98-60 E
Updated August 10, 1998
CRS Report for Congress
Received through the CRS Web
Banking and Finance: Legislative Initiatives in the
105th Congress, Second Session
Gary Shorter
Specialist in Business and Government Relations
Economics Division
F. Jean Wells
Specialist in Economic Policy
Economics Division
Summary
This report reviews major banking and finance issues that are receiving
congressional attention in the 2nd session of the 105th Congress. It will be updated
periodically to reflect legislative developments. Relevant CRS products are referenced;
congressional offices may order these by calling (202) 707-1732. The contents of
specific bills, legislative histories and current status are available on the Legislative
Information System (LIS) at [http://www.congress.gov].
Overview
Financial services available to the public are changing significantly as are the
institutions providing such services. Changes reflect marketplace adaptation to
technological advances and rising global markets. Court and regulatory decisions are also
affecting competing components of the financial services industry. These developments
challenge existing laws defining institutional distinctions and regulatory structures.
Congress has the unique vantage point of considering the whole as well as the parts.
Pending legislation ranges from comprehensive financial modernization legislation to
legislation that affects specific industries and financial practices.
Financial Modernization
Legislation to commingle banking services with other forms of financial and
commercial enterprises includes H.R. 10 (Leach), H.R. 268 (Roukema), S. 298/H.R. 669
(D’Amato and Baker), and H.R. 2940 (Dreier). The Secretary of the Treasury outlined
the Administration’s plan for financial modernization in testimony before the House
Banking Committee in June 1997. Financial modernization proposals would amend the
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Glass-Steagall Act, which separates banking and the securities business, and the Bank
Holding Company Act, which regulates companies controlling banks. They take different
approaches about how changes should occur. H.R. 10 (amended) passed the House by
one vote, May 13, 1998. It would allow banking, insurance, and securities affiliations in
a financial holding company (FHC), but limit banking and commerce. FHCs would be
regulated by the Federal Reserve. The bill provides for functional regulation and includes
a number of consumer protection provisions.
Selected CRS Products
CRS Issue Brief 97034.
Financial Services Modernization: Legislation and Oversight
in the 105th Congress, by F. Jean Wells. (This issue brief lists other CRS products
related to financial modernization.)
CRS Report 98-550.
Financial Modernization/Glass Steagall Act Issues and the
Financial Services Act of 1998, H.R. 10 as Passed in the House, by William
Jackson.
CRS Report 98-399.
Banking Acquisition and Merger Procedures, by Maureen Murphy.
Merging the Thrift and Bank Charters
P.L. 104-208 anticipates the merger of the federal bank and thrift deposit insurance
funds by the end of the 105th Congress only if provisions have been made to merge the
thrift and bank charters. The lines of business in which banks and thrifts and their holding
companies can engage, as well as branching authorities, differ. To arrive at a common
charter, decisions would have to be made about how to handle such distinctions.
Determinations could have restrictive or expansive implications for financial
modernization more generally. Thus, some financial modernization proposals (see
above), incorporate provisions for thrift charter conversion.
Selected CRS Products
CRS Report 96-905.
Banking Provisions in P.L. 104-208: Relevance for the 105th
Congress, by F. Jean Wells.
Redefining the Role of the Federal Home Loan Banks
The movement toward merging bank and thrift charters and regulation has
highlighted efforts to alter the role of the Federal Home Loan Bank System (FHLBS).
The Federal Home Loan Banks (FHLBs) were once part of the system that chartered and
regulated savings and loan associations. They now exist primarily to provide liquidity to
depository institutions to the extent that such institutions lend for residential finance. The
FHLBs also continue to generate funds to help pay for part of the savings and loan
cleanup. In the 104th Congress, the House Banking Committee considered H.R. 3167,
which addressed structure, mission, regulatory, and membership issues, in addition to
payment requirements for the savings and loan cleanup. The basic thrust of that
legislation was to broaden the role of the FHLBs. Reorganization of the Federal Home
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Loan Bank System is included in H.R. 10 amended, passed by the House, May 13, 1998.
S. 1423 is pending in the Senate.
Selected CRS Products
CRS Report 97-993.
The Federal Home Loan Bank System in H.R. 10, by Barbara Miles.
CRS Report 97-358.
The Federal Home Loan Banks: Functions and Future, by Barbara
Miles.
ATM Fees
In April 1996, Visa U.S.A. and MasterCard International began to permit ATM
owners or operators to charge a fee to ATM users accessing accounts in other banking
institutions. While account-holding institutions have always been able to charge their
customers for using the institutions’ own ATMs (and to charge their customer for using
another institution’s or a nonbank’s ATM to access their accounts), this new surcharge
fee was in addition to fees charged by the account-holding institution. The Federal
Reserve’s Regulation E spells out disclosure of fees for electronic banking services.
Some sentiment exists that these disclosure requirements must be expanded in light of the
new ATM surcharges or, alternatively, that the federal government should go beyond
disclosure to banning such fees. H.R. 264, H.R. 795, and S. 885 have been introduced in
the 105th Congress. The Senate Banking Committee voted not to include ATM
provisions in the regulatory relief bill it marked up July 30, 1998.
Selected CRS Products
CRS Report 97-157.
Automated Teller Machine (ATM) Fees: An Update, by Pauline
Smale.
Credit Union Membership
President Clinton signed into law P.L. 105-219 (H.R. 1151), the Credit Union
Membership Access Act, on August 7, 1998. It sets membership standards for future
multi-group credit unions and grandfathers existing credit unions. The issue arose out of
a Supreme Court ruling February 25, 1998, that federal credit unions could not consist of
more than one occupational group having a common bond (“common bonds” may be by
occupation, association, or community). In 1982, the National Credit Union
Administration had begun approving credit union fields of membership that included
more than one distinct group. Banks challenged this expansion of membership. They saw
it as an encroachment by an industry they regard as tax-advantaged. Without legislation,
a district court order limiting credit union expansion was anticipated to implement the
Supreme Court ruling. The law also provides for stricter supervisory and commercial
lending requirements. Community Reinvestment Act-like requirements in the House
version of the bill were deleted in the Senate.
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Selected CRS Products
CRS Report 98-162.
NCUA v. First National Bank & Trust Co., __ U.S. __ (No. 96-843):
Credit Union Common Bond Ruling, by M. Maureen Murphy.
CRS Report 97-548.
Should Credit Unions be Taxed?, by James Bickley.
CRS Report 97-267.
Multiple-Group Federal Credit Unions, by Pauline Smale.
Depository Institution Regulatory Relief
Banks and thrifts are subject to numerous safety-and-soundness and consumer
protection laws. The depository institutions have sought regulatory relief from the
compliance costs that are not imposed on other financial institutions. Congress most
recently addressed regulatory relief in P.L. 104-208 (Title II). S. 1405, marked up by the
Senate Banking Committee, July 30, 1998, combines regulatory relief for banks with
provisions to permit the Federal Reserve to pay interest on reserve balances depository
institutions maintain with it and to allow banks to pay interest on business checking
accounts. The House Banking Committee’s Subcommittee on Financial Institutions
marked up its version of regulatory relief legislation, H.R. 4364, August 4. A
controversial amendment would exempt banks and thrifts with under $250 million in
assets from the Community Reinvestment Act. Interest on reserves was included in the
House Banking Committee version of credit union legislation (see above), but was not in
the version of H.R. 1151 voted by the House.
Selected CRS Products
CRS Report 98-474.
Payment of Interest on Demand Deposits: An Economic Analysis,
by G. Thomas Woodward.
CRS Report 98-416.
Payment of Interest by the Federal Reserve to Depository
Institutions: An Analysis, by G. Thomas Woodward.
Bankruptcy Reform
In 1996, and again in 1997, the number of personal bankruptcy petitions filed
exceeded one million, despite low unemployment, stable interest rates, and healthy
economic growth. The causes of the soaring bankruptcy rate are the subject of
controversy. Two bills before the 105th Congress — H.R. 3150 (passed by the House on
June 10, 1998) and S. 1301 (approved by the Judiciary Committee on June 4, 1998) —
seek to eliminate the abuse of the bankruptcy system by those who could afford to pay at
least part of their debts. Under these “needs-based” bankruptcy proposals, individuals
whose income exceeded certain thresholds could be required to file Chapter 13
bankruptcies (where debt is repaid over time out of future income) instead of Chapter 7
(where unsecured debt is immediately discharged, or wiped out, leaving future income
unencumbered).
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Selected CRS Products
CRS Report 98-577.
A The Consumer Bankruptcy Reform Act of 1998: S. 1301, 105th
Congress, 2nd session (1998), by Robin Jeweler.
CRS Report 98-517.
Consumer Proposals in the Bankruptcy Reform Act of 1998: H.R.
3150, 105th Congress, 2nd session (1998), by Robin Jeweler.
CRS Report 97-637.
One Million Personal Bankruptcies a Year: Economic Implications
and Policy Options, by Mark Jickling.
Regulation of Futures and Derivatives Markets
Current interest focuses on the existence of two competing markets: the
exchange-traded futures and options market, regulated by the Commodity Futures Trading
Commission (CFTC), and the over-the-counter (OTC) derivatives, or swaps market,
which is largely unregulated. The most popular contracts in both markets are financial
instruments that gain and lose value as interest rates change. Two paths are being
considered: to deregulate the exchange market, or to increase regulation of the OTC
market. H.R. 467 and S. 257 would permit the exchanges to create unregulated
“professional” markets, to allow them to compete with swaps on a level playing field. In
May 1998, the CFTC published a “concept release” exploring the possibility of bringing
the swaps market under its regulation. This initiative drew protests from other regulators:
H.R. 4062 directs the CFTC not to pursue its unilateral investigation of the market but to
cooperate with other regulators to study the adequacy of current supervision of the swaps
market.
Selected CRS Products
CRS Issue Brief 97040.
Futures and Derivatives: Commodity Exchange Act
Amendments, by Mark Jickling.
CRS Report 98-52.
Derivatives: A New Federal Accounting Standard, by Mark Jickling.
Securities Litigation Reform
Several bills were introduced in the 1st session of the 105th Congress that address
issues relating to private securities litigation reform. In December 1995, Congress
enacted H.R. 1058, the Private Securities Litigation Reform Act of 1995, as P.L. 104-67.
The law attempts to make it harder for unwarranted class-action securities suits to be filed
in federal courts. However, after the law’s enactment, concerns arose that state courts
were increasingly being used to circumvent P.L. 104-67. H.R. 1653 and H.R. 1689/S.
1260 address this perceived problem by essentially extending P.L. 104-67's reach to state
courts. Among other things, the bill’s opponents are concerned that extending P.L. 104-
67 to the states may abridge the opportunities that plaintiffs with meritorious cases have
for legal redress. This was a concern that was initially held by the Securities and
Exchange Commission. However, in late March, the agency voted to give its
(conditional) support to S. 1260, providing a boost to the bipartisan legislation, which
passed the Senate, May 13, 1998. On June 24, 1998, the House Commerce Committee
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passed H.R. 1689. And on July 22, H.R. 1689 was passed by the House. Differences
between S. 1260 and H.R. 1689 will attempt to be worked out in conference.
Selected CRS Products
CRS Report 98-350.
Securities Litigation Reform: Unfinished Business? by Gary
Shorter.
CRS Report 98-164.
Uniform Standards in Private Litigation: Limitations on
Shareholder Lawsuit, by Michael V. Seitzinger.
Other Issues
Many other issues affecting financial institutions and the delivery of financial
services undoubtedly are receiving attention in the 105th Congress, 2nd session. Among
them are electronic issues and issues related to monetary policy and to financial problems
in Asia. P.L. 105-67 addresses year 2000 computer problems with regard to financial
institutions. Pending financial markets’ bills include S. 1518 and S. 2000. Besides broad-
reaching encryption legislation, legislation addressing “digital signatures” that would
apply specifically to financial institutions has been introduced (H.R. 2937, H.R. 3472, and
S. 1594).
The House and Senate Banking Committees have ongoing responsibility for
monetary policy oversight. By statutory mandate, the Federal Reserve Board reports to
the House and the Senate on the state of monetary policy twice a year, by February 20 and
July 20. The Congress is considering financial problems in Asia legislatively in the
context of funding for the International Monetary Fund; related questions include possible
effects on the United States economy and financial institutions that have extended credit
to these countries.
The House Banking and Commerce Committees and the Senate Banking Committee
have jurisdiction over many aspects of the banking and finance issues covered above. The
House and Senate Judiciary Committees address bankruptcy. The House and Senate
Agriculture Committees have primary jurisdiction over futures and the CFTC. This
listing is not comprehensive of all the issues handled by these committees or of all the
committees that may be involved in examining specific aspects of financial legislation.
Selected CRS Products
CRS Issue Brief 97036.
The Year 2000 Computer Problem: Activity in the 105th
Congress, by Richard M. Nunno.
CRS Report 98-434.
The Asian Financial Crisis,
the IMF, and Japan: Economic Issues,
by Dick K. Nanto.
CRS Report 97-835.
Encryption and Banking, by M. Maureen Murphy.
CRS Report 96-983.
Monetary Policy: Current Policy and Conditions, by Gail Makinen.