WASHINGTON - Rep. Jim Leach, R-Iowa, the incoming chairman of the House Banking Committee, plans to introduce legislation to repeal the so-called called Tower Amendment so that regulators can subject municipal issuers to the same disclosure requirements as corporate issuers.
Leach told a news conference yesterday that his plan to repeal the Tower Amendment is one of five bills he intends to introduce when Congress convenes on Jan. 4.
The other bills include measures to modernize banking laws, streamline the regulation of financial institutions, create clearer regulation of derivatives under existing federal agencies, and impose sanctions against foreign financial institutions whose countries discriminate against W.S. financial firms.
Leach said repeal of the Tower Amendment is needed now more than ever in the wake of the Orange County, Calif., debacle.
The amendment, which was added in 1975 to the Securities Exchange Act of 1934, bars the Securities and Exchange Commission and the Municipal Securities Rulemaking Board from taking any action to require municipal bond issuers to register their bond offerings.
"It has the effect of stipulating that municipalities do not have to make the same full disclosures as private sector enterprises that go to the market," Leach told the reporters at the press conference.
"In my judgment, in a democracy, municipalities ought to lead the way in full disclosure," he said.
The incoming banking committee chairman is the second congressman to call for such legislation during the last few days. Rep. Christopher Cox, a Republican representing Orange County who will have a seat on the House Commerce Committee, said last Tuesday that he will propose a bill early next year requiting municipal issuers to meet corporate disclosure requirements.
Leach said that if Orange County had been subjected to corporate disclosure requirements, its treasurer would have had to disclose his risky investment strategies and the county would never have gotten into such serious financial trouble.
The county filed for bankruptcy earlier this month because of the losses and liquidity problems stemming from derivatives and leveraged investments in its multibillion dollar investment pool.
In addition to seeking more disclosure from state and local governments, Leach said he thinks municipal market participants should be barred from making any political contributions to issuer clients. "I think it ought to be eliminated entirely," he said.
At the same time, however, the lawmaker noted that there are constitutional concerns about banning political contributions and that there is an ongoing court case over a recent rule aimed at banning pay-to-play practices in the municipal market.
Leach introduced legislation in the last Congress to repeal the Tower Amendment and to require municipal market participants to disclose the political contributions they make to municipal issuers.
But he told reporters that he may not reintroduce legislation on political contributions, or that he may introduce it as a stand-alone bill, because the SEC has already acted to curb pay-to-play practices.
The SEC earlier this year approved a Municipal Securities Rulemaking Board rule aimed at banning pay-to-play practices in the municipal market. The rule generally bars broker-dealers who give political contributions to issuer clients from doing business with those clients for two years afterward.
"I personally think that legislation had some effect in causing and allowing the SEC to move in the direction of new rules on political contributions," Leach told reporters.
Leach noted that he would share jurisdiction on any municipal bond legislation that he introduces with the House Commerce Committee.
As far as changes to the banking laws are concerned, Leach said reform to the Glass-Steagall Act will be a top priority for his committee.
"The Banking Committee is going to lead off with a legislation agenda and the first and most important single issue will be reform of Glass-Steagall laws," Leach said.
He said the inability of banks to provide the services customers want is a greater risk than allowing banks to enter into the securities business.
"I believe relevance in commercial banking can only be obtained by recognizing that finance is now a much more intermingled industry and that therefore Glass-Steagall reform is still in order," Leach said.
The lawmaker added that regulatory consolidation is needed and will be a big issue for the Banking Committee and the industry.
"I personally believe that there are too many regulated institutions and regulators," he said. "OTS [Office of Thrift Supervision] in particular looks to me as to be increasingly superfluous, and we hope that all of the RTC [Resolution Trust Corp.] can be eliminated this year."
Meanwhile, Leach said Orange County's recently reported losses and subsequent bankruptcy make derivatives an even more important and urgent topic for the committee.
Leach said the Banking Committee is expected to hold hearings about Orange County in the second or third week of the new congressional session.
In light of the county's losses, Leach said derivatives will be given en "significant review this year with the possibility of serious legislation on the table the following year."
"To me one of the most remarkable aspects of [Orange County! is that there is no accountability here in Washington because no accountability has been decisively and thoughtfully placed," he said.
Asked whether the county's financial troubles presented any systemic risk for the financial markets, he said, they are "a tremor" but "not a systemic-risk earthquake." Systemic risk is the risk that a financial disaster in one market will spill into, and have disastrous consequences for, other markets. Leach said Orange County was "symbolic of what could become a larger systemic risk problem."
Nonetheless, while improved municipal bond disclosure, derivatives oversight, and banking law reforms are top issues for the committee, Leach said Whitewater will also be considered.
However, the lawmaker said he isn't going to act immediately, with issues surrounding Whitewater to allow completion of other investigations.
But Leach said he hopes to hold hearings to "wrap up" Whitewater in late spring or early summer.
"I would sums that it's very important that we all recognize that issues that have effects of weakening or debilitating the presidency should be resolved," Leach said.