they should be given assistance on that.

But we also feel that there are weaknesses th could be applied to banks in Texas that need h ferent than the system that was used for Contin

Mr. WYLIE. Mr. Fox, you said that not one of failed in 1985 would have qualified under the r since all were far below the $250 million level every morning. They talk about banks in troub in Nebraska, Iowa, and members on this con some of those banks that are having difficul came in, said they had some difficulty, they ne authority.

You don't think they need the new emergency Mr. Fox. I don't know what the sizes are of th trouble in Texas or in Iowa or Nebraska or els look at the size of the banks that were in troub the history, and the banks that failed were very the $250-million threshold.

Mr. WYLIE. So it wouldn't apply to them. The tion?

Mr. Fox. I am not sure who it does apply to, b to look at the combination of powers that are pr

I am particularly concerned, I think, about t proposed here of what are called unassisted ex tions. It seems to me that taking that provisi combination with the reduction of the threshold that, the definition or the ability to acquire f posed to failed banks permits the large banks t

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We wonder why additional powers are needed by the regulators when it seems that the powers available in current law were not even needed in 1985.

As we said, the regulators' proposal poses a broad expansion of interstate authority. We find the idea that State expansion of interstate authority over the past year has been insufficient to be a curious concept.

Less than 1 year ago, the U.S. Supreme Court ruled that the States do have broad authority under the Douglas amendment to allow interstate transactions, emergency or otherwise. In the wake of that ruling, most State legislatures have considered regional compact legislation, reciprocal interstate legislation, or both or some other variety.

These debates have resulted, in a period of less than 1 year in passage of approximately 20 new State statutes authorizing regional or national interstate acquisitions. Currently, over 30 States now have such laws, and more are anticipated in the next few months. Several States at the same time have revamped intrastate branching restrictions as well.

The Federal regulators seem to believe, however, that these rapid and sweeping changes in banking structure aren't enough. They propose to make it even easier for banks to buy their way into States through emergency acquisitions and then to expand within those States, notwithstanding the fact that the State may be one that has not chosen to allow such acquisitions or expansions. The effect of all these changes in the past year and of the proposed changes in banking structure made by the regulators is a very strong move away from locally controlled, locally owned banks.

We believe that safeguards must be enacted to substitute for reduced local control and to ensure that public responsibilities are attached to the great benefits banks are receiving.

Regulators are arguing that more incentives are needed to encourage interstate acquisitions. We believe that under current law, these incentives are more than adequate.

There should be no mistake about what happens when a bank is purchased in an emergency by an out-of-State bank. The acquiring bank is not merely buying the bank-it is buying access to a desirable new market.

Expanding banks are not looking for insolvent banks to acquire because they like the challenge of resuscitating such banks or for some other altruistic reason. They are looking for such banks because buying one opens up new opportunities for later expansion in a market that is not currently available.

Now, between the reduction of the size threshold, the availability of failing as well as failed banks, and provisions for unassisted takeovers, the regulators' proposal will dramatically expand the supply of banks available for "emergency" interstate takeovers.

These acquiring banks will have many more options available for their initial entry into the States, and these options will be less costly to the acquirers. The FDIC could, as a result, find its ability to set priorities and to negotiate deals that are in the public interest somewhat diminished.

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Obviously, there must be a delicate balance between bene costs of acquiring banks of emergency interstate acquisitio assumption underlying this proposal seems to be that the must be increased and the costs must be decreased.

Let's look at the current law, the current situation. We believe that the existing benefits to acquiring banks sistently underestimated and the costs to acquiring banks sistently overstated.

A few months ago, for example, Chase Manhattan was w pay $62.6 million to acquire a failed bank in Florida. That twice the offer of the second highest bidder. Even for t Chase was required to wait 18 months before acquiring ad Florida banks and agreed to inject an additional $35 million capital.

Why was Chase willing to pay a price for an insolvent price that was regarded by its competitors as a premium? Obviously, the opportunity to enter the Florida mark under some restrictions, was of enough benefit to Chase to premium.

There is another reason as well. The obligations and curred by Chase are far less than meet the eye. Chase did a premium price for an insolvent bank. According to an about the acquisition in the Wall Street Journal, the tra "leaves Chase with a so-called clean bank or one believed to of bad loans."

The FDIC paid $114 million for the privilege of taking $ lion in presumably nonperforming assets off of Chase's han Now, even conceding that this deal is advantageous FDIC-and it probably is-it doesn't require a lot of analys that Chase has come out very well. For less than a $100 m bought a bank with almost $400 million in performing as no known bad loans.

It has gained access to a market that it has long covet under no obligation to take any significant steps to meet co ty or consumer needs, and as long as its performance is no geously oblivious to local needs, its foothold and it opport expand are protected.

What more can Chase possibly need from the law?

We believe that this case points to some false assumption emergency acquisitions.

One is, as was pointed out, the banks who make these tions are taking enormous burdens upon themselves by pu sick institutions.

Another is that potential acquirers are routinely deterr making emergency acquisitions because they would be pow expand within the State of acquisition.

Finally, there is the assumption that consumers are auto ly benefitting from these emergency acquisitions.

Before Congress approves additional efforts to sweeten for acquiring banks, we believe this committee should co thorough oversight of the existing law. Congress should de whether there is in fact a crisis that is not being met.

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It should also examine carefully the acquisitions approved under existing law and see what the effects of those acquisitions have been.

How is the bidding process operated?

What has happened to the services of banks acquired under this authority?

What is the impact on local communities of such acquisitions? What direct and indirect benefits have acquiring institutions realized?

Until the total costs and benefits to all parties under current law are carefully explored, additional benefits should not be approved. Mr. Chairman, in our written statement, we have made a number of legislative proposals that we believe should be a part of any package, dealing with interstate acquisition authority.

Ms. Livingston will describe those proposals and deal with our major points of those proposals in her statement.

Thank you very much.

[The prepared statement of Mr. Fox may be found at the conclusion of this day's hearing in the appendix.]

Chairman ST GERMAIN. Thank you.

Now we will hear from Franci Livingston, staff attorney for Public Citizen's Congress Watch. Your statement as well is in the record.

STATEMENT OF FRANCI LIVINGSTON, STAFF ATTORNEY, PUBLIC CITIZEN'S CONGRESS WATCH

Ms. LIVINGSTON. Thank you, Mr. Chairman. I very much appreciate the opportunity to testify today on behalf of the consumer and community groups who have submitted joint testimony on the proposal by the Federal bank regulators. Consumers have a great stake in any restructuring of the banking industry and how it meets basic needs.

As Alan Fox stated, my testimony will focus on our two most important legislative recommendations-community benefit standards and anticoncentration standards. These improvements are necessary to ensure that consumer and community needs are protected when emergency takeovers are conducted, and as interstate acquisitions of all types proliferate.

Almost a year ago, on June 12, 1985, the full Banking Committee approved a consumer benefits test as part of the interstate banking bill. We commend the committee for this very important action, and for ensuring that banks would be required to meet public responsibilities when they cross State lines.

Those standards have never become law-through no fault of this committee. Yet, approximately 20 States have authorized regional or national interstate acquisitions just since June, for a total of 30 States now with that type of law.

Now, the Federal banking regulators are proposing a bill that will further accelerate interstate acquisitions. Strong standards must be enacted before such acceleration is allowed to occur.

Banks are chartered to serve the public purpose of meeting the needs of their local community. Even without interstate banking.

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many banks seem to ignore community responsibilities in both credit and deposit needs.

For instance, last year, Consumer Federation of Amer veyed bank fees in 14 cities and the District of Columbia. Th showed that of 142 banks and savings and loans, 108 wo cash a Government check for a nonaccount holder at any pr It also found that the average cost of a small balance, n est checking account was $105 per year. This is a high pric considering the fact that such an account was defined as on the average balance does not rise above $200.

On the credit side, a survey of the mortgage lending of made part of the record in hearings held by the Housing mittee last March showed that moderate income neighborh underserved by local lenders.

In the best case, low- and moderate-income areas in San co, representing 29 percent of all communities, received percent of total mortgage financing.

In the worst case, low- and moderate-income areas of G representing 25 percent of all low- and moderate-income co ties, received only 2 percent of total mortgage financing.

There is no reason to believe that interstate banking pe improve the picture. It has been argued that interstate will increase competition, but most interstate entries are a by acquisition and, thus, do not add to the numbers of com Moreover, there is no reason to believe that banks wh interstate acquisitions will compete to offer low cost basic accounts, or to offer mortgages and loans to low- and m income neighborhoods.

The worst danger is that expanding banks will use new only to gather deposits that will be invested elsewhere, lea local community with unmet credit needs.

Those banks that choose to take advantage of the be interstate banking should also be required to meet high st for community service, since there is ample reason to beli will not meet those needs on their own.

The community benefit safeguards approved by the co looked to several factors, including the past record of an a who desires to make an interstate acquisition.

Only banks that have a better than average record of credit needs in their existing communities under the Con Reinvestment Act are allowed to cross State lines. An inter quisition by a bank holding company can be approved, th only if each of the subsidiary banks has a good or exceller under that act.

In addition, the Federal regulators must disclose the Con Reinvestment Act ratings and evaluations of the subsidiar Currently, such ratings and evaluations are not publicly a Disclosure of these evaluations and ratings provide accou by helping to ensure that both Congress and the general pu monitor use of the ratings system and bank performance. The past record of an institution is also taken into ac other ways. For instance, an applicant who has a pattern o branches in a manner that tends to exclude low- and m