May 3, 1995 CONGRESSIONAL RECORD—HOUSE H 4523

many of the Democratic members of the committee; they are shared by the administration;

and I think it’s likely that we will see some

amendments to ensure that consumers are

not gouged by monopolies until a competitive

alternative is available.

But despite my reservations about this provision, I expect that we will be able to resolve

our differences here in a manner comparable

to the way we have developed a consensus

on the other provisions of this bill. In that regard, I would like to commend both Chairman

BLILEY and Chairman FIELDS for the manner in

which they have treated the Democrats during

the drafting process. This has been a truly bipartisan process, and the legislative text that

was introduced today reflects the many compromises and changes that were made by

both sides.

Telecommunications issues have never

been partisan, and have never been ideological. The manner in which the majority has

treated the minority in this case is exemplary,

and it is my hope that it will serve as a model

for the many legislative initiatives we have before us. I would like to thank both of these fine

legislators, and look forward to continuing this

bipartisan approach as H.R. 1555 moves

through the House.

Mr. Speaker, H.R. 1555 is a good bill, and

before it is sent to the President for his signature, it will be a better bill. I urge my colleagues to join with us in support of this legislation, and enact a statute that will enable the

telecommunications industries to bring to the

American people the benefits that the twentyfirst century has to offer.

Ms. ESHOO. Mr. Speaker, I rise to inform

Members about the introduction of the Commerce Committee’s historic legislation to reshape our Nation’s telecommunications laws.

I’m proud to be an original cosponsor of this

legislation and commend Commerce Committee Chairman BLILEY, Telecommunications

and Finance Subcommittee Chairman FIELDS,

and ranking members JOHN DINGELL and ED

MARKEY for their efforts to produce a bipartisan bill.

The Nation cannot wait another year for

telecommunications reform. The current law of

the land for telecommunications is based on a

law written in the 1800’s to govern railroads in

America. Now, after several decades of extraordinary advances in information technology, most of our Nation’s telephone system

consists of a pair of copper wires.

As the Representative from Silicon Valley in

California, I know the importance of deregulation to computer and software technology. Information technologies are the business of Silicon Valley.

I believe we can look to the computer and

software industries as examples of good

things to come for the communications industry if competition can be established.

Consider the first digital computer made in

1943 which was 8 feet high, 50 feet long, contained 500 miles of wire, and could perform

about three additions per second. Today, consumers can purchase a computer with waferthin microprocessors which are capable of

hundreds of millions of additions per second

and fit on your lap.

Yet today’s twisted copper wire telephone

network is unsuitable for modern computers

and software applications which can incorporate voice, video, graphic, and data transmissions and send them simultaneously in

real-time exchanges.

A technology gap exists between the information technology and communications industries and this hurts our international competitiveness. This bill can help close the gap, encourage competition, and foster increases in

high technology exports and jobs.

A successful telecommunications bill should

pass two critical tests. First, it should establish

a process which brings the greatest competition to bear, and second, it should promote

technology innovation and production in a way

that can make a difference in peoples’ lives.

This bill is a step forward in meeting these

important goals and I’m proud to cosponsor it.

Mr. DUNCAN. Mr. Speaker, I ask

GENERAL LEAVE

funanimous consent that all Members

may have 5 legislative days in which to

revise and extend their remarks and to

include extraneous material on the

subject of the special order today by

the gentleman from Texas [Mr.

FIELDS].

The SPEAKER pro tempore. Is there

objection to the request of the gentleman from Tennessee?

The SPEAKER pro tempore. Under a

There was no objection.

FINANCIAL SERVICES REFORM

fprevious order of the House, the gentleman from New York [Mr. LAFALCE]

is recognized for 5 minutes.

Mr. LAFALCE. Mr. Speaker, the

House has a unique opportunity during

this Congress to take important and

long-overdue steps to modernize the

U.S. financial services system and prepare it for the competitive challenges

of the 21st century.

In 1991, I served as chair of the Banking Committee’s Task Force on the

International Competitiveness of U.S.

Financial Institutions. That task force

concluded that our financial services

policy had failed to keep pace with new

market developments, including

changes in corporate and individual

consumer needs, new technology and

product innovation. The result was a

financial services system that was potentially uncompetitive, inefficient,

unduly expensive, and slow to respond

to changing customer demands.

The task force report concluded that

it was incumbent upon policymakers to

undertake a fundamental and comprehensive reassessment of the major

laws and the regulatory structure

which underpin the U.S. financial system. There have been several abortive

efforts since that time to do so. But I

believe we have now finally achieved

substantial consensus that change is

necessary, the circumstances are now

ripe for meaningful action, and the

goal is within our reach.

The chairmen of both the House and

Senate Banking Committees have put

forward comprehensive reform proposals. While these proposals differ in important regards, they share many key

elements. The Treasury Department

has put forward a proposal of its own

that is substantively comparable in

many critical respects. In addition, the

affected industries are engaged in

meaningful and substantive discussions

on the key issues in an effort to

achieve some consensus.

While differences in perspective certainly exist, what is most noteworthy

is the widely shared assumption that

our financial services system requires

substantial reinvention. If we can keep

our eye on this shared goal, we should

be able to build upon the many points

on which we all agree and effect reasonable compromise where we do not in

the days ahead.

To that end, while I have very definite ideas of my own as to the best

course of action on key issues, I do not

plan to introduce legislation at this

point. A Banking Committee markup is

imminent, and we will be working from

the chairman’s mark—which is still in

preparation—as is appropriate. I believe our best prospect of success lies

in working cooperatively and in a spirit of compromise to further refine that

mark in a way that builds consensus on

these important issues. Past experience

should certainly have taught us that

legislation which does not reflect a

reasonably broad consensus is doomed

to failure.

I. PRINCIPLES TO GUIDE DELIBERATIONS

I would, however, like to set forth

some principles which I believe should

guide our deliberations.

(A) Congress should attempt to

achieve the broadest reform possible;

(B) Elimination of the barrier between commercial and investment

banking should be accomplished so as

to maximize efficiencies and take advantage of possible synergies between

lines of business, while safeguarding

safety and soundness;

(C) Reform should create a true twoway street between banks and securities firms, level the competitive playing field, and provide such firms equal

opportunity to enter each other’s businesses;

(D) Nothing we do should turn the

clock back or impose new restrictions

where none are warranted;

(E) Safeguarding consumer rights

and interests should be an integral part

of any reform package;

(F) Proper regulatory oversight

should emphasize functional regulation, ensure necessary political accountability, and take advantage of

the benefits provided by a creative

tention between regulators; and

(G) Reform should ensure that foreign banks have a fair opportunity to

compete on equal terms, and are not

competitively disadvantaged.

II. THE MAJOR ISSUES

A. The need for broad reform:

It is imperative that we strive for the

broadest financial services reform on

which it is possible to achieve consensus. This is not a time to be timid.
H 4524 CONGRESSIONAL RECORD—HOUSE May 3, 1995

The current structure of our financial services system fails to reflect substantial changes in products, technology, customer demand, and service

delivery that have occurred over many

years. It is increasingly difficult to discern meaningful differences between

the products offered by banks, securities firms, and insurance companies, or

to place into neatly segregated compartments the customer needs each

provider is attempting to serve.

Past ad hoc attempts to adjust to

market changes without comprehensive reform have created a system replete with inconsistencies, and regulatory and legal anomalies. Our goal

should be to correct this unduly complex and conceptually inconsistent

structure, not perpetuate it. But we

should not achieve purity by the elimination or undue restriction of legitimate businesses that pose no harm and

contribute positively to the competitiveness and efficiency of our financial

services system.

We must also focus on achieving progressive change, If financial services

reform is justified, it is presumably because the premise behind our action is

that we are constructing a safer and

sounder financial services system, offering opportunities for diversification

and better risk management. I believe

that is the case. In my view, it is the

very limited nature of the existing

bank charter that has created many of

the industry’s past problems. The reform we craft should reflect that understanding.

B. Removing barriers between commercial and investment banking:

The Leach bill takes a major step

forward in finally removing the barriers between the banking and securities businesses, businesses which simply offer alternative means of meeting

similar customer needs. Such a step is

long overdue.

Substantial changes have occurred in

recent decades in the way traditional

bank customers have attempted to

meet their financial needs. Major corporations have moved increasingly to

the capital markets to obtain needed

financing. At the same time, individual

consumers and small businesses have

increasingly sought alternatives to traditional checking and savings accounts

for transactional, savings, and investment purposes. Yet, while the market

has changed substantially, the Nation’s

banks have been precluded from following their customers and effectively responding to changing demand.

Bank holding companies do have limited authority to enter the securities

business through the section 20 subsidiaries authorized by the Federal Reserve. The successful operation of such

subsidiaries has established clearly

that commercial and investment banking activities can be combined within a

holding company structure to the benefit of consumers, and without risk to

safety and soundness, if proper controls

are put in place.

I believe there is substantial consensus that the barriers between these two

banking businesses should be eliminated, with proper prudential controls,

and that should be a top priority of any

reform package. Moreover, this reform

should be effected in such a way as to

maximize possible efficiencies and

synergies.

1. Wholesale bank holding companies:

For those institutions that wish to

engage solely in a wholesale business,

the provision in the Leach bill for creation of a wholesale bank holding company, subject to more limited regulatory strictures, makes eminent

sense. Many prudential controls are designed primarily to protect against an

inappropriate use of depositor funds.

For those institutions not engaged in

retail activity and not seeking deposit

insurance protection, less onerous controls are appropriate. While it is true

that wholesale institutions will maintain access to the discount window, appropriate controls on such access are

already in place.

2. Appropriate firewalls:

In the course of the debate on financial services reform in the past, great

emphasis has been placed on firewalls

between holding company affiliates as

the primary mechanism for guarding

against misuse of depositor funds.

While I believe firewalls are important,

they are only one element of an overall

structure of prudential controls. A single-minded focus on firewalls as a

source of protection may only ensure

that they are so restrictive as to

render inoperative useful synergies

that can otherwise be achieved within

the holding company structure.

Much has changed since earlier debates on these issues. The changes in

bank capital requirements, coupled

with provision in FDICIA for prompt

corrective action and enhanced supervisory authority, have given bank regulators ample authority to intervene

well before depositors are placed at any

risk.

Firewalls certainly offer additional

protection, but are no substitute for

the prudential controls otherwise already in place.

I believe experience with the new authorities granted banking institutions

will help us determine what firewalls

are more or less meaningful and appropriate. Therefore, I believe it appropriate that the relevant regulatory authority be granted some marginal discretion to adjust those firewalls as experience dictates.

3. Exercise of authority through operating subsidiaries:

The Leach bill relies heavily on the

holding company structure as protection against newly authorized activities placing the depository institution

at risk. I believe this is largely appropriate. However, we should not insist

on the expense and potential inefficiency of creating a holding company

structure where one might not be necessary.

Where activities have been performed

in the bank or bank subsidiaries with

presenting any undue risk, such an alternative structure might continue to

be appropriate. We should review closely what activities can reasonably continue to be conducted by the bank directly without undue risk.

C. The need to establish a true twoway street:

This reform effort should not be a debate simply about giving banks or any

particular type of financial institution

more powers, at the competitive expense of other financial services providers. Our goal should be to remove

barriers between financial industries

which we have come to see as artificial,

level the competitive playing field and

increase opportunities for all financial

services providers.

In removing the barriers between

commercial and investment banking,

our goal should be to create a full twoway street through which commercial

and investment banks can enter each

other’s businesses on equal terms. Yet,

while this is our appropriate goal, it is

not easily achieved if a reform bill is

too narrowly structured. The structure

of many existing securities firms and

their existing affiliations with insurance companies may well preclude

their taking full advantage of the removal of existing barriers between

commercial and investment banking.

While the Leach bill provides some

accommodation, I do not believe it

goes far enough. Correcting this potential inequity must be a major matter of

concern as we debate these issues.

D. Avoiding retrenchment:

There are legitimate and substantial

differences of opinion regarding how

far we should go in breaking down the

walls between banking and commerce

or, indeed, the barriers between various

financial services providers. We may

not ultimately be able to produce as

broad reform as some, including myself, might like. However, in no case

should this reform proposal become a

vehicle for turning the clock back and

eliminating or taking authority away

from financial institutions whose activities have posed no risk while providing much benefit to consumers.

In my view, many of the existing

anomalies in our financial services system represent marginal progress toward a more integrated financial services system. In fact, some of these

anomalies simply reflect our financial

services system as it once existed before new restrictions were imposed in

various bank and thrift holding company legislation, CEBA and other legislation imposing what were new restrictions and limitations. The proper response is not to remove these anomalies or restrict them further, but to

move, incrementally if need be, toward

a comprehensive reform of the financial services system which will ultimately embrace them.

The original Leach bill would have

eliminated the charter of unitary thrift

holding companies. A subsequent draft
May 3, 1995 CONGRESSIONAL RECORD—HOUSE H 4525

would grandfather existing institutions. In my view, if we are not to address the banking and commerce issue

fully, the proper approach is for the

bill to remain silent on this issue. Existing unitaries have served as instructive examples of how financial and

commercial activities can in some

cases be appropriately mixed. They

have posed no risk to safety and soundness, are subject to appropriate regulatory and oversight authority, and

serve customers well.

There is no compelling reason to circumscribe their operations at this

point. Grandfathering is an unworkable

alternative in my view. To artificially

circumscribe the ability of functioning

businesses to expand and compete on

equal terms is to effectively sound

their death kneel. I believe that any

changes in the unitary structure

should await a subsequent day when we

are willing and able to address banking

and commerce issues in some comprehensive fashion.

In the same fashion, I believe it is

time to eliminate the restrictions imposed on limited purpose banks. I always believed these restrictions were

anticompetitive and should never have

been imposed. But in any case they

were intended as a temporary measure

awaiting comprehensive financial services reform. We are still awaiting such

reform, and I believe even this Congress’ effort will fall short of what is

desirable.

In the meantime, changes in the restrictions imposed on these financial

institutions can no longer wait. This is

virtually the only financial services

arena in which time is standing still.

There have otherwise been substantial

changes in the laws and regulations

that have enhanced opportunities for

other financial services providers and

made full-service banks more efficient,

strong, and competitive. In this context, the arbitrary restrictions imposed

on limited-purpose banks are untenable

and unreasonable.

E. Safeguarding consumers:

Safeguarding the consumer’s interests must be a central element of this

reform effort. If banking institutions

are to be permitted to offer an array of

products, some of which are insured,

and others not, it is imperative that

the consumer be clearly informed of

any risk he is assuming and that safeguards be put in place to eliminate any

potential confusion. Clear disclosure

requirements which will ensure that

the consumer understands what protections are afforded with any particular

products must be a part of this bill.

But disclosure alone is not enough.

Institutional structures can inadvertently or purposefully suggest protections that do not apply. For example,

the marketing of mutual funds under a

name or logo that may suggest that

the product is somehow insured or

guaranteed by a banking institution

could place the consumer at undue

risk, and prohibitions or restrictions

on the use of a common name and logo

may be appropriate.

We must also find a proper balance

between the consumer’s right to privacy and the synergies available from

cross-marketing. Both financial services providers and consumers can benefit from marketing efforts that bring

the full array of products available

from a particular financial services

provider to the consumer’s attention.

Yet consumers also have a right to

have confidential information maintained as such, and to be protected

from being inundated with sales

pitches and marketing information

they neither seek nor wish to have. We

must strive for a proper balance between these competing interests.

F. Providing for proper regulatory

oversight:

The regulatory controls put in place

in FDICIA—most notably, tougher capital requirements and provision for

prompt corrective action—have contributed substantially to the safety

and soundness of our banking system.

These and other prudential controls

are essential to the proper implementation of financial services reform.

I believe any effort at complete regulatory reorganization should follow

rather than precede or accompany

modernization legislation—it is difficult to determine what authority appropriately lies with what regulator

when the distinctions between types of

financial services providers and their

products remain unclear. Nevertheless,

clarification and, where appropriate,

enhancement of regulatory authority

should be central elements of the

Banking Committee’s product.

In my own view, the proper regulatory oversight structure would rely

heavily on a scheme of functional regulation, while providing some limited

oversight authority to the Federal Reserve at the holding company level to

protect against systemic risk. I have

great confidence in the Federal Reserve as an institution and in its skill

as a regulator. However, I believe there

are inherent risks in placing plenary

authority in any independent regulatory institution, and I believe the authority granted the Federal Reserve in

the Leach bill is too encompassing. The

scheme we ultimately construct should

ensure the necessary degree of political

accountability and take advantage of

the creative tension between regulatory authorities that has proved a

useful source of adaptation and innovation in the past.

G. Equal treatment of foreign banks:

The presence of foreign financial institutions in our market has served our

economy and our communities well. In

addition, U.S. financial institutions

benefit when they are able to enter foreign markets under regulatory regimes

that permit them to compete fairly

with domestic service providers.

Any financial services reform should

provide for the equal treatment of foreign banks so long a hallmark of U.S.

law. Most international banks in the

United States operate uninsured,

wholesale branches and agency offices

rather than bank subsidiaries. The reform legislation should ensure that foreign banks that seek U.S. securities affiliates can continue to be able to operate branches and agency offices in the

United States and not be required to

‘‘roll up’’ their U.S. banking operations

into subsidiary banks.

Most countries permit nondomestic

banks to compete through branches,

because the entire world-wide capital

of the bank stands behind the branch’s

operations. Such rules applied in foreign markets substantially benefit U.S.

banking institutions operating abroad.

Any change in that requirement would

disadvantage them severely.

Applying these same rules in our own

market benefits not only foreign banks

but the U.S. customers they serve. The

ability of a branch to draw on the resources of the entire bank directly benefits U.S. corporate customers by enhancing the availability of credit, increasing the availability and size of

loans from international banks, and reducing the cost of financing for customers.

III. CONCLUSION

This Congress provides a singular opportunity to take major steps toward

financial services reform which will

make our financial services system

safer, more efficient, and more competitive and provide consumers better

and more varied services. I look forward to working with Chairman LEACH,

Ranking Minority Member GONZALEZ,

and my colleagues in both sides of the

aisle to achieve this long-sought goal.

SOME COLLEGES AND UNIVERSITIES PERFORM A DISSERVICE

fTO AMERICA’S YOUNG

The SPEAKER pro tempore (Mr.

INGLIS of South Carolina). Under a previous order of the House, the gentleman from Tennessee [Mr. DUNCAN] is

recognized for 5 minutes.

Mr. DUNCAN. Mr. Speaker, some of

the colleges and universities in this

Nation are performing a real disservice

to our young people.

They are encouraging them to get—

or at least not discouraging them from

getting—degrees in fields in which

there is almost no hope for a good job.

This is particularly true concerning

many graduate programs—especially in

the field of law.

My wife recently had her groceries

carried out by a young man who had

received a law degree but who could

not find a job.

Many law schools are perpetrating a

fraud. They tell their students ‘‘Yes,

there are too many lawyers, but there

will always be room for a few more

good ones.’’

Well, everyone thinks they will be

the good one.

Only after spending a small fortune

and devoting several years of hard

work to the task, do they receive a

very rude awakening.