New Chairman, New Banking Agenda
by Ralph Nader
Dissident Voice
December 5, 2002
Washington is in
the midst of its biennial guessing game about what legislation will get the
green light when the 108th Congress convenes next month. Many Committee
chairpersons, of course, are just waiting to get their marching orders from the
White House and their friends among the army of lobbyists (aka campaign
contributors).
But at least one
new Committee Chairman -- Senator Richard Shelby of Alabama -- is making it
very clear that he isn't waiting on instructions from anyone. The votes had
hardly been counted from the November 5 election when Senator Shelby announced
an agenda for his Banking Committee that sent an early wintry chill through the
ranks of big lobbying firms on K Street in Washington.
Shelby is talking
about "safety and soundness" of financial institutions, a phrase that
had been all but dropped from the vocabulary of most of the members of the
House and Senate Banking Committees in the rush to meet the demands of the
financial industry for more power and less regulation. And he is making it
clear that federal regulators charged with safety and soundness
responsibilities meet those responsibilities. It sounds like the regulators
better be prepared to make lots of trips to the Senate next year.
In interviews,
the new Chairman has announced plans for hearings on whether Congress went too
far in the passage of the financial modernization legislation
(Gramm-Leach-Bliley Act) in 1999 and, in the process, jeopardized the safety
and soundness of the banking system and the taxpayer-backed deposit insurance
funds. The key component of the legislation was authority for banks, securities
firms and insurance companies to merge and form giant financial conglomerates.
Now the corporate
scandals involved in the collapse of corporations like Enron and World Com are
raising new questions about the conflicts of interest created by the
legislation. Are banks making risky loans to corporations to assure that their
securities affiliates can peddle lucrative investment banking services to the
same corporation? Are there other tying arrangements involving loan and
investment products that could jeopardize safety and soundness of insured
banks? Shelby is giving every indication that he intends to explore these
questions fully.
His inquiry will
add new heat to various investigations of lending and securities underwriting
relationships already underway involving banks such as Citigroup, Suisse First
Boston, and J. P. Morgan Chase.
Senator Shelby
was assigned to the Senate Banking Committee in the late 1980s just as the
savings and loan industry was collapsing, something that undoubtedly influences
his concern over the safety and soundness of banks and the health of deposit
insurance.
"It all goes
right back to the insurance funds," he said in an interview with the
American Banker. "I believe that we have to look at setting banking policy
from the context of making sure the funds are sound, so we will not visit the taxpayers
again, like we did in the thrift debacle."
Shelby opposes
increasing the current $100,000 insurance limit on individual accounts and
questions the "free ride" that banks are receiving through the 1995
suspension of premiums for deposit insurance for all but the most risk-prone
banks.
"I never
have insurance on any building I have unless I pay the premium...I don't know
what the premiums should be, but to just let a few people pay the bank
insurance premium and give everybody insurance...that ought to be looked
at," Shelby said when asked about deposit insurance by a reporter.
Shelby is right.
There is no legitimate rationale for the banks to escape paying for their own
insurance when the taxpayers are on the hook for hundreds of billions of dollars
for a bailout when the fund is depleted. As the Senator points out that is
exactly what happened in 1989 to the savings and loan insurance fund. Although
largely overlooked at the time and seldom mentioned, the bank insurance fund
also fell into the red in 1991, forcing Congress to adopt provisions for a $30
billion contingency fund for commercial banks which is still on the books.
But, for all of
his concern about safety and soundness and the viability of deposit insurance
funds, very high on his agenda is privacy -- the safeguarding of financial,
medical and other personal data of individuals.
During the
consideration of the financial services legislation in 1999, he and
Representative Ed Markey, Democrat from Massachusetts, fought hard to include a
strong privacy provision that would have required consumers to have agreed in
writing before any personal data could be released by a bank, credit card
company or other financial institution. The consumer would have to "opt
in" specifically to any data being sold or otherwise distributed to any
third party under the Shelby-Markey provisions.
After strong privacy language failed on the floor of the Senate, Shelby renewed the battle when the House and Senate versions of the bill were being reconciled in a joint conference.
Once again, the
pro bank forces from both the Senate and House, pushed hard by a horde of
financial lobbyists, blocked Shelby's efforts and adopted a privacy provision
that provides no real privacy for the personal information of financial
consumers.
The weak privacy
language was one of the big factors in Shelby casting one of only eight votes
in the Senate against the adoption of the conference report for final passage
of the financial services modernization bill. Opponents of financial privacy
may find the going much tougher with Richard Shelby wearing the chairman's hat.
None of this is
to suggest that consumers will not have reasons to disagree with the Senator
from Alabama on issues in coming months, for example items like bank redlining
and the Community Reinvestment Act. But, Senator Shelby does come into the
Chairmanship with a solid understanding of the Senate Banking Committee's
responsibility for insisting on the safety and soundness of insured financial
institutions, tough oversight of regulatory agencies and the protection of
citizens' privacy. Those are some welcome and big steps forward.
Ralph Nader is America’s leading consumer advocate. He is the founder of
numerous public interest groups including Public
Citizen, and has
twice run for President as a Green Party candidate. His latest book is Crashing
the Party: How to Tell the Truth and Still Run for President (St. Martin’s
Press, 2002)