Statement of Administration Policy: S. 790 - Competitive Equality Banking Act of 1987

(Senate)
(Proxmire (D) Wisconsin)

The administration urges the immediate enactment of FSLIC's recapitalization from the private capital markets at $15 billion over five years, without extraneous or controversial amendments. The administration opposes S. 790 in its current form, because it provides inadequate resources for FSLIC to protect depositors and it contains many anti-consumer provisions.

S. 790's FSLIC recapitalization of $7.5 billion over two years is insufficient, in light of the General Accounting Office's preliminary audit requiring a $8 billion loan loss writedown, which leaves FSLIC insolvent by at least $3 billion. Congress' own auditors have testified that FSLIC's taiown problems are far larger.

The President's senior advisors will have great difficulty recommending approval of S. 790, unless there is a responsible level of funding for FSLIC for a responsible period of time, unburdened by controversial, seriously anti-competitive, or special interest provisions that have been in dispute for years. Swift passage of safety and soundness legislation — including amendments to reauthorize emergency acquisitions of troubled institutions and the operation of bridge banks — is essential to maintain depositor confidence.

Many provisions of S. 790 are anti-consumer and anti-competitive; most are non-germane to safety and soundness and have yet to be introduced in the House of Representatives. The acquisition of limited-service banks to serve consumers is prohibited without any provision for review. Existing opportunities for banking institutions to offer new products and services and to promote greater competition with the insurance, real estate and securities industries are foreclosed — with no public benefit — for at least one year, and probably longer.

Of greater importance, these controversial, special interest provisions do nothing to protect insured depositors who trust the FSLIC to stand behind their savings. These extraneous provisions also raise competitive issues that should be be considered carefully by the Congress in the context of legislation which truly modernizes our financial system and allows the Nation's financial institutions to compete effectively at home and with their foreign counterparts. As currently drafted, S. 790 does nothing in this regard. Moreover, exempting the Federal financial regulatory agencies from Presidential apportionment oversight authority is also highly objectionable. It is essential that these agencies remain accountable to the Executive branch.

The administration supports other provisions in the Senate bill, such as amendments to the Federal Credit Union Act contained in title V and provisions of title VI mandating the disclosure of check hold policies, but prefers to see them considered as separate legislation.