Meaningful supervision of banks throughout our country depends on a strong working partnership between state and federal counterparts. Even before the GRHA was enacted, state supervisory authorities were seeking to take responsibility for a larger share of the supervisory workload. This was spurred both by a desire for statutory recognition that states are regulatory equals involved in a cooperative supervisory effort and by a recognition that demands on the FDIC would increase as macroeconomic impacts showed up on the problem bank list. The application of the GRHA and the Antideficiency Act to the FDIC at this time would send the wrong signal to the state legislatures, to the banking industry and to the public at large. State banking departments desire strong partners in bank supervision. Although CSBS is not in a position to make specific comments on national budgetary matters, we applaud the purposes of the Carper-Lundine bill and believe that its enactment would serve the public interest. Conclusion CSBS supports the "Depository Institution Examination Improvement Act of 1986." We believe that it will give added impetus to existing excellence in bank supervision and regulation at the federal and state levels. Ultimately, the public interest is best served by a dual banking system in which the cooperative efforts of sister agencies give added strength. DEPOSITORY INSTITUTION EXAMINATION IMPROVEMENT ACT TRUTH IN SAVINGS ACT THURSDAY, JUNE 5, 1986 HOUSE OF REPRESENTATIVES, SUBCOMMITTEE ON FINANCIAL INSTITUTIONS COMMITTEE ON BANKING, FINANCE AND URBAN AFFAIRS, Washington, DC. The subcommittee met, pursuant to call, at 10 a.m., in room 2128, Rayburn House Office Building, Hon. Fernand J. St Germain (chairman of the subcommittee) presiding. Present: Chairman St. Germain; Representatives Barnard, Lehman, Leach, and Wortley. Also present: Representative Thomas R. Carper of the full committee. Chairman ST GERMAIN. The subcommittee will come to order. The Chair would like to state it is very difficult to anticipate what is going to be scheduled when, and we find ourselves in a situation this morning where one of the principal subcommittees of this full Committee on Banking has a bill on the floor, the housing bill. However, we also scheduled these hearings, and I have been asked by Mr. Wylie to apologize to the witnesses, and I do so on behalf of the other Members who find themselves torn. This is important, but the housing bill is also important. So if the attendance is not as full as you would like to have seen it, please understand it is often very difficult to schedule without conflicts. At this time the Chair recognizes our colleague from California, Mr. Lehman, who is the principal sponsor of the Truth in Savings Act. Mr. LEHMAN. Thank you, Mr. Chairman. As the author of H.R. 2282, the Truth in Savings Act, I would like to extend my thanks and appreciation to the chairman for scheduling these hearings, and I regret my obligations during the California Primary election prevented me from attending yesterday's proceedings. I have, however, reviewed the testimony presented yesterday and am confident the specific concerns expressed by the regulatory agencies regarding the legislation can be resolved. I am looking forward to hearing from today's witnesses with the same intent in mind. Mr. Chairman, H.R. 2282 is a very simple bill whose concept is shared by the regulators, the industry and consumers alike. As we all know, the deregulation of interest rates and other changes in the financial services marketplace has created a new highly competitive arena, and while consumers have more choices in where and how to invest their money, they also have to be more knowledgeable in selecting the right financial institution and deposit instrument. My bill, the Truth in Savings Act, demystifies this complicated and confusing process. It provides consumers and potential depositors with adequate tools to be able to compare options for the right account, and I look forward to working with you and your staff in perfecting this legislation. Again, I appreciate yours and the committee's indulgence in this matter and am anxious for today's testimony. Thank you. Chairman ST GERMAIN. Thank you. At this time, we will place your entire statement in the record. This applies to each and every one of you. We will put your entire prepared statements in the record, without objection, and we will call upon you to either synopsize or just give us your version of your testimony, whichever way you would like. [The opening statement of Congressman Lehman can be found in the appendix.] Chairman ST GERMAIN. Our first witness will be Mr. Randall Killebrew, who is vice chairman of government relations for the American Bankers Association. Mr. Killebrew. STATEMENT OF RANDALL A. KILLEBREW, VICE CHAIRMAN, GOVERNMENT RELATIONS COUNCIL, AMERICAN BANKERS ASSOCIATION [ABA] Mr. KILLEBREW. Thank you. Mr. Chairman and members of the subcommittee, I am Randall A. Killebrew, president of First National Bank in Petersburg, IL. I am also vice chairman of the American Bankers Association's Government Relations Council and an ex officio member of its community bankers council. Our association members include banks of every size, type and location and the assets of our members are approximately 95 percent of the industry total. I welcome the opportunity to present ABA's views on H.R. 2282, the Truth in Savings Act, and H.R. 3567, as amended, the Depository Institution Examination Improvement Act of 1986. As to H.R. 2282, the Truth in Savings Act, the ABA strongly supports the goal of H.R. 2282—that is, giving consumers information with which to make meaningful comparisons of deposit accounts. With the expiration of the Depository Institutions Deregulation Act and the completion of deposit account deregulation under the provisions of that statute, the banking industry is free to design new deposit products in a way that has not been possible since 1933. Elimination of Government-imposed ceilings on rates paid on savings has resulted in a variety of complex market-rate savings instruments. These new and better choices afford savers and financial institutions the opportunity to select options best suited to their particular needs. The Federal Reserve Board and Federal Deposit Insurance Corporation [FDIC] have prescribed rules governing the advertisement of interest on deposits by banks. These rules provide the consumer a basis for making a comparison of various deposit accounts. Our association supports the regulators in their efforts to assure meaningful and accurate information in the advertisements of all providers of financial services. Our association is concerned that the provisions of H.R. 2282 are limited to depository institutions. This limitation does not take into account the vast changes in deposit account markets that have occurred with the advent of deregulation. Insurance companies, security firms, mutual funds and other types of nondepository institutions are active competitors with banks for the consumer's deposit dollar. It is necessary that all financial institution regulators adopt the same standards for advertising so that consumers may make comparisons of rates being offered. The ABA has urged its members to take voluntary action on rate disclosure and other consumer concerns, and we will continue to do so. As a part of this effort, last year the ABA prepared a bankeraction kit to help individual banks formulate a plan for their own institutions. The kit contains guidelines and rate disclosure advertising that are similar to the proposed guidelines of section 3 of H.R. 2282. We believe this kit is an effective addition to other industry initiatives in this area. Under section 5 of H.R. 2282, the Federal Reserve Board would be required to prescribe uniform methods of calculating annual rates of simple interest and annual percentage yields. We believe this provision would be an unnecessary incursion into a detailed level of product design. Congress should not involve itself in formulas which are part of the infrastructure of a highly competitive market. We further believe that the kind of rate disclosure outlined in our voluntary guidelines makes it possible to achieve the goal of H.R. 2282 without any interference in the way banks offer their products and services. In sum, the banking industry is already subject to rate disclosure rules prescribed by the Federal Reserve Board and the FDIC. At the same time, our association is continually promoting rate disclosure on a voluntary basis. Consequently, we question the need for this proposed legislation. However, if H.R. 2282 is adopted, we believe that the bill should require the Federal Reserve Board to consult with its counterparts at the Federal Trade Commission and the Securities and Exchange Commission to devise similar advertising regulations for all types of deposit-like products. H.R. 3567 as amended represents a significant step toward raising the standards of Federal banking supervision and increasing the ability of States to supervise their own depository institutions. The ABA recognizes the need of the Federal bank regulatory agencies to not only train their examiners but also to retain these highly trained individuals. Therefore, the ABA supports this proposed legislation. H.R. 3567 as amended would exempt the regulatory agencies. from the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act of 1985 and the Antideficiency Act. The banking agencies, in their efforts to identify and assist troubled banks, continue to be hampered by the artificial budgetary restrictions imposed by Gramm-Rudman-Hollings. Moreover, the Office of Management and Budget [OMB] has recently asserted vastly increased budget supervisory authority over these agencies. While our association is strongly in favor of measures to reduce the budget deficit, we think it senseless and counterproductive to restrict the budgets of the banking agencies in the process. Not only are the entire budgets of the agencies paid by the banks they supervise, but the agencies are required by law to rebate a large part of any budget savings to these banks. Because the budgetary impact of the supervisory activities of the banking agencies is essentially nil, we urge this subcommittee to work toward providing an exemption from Gramm-Rudman-Hollings and OMB oversight for these agencies. Our association has long advocated programs designed to enhance the pay and professionalism of the Federal bank examination force. We believe that H.R. 3567 as amended would go far toward achieving that goal, and we look forward to working with this subcommittee to achieve its ultimate enactment. Thank you, and I would be glad to respond to any questions. [The prepared statement of Mr. Killebrew on behalf of the American Bankers Association [ABA] can be found in the appendix.] Chairman ST GERMAIN. Thank you. At this time we will hear from Mr. Alan Fox. STATEMENT OF ALAN FOX, LEGISLATIVE REPRESENTATIVE, CONSUMER FEDERATION OF AMERICA [CFA]; ON BEHALF OF CFA, CONSUMERS UNION [CU] AND THE U.S. PUBLIC INTEREST RESEARCH GROUP [US PIRG] Mr. Fox. Thank you very much. This statement is offered on behalf of two other organizations, Consumers Union and the U.S. Public Interest Research Group, as well as Consumer Federation of America, and we appreciate very much the opportunity to testify on H.R. 2282, which embodies the principles of one of CFA's highest priorities, that of full, complete, comparable disclosure of all of the elements of financial services pricing. Adequate information is essential to a fully functioning and efficient market. In the past, strict regulation of deposit accounts and other features of the market for financial services presented consumers comparing different accounts with a relatively straightforward task. Account terms varied little and competition between depository institutions and other providers of similar services was limited. Today the terms, conditions and prices of deposit accounts are almost completely unregulated, and consumers are faced with a widening variety of bank-like services offered by a widening variety of institutions. For most consumers, however, the expansion of options has not been matched with the expansion of information necessary to evaluate options and make informed choices. A market cannot operate efficiently if buyers of services are routinely unable to determine the prices and compare the value of competing services. Consumers today have a great deal of difficulty |