Leaders of the House Financial Services Committee emerged from a meeting with financial regulators Thursday afternoon to say that terrorist attacks on the World Trade Center and the Pentagon had not significantly disrupted the U.S. banking industry. However, they warned that tighter money-laundering controls might be required to help prevent such attacks in the future.
The banking industry is solid absolutely rock solid, committee Chairman Michael G. Oxley said. The sector has experienced very little problem since terrorists slammed two passenger jets into the heart of Wall Street and a third into the headquarters of the U.S. military.
The Ohio Republican said, however, that the violence of the attack and the fact that the perpetrators had required significant financial resources to carry it out could significantly alter the debate about anti-laundering laws and, more generally, his panels agenda.
This committee will have many near-term and long-term issues to deal with in insurance, real estate, banking, and securities, Rep. Oxley said. We have a great deal of pertinent jurisdiction namely money laundering and the financial markets.
The privacy concerns that have derailed money-laundering bills in past years may not have as much persuasive power when considered against the human toll of an attack likely fueled by laundered funds.
Everything has changed since 9-11-01, Rep. Oxley said. There are a significant number of issues that we have to address as a Congress and as a nation to try to balance the ability of law enforcement to be able to penetrate and hopefully stop these acts before they happen with the individual rights of American citizens. Americans will demand no less, in my estimation.
He predicted that the privacy/security question will dominate debate in this town for quite some time.
Additionally, on Friday afternoon, Jimmy Gurule, the Treasury Department under secretary for enforcement, announced the establishment of an interagency team dedicated to the disruption of terrorist fund-raising. The teams purpose will be to identify foreign terrorist groups, assess their sources of funds, and inform law enforcement authorities about how they move their money. The team, which will be known as the Foreign Terrorist Asset Tracking Center, will become a permanent unit of Treasury within the Office of Foreign Asset Control. No others details were given.
Rep. Oxley was not the only observer to note the potential for change in the nations attitude toward money laundering.
On the day after the attacks, John Byrne, senior counsel for the American Bankers Association, said, These activities cannot occur without money. The question arises, are money laundering laws a useful tool to deter them? he said. The answer is that in general, they are, and we have to be more aware of that goal.
He said that banks and regulators need to do a better job of explaining to their customers the rationale behind such things as suspicious-activity reports in order to assuage fears that the government is invading their privacy. Due process should always be a factor in any reporting that we do, he said. I strongly believe that if you explain the laws and follow them appropriately, the consumers will understand the laws and will not object to the bankers responsibilities.
Rep. Oxleys remarks followed a briefing of the entire House Financial Services Committee by Federal Reserve Board Vice Chairman Roger W. Ferguson Jr., Securities and Exchange Commission Member Laura S. Unger, Assistant Treasury Secretary for Financial Institutions Sheila Bair, and Assistant Treasury Secretary for Financial Markets Brian C. Roseboro.
Though the tone of the briefing was positive with regard to banks, Rep. Oxley, accompanied by the committees ranking Democrat, John J. LaFalce of New York, were less sanguine about the insurance industry.
The terrorist attacks are expected to result in tremendous claims on insurance policies and strains on the industry. The American Council of Life Insurers on Friday said it was too early to estimate the costs its sector will bear, but noted in a statement that it recognizes that the tragedy will result in a large volume of claims.
According to the trade group, life insurance companies are ready to pay up with a combined $3.1 trillion of assets and liquid reserves. We have very strong solvency regulation in this country, and our regulators require that we set aside reserves adequate to meet unexpectedly large volumes of claims arising from catastrophic events, the ACLI statement said.
Still, Rep. Oxley said that with across-the-board insurance costs estimated at $30 billion or more, he is recommending that Congress assist the industry. In turn, he said, the industry must honor its payment obligations.
He said he has been talking to House appropriators to provide a financial stimulus package for affected industries. We are just in initial discussions now about a package. We would hope the insurance industry would be a component of that, he told reporters late Thursday afternoon.
He pointed to New York Life as exemplifying the conduct he expects of insurers. They are stepping up and paying off these life insurance policies, he said. No monkeying around, no wringing of hands or hiring of lawyers. Theyre just going out and paying them out. That company deserves a lot of credit, and I hope they set the standard for the industry.
He cautioned that the insurance aid hinges in large part on how much reinsuranceinsurance for insurance companies covers.
The real issue for a lot of the top chief executive officers in the insurance industry, he said, is will our reinsurers step up, or will they start to litigate?
Rep. LaFalce said it was premature to discuss economic stimulus package for the industry. Rather, he said, the focus should be on the victims, with a direct expenditure targeted to the needs of the day.
Rep. LaFalce also said that the terrorist attack last week strengthened his opposition to bankruptcy overhaul bills that the House and Senate each passed independently in March. He and Rep. Oxley are on the 32-member conference committee charged with reconciling the two bills.
The bankruptcy bill was being pushed at a time of tremendous growth in the American economy. Im afraid were now going to need a safety valve because of the economic difficulties we have experienced and might experience in the future, especially because of the terrorist attacks, Rep. LaFalce said. Access to bankruptcy is that safety valve. I do not want to close the valve too much. Im concerned the bankruptcy bill may do that.