Date: 1981-11-17
Speaker: ST GERMAIN (democrat)
Chamber: H

Mr. Speaker. H.R. 4879. now before the House with a committee amendment in the nature of a substitute. is a bill that deals with two very significant banking matters on which prompt action is -vital. In effect. the committee amendment for convenience Incorporates two separate bills ordered reported by the Banking Corxmittee on November 5 into a single bill containing two titles. Title I of the bill contains the text of a bill introduced on November 2 as H.R. 4879 by my colleague from New York. Mr. SCHUMERI. dealing with International banking facilities. On December 3. 1981. pursuant to regulations of the Federal Reserve Board. International banking facilities will be permitted in the United States. 113Fs may be established by U.S. depository Institutions. by Edge and Agreement Corporations. and by U.S. branches and agencies of foreign banks. The Board Issued proposed rules last December and adopted the final rule June 18. 1981. with an effective date of In brief. an IBF may accept deposits from and extend credit to foreign residents or other IBFs. All such funds will be exempt from reserve requirements and from interest rate limlitations of regulation Q. The purpose of IBFs at U.S. banking offices Is to enhance the international competitive position of banking institutions in the United States. Consistent with this basic purpose. it now becomes necessary to review thle February 18. 1981. interpretation of FDIC to thle effect that IBF deposits are subject to FDIC insurance assessments under the Federal Deposit Insurance Act. The Subcommittee on Financial Institutions Supervision. Regulation and Insurance of thle House Banking Committee heard testimnony that if U.S. IBFs are required to pay the FDIC premium amounting to onetwelfth of 1 percent of their deposits. then they will be comnpetitive!y disadvantaged. This premium is considered especially important because. as the testimony indicated. many IBFs may operate on very narrow margins. Title I of H.R. 4879 would eliminate the insurance requirement for what. in essence. are deposits of extremely sophisticated international investors seeking the highest possible yields. With the December 3 effective date nearing. Congress has an opportunity to prevent burdensome regulation and at the same time insure competitive equality between U.S. and foreign banks by actinig In a manner fully consistent with the letter and spirit of theo Federal Reserve Boards action in permitting the establishment of IBIFs. Title I of the bill also includes an amendment adopted at full committee markup extending FDIC deposit insurance coverage to branches of insured banks operating in the Trust Territory of the Pacific Islands. Currently FDICs authority to Insure deposits includes areas In the Pacific such as Guam and American Samoa. But. under current law. FDIC cannot offer insurance In the Trust Territory. FSLICs authority to insure thrift deposits does include the Trust Territory. Therefore. title I of the bill would expand FDICs authority to cover the trust territory. Title II of the bill was introduced by myself. Mr. STANTON. and Mr. GONZALEZ. and was considered by the committee as H.R. 4515. This title deals with existing statutory limitations affecting mortgage purchases both by the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association. Present charter requirements limit the dollar value of loans which are more than 1 year old when sold to 20 percent of the total value of conventional mortgages in FHLMCs or FNMAs portfolios. This limitation will soon raise serious problems in connection with new programs under which FHLMC and FITMA will use their currently unused capacity to purchase or place older mortgages and. It Is expected. as a result provide improved liquidity to mortgage lending institutions. This is November 17. 1.981 the highly successful SWAP program of the Federal Home Loan Mortgage Corporation. This program. in the short period it has been in effect. has been popular Indeed. inasmuch as it permits the swapping of older. lowyielding mortgage loans for mortgage corporation participation certificates (PCs). These illiquid mortgages. responsible in large part for difficulties being encountered by the thrift industry. are converted Into highly liquid securities. Ultimately. additional funds are freed up for new mortgage fundIng. I have been advised by FHLMC that with its most recent auction. FHLMC has virtually reached Its 20 percent ceiling for all practical purposes and that absent this legislation now. the program must be shut down until such time as purchases of new mortgages in the Corporations other programs made it possible to hold another SWAP auction. It is now clear that the value of new loans will be depressed for 1982 and as a consequence. it seems unlikely that the SWAP program can be offered at anywhere near a level commensurate with the need and demand unless Congress approves this legislation. Another provision of title II would give the same seller/service status to FDIC and NCUA as that FSLIC with respect to using FHLMC and F NMA programs to aid troubled financial institutions and to dispose of loan portfolios acquired in takeovers. This flexibility is fully consistent with action taken by the House on October 28 in passing overwhelmingly H.R. 4603. the socalled regulators bill. The provisions now included In this title wf re the subject of hearings by the Sub~commiittee on Financial Institutions on September 22 at which time testimony was received from the Home Loan Bank Board. the Comptroller of the Currency. DHUD. FHLMC. FHMA. as well as fromsevery major trade association by appearance before the subcommittee or by written statement. All testified In favor of providIng increased flexibility for each Corporations mortgage purchase operations. Title II is a limited piece of legislation which does not address the more fundamental issues affecting both FHLMC and FNMA. There are more comprehensive proposals circulating Involving both FHLMC and FNMA which are part of the cominittces comprehensive discussion principles Issued by Mr. STANTON and myself on Monday. November 9. on which the committee will begin hearings in the near future. Mr. Speaker. at this point I am inserting in the RECORD the text of two letters from the Congressional Budget Office relating to that Offices. cost analyses of H.R. 4879 and H.R. 4515: