Date: 1982-07-27
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. in view of the debate which has just taken place on the provisions of H.R. 1799. in the interest of time my remarks can be compressed. dealing only with the subject of possible expanded banking holding company participation in the activities of export trading companies and a brief summary of bankers acceptances amendments. H.R. 6016. the Bank Export Services Act was introduced by me on March 31. 1982. and cosponsored by 24 members of the Banking Committee. The bill was the subject of 3 full days of hearings with testimony from over 25 witnesses. An amendment in the nature of a substitute was adopted by the Subcommittee on Financial Institutions. based on the comprehensive hearing record and extended consultations with the administration. the regulatory agencies and all other interested parties. by voice vote. As a result of this most deliberative process. the full committee ordered the bill reported by a 40to0 vote. The committee (II. Rept. 97629) was filed on July 1. Because of the fact that ETC legislation in both the 96th and 97th Congress has been referred to and considered by three committees (Banking. Judiciary. and Foreign Affairs). it is necessary at the outset to state the obvious that insofar as banking law provisions are concerned. H.R. 6016 with its accompanying report (H. Rept. 97629) together with the debate now occurring on the provisions of H.R.. 6016 will be the definitive legislative history of banking law amendments. notwithstanding inconsistent statement appearing elsewhere. purporting to interpret banking language. In the 96th Congress. legislation was developed out of congressional studies of the American exporting experience. The goal of that legislation was to reduce regulatory and statutory barriers to exporting and to encourage more American businesses to become involved in international trade. The previous administration. as a part of its overall export policy. endorsed Export Trading Company (ETC) legislation similar to that now under consideration by the Congress. As evidence of widespread support for increasing this Nations export trading capability. the House Export Task Force was established consisting of over 100 members representing every geographic region in the United States with the prime purpose of advocating legislation that supports American export trade. Three members of the House Banking Committee have served from its creation on the task force executive committee: former Banking Committee Chairman HENRY RETss. now chairman of the Joint Economic Committee. STEPHEN L. NEAL. chairman of the Subcommittee on International Trade. Investment and Monetary Policy. and JOHN J. LAFALCE. one of the earliest House sponsors of ETC legislation. Our committees formal consideration of pending ETC legislation began in the 96th Ccngress after a series of Informal discussions with representatives of the previous administration and all other interested parties. both proponents and opponents. to the pending Senate passed legislation . These discussions culminated in a hearing by the Subcommittee on Financial Institutions on September 30. 1980. On that occasion I expressed the subcommittees concerns as follows: This Subcommittees principal concerns are the key sections of the legislation which would. for the first time in the history of this Nation. grant commercial banks the authority to make equity investments in export trading companies. This is a giant step in the expansion of banking powers. and if this legislation is enacted it will meian a substantive breach in our longstanding policy against the mixing of commerce and banking powers. At a minimum. we should discover what the legislation will mean for: First. the traditional separation of banking and commerce. second. the safety and soundness of banking institutions. third. the compelitive balance in the financial industry. and fourth. the promotion of exports. All of us on this Subcommittee. and I suspect throughout the Congress. are solidly behind the desire to increase exports of U.S. products. I would not take a back seat to anyone in the support of export promotion. but I also believe we must make certain Ihat we are providing real remedies. not quick fixes that may create more dislocations in the economy. In their consideration of trade matters. both the previous and the current administration as well as the Export Task Force have focused on a number of issues. including both trade incentives and disincentives. The Banking Committee. as a result of its legislative jurisdiction. has continued to direct its attention in the 97th Congress both to the issues of providing adequate bank financing for international trade activities as well as to a review of the impact of authorizing banking organization investments in ETCs on the longstanding policy of separating banking from commerce. discussed fully in the committee report on page 9. The traditional policy has been based on the belief that the integrity of the payments mechanism and the nature of competition for funds would be compromised if banks undertook the risks Inherent in commercial and industrial ventures. or had conflicts of equity interest that involved favorable treatment for some customers. possibly bringing Into serious question the bankers principal role as an impartial arbiter of credit. It should be noted at the outset that both the previous and the current administration continue to adhere to the principle of the separation of banking and commerce while supporting increased bank participation In ETC operations. including equity ownership. Deputy Secretary of the Treasury McNamar stated to the subcommittee the following: The administration feels that your bill maintains this traditional separation by authorizing export trading companies only as subsidiaries of bank holding companies. We wholeheartedly endorse this approach. since (1) with tile proper safeguards it would not impose a significanfly higher risk on tile banks in the holding company group. and (2) with appropriate changes in banking laws. it would not give bankaffiliated ETCS an unfair competitive advantage over other business concerns competing for access to credit. Subsequent to Senate p(sage of S. 734 on April 8. 1981. a number of informal staff discussions were held by the respective house committees to which S. 734 was referredBanking. Judiciary. and Foreign Affairs. In an effort to assist the Subcommittee on International Economic Policy and Trade on the House Foreign Affairs Committee. which evidenced a desire to move forward on companion bills to S. 734. I advised that subcommittee by letter of October 29. 1981. of the basic concepts which would ultimately govern this committees response to the bank participation title in pending ETC legislation. That letter reaffirmed the separation principle. In addition. the committee encouraged a series of discussions within the administrationCommerce. Treasury mnd the Office of Trade Representativeand between Conmerce and the Federal Reserve Board in an effort to devise a realistli compromise insofar as bank inve:tments in ETCs are concerned. A.s a result of the discussions and continuing action by both the Foreign Affairs and Judiciary Committees. H.R. 6016 was introduced and became the subject of subcommittee hearings on April 22. May 19. and May 25. 1982. Recognizing the importance of bankers acceptances in financing international trade and the need for modernization of the present Federal laws governing the use of bankers acceptances. H.R. 6016 also incorporated the general scope of the provisions of H.R. 2438. introduced by Congressman Douc BARNARD. Following these hearings. and after consultation with members of the subcommittee. an amendment in the nature of a. substitute was prepared that incorporated many of the suggestions offered by witnesses and subcommittee members. This amendment removed the authority for Edge Act corporations to inyest In ETCs. at the suggestion of the Federal Reserve Board and the Treasury Department. To enable the 10.000 or so small banks in the Nation which are not affiliated with a bank holding company to participate in the operations of an ETC. authority for bankers banks to invest In ETCs was included in the substitute. The substitute prescribed a 60day Federal Reserve disapproval period rather than an unlimited term approval period as in the introduced bill. Refinements were also included in the substitute concerning the limits on credit extensions to ETCs. the definition of an ETC. and the provisions governing bankers acceptances. The substitute amendment itself was amended in the subcommittee markup to provide the Federal Reserve with additional authority to prevent unsafe and unsound speculative activity by an ETC. and to exempt Statechartered. nonFederal Reserve member banks from bankers acceptance limits contained In H.R. 6016. Finally. in section 3 of H.R. 6016. as amended. the committee substantially liberalized provisions of the Federal Reserve Act relating to bankers acceptances. The Federal Reserve Board in its testimony before the subcommittee acknowledged the need for liberalization as follows: The board believes that it is both appropriate to expand the current aggregate limitation on the issuance of eligible bankers acceptances and to apply those limits to the other entitles with which member banks compete in the acceptance market. In applying the limitation on eligible bankers acceptances to U.S. branches and agencies of foreign banks. the board believes that the appropriate measure of capital Is the world. wide capital of the parent foreign bank." The committee is indebted to the untiring efforts of our colleague. Congressman Douo BARNARD. who advanced the cause of modernization of our present laws governing the use of bankers acceptances by his introduction of H.R. 2438 incorporated as section 3 of I.R. 6016. Bankers acceptances are important in the financing of international trade activities. This liberalization or deregulation supplements the bank holding company ETC provisions. In conclusion. as I stated when the committee by a 40 to 0 vote reported to the floor H.R. 6016. "this legislation is a reasonable approach to resolving the twin concerns of insuring bank safety and soundness by limiting the breach in the separation of banking and commerce. and encouraging the flow of exports from this Nation." The concerns which the subcommittee expressed in 1980 have been met by taking the export trading company activity out of the bank and placing it Into the bank holding company structure and Insuring a significant regulatory presence during the application procedure and a continuing presence during the subsequent operations of those export trading company financed by bank holding companies or banker banks by the Federal Reserve Board. Therefore. the Banking Committee believes it has succeeded in minimizing the risk of breaching the wall separating banking from commerce with the conviction that the remaining risk is clearly justified by the hope and Indeed the expectancy that Increased participation by bank holding companies will provide important assistance to small- and mediumsized businesses which produce goods for foreign consumplion and in the process the increased international trade will produce significant economic activity and Jobs domestically. While no one can predict with certainty the effect this legislation will have on job creation. it has been conservatively estimated that the passage of export trading company legislation could. by 1985. increase employment by between 320.000 and 640.000 workers. The New England Institute estimated that the six New England States in 1980 alone generated over $10 billion in export sales. creating 135.000 jobs. The institutes survey conducted in 1981 estimated an increase of over 25 percent In sales for 57 percent of export trading company respondents with all respondents indicating increases of at least 5 percent in sales. Thus. the potential effect of export trading company legislation in New England alone. utilizing the lowest of these estimates. could mean an additional $500 million in sales. creating over 10.000 additional jobs. I urge adoption of H.R. 6016.