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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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Campaign for Justice
Please tell a friend to go to
WhereToVote.com
WhereToVote.com
| THE MERCHANT BANKING EIGHT |
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.
Other members of Congress also weighed in on the Fed’s proposed rule with comment letters and verbal volleys that
focused on small-business finance or the investment powers of state-chartered banks (Massachusetts Senator John Kerry
had the dubious distinction of sending separate complaints on both subjects). But only the Merchant Banking Eight have so
wholeheartedly aligned themselves with the grievances of Chase, Wells Fargo and the largest financial conglomerates.
Members of the MB8 range from Wall Street’s man in Washington (New York Democrat Charles Schumer) to several
senators who haven’t betrayed much previous interest in the fine points of financial regulation. Only one of the group is
standing for re-election this year – Senator Rod Grams (R-MN), who accounts for fully two-thirds of all Chase and Wells Fargo
contributions to the Eight during the 2000 electoral cycle (though based in San Francisco, Wells became the largest financial
firm in Grams’ state when it acquired Norwest Corporation in 1999.)
Traditionally, the nation’s editorial pages have risen to the Fed’s defense at the slightest hint of politicians meddling in the
central bank’s arcane affairs. But ten short years after media elites flagellated themselves for blowing the story of S&L
deregulation, editorial writers – like their colleagues in the business section – have remained uniformly silent on this episode
of “Fedbashing.”
Jack Reed is among the eight.
received a letter from eight senators admonishing the Fed for its stance on merchant banking and demanding a more lenient
approach.
Other members of Congress also weighed in on the Fed’s proposed rule with comment letters and verbal volleys that
focused on small-business finance or the investment powers of state-chartered banks (Massachusetts Senator John Kerry
had the dubious distinction of sending separate complaints on both subjects). But only the Merchant Banking Eight have so
wholeheartedly aligned themselves with the grievances of Chase, Wells Fargo and the largest financial conglomerates.
Members of the MB8 range from Wall Street’s man in Washington (New York Democrat Charles Schumer) to several
senators who haven’t betrayed much previous interest in the fine points of financial regulation. Only one of the group is
standing for re-election this year – Senator Rod Grams (R-MN), who accounts for fully two-thirds of all Chase and Wells Fargo
contributions to the Eight during the 2000 electoral cycle (though based in San Francisco, Wells became the largest financial
firm in Grams’ state when it acquired Norwest Corporation in 1999.)
Traditionally, the nation’s editorial pages have risen to the Fed’s defense at the slightest hint of politicians meddling in the
central bank’s arcane affairs. But ten short years after media elites flagellated themselves for blowing the story of S&L
deregulation, editorial writers – like their colleagues in the business section – have remained uniformly silent on this episode
of “Fedbashing.”
Jack Reed is among the eight.
Jack Reed (D-RI)
1995-2000 Financial Industry
Contributions : $702,305
Contributions from Chase and
Wells Fargo
1995-2000: $11,750
1999-2000: $ 3,000
1995-2000 Financial Industry
Contributions : $702,305
Contributions from Chase and
Wells Fargo
1995-2000: $11,750
1999-2000: $ 3,000
| FOMC ALERT Supporting pfd file to the above information. Read the letter Jack Reed signed. Click here for pdf file. |
Campaign contributions
The following is drawn from government records of campaign contributions to Jack Reed. Campaign contributions are
one of the most direct conduits for influencing members of Congress. How to use this information.
Source: Federal Election CommissionTop Contributors to Jack Reed (D) During the 2006 Election Cycle
Rank Donor Amount (US Dollars)
1 Fannie Mae $ 25,250
2 Picerne Real Estate Group $ 22,875
3 JP Morgan Chase & Co $ 21,500
4 Citizens Financial Group $ 20,550
5 Bank of America $ 19,328
Notice Picerne Real Estate receives most of the military
Housing contracts from Jack Reed who is a member on the
Subcommittee on Military Construction, Veterans Affairs, and
Related Agencies. Click here, this is a link
During the 2006 Election Cycle
Rank Donor Amount (US Dollars)
1 Picerne Investment $35,200
2 JPMorgan Chase & Co $26,350
3 Citizens Financial Group $25,350
4 Bank of America $24,399
5 Morgan Stanley $24,250
6 Goldman Sachs $24,200
Source: The Center for Responsive Politics' www.OpenSecrets.org site.
Note: Contributions are not from the organizations themselves, but are rather from
the organization's PAC, employees or owners. Totals include subsidiaries and affiliates.
Campaign to Elect Christopher Young
401-477-6178
Admin@WhereToVote.com
http://www.WhereToVote.com
SENT: Thursday, January 31, 8:57 PM
PRESS RELEASE
FOR IMMEDIATE RELEASE:
Christopher Francis Young (D) Announced Debate Request.
PROVIDENCE, RI - On Thursday January 31, 2008, democrat Christopher Francis Young announced he wants a debate
with Jack Reed, sponsored by Lou Dobbs on CNN.
Lou Dobbs spoke at Roger Williams University tonight and when Chris Young asked for the opportunity to debate Jack
Reed on his show, Lou Dobbs said yes.
Young stated after the event, “The National debt has doubled from 4.5 trillion dollars in 2000 to $9,015,553,870,006
Trillion. This has doubled interest payments on the debt to over 2 billions dollars per day to the private banks of the
Federal Reserve, taking up most of the personal income tax and causing the American people to work four months out of
the year just to pay the interest on this debt. The Federal Reserve is not a federal agency, it is a corporation made up of
international bankers. This is the enslavement of the American people, slavery to international bankers in the form of
debt.”
Candidate Young received 11% of the vote for the United States Senate in 2006.
Chris spoke on the National debt including the issue of the Iraq and Afghanistan wars driving the debt up by 1 trillion
dollars. Jack Reed has voted for funding the war.
Young’s speech also stated, “International bankers use communism, terrorism, race, wealth, and class to make war so
that they can profit by increasing a countries debt to fund these wars. The U.S dollar has recently hit a low against the
Euro. We fought to remove ourselves from the central bank system when we declared independence from England during
the revolutionary war.
Over 20 years of non stop lobbying from the financial industry hit the jackpot with the repeal of the Glass-Steagall Act in
1999; it was passed by Congress following the 1929 stock market crash. Glass-Steagall was written to limit the conflicts
of interest when commercial banks are permitted to underwrite stocks or bonds.
The international bankers whittled away at Glass-Steagall for years before finally breaking down its regulatory restrictions
in August 1987, when Alan Greenspan, formerly a director of J.P. Morgan and a proponent of banking deregulation,
became chairman of the Federal Reserve Board.
In 1990, J.P. Morgan became the first bank to receive permission from the Federal Reserve to underwrite securities. They
could do this so long as its underwriting business does not exceed the 10 percent limit. In December 1996, with the
support of Chairman Alan Greenspan, the Federal Reserve Board issued a precedent-shattering decision permitting
bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities
underwriting ending the 10% cap.
In 1999, after 25 years and $300 million of lobbying efforts, Congress, aided by President Bill Clinton, finally repealed
Glass-Steagall. This is three years after John 'Jack' Reed was first elected in 1996 and no corrective action was
implemented by ‘Jack’ Reed. This paved the way for the problems we are now facing including the banking crisis which
is no longer one of
liquidity, but of deteriorating credit worthiness system-wide. This also includes the flight of investors from money market
funds, many of which are backed by Mortgage-backed Securities (MBS). In addition to the collapse in the housing market
and the deterioration in mortgage-backed bonds (CDOs). Banks worldwide now reportedly face risk exposure of US$891
billion in asset-backed commercial paper facilities (ABCP) due to callable bank credit agreements with borrowers
designed to ensure ABCP investors are paid back when the short-term debt matures,
even if banks cannot sell new ABCP on behalf of the issuing companies to roll over the matured debt because the market
views the assets behind the paper as of uncertain market value. This means that the trillions of dollars which have been
leveraged against these shaky assets, in the form of credit default swaps (CDSs) and numerous other bizarre-sounding
derivatives, will begin to cascade down wiping out trillions in market value.
It was Jack Reed who was our Congressional representative while all this was happening. Jack Reed refuses to write
legislation to protect Rhode Islanders in this debt crisis, and especially refuses to write debt relief legislation to protect
college students by reinstituting a 10 year statute of limitations on student loan debt that ended in 1991 (elimination of the
student loan collection statute of limitations in 20 U.S.C. Section 1091a(a)(1)). Also, he refuses to reinstitute bankruptcy
protections for students and home owners that were ended by both Bill Clinton in 1996 and George Bush in 2003. Reed
does not represent the will of the people.
Greenspan and Reed presided over the greatest expansion of speculative finance in history, including a trillion-dollar
hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase
agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
In the past 18-years, assets of US government-sponsored enterprises (GSEs) ballooned 830 percent, from $346 billion to
$2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of
borrowers such as middle- and low-income homeowners, farmers etc. Agency mortgage-backed securities (MBSs)
surged 670 percent to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than
$2.7 trillion.”
At the press conference Young also reiterated his positions on the following issues, stating:
“I oppose our government’s new power to search our homes without a warrant.
I oppose the North American Union, and globalization.
I oppose Jack Reed’s membership in the Council on Foreign Relations which is a globalist organization that supports
ending nation state sovereignty. I oppose the C.F.R’s plan to end America ’s national sovereignty as well as ending the
United States constitution and Bill of Rights.
I oppose a draft.
I oppose going to war with Iran.
I support immediate withdrawl from Iraq
I oppose the death's of over 1.2 million Iraq 's in this war.
I support funding for education and debt relief and the reinstituting a federal statute of limitations on debt.
I support federal rate control over the price of gasoline.
I support Election Reform.
I support ending the Federal Reserve.
I support Bush’s impeachment.
These issues require a change in outlook, a change in tactics, and a change in missions--by the government, by the
people, by every businessman or labor leader, and by every newspaper and television news station.
The following is drawn from government records of campaign contributions to Jack Reed. Campaign contributions are
one of the most direct conduits for influencing members of Congress. How to use this information.
Source: Federal Election CommissionTop Contributors to Jack Reed (D) During the 2006 Election Cycle
Rank Donor Amount (US Dollars)
1 Fannie Mae $ 25,250
2 Picerne Real Estate Group $ 22,875
3 JP Morgan Chase & Co $ 21,500
4 Citizens Financial Group $ 20,550
5 Bank of America $ 19,328
Notice Picerne Real Estate receives most of the military
Housing contracts from Jack Reed who is a member on the
Subcommittee on Military Construction, Veterans Affairs, and
Related Agencies. Click here, this is a link
During the 2006 Election Cycle
Rank Donor Amount (US Dollars)
1 Picerne Investment $35,200
2 JPMorgan Chase & Co $26,350
3 Citizens Financial Group $25,350
4 Bank of America $24,399
5 Morgan Stanley $24,250
6 Goldman Sachs $24,200
Source: The Center for Responsive Politics' www.OpenSecrets.org site.
Note: Contributions are not from the organizations themselves, but are rather from
the organization's PAC, employees or owners. Totals include subsidiaries and affiliates.
Campaign to Elect Christopher Young
401-477-6178
Admin@WhereToVote.com
http://www.WhereToVote.com
SENT: Thursday, January 31, 8:57 PM
PRESS RELEASE
FOR IMMEDIATE RELEASE:
Christopher Francis Young (D) Announced Debate Request.
PROVIDENCE, RI - On Thursday January 31, 2008, democrat Christopher Francis Young announced he wants a debate
with Jack Reed, sponsored by Lou Dobbs on CNN.
Lou Dobbs spoke at Roger Williams University tonight and when Chris Young asked for the opportunity to debate Jack
Reed on his show, Lou Dobbs said yes.
Young stated after the event, “The National debt has doubled from 4.5 trillion dollars in 2000 to $9,015,553,870,006
Trillion. This has doubled interest payments on the debt to over 2 billions dollars per day to the private banks of the
Federal Reserve, taking up most of the personal income tax and causing the American people to work four months out of
the year just to pay the interest on this debt. The Federal Reserve is not a federal agency, it is a corporation made up of
international bankers. This is the enslavement of the American people, slavery to international bankers in the form of
debt.”
Candidate Young received 11% of the vote for the United States Senate in 2006.
Chris spoke on the National debt including the issue of the Iraq and Afghanistan wars driving the debt up by 1 trillion
dollars. Jack Reed has voted for funding the war.
Young’s speech also stated, “International bankers use communism, terrorism, race, wealth, and class to make war so
that they can profit by increasing a countries debt to fund these wars. The U.S dollar has recently hit a low against the
Euro. We fought to remove ourselves from the central bank system when we declared independence from England during
the revolutionary war.
Over 20 years of non stop lobbying from the financial industry hit the jackpot with the repeal of the Glass-Steagall Act in
1999; it was passed by Congress following the 1929 stock market crash. Glass-Steagall was written to limit the conflicts
of interest when commercial banks are permitted to underwrite stocks or bonds.
The international bankers whittled away at Glass-Steagall for years before finally breaking down its regulatory restrictions
in August 1987, when Alan Greenspan, formerly a director of J.P. Morgan and a proponent of banking deregulation,
became chairman of the Federal Reserve Board.
In 1990, J.P. Morgan became the first bank to receive permission from the Federal Reserve to underwrite securities. They
could do this so long as its underwriting business does not exceed the 10 percent limit. In December 1996, with the
support of Chairman Alan Greenspan, the Federal Reserve Board issued a precedent-shattering decision permitting
bank holding companies to own investment bank affiliates with up to 25 percent of their business in securities
underwriting ending the 10% cap.
In 1999, after 25 years and $300 million of lobbying efforts, Congress, aided by President Bill Clinton, finally repealed
Glass-Steagall. This is three years after John 'Jack' Reed was first elected in 1996 and no corrective action was
implemented by ‘Jack’ Reed. This paved the way for the problems we are now facing including the banking crisis which
is no longer one of
liquidity, but of deteriorating credit worthiness system-wide. This also includes the flight of investors from money market
funds, many of which are backed by Mortgage-backed Securities (MBS). In addition to the collapse in the housing market
and the deterioration in mortgage-backed bonds (CDOs). Banks worldwide now reportedly face risk exposure of US$891
billion in asset-backed commercial paper facilities (ABCP) due to callable bank credit agreements with borrowers
designed to ensure ABCP investors are paid back when the short-term debt matures,
even if banks cannot sell new ABCP on behalf of the issuing companies to roll over the matured debt because the market
views the assets behind the paper as of uncertain market value. This means that the trillions of dollars which have been
leveraged against these shaky assets, in the form of credit default swaps (CDSs) and numerous other bizarre-sounding
derivatives, will begin to cascade down wiping out trillions in market value.
It was Jack Reed who was our Congressional representative while all this was happening. Jack Reed refuses to write
legislation to protect Rhode Islanders in this debt crisis, and especially refuses to write debt relief legislation to protect
college students by reinstituting a 10 year statute of limitations on student loan debt that ended in 1991 (elimination of the
student loan collection statute of limitations in 20 U.S.C. Section 1091a(a)(1)). Also, he refuses to reinstitute bankruptcy
protections for students and home owners that were ended by both Bill Clinton in 1996 and George Bush in 2003. Reed
does not represent the will of the people.
Greenspan and Reed presided over the greatest expansion of speculative finance in history, including a trillion-dollar
hedge-fund industry, bloated Wall Street-firm balance sheets approaching $2 trillion, a $3.3 trillion repo (repurchase
agreement) market, and a global derivatives market with notional values surpassing an unfathomable $220 trillion.
In the past 18-years, assets of US government-sponsored enterprises (GSEs) ballooned 830 percent, from $346 billion to
$2.872 trillion. GSEs are financing entities created by the US Congress to fund subsidized loans to certain groups of
borrowers such as middle- and low-income homeowners, farmers etc. Agency mortgage-backed securities (MBSs)
surged 670 percent to $3.55 trillion. Outstanding asset-backed securities (ABSs) exploded from $75 billion to more than
$2.7 trillion.”
At the press conference Young also reiterated his positions on the following issues, stating:
“I oppose our government’s new power to search our homes without a warrant.
I oppose the North American Union, and globalization.
I oppose Jack Reed’s membership in the Council on Foreign Relations which is a globalist organization that supports
ending nation state sovereignty. I oppose the C.F.R’s plan to end America ’s national sovereignty as well as ending the
United States constitution and Bill of Rights.
I oppose a draft.
I oppose going to war with Iran.
I support immediate withdrawl from Iraq
I oppose the death's of over 1.2 million Iraq 's in this war.
I support funding for education and debt relief and the reinstituting a federal statute of limitations on debt.
I support federal rate control over the price of gasoline.
I support Election Reform.
I support ending the Federal Reserve.
I support Bush’s impeachment.
These issues require a change in outlook, a change in tactics, and a change in missions--by the government, by the
people, by every businessman or labor leader, and by every newspaper and television news station.
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 ts
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
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 ts
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
| Christopher Young (Democrat) |