STATEMENT of KAREN M. THOMAS 

INDEPENDENT BANKERS ASSOCIATION of AMERICA 

Travelers/Citicorp Hearing 

Federal Reserve Bank of New York 

June 25,1998 

Good morning. Thank you for the opportunity to present the views of the Independent Bankers 

Association of America’ on the Travelers/Citicorp merger. I am Karen Thomas, Director of Regulatory 

Affairs for IBAA. Today, IBAA will file extensive written comments strongly opposing the 

application. This morning I will summarize the major reasons we oppose. 

The proposed merger carries serious adverse consequences for the nation’s consumers, 

community banks and for the entire financial services industry. In fact, the merger is the largest in 

American business history, and portends awesome restructuring of the financial services industry. 

There are a lot of problems with this union, but the gratuitous way it treats U.S. banking law and 

regulation is, perhaps, the most unsettling. It is an illegal merger, announced with the express intent of 

pressuring Congress into making it legal. 

The proposed merger violates two major bulwarks of U.S. banking law. First, it violates the 

Bank Holding Company Act by seeking to combine insurance underwriting and banking, under the 

guise of a conditional promise to divest the prohibited insurance activities. Second, it violates the 

Glass-Steagall Act by invading the barriers between investment and commercial banking established by 

Congress 65 years ago. 

With a hubris not often exhibited to the Federal Reserve Board, the merger parties have frankly 

admitted they are well aware that existing law prohibits the retention of Travelers’ offending insurance 

activities. They ask the Board to allow the merger anyway, in the hope that Congress will change the 

law. 

Contrary to the merger parties’ belief, the divestiture provisions of the Bank Holding Company 

Act do not allow Citigroup up to five years to warehouse its insurance activities. The divestiture 

provision is intended to allow an orderly disposition of impermissible activities within two years. It is 

not available to a bank holding company that has no bona tide present intent or plan to divest, and is 

vigorously lobbying to change the law to avoid divestiture. 

Despite thousands of pages filed with the Fed, Citigroup fails to set forth even the beginnings of 

an approach to divestiture. No where does Citigroup say it will, as the law now requires, divest its 

underwriting companies-precisely because it has no such intention. At an April 6th press conference, 

Travelers CEO Sanford Weill casually dismissed the need for divestiture saying, “I don’t think we have 

I IBAA is the only national trade association that exclusively represents the 

interests of the nation’s community banks. IBAA speaks for 5,500 institutions with more than 

16,000 locations nationwide. Community banks are independently owned and operated banks 

characterized by attention to customer service, lower fees and a focus on small business, 

agricultural and consumer lending. 

- over - 
.- 

to spin anything off to make this happen. We are hopeful the legislation will change, maybe what 

we are doing will cause the legislation to change.” Citicorp CEO John Reed added he “reasonably 

believes” that there “will not be a legal problem,” but noted that pending legislation would “make this 

merger, in fact, quite legal.” He can’t have it both ways. 

The Federal Reserve’s policy statement on divestiture says that an affected company should 

“submit a divestiture plan promptly” and “complete the divestiture as early as possible during the 

specified two-year period.” Extensions are not to be granted unless the company “has made substantial 

and continuous good faith efforts to accomplish the divestiture within the prescribed period.” Even if 

divestiture were available to Citigroup, it has no intention of complying with this policy statement 

because it has no honest intent to divest. 

Equally unprecedented is the scope of the merger’s combination of banking and securities 

activities in violation of Section 20 of the Glass-Steagall Act. The new Citigroup’s Section 20 

subsidiaries would have combined capital of $23 billion, making it the second largest securities firm in 

the nation, behind only Merrill Lynch. It would be one of the top five lead managers of securities 

underwritings, the second largest in debt underwriting and the fourth largest in bank-ineligible equity 

underwriting. 

The unprecedented impact and size of these securities activities render the Board’s current 25- 

percent-of-revenues test ineffective and an inappropriate measure of what constitutes “engaged 

principally” in securities underwriting. Indeed, back in 1988 when the U.S. Court of Appeals for the 

Second Circuit reviewed the appropriateness of the then five-percent-of-revenues cap set by the Board, 

the court said that size alone could contravene Section 20. The court specifically rejected one 

interpretation of “engaged principally” because it would have allowed a bank to be affiliated with “one 

of the nation’s largest investment bankers,” Merrill Lynch -- a result the court said is inconsistent with 

Congressional intent. 

The Board has already approved a number of securities firm acquisitions by bank holding 

companies using the 25 percent revenue test. However, those firms were on a totally different scale 

from those in the present application. If Salomon Smith Barney and Robinson-Humphrey are 

permitted to coalesce into commercial banking, Section 20 of Glass-Steagall has no meaning at all. 

Finally, approval of the application would violate the separation of powers doctrine embodied 

in the Constitution. Approval would improperly usurp the powers of Congress at the very time that 

Congress is considering legislation--supported by the Board--that would amend both the Bank Holding 

Company Act and the Glass-Steagall Act to permit the proposed transaction. The transaction is unique. 

It would create a new bank holding company with assets of almost $700 billion, engaged at the outset 

in a number of activities Congress has thus far prohibited for bank holding companies. The transaction 

is essentially too big to unravel as required by current law. Under the circumstances, approval of the 

application would effectively coerce Congress to amend the law to legitimize the transaction. The 

Board is being asked to tie Citigroup to the railroad tracks and as the time for divestiture approaches, 

Congress will have little practical choice but to save the day by amending the law. 

The Federal Reserve has always recognized the importance of the rule of law us rhe low exisfs, 

not as some might wish it to be. We urge the Board to resist the temptation to advance a legislative 

agenda through preemption of Congress’s current options. The Board should deny the application. 
Testimony before the 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE 

Remudine the Prooosed Merser of Citicoro and Travelers Group Y _ 

Jun: 25,1998 - 

New York City, New York 

Presented by: 

Mark Silverman 

Summer Law Clerk 

Citicorp-Travelers Watch 

126 University Place, 5th Floor 

New York, NY 10003 

(212)633-8585 

FAX (212)633-2424 

My name is Mark Silverman. I am speaking today on behalf of CiticorpTravelers Watch. Citicorp-Travelers Watch is a coalition of advocates and 

community groups concerned about the impact of the proposed merger of Citicorp 

and Travelers on communities and consumers. We formed this coalition because we 

believe that the proposed merger is one of such unprecedented magnitude and 

complexity that it warranted special scrutiny. 

Citicorp-Travelers Watch is opposed to this proposed merger for several 

reasons. 

First, this merger is illegal. The affiliation between Citibank, as a member 

bank of the Federal Reserve Board (the Board), and Travelers’ subsidiaries that are 

engaged principally in securities dealings, is simply prohibited by the Glass-Steagall 

Act. Further, the proposed Citigroup would be in violation of the Bank Holding 

Company Act by continuing to hold Travelers’ subsidiaries dealing in insurance. 

1 
Citicorp and Travelers are relying on a two-year grace period under the law to 

divest themselves of their impermissible insurance holdings. But to date, Citicorp 

and Travelers have not put forward any plan for divestiture. Although, in its 

application, Travelers promises that Citigroup would divest itself of its insurance 

holdings within two years, that promise is conditional, and even grudging. As they 

candidly admit in the application, Citicorp’s and Travelers’ real aim is to use the twoyear period to get the law changed so that they do not have to divest. Indeed, they 

have already begun to lobby Congress to that end. 

The Board should not allow Citicorp and Travelers to follow this strategy, for at 

least three reasons. 

First, this is not what the two-year provision was designed to do. It is supposed 

to give newly-formed bank holding companies time to conform to the law, not time to 

force the law to conform to them. 

Second, the law may well not change within that time, and if not, the proposed 

Citigroup hardly could simultaneously divest from, and integrate into itself, the very 

same impermissible insurance holdings. More likely, in the absence of a change in the 

law, Citigroup will be forced into an ill-conceived, hurried divestiture that would 

threaten the health not only of itself, but, given its would-be status as the world’s 

largest financial institution, the health of the financial markets as well. 

Third, in deciding whether to pass financial modernization legislation, Congress 

should be concerned only with legitimate policy arguments regarding what is best for 

communities, consumers and the economy. If the Board approves this merger prior 

2 
to any change in the law, Congress, pressured by Citigroup and concerned about the 

consequences of a forced divestiture, could enact one of the most embarrassingly 

blatant pieces of private-interest legislation in recent memory. In short, by serving 

as an accomplice to Citicorp’s and Travelers’ strategy of manipulating the law to ends 

not originally within its contemplation, the Board risks undermining the legitimacy of 

itself and the legislature, and robs the public of a policy-focused debate over financial 

modernization. 

Further, as documented in Citicorp-Travelers Watch’s written comments to be 

bled with the Board, Citicorp’s extremely poor service and lending record is in clear 

violation of the Community Reinvestment Act, and as such requires denial of the 

merger application. In addition, the proposed activities of Citigroup clearly fail the 

public benefits test of the Bank Holding Company Act, and thereby similarly require 

denial of the application. 

Citicorp-Travelers Watch is also concerned that our repeated and reasonable 

requests for information from theses companies have been largely met with delay and 

denial. Travelers has been particularly unresponsive, providing us with almost none 

of the information requested. Citicorp, while responding to more of our request than 

Travelers, took until just yesterday to do so, and still is unresponsive to certain 

crucial elements of our request. Further, in response to the Board’s own requests for 

information, Citicorp and Travelers continue, on their own authority, to deem certain 

information confidential. The public must be given the opportunity to adequately 

analyze all aspects of this merger by having full access to information, and the Board 

should be cognizant of its role in ensuring that access. 

Finally, Citicorp-Travelers Watch requests that the Board ask all parties 

testifying before it at this meeting to disclose any tiancial contributions they may 

have received from Citicorp or Travelers. We believe that such disclosures are 

crucial to preserving the legitimacy and propriety of this public meeting. 

3 
In sum, the poor service records of both Travelers and Citicorp, the clear 

legislative mandates of Glass-Steagall and the Bank Holding Company Act, and the 

cynical strategy of Citicorp and Travelers in manipulating the law, all require denial of 

this application to merge as a matter of both law and policy. Thank you. 

4 
Testimony before the 

BOARD OF GOVERNORS OF THE FEDERAL RESERVE 

Regarding the Proposed Merger of Citicorp and Travelers Group 

June 25, 1998 

Hilary Botein, Esq. 

Associate Director 

Neighborhood Economic Development Advocacy Project 

126 University Place, 5th Floor 

New York, NY 10003 

(212) 633-8585 

FAX (212) 633-2424 

My name is Hilary Botein, and I am the associate director of the Neighborhood 

Economic Development Advocacy Project (NEDAP). NEDAP is a member of the coalition 

Citicorp-Travelers Watch. I would like to thank the Federal Reserve Board for holding this 

public meeting, as it is one critical step in soliciting input from the public about this merger 

of unprecedented size and complexity 

NEDAP is a resource center for groups and advocates working on economic justice 

issues in low income neighborhoods and communities of color in New York City, and thus 

has a unique perspective on community reinvestment issues as they affect neighborhoods all 

over the city Accordingly, my testimony will focus on the impact of Citicorp and Travelers’ 

practices on local economies and residents in the neighborhoods where we work. It is worth 

noting that many organizations testifying in support of the merger are recipients of Citibank 

grants. We urge you to ask all testifiers if their organizations receive funding from Citibank. 

My comments here are limited by time but also by the complexity of the merger. We 

have not had sufficient time to digest all the material in the application and elsewhere. We 

have urged the Board, and do so again, to extend the comment period. Furthermore, Citicorp 

and Travelers have been barely responsive to requests that they provide basic information 

about their companies, further hindering our ability to analyze the impact of the merger. 

Travelers has been particularly onforthcoming, which is one of the reasons why my testimony 
Testimony of Hilary Boteio - 2 

will focus primarily on Citibank’s record. 

As a threshold matter, NEDAP’s position is that the proposed merger is illegal, as it will 

create an affiliation between a bank holding company and securities and insurance companies 

that is prohibited by the Glass-Steagall Act and the Bank Holding Company Act, as discussed 

in more detail by Citicorp-Travelers Watch. If the Board approves the merger without 

developing standards to be applied to such an unprecedented transaction, it will make a 

mockery of the regulatory process, by allowing Citicorp and Travelers to brazenly violate 

existing law. 

In addition, Citibank has violated the Community Reinvestment Act, by failing to meet 

the credit needs of low income communities. From the neighborhood perspective, Citibank is 

an elusive entity, with scant presence in terms of bank services, loans, or community 

reinvestment personnel, as I will discuss. 

Citibank’s retail banking services utterly disregard the needs of low income communities 

and consumers. Only 6 of the bank’s 200 New York City branches are located in low income 

neighborhoods. In 1996, Citibank closed and downgraded to ATM service a total of 55 

branches, harming low income neighborhoods disproportionately. The bank is now promoting 

2 new “video branches” in low income neighborhoods, where customers will have no 

opportunity to speak to a teller or loan officer in person. They might be able to reach a loan 

officer on the telephone, but the loan officer could be located in Tennessee or Idaho, 

completely unfamiliar with the unique credit needs of a New York City neighborhood. This 

plan is an insult to residents, who might well wonder why this special new technology is not 

appearing in upper-income areas 

By raising its minimum deposit amount for free checking to $6,000 in linked accoums, 

Citibank sent a further message that it is not interested in the business of low income people, 
Testimory of Hilary Botein - 3 

as does its increased emphasis on computer banking, despite the bank’s absurd claim in its 

application to the Board that “Citibank-sponsored research shows that a large percentage of 

this population plans to buy a computer in the near future.” Meanwhile, ironically, a Citicorp 

subsidiary, Citibank EBT Services, will soon be profiting from electronic delivery of public 

assistance benefits and food stamps to New York State recipients, while Citibank fails to 

provide meaningful banking services to precisely the neighborhoods where most public 

assistance recipients live. 

Citibank’s own reported Home Mortgage Disclosure Act (HMDA) data demonstrate that 

the bank targets its home mortgage lending to affluent white borrowers and communities. For 

example, in 1996, Citibank made only 6 loans to low income neighborhoods in the New York 

City metropolitan area. Citibank rejected African-American and Latin0 applicants for 

conventional home purchase mortgages 2 l/2 times more frequently than white applicants. In 

Manhattan, predominantly white neighborhoods received 75% of Citibank’s loans in 1996. 

This redlining of low income and minority neighborhoods sets the stage for predatory lenders 

such as Travelers’ subsidiaries Primerica and Commercial Credit, to target their high-rate loan 

products at low income communities, stepping into the credit void created by Citibank. 

In 1996, Citibank made no permanent direct loans for purchase of multifamily housing 

in all of the New York City metropolitan area, where most residents -- at all income levels -- 

live in multifamily rental housing. Instead, the bank finances multifamily housing only 

through large intermediary organizations. The bank has failed consistently to provide 

innovative support to community development projects, choosing instead to invest in low-risk 

projects in which many other banks are already involved. 

Given Citibank’s failure to provide retail banking services or loans to low income 

neighborhoods, it is perhaps not surprising that the bank’s community reinvestment staff -- the 
Testimony of Hilary Both - 1 

people who are charged with ensuring that Citibank meets the credit needs of all communities 

that it serves -- display very little familiarity with communities and their needs. Groups have 

commented to us that Citibank is reluctant to send high-level staff to community meetings, 

and that staff, when they do appear, are defensive and combative. 

Citicorp and Travelers’ $115 billion community reinvestment commitment is yet another 

example of their complete failure to ascertain or meet community needs. The commitment 

makes no reference to particular geographic areas where Citicorp and Travelers expect to 

make loans and investments. More than half of the commitment is earmarked for student 

loans, credit cards, and other consumer loans. 

If the Board approves this merger, it will be approving the unprecedented creation of a 

financial services giant that subscribes to a “separate and unequal” philosophy. Affluent 

customers will continue to avail themselves of Citibank’s loans, private banking services, and 

electronic innovations. Low income customers will be served by Primerica, Consumer Credit, 

and Citibank EBT Services. NEDAP joins with the nine other members of Citicorp-Travelers 

Watch in urging the Board to deny the application. 
TESTIMONY PRESENTED TO THE FEDERAL RESERVE BOARD OF GOVERNORS AT 

THE PUBLIC MEETING REGARDING CITICORP AND TRAVELERS GROUP 

June 25, 1998 

PRESENTED BY: 

Sarah Ludwig, Esq. 

on behalf of the 

New York City Community Reinvestment Task Force 

Thank you for the opportunity to testify today to register our absolute opposition to the 

proposed merger of Travelers Group and Citicorp I am testifying in my capacity as coordinator 

of the New York City Community Reinvestment Task Force. The Task Force was established in 

1995 to promote meaninghi reinvestment in affordable housing preservation and development, 

microenterprise, and community development financial institutions, in New York City’s low 

income communities. Since then, the Task Force network has grown to more than 100 

community and city-wide organizations from throughout New York City. Through its 

Regulatory Working Group, the Task Force has engaged in meetings over the past eight months 

with each of the federal banking agencies, including representatives of the Federal Reserve Bank 

of New York, to discuss deficiencies community groups and advocates see in regulators’ 

enforcement of the Community Reinvestment Act (CRA). 

It would be impossible to convey all of the grave and wide-ranging concerns we have 

regarding the proposed Citicorp-Travelers merger in the five minutes allotted, so I’ll keep it 

simple: 
NEW YORK CITY COMhfUNITY REINVESTMENT TASK FORCE - 2 

The Federal Reserve Board must not approve Travelers’ application because the 

proposed transaction is illegal. To sign off on the merger would constitute an affront to the 

public, and underscore that large and powertLl corporations influence government decisionmaking even to the point of obtaining approval on illegal transactions. Some would argue that 

structural changes in the financial services industry are well underway, and that our laws are 

antiquated and need to be revamped to reflect these changes. The Glass-Steagall and Bank 

Holding Company Acts are still on the books, however, and the Task Force’s firm position is that 

as long as laws forbid this merger, the Fed will be grossly overstepping its bounds to approve it. 

Second, approving the application would constitute hideously unsound policy on the part 

of the Federal Reserve Board. Travelers and Citicorp would have us think that the proposed 

merger is simply a routine application to create a bank holding company, and that no special 

scrutiny is warranted. As we all know, however, the planned Citigroup would be the first of its 

kind in this country, a new and mammoth holding company that engages in banking, securities, 

and insurance business. The largest in the country’s history, the proposed merger has 

implications for people and economies at local, regional, national, and global levels. It presents 

serious new regulatory questions, contrary ‘9 what Travelers and Citicorp purport, for which the 

Federal Reserve has yet to develop a set of standards. It is not surprising that many regard this 

proposed merger not only as afair acconr~li, but as a brazen attempt by powertU companies to 

take advantage of regulatory and legislative processes to create a giant company organized to 

maximize profits. at whatever expense to communities and consumers. 

And then there’s Citibank and Travelers’ respective records. The Task Force has 

frequently heard reports concerning Citibank’s lack of presence in low income communities 

throughout New York City. Citibank’s practices first came to the Task Force’s attention when 
NEW YORK CITY COMMUNITY REINVESTh4EN-T TASK FORCE - 3 

the bank engaged in aggressive branch closings and conversions to ATM service only, a few 

years ago. Most Task Force members see a direct correlation between Citibank’s lack of branch 

presence in low income neighborhoods and the bank’s failure to engage in direct lending in low 

income neighborhoods. The OCC recently confirmed that Citibank has reported no direct 

permanent loans for multi-family lending in the entire New York City Metropolitan Statistical 

Area for the past several years. 

You will hear today and tomorrow from a long list of people representing intermediaries 

and other organizations, who will testify on behalf ofcitibank and the proposed merger -- even 

though many of them personally agree that the merger is legally impermissible. Many are even 

keenly aware that Citibank is notorious for its inadequate community reinvestment record in the 

very neighborhoods their organizations serve. We understand that the proposed merger -- and 

the bank’s public relations efforts surrounding it -- results in sometimes even unspoken pressure 

on groups to register their support with regulators. The situation we find at this public meeting is 

especially problematic and disturbing, because every si~gleprrson a& orgarrizufiorr testifying 

on behalf of Citibank, Travelers, and the proposed merger is a beneficiary of Citibank (and in a 

few instances, Travelers). We request that you ask each panelist, as part of his or her testimony, 

first, to disclose all benefits received from Citibank and Travelers, and, second, to indicate 

whether or not he or she was asked to testify by either Citibank or Travelers. If you decline this 

request, we trust you will seriously consider the influence that the companies’ largesse has on 

groups testifying in support of this merger application. 

Task Force members have been flabbergasted by Citicorp and Travelers’ $1 IS billion 

commitment, which dedicates more than half of the ten-year pledge to student loans, credit cards 

and consumer finance, making the commitment a farse among many local community groups. 
NEW YORK CITY COMMUNITY P.ElNV!ZSTMENl TASK FORCE - 4 

The Task Force has been, since its inception, greatly concerned about implications of the 

rapidly consolidating banking industry for communities and for the CRA. In the instance of the 

proposed Citigroup, we see numerous contradictory aspects to the proposed merger. Citigroup 

would constitute an enormous concentration of economic and political power, with both 

companies working to reduce their on-the-street operations, and instead using their networks to 

cross-market products. By definition, the proposed entity is too big to address local community 

needs. We have already seen Citibank limiting its presence in low income communities. 

Citicorp has found a way to profit from low income people, however. Through electronic 

benefits transfer programs, Citicorp will continue to play a part in low income people’s lives, 

without ever having actually to step into the communities in which they live. One part ofthe 

company would continue to target white aflluent communities, while another part would provide 

sub-prime lending in the very communities Citibank and other mainstream lenders have failed 

adequately to serve. Travelers, for its part, says it is prepared to divest itself of insurance and 

securities business if it is unsuccessful in lobbying Congress for the financial modernization 

legislation it seeks. But we also know the whole deal revolves around cross-marketing and 

integration of products. 

We urge the Federal Reserve Board to hold off on deciding this application as long as the 

transaction is illegal. We also request that you ensure that Citicorp and Travelers are not 

improperly withholding information from the public by improperly deeming material 

confidential, and that the public is included in all relevant communications. 

We take for granted that Citicorp and Travelers will push for all they can get. It is up to 

the Federal Reserve Board to do what’s right.