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John Sununu Issues Files
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Banking Issues 1991
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2
NOV 26 '91 08:46
P.2/3
THE SECRETARY OF THE TREASURY
WASHINGTON
November 25, 1991
The Honorable Donald W. Riegle, Jr.
Chairman
Committee on Banking, Housing,
and Urban Affairs
United States Senate
Washington, D.C. 20510
Dear Mr. Chairman:
The President has asked me to respond to your letter, which
was delivered to the White House late this afternoon.
For more than a year, the Administration has argued that
comprehensive reform of the banking laws is essential. Unless
the banking system regains the long-term financial health it
lacks, it cannot fulfill its critical role in the economy, and
the risk multiplies that the American taxpayer will have to pay
for industry losses. There is one, and only one, significant
action that the Federal Government can take to help restore the
industry's health and attract sufficient private capital so that
this risk to the taxpayer can be averted. That is to
fundamentally reform the antiquated laws that now govern the
banking industry.
To deal with the underlying problems of the banking
industry, the Administration has proposed the most comprehensive
banking reform legislation in over 50 years, and has spent the
better part of this year fighting for the adoption of this
legislation. Unfortunately, Congress has still not acted on this
crucial proposal, and now seems likely to adopt a narrow approach
that will only postpone the day of reckoning.
The President has stressed the need for comprehensive reform
as far back as February 6, 1991:
"These reforms will continue to protect every insured
depositor in America. But they will also address the
reality of the modern financial marketplace by creating a
U.S. financial system that protects taxpayers, serves
consumers, and strengthens our economy. We don't want to be
back again in a couple of years to do this all over again.
That's why halfway solutions won't do -- we have to do the
whole job, and we have to do it now."
It is shocking to me that some in Congress are only now
coming to realize the seriousness of the situation. As your
letter suggests, the narrow bill that we understand is the basis
for House/Senate negotiations provides critically needed funding
but is otherwise wholly inadequate to the task at hand.
NOV 26 '91 08:47
P.3/3
-2-
Fundamental reform of our banking laws, already delayed, is
not a "we can get to it later" issue. Continued Congressional
inaction is a recipe for trouble.
The Administration has long since provided our blueprint for
reform. We have worked with you and your Committee throughout
the year to move forward on this issue, and I assure you that you
will continue to have our full cooperation in the fight for
comprehensive banking reform.
Sincerely,
7 And
Nicholas F. Brady
11-25-91 03:55PM FROM SEN. RIEGLE DC
TO 9/4566220
P002/003
DONALD W. RIEGLE, JR, MICHIGAN, CHAIRMAN
ALAN CRANSTON, CALIFORNIA
JAKE GARN, UTAH
PAUL S. SARBANES, MARYLAND
ALFONSE M. D'AMATO. NEW YORK
CHRISTOPHER J. DODD. CONNECTICUT
PHIL GRAMM. TEXAS
ALAN J. DIXON, ILLINOIS
CHRISTOPHER 8. BOND, MISSOURI
JIM SASSER, TENNESSEE
CONNE MACK, FLORIDA
IGRNT SANMING NORTH CAMOLINA
WILLIAM V. NOTH, JR, раслимань
RICHARD C. SHELBY, ALABAMA
PETE V. DOMENICI, NEW MEXICO
United States Senate
809 GRAHAM. FLORIDA
MANCY LANDON KAGBEBAUM, KAMEAE
TIMOTHY E. WIRTH, COLORADO
JOHN H. CHAFEE, RHODE ISLAND
JOHN P, KERRY. MASSACHUSETTS
COMMITTEE ON BANKING, HOUSING, AND
MICHARD M. BRYAN, NEVADA
URBAN AFFAIRS
STEVEN B. HARRIS, STAFF DIRECTOR AND CHIEF COUNSEL
LAMAR SMITH. REPUBLICAN STAFF DIRECTOR AND ECONOMIST
WASHINGTON, DC 20510-6C75
November 25, 1991
The Honorable George Bush
President of the United States
The White House
1600 Pennsylvania Ave., NW
Washington, D.C. 20500
Dear Mr. President:
It is clear from the latest information now available from bank
regulators that we face an extremely serious situation in the banking system.
The Banking Reform bill now pending in a Senate/House Conference
Committee is not adequate, by itself, to deal with the great damage that has
already occurred in the banking system that must now be dealt with. New
information from the banking regulators makes it clear to me that the 70
billion dollar government loan to the Bank Insurance Fund is not adequate to
meet the problem facing us and it is increasingly unlikely the banks will be
able to repay this loan.
In short, the legislation now pending is almost certain to be a taxpayer
bailout which has not been accurately described to the public in those terms.
This bears a very troubling similarity to the savings and loan crisis.
A much larger and stronger banking initiative is needed at this time if
we are to avoid a financial accident that would threaten the entire banking
system. An initiative structured along the lines of the Reconstruction
Finance Corporation may offer an orderly way to work through the
accumulated problems in large distressed banks.
I urge you in the strongest possible terms to gather the key participants
without delay who can begin to work together under your auspices to fashion
a much broader banking recovery and reform program. That is needed to
stabilize the banking system and provide the best chance to avoid a further
cascade of bank failures and unacceptable systemic risks.
The weak economy is adding to the accumulating stress on the banking
system and any additional steps that could be taken now to strengthen the
economy would also help the banking system.
11-25-91 03:55PM FROM SEN. RIEGLE DC
TO 9/4566220
P003/003
The Honorable George Bush
November 25, 1991
Page 2
I have formally requested Federal Reserve Chairman Alan Greenspan
and FDIC Chairman William Taylor to meet with you to give you their direct
assessment of the situation.
It is my best judgment, as Chairman of the Senate Banking Cummittee,
that failure to take the steps I am suggesting in this letter will almost
certainly subject us to a great risk of a much larger and more dangerous
banking crisis and a further taxpayer bailout that could dwarf the amounts
now contemplated.
I have conveyed these sentiments directly to Secretary of the Treasury
Brady and I consider it necessary to convey these thoughts personally and
directly to you in this manner, because I believe your direct, active
involvement is necessary.
Further, I urge you to use all your influence to urge the Senate/House
Conference Committee to enact a comprehensive bill that reconciles and
includes interstate banking V and settles the issues of insurance and securities
powers. This will require further compromise by all parties but it is an
achievable goal. While not a cure all, a broader bill will help strengthen the
banking system and deserves your all-out personal effort.
While a more comprehensive banking bill will strengthen the banking
system, even the broader bill, if enacted by itself, cannot be expected to stem
the tide of pending bank failure caused by past events, as FDIC Chairman
Taylor testified before the Senate Banking Committee today.
We have worked cooperatively now for many months to enact a
program to deal with these severe problems and I continue to pledge to you
my full cooperation and effort to deal with this matter before we are
overtaken by adverse events.
Donald Chairman Sincerely, W. Riegle, Jr.
DWR/jh
NOV 19 '91 10:11
P.2/6
OF THE
1789 THE TREASURY
Messers Dole
GARN
Dominaci
These three documents are well worth
reading. of particular interest 6 the
minus on pricing in other industries.
h7r
ce: Sunanu
Darman
NOV 19 '91 10:12
P.3/6
CREDIT CARD INTEREST RATES:
COMPARISON OF PRICING IN OTHER COMPETITIVE INDUSTRIES
In support of an interest rate cap, Senator D'Amato argues
that an identical interest rate among some of the largest credit
card banks is an indication of price collusion and a lack of
competition. Identical pricing among the dominant participants
in an industry is not price collusion but is instead an
indication of market-established competitive pricing.
For example, look at the airline industry. If an individual
was to fly from Washington to Salt Lake this Tuesday and return
on Wednesday, he would pay the same fare, $1,240, regardless of
whether he flew on Delta, Continental, American, United, or
Northwest. If he were willing to buy a ticket today for a flight
to Salt Lake on December 20 returning December 22, the fare would
be lower, but it would still be identical for each of the
airlines -- $458. This comparison also holds for the Delta and
Trump shuttles between Washington and New York. The standard,
unrestricted one-way fare on both is identical -- $142. If he
plans ahead or travels at non-peak times, a customer can find a
reduced fare, but the fare is dictated by what the market will
bear and is the same on all airlines.
The same is true of credit cards. If a customer is willing
to shop around, he will find credit cards with reduced interest
rates, but if he wants to obtain a card with full service and
lower credit standards, the basic rate is a higher rate
established across the market.
Similar comparisons can be made with other industries.
Consider the movie industry. Depending upon the city, movie
tickets for adults for feature films at prime times are usually
identical. In Washington, AMC, Cineplex Odeon, and Loews
theaters all charge the same rate -- $6.50.
The comparison also holds for gasoline prices. The price of
an unleaded gallon of gasoline at Mobil, Chevron, Exxon, Texaco,
and Shell service stations in the Washington area costs virtually
the same. Is this collusion and price-fixing? No. Gas stations
tend to price similarly in a competitive market. Low-cost
providers attempt to steal market share through lower prices.
The same is true of the credit card industry. Low-cost credit
cards are now being offered by many banks for people who want
fewer services for a lower cost.
NOV 19 '91 10:12
TEL No.
Nov 18,91 15:09 P.02
Princeton University
Woodrow Wilson School
of Public and International Affairs
Princeton, New Jerney 08544
(609) 452-4825
Paul A. Volcker
Frederick H. Schulls
Class of 1951
Professor of International
Economic Policy
November 18, 1991
The Honorable Thomas Foley, Speaker of the House
U.S. House of Representatives
Washington, DC 20515
Dear Mr. Speaker,
I try to refrain from unsolicited advice about pending
legislation, but the idea of suddenly imposing by law a "cap" on
credit card interest rates really seems to me dangerous and
irresponsible. There are several reasons.
Quite apart from the merits of the particular issue, this
kind of legislative action, without a foundation of study or
analysis, is bound to raise the specter in the minds of many of
arbitrary and capricious intervention in markets. At a time of
substantial uncertainty about the aconomic situation generally,
the net result can only be to erode confidence in our economic
management and prospects rather than the reverse.
More specifically, lower interest rates on credit cards by
legislative fiat, however politically satisfying right now, will
likely have perverse results. Credit cards have been
aggressively marketed and losses through non-payment are rising.
One reaction to the imposed cap will be to put much stricter
limits on credit card usage and distribution. Whatever one might
think of that result in the long run, the immediate results, on
the eve of the Christmas season, are all too likely to add to
questions about the recovery.
I am reminded of the unfortunate results of the controls on
credit cards and some other forms of consumer credit imposed by
the Federal Reserve early in 1980 at the behest of the
Administration late in Mr. Carter's presidency. What was
intended as a mild restraint largely intended to carry a
political message--the importance of all Americans joining in the
attack on inflation--had a psychological reaction entirely out of
proportion to the intention. A sudden, unanticipated decline in
consumer spending contributed to a sharp drop in economic
activity.
NOV 19 '91 10:13
TEL No.
Nov 18.91 15:09 Nop.526 P.03
2.
There is a further, potentially more important, question
now. Many, many banks are struggling to maintain their soundness
and improve their profitability. They will need to raise large
amounts of capital to sustain and support their lending
generally. Surely, that effort will be set back by a sense that
Congress can and will arbitrarily curtail present sources of
profits.
I can well understand the sense of frustration that credit
card interest rates have little if at all reflected the general
decline in market interest rates. There are commonly long lags
in this area, but credit card competition does seem to focus
importantly on dimensions of the credit arrangements other than
interest rates.
In the circumstances, 1 would suggest that either the
regulators or respected outside investigators might be asked to
undertake a study for the benefit of the Congress and the public
concerning the economics and the competitive forces in the credit
card industry. I know the Federal Reserve has undertaken such
studies in the past that could be updated.
Then, you would have a base for & considered legislative
reaction next year. I would hope such action, if needed at all,
might involve improving competitive market processes rather than
imposing arbitrary limits.
Sincerely,
are
CO: Hon. Henry B. Gonzalez
Hon. Chalmers Wiley
NOV 19 '91 10:13
P.6/6
November 18. 1991
Dear Senator Dole:
We the undersigned. former Chairmen of the President's Council of Economic Advisers, strongly urge you
to reject proposed legislation to cap consumer credit card interest rates. If such legislation were to become law, it
would have severe deleterious consequences for the economy.
First, such legislation would inevitably result in the removal of credit availability to millions of American
households. This in turn would reduce consumer spending in an already quite sluggish economy, threatening
another recession.
Second, the legislation would be regressive. Those who would lose their credit availability are precisely
those who would not have had an opportunity to establish long and strong credit histories and in general the least
fortunate in our seciety.
Third, such legisiation would weaken the financial system at $ time when the availability of credit it
provides is a serious concern.
In conclusion, legislation to cap consumer credit card interest rates is not only unnecessary, but also
dangerous. Recall that the credit controls imposed in 1980 were viewed by many as E contributor to the recession
which quickly followed their imposition. We urge you, in the national interest, to reject such legislation.
Sincerely,
Martin Feldstein
Martin Feldstein
Paul McCracken
Charles R. Saluttage
Raymond Saulnier
Charles Schultze
Herbert Stem
Beryl W. SpAinkel
Herbert Stein
Mdahh Murray L. Weidenbaum
The Honorable Robert J. Dole
The Honorable George J. Mitchell
Minority Leader of The Senate
Majority of the Senate
141 Senate Hart Office Bldg.
176 Russell Senate Office Bidg.
Washington. D. C. 20510-1601
Washington. D. C. 20510-1902
The Honorable Thomas S. Foley
The Honorable Robert H. Michal
Speaker of the House
Minority Leader of the House
1201 Longworth House Office Bldg.
2112 Rayburn House Office Bldg.
Washington. D. C 20515-4705
Washington. D. C. 20515-1318
THE WHITE HOUSE
WASHINGTON
DATE: 11/16/91
TO:
THE CHIEF OF STAFF
FROM: PHILLIP D. BRADY
Assistant to the President and
Staff Secretary
The attached has been forwarded
to the President
THE WHITE HOUSE
WASHINGTON
31 NOV 14 P6: 08
November 14, 1991
MEMORANDUM FOR THE PRESIDENT
4
THROUGH:
DAVID DEMAREST, ASSISTANT TO THE PRESIDENT FOR
COMMUNICATIONS
BK
FROM:
BOBBIE KILBERG, DEPUTY ASSISTANT TO THE
PRESIDENT FOR PUBLIC LIAISON
JEFF VOGT ASSOCIATE DIRECTOR,
OFFICE OF PUBLIC LIAISON
SUBJECT:
ABA FOLLOW UP ON MEETING WITH BANKING LEADERS ON
OCTOBER 17, 1991
Attached for your information is an article that recently ran in
the American Bankers Association's weekly publication. ABA
Bankers Weekly, has a circulation of approximately 28,000 bankers
and other financial industry leaders.
ABA Bankers Weekly
October 29, 1991
Meeting the president
Alan Tubbs' invitation to meet
ond trip to the White House. He
with President Bush at the White
House two weeks ago under-
ABA
was there in 1984 as part of an
ABA delegation to meet with
scores the respect afforded ABA
Ronald Reagan on the agricul-
and our industry in the Nation's
Capital.
IN
tural crisis. The funny thing is, as
Alan told President Bush, the dis-
Alan was the only repre-
cussion in 1984 centered on some
sentative of a bank trade associa-
ACTION
of the very same banking issues
tion to be at the meeting. Actually,
- falling real-estate markets,
most of the other 10 bankers
market overreaction and bank
present at the meeting also have
Donald G. Ogilvie
competitiveness in general. Alan
ABA leadership roles in addition
ABA Executive Vice President
told President Bush that he hoped
to their bank duties. Alan, in his
some of the confidence bankers
capacity as ABA president and
last week in ABA Banker's Week-
had built up in the Midwest since
community banker, provided the
ly, Alan thanked the president for
1984 would soon be experienced
perspective of a broad cross-sec-
his support of a number of ABA's
by all bankers, particularly those
tion of U.S. banks.
recommendations in his recently
on the two coasts.
The meeting came at a critical-
announced program to increase
After the meeting Alan spoke
ly important time for our industry.
credit. These included a move
to the press outside the White
Alan told the president of the
toward tighter bankruptcy laws,
House and was quoted in The
deep concerns our industry has
relief for lenders from environ-
Wall Street Journal and the
about the possibility of a negative
mental liability and support for
American Banker.
banking bill. He urged the presi-
raising the $50,000 appraisal
This was the second time an
dent to indicate that he would
threshold to $100,000 by all
ABA officer has met with Presi-
veto the bill if it reverses banks'
banking regulators.
dent Bush at the White House.
gains on products and services or
Alan also told the president
Two years ago, Kelly Holthus,
otherwise makes our industry less
that any increase in banks' de-
then ABA president-elect, went to
competitive.
posit-insurance premiums above
the White House to give ABA's
Alan told us that the president
the current 23-cent rate could af
perspective on the thrift-rescue
expressed his concerns about the
fect credit availability and con-
legislation, which the president
progress of the economic re-
tribute to more bank failures Last
was about to introduce
covery. He wondered if regula-
week the FDIC Board of Direc-
We re pleased that the presi-
tory practices were inhibiting the
tors decided not to raise banks'
dent seeks these forums with
flow of credit. And he asked for
premiums on January 1.
bankers. ABA will always be
the bankers' feedback on these
Besides the president, the
ready to speak with Washington's
issues as well as on the banking
secretary of the Treasury,
policy-makers on issues that af-
bill before Congress. Alan said
Nicholas Brady, also attended the
fect our industry. By sticking with
that the president was obviously
meeting, along with Michael
the legislative process for the past
eager to hear from the bankers.
Boskin, chairman of the
10 months, we've been able to
"He was listening," said Alan,
President's Council of Economic
make our industry's positions
"and he was concerned.
Advisors, Budget Director
clear to everyone in Washington.
Alan told the president that
Richard Darman, Deputy
That's why we're here, and we'll
while qualified borrowers were
Treasury Secretary John Robson
continue to use every forum
getting loans, a "credit caution"
and other White House staff.
available to speak out on behalf of
was clearly evident. As reported
This was actually Alan's sec-
the entire banking industry.
NOV 18 '91 16:24
P.2/2
TALKING POINTS ON CREDIT CARD RATE CAP
A rate cap is elitist and would cut off or reduce credit
availability to middle- and low-income consumers
--
Credit card companies would respond to a cap by
revoking the cards of middle- and lower-income
cardholders -- the consumers who need credit most
--
Estimates are that up to half the 120 million Visa and
Mastercard holders would lose their cards
--
At the same time, if enacted, we would go back 30 years
when only high-income cardholders had credit cards.
Consumer credit would decline, making the credit crunch
worse and further reducing economic growth
--
Estimates of the reduction in consumer credit
outstanding range up to $75 billion
---
Retail sales would be the hardest hit, because 50% to
70% are made on credit cards
This legislation is not what we need going into the
Christmas season.
TALKING POINTS ON BANKING BILL
RTC
Funding:
Current Status:
$0 available to RTC
RTC has requested $80 billion more for
losses
House:
Banking Subcommittee has voted $20 billion
authorization plus additional $60 billion pay-as-
you-go
Senate:
No bill
Reforms:
House:
Restructuring along lines Administration proposed
but with some problems
Senate:
No bill
Banking
Funding:
Current Status:
$2 billion in BIF
Administration request for additional
$25 billion in loss funds plus $45
billion for working capital
Reforms:
Administration request: Regulatory reform (prompt
corrective action)
Deposit insurance limits
Interstate branching nationwide
Glass-Steagall repeal
Commercial ownership of banks
Current Status:
House:
Narrow bill likely -- regulatory reform only
Senate:
Debating on floor right now bill with
regulatory reform and interstate branching;
may die on floor
CHART
1
TOP 100 CREDIT CARD ISSUERS
End of 1990
Credit Outstanding
Number of Accounts
Amount
Percent of
Number
Percent of
($ billions)
all issuers
(millions)
all issuers
Citicorp
$31.5
12.7%
20.4
3.3%
Sears Roebuck and Co.
$17.5
7.1%
45.3
7.4%
GECC Retailer Financial Services
$8.6
3.5%
31.0
5.1%
Chase Manhattan Bank USA
$8.5
3.4%
9.0
1.5%
Central Atlantic Bank (was MBNA)
$6.9
2.8%
4.8
0.8%
Amer. Express Centurion Bk (Optima card)
$6.8
2.8%
2.2
0.4%
First Chicago Corp.
$6.5
2.6%
6.6
1.1%
Greenwood Trust Co. (Discover)
$6.4
2.6%
21.6
3.5%
Bank of America
$5.9
2.4%
4.7
0.8%
J.C. Penney Co.
$4.6
1.9%
28.0
4.6%
18.0
2.9%
American Express
$4.6
1.9%
The Bank of New York (Deleware)
$4.2
1.7%
4.3
0.7%
Manufacturers Hanover Trust Co.
$3.6
1.5%
2.5
0.4%
Wells Fargo Bank
$3.6
1.5%
3.0
0.5%
FCC National Bk, Wilmington, De
$3.6
1.4%
3.6
0.6%
Associates National Bank
$2.6
1.1%
2.7
0.4%
Shell Oil Corp.
$2.5
1.0%
7.7
1.3%
Household Bank, N.A.
$2.3
0.9%
2.6
0.4%
The May Department Stores Co.
$2.2
0.9%
33.0
5.4%
NCNB Corp.
$2.2
0.9%
2.0
0.3%
$2.1
0.8%
2.3
0.4%
Banc One Corp.
Chemical Bank
$2.0
0.8%
1.6
0.3%
CoreStates Financial Corp.
$2.0
0.8%
1.4
0.2%
Chevron Co. U.S.A.
$2.0
0.8%
6.5
1.1%
First Deposit National Bank
$1.9
0.8%
1.0
0.2%
Exxon Co. U.S.A.
$1.8
0.7%
7.3
1.2%
Texaco Inc.
$1.8
0.7%
9.2
1.5%
Federated Allied Credit Services
$1.8
0.7%
26.0
4.3%
Security Pacific Bank Corp.
$1.8
0.7%
1.6
0.3%
First USA Bank
$1.7
0.7%
1.7
0.3%
USAA Federal Savings Bank
$1.6
0.7%
1.5
0.2%
Mobil Oil Corp.
$1.6
0.7%
8.0
1.3%
R.H. Macy's Inc.
$1.6
0.6%
12:2
2.0%
Seattle-First National Bank
$1.5
0.6%
1.5
0.2%
Signet Bank
$1.5
0.6%
1.2
0.2%
Colonial National Bank (Advanta Corp)
$1.4
0.6%
1.7
0.3%
$1.4
0.6%
2.0
0.3%
First Interstate Bankcorp
Unocal Corp.
$1.4
0.6%
4.3
0.7%
Seafirst Bank
$1.3
0.5%
1.2
0.2%
First Atlanta
$1.3
0.5%
1.5
0.2%
Marine Midland Bank
$1.3
0.5%
1.5
0.2%
Norwest Corp.
$1.3
0.5%
1.5
0.2%
C&S/Sovran
$1.2
0.5%
1.7
0.3%
3.3
0.5%
Citicorp Retail Services
$1.2
0.5%
First National Bank of Nebraska
$1.2
0.5%
2.2
0.4%
First Wachovia Corp.
$1.2
0.5%
1.3
0.2%
Dayton Hudson Corp.
$1.1
0.5%
13.9
2.3%
Chevy Chase Federal Savings Bank
$1.1
0.5%
0.8
0.1%
National City Corp.
$1.1
0.4%
1.2
0.2%
Barclay's Bank
$1.0
0.4%
1.9
0.3%
BP America
$1.0
0.4%
3.5
0.6%
Household Retail Services
$0.9
0.4%
2.0
0.3%
First Data Resources
$0.9
0.4%
6.5
1.1%
Total System Services
$0.9
0.4%
2.1
0.3%
Diners Club / Carte Blanche
$0.9
0.4%
1.8
0.3%
Barnett Banks
$0.9
0.4%
0.9
0.1%
Southeast Bank
$0.9
0.4%
1.0
0.2%
Spiegel Inc.
$0.9
0.3%
1.7
0.3%
First Bank Systems
$0.9
0.3%
0.9
0.1%
Sears Payment Systems
$0.9
0.3%
1.8
0.3%
PNC Financial Corp.
$0.8
0.3%
0.9
0.2%
Hamilton Bank, Lancaster, Pa.
$0.8
0.3%
0.8
0.1%
Mellon Bank Corp.
$0.8
0.3%
1.0
0.2%
Rock Mountain BankCard Systems
$0.8
0.3%
1.0
0.2%
Harris Trust & Savings Bank
$0.8
0.3%
0.9
0.1%
First Union Corp.
$0.8
0.3%
0.8
0.1%
Dillard Department Stores
$0.7
0.3%
6.2
1.0%
Belk Stores
$0.7
0.3%
3.5
0.6%
$0.7
0.3%
0.7
0.1%
Suntrust Banks
Carter Hawley Hale Stores Inc.
$0.7
0.3%
7.2
1.2%
BankOhio National
$0.7
0.3%
0.8
0.1%
Amoco Corp.
$0.7
0.3%
9.0
1.5%
First Omni Bank
$0.7
0.3%
0.7
0.1%
U.S. Bancorp
$0.7
0.3%
0.5
0.1%
Phillips Petroleum Co.
$0.6
0.3%
2.7
0.4%
World Financial Network National Bank
$0.6
0.3%
0.6
0.1%
Crestar Bank
$0.6
0.2%
0.4
0.1%
Shawmut National Corp.
$0.6
0.2%
0.6
0.1%
Society Corp.
$0.6
0.2%
0.7
0.1%
People's Bank
$0.6
0.2%
0.5
0.1%
Mercantile Stores
$0.6
0.2%
3.0
0.5%
Valley National Corp.
$0.6
0.2%
0.4
0.1%
The Limited Inc.
$0.6
0.2%
8.5
1.4%
Meridian Bancorp
$0.6
0.2%
0.6
0.1%
JC Penney National Bank
$0.5
0.2%
0.6
0.1%
Sun Refining & Marketing Co.
$0.5
0.2%
2.3
0.4%
Nordstrom Inc.
$0.5
0.2%
4.4
0.7%
Comerica Bank
$0.5
0.2%
0.6
0.1%
Security Bankcorp
$0.5
0.2%
0.8
0.1%
First Wisconsin
$0.5
0.2%
1.1
0.2%
BancSystems Inc.
$0.5
0.2%
0.3
0.1%
Banco Popular de Puerto Rico
$0.5
0.2%
0.0
0.0%
$0.5
0.2%
0.5
0.1%
Firstar Corp.
State Street Boston Corp.
$0.4
0.2%
0.5
0.1%
Fleet/Norstar Financial Group
$0.4
0.2%
0.7
0.1%
National Westminster Bank USA
$0.4
0.2%
0.6
0.1%
Central Bank Denver NA
$0.4
0.2%
0.0
0.0%
Mercantile Bancorporation
$0.4
0.2%
0.6
0.1%
Central Fidelity Bank
$0.4
0.2%
0.4
0.1%
First National Bank of Commerce
$0.4
0.2%
0.0
0.0%
Many of the figures in this table are approximations. The figures were
gathered or derived from various issues of American Banker, Credit Card
News, and The Nilson Report and Card Industry Directory, 1991 edition.
How Bank Credit Cards Compare
Low-Rate Cards
Banks or savings institutions with low interest rates offering bank credit cards nationally.
INSTITUTION
INTEREST RATE
ANNUAL FEE
GRACE DAYS
Simmons First Natl, Pine Bluff, Ark.
9.50%1
$25
25
Arkansas Federal Savings, Little Rock
9.50'
35
02
Wachovia Bank, Wilmington, Del.
10.40¹
39
25
Prime Bank, Elkhart, Ind.
12.90
20
02
AFBA Industrial, Alexandria, Va.
13.00¹
0
25
Bank of New York, Newark, Del.
13.401
0
03
Fidelity National, Atlanta
13.701
20
25
USAA Federal Savings, Tulsa, Okla.
13.75¹
0
25
Bank of Montana, Great Falls, Mont.
13.75¹
19
25
Bank One Wisconsin, Milwaukee
13.90
25
25
Big-Name Cards
What the 10 largest U.S. bank-card issuers are offering on their standard cards.
INSTITUTION
INTEREST RATE
ANNUAL FEE
GRACE DAYS
Citicorp
19.80%4
$20
30
Greenwood Trust/Discover
19.80
0
25
Chase Manhattan
19.804
20⁷
30
MBNA America
19.804
20
25
Bank of America
19.804
18
25
First Chicago
19.804
20
25
Centurion/Optima
16.251.5,6
15
25
Bank of New York
16.98¹.⁴
18⁷
30
Manufacturers Hanover
19.80⁴
20
25
Household Bank
21.004
0
25
CHART 3
NOTE: Rates shown are for regular cards, not premium cards or cards requiring a security deposit.
Though not listed, some cards may be through affiliate or agent banks. Temporary or promotional
interest rates are excluded. Grace period (interest free period for cardholders paying purchase balance
in full each month) is calculated from the date of billing unless footnoted.
Variable rate 2Interest charged from date of posting 3Interest charged from date of purchase
*Special lower rate available on some cards SHigher rate charged for cash advances
BRelationship required ⁷Fee waived under special conditions
Source: RAM Research Bankcard Update/Barometer
NOTICE The Information furnished herein by Visa US A Inc.
- CONFIDENTIAL and is distributed to cord ISSUING
members for their Brelushis wee in evaluating their
Visa programs and shall not be duplicated. pub.
fished or disclosed in whole or in part without the
prior **press written parmission of Visa US A.
VISA U.S.A.
CARD PROFITABILITY TRENDS
(RETURN ON AVERAGE OUTSTANDINGS)
E TE. =
26
TOTAL INCOME
24
21.0
22
18.8
20
OPERATING EXPENSE AND OVERHEAD
4.6
18
CHARGE-OFFS
16
PERCENT
7.2
14
4.9
12
10
1.8
COST OF FUNDS
8
8.0
6
7.4
4
3.5
2
NET INCOME AFTER ALL EXPENSES
24
0
h CHART
-2
-4
9/78
3/79
3/80
3/81
3/82
3/83
3/84
3/85
3/86
3/87
3/88
3/89
3/90
3/91
QUARTER ENDED
Credit Card Delinquency Rate
Delinquencies as percent of average outstanding
6.5
VISA Issuers
6
5.5
5
4.5
4
3.5
3
2.5
2
1983
1984
1985
1986
1987
1988
1989
1990
1991
Source: VISA U.S.A.
CHART S
Potential Impact of a Credit Card Usury Ceiling
(Excludes Securitizations--On Balance Sheet Impact Only. Dollars In Millions)
Top Three
Chase
All US Bank
Citibank
Citibank
Citibank
Citibank
Manhattan
Holding
Issuer
South Dakota
Maryland
Nevada
Card Banks
USA
MBNA
Companies
Credit Card Outstandings
12/31/90
$8,194
$3,255
$4,602
$16,051
$10,399
$3,240
6/30/91
6,379
3,520
3,689
NOV 15 '91 10:16 FIRST BOSTON NYC
13,588
9,115
3,005
102,908 (1)
Average
7,286
3,388
4,145
14,820
9,757
3,122
Credit Card Interest
Income (annualized)
1,210
552
954
2,717
1,732
494
Implied Interest Rate
16.61%
16.30%
23.02%
18.33%
17.75%
15.81%
17.90% (2)
Usury Ceiling
14.00%
14.00%
14.00%
14.00%
14.00%
14.00%
14.00%
Forced Reduction
2.61%
2.30%
9.02%
4.33%
3.75%
1.81%
3.90%
Pre-tax Impact
190
78
374
642
366
56
4,013
After-Tax Impact (34%)
125
51
247
424
242
.37
2,649
(1) Does not include credit card assets which i) have been securitized, ii) are owned by
a thrift, or iii) owned by a bank that is not part of a bank holding company.
(2) Based on average of companies presented.
P.2/2
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
01. Memo
From Roger Porter to John Sununu
11/7/91
P/5
Re: Banking Legislation Saga (1 pp.)
Collection:
Record Group:
Bush Presidential Records
Office:
Chief of Staff, White House Office of
Open on Expiration of PRA
Series:
Sununu, John, Files
(Document Follows)
Subseries:
Issues Files
By SP (NLGB) on 10/28/05
WHORM Cat.:
File Location:
Banking Issues 1991
Date Closed:
1/3/2005
OA/ID Number:
29136-002
FOIA/SYS Case #:
1998-0004-F[2]
Appeal Case #:
Re-review Case #:
2005-0426-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act [44 U.S.C. 2204(a)]
Freedom of Information Act [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
THE WHITE HOUSE
WASHINGTON
November 7, 1991
MEMORANDUM FOR GOVERNOR SUNUNU
ROGER B. PORTER RBP
THE CHIEF of STAFF
FROM:
has seen
SUBJECT:
Banking Legislation Saga
Bob Glauber, who has been managing the day-to-day
negotiations on the Administration's banking reform proposals,
reports that following the defeat of the banking bill on the
House floor the Banking Committee has marked up a narrow bill
that it will take to the Rules Committee either today or next
Tuesday.
The narrow bill includes a $70 billion recapitalization
provision for the Bank Insurance Fund (which is widely viewed
as necessary) coupled with regulatory reforms calling for early
action by regulators before a bank becomes insolvent.
The rule will likely include an amendment permitting
interstate branching of the opt-out variety. A state could
take itself out over a three year period. This version of
interstate branching passed the House 366-4 when the bill was
on the floor earlier this week.
There is also some sentiment for giving the insurance
agents something. They want a rollback of the Citicorp V.
Delaware decision that permits a bank to form a state chartered
subsidiary bank and sell insurance by mail across the country,
notwithstanding that some states don't permit banks to sell
insurance. This is the highest priority of the insurance
agents.
They also want a rollback of the current provisions that
allow national banks to sell insurance in any state in towns
with populations under 5,000 inhabitants.
There are also indications that Chairman Dingell wants to
give the securities industry a moratorium on Section 20 orders
that allow major banks to underwrite securities. If this
moratorium were enacted no order could be issued giving banks
the right to underwrite securities.
Glauber indicated that the Rules Committee could act today
and take it to the floor tomorrow or taking it to the Rules
Committee on Tuesday and to the floor on Wednesday. He advised
that the situation remains very fluid and estimated the chances
of getting both interstate branching and the insurance changes
at roughly 50-50.
AC/TM
THE WHITE HOUSE
WASHINGTON
October 11, 1991
MEMORANDUM FOR GOVERNOR SUNUNU
DIRECTOR DARMAN
CHAIRMAN BOSKIN
ASSISTANT TO THE PRESIDENT PORTER
ASSISTANT TO THE PRESIDENT McCLURE
From:
Executive Secretary DAN
J. French Hill
Economic Policy Council
Subject:
Briefing on the Legislative Status of the
President's Banking Reform Proposal
You have requested that Treasury officials brief you on the
legislative status of the President's banking reform proposal.
You also asked which amendments the Administration should oppose
that were added as the bill has moved through the committee
process and what, if any, pay-as-you-go implications may exist.
Treasury Under Secretary Glauber and Assistant Secretary Jay
Powell are happy to provide this briefing. I will have my office
arrange this briefing at a mutually convenient time for you or a
member of your staff.
ALSO ATTENDING:
JOHN DUGGAN, DAS (TREASURY)
FINANCIAL INSTITUTIONS
Withdrawal/Redaction Sheet
(George Bush Library)
Document No.
Subject/Title of Document
Date
Restriction
Class.
and Type
02. Report
Status Report on Banking Reform Legislation (15 pp.)
n.d.
P/5
Collection:
Record Group:
Bush Presidential Records
Office:
Chief of Staff, White House Office of
Open on Expiration of PRA
Series:
Sununu, John, Files
(Document Follows)
Subseries:
Issues Files
WHORM Cat.:
By SP (NLGB) on 10/28/05
File Location:
Banking Issues 1991
Date Closed:
1/3/2005
OA/ID Number:
29136-002
FOIA/SYS Case #:
1998-0004-F[2]
Appeal Case #:
Re-review Case #:
2005-0426-S
Appeal Disposition:
P-2/P-5 Review Case #:
Disposition Date:
AR Case #:
MR Case #:
AR Disposition:
MR Disposition:
AR Disposition Date:
MR Disposition Date:
RESTRICTION CODES
Presidential Records Act - [44 U.S.C. 2204(a)]
Freedom of Information Act - - [5 U.S.C. 552(b)]
P-1 National Security Classified Information [(a)(1) of the PRA]
(b)(1) National security classified information [(b)(1) of the FOIA]
P-2 Relating to the appointment to Federal office [(a)(2) of the PRA]
(b)(2) Release would disclose internal personnel rules and practices of an
P-3 Release would violate a Federal statute [(a)(3) of the PRA]
agency [(b)(2) of the FOIA]
P-4 Release would disclose trade secrets or confidential commercial or
(b)(3) Release would violate a Federal statute [(b)(3) of the FOIA]
financial information [(a)(4) of the PRA]
(b)(4) Release would disclose trade secrets or confidential or financial
P-5 Release would disclose confidential advice between the President
information [(b)(4) of the FOIA]
and his advisors, or between such advisors [a)(5) of the PRA]
(b)(6) Release would constitute a clearly unwarranted invasion of
P-6 Release would constitute a clearly unwarranted invasion of
personal privacy [(b)(6) of the FOIA]
personal privacy [(a)(6) of the PRA]
(b)(7) Release would disclose information compiled for law enforcement
purposes [(b)(7) of the FOIA]
C. Closed in accordance with restrictions contained in donor's deed of
(b)(8) Release would disclose information concerning the regulation of
gift.
financial institutions [(b)(8) of the FOIA]
(b)(9) Release would disclose geological or geophysical information
PRM. Removed as a personal record misfile.
STATUS REPORT
ON
BANKING REFORM LEGISLATION
For Internal Use Only: Not for Distribution
PROCEDURAL STATUS
Committee action completed on comprehensive bill
-
One committee in Senate (Banking)
-
Five committees in House (Banking, Energy and Commerce, Ways and Means,
Agriculture, and Judiciary)
Senate bill awaiting floor action
-
Leadership fears contentious floor debate because of narrow vote in Committee
(12-9)
-
Hoping key controversial issues can be worked out in advance of debate
House bill awaiting Rules Committee action
-
Bitter jurisdictional fight between Banking and Energy and Commerce
-
Leadership hoping for compromise before adopting Rule or going to floor
Time running out for comprehensive legislation if Congress hopes to adjourn by
Thanksgiving
2
ISSUES RESOLVED FROM ADMINISTRATION'S ORIGINAL PROPOSAL
Administration Proposals Adopted
$25 billion recapitalization of Bank Insurance Fund with industry funds
Risk-based deposit insurance premiums
New supervisory system of prompt corrective action and early resolution of troubled banks
Rollback of "too-big-to-fail" policy (routine protection of uninsured deposits in bank failures)
Limits on brokered deposits
Limits on "pass-through" deposit insurance for institutional investors
Supplemental disclosures of market value of assets
Limits on direct investment of insured deposits in riskier assets like stocks and commercial real
estate
Auditing reforms
Mandatory annual bank examinations
No deposit assessments on deposits in foreign branches of U.S. banks
Administration Proposals Rejected
Limits on individual deposit insurance coverage
Regulatory restructuring
3
ISSUES OUTSTANDING
Administration Proposals
Interstate Branching
Banking and Securities (Glass-Steagall)
Banking and Insurance
Banking and Commerce
Other Issues
"Core banking"
"Independence" of OCC and OTS from Administration
"Consumer" Issues
4
INTERSTATE BRANCHING
Administration proposed nationwide banking and branching
House Banking agreed
Senate Banking generally agreed but would allow a state to "opt out" of new system if statute is
passed within 3 years
Strong support for interstate branching from large and regional banks, but strong opposition from
small banks
Emerging compromise in Senate and House
Three-year state "opt-out" as in Senate bill
Requirement that banks can only establish interstate branches by acquiring local banks, not
by establishing branches from scratch
Compromise could be acceptable to the Administration
5
NEW SECURITIES ACTIVITIES FOR BANKS
Administration proposed full securities activities for highly capitalized banks (Glass-Steagall
repeal)
Securities activities must be in separate affiliates
Safeguards or "firewalls" set by Fed
Senate Banking generally agreed, but by close vote
House Banking agreed but with rigid firewalls set in statute
House Energy and Commerce agreed but with even higher firewalls and overlapping role for SEC
as firewall rulemaker and enforcer
Administration has strongly opposed Energy and Commerce bill
Banks extremely apprehensive about Energy and Commerce version and fear it will prevail in
conference
Banks would prefer loopholes in existing law to Energy and Commerce version
Acceptable compromise still possible
6
NEW INSURANCE ACTIVITIES FOR BANKS
Administration proposed that:
Strong banks be allowed to affiliate with insurance underwriters
State law should govern the insurance agency activities of all banks
All committees have essentially rejected insurance underwriting for banks
House Banking and Energy and Commerce have rolled back existing insurance agency activities
for banks
Senate Banking has given limited new agency activities to some banks, but has rolled back other
activities even more than House
Banks bitterly oppose insurance rollbacks; would prefer to strike whole title of bill dealing with
new bank activities
But possible that some insurance rollbacks would still be attached to a narrower bill
Insurance agents strongly support current versions, but fear banks' effort to strike whole title
Compromise possible, but difficult
-
Would give some new agency activities to banks, but roll back some existing activities
7
BANKING AND COMMERCE
Administration proposed allowing commercial firms to own banks, provided they maintain strong
bank capital levels
The purpose is to allow more capital to flow into the banking system to absorb losses
ahead of the taxpayer
House Banking agreed, but Senate Banking and House Energy and Commerce strongly disagreed
Strong opposition from small banks, insurance companies, and others, claiming it will lead to
concentration of resources (but really objecting to increased competition)
Uphill fight for inclusion in final legislation
Better chance for allowing commercial firms to purchase failing banks where there would be clear
taxpayer savings
Good issue for Republicans, because it makes Democrats choose between special interests
and the taxpayer
If amendment fails, Congress will be more accountable if taxpayer ends up paying for
failed banks
8
CORE BANK
Radical proposal to shift massive amounts of lending from insured banks to other parts of
financial markets (as much as $600-800 billion)
-
Aimed at large lending like commercial real estate
-
Led by Cong. Schumer and partisan Democrats in House
No guarantee that financial markets will pick up slack for good commercial real estate loans
Strongly opposed by banks and real estate lobbies as a guarantee for future credit crunches
Democrats will argue that without core bank to protect the taxpayer, the banking bill is "just like
S&L deregulation"
Unlikely to be enacted, but good partisan issue for Democrats to lose so they can blame later
problems on Republicans
May be possible to work out favorable compromise with Schumer to attract support from a block
of House members
9
"INDEPENDENCE" OF OCC AND OTS FROM ADMINISTRATION
Sen. Riegle narrowly failed in Committee to remove the Office of the Comptroller of the
Currency (OCC) and the Office of Thrift Supervision (OTS) from Treasury
This would have removed the Administration from any direct influence over banking
policy
Senate Democrats could renew this effort to try to blame banking problems on "improper
Administration influence"
They may try to use the Clarke nomination as further evidence of this problem
An amendment like this can be beaten on the Senate floor, but only with very hard work
10
"CONSUMER" ISSUES
Senate Banking has added a number of onerous "consumer" provisions to the banking legislation
Banks required to cash government checks held by non-customers
Banks required to offer low-cost checking accounts to low-income customers
-
Banks required to give prior notice of branch closings to give "neighborhood and political"
groups the opportunity to protest
Similar provisions likely to be offered on House floor
Bankers strongly opposed, and again, would rather have a narrow bill than one with onerous
consumer provisions
But these provisions could be attached even to a narrow bill, especially one that has interstate
branching
A new Fed study to be released this week will suggest patterns of discrimination by banks against
minority lenders
-
This will only fan the flames for consumer amendments
11
NEW ESTIMATES OF BANK INSURANCE FUND LOSSES
The Administration has requested $25 billion to pay for anticipated losses of the Bank Insurance
Fund (BIF)
This request was based on estimates by FDIC and OMB
Seidman announced at his departure that the number could be higher if the economic recovery is
weak, and directed his staff to make new estimates
A substantially larger number will raise questions about whether the banking industry can bear the
entire cost
If there is a clear perception that the taxpayer will bear part of the cost, Democrats will try to pin
blame on Administration
This perception would also make it more difficult to pass any legislation designed to make
banks more profitable
12
"PAY-AS-YOU-GO" ISSUES
There are some "PAYGO" issues in the various banking bills, but none as serious as the Kennedy
RTC funding amendment
OMB has prepared a draft assessment of these PAYGO issues
13
LEGISLATIVE OUTLOOK
The prospects for a narrower bill are increasing
-
Time is running out (only 5 1/2 weeks until Thanksgiving)
-
Proponents of our bill are convinced that a Dingell-led conference will produce a bad
comprehensive bill
Banks now support a narrower bill (including interstate but no new activities), while
insurance agents are strongly supporting comprehensive legislation
-
Ugly mood in Congress with RTC refunding, Salomon, BCCI, new BIF numbers
(perhaps), and unrelated issues
But good comprehensive legislation still possible if compromises reached quickly
Parts of Congressional leadership still sensitive to allegation that a narrow bill will not fix
the problem
-
Potentially acceptable branching compromise is just about completed
-
Efforts underway to broker insurance compromise
-
Dingell and Gonzalez may soon reach a securities compromise, which could be further
improved in conference
Some chance for commercial ownership of failing banks
14
THREE REMAINING OBJECTIVES
1.
Final Action by Congress before Adjournment
Can't afford to put off comprehensive reform until election year, which will cause bad
comprehensive bill
-
Don't want to address BIF recapitalization issues in an election year
-
A narrow bill (if it includes interstate) is better than putting off BIF refunding until next
year
2.
Achieve as Much Comprehensive Reform as Possible
-
Keep pressure on Congress to fix problem, not just throw money at it
-
Try to achieve compromises quickly
-
At all cost, hold on to interstate branching, which will be significant Administration
victory
3.
Hold Congress Responsible If Comprehensive Legislation Not Passed
15
JUN 28 '91 14:46
TO WHITE-HOUS
PAGE. 002
CONGRESSIONAL
CONTACT
LEGISLATIVE ALERT! 0
JUNE 18, 1991
NAHB CALL TO ACTION
THE CHIEF of STAFF
has seen
National
CONTACT YOUR SENATORS BEFORE
Association
SENATE CONFIRMATION HEARINGS
of Home
Builders
ON ROBERT CLARKE'S REAPPOINTMENT
AS COMPTROLLER OF THE CURRENCY
Government
Affairs
Division
The reappointment of Robert L. Clarke as Comptroller
*
of the Currency is going to be considered by the Senate
Committee on Banking, Housing, and Urban Affairs this
*
*
*
summer. The Committee must act on Mr. Clarke's
15th & M Streets, N.W.
*
reappointment, and forward its recommendation to the
*
full Senate for a vote. Mr. Clarke cannot serve
Washington, D.C.
*
another five year term without Senate approval.
*
Mr. Clarke's directive to national banks has
*
20005
*
contributed to the severe credit crunch. This should
*
(202) 822-0470
*
be raised by Senators during the confirmation hearings.
#
(800) 368-5242
*
ext. 470
WHAT YOU SHOULD DO:
Write your Senators to let him or her know what your personal
experience has been in trying to deal with the ongoing credit
crunch. If you have found lenders increasingly unwilling to make
even prudently underwritten loans -- especially due to
overzealous regulation -- let your Senators know.
If one or both of your Senators serve on the Senate Banking
Committee, ask him or her to raise your situation with
Comptroller of the Currency Clarke during the Committee's
hearings on Mr. Clarke's reappointment. Request that your
Senator(s) question Mr. Clarke on whether his Office has taken
any steps in recent weeks to alleviate the credit crunch, and if
not, what actions he plans to take in the future. If Mr. Clarke is
not willing to do this, then -- as an individual, since NAHB has no
direct policy on Mr. Clarke's confirmation - you should ask your
Senator to consider opposing his confirmation.
Legislative Alert
June 18, 1991
Page Two
If your Senators do not serve on the Senate Banking Committee, ask
that they contact their colleagues on the Committee and share your
concerns with them prior to any Clarke confirmation hearings. Also ask
them to speak up on the Senate Floor on the severity of the credit
crunch.
BACKGROUND:
In February 1990, Comptroller of the Currency Robert L. Clarke wrote the
chief executives and directors of all national banks warning them of what his
Office perceived to be the perils of real estate lending (OCC Advisory attached).
Mr. Clarke's advisory directed banks under the OCC's regulatory authority "to
review carefully real estate lending activities and to initiate corrective action
promptly." His notice went on to state: "The OCC has been and will continue
to be aggressive in requiring the correction of such weaknesses. Examiners have
been instructed to recommend formal enforcement actions as appropriate."
Not surprisingly, Mr. Clarke's "OCC Advisory" set off alarms throughout the
nation's banking industry, leading lenders to virtually cease making any types of
real estate loans. Bank examiners have failed to distinguish between housing and
other types of lending, and this situation has inevitably led to the severe liquidity
crisis we are experiencing today in housing and in numerous other businesses.
After much prodding by NAHB and Congress, the four federal bank regulators
(the Office of the Comptroller of the Currency, the Federal Reserve, the Federal
Deposit Insurance Corporation, and the Office of Thrift Supervision) announced
on March 1, 1991, that they intended to launch a joint effort aimed at
encouraging lenders to once again start using common sense in making loans --
including real estate loans rather than shutting off lending for fear of incurring
the regulators' wrath.
However, it appears that the word regarding the regulators' March 1st
agreement is just not getting down to the examiners and banks in the field.
Further, of all the banking regulators, the Comptroller appears to be the least
enthusiastic in implementing these clarifications.
WHAT YOU SHOULD SAY:
Tell your Senators just what the credit crunch has done to your
business. Let them know how the drying up of credit throughout the
nation has taken its toll on your ability to make a living, as well as
depriving Americans of the ability to own a home. In addition to citing
the direct impact the crunch has had on you, be sure to point out how
many others, who would otherwise be working on your jobs, are now
out of work as a result of your inability to obtain credit.
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PAGE. 004
Legislative Alert
June 18, 1991
Page Three
Ask that this message be conveyed directly to Comptroller of the
Currency Robert L. Clarke during his confirmation hearings. Further, ask
that he be questioned as to how he intends to carry out the joint
regulators' March 1st commitment to encourage more housing and real
estate lending. If he isn't willing to do this, then -- as an individual --
you should ask your Senator to vote against Clarke's confirmation.
The Senate Banking Committee has not vet set a date for Mr. Clarke's
confirmation hearings because of investigations which are under way on
Mr. Clarke's financial activities. However, they are expected to take place
sometime in the summer: Because they may be scheduled unexpectedly, be sure
to get your message to your Senators as soon as possible. The Members of the
Senate Banking Committee are as follows:
DEMOCRATS
REPUBLICANS
Donald Riegle (MI), Chairman
Jake Garn (UT)
Alan Cranston (CA)
Alfonse D'Amato (NY)
Paul Sarbanes (MD)
Phil Gramm (TX)
Christopher Dodd (CT)
Christopher Bond (MO)
Alan Dixon (IL)
Connie Mack (FL)
Jim Sasser (TN)
William Roth (DE)
Terry Sanford (NC)
Pete Domenici (NM)
Richard Shelby (AL)
Nancy Kassebaum (KS)
Bob Graham (FL)
John H. Chafee (RI)
Timothy Wirth (CO)
John Kerry (MA)
Richard Bryan (NV)
JUN 28 '91 14:46
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PAGE 003
AL 90-2
OCC ADVISORY
Comptroller of the Currency
Administrator of National Banks
TO: Chief Executive Officers and Directors of All National Banks
SUBJECT: Real Estate Project and Development Lending by National Banks
Over the last year, OCC examination activity has revealed a significant
number of fundamental deficiencies and negative trends in national bank
real estate lending which require the immediate attention of bank
managements and Boards of Directors. Our observations fall into three
key areas:
Underwriting Standards - Basic lending principles have been ignored or
compromised to increase volume and achieve higher levels of interest and
fee income. The lack of borrower equity in real estate projects is a
critical part of this weakness.
Appraisals, Structuring and Documentation - Appraisal policies are
deficient. Too many banks have failed to obtain accurate, independent,
and timely appraisals. The absence of proper documentation has often
been excused by the need to "meet the competition." After origination,
timely reviews of projects and market conditions are not conducted.
Risk Identification - Certain practices have inhibited the ability of
lenders to properly categorize risk. These practices include:
continuing to accrue interest on loans where interest is being paid from
unadvanced loan amounts, despite substantial deterioration in the
condition of the project, the market or the borrower; advancing
increased interest carry without additional financial support or
justification; and operating with incomplete or nonexistent "in
substance" foreclosure policies.
Directors should instruct bank management to review carefully real
estate lending activities and to initiate corrective action promptly.
The OCC has been and will continue to be aggressive in requiring the
correction of such weaknesses. Examiners have been instructed to
recommend formal enforcement actions as appropriate.
The OCC is currently reviewing its specific guidance on real estate
lending (Banking Circulars 208, 225, the Comptroller's Handbook for
National Bank Examiners and other issuances on real estate topics).
Questions about any of these materials should be directed to your
supervisory office.
Nothing in this advisory or in OCC examination policy is intended to
discourage sound real estate (project and development) lending. Our
supervisory activity confirms that the vast majority of national banks
have not deviated from traditional high lending standards.
Robert L. Clarke
Comptroller of the Currency
Date: February 8, 1990
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04. 22. 91 04:53 PM *ABHC WASH DC
P02
ASSOCIATION of BANK HOLDING COMPANIES
THOMAS LUDLOW ASHLEY
PRESIDENT
730 FIFTEENTH STREET, N.W., WASHINGTON, D.C. 20005
(202) 393-1158
April 22, 1991
TO:
President Bush
FROM: Lud Ashley
RE:
Banking Reform Legislation
Congressman Doug Barnard showed me a copy of the letter he and Chuck Schumer
sent you and I'm afraid it reflects the historical fact that major banking reform legislation
never passes the Congress without White House initiative and persistence. That's because
banking legislation tends to be complex, contentious and politically unrewarding.
However, the letter also reflects that there is bipartisan support for Treasury's
comprehensive reform package if you get involved. Here's why I think you should.
While the most immediate concern of members of the House and Senate Banking
Committees is recapitalization of the Bank Insurance Fund without another hit on
taxpayers, there is as yet no consensus for a narrow bill that would be limited to recap and
repairing a wobbly deposit insurance system. On the contrary, despite press reports that
both Riegle and Gonzo are moving toward a de minimus bill, there are a number of
Democrats on both committees who understand that a safe, sound and competitive banking
system requires broad changes in the current bank regulatory structure. If you say the
word, a coalition of these Democrats and committee Republicans can deliver much of
Treasury's omnibus bill this year.
I have some experience with Banking Committee coalitions and I can assure you the
votes are there. But the first law of politics (as you know and as I learned the hard way) is
that you have to ask for support. Neither Democrats nor Republicans will push the
Treasury reform package unless they feel the Administration itself is committed to the
legislation sufficiently to ask for their vote. As Barnard and Schumer indicate (and most
Republican committee members as well), that just hasn't happened.
04. 22. 91 04:53 PM *ABHC WASH DC
P03
ASSOCIATION of BANK HOLDING COMPANIES
As a result of this vacuum, Gonzalez and Wylle got together last week "to discuss a
compromise that might Improve the chances of passing a major banking bill," according to
the AMERICAN BANKER. This might sound promising were it not for the fact that
Gonzalez disagrees with almost everything in the Treasury proposal and Wylie isn't exactly
your most cerebral operative on Capitol Hill. Meanwhile Frank Annunzio, whose
Subcommittee will mark up the banking legislation that will be considered by the full
Committee, has indicated his Intention to produce a Committee Print as the legislative
vehicle for his Subcommittee rather than using the Treasury bill. If this happens, your
Administration's initiative on bank reform will have been deep-sixed but good.
Annunzio also has said that he expects his Subcommittee to complete its markup by
Memorial Day. This means that within a very few weeks the key vote may occur on which
version the Subcommittee will use for its markup.
If the Administration is ready to fight for its reform package, you can win this vote
hands down, with a strong possibility that Annunzio will simply concede when he starts to
count noses. All it will take is for you to enter the fray with a meeting or two and a few
phone calls, etc., and for Nick and his crew to follow up. All of the bank regulatory
agencies support your reform package, and in all important respects SO does the GAO, and
they all should be part of the orchestration. Of course, important elements in the banking
and business community are ready to weigh in as well.
Between you and me, Mr. President, this should be no contest. No sane person can
justify the status quo. A coherent alternative is available. Why let the Congress set the
terms of debate when you have the votes? Why stall when you can slam dunk?