Date: 1984-05-17
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. todays announcement by the Comptroller of the Currency of a new "bailout" for the $40 billion Continental Illinois National Bank again illustrates the paternalistic nature of our Federal financial regulatory system. The Comptroller. the loudest and most consistent proponent of marketplace economics for financial institutions. comes forward with a plan for the Government to pick up the pieces now that one of his constituent banks has run aground in the great marketplace. This is deregulation. Mr. Conover? Yes. we will hear the rationalizations. the old tired clichesthe domino theory. the need to maintain confidence in the financial community. the dependence of smaller banks on their correspondent institution. foreign accounts. and investmentsand of course the impact on the insurance fund. When a $40 billion institution falls on bad times. there is no end to the hand wringing concerns about the tidal waves that a failure would create in the economy. Some of these concerns have touches of reality. others are simply convenient excuses to extend the helping hand of a benevolent governmental regulatory system to the powerful. The truth is. Mr. Speaker. large banking institutions. despite all the II14156 talk about free enterprise. marketplaces. and deregulation. do not fail under our system of Government protection. The largest commercial bank to actually have its doors locked and its assets liquidated is our famous Penn Square Bank in Oklahoma Citywith. $500 million in deposits. Some of the big ones have had their troubles papered over through friendly takeovers arranged by this same protective Federal regulatory systeminvariably after the Federal Reserve System had thrown its discount windows wide to pour in the Federal dollars. In these friendly takeoversarranged quickly and silently in the nightthe regulators let some health Institution skim the creamthe best assetswith the Insurance fund left to *hold and try to collect on the mistakes. Smaller institutions which find themselves caught up in mismanagement. bad judgments. and other difficulties. usually. do not find this same benevolence. Twentyeight institutionsall under $170 million in depositshave had their doors padlocked this year. No Continental. Franklin National. U.S. National Bank (San Diego) style bailouts for them. They were not big enough. None of these smaller banks. Mr. Speaker. have had their regulators out on the street testifying to their strength. Yet. last Friday. the good Comptroller was issuing statements denying rumors that Continental was in serious financial trouble. The OCC statement included this flat statement: The Comptrollers Office is not aware of any significant changes in the banks operations. as reflected in Its published financial statements. that would serve as a basis for these rumors. All the while. we now learn. the Federal regulators were busy in the backroom discussing problems that OCC was telling the public did not exist. Is anyone going to believe the statement of OCC in the future? It is not fair to single out the Comptroller for all the blame or praise for the current rescue effort in Chicago. The Federal Reserve has pumped in money through the discount window and. of course. it is the FDICdrawing on its insurance fundthat will be providing an initial infusion of $11/2 billion for Continental. In the final analysis. Mr. Speaker. it could be there is not an alternative to Government assistance of this kind. It does indeed bring into question the theory of unregulated laissez faire banking. It does again raise questions about the bloated nature of Federal insurance-$100.000 per account. Let us not forget the tremendous contingent liability this places on the U.S. Treasury and the U.S. taxpayers. It also raises questions about the latent unfairness of the insurance premium system that provides no distinction between well run institutions and the high flyers. It does bring into question what criteria the regulatorsthe OCC. the FDIC and the Federal Reserveuse in dispensing the largesse of the Federal Governmenta godlike power to decide who gets the bailout and who is allowed to drown. Mr. Speaker. we need to explore how the decision to save Continental was reached. and the role of the various regulators and the ultimate impact on the Federal Government and the banking system and its customers. With this in mind. Mr. Speaker. I intend to call each of the Federal banking supervisorsChairman Paul Volcker of the Federal Reserve. Chairman William Isaac of the FDIC. and the Comptroller of the Currency. C. T. Conover. before the committee to explain the Continental Illinois bailout. Dates will be announced as soon as arrangements can be made. This incident. Mr. Speaker. does raise anew whether banking institutions are necessarily just as prudent as they are big. When we are asked to endorse the movement of banks into fields even riskier than conventional banking. this type of incident does strongly suggest the need for careful analysis and caution.e