ACTION ON LEGISLATION
GSE regulation - HR 1409
The House Financial Services subcommittee with jurisdiction over Fannie Mae and Freddie Mac held its first hearing Wednesday on legislation that would put the secondary mortgage giants under the supervision of the Federal Reserve Board.
The bill, introduced by Rep. Richard Baker on April 4, would abolish the current regulatory structure under which the Office of Federal Housing Enterprise Oversight supervises safety and soundness and the Department of Housing and Urban Development assures that the companies comply with their charters. Under the bill, HUD would retain the authority to enforce the Fair Housing Act. The oversight office would cease to exist.
The measure would require Fannie and Freddie to get specific approval from the Fed before engaging in any new line of business, and it would force the Fed to limit the companies' nonmission activities. It would direct the central bank to allow new activities only if they are "in the public interest" and would give the Fed authority to review the government-sponsored enterprises' current activities for compliance with their charters. It would give the central bank the authority to set regulatory capital levels for the GSEs and would require the Fed to take "prompt corrective action" if their capital fell below a certain level.
Finally, the GSEs' access to their so-called lines of credit with the U.S. Treasury would be restricted. The Treasury, at its discretion, is currently allowed to buy as much as $2.25 billion of securities from Fannie and Freddie to provide them liquidity. Under the Baker bill, such purchases could only occur at the specific request of the Fed.
New Senate Banking Committee Chairman Paul Sarbanes, D-Md., has said he thinks lawmakers should take a wait-and-see approach on legislation until OFHEO's risk-based capital rules, due out as early as Monday, have had time to work.
Bankruptcy reform - S 220, HR 333
Senate Majority Leader Thomas Daschle was expected Wednesday to take the first procedural steps toward moving stalled bankruptcy reform legislation into final negotiations with the House, including naming senators to the conference committee that will iron out differences between the bankruptcy overhaul bills each chamber passed independently in March. Sen. Joseph Biden, D-Del., a strong proponent of bankruptcy overhaul, was reportedly among the four Democrats to be named conferees and thus tilt the committee in favor of the industry-backed measure.
From the House side, Financial Services Committee Chairman Michael G. Oxley has said he will serve on the conference and plans to use his position to protect a netting provision that would prevent a financially harmful domino effect when companies holding a large number of derivatives contracts go bankrupt.
The Senate approved its bankruptcy reform bill March 15 by a vote of 83 to 15. A similar bill had cleared the House on March 1 by a vote of 306 to 108. The measures then became tangled in a political dispute over appointing conferees from a Senate that at the time was divided 50-50 between Democrats and Republicans.
Among other provisions, both the House and Senate bills would establish a "means test" to determine whether people should be allowed to file for protection under Chapter 7 of the federal Bankruptcy Code, which discharges filers from credit card and other unsecured debts. It would make more debtors file under Chapter 13, which requires them to pay off most or all of their debts.
Financial fraud - HR 1408
The House Financial Services Committee on June 27 unanimously approved the Financial Services Antifraud Network Act, a bill that would facilitate information-sharing among federal and state regulators on industry professionals who have been convicted of fraud or been the subjects of enforcement action by regulators.
The legislation would create a computer network to track industry professionals convicted of fraud, and it would make the information available to state and federal officials. Law enforcement and financial regulators would have six months to develop a data-sharing policy and two years to put it in effect.
S corporations - S 936, HR 1263
Sen. Orrin Hatch, R-Utah, is expected to introduce a bill as early as Friday to expand the number of banks eligible to become S corporations and let members of one family be treated as one shareholder. S corporations pay no corporate taxes, passing their profits directly to shareholders whose dividend income is taxed. The Hatch bill also would expand, from 75 to 150, the number of shareholders that an S corporation could have, thus making more community banks eligible for the favorable tax status.
The bill is similar to one introduced May 23 by Sens. Wayne Allard, R-Colo.; Craig Thomas, R-Wyo.; and Tim Johnson, D-S.D., that would raise the maximum allowable number of S corporation shareholders to 150 and would let shares of such companies be held in individual retirement accounts and family limited partnerships. It also would clarify that bank investments held for liquidity and safety-and-soundness purposes would not count toward limits on passive income, and ease other legal restrictions.
A companion bill was introduced in the House March 29 by Rep. Scott McInnis, R-Colo.
Privacy - S 1055, S 30, S 324, S 526, S 1014, HR 2036
Financial services companies worry that a number of the bipartisan privacy bills pending could affect their sales of loan portfolios and their ability to transfer assets, detect fraud, or make loan and other decisions based on customer information tracked by Social Security numbers.
The newest bill is a measure introduced by Sen. Dianne Feinstein, D-Calif., on June 14 to require companies to get affirmative customer permission - an "opt-in" - before collecting, selling, or marketing such personal data as Social Security numbers or financial and health information. The bill would also let customers opt out of the sharing of their less-sensitive information, such as addresses and phone numbers. It does not block banks from sharing financial and less-sensitive information with their affiliates.
Other privacy bills of concern to the financial services industry include one by Senate Banking Committee Chairman Paul Sarbanes, D-Md., introduced Jan. 22, that would require financial companies to give customers a chance to opt out of data sharing with affiliates or third parties and to get explicit permission, an opt-in, before sharing medical or detailed spending information. He has said he is organizing hearings on this and other privacy measures.
Also under the jurisdiction of Senate Banking is a bill Sen. Richard C. Shelby, R-Ala., introduced Feb. 14, which would restrict commercial uses of Social Security numbers. Buying or selling of numbers would be prohibited. The financial services industry is seeking a provision, negotiated into a similar bill last year, that would give banks leeway to use Social Security numbers for limited commercial purposes, such as identifying customers.
Sen. Shelby introduced another bill Feb. 14 that would require financial services companies to get explicit customer permission before sharing credit card and check transaction data within the corporate family and with third parties. The bill would amend the privacy provisions of the Gramm-Leach-Bliley Act that, starting July 1, require financial institutions to give customers the opportunity to block their information from being shared with outside companies. The law contains no restriction on sharing information with affiliates.
Rep. E. Clay Shaw, R-Fla., introduced a bill in the House on May 25 that would prohibit companies, including banks, from selling Social Security numbers except under limited circumstances. It also would limit the disclosure of Social Security numbers by credit reporting agencies. A companion bill was introduced June 12 in the Senate by Jim Bunning, R-Ky., who is on Senate Banking, and Tom Harkin, D-Iowa.
Interest on business checking - S 229, S 524, S 601, HR 974, HR 100
Three bills are pending in the Senate that would let banks pay interest on business checking accounts as early as 2003, temporarily expand sweep accounts, and let the Federal Reserve Board pay interest on bank reserves.
One sponsored by Sen. Chuck Hagel, R-Neb., would lift the ban on interest-bearing commercial checking accounts two years after the bill is enacted into law. Another, introduced by Sen. Richard C. Shelby, R-Ala., would let interest be paid on the accounts starting Sept. 1, 2002. Both bills would quadruple the number of times banks could sweep funds from non-interest-bearing commercial checking accounts into interest-bearing ones, to 24 a month in the interim.
The third bill, introduced by Sen. Charles Schumer, D-N.Y., and the Hagel bill also would expand the number of sweeps and authorize the government to pay interest on required and excess reserves that banks and thrifts deposit with the Fed.
Sen. Hagel's bill is most similar to one the House approved by a voice vote April 3.
Deposit insurance - S 128, S 227, HR 1899, HR 746, HR 1293, HR 135
Several House lawmakers introduced legislation May 17 that would raise the deposit insurance coverage limit for in-state municipal deposits. Under the bill, introduced by Reps. Paul Gillmor, R-Ohio; Doug Bereuter, R-Neb.; Rep. Bob Ney, R-Ohio; and Rep. Stephanie Tubbs Jones, D-Ohio, the coverage limit would equal an institution's "total equity capital."
This is similar to a bill Sen. Robert Torricelli, D-N.J., introduced on Jan. 31 that would give municipal deposits 100% federal insurance coverage. In-state public deposits are currently insured for up to $200,000, and out-of-state municipal deposits are guaranteed up to $100,000.
Separately, House Financial Services Committee Chairman Michael G. Oxley has said that he supports a merger of the Bank Insurance Fund and the Savings Association Insurance Fund but will not move on the issue independently of other deposit insurance topics, such as risk-based premiums and rebates.
He also said he wants to hear first from the new Federal Deposit Insurance Corp. chairman. President Bush has nominated Texas community banker Don Powell, who is expected to be confirmed by the Senate Banking Committee today.
The first House Financial Services hearing on the issue was May 16 in the financial institutions subcommittee. Rep. Ney introduced a bill March 29 that was the starting point for discussion. His bill would merge the bank and thrift insurance funds, let the FDIC charge fast-growing institutions a special fee, and give regulators more flexibility when the fund's ratio of reserves to insured deposits falls below the statutory minimum of 1.25%.
On April 3, Rep. John J. LaFalce of New York, the committee's top Democrat, introduced a narrower version of the Ney measure. The LaFalce bill would only merge the bank and thrift funds.
Rep. Joel Hefley, R-Colo., introduced legislation Feb. 27 to increase federal deposit insurance coverage to about $200,000 per account. Sen. Tim Johnson, D-S.D., introduced the same language in the Senate in January. The Johnson and Hefley measures would index the coverage limit to 1980 price levels, when the deposit coverage limit was last raised, to $100,000 from $40,000. Afterward, the limit would be adjusted every three years to the consumer price index to keep up with inflation.