
Reinvestment Act and permitting huge intrusions on consumer privacy.
Mother Jones 1/4/00
http://www.motherjones.com/news/feature/2000/01/fotc16.html
Housing, and Urban Affairs, yesterday voiced his deep concerns about allegations that Alphonso Jackson,
Secretary of the Department of Housing and Urban Development (HUD), has acted improperly in granting federal
contracts. After raising the issue with Secretary Jackson at a HUD oversight hearing, the Chairman outlined his
concerns and questions in a letter sent yesterday.
“The Banking Committee takes seriously its responsibility to provide effective oversight of the Department of
Housing and Urban Development,” the letter states. “It is incumbent upon us to ensure that taxpayer funds are
used properly and legally by the Department. Unfortunately, allegations over the last two years, in addition to
findings by the Inspector General of HUD, raise troubling questions about whether the Department has abused
taxpayer funds and acted improperly in federal contracting.”
The letter continues: “It is extremely important that the duties of the Department be carried out effectively and within
the limits of the law. These allegations, if true, indicate a serious and systemic problem at the senior staff level in
effectively and properly carrying out the Department’s mission.”
Tuesday, January 22, 2008
Glass-Steagall
A chronology tracing the life of the Glass-Steagall Act, from its passage in 1933 to its death throes in the 1990s,
and how Citigroup's Sandy Weill dealt the coup de grâce.
1933
Glass-Steagall Act creates new banking landscape
Following the Great Crash of 1929, one of every five banks in America fails. Many people, especially politicians, see
market speculation engaged in by banks during the 1920s as a cause of the crash.
In 1933, Senator Carter Glass (D-Va.) and Congressman Henry Steagall (D-Ala.) introduce the historic legislation
that bears their name, seeking to limit the conflicts of interest created when commercial banks are permitted to
underwrite stocks or bonds. In the early part of the century, individual investors were seriously hurt by banks whose
overriding interest was promoting stocks of interest and benefit to the banks, rather than to individual investors. The
new law bans commercial banks from underwriting securities, forcing banks to choose between being a simple
lender or an underwriter (brokerage). The act also establishes the Federal Deposit Insurance Corporation (FDIC),
insuring bank deposits, and strengthens the Federal Reserve's control over credit.
The Glass-Steagall Act passes after Ferdinand Pecora, a politically ambitious former New York City prosecutor,
drums up popular support for stronger regulation by hauling bank officials in front of the Senate Banking and
Currency Committee to answer for their role in the stock-market crash.
In 1956, the Bank Holding Company Act is passed, extending the restrictions on banks, including that bank holding
companies owning two or more banks cannot engage in non-banking activity and cannot buy banks in another
state.
1960s-70s
First efforts to loosen Glass-Steagall restrictions
Beginning in the 1960s, banks lobby Congress to allow them to enter the municipal bond market, and a lobbying
subculture springs up around Glass-Steagall. Some lobbyists even brag about how the bill put their kids through
college.
In the 1970s, some brokerage firms begin encroaching on banking territory by offering money-market accounts that
pay interest, allow check-writing, and offer credit or debit cards.
1986-87
Fed begins reinterpreting Glass-Steagall; Greenspan becomes Fed chairman
In December 1986, the Federal Reserve Board, which has regulatory jurisdiction over banking, reinterprets Section
20 of the Glass-Steagall Act, which bars commercial banks from being "engaged principally" in securities
business, deciding that banks can have up to 5 percent of gross revenues from investment banking business. The
Fed Board then permits Bankers Trust, a commercial bank, to engage in certain commercial paper (unsecured,
short-term credit) transactions. In the Bankers Trust decision, the Board concludes that the phrase "engaged
principally" in Section 20 allows banks to do a small amount of underwriting, so long as it does not become a large
portion of revenue. This is the first time the Fed reinterprets Section 20 to allow some previously prohibited
activities.
In the spring of 1987, the Federal Reserve Board votes 3-2 in favor of easing regulations under Glass-Steagall Act,
overriding the opposition of Chairman Paul Volcker. The vote comes after the Fed Board hears proposals from
Citicorp, J.P. Morgan and Bankers Trust advocating the loosening of Glass-Steagall restrictions to allow banks to
handle several underwriting businesses, including commercial paper, municipal revenue bonds, and mortgage-
backed securities. Thomas Theobald, then vice chairman of Citicorp, argues that three "outside checks" on
corporate misbehavior had emerged since 1933: "a very effective" SEC; knowledgeable investors, and "very
sophisticated" rating agencies. Volcker is unconvinced, and expresses his fear that lenders will recklessly lower
loan standards in pursuit of lucrative securities offerings and market bad loans to the public. For many critics, it
boiled down to the issue of two different cultures - a culture of risk which was the securities business, and a culture
of protection of deposits which was the culture of banking.
In March 1987, the Fed approves an application by Chase Manhattan to engage in underwriting commercial paper,
applying the same reasoning as in the 1986 Bankers Trust decision, and in April it issues an order outlining its
rationale. While the Board remains sensitive to concerns about mixing commercial banking and underwriting, it
states its belief that the original Congressional intent of "principally engaged" allowed for some securities activities.
The Fed also indicates that it will raise the limit from 5 percent to 10 percent of gross revenues at some point in the
future. The Board believes the new reading of Section 20 will increase competition and lead to greater convenience
and increased efficiency.
In August 1987, Alan Greenspan -- formerly a director of J.P. Morgan and a proponent of banking deregulation --
becomes chairman of the Federal Reserve Board. One reason Greenspan favors greater deregulation is to help U.
S. banks compete with big foreign institutions.
1989-1990
Further loosening of Glass-Steagall
In January 1989, the Fed Board approves an application by J.P. Morgan, Chase Manhattan, Bankers Trust, and
Citicorp to expand the Glass-Steagall loophole to include dealing in debt and equity securities in addition to
municipal securities and commercial paper. This marks a large expansion of the activities considered permissible
under Section 20, because the revenue limit for underwriting business is still at 5 percent. Later in 1989, the Board
issues an order raising the limit to 10 percent of revenues, referring to the April 1987 order for its rationale.
In 1990, J.P. Morgan becomes the first bank to receive permission from the Federal Reserve to underwrite
securities, so long as its underwriting business does not exceed the 10 percent limit.
1980s-90s
Congress repeatedly tries and fails to repeal Glass-Steagall
In 1984 and 1988, the Senate passes bills that would lift major restrictions under Glass-Steagall, but in each case
the House blocks passage. In 1991, the Bush administration puts forward a repeal proposal, winning support of
both the House and Senate Banking Committees, but the House again defeats the bill in a full vote. And in 1995,
the House and Senate Banking Committees approve separate versions of legislation to get rid of Glass-Steagall,
but conference negotiations on a compromise fall apart.
Attempts to repeal Glass-Steagall typically pit insurance companies, securities firms, and large and small banks
against one another, as factions of these industries engage in turf wars in Congress over their competing interests
and over whether the Federal Reserve or the Treasury Department and the Comptroller of the Currency should be
the primary banking regulator.
1996-1997
Fed renders Glass-Steagall effectively obsolete
In December 1996, with the support of Chairman Alan Greenspan, the Federal Reserve Board issues a precedent-
shattering decision permitting bank holding companies to own investment bank affiliates with up to 25 percent of
their business in securities underwriting (up from 10 percent).
This expansion of the loophole created by the Fed's 1987 reinterpretation of Section 20 of Glass-Steagall effectively
renders Glass-Steagall obsolete. Virtually any bank holding company wanting to engage in securities business
would be able to stay under the 25 percent limit on revenue. However, the law remains on the books, and along
with the Bank Holding Company Act, does impose other restrictions on banks, such as prohibiting them from
owning insurance-underwriting companies.
In August 1997, the Fed eliminates many restrictions imposed on "Section 20 subsidiaries" by the 1987 and 1989
orders. The Board states that the risks of underwriting had proven to be "manageable," and says banks would have
the right to acquire securities firms outright.
In 1997, Bankers Trust (now owned by Deutsche Bank) buys the investment bank Alex. Brown & Co., becoming the
first U.S. bank to acquire a securities firm.
1997
Sandy Weill tries to merge Travelers and J.P. Morgan; acquires Salomon Brothers
In the summer of 1997, Sandy Weill, then head of Travelers insurance company, seeks and nearly succeeds in a
merger with J.P. Morgan (before J.P. Morgan merged with Chemical Bank), but the deal collapses at the last
minute. In the fall of that year, Travelers acquires the Salomon Brothers investment bank for $9 billion. (Salomon
then merges with the Travelers-owned Smith Barney brokerage firm to become Salomon Smith Barney.)
April 1998
Weill and John Reed announce Travelers-Citicorp merger
At a dinner in Washington in February 1998, Sandy Weill of Travelers invites Citicorp's John Reed to his hotel room
at the Park Hyatt and proposes a merger. In March, Weill and Reed meet again, and at the end of two days of talks,
Reed tells Weill, "Let's do it, partner!"
On April 6, 1998, Weill and Reed announce a $70 billion stock swap merging Travelers (which owned the
investment house Salomon Smith Barney) and Citicorp (the parent of Citibank), to create Citigroup Inc., the world's
largest financial services company, in what was the biggest corporate merger in history.
The transaction would have to work around regulations in the Glass-Steagall and Bank Holding Company acts
governing the industry, which were implemented precisely to prevent this type of company: a combination of
insurance underwriting, securities underwriting, and commecial banking. The merger effectively gives regulators
and lawmakers three options: end these restrictions, scuttle the deal, or force the merged company to cut back on
its consumer offerings by divesting any business that fails to comply with the law.
Weill meets with Alan Greenspan and other Federal Reserve officials before the announcement to sound them out
on the merger, and later tells the Washington Post that Greenspan had indicated a "positive response." In their
proposal, Weill and Reed are careful to structure the merger so that it conforms to the precedents set by the Fed in
its interpretations of Glass-Steagall and the Bank Holding Company Act.
Unless Congress changed the laws and relaxed the restrictions, Citigroup would have two years to divest itself of
the Travelers insurance business (with the possibility of three one-year extensions granted by the Fed) and any
other part of the business that did not conform with the regulations. Citigroup is prepared to make that promise on
the assumption that Congress would finally change the law -- something it had been trying to do for 20 years --
before the company would have to divest itself of anything.
Citicorp and Travelers quietly lobby banking regulators and government officials for their support. In late March and
early April, Weill makes three heads-up calls to Washington: to Fed Chairman Greenspan, Treasury Secretary
Robert Rubin, and President Clinton. On April 5, the day before the announcement, Weill and Reed make a
ceremonial call on Clinton to brief him on the upcoming announcement.
The Fed gives its approval to the Citicorp-Travelers merger on Sept. 23. The Fed's press release indicates that "the
Board's approval is subject to the conditions that Travelers and the combined organization, Citigroup, Inc., take all
actions necessary to conform the activities and investments of Travelers and all its subsidiaries to the
requirements of the Bank Holding Company Act in a manner acceptable to the Board, including divestiture as
necessary, within two years of consummation of the proposal. ... The Board's approval also is subject to the
condition that Travelers and Citigroup conform the activities of its companies to the requirements of the Glass-
Steagall Act."
1998-1999
Intense new lobbying effort to repeal Glass-Steagall
Following the merger announcement on April 6, 1998, Weill immediately plunges into a public-relations and
lobbying campaign for the repeal of Glass-Steagall and passage of new financial services legislation (what
becomes the Financial Services Modernization Act of 1999). One week before the Citibank-Travelers deal was
announced, Congress had shelved its latest effort to repeal Glass-Steagall. Weill cranks up a new effort to revive
bill.
Weill and Reed have to act quickly for both business and political reasons. Fears that the necessary regulatory
changes would not happen in time had caused the share prices of both companies to fall. The House Republican
leadership indicates that it wants to enact the measure in the current session of Congress. While the Clinton
administration generally supported Glass-Steagall "modernization," but there are concerns that mid-term elections
in the fall could bring in Democrats less sympathetic to changing the laws.
In May 1998, the House passes legislation by a vote of 214 to 213 that allows for the merging of banks, securities
firms, and insurance companies into huge financial conglomerates. And in September, the Senate Banking
Committee votes 16-2 to approve a compromise bank overhaul bill. Despite this new momentum, Congress is yet
again unable to pass final legislation before the end of its session.
As the push for new legislation heats up, lobbyists quip that raising the issue of financial modernization really
signals the start of a fresh round of political fund-raising. Indeed, in the 1997-98 election cycle, the finance,
insurance, and real estate industries (known as the FIRE sector), spends more than $200 million on lobbying and
makes more than $150 million in political donations. Campaign contributions are targeted to members of
Congressional banking committees and other committees with direct jurisdiction over financial services legislation.
Oct.-Nov. 1999
Congress passes Financial Services Modernization Act
After 12 attempts in 25 years, Congress finally repeals Glass-Steagall, rewarding financial companies for more
than 20 years and $300 million worth of lobbying efforts. Supporters hail the change as the long-overdue demise of
a Depression-era relic.
On Oct. 21, with the House-Senate conference committee deadlocked after marathon negotiations, the main
sticking point is partisan bickering over the bill's effect on the Community Reinvestment Act, which sets rules for
lending to poor communities. Sandy Weill calls President Clinton in the evening to try to break the deadlock after
Senator Phil Gramm, chairman of the Banking Committee, warned Citigroup lobbyist Roger Levy that Weill has to
get White House moving on the bill or he would shut down the House-Senate conference. Serious negotiations
resume, and a deal is announced at 2:45 a.m. on Oct. 22. Whether Weill made any difference in precipitating a deal
is unclear.
On Oct. 22, Weill and John Reed issue a statement congratulating Congress and President Clinton, including 19
administration officials and lawmakers by name. The House and Senate approve a final version of the bill on Nov.
4, and Clinton signs it into law later that month.
Just days after the administration (including the Treasury Department) agrees to support the repeal, Treasury
Secretary Robert Rubin, the former co-chairman of a major Wall Street investment bank, Goldman Sachs, raises
eyebrows by accepting a top job at Citigroup as Weill's chief lieutenant. The previous year, Weill had called
Secretary Rubin to give him advance notice of the upcoming merger announcement. When Weill told Rubin he had
some important news, the secretary reportedly quipped, "You're buying the government?"
Committee Documents Online -- 106th Congress
________________________________________
EXECUTIVE SUMMARY
of S. 900
The Financial Services Modernization Act of 1999
(as passed by the Senate Banking Committee on March 4, 1999)
• Repeals Glass-Steagall. Allows US financial services providers, including banks, securities firms, and
insurance companies to affiliate with each other and enter each other's markets. The affiliation of financial services
providers allows open and free competition in the financial services industry.
• Bank holding company structure. Generally bank holding company affiliates will be the vehicles through which
to engage in a broad range of financial activities.
• Qualification to engage in financial activities. Requires all subsidiary insured depository institutions of the
holding company to be well capitalized and well managed in order for the holding company to engage in broader
financial activities. Divestiture and/or other restrictions and limitations may be required in the event of
noncompliance.
• Operating subsidiary activities. Allows national banks with total assets of $1 billion or less to conduct financial
activities through operating subsidiaries. In order to conduct such activities through a subsidiary, the national bank
and all insured depository institution affiliates must be well capitalized and well managed and the national bank
must receive the approval of the OCC based on those criteria. A national bank subsidiary engaging in such
activities will be subject to affiliate transaction restrictions and to anti-tying prohibitions. The bank also must deduct
from capital the amount of its investment in the subsidiary. National banks with total assets exceeding $1 billion
must conduct financial activities through holding company affiliates. National banks of any size may engage in
financial activities on an agency basis through an operating subsidiary. National banks lawfully conducting
activities through operating subsidiaries as of the date of enactment will be permitted to continue such activities.
• Municipal revenue bond underwriting. Authorized as a permissible banking activity. Therefore, this activity may
be conducted by the bank directly or in an operating subsidiary.
• Functional regulation. Relies on strong functional regulation of the banking, insurance and securities
components of the holding company, and establishes the Federal Reserve as the umbrella regulator.
• Reduces regulatory burdens. Streamlines regulatory burdens by requiring the Federal Reserve as umbrella
supervisor to rely to the extent possible on reports and examinations conducted by other functional regulators. Also
requires sharing of information among affected regulatory agencies as necessary to carry out their official duties.
• Competition protection rules. Requires the Federal banking agencies to issue joint consumer protection
regulations governing the retail sale of insurance products by banks, their employees, or others who engage in
such activities on behalf of the banks. The Federal banking regulators must consult with the States in the process
of formulating their joint rules. Provisions of Federal rules deemed more protective will preempt state law or rules
unless within three years of Federal notification the State legislatures enact laws opting out of such coverage.
• Expedited dispute resolution process. Establishes a dispute resolution process between Federal banking
regulators and state insurance regulators as to whether any product is or is not insurance. The court is directed to
decide the action on the merits, according equal deference to the Federal regulator and the State insurance
regulators.
• Elimination of SAIF special reserve funds. The FDIC will be able to reverse an accounting entry designating
about $1 billion of SAIF dollars to a SAIF special reserve, which is not available to the FDIC unless the SAIF
designated reserve ratio declines by about 50% and would be expected to remain at that level for more than one
year.
• FICO assessment. Freezes the BIF-member FICO assessment for 3 years. This represents a saving of about
$18,000 per year for a bank with total assets of $100 million. It is, therefore, important to smaller community banks.
This freeze is important because it will give Congress time to consider other important issues such as the merger
of the FDIC insurance funds, merger of bank and thrift charters, and consolidation of regulatory agencies such as
the OCC and the OTS. Since 1980, there have been at least 13 congressional hearings on the soundness of the
Federal deposit insurance system. There have been 11 proposals introduced concerning consolidation of Federal
regulation of banks and savings and loan institutions; and 5 proposals to merge bank and thrift charters. These are
significant issues that now must be addressed by the Congress.
• GAO study of S corporation revisions and impact on community banks. Provide for a GAO study to be
completed within 6 months on the impact of certain changes to S corporation rules such as increasing the number
of allowable shareholders, and the potential impact of such changes on community banks.
• CRA meaningful examinations. Establishes a rebuttable presumption of CRA compliance with respect to an
insured depository institution that has achieved a "satisfactory" or better rating in its most recent CRA exam and in
each of its CRA exams during the immediately preceding 36-month period. The presumption of compliance may be
rebutted by any person presenting substantial verifiable information to the contrary.
• CRA exemption for small rural banks and savings and loan association. Banks and savings and loan
associations with total assets less than $100 million and located in nonmetropolitan areas are exempted from the
provisions of the CRA. This exemption only applies to 38% of all banks and savings and loans, which control only
2.8% of banking assets nationwide.
• Bank securities activities. While taking away the broad exemption that banks have from registration as a
broker or dealer under the securities laws, the bill makes clear that banks serving as custodians to self-directed
IRAs will not be required to push these activities out of the bank and into a registered broker or dealer. Banks often
function as service providers to pension, retirement, profit sharing, bonus, thrift, savings, incentive and other similar
plans. The Senate Committee bill adds service providers to these plans to the definition of fiduciary, ensuring that
these activities will not have to be moved out of the bank and into a registered broker-dealer subject to SEC
regulation. The Senate Committee bill allows banks to function as stock transfer agents without having to push
these functions out to a separate subsidiary or affiliate. Stocks can be purchased easily through payroll deductions
and automatic withdrawals from bank accounts, as well as by checks. The SEC, with the concurrence of the
Federal Reserve Board, may determine by regulation those new products which, if offered or sold by a bank, would
subject it to registration with the SEC. A bank may offer or sell "traditional banking products," as defined in this
section, without becoming subject to registration with the SEC.
• Unitary thrift holding companies. Terminates current unitary savings and loan holding company authority for all
applications other than those approved or pending as of February 28, 1999. However, the bill does not restrict the
transferability of existing unitary thrift holding companies.
• Federal Home Loan Bank reforms. Includes certain provisions to modernize the operations of the Federal
Home Loan Bank System. As of June 1, 2000, membership in the Federal Home Loan Bank System will be
voluntary. Community banks (those banks with total assets less than $500 million) will be able to become
members without regard to the percentage of total assets represented by residential mortgage loans. Community
banks will be able to use advances for small business, small farm and small agribusiness lending. Also allows
community banks to collateralize advances with small business and agricultural loans. Modifies the governance
structure of the system to give more authority to the regional banks. The Senate Committee bill also changes the
financing mechanism for payment of interest on the Refinancing Corporation bonds. The flat fee amount assessed
upon each Federal Home Loan Bank will be replaced by a percentage (20.75%) of system net earnings. Rather
than address Federal Home Loan Bank System capital in this legislation, the Senate Committee bill directs the
GAO to conduct a study of possible revisions to the capital structure of the Federal Home Loan Bank System.
Recent Developments in Financial Services Modernization
Washington, DC, February 18, 1999 - On February 10, the House Banking and Financial Services Committee held
a hearing on H.R. 10, the "Financial Services Act of 1999." (The Institute's testimony is available elsewhere on this
site.) In an unexpected development shortly before the hearing, SEC Chairman Arthur Levitt informed Committee
Chairman James Leach (R-IA) that the SEC cannot support H.R. 10 as currently drafted. Chairman Levitt's
objectives for financial modernization are summarized below.
SEC Opposes Current H.R. 10
In a departure from last year's support, SEC Chairman Levitt, in a February 4 letter to Banking Committee Chairman
Leach, said that the Commission cannot support H.R. 10 as currently drafted. These concerns were reflected in the
SEC's testimony before the House Banking Committee on February 12. Chairman Levitt provided an outline of the
SEC's objectives for financial modernization, which include:
• maintaining aggressive SEC policing and oversight of all securities activities;
• protecting mutual fund investors with uniform adviser regulations and conflict-of-interest rules;
• safeguarding customers by enabling the SEC to set net capital rules for all securities businesses;
• protecting investors by applying the SEC sales practice rules to all securities activities; and
• enhancing global competitiveness through voluntary broker-dealer holding companies.
Chairman Leach has announced that the House Banking Committee markup on H.R. 10 will take place on March
4. Meanwhile, Senate Banking Committee Chairman Phil Gramm (R-TX) has scheduled hearings for February 23,
24, and 25, with Federal Reserve Board Chairman Alan Greenspan testifying on February 23. Chairman Gramm
has rescheduled markup on the legislation for March 3.
H.R. 665, "Financial Services Modernization Act"
On the same day as the hearing, Representative John LaFalce (D-NY), the ranking Democrat of the House Banking
Committee, introduced H.R. 665, the "Financial Services Modernization Act of 1999." While there are several
differences between this bill and H.R. 10, one important similarity is that in all key aspects the functional regulation
provisions are the same. The most significant difference between the two bills for the investment company industry
is the creation of a commercial basket. H.R. 665 would allow the creation of a 15 percent commercial basket.
Specifically, this would allow qualified bank holding companies to own an interest in a commercial, nonfinancial
firm, so long as that firm generates less than 15 percent of the holding company's gross domestic revenues. A
cutoff level would prohibit a qualified bank holding company from acquiring any commercial firm with consolidated
assets exceeding $750 million, effectively precluding acquisition of the top 1,000 commercial firms.
The Administration generally supports the LaFalce approach; the only exception is the Administration's continued
opposition to the commercial basket. In particular, the Treasury supports the bill's compromise on the activities of
national bank operating subsidiaries that will include all new financial activities except insurance underwriting and
real estate development. Inability to resolve this issue was the source of the Treasury Department's veto
recommendation last Congress.
HR10: Update on the Financial Services Modernization Act
Ann vom Eigen, Esq. and Joel A. Stein, Esq.
The US Senate passed S.900 its own version of the "Financial Services Modernization" legislation on May 6, 1999.
This bill explicitly allows national banks to sell title insurance through a bank holding company affiliate or from a
bank operating subsidiary.
The bill also permits the sale of insurance by agents managed from a "small-town" national bank branch because
it does not repeal the authorization for national bank insurance sales from towns of less than 5,000 in population.
Therefore, the bill would allow national banks to also sell title insurance through a bank holding company affiliate,
directly from a "small town" branch office, or from a bank operating subsidiary, as there is no specific language
dealing with the sale of title insurance in the bill.
S.900 also allows title insurance underwriting from a national bank as it fails to overturn an Office of the
Comptroller of the Currency opinion which has been interpreted as allowing national banks to underwrite title
insurance. While the bill generally provides that insurance underwriting would be done through affiliates, the bill
also would allow underwriting from an operating subsidiary for capitalized banks of up to one billion dollars in
assets.
After the passage of S.900, the House Commerce Committee turned its attention to H.R. 10, its version of the
Financial Services Modernization Act. There are presently two House versions of the bill: the House Banking
Committee’s and the House Commerce Committee’s. These versions must now be combined for floor action. All
bills considered on the House floor must be given a "rule" by the Rules Committee, which will decide which version
of the bill will be considered as base text.
The Financial Services Modernization Act of 1999 passed the House Banking Committee on March 10, 1999. It
provides as follows:
Title Insurance Underwriting
The bill would prohibit national banks from underwriting title insurance from the bank or an operating subsidiary,
although it would grandfather any national bank engaged in title insurance underwriting as of the date of enactment
of the act. It also contains language added in the last Congress which prohibits national banks which provide
insurance through affiliates or subsidiary from engaging in title insurance underwriting. It would otherwise allow
underwriting through a bank holding company affiliate.
Title Insurance Sales
The bill would grandfather any national banks engaged in sales activity as of the date of enactment of the act, would
otherwise prohibit sales from the bank or through an operating subsidiary, and would allow sales through a bank
holding company affiliate.
The Financial Services Modernization Act of 1999 reported from the House Commerce Committee on June 10,
1999 provides as follows:
Section 305 of H.R. 10
This section establishes special rules that apply to the title insurance activities of national banks and their affiliates.
Section 305(a) makes clear that, as a general matter, no national bank, and no subsidiary of a national bank, may
engage in any activity, involving the underwriting or sale of title insurance. This prohibition thus eliminates any
power that national banks and national bank subsidiaries might have to underwrite or sell title insurance products
under current law. The prohibition, however, is subject to two exceptions.
First, Section 305(b) establishes a "parity" exception to the general prohibition that applies only to title insurance
sales activities. Under the exception, national banks may sell title insurance products in any State in which state-
chartered banks are authorized to do so but such sales must be undertaken "in the same matter, to the same
extent, and under the same restrictions" that apply to such state-chartered banks. Thus, if state chartered banks in
a state must comply with licensing, "title plant’, data base financial responsibility, and where relevant, practice of
law requirements, national banks also must do so. Section 305(b) makes clear that, if the basis of the authority for
state-chartered banks to sell title insurance in any State is based on a state "wild-card" provision that authorizes
state banks to exercise any power that national banks may exercise---based on, for example a "small town" or
"incidental to banking" provision---that "authority" does not entitle national banks located in that State to take
advantage of the parity power authorized under Section 305(b).
Second, Section 305(c) establishes "grandfather" exceptions to the general title insurance activities prohibition set
forth in Section 305(a). Section (c)(1) permits any national bank, and any national bank subsidiary, that was actively
and lawfully in any title insurance activities as of the date of the enactment of this Act to continue to engage in those
activities. Section 305(c)(2) and (3) establish "push-out" provisions that apply only to title insurance underwriting
activities that are grandfathered under Section 305(c)(1).
Together, the sections require that (1) if a bank holding company affiliate is engaged in any underwriting activities
(or is otherwise providing insurance as principal), then neither the bank nor a bank subsidiary may directly engage
in title insurance underwriting activities---those activities must be instead be conducted through the affiliate; (2) if a
bank has a subsidiary that is engaged in underwriting activities (or is otherwise providing insurance as principal)
and does not have an affiliate engaged in such activities, then the bank may not directly engage in title insurance
underwriting activities but must instead conduct such underwriting activities through its underwriting subsidiary.
The American Land Title is still seeking an amendment to H.R. 10 to require that States expressly authorize title
insurance powers for its state banks before national banks can sell title insurance. The status of this legislation is
changing from week to week, and it is probable that by the time this article goes to print, the Rules Committee will
have completed its action on H.R. 10.
The MCA has been in contact with Rep. Edward Markey who is a member of the Commerce Committee and with
Rep. Joseph Moakley who is a member of the Rules Committee. We have shown that grass roots advocacy can
work. Please contact the MCA office for the latest update on H.R. 10 and contact your local Congressman.
(Editor’s Note: Ann vom Eigen is legislative counsel for the American Land Title Association; Joel Stein is a
member of the MCA Board of Directors and chairs its Title Insurance and National Affiars Committee.)
** On July 1, 1999 the House of Representatives passed H.R. 10. ALTA had sought an amendment to H.R. 10
which would require that states expressly authorize title insurance power for its state banks before national banks
could sell title insurance. This amendment was not permitted to be debated during the H.R. 10 floor debate. In
addition, the House adopted the Commerce Committee version of H.R. 10 with the “parity” exception and the
“grandfather” exceptions.
However, ALTA does note that amendments included in the House version of H.R. 10 do ensure a regulatory
framework for bank title insurance sales and state regulations. The amendments: (1) Closed the bank “small town”
loophole for title insurance that currently allows bank insurance sales (including title insurance) in places with
fewer than 5,000 people; (2) Eliminated state “wildcard” statutes---in which most state banks get national bank
powers---as a way for national banks to get parity with state bank title insurance authority; (3) Limited national bank
title insurance sales to affiliates in states whose banks can’t sell title insurance; and, (4) Bound national bank title
sales to the same manner, to the same extent and under the same restrictions under which state banks can sell
title insurance, and obtained explanatory language that bank title agencies must comply with state title plant,
licensing and financial regulation requirements. 131.109.225.33/5.93
282 milliseconds
Senate Banking Committee Approves Financial Services Reform Legislation
Washington, DC, March 18, 1999 - The Senate Banking, Housing, and Urban Affairs Committee recently approved
the Financial Services Modernization Act of 1999, legislation to modernize the nation's financial services laws. The
bill was passed 11-9 on a straight party-line vote. Among other provisions, the Senate bill would:
• repeal the Glass-Steagall Act's provisions that restrict bank and securities firm affiliations,
• amend the Bank Holding Company Act to permit affiliations among financial services companies, including
banks, registered investment companies, securities firms, and insurance companies,
• expand the authority of bank holding companies to engage in activities that are "financial in nature,"
• prescribe the existing authority of the Federal Reserve Board when exercising its general supervisory authority
to regulate, examine, or take enforcement action against regulated, non-bank subsidiaries of the holding company
(such as investment advisers, broker/dealers, and insurance companies), and require a determination by the FRB
that actions by a regulated subsidiary within the holding company pose a material risk to an affiliated bank or the
domestic or international payments system,
• apply the same provisions to the general supervisory authority of the Federal Deposit Insurance Corporation,
the Office of the Comptroller of the Currency, and the Office of Thrift Supervision,
• continue the Securities and Exchange Commission's primary examination authority over investment
companies,
• loosen Community Reinvestment Act requirements somewhat and exempt from CRA requirements banks
with less than $100 million in assets that are outside of metropolitan areas,
• permit the FRB to authorize activities that are complementary to financial activities or any other service that
does not pose a substantial safety and soundness risk (there is no provision to allow for grandfathering of existing
commercial activities of bank holding companies),
• expand "merchant banking" authority for bank holding companies which would permit investments in
nonfinancial companies as part of "bona fide underwriting or merchant banking activity,"
• bar any company engaged in commercial or nonfinancial activities from owning a thrift (there is a grandfather
provision for existing ownerships),
• amend the various exemptions for banks and their activities under the Investment Company and Investment
Advisers Acts of 1940 and the Securities Exchange Act of 1934. Thus, certain bank activities that were previously
exempt would now be required to be conducted in a broker-dealer. Also, banks will be required to register as
investment advisers to investment companies.
Banking Committee Chairman Gramm expects the bill to be considered in the full Senate in early April. President
Clinton has clearly stated that he will veto the legislation unless certain provisions of the bill are amended-
particularly those affecting the Community Reinvestment Act.
U.S. Senate Roll Call Votes 106th Congress - 1st Session
as compiled through Senate LIS by the Senate Bill Clerk under the direction of the Secretary of the Senate
Vote Summary
Question: On the Conference Report (S.900 Conference Report )
Vote Number: 354 Vote Date: November 4, 1999, 03:30 PM
Required For Majority: 1/2 Vote Result: Conference Report Agreed to
Measure Number: S. 900
Measure Title: An Act to enhance competition in the financial services industry by providing a prudential framework
for the affiliation of banks, securities firms, and other financial service providers, and for other purposes.
Vote Counts: YEAs 90
NAYs 8
Present 1
Not Voting 1
snip
Grouped By Vote Position
YEAs —90
Abraham (R-MI)
Akaka (D-HI)
Allard (R-CO)
Ashcroft (R-MO)
Baucus (D-MT)
Bayh (D-IN)
Bennett (R-UT)
Biden (D-DE)
Bingaman (D-NM)
Bond (R-MO)
Breaux (D-LA)
Brownback (R-KS)
Bunning (R-KY)
Burns (R-MT)
Byrd (D-WV)
Campbell (R-CO)
Chafee, L. (R-RI)
Cleland (D-GA)
Cochran (R-MS)
Collins (R-ME)
Conrad (D-ND)
Coverdell (R-GA)
Craig (R-ID)
Crapo (R-ID)
Daschle (D-SD)
DeWine (R-OH)
Dodd (D-CT)
Domenici (R-NM)
Durbin (D-IL)
Edwards (D-NC)
Enzi (R-WY)
Feinstein (D-CA)
Frist (R-TN)
Gorton (R-WA)
Graham (D-FL)
Gramm (R-TX)
Grams (R-MN)
Grassley (R-IA)
Gregg (R-NH)
Hagel (R-NE)
Hatch (R-UT)
Helms (R-NC)
Hollings (D-SC)
Hutchinson (R-AR)
Hutchison (R-TX)
Inhofe (R-OK)
Inouye (D-HI)
Jeffords (R-VT)
Johnson (D-SD)
Kennedy (D-MA)
Kerrey (D-NE)
Kerry (D-MA)
Kohl (D-WI)
Kyl (R-AZ)
Landrieu (D-LA)
Lautenberg (D-NJ)
Leahy (D-VT)
Levin (D-MI)
Lieberman (D-CT)
Lincoln (D-AR)
Lott (R-MS)
Lugar (R-IN)
Mack (R-FL)
McConnell (R-KY)
Moynihan (D-NY)
Murkowski (R-AK)
Murray (D-WA)
Nickles (R-OK)
Reed (D-RI)
Reid (D-NV)
Robb (D-VA)
Roberts (R-KS)
Rockefeller (D-WV)
Roth (R-DE)
Santorum (R-PA)
Sarbanes (D-MD)
Schumer (D-NY)
Sessions (R-AL)
Smith (R-NH)
Smith (R-OR)
Snowe (R-ME)
Specter (R-PA)
Stevens (R-AK)
Thomas (R-WY)
Thompson (R-TN)
Thurmond (R-SC)
Torricelli (D-NJ)
Voinovich (R-OH)
Warner (R-VA)
Wyden (D-OR)
NAYs —8
Boxer (D-CA)
Bryan (D-NV)
Dorgan (D-ND)
Feingold (D-WI)
Harkin (D-IA)
Mikulski (D-MD)
Shelby (R-AL)
Wellstone (D-MN)
Present - 1
Fitzgerald (R-IL)
Not Voting - 1
McCain (R-AZ)
Senate.gov 11/4/99
http://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=106&session=1&vote=00354
STATE OF NEW YORK
EXECUTIVE CHAMBER
GEORGE E. PATAKI, GOVERNOR
Press Office
518-474-8418
212-681-4640
http://www.state.ny.us
FOR RELEASE:
IMMEDIATE, Thursday
May 6, 1999
GOVERNOR ANNOUNCES FINANCIAL MODERNIZATION BILL
Legislation Would Protect Consumers, Enhance Competition for Financial Services
Governor George E. Pataki today unveiled the New York State Financial Services Modernization Act of 1999,
designed to ensure that New York will remain the world’s financial capital by providing a competitive and attractive
environment for both domestic and international financial institutions while maintaining and enhancing important
consumer protections.
"Modernizing our Banking Law and Insurance Law is critical to ensure that New York will remain the world’s
financial capital," Governor Pataki said. "This legislation would maintain New York’s position as the world’s
financial capital and strengthen our tradition of strong consumer protections.
"By providing a competitive and attractive environment for both domestic and international financial firms, this bill
would enhance financial services available to New Yorkers while positioning New York’s financial services industry
to benefit from federal modernization efforts currently underway in Congress," the Governor said.
The Governor’s bill would repeal New York state statutes that mirror the federal Glass-Steagall Act, a Depression-
era banking law that prohibits certain affiliations between banks and securities firms. The bill would also break
down barriers to affiliations with insurers and other financial services providers and would usher in a new era for
New York’s financial services industry.
The Governor’s proposal is similar to the financial modernization initiative being undertaken at the federal level.
This initiative, known as "H.R. 10," has been considered during the last several sessions of Congress. H.R. 10
would modernize federal banking law in several ways, but would mainly expand the permitted affiliations between
financial services industries.
Passing legislation to modernize the banking industry in New York would allow many financial services entities in
the state to reap immediate benefits through expanded powers necessary to compete in the global marketplace.
Citigroup Co-Chairmen Sandy Weill and John Reed said, "We welcome Governor Pataki’s strong leadership in this
important national debate. We have encouraged Washington to reform the regulation of the financial services
industry and bring it from the 1930s into the 21st Century. New York has a proud history as an innovator and
incubator for many regulations later adopted by the federal government.
"Today, Governor Pataki has kept that faith necessary to maintain New York as the home of the financial services
industry for the nation and the world," Mr. Weill and Mr. Reed said. "His vision and leadership will chart a new
course that reflects the changing realities to today’s competitive marketplace. We hope New York’s example
galvanizes Washington to enact a comparable bill, but if that effort fails, it’s comforting to know that New York
stands ready."
Chase Manhattan Bank Chairman and CEO Walter V. Shipley said, "Chase enthusiastically supports Governor
Pataki’s proposals. The economic vitality of New York State is directly linked to the successes of its financial
services industry. This proposal puts New York in the forefront in support of the changes needed to enable its
financial services companies to continue to compete effectively in the changing global marketplace."
Merrill Lynch and Company, Inc. Chairman and CEO David H. Komansky said, "We commend Governor Pataki for
this far-sighted initiative, which will benefit every New Yorker who invests in the securities markets, holds an
insurance policy or has a checking account. Moreover, it will help New York advance its position as the global
leader in financial services."
The bill would make significant changes in the insurance industry by removing existing New York State law barriers
that limit the ability of property/casualty insurers to own banking and banking related subsidiaries. The bill also
increases the percentage of admitted assets that property/casualty insurers may invest in all subsidiaries to 20-
percent. In 1998, similar restrictions on the ability of life insurers to invest in banking subsidiaries were removed.
The Governor’s legislation underscores the State’s commitment to the concept of functional regulation of financial
services by requiring banks that engage in the insurance business be subject to regulation by the Insurance
Department and all applicable insurance laws and regulations. Subsidiaries of insurers that participate in banking
will be subject to the supervision of the appropriate banking regulators and all applicable banking laws and
regulations.
Modernization of New York law would also be advantageous, even in the absence of a change in federal law, where
banks are only subject to New York’s laws and regulations. For example, if a New York-chartered bank was a
wholesale bank and not FDIC-insured, it would not come under certain restrictive federal laws. For such wholesale
banks, which do not take retail deposits, the powers provided by this legislation are important and attractive.
If H.R. 10 does not pass Congress, then current federal law restrictions on the activities of New York banks will
remain unchanged. Under the Governor’s proposal, New York banks that are members of the Federal Reserve
System would still be subject to the federal Glass-Steagall restrictions on affiliations with securities firms, and
other New York banks would remain subject to the restrictions on subsidiaries’ activities under the Federal Deposit
Insurance Act.
Similarly, if this bill passed authorizing New York banks to engage in insurance underwriting, FDIC-insured State-
chartered banks would still be prohibited from insurance underwriting because this activity is directly prohibited by
current federal law for FDIC-insured banks and their subsidiaries.
Federal limitations also may apply to state banks that are members of the Federal Reserve System or which have a
holding company that is subject to regulation by the Federal Reserve System. In these cases, if an activity is
prohibited under both federal and state law, repealing state law prohibitions will be of no effect because such
banks will still be prohibited by federal law from engaging in these activities.
Acting Superintendent of Banks Elizabeth McCaul said, "New York’s banking system, dating back to 1851, has
served as an important historical model for United States banking policy, and the measure unveiled today will
continue that tradition. More importantly, it immediately offers New York’s financial industry, the backbone of our
state’s economy, the types of legal and operational structures that are enjoyed elsewhere in the world, permitting
New York institutions to better compete in the global economy."
Superintendent of Insurance Neil D. Levin said, "This bill is an important step in leveling the playing field within
New York’s financial services industry. Most states allow insurance companies to invest in banks and it is
essential for New York’s insurers to have these same tools so that they can compete effectively, both with their
counterparts in other states as well as more generally in the rapidly-changing financial services industry."
Specifically, the Governor’s bill would:
• Permit banks to buy and sell directly, or in a subsidiary, equity securities; to engage in merchant banking and
venture capital activities; to invest in real property; to engage in real estate brokerage and property management
activities; to buy and sell commodities as a principal, agent or broker; to underwrite and sell annuities; to
underwrite and sell life insurance, accident and health insurance, property and casualty insurance, and any other
type of insurance; and to engage in investment banking (i.e., to underwrite, buy and sell, and distribute securities);
• Permit the chartering of non-insured wholesale banks that may engage in the full spectrum of financial
services and products allowed by the bill;
• Permit property and casualty insurance companies to own a bank as is now permitted by life insurance
companies and similarly allow banks to own such insurance companies;
• Protect consumers by explicitly providing that all insurance activities would be subject to oversight by the State
Insurance Department;
• Provide anti-tying provisions preventing financial institutions from forcing consumers to purchase other
financial services;
• Set forth stringent disclosure requirements to be followed by banks when selling insurance products;
• Permit banks, when opening foreign branch offices, to engage in the business of banking and related
financial services to the extent locally permitted, including underwriting and distributing foreign corporate or
government securities; and
• Modernize archaic provisions of the State’s insurance law so as to permit property and casualty insurance
companies to invest in banking institutions.
March 1, 2002
Masters of Mean
Filed under: Financial Services Modernization Act, Senate Voting Record — is @ 4:34 pm
As a member of the Senate Finance Committee and the recipient of enormous banking contributions, Gramm did
an even bigger favor for the financial industry in 1999 when he sponsored the Financial Services Modernization Act
allowing banks, securities firms, and insurance companies to combine. The bill weakened the Community
Reinvestment Act, which requires banks to help meet the credit needs of low- and moderate-income
neighborhoods. Gramm described community groups that use the CRA as “protection rackets” that extort funds
from the poor, powerless banks. The bill is also a disaster for the privacy of bank customers and weakens
regulatory supervision. As Gramm proudly declared, “You’re not going to find a single bank, insurance company, or
securities company that will say they were hurt financially by this bill.”
Molly Ivins, Mother Jones March/April 2002
http://www.motherjones.com/commentary/power_plays/2002/03/mean.html
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October 3, 2000
The Merchant Banking 8
Filed under: Banking Committee, Financial Services Modernization Act — is @ 8:50 pm
“Several weeks after testifying to two subcommittees of the Senate Banking Committee, Fed Governor Laurence
Meyer received a letter from eight senators admonishing the Fed for its stance on merchant banking and
demanding a more lenient approach.
But only the Merchant Banking Eight have so wholeheartedly aligned themselves with the grievances of Chase,
Wells Fargo and the largest financial conglomerates.
Dear Governor Meyer,
On behalf of the Securities and Financial Institutions Subcommittees of the Senate Committee on Banking
Housing and Urban Affairs, thank you for appearing as a witness on June 13 to discuss the Board’s Interim and
Proposed regulations concerning merchant banking activities.
Your testimony was helpful in clarifying your intent to consider carefully the views of members of Congress, the
financial services industry and other interested parties concerning your proposed regulations. Your assurances
that the Board’s goal is to encourage Financial Holding companies (FHCs), bank holding companies and banks to
engage in innovative and progressive private equity investment activities while preserving the safety and
soundness of the financial services system is welcome….”
MERCHANT BANKING EIGHT
Jack Reed (D-RI)
Charles Schumer (D-NY)
Mike Crapo (R-ID)
Robert Bennett (R-UT)
Rod Grams (R-MN)
Jim Bunning (R-KY)
Chuck Hagel (R-NE)
John Edwards (D-NC)
Financial Markets Center Alert 10/3/00
http://www.fmcenter.org/atf/cf/%7BDFBB2772-F5C5-4DFE-B310-D82A61944339%7D/sept00.pdf
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January 4, 2000
Top Ten Worst Corporations of 1999
Filed under: Financial Services Modernization Act — is @ 1:03 pm
Citigroup: The standard in political corruption
Citigroup played the lead role in ushering the “Financial Services Modernization Act” through the US Congress, in
the process joining with the rest of the financial services industry to set a new standard in legalized bribery. The Act
will tear down the regulatory walls between banks, and insurance companies and securities firms, paving the way
for a massive concentration of financial wealth and a future of industry bailouts, weakening the Community
Reinvestment Act and permitting huge intrusions on consumer privacy.
Mother Jones 1/4/00
http://www.motherjones.com/news/feature/2000/01/fotc16.html
| Christopher Young (Democrat) |