1999CRS4736A FINANCIAL SERVICES MODERNIZATION ACT OF 1999, Part 7/8
no...@senate.gov
[[Page S4779]]
other organizations reveal similar findings. These studies have shown
that minority borrowers receive fewer bank loans even when their
financial status is the same as or better than white borrowers.
By encouraging lenders to extend credit to all communities, CRA has
been an important weapon in fighting lending discrimination. The Bryan
amendment will ensure the potency of CRA in fighting lending
discrimination and providing fair access to credit to low-income and
minority communities.
In closing, Mr. President, let me reiterate how important it is to
include CRA in any modernization legislation that passes. It is very
likely that if S. 900 is enacted, we will see increased consolidation
in the financial services industry. As we know from recent experience,
this consolidation will likely lead to layoffs and bank branch
closings. Absent the CRA language included in the Bryan amendment, I
fear that this consolidation could have a significant and adverse
impact on access to banking services and credit in low-income and
minority communities. By adopting the Bryan amendment, we will at least
ensure that industry consolidation will not decrease access to credit
in these communities.
In fact, I feel so strongly about these provisions that I plan on
opposing the bill if this amendment is not adopted. I would hope my
colleagues can support this amendment.
Mrs. BOXER. I have been a longstanding supporter of financial
services modernization and affirmed such support in a letter to
Secretary Rubin about two years ago, and last year, as a member of the
Banking Committee, I voted in support of H.R. 10--the Financial
Services Modernization bill reported out of the Banking Committee with
strong bi-partisan support.
I believe it is important that our financial services sector adapt to
contemporary market conditions, marketplace innovations and to growing
financial competition from abroad. Moreover, I understand and
appreciate the desire of our financial services industries--banks,
securities firms, and insurance firms--to further expand their
traditional lines of business.
I joined the Banking Committee in 1993 when I was first elected to
the Senate, and I proudly served on that Committee until this year. So
I realize the process of financial services reform has been long,
tedious, and often quite contentious. I also realize that many
financial services firms are looking forward to the Senate putting an
end to that long process by passing a financial services modernization
bill. And I would like to see us pass a good bill--a fair and balanced
bill.
Nonetheless, it is important to remember that the U.S. already has
the best banking system in the world. It is the best capitalized, the
most transparent, has the highest accounting standards, is very
innovative and its safety and soundness is unsurpassed.
Therefore, it is appropriate to ask, ``why is financial services
modernization necessary?'' It is necessary because the financial
marketplace has changed, brought on by, among other things, a
combination of new and innovative products and services, as well as
technological advances.
Regulators must keep pace with these innovations, and we, as
legislators must set the appropriate parameters for this changed
financial services marketplace. We cannot leave it up to piecemeal
regulation and legislation as, all to often, has been the case.
Our goal should be to create a regulatory framework which provides
measurable benefits to consumers and businesses, enhances
competitiveness of the financial services sector on a global basis, and
ensures the continued safety and soundness of our financial
institutions. While the bill before us goes a long way toward achieving
that goal, unfortunately I believe, it falls short.
It falls short, principally in my opinion, because it fails to ensure
the continued strength of the Community Reinvestment Act. CRA has been
invaluable in helping to assure low and moderate income consumers,
communities and small businesses have sufficient access to credit.
The Community Reinvestment Act has been important to both urban and
rural communities. Every CRA dollar is a loan--it is the leveraging of
capital. Over the past seven years or so, approximately $400 billion of
community development has been leveraged. It has proven to be
an effective tool in my home state of California and in states
throughout the country.
CRA encourages federally insured financial institutions to help meet
the credit needs of the communities in which they do business. As
Senator Proxmire said in 1974, ``CRA is intended to establish a system
of regulatory incentives to encourage banks and savings institutions to
more effectively meet the credit needs of the localities they are
chartered to serve, consistent with sound lending practices.''
CRA does not, despite many implications to the contrary, impose any
requirement upon banks to make unsound or unsafe loans. CRA does not
require banks to engage in risky lending or investments. It does not
require banks to make loans outside of the lending criteria they have
established. I would suggest, in fact, that given how well banks are
doing these days, one would be hard pressed to make a reasonable case
that CRA has been detrimental to the bottom line of banks or to their
safety and soundness.
I think it is wonderful banks are doing so well, I appreciate the
contributions they are making to our economy. I remember all too well
when banks were not doing so well. Thus, I would not support CRA, or
any other requirement, which encouraged banks to engage in unsafe
lending practices.
My specific concerns as relate to the CRA provisions in this bill are
as follows. First, as I understand it, there are no enforcement
mechanisms or penalties for failing to maintain a ``satisfactory'' CRA
rating. By contrast, the bill passed last year by the Senate Banking
Committee required all banks in a holding company structure to have a
satisfactory CRA rating as a condition of affiliation, and maintain a
satisfactory CRA rating in order to continue to engage in new financial
activities.
Second, this bill provides for a CRA ``safe harbor.'' Under this
provision, all institutions which received at least a satisfactory CRA
rating on their most recent examination, and received a satisfactory
rating in each of the past 3 years, would be deemed to be in compliance
with CRA. Such a safe harbor, I believe, would often effectively
eliminate the opportunity for public comment. Banks and thrifts are
usually examined every two to three years. CRA performance can change
in the interim.
Third, S. 900 exempts those banks with less assets of less than $100
million, and those that are not located in metropolitan areas, from
CRA. While I think we can all agree that institutions with assets of
less than $100 million are small, the amendment would exempt more than
75 percent of rural institutions from CRA requirements--that is almost
40 percent of all U.S. banks and thrifts. Ironically, I would note, it
has traditionally been these smaller institutions that have had the
worst CRA records. Moreover, the new CRA rules, which went into effect
in January 1996, provide a streamlined examination for banks and
thrifts with assets less than $250 million. In fact, pursuant to the
changes which took effect in 1996, small banks do not have any data
collection or reporting requirements.
I do not believe the CRA changes envisioned in S. 900 are
appropriate, or needed at this time. If there are abuses or specific
problems, let's deal with them--let regulators, and, if appropriate,
law enforcement deal with them. Such abuses are hurtful to CRA and to
those who can potentially benefit from CRA. These abuses, I would
suggest however, are extraordinarily rare. On the whole, bankers have
found CRA to be an extremely minimal intrusion at most.
CRA has not been a problem to most bankers in my home state of
California. BankAmerica, Wells Fargo and others have made important CRA
commitments in my state.
Between 1992 and 1997, BankAmerica made $3 billion in conventional
small business loans and lines of credit for less than $50,000. In
1997, it made more than $1 billion in loans and lines of credit for
$100,000 or less. And BankAmerica has often noted their CRA loans have
performed as well as other more traditional loans made by the bank.
These loans have also been profitable for the bank. In fact, Hugh
[[Page S4780]]
McColl, the Chairman and CEO of BankAmerica Corp. has said, ``My
company supports the Community Reinvestment Act both in spirit and in
fact. We have had fun doing it. We've made a business out of it.''
Moreover, in Los Angeles, as a result of CRA, loans to African
American owned businesses increased a whopping 171 percent between 1992
and 1997. However, it is important to note that small business owners
of every race have obtained credit as a result of CRA-related programs.
For example, in San Diego, at least 25 percent of the loans made by
local community development organizations were to white business
owners.
So Mr. President, although I am a enthusiastic supporter of financial
services modernization, I cannot support S. 900 if the CRA provisions
contained in the bill are maintained. Access to capital and economic
development, I believe, will potentially be some of the most important
tools available to low and moderate income Americans in the coming
century. Without such access to capital, far too many Americans,
particularly those in urban and rural areas, will not be able to share
in the economic wealth of our remarkably exuberant economy.
Mr. SARBANES addressed the Chair.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, I have refrained from speaking all day.
I do need to speak for a brief period of time, but I want to try to
accommodate colleagues as well. If I can inquire of Senator Schumer,
how much time would he need to speak, 5 minutes or thereabouts?
Mr. SCHUMER. Yes, that would be fine.
Mr. SARBANES. And Senator Shelby?
Mr. SHELBY. About 10.
Mr. SARBANES. I would like to propound a request that Senator Schumer
be allowed to speak and then Senator Shelby and then after Senator
Shelby that I would be recognized.
Mr. GRAMM. Could we add to it that, after the Senator from Maryland,
I be recognized?
The PRESIDING OFFICER. Without objection, it is so ordered.
The Senator from New York.
Mr. SCHUMER. Mr. President, I thank my friend, the Senator from
Maryland, as well as the Senators from Alabama and Texas for their
courtesy here this evening.
I also thank Senator Sarbanes for his indefatigable efforts to defend
the Community Reinvestment Act.
And I'd like to thank my Democratic colleagues as well as Secretary
Rubin for their strong commitment to CRA.
In 1977 when CRA was enacted, the thinking was that banks--though
privately owned--receive public benefits in the form of deposit
insurance and access to the Federal Reserve's discount window and
payments system.
And in return, they would have an obligation to ``serve the
convenience and needs'' of their communities.
Over 20 years later, banks still CRA as an obligation--but as an
obligation that a minimum they can live with--and in many cases, that
they endorse.
Does CRA work?
The answer has been a resounding yes.
Since its enactment, CRA has resulted in $1 trillion of investments
in underserved communities. It's been a driving force for community
economic development; one of the best ways to bring people together, to
bring poor people and people of color upward, which we all want to do.
It's also driven a 30 percent increase in home ownership among low-
income families since 1990, making the American Dream of home ownership
a more commonplace reality for our minority communities.
And in 1997, large banks and thrifts made approximately 525,000 small
business loans totaling $34 billion to entrepreneurs located in low and
moderate communities.
CRA works.
And we know it works because banks who have never been shy in
fighting what they view as burdensome or intrusive Federal regulation
are not pushing to repeal CRA or even to roll it back.
In fact, they're supporting it. Every major bank in my State has
contacted me in favor of CRA.
Some have been honest enough to admit that because of CRA they are
reaching out to communities that they would not otherwise have served.
And they're serving them profitably.
Hugh McColl, Jr., Chairman and CEO of BankAmerica Corp., stated
earlier this year; ``My company supports the Community Reinvestment Act
in spirit and in fact. To be candid, we have gone way beyond its
requirements * * *. We're quite happy living with the existing rules.''
A Federal Reserve study showed that banks with higher volumes of
loans to low-income communities were on average more profitable than
those with a lower volume.
And we know that banks have had some of their most profitable years
even as CRA loans have reached record heights.
Finally, our regulators, who are committed to ensuring the safety and
soundness of our financial institutions, have been very vocal in their
support of CRA.
So there's more evidence that CRA has been effective in communities'
edification than in any invidious exploitation of banks, as some of its
critics have been charging.
The question is, then, with everyone in support of CRA, why do we
want to throw away our best chance to pass financial modernization
solely to end a law that we know is working?
The President has stated very clearly that with these CRA provisions,
this bill will end in veto. His veto letter states:
We cannot support the ``Financial Services Modernization
Act of 1999'' * * *. In its current form, the bill would
undermine the effectiveness of the Community Reinvestment Act
(CRA), a law that has helped to build homes, create jobs, and
restore hope in communities across America. The CRA is
working, and we must preserve its vitality as we write the
financial constitution for the 21st Century.
Contrary to what many think, this amendment does not expand CRA. It
simply maintains the status quo.
First, it requires that banks have at least a ``satisfactory'' CRA
rating as a precondition for affiliation with securities and insurance
firms. Today our insured depository institutions have this obligation.
And 97 percent of them meet it. They meet it precisely because it is
not a tremendous burden.
Second, this amendment would remove the small bank exemption that
narrowly passed the Banking Committee. Small banks account for 70
percent of the ``needs improvement'' ratings handed out to banks by the
regulators last year. So the idea that we should exempt the
institutions that are most likely to be in noncompliance seems ill-
advised.
Finally, the amendment eliminates the safe harbor provisions in the
Committee print. The safe harbor sets up an unnecessary burden of proof
that is simply unnecessary.
In sum, these provisions would restore CRA to today's potency.
As I said yesterday, I say, it is my hope that we can set aside our
partisanship for the sake of pragmatism.
And set aside confrontation for the sake of compromise.
Mr. President, I strongly support this amendment, and I urge my
colleagues to support it.
A vote for this amendment is a vote for modernization.
The PRESIDING OFFICER. The Senator from Alabama is recognized.
Mr. SHELBY. Mr. President, I rise in opposition to the Bryan CRA
amendment. This amendment not only strikes the small rural bank
exemption that we have in the Banking Committee bill and that we
adopted on a bipartisan vote, but it also replaces that language with a
significant expansion in CRA--the same language Chairman Gramm and I
vehemently opposed on the Senate floor this past year.
Community banks, as the Presiding Officer knows, by their very
nature, serve the needs of their communities and do not need a
burdensome Government mandate to force them to allocate credit or to
originate profitable loans. And, contrary to the assertions of critics,
there is no evidence whatsoever that the small bank exemption would
have ``devastating consequences'' for low- and moderate-income rural
communities. There remains no documented evidence to prove such an
assertion, just as there is no tangible evidence that CRA has ever
helped rural communities in America.
What is documented, though--and Chairman Gramm has worked tirelessly
to do so--is the kinds of blackmail agreements and extortion practices
[[Page S4781]]
that the Community Reinvestment Act enables community groups to engage
in. The truth of the matter is that the small bank exemption would
exempt less than 3 percent of bank assets nationwide. Thus, 97 percent
of all bank assets would still be subject to the Community Reinvestment
Act.
Just bear with me a minute on this chart. We have bank assets of
$5.711 trillion. But banks above $100 million, rural and nonrural,
control 97 percent of the bank assets in America. The small banks in
America that we are talking about, those under $100 million in assets--
there are 3,667 of them--control only $165 billion, or 2.9 percent of
all the banking assets. Can you imagine? BankAmerica, for example, has
$614 billion in assets. And I commend them for that. They are a well-
run bank. But that is more than all 3,667 small rural banks in America
put together; it is about 4 times more. So let's look at this in a
realistic situation, as this chart here depicts.
Mr. President, critics will point out that the small rural bank
exemption which I and Senator Gramm have in the bill would exempt 3,700
banks. That is true. But to put that into context again, and to
reiterate, one needs to understand that BankAmerica, as I have just
shown, is four times the size of all small rural banks in America.
Indeed, BankAmerica possesses $614 billion in assets, or 10.7 percent
of all bank assets in this country. If one looks at the list of large
banks, one will soon realize that the vast majority of bank assets are
concentrated in the large, multibillion-dollar banks that can most
easily shoulder the burden of CRA.
The assertions of those who oppose the small bank exemption that we
have in the banking legislation also do not comport with the comments I
have received from small banks across the country. In fact, I have many
letters from small bankers who complain about the burden of CRA, as
well as the regulators' subjective reporting requirements dealing with
CRA.
I would like to take a moment to read some letters from some small
bankers in Alabama. I believe they have a right to be heard. I will
quote from some of these. The first one says:
I don't think, in these small community banks, that we have
to be examined by people who usually don't understand our
purpose, to enforce us to service our community * * *.
Small community banks are a Service Institution. I know
because I have just completed 39 years this month. All
this time in small home-owned banks that deliver services
that are essential to rural life. Where services have been
rendered over the years even before we knew anything about
CRA.
That was from Charles Willmon, chairman of the First Bank of the
South in the small town of Rainsville, AL.
I have another letter, from John Mullins, president and CEO of First
Commercial Bank of Cullman, AL, which says:
Exempting small banks would be a wonderful opportunity for
me to spend less time on unnecessary and nonproductive
paperwork and more time helping the citizens of my market
area improve their financial well-being . . . CRA examiners
spend many unnecessary hours examining our loan track record.
Banks our size are an integral part of the local community
and we are always sensitive to the needs of our citizens.
They are not faceless names, but people whom we know. We
don't need a law to require us to help them with credit, we
do it anyway.
I have another letter from a small banker in Clanton, AL. He is
Leland Howard, Jr., of Peoples Southern Bank. He says:
We in the community banks feel that the CRA exception for
banks with aggregate assets of $100 million or less is a very
good start on the road to easing the regulatory burden.
I have a letter from John Hughes, CEO of First National Bank of
Hartford, AL, a small town in south Alabama. He says:
Extra work created by the CRA is tremendous. Most rural
banks know at least 95 percent of all their customers, their
family, and their situation. The rating system that most
examiners used is highly subjective and the rural banks have
a hard time to achieve a grade higher than satisfactory.
Again, it would be a great day in Alabama if you . . . could
get this amendment passed.
Those are just a few letters, and they come from all over the Nation.
Mr. President, the Federal Reserve Bank of Richmond published its
1994 annual report on ``Neighborhoods and Banking,'' where it reported
its findings on the costs of CRA. The report found:
The regulatory burden [of CRA] would fall on bank-dependent
borrowers in the form of higher loan rates and on bank-
dependent savers in the form of lower deposit rates. And to
the extent that lending induced by the CRA regulations
increases the risk exposure of the deposit insurance funds,
taxpayers who ultimately back those funds bear some of the
burden as well.
The report goes on to say that, basically, the CRA imposes a tax on
banks. CRA, then, is a tax on community banks and raises the costs of
inputs to banks by increasing their regulatory burden and compliance
costs. Mr. President, in addition, CRA forces banks to make loans
according to a Federal quota, increasing the risks, and therefore the
costs, of borrowing to consumers. Make no mistake about it, the
Community Reinvestment Act raises the cost of borrowing through higher
loan rates and punishes savers in the form of lower savings rates.
Critics of the small bank exemption claim that small banks get the
worst CRA ratings. The truth of the matter is that one size does not
fit all in any business. These critics point to lower than average
loan-to-deposit ratios of small banks as evidence that they are not
serving their communities. That is nonsense. That is like saying the
average male wears a size 42 regular suit and that every male in
America who does not fit in that size suit should be reprimanded by the
Federal Government.
Every community in this great country is different. Most of us take
pride in such diversity. That is the foundation on which this country
was built.
However, the Community Reinvestment Act punishes banks who do not
comport with national averages. Indeed, the loan demand in Prattville,
AL, is not the same as in Lafayette, LA. Nor is it the same as in
Shelbyville, TN. Nonetheless, CRA judges banks based largely on their
loan-to-deposit ratios that the regulators deem to be appropriate.
That, my friends, is nothing but a quota. When everything is said and
done, CRA promotes quotas and creates a regulatory burden.
As if that is not bad enough, Mr. President, the Bryan amendment
would also expand the reach and the scope of the Community Reinvestment
Act.
Specifically his amendment would:
One, increase administrative enforcement authority of the regulators
to fine directors and officers up to $1 million a day for CRA
noncompliance. Just think about that.
Two, it would make expanded activities subject to CRA compliance on
all depository institution affiliates on an ongoing basis.
And it would give the regulators the authority to shut down any
affiliate within the holding company if just one subsidiary depository
institution falls out of CRA compliance.
The Bryan amendment dramatically expands, Mr. President, CRA
enforcement authority to allow civil money penalties for bank directors
and officers, as I have pointed out.
The amendment would require bank holding companies who seek to become
financial holding companies to be compliant with the Community
Reinvestment Act of 1977 just in order to be eligible. If even one
subsidiary depository institution ever falls out of compliance, the
holding company, including the nonbank affiliate, would then be subject
to section 8 of the Federal Deposit Insurance Act, which is 12 U.S.C.
1818, which authorizes bank regulators to invoke cease and desist
orders, civil penalties, and fines.
Regulators would be authorized to fine bank directors and officers up
to $1 million a day. This, Mr. President, is a dramatic expansion in
the enforcement authority and reach of bank regulators.
Such authority does not exist today. The Clinton Justice Department
even agrees.
In late 1994, Comptroller of the Currency, Eugene Ludwig, tried to
invoke the administrative enforcement powers under Section 8 of FDIA
(12 U.S.C. 1818) to enforce CRA. The Justice Department issued a
memorandum stating:
[T]o move from an enforcement scheme that relies upon a
system of regulatory incentives to a scheme that entails
cease-and-desist orders and potentially substantial monetary
penalties is a leap that we do not believe can be justified
on the basis of the text, purpose, and legislative history of
CRA. We therefore conclude that enforcement under 12 U.S.C.
1818 is not authorized by CRA.
[[Page S4782]]
Bank trade associations were very pleased with the Justice Department
decision. The Bankers Roundtable, the American Bankers Association, the
Consumer Bankers Association, and the Savings and Community Bankers of
America, filed joint letters focusing in substantial part on the
regulators claims of enforcement authority.
The Bryan amendment also permits regulators to force divestiture
since banks cannot ``retain shares of any company'' if ever out of CRA
compliance. This provision also explicitly states that a bank holding
company may not ``engage in any activity'' unless the institution is
CRA compliant always and forever.
Think about it.
If just one subsidiary depository institution of a financial holding
company falls out of compliance with CRA, the substitute authorizes the
Federal Reserve Board to ``impose such limitations on the conduct or
activities of the company or any affiliate of the company as the Board
determines to be appropriate * * * '' This, too, is a dramatic
expansion of enforcement authority under CRA. For the first time,
regulators will be able to impose restrictions on activities throughout
the entire holding company. This means a bank regulator could prohibit
a securities affiliate from underwriting securities or an insurance
affiliate from underwriting insurance.
Regulators do not have such authority today. Currently, CRA only
allows regulators to prohibit the merger, acquisition or branch
expansion of an institution that is not compliant with CRA.
Current law does not give bank regulators the authority to prohibit
eligible activities of a given charter due to CRA non-compliance. The
Bryan amendment requires an operating subsidiary who wants to engage in
agency activities to maintain CRA compliance on all depository
institution affiliates.
Thus, non-banking financial agency activities would be held hostage
to CRA, with the bank regulators given the authority to enforce such
law. This is the first time CRA has ever been expanded to cover the
approval of non-depository activities.
I urge my colleagues to vote against the Bryan amendment and support
what is in the bill.
I yield the floor.
Mr. SARBANES addressed the Chair.
The PRESIDING OFFICER. The Senator from Maryland.
Mr. SARBANES. Mr. President, shortly we will be voting with respect
to the Bryan amendment.
I, again, want to underscore the very strong and powerful statement
which I think Senator Bryan made shortly after noon at the outset of
this debate, and I am deeply appreciative to him for the strong
leadership he has shown with respect to this amendment.
We have tried to give all Members a chance to speak. I, in fact, have
refrained from doing so in the course of the day in order to make sure
that our colleagues had a chance to speak. I would like to take just a
few minutes now.
I want to speak in support of the amendment. But I really do not want
to repeat a lot of the extensive discussion of the issues which have
taken place, both during opening statements on the bill, and on the
alternative amendment, and now on this amendment itself, although they
may well bear repeating.
I want to make sure my colleagues appreciate the intense feeling and
the critical importance which civil rights groups, mayors, rural
groups, Hispanic groups, and Native American groups attach to this
issue of CRA. They have all sent letters to the committee.
I ask unanimous consent those letters be printed in the Record at the
conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered.
(See Exhibit 1.)
Mr. SARBANES. Mr. President, these letters reflect how CRA has
benefited communities all over this country--small, urban, and rural.
They demonstrate how CRA has expanded economic opportunities for people
of all races, colors, and ethnic affiliations.
Yesterday morning, the Leadership Conference on Civil Rights, our
preeminent civil rights group, held a press conference in support of
CRA. I would like briefly just to quote some of the comments made by
civil rights leaders at the press conference, as well as comments made
by individuals who benefited from CRA.
Dr. Dorothy Height, chairman of the Leadership Conference on Civil
Rights, president emeritus of the National Council of Negro Women,
spoke, and said:
Since its enactment in 1977, the Community Reinvestment Act
has served as one of the crowning achievements in the civil
rights movement.
The premise of the legislation is simple--to make sure that
economic opportunity for families and communities is
available to every American.
Opportunities for home ownership, small business
development, and sustaining rural communities are critical to
the strength of this Nation.
With CRA our neighborhoods have a chance. Without it, they
are discriminated against.
Just as civil rights legislation enacted a decade ago
sought to break down the walls of discrimination that
separated us in schools, restaurants, and places of work by
the color of our skin, the CRA has meant opportunity for
everyone, whatever race or color. As a result of CRA,
millions of minorities across this Nation now have access to
the capital that will allow them to build new homes, to
create new businesses, and to improve education.
She concluded her introductory remarks at the press conference by
saying:
Leaders you see before you represent dozens of
organizations galvanized by an assault on the Community
Reinvestment Act. Those organizations represent millions of
Americans who have been touched by CRA and millions more
who deserve the same opportunity.
Make no mistake about it, this issue is seen by the civil rights
community as a critical civil rights issue. Fair access to credit is
fundamental to hopes for economic progress in our minority communities.
Another speaker at the press conference was Hugh Price, president of
the National Urban League, who said:
We of the National Urban League strongly support financial
services modernization because we believe it is in tune with
the times. But we staunchly oppose any effort to gut the CRA.
We at the Urban League work with the leaders of many
financial institutions. Just last week I talked with Kenny
Lewis, president of Bank America, who said that his bank
stands strongly behind the renewal of CRA.
I know that belief is echoed by many leaders in the financial
services and banking community who see it as good business for their
corporations.
Charles Kamasaki, senior vice president of the National Council of La
Raza, stated:
The National Council of La Raza is the Nation's largest
Hispanic civil rights organization. We represent more than
200 local community-based organizations who provide a range
of services, many of them supported by CRA-related funds in
over 32 States.
Mr. Kamasaki, the head of the National Council of La Raza, introduced
Richard Farias as president of the Tejano Center for Community Concerns
in Houston, a member organization of La Raza. Mr. Farias stated, in
speaking of the importance of CRA:
Now because of CRA, a number of banks in Houston created a
consortium to help us purchase a $2.1 million school
building. The building has 7.5 acres and 80,000 square feet
of space, including a gymnasium, a cafeteria, an auditorium
and 25 classrooms. They now have a charter school for success
that houses 400 students and is expected to grow to 650
students.
He goes on to say that it is very important to understand that CRA is
not just about community development; it is about empowerment of the
people; it is about being able to give low-income children and families
the right that they have to not only good housing but to good education
and to good health services.
Daphne Kwok, executive director of the Organization of Chinese
Americans, also took part in the press conference. She stated that the
Organization of Chinese Americans supports the Community Reinvestment
Act because it has enabled home ownership among minority and low- and
moderate-income individuals:
Asian Pacific-Americans, especially Chinese-Americans,
Korean-Americans, Vietnamese-Americans, Asian Indian-
Americans are small business owners, and many of them are
seeking to open up businesses in low and moderate income
areas.
JoAnn Chase, executive director of the National Congress of American
Indians, then spoke and stated:
Founded in 1944, the National Congress of American Indians
is the oldest, largest and most representative national
organization
[[Page S4783]]
devoted to promoting and protecting the rights of American
Indian tribal governments and their citizens. One of our key
missions has been to continuously advocate for Indian self
determination and self sufficiency, and toward that end from
its very inception, our communities, our governments, our
people have supported the Community Reinvestment Act, which
has proven to be an effective means of encouraging federally
insured financial institutions to extend prudent and
profitable loans in traditionally underserved areas,
particularly in Indian country.
Specifically, the CRA has helped focus attention to the
challenges of extending credit to reservations and has acted
as a catalyst to reservation-based economic development.
Since the implementation of the CRA, Native American
governments and citizens and our own banks have negotiated
agreements for lending more than $155 million within the
Indian country which has substantially advanced efforts
toward economic self-sufficiency. It is a law that has helped
build homes for our people, has inspired hope and has created
jobs in many native communities.
The final speaker at the press conference was Hillary Shelton,
Washington bureau director of the NAACP, who stated:
* * * on behalf of the NAACP * * * we are honored to
strongly support and continue to endorse the Community
Reinvestment Act and consequently oppose any attempts to
weaken it.
The CRA has been instrumental in the revitalization of
literally tens of thousands of communities nationwide, and
continues to be an important tool in the NAACP's ongoing
efforts to help people and communities achieve the goals of
community resurrection, development, and growth, at no cost
to American taxpayers.
Mr. President, there has been printed in the Record a letter from the
U.S. Conference of Mayors which was quoted from earlier, a letter from
a coalition of 19 family farm and rural groups, which states:
Rural areas continue to suffer from a serious shortage of
affordable housing. Farmers are facing the worst financial
conditions in more than a decade due to declining commodity
prices. Rural Americans continue to need the tools of the CRA
to ensure accountability of their local lending institutions.
CRA helps to meet the credit demands of millions of family
farmers, rural residents and local businesses.
Mr. President, I ask unanimous consent to have printed in the Record
other letters from a number of organizations which have written to us
in very strong support of the CRA, as well as editorials.
There being no objection, the material ordered to be printed in the
Record, as follows:
Mischief From Mr. Gramm
Cities that were in drastic decline 20 years ago are
experiencing rebirth, thanks to new homeowners who are
transforming neighborhoods of transients into places where
families have a stake in what happens. The renaissance is due
in part to the Federal Community Reinvestment Act, which
requires banks to reinvest actively in depressed and minority
areas that were historically written off. Senator Phil Gramm
of Texas now wants to weaken the Reinvestment Act,
encouraging a return to the bad old days, when banks took
everyone's deposits but lent them only to the affluent.
Sensible members of Congress need to keep the measure intact.
The act was passed in 1977. Until then, prospective home or
business owners in many communities had little chance of
landing loans even from banks where they kept money on
deposit. But according to the National Community Reinvestment
Coalition, banks have committed more than $1 trillion to
once-neglected neighborhoods since the act was passed, the
vast majority of it in the last six years.
In New York City's South Bronx neighborhood, the money has
turned burned-out areas into havens for affordable homes and
a new middle class. The banks earn less on community-based
loans than on corporate business. But the most civic-minded
banks have accepted this reduced revenue as a cost of doing
business--and as a reasonable sacrifice for keeping the
surrounding communities strong.
Federal bank examiners can block mergers or expansions for
banks that fail to achieve a satisfactory Community
Reinvestment Act rating. The Senate proposal that Mr. Gramm
supports would exempt banks with assets of less than $100
million from their obligations under the act. That would
include 65 percent of all banks. The Senate bill would also
dramatically curtail the community's right to expose what it
consider unfair practices. Without Federal pressure, however,
the amount of money flowing to poorer neighborhoods would
drop substantially, undermining the urban recovery.
Mr. Gramm argues that community groups are ``extorting''
money from banks in return for approval, and describes the
required paperwork as odious. But community organizations
that build affordable housing in Mr. Gramm's home state
heartily disagree. Mayor Ron Kirk of Dallas disagrees as
well, and told the Dallas Morning News that he welcomed the
opportunity to explain to Mr. Gramm that ``there is no
downside to investing in all parts of our community.''
In a perfect world, lending practices would be fair and the
Reinvestment Act would be unnecessary. But without Federal
pressure the country would return to the era of redlining,
when communities cut off from capital withered and died.
____
[From the Washington Post, May 4, 1999]
Banking on Reform
The Senate today is scheduled to begin considering a bill
that would remake the financial services industry, allowing
banks and insurance companies and investment firms to merge
and compete. Similar legislation is making its way through
the House. The thrust of both bills is sound. But while the
industries have lobbied hard to shape a law satisfactory to
them, the current legislation doesn't adequately protect low-
income communities or consumers' privacy. Financial
modernization should apply to them, too.
Since the Depression, federal law has sought to keep the
banking, insurance and securities industries separate. The
idea, in part, was to make sure that federally insured bank
deposits didn't wind up somewhere risky and unregulated. But
in recent years, even without a change in the law, that
separation has eroded. Banks have found ways to offer mutual
funds to their customers; investment firms function like
deposit institutions; etc. It makes sense now to bring
legislation--and regulation--in line with reality.
Congress has been trying to do so, and failing, for more
than a decade, and may again. But on the major issues, the
administration, the Federal Reserve and Congress have pretty
well agreed. They would let the financial services industries
meld while for the most part keeping them out of other
businesses, a wise decision. They've come up with fire walls
and regulatory schemes that, while still not entirely agreed
upon, have satisfied most concerns about protecting federally
insured deposits.
But there is no consensus yet on safeguarding the interests
of underserved communities. Since 1977 federally insured
banks have been subject to the Community Reinvestment Act,
requiring them to seek business opportunities in poor areas
as well as middle-class and wealthy neighborhoods. The law, a
response originally to clear evidence of bias in lending, has
worked well. It doesn't force banks to make unprofitable
loans, but it encourages them to look beyond traditional
customers, and it's had a beneficial effect on home ownership
and small-business lending.
Sen. Phil Gramm, chairman of the Banking Committee, now
wants to scale the law way back. He argues that community
groups use it to extort money from banks; there's scant
evidence for that. The real danger is that, with financial
modernization, banks will gradually escape their community
obligations by transferring capital to affiliates that aren't
covered by the law. The law should be extended and modernized
to keep pace with a changing industry.
Consumer privacy also could be in danger as barriers among
industries break down. An example: Should your life insurance
medical records be shipped over, without your knowledge, to
the loan officer considering your mortgage application? Sen.
Paul Sarbanes of Maryland and Rep. Ed Markey of
Massachusetts, among others, would give consumers more
control over the sale and sharing of personal data. As the
financial industry moves into a new era, privacy laws should
also keep pace.
____
Jesuit Conference, The Society of Jesus in the United
States.
Washington, DC, March 3, 1999.
Hon. Paul Sarbanes,
Seante Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
Dear Senator Sarbanes: We are writing you on behalf of the
Jesuit Conference Board of the Society of Jesus in the United
States. With the House and Senate Banking Committees
scheduled to mark-up financial modernization legislation this
week and vigorous discussions already underway we call your
urgent attention to the status of the Community Reinvestment
Act (CRA) in this debate. We urge your vocal and
unconditional support for safeguarding and effectively
applying CRA to any proposed financial modernization
legislation. By maximizing the capital available to
undeserved urban and rural areas, CRA has proven to be an
exceptional means of promoting vital and sustainable
communities. CRA should be allowed to continue its invaluable
work.
There are approximately 4,000 U.S. Jesuit priests and
brothers working abroad and in our domestic projects which
include: 28 Jesuit-affiliated universities and colleges, more
than 50 Jesuit high schools and middle schools, nearly 100
Jesuit parishes, and various other apostolic programs
throughout the country. We have an overriding commitment to
empower individuals, families and communities who are most
at-risk in our society. In essential ways, CRA enables these
marginalized groups to fully integrate into society.
Propelled by a mission of justice and social progress,
Jesuit institutions have CRA-type goals of investing in the
communities where they are located. For example, Fordham
University is situated in one of the poorest urban counties
in the nation. In 1983, Fordham formalized a long-standing
partnership
[[Page S4784]]
with the Northwest Bronx Community and Clergy Coalition to
form the University Neighborhood Housing Corporation (UNHP).
UNHP believes in working aggressively to develop and preserve
innovative, community-controlled, affordable housing. With
the strength and leverage of CRA, UNHP, has built a positive,
working relationship with Chase Manhattan Bank. From the late
1980s, this relationship has resulted in millions of dollars
of capital for affordable housing and economic development in
the northwest Bronx. Recently, this successful partnership
yielded $25 million in housing rehabilitation funding from
Fannie Mae. The force of community leaders working with
university, banking and Fannie Mae representatives is not
merely a lifeline for the northwest Bronx; it has added self-
sustaining stability and growth to an historically
distressed, densely populated neighborhood. This is one
example of an estimated $1 trillion in CRA-leveraged
financial commitments since 1977.
We ask for your continued support for national economic
development policies which equip people with the means to
lead respectful and dignified lives. CRA is in the interest
of underserved communities; it is in the interest of our
Jesuit institutions; and it is in our collective, national
interest.
Thank you for your consideration and efforts.
Sincerely,
Rev. Richard Ryscavage, S.J.,
Secretary, Jesuit Social & International Ministries.
Ms. British Robinson,
National Director, Jesuit Social & International
Ministries.
____
Department of Social Development
and World Peace
Washington DC, March 4, 1999.
Hon. Paul Sarbanes,
Banking, Housing, and Urban Affairs Committee, U.S. Senate,
Washington, DC.
Dear Senator Sarbanes: I write to ask that you oppose any
provisions in the Financial Services Act of 1999 that may
eliminate consumer protections and/or dilute the fair lending
laws.
The United States Catholic Conference has vigorously
supported the disclosure of lending patterns since 1975 and
was one of the original supporters of the Home Mortgage
Disclosure Act. We believe people must have access to
information about the lending practices and patterns of the
financial institutions in their communities that are seeking
their business. In the past banks, mortgage companies,
insurance brokers and other financial institutions have
discriminated against minority populations, low-income
individuals and the communities in which they live with
virtual impunity. The Community Reinvestment Act (CRA) and
the effective enforcement of its regulations have proved
significant tools in ensuring that financial institutions
meet the credit needs of the local communities in which they
are located, particularly by increasing the flow of credit to
low-income and minority communities.
Since 1977, CRA has channeled tens of billions of dollars
profitably back into rural and urban communities. This
success of local communities gaining access to private
capital should not be jeopardized. Communities and
neighborhoods need the investment of private capital
particularly as government curtails its spending on housing
and social services programs and local communities are being
asked to assume more responsibility for their own
development. Low and moderate income families of all races
and ethnicities have benefited from CRA with increased
opportunities to purchase homes, open small businesses or
operate farms.
As Congress seeks to modernize the banking and financial
industry, fair lending laws must not be undermined. Once
more, we urge you to oppose any efforts to diminish consumer
protections and to weaken fair lending laws.
Sincerely,
Cardinal Roser Mahony,
Archbishop of Los Angeles, Chairman, Domestic Policy
Committee.
____
National Low Income Housing
Coalition/LIHIS
Washington, DC, April 6, 1999.
Hon. Paul S. Sarbanes,
United States Senate, Washington, DC.
Dear Senator Sarbanes: On behalf of the National Low Income
Housing Coalition, I must express in the strongest terms
possible our objection to the evisceration of the Community
Reinvestment Act in the Financial Services Modernization Act
of 1999 recently reported out of the Senate Banking
Committee.
The National Low Income Housing Coalition represents
thousands of local housing organizations that are doing the
hard work at the local level to rebuild neighborhoods that
have been depleted by disinvestment, and to produce safe,
decent, and affordable housing for people at the low end of
the economic spectrum. These are organizations that are
masterful at the management of multiple funding streams,
bringing together the public and private resources required
to stimulate and produce new housing and economic development
initiatives at the local level. Each of our members can
attest to the necessity of the Community Reinvestment Act in
putting together the resources required to do the job we all
expect of them. At a time when responsibility for solving
serious community problems is being devolved to local
organizations, it is mystifying as to why one of their most
critical resource development tools would be pulled out from
underneath them.
Especially serious is the provision in the Senate bill
which allows banks not in compliance with CRA to expand their
affiliations and engage in new powers. This would essentially
render the CRA useless in the new world of financial
modernization.
We also object to the creation of so-called ``safe
harbors'' for institutions with at least a satisfactory CRA
rating, which in effect eliminates opportunity for public
comment on the community reinvestment activities of the
banks, while maintaining opportunity for public comment on
all other aspects of the institutions' functioning.
Finally, the small bank exemption would mean that rural
communities have no options for acquiring credit, as small
banks are often the only source of credit in many rural parts
of the country.
The Community Reinvestment Act is a model of the Federal
government at its best, stimulating investment in poor
neighborhoods and creating a true partnership among the
private, for profit sector; the private, not for profit
sector, and the public sector. As we move into an era of a
bigger and more comprehensive banking system, building on,
not tearing down, this core element of community reinvestment
should be an essential principle.
We urge that the Senate not take this action, and prevent
the dire consequences that would result in its wake of its
passage.
Sincerely,
Sheila Crowley,
President.
Mr. SARBANES. Mr. President, as I draw to a close, let me again say
to the distinguished Senator from Nevada we very much appreciate his
very strong and powerful statement.
Exhibit 1
April 8, 1999
Hon. Paul S. Sarbanes,
Senate Hart Office Building,
U.S. Senate, Washington, DC.
Dear Senator Sarbanes: The undersigned organizations write
to express strong opposition to the Financial Services
Modernization Act of 1999 as reported out of the Senate
Banking Committee on March 4th. The Act would restructure the
financial services industry in the United States by allowing
broad affiliations among banks, insurance companies, and
security firms. Currently, the law strictly limits ownership
among different financial entities and between financial
companies and commercial corporations. The Act seeks to ease
these restrictions, without commensurate expansion of the
Community Reinvestment Act (CRA) to cover insurance
companies, securities firms, mortgage companies, and other
financial entities allowed to affiliate with banks. The Act
would undermine one of the most effective revitalization
vehicles for underserved low-income and minority communities,
including Hispanic American communities across the country.
We have found, and research confirms, that all too often
the credit and financial needs of these communities are
severely underserved. Historically, many financial
institutions have avoided investing in these communities due
to their perceived higher level of risk. Unfortunately,
``perceived higher level of risk'' is often code for ``low-
income'' or ``minority.'' But the facts show that low-income
and minority communities are not inherently riskier than
other communities. In fact, most financial institutions find
them to be quite profitable, once they begin investing in
them. Unfortunately, without the CRA, many financial
institutions have not and would not be encouraged to do so.
As the data show, Hispanics are the fastest-growing
population in the United States. We are a growing force in
the expansion of homeownership and small business
development, two leading indicators of the economic well-
being of this country. For example, between 1987 and 1992,
Hispanic-owned business grew by over 76%, compared to 26% for
U.S. businesses overall. According to a 1997 Harvard study,
``the number of Hispanic homeowners has shown the most
spectacular rise'' in recent years compared to that of Whites
and of other minority groups. Population projections forecast
Hispanics to be the largest minority group in the U.S. by the
year 2005, causing the U.S. economy to be increasingly
dependent on the continued prosperity of the Hispanic
American community. Without the CRA, this growth may be
impeded.
As reported out of the Senate Banking Committee, the
Financial Services Modernization Act of 1999 would hinder
that growth by weakening the CRA in the following three ways.
First, ``satisfactory'' CRA rating is not required in order
for financial institutions to enjoy the new powers
afforded to them by the legislation, thereby allowing
banks to exercise their privilege, even if they are not
meeting the credit needs of the communities where they do
business.
Second, banks receiving a ``satisfactory'' CRA rating would
be given a ``safe harbor'' from public comment on CRA
performance. Since over 95% of banks receive a
``satisfactory'' rating, this would undermine the
effectiveness of the law by restricting a community's right
to voice its experience with