Statement of Administration Policy: H.R. 6 - Financial Institutions Safety and Consumer Choice Act of 1991

(House)
(Gonzalez (D) Texas)

The Administration strongly supports H.R. 6, as reported by the Committee on Banking, Finance and Urban Affairs, and with the amendments described below. However, if Title IV is adopted in the form of the October 30, 1991, Committee Print, or the interstate branching provisions are substantially weakened, the President's senior advisers will recommend a veto.

H.R. 6, as reported by the Banking Committee, is comprehensive legislation designed to create a safer, more competitive banking system. H.R. 6 recapitalizes the bank deposit insurance fund, sets clear standards for prompt corrective action by regulators to resolve troubled banks, and permits banks to reduce risk by diversifying their activities across more product lines and more geographic areas. It also greatly enhances the franchise value of banks and greatly expands the ability of banks to attract voluntary private capital into the industry, thereby increasing the capacity of banks to absorb losses instead of the taxpayer. The Administration strongly supports all of these efforts, though certain modifications would make H.R. 6 even more effective in strengthening the banking system and reducing taxpayer risk.

Four other House committees — Energy and Commerce, Ways and Means, Judiciary, and Agriculture — have considered H.R. 6 and recommended amendments to the Banking Committee's bill. The Administration supports the Ways and Means amendment and parts of the Agriculture amendment. The Administration is concerned, however, that the Judiciary Committee's amendment to the bill's anti-tying provisions is unnecessary and could result in overly restrictive regulation of commercial practices.

The Administration strongly opposes the version of Title IV contained in the October 30, 1991, committee print, which is similar to the amendment adopted by the Energy and Commerce Committee. This version of Title IV would weaken the banking system, impede the economic recovery, and increase taxpayer exposure to deposit insurance fund losses.

Amendments Supported by the Administration

While the Administration strongly supports H.R. 6 as reported by the House Banking Committee, the following modifications would substantially strengthen the bill:

—   Limiting deposit insurance coverage for individuals to $100,000 per person per bank, with a separate $100,000 in coverage for retirement accounts. This will reduce taxpayer exposure by limiting protection to average depositors. The Administration supports the Wylie/Gonzalez/Kleczka amendment on this subject.

—   Providing greater flexibility for bank regulators to avoid the premature shutdown of a weak bank that has clear prospects for recovery. The Administration supports the LaFalce amendment that would provide such flexibility.

—   Eliminating provisions described below that increase the deficit for "pay-as-you-go" purposes by more than $1 billion over four years. The Administration supports the Gradison amendment to eliminate two of these provisions.

—   Eliminating the provision that deems the President to have designated the emergency loan guarantee for Rhode Island as an "emergency requirement." This provision violates last year's budget agreement. The Reed amendment cures this problem, but would still increase the deficit for pay-as-you-go purposes and is therefore objectionable.

—   Providing limited flexibility in the "firewall" provisions that will allow regulators to make technical adjustments to promote safety, soundness, and competitiveness.

—   Providing flexibility for regulators, in consultation with the Administration, to protect against systemic risk in the banking system, with costs borne by the banking industry.

—   Eliminating provisions that reduce the regulatory authority of the Office of the Comptroller of the Currency in certain areas (e.g., enforcement and the resolution of troubled but insolvent institutions).

The Administration will continue to work with the House and the Senate to make these improvements.

Opposition to Title IV

The Administration strongly opposes the October 30th version of Title IV. For the following reasons, it will make banks weaker and less likely to provide credit in good times and bad; hamstring the ability of U.S. banks to compete with Japanese and European competitors; and increase the likelihood that taxpayers will pay for bank losses:

—   It prohibits diversified companies from owning banks, which will stop new capital from voluntarily flowing into banks to absorb losses instead of the taxpayer. Commercial firms should at least be able to purchase failing banks where taxpayer savings are immediate and substantial. The Administration strongly supports the Rinaldo amendment that would allow such purchases.

—   It imposes unworkable "firewalls" unrelated to safety and soundness, which penalize banks to protect securities firms from competition.

—   It requires the Securities and Exchange Commission to regulate the same firewalls as the Federal Reserve. This would undermine functional regulation and lead to regulatory gridlock, confusion, and increased costs.

—   It takes away riskless and profitable insurance activities of banks, even where permitted by State law.

The Administration strongly supports the Barnard/Hoagland amendment to strike Title IV from the legislation. Current law is far more likely to keep banks stronger, safer, and more competitive.

Other Amendments Opposed by the Administration

The Administration also strongly opposes all of the following amendments:

—   The Richardson amendment, which would (1) prohibit interstate branching unless each State "opted in" by statute; (2) allow States to discriminate against interstate branches; and (3) subject national banks to State banking laws for the first time. Such changes would be worse than preserving current law. The Administration supports the Vento "opt out" amendment, which preserves the benefits of interstate branching and protects States' rights.

—   The Kennedy amendment to expand the Community Reinvestment Act. This amendment would impose onerous new requirements that would impede interstate branching and new financial activities for banks.

—   The Leach amendment, which would establish onerous new capital requirements on banks that become safer through interstate branching.

—   The Schumer "core bank" amendment, which contains overly stringent lending limitations to one borrower and a form of interest rate controls, because it could choke off credit to the economy.

—   The Agriculture Committee amendment that requires an interstate branch to make a fixed amount of loans in rural areas or risk branch closure. This Government allocation of credit would discourage banks from opening branches in distressed rural areas that need credit.

—   The Frank amendment that requires the Federal Deposit Insurance Corporation to begin a new housing subsidy program funded by banks. This expense would be shifted to taxpayers because it would require a pay-as-you-go offset.

—   The Dorgan amendment that would stop banks by statute from making specific kinds of business loans involving highly leveraged transactions.

—   The Towns amendment that expands deposit insurance coverage by providing pass-through coverage for all deposits, regardless of size, of non-profit organizations.

—   The Donnelly amendment that increases resolution costs by providing overly generous benefits to bank employees.

—   The Neal amendment that imposes onerous reporting requirements on interstate branching institutions.

—   The Waters amendment that freezes for two years bank fees for small depositors. Arbitrarily constraining fees set in the market is especially inappropriate at a time when banks are weak.

Scoring for Purposes of Pay-As-You-Go

H.R. 6 would increase direct spending; therefore, it is subject to the pay-as-you-go requirement of the Omnibus Budget Reconciliation Act of 1990 (OBRA). A budget point of order applies in both the House and the Senate against any bill that is not fully offset under CBO scoring. If, contrary to the Administration's recommendation, the House waives any such point of order that applies against H.R. 6, the effects of enactment of this legislation would be included in a look back pay-as-you-go sequester report at the end of the congressional session.

OMB's preliminary scoring estimates of this bill are presented in the table below. Final scoring of this legislation may deviate from these estimates. If H.R. 6 were enacted, final OMB scoring estimates would be published within five days of enactment, as required by OBRA. The cumulative effects of all enacted legislation on direct spending will be issued in monthly reports transmitted to the Congress.

ESTIMATES FOR PAY-AS-YOU-GO ¹
($ in millions)

The above estimate does not take into account anticipated floor amendments. Several of the amendments made in order under the rule appear to have pay-as-you-go effects.