From: "Maryellen J. Lewis" <lewisma9@pilot.msu.edu>
Subject: "Financial Modernization" & the poor
X-Info: comm-org
FYI: This may be of interest to those following this "access to capital" policy debate, about holding the large U.S. financial sector more accountable to impoverished communities which bear the social costs of disinvestment. The text includes contact information, if you want to learn more. Maryellen
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>Dear ___:
.... [snip] There is a real possibility that H.R. 10 will be considered by the full House this week or early next week. H.R. 10 will have profound impacts on community reinvestment by radically altering the landscape of banking and finance. In brief, the bill would allow broad affiliations among banks, insurance companies, securities firms and other financial companies. Because the bill provides few consumer protections and little new reinvestment obligations, the progress in community reinvestment could be halted or reversed. In addition, the bill could lead to new monopolies that charge exorbitant fees and cut service. Not only does the bill allow broad affiliations among financial companies, it also allows bank holding companies to own a substantial amount of non-financial corporations engaged in anything from data processing to manufacturing. [snip] If you need more information, please call NCRC Vice President of Research Josh Silver or Research Analyst Lou Green at (202) 628-8866. Our fax number is (202) 628-9800.
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[FYI: COPY OF LETTER SENT TO CONGRESS BY NCRC'S CEO]
>
>November 5, 1997
>
>The Honorable Newt Gingrich
>Speaker of the House of Representatives
>2408 Rayburn House Office Building
>Washington DC 20515
>
>Dear Speaker Gingrich:
On behalf of the National Community Reinvestment Coalition (NCRC), I am writing to express the views of NCRC on the Financial Services Act of 1997 that was passed by the House Commerce Committee. NCRC is the nation's CRA trade association of more than 620 community reinvestment organizations dedicated to revitalizing inner city neighborhoods and rural areas. The impact of financial modernization legislation on the Community Reinvestment Act (CRA) and on reinvestment initiatives is of keen interest to our members. It is my understanding that the House Rules Committee is reconciling the different versions of H.R. 10 or the Financial Services Act that was passed by the House Commerce Committee and the House Banking Committee. If the bill reaches the floor, NCRC and its member organizations urge you to vote against it. H.R. 10 would allow broad affiliations among banks, insurance companies, and securities firms. This spring, when I testified before the House Banking Committee, I stated that NCRC and its members could support a financial modernization bill if the Community Reinvestment Act (CRA) was extended to all financial institutions allowed to affiliate with banks. Non-federally insured affiliates of banks will increasingly offer traditional banking products such as checking accounts and various types of loans. Without an expansion of CRA, it will be too easy for bank holding companies to shift assets and deposits into their non-insured affiliates and thereby evade their CRA obligations to serve all communities -- including low- and moderate-income communities -- in which they are chartered. NCRC opposes H.R. 10 because the Banking and Commerce Committees chose not to expand CRA obligations to financial institutions allowed to affiliate with banks. We are pleased that both versions of H.R. 10 will extend CRA obligations to wholesale financial institutions (a new non-federally insured entity which could only accept deposits of over $100,000) that would be allowed to affiliate with bank holding companies. Yet, H.R. 10 does not expand CRA to mortgage companies, credit unions, securities firms, insurance companies, and other financial entities that would be allowed to affiliate with bank holding companies. In addition, NCRC is very concerned about provisions in the Commerce Committee's version of H.R. 10 that would allow bank holding companies to acquire non-banking financial companies or commence financial activities without applying to the Federal Reserve Board in most instances. A bank holding company would be allowed to send a notice after they have made an acquisition or commenced a financial activity. NCRC and its members believe that all types of mergers must involve an application process so that all affected parties including community organizations, local governments, small businesses, and community banks have an opportunity to assess the impacts of the merger on community reinvestment, the level of competition, fair lending performance, and on safety and soundness. Without an application process, federal regulators cannot obtain complete information about the impacts of a merger because they lack the input of the affected customers and communities. H.R. 10 would therefore authorize some mergers that have harmful effects simply because it exempts a large number of mergers from regulator and community scrutiny. NCRC also objects to provisions in H.R. 10 that would permit mergers involving bank holding companies with depository subsidiaries that have below satisfactory CRA ratings. NCRC believes that the very few banks with below satisfactory ratings should be prohibited from engaging in mergers and enjoying the other benefits of H.R. 10 until they abide by their CRA obligations and achieve at least satisfactory ratings. The 24-month grace period in the Commerce Committee's version of H.R. 10 to improve a failing rating is not acceptable. In addition, NCRC does not believe that institutions with satisfactory and above ratings should enjoy a safe harbor exempting them from the application process when they wish to acquire non-bank financial institutions. Satisfactory and above ratings should merely allow them to apply to the Federal Reserve Board and other appropriate regulators for permission to merge or commence financial activities. Attached to this letter is an appendix outlining additional reinvestment provisions which NCRC believes should be in any financial modernization bill. Again, NCRC and its 620 members urge you to vote against this bill until it provides for a significant expansion of the CRA and includes other consumer and community protections outlined in the appendix. Thank you for your consideration in this important matter.
>
>Sincerely yours,
>John Taylor
>NCRC President and CEO
>
>cc. Minority Leader Richard Gephardt
>
>
Appendix - Additional Reinvestment Provisions and Safeguards Necessary in Any Financial Modernization Bill
>
>MAINTAIN THE WALL SEPARATING COMMERCE AND LENDING
>Both the Commerce Committee's and the Banking Committee's versions of H.R. 10 allow affiliations among banks and non-financial corporations. Combinations of banking and commerce are anti-competitive and would be harmful to consumers. In addition, they could thwart progress in CRA since banks would be tempted to lend to their non-bank commercial affiliates instead of small businesses in disadvantaged communities.
>
>REASONABLY PRICED AND ACCESSIBLE SERVICES
>Rep. Bobby Rush (D-Illinois) offered an amendment to H.R. 10 that would have required banks to offer reasonably priced and accessible deposit services. In addition, the amendment prohibited a practice of closing branches or ATMs that would primarily affect minority and lower income neighborhoods. This amendment would have made bank holding companies that wish to acquire non-banking financial companies accountable for their
branching and pricing policies in traditionally underserved neighborhoods.
>
>LIFELINE BANKING ACCOUNTS REQUIRED FOR BANK HOLDING COMPANIES
>The Banking Committee's version of H.R. 10 included an amendment offered by Rep. Maxine Waters (D-CA) that would have required bank holding companies to offer low-cost "lifeline" banking services. Financial modernization will vastly expand the profitable opportunities of bank holding companies. It is not only fair, but also economically feasible to require bank holding companies to offer low-cost services for low-income customers since they will be reaping tremendous gains as a result of entering new lines of businesses. Rep. Edward Markey (D-MA) attempted unsuccessfully to introduce a lifeline banking requirement to the Commerce Committee's version of H.R. 10. In addition, Rep. Markey's amendment would have prohibited an insurance company from affiliating with a bank holding company if it engaged in discrimination in violation of the Fair Housing Act.
>
>MANDATORY DATA DISCLOSURE ON INSURANCE POLICIES
>The final financial modernization bill to emerge from the House may be amended to require states to allow nationally-chartered banks to offer any insurance product they could underwrite as of January 1997. If the bill is amended in this manner, national bank business in these insurance products is effectively regulated at the federal level, not the state level. Since federal regulatory authority mandates disclosure of home mortgage data, any bank insurance activity permitted under federal statute also should be accompanied by data disclosure requirements. In other words, national banks must be required to disclose the race and income level of the purchasers of their insurance policies as well as the census tracts in which the insurance policies were issued. >
> MANDATING AN ADVISORY COUNCIL ON COMMUNITY REVITALIZATION
>The Banking Committee's version of H.R. 10 establishes an advisory council on community revitalization that would examine the impact of the bill on community reinvestment and issue annual recommendations to Congress for increasing access to credit and capital for traditionally underserved populations. Since the impacts of such a dramatic change in our nation's banking laws cannot be assessed in advance, it is crucial that Congress establish an advisory council that would monitor the bill's impacts and suggest changes to the law if unforeseen negative impacts occur. The advisory council on community revitalization must have three members appointed by the Secretary of Treasury that represent community reinvestment organizations (the current version of H.R. 10 only specifies that two members are community representatives). One of the organizations should be a well-established, nationally-recognized community reinvestment trade association and the other two should be renowned local organizations in different parts of the country.