13 of banks "in danger of closing" should be limited to assisted transactions only, cases in which no premium above making the FDIC whole will accrue. 4. The threshold size of institutions eligible to be acquired should be not less than $500 million or one of the four largest banks in a state, which would account for states where even the largest banks do not meet the current threshold without drastically increasing the pool of banks eligible for interstate sale in other states. 5. Both the primary regulator of the bank and the Board of Directors of the bank should be required to specify both that the institution is in danger of closing and that FDIC assistance under this section appears to be an appropriate solution in a particular case. 6. A meaningful preference for intrastate acquisition, under which the FDIC need not be made 100% whole, but may assist an intrastate transaction before peddling an institution interstate should be written into the bill. 7. Reoffer provisions should be made meaningful by giving bidders estimates on cost to the FDIC fund and other pertinent information. 14 8. The emergency authority granted should sunset in not more than five years. In addition, CSBS feels strongly that the FDIC should not be allowed to sell an entire BHC as a package deal; however, an out-of-state purchaser of a lead bank of a BHC should be treated as an in-state bidder for subsequent transactions, unless specifically precluded by state law. If BHC "packaging" becomes the rule it will create a strong bias toward interstate sale by forcing bids on larger, more expensive packages, and reducing the number of potential in-state bidders. Also, the multiplicity of locations of a BHC could mean that a "package" acquisition may not make good business sense and may even create antitrust problems for potential in-state buyers already operating in that market. Selling off profitable subsidiaries of the BHC separately, as is current practice, continues to make good business and policy sense. The possibility of "parcelling" the assets of a BHC for offer intrastate, so that something less than the entire BHC could be bid on would also help in this regard. Finally, CSBS strongly believes that legislation is needed to close the nonbank bank loophole because the existence of the loophole undercuts the motivation to acquire problem institutions of any type. Thank you Mr. Chairman, members of the Subcommittee. I would be happy to answer any questions you might have. TO PRESERVE THE AUTHORITY OF THE FEDERAL BANKING SUPERVISORY AGENCIES TO ARRANGE INTERSTATE ACQUISITIONS AND MERGERS FOR FAILED AND FAILING BANKS WEDNESDAY, MAY 7, 1986 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, Washington, DC. The subcommittee met at 10 a.m. in room 2128 of the Rayburn House Office Building; Hon. Fernand J. St Germain (chairman of the subcommittee) presiding. Present: Chairman St Germain; Representatives Barnard, LaFalce, Oakar, Vento, Frank, Roemer, Kaptur, Kanjorski, Manton, Wylie, Leach, McKinney, Shumway, McCollum, Wortley, Roukema, Bereuter, Bartlett, and Roth. Also present: Representative Thomas R. Carper of the full committee. Chairman ST GERMAIN. The subcommittee will come to order. Today we continue our hearings on legislation proposed by the Federal regulatory agencies dealing with emergency interstate acquisitions and FSLIC recapitalization. This morning we hear from one of the Federal Government's most influential regulators, Federal Reserve Board Chairman Paul Volcker. Following Chairman Volcker's testimony and questioning, we will hear from John R. Petty, chairman of Marine Midland Bank; Hans H. Angermueller, vice chairman of Citicorps North America; and John P. LaWare, chairman-elect, Association of Bank Holding Companies. We welcome you Chairman Volcker. My colleague, the ranking minority member, Mr. Wylie, has a statement at this point, and he is recognized. Mr. WYLIE. Thank you very much, Mr. Chairman. I too would like to welcome Chairman Volcker and our distinguished panel of witnesses. I am inclined to support the extension of the Garn-St Germain emergency acquisition provisions. It is my judgment that these provisions have been extremely useful to the regulators in resolving problems confronted by some of our financial institutions, and I do think that the bank supervisers need to have adequate tools to deal with emergency situations. I speak a little bit from a perspective of one who lived through a crisis of confidence situation in Ohio where regulators had to be prepared and had to have the necessary authority and tools to meet a very serious situation. We found that some out-of-State banks did come in and convert some of our State chartered S&L's who were insured through Ohio Deposit Guarantee Fund into State chartered banks, and they are doing very well today. It seems that the depositors and everyone concerned have benefited from that. So, as I say, I do have some background and experience there. It seems to me as if the bill before us does deserve serious consideration and we need to explore and evaluate the many alternatives suggested by the witnesses as to exactly where we are going in these hearings. I thank you very much, Mr. Chairman, for your diligence and persistence on this issue. [The opening statement of Congressman Wylie in its entirety and letters of invitation may be found at the conclusion of this day's hearing in the appendix.] Chairman ST GERMAIN. Thank you, Mr. Wylie. Before we begin, Chairman Volcker, I would like to get some of the current headlines in perspective. With all the rosy afterglow of the economic summit in Tokyo, I am wondering if we should assume that the economic crisis on which much of the regulators' bank assistance program is based is now a thing of the past. I know you and your colleagues have followed the details of the Tokyo meeting in great detail. I am sure those monks down there at the monestary are assiduous in following it all. If substantial progress is made, would this affect the emergency nature of H.R. 4701? And if there are some other facts behind the headlines that we are not aware of but that you can enlighten us on, certainly we would be most appreciative. Chairman Volcker. STATEMENT OF HON. PAUL A. VOLCKER, CHAIRMAN, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Mr. VOLCKER. However enlightening and constructive the summit discussions may have been, I don't think they bear much direct relevance to this problem, which reflects events that have been taking place over a period of years and, of course, events quite recently in terms of conditions in the energy and agricultural industries in particular. Chairman ST GERMAIN. Fine. Well, if that's the case, we will put your entire statement in the record and you may proceed. If a thought occurs to you as you go along, please share it with us. Mr. VOLCKER. I appreciate the opportunity to appear before the subcommittee to discuss the Financial Institutions Emergency Acquisition Amendments of 1986, the proposed act. I would emphasize the legislation makes some important, but still limited, changes to the emergency provisions that are already incorporated in the Garn-St Germain Act. We have an explanation of the bill attached to my statement and I won't review it in detail. I am appearing here as one part of a group of Federal regulators who agree upon the desirability and necessity of this bill. In light of the strains and pressures involved, banks in entire States or regions of the country, particularly as a result of the turmoil in energy and agricultural markets, face unusually severe economic conditions. As you know, the existing emergency provisions provide for emergency interstate acquisition of failed banks of $500 million or more. There are companion provisions for thrifts that are decidedly more liberal both with respect to size and other criteria. Both provisions, I believe, have been decidedly helpful in dealing with points of strain, although they have not needed to be used all that often. The banking structure and economic conditions in States heavily impacted by energy and agricultural problems strongly indicates that these authorities need to be strengthened to provide further assurance that problems, actual and potential, can be dealt with expeditiously and in a manner that will avoid potentially contagious and debilitating loss of confidence within a State. Specifically, we are concerned that the States where major banking organizations take the form of multibank holding companies we have the tools to deal with banks within that holding company structure as a coherent whole rather than piece by piece. We also believe that in some situations we can act more expeditiously, with less risk to confidence and to other banks and with less cost to the FDIC insurance fund if mergers with out-of-State institutions can be arranged before a bank actually fails or requires FDIC assistance. Specifically, our strong recommendation is that the emergency acquisition powers be expanded to allow the interstate acquisition of a multibank holding company or some or all of the banks within a holding company when a significant portion of the banking assets of a holding company are impaired; reduce the bank asset size criterion for such interstate acquisitions to $250 million from $500 million; and permit acquisition of failing as well as failed banks. As members of the subcommittee are well aware, a series of developments over this decade have adversely impacted banks and led to an unusual number of failures and more generalized strains. Disinflation, strong competition and rapid changes in technology and market values have all played a part. Taken as a whole, the banking system has responded constructively and resiliently to these pressures. There is, indeed, highly encouraging evidence that the system as a whole is now gaining strength. Specifically, for most banks, capital ratios have improved, earnings have increased and nonperforming assets have been reduced. Nevertheless, in certain areas of the country, particularly where the economy is heavily dependent on agriculture and energy, these strains have been particularly great, and they have been aggravated by the sharp declines in energy, agricultural and land prices. It is mainly in those areas where we face a compelling need to be in a position to deal with problem situations in a manner that will protect rather than undermine the strengths and stability of the whole, including the vast majority of institutions that are fully ca |