door for those who would prefer no restrictions to cross ownership at all. Permitting commercial firms to own banks will inevitably lead to a much greater degree of financial concentration in the hands of a few all purpose giants, and we do not think that will be good for the American consumer, in general, or for America's neighborhoods.

This concludes my testimony. I would be glad to answer any questions you have.

[The prepared statement of Mr. Allen Fishbein can be found on page 597 in the appendix.]

Chairwoman ROUKEMA. Thank you, Mr. Fishbein.

Mr. John Taylor, National Community Reinvestment Coalition. Mr. Taylor.

STATEMENT OF JOHN E. TAYLOR, PRESIDENT AND CEO,
NATIONAL COMMUNITY REINVESTMENT COALITION

Mr. TAYLOR. Good afternoon, Chairwoman Roukema, Mr. Vento and other distinguished Members of this subcommittee. My name is John Taylor and I am the President and CEO of the National Community Reinvestment Coalition.

NCRC is the Nation's largest community reinvestment trade association, comprised of 603 community-based organizations. Our philosophy promotes proactive partnerships among banks and lowincome and minority communities, NCRC is dedicated to increasing access to capital and credit. As President of the trade association neighborhood organizations, I have been privileged to represent the community perspective on the Federal Reserve Board's Consumer Advisory Council, on Fannie Mae's Housing Impact Council and other bodies. I request that my written testimony be entered into the record.

Chairwoman ROUKEMA. So moved.

As in the case of each of you who is testifying, the full statement will be included in the record.

Mr. TAYLOR. NCRC thanks you for the opportunity to testify on this subject, bank modernization, that carries profound impacts on access to capital and credit for the Nation's underserved communities. With access to banking products and services, our communities thrive and create wealth through expanded home ownership opportunities and small business creation. Without access to capital and credit, our neighborhoods die.

Legislative and regulatory changes have profound impacts on access to capital and credit. For example, as Alan just mentioned, since its passage in 1977, the Community Reinvestment Act has leveraged over $160 billion in reinvestment dollars for minority and low-income neighborhoods. Bank modernization legislation has the potential to either intensify the gains in community reinvestment or to wipe them out.

On the one hand, H.R. 268 can increase access to capital and credit for the underserved if amended to expand the Community Reinvestment Act to wholesale financial institutions and national market funded institutions sanctioned by this bill. On the other hand, if it does not expand CRA coverage, H.R. 268 can devastate low-income neighborhoods by facilitating the flow of capital out of

institutions covered by CRA into the new nationally chartered behemoths exempt from community reinvestment obligations.

In addition, H.R. 268 would exacerbate disinvestment if it does not expand CRA coverage to existing financial institutions such as security firms that would be allowed to affiliate with financial service holding companies.

House Resolution 268 will accelerate the rate of consolidation in the banking industry. Recent blockbuster mergers, including the merger of Morgan Stanley and Dean Witter, would become more common since H.R. 268 would permit banking and non-banking financial combinations. Already, the banking industry's newspaper, or the newspaper that covers the banking industry, American Banker, is full of discussions of much anticipated mergers of banks and securities, and other types of financial firms. Without strong public policy initiatives and tough CRA enforcement, mergers and acquisitions will hasten disinvestment from low-income and moderate-income communities.

A number of studies suggest that mergers and acquisitions decrease CRA performance, particularly in the small business lending area. For example, of the 11 largest mergers in New England during 1993 and 1994, Madam Chairwoman, examined by the Federal Reserve economists Peek and Rosengren, 8 of the post merger institutions decreased their small business lending. In addition, Federal Reserve economists Berger and Scalise estimate that small business lending would continue to decline in the next 3- to 5-years at the same pace, about 33 percent, as in the last 5 years.

Small business lending declines after a merger because it is the type of lending that depends on an intimate knowledge of community businesses that only loan officers and local branches possess. After mergers and acquisitions, decisionmaking is often centralized in headquarters located hundreds of miles away from what used to be the local branch office.

For example, a recent Small Business Administration study concluded that KeyCorp succeeded in capturing the highest dollar market share of small business loans of under $250,000 because it had a more extensive branch network than its big rivals who relied more upon mailing of preapproved applications. I have a number of comments I want to make on consumer disclosure, but I would just say that I agree wholeheartedly with what has been presented by Mr. Mierzwinski, as well as Ms. Griffin, so I will pass on that. But do I want to make a comment about the financial and non-financial companies and the combination of the two.

Safety and soundness in the financial industry will deteriorate significantly if financial services holding companies are allowed to derive up to 25 percent of their business from non-financial corporations. We should learn from the mistakes of foreign countries who have had particularly disastrous experiences allowing the combination of financial and non-financial companies.

In Finland, combinations of commerce and banking resulted in loans that, in proportion, exceeded our savings and loan crisis. One of the world's biggest bank failures totaling $14 billion involved Credit Lyonnais in France, which was a banking and commerce conglomerate. In Spain, Benesto Bank had a similarly spectacular collapse, and later it was taken over by a Banco, my Spanish is ter

rible, Banco Santandor, which had sold off its non-financial business and invested the proceeds in our own First Fidelity.

The entry of banks into non-financial activities will impede the growth of the small business sector.

Let me just end very quickly by saying we make several policy recommendations, including, you know, the need to really expand CRA to these new financial institutions that are created, and a more rigorous enforcement of CRA. Madam Chairwoman, we are very distressed to see the regulatory bodies, which seem to be really taking CRA more seriously now, passing out CRA evaluations and passing grades as if it is candy and Christmastime. We are just not, we are seeing very few institutions and all institutions receiving satisfactory or outstanding CRA ratings, and the enforcement that I think this subcommittee, and the Banking Committee as a whole and Congress as a whole, hoped would become fairer, as well as more vigorous, is not, we are just not seeing that.

I am going to, because my time is up, I am going to thank you for the opportunity to speak and again ask that my written remarks be put in the record.

Thank you.

[The prepared statement of Mr. John Taylor can be found on page 629 in the appendix.]

Chairwoman ROUKEMA. Thank you, Mr. Taylor.

Our next panelist is Michael Fink, and he is here representing the National Association of Home Builders. It goes without saying that home builders have a strong and constructive interest, pardon the pun, a constructive interest in financial services reform and also the strong relationship between banking and the thrift industry that is included here.

But Mr. Fink has another claim to fame, or infamy. He is a constituent of mine from Mahwah, New Jersey.

Welcome, Mr. Fink.

STATEMENT OF MICHAEL FINK, ON BEHALF OF THE
NATIONAL ASSOCIATION OF HOME BUILDERS

Mr. FINK. Thank you, Madam Chairwoman, Ranking Member Mr. Vento and other Members of the subcommittee. It is my pleasure to be here before this subcommittee representing the 190 member firms of the National. Association of Home Builders and their over 8 million employees, all of whom are engaged in providing homes and shelter to our fellow Americans.

I am a home builder from Mahwah, New Jersey. That is how I make my living and that is how I feed my family. We were requested to discuss here today: One: Whether there is, in fact, the need for financial services modernization; and Two: To address the potential impact of H.R. 268 on industry and homebuying consum

ers.

Perhaps the question relating to actual need for financial services modernization is best left to such financial experts as the distinguished Paul Volcker and others who have come before, and will come after him in that area. In the few minutes which we have available today, we would like to highlight from our written submission what we foresee as the potential impact of H.R. 268 on our industry and the consumer homebuyers and users.

Home builders and small businesspersons, as the Chairwoman correctly indicated, rely heavily on loans from thrifts and banks in our capital intensive industry. A recent survey of the NAHB members showed that 87 percent of our members rely on commercial banks or thrifts for their housing production funds.

The National Association of Home Builders adopted some time ago, a very specific policy on the subject matter of the bill we are considering today. It states, quote, “Banks should be granted new powers only if steps are also taken to preserve a system of community-based depository institutions. Banks should be allowed to exercise new powers only if they are providing housing financial services in all of their local service areas, if both the bank and nonbank subsidiaries are well capitalized, and if the deposits are insulated from non-bank activities," unquote.

Madam Chairwoman, we thank you for the provision in your bill which prohibits regulatory criticism based on an institution's housing finance specialization. We think that is very constructive.

Since enactment and implementation of the Riegle-Neal Act, home builders have witnessed a reduction in the number of smaller community banks and thrifts. As national branching becomes fully effective later this year we have little doubt that further merger and consolidation of the banking industry is inevitable. The effect will be to further reduce institutions' ties to local areas and their credit needs, creating financing gaps in communities around the country.

If I may, just this year, one of my colleagues related this experience: The bank he had been using for over 20 years in Bergen County, New Jersey, was gobbled up by an out-of-state mega bank. Renewal of his business loan was being determined by bankers up in Boston, who had never met the borrower, nor had they ever been in the community. Although a payment had never been missed and the loan was current, Boston decided that this New Jersey business didn't meet their criteria.

Fortunately, my colleague's business, which employs over 100 persons in the homebuilding industry, still had a community-based institution around to turn to. For if not, you could imagine, as well as I, the disastrous results for his business and the families of his business' employees.

We believe that certain modifications to the bill should be made to retain the banks' focus on lending within their service communities and to address the concerns outlined above.

As discussed more fully in our written statement, we believe that financial services modernization does not necessarily have to include elimination of the thrift charter. NAHB opposes eliminating Federal savings associations or forcing them to convert to another charter.

The recently enhanced thrift charter allows these institutions flexibility to compete in today's financial services marketplace, and we believe that depository institutions should be free to choose whichever charter best suits their business needs. Elimination of the thrift charter is not a necessary prerequisite to expansion of bank powers. Thrifts could remain thrifts, while other banks expanded their activities if done within the context of safety.

House Resolution 268 also calls for dissolution of the Office of Thrift Supervision. As a matter of general policy, NAHB supports regulatory streamlining. However, any consolidated agency ought to have a branch or division specified in the legislation to specialize in homebuyer permanent financing, as well as housing production finance.

The staff could use its' expertise to be responsible for development of regulatory policy affecting institutions which specialize in housing finance and to participate in teams' involvement in examination and supervision of their institutions, as well as to collect and publish detailed data on housing lending and investment by insured depository institutions.

As set forth in our written submission, we also believe that the Federal Home Loan Bank system can be utilized very safely and effectively as a means to foster housing lending, and I would agree with a good deal of what has been said by some of the others regarding enhancement of the Community Reinvestment Act.

In sum, as Abraham Lincoln noted, "The strength of the Nation lies in the homes of its people." To ensure that all Americans have access to safe, decent and affordable housing, NAHB believes that it is essential for housing sector borrowers to continue to have access to locally focused and based lenders who are familiar with the community, have a substantial commitment and focus to serving their needs and understand those needs.

We offer our assistance, to you, Madam Chairwoman, and to the rest of the subcommittee, to ensure that any efforts toward financial services modernization also enhance the focus on communitybased lending for housing production, mortgage credit and small business needs. Thank you.

[The prepared statement of Mr. Michael Fink can be found on page 643 in the appendix.]

Chairwoman ROUKEMA. Thank you. Thank you, Mr. Fink.

And finally, we welcome James Pledger, who is the Chairman of ACSSS, which represents State thrift supervisors.

ACSSS, I can imagine, has strong and relevant views on the questions that relate to thrift conversion in H.R. 268 and the regulatory structure.

STATEMENT OF JAMES L. PLEDGER, CHAIRMAN, AMERICAN COUNCIL OF STATE SAVINGS SUPERVISORS

Mr. PLEDGER. Yes, ma'am. Thank you very much.

I spend most of my time as the Savings and Loan Commissioner of Texas, and in that capacity I regulate and supervise all State chartered savings and loan associations and State savings banks in Texas. I am also the Chairman of ACSSS, and it is in that capacity that I appear today. We appreciate the opportunity to be here.

First, let me commend you, Chairwoman Roukema, for a number of real significant improvements and progressive provisions that you have incorporated into H.R. 268, particularly as they compare to legislation that was dealt with last year even. It is a dramatic improvement. The bill contains a number of critical provisions that support and protect the dual banking system in this country and, specifically, the dual thrift system.