The Administration strongly opposes the House Republican Leadership
substitute for H.R. 10 because it would: (1) stifle innovation and
efficiency in the national banking system; (2) diminish the ability of
communities and consumers to benefit from the financial system; (3)
eliminate advantageous features of the current thrift charter; and (4)
impose needless costs on small banks.
The Administration has been a strong proponent of financial modernization.
The House Republican Leadership substitute for H.R. 10 would remove some
archaic restrictions on our financial system. However, the bill falls
short of meeting the overarching goal of financial services modernization,
thus denying consumers the benefits of an efficient, full-service financial
H.R. 10 would materially weaken the national banking system by depriving
national banks of powers they now have, by subjecting national banks to
anti-competitive limitations inapplicable to state-chartered banks, and by
exposing national banks to discriminatory state laws. The bill would also
leave in place archaic and unjustifiable limitations on the ability of
national banks to compete. These changes would diminish the national
charter, make national banks less competitive, and undermine the authority
of the Office of the Comptroller of the Currency.
H.R. 10 also would strip away the benefits of the thrift charter without
extending those benefits to all depository institutions. While retaining
the Federal thrift charter, the bill would deprive it of key benefits such
as the longstanding right of unitary thrift holding companies to engage in
any lawful business. Eliminating these broad affiliation rights and other
attributes of the thrift charter would diminish competition and reduce
consumer choice and benefits.
Instead, at the expense of banks and thrifts and their customers, H.R. 10
dictates that financial services companies conduct new financial activities
only in a bank holding company affiliate. A bank that wished to avail
itself of new powers would thus have to transfer capital to an affiliate,
thereby depleting the bank's resources and shifting any earnings benefit
from the bank to the affiliate.
This requirement would also undermine the Community Reinvestment Act
(CRA) by forcing financial innovation to occur in holding company
affiliates rather than in bank subsidiaries. By generally requiring
innovation to occur outside the bank, the bill would result in the
wholesale transfer of assets beyond the purview of the CRA -- thus denying
communities important benefits they would otherwise have reaped from
financial modernization. Under the CRA, banks and thrifts have made $18
billion in loans to communities in 1996 alone. Communities, consumers, and
those small banks unable to afford this new structure would clearly be
among the losers under the bill.
These changes are not warranted by safety and soundness concerns, and are
not necessary to create competitive equity among various providers of
financial services. They serve only to stifle creativity, reduce benefits
to consumers, and undermine the nation's dual banking system.
In addition, subtitle C of title III of the bill raises separation of
powers concerns under the Constitution regarding the delegation of power to
non-federal government entities.
The Administration continues to support financial modernization. The
Republican leadership substitute for H.R. 10, however, is the antithesis of
real financial modernization.
H.R. 10 is subject to the "pay-as-you-go" (PAYGO) requirements of the
Ominbus Budget Reconciliation Act of 1990. The Administration's PAYGO
estimate for this bill is under development.