The bankers didn't even like the title. The sponsors of the measure had called it the Safe Banking Act of 1977. The American Bankers Associated was insulted.
"A disservice to banking," sniffed the ABA in congressional testimony, annoyed at the notion that questionable practices of any kind should be regarded as widespread. "A high level of performance of banks and other institution is consistently achieved to maintain the necessary public confidence in our financial system," ABA spokesman Edward A. Jesser Jr. assured a House banking subcommittee last Sept. 21.
The testimony did not command much attention that day. Instead, the headlines were focused on the White House where President Carter announced the resignation of his good friend Bert Lance as director of the Office of Management and Budget. Sponsors of bank reform had been expecting the Lance affair with its celebrated overdrafts and other freewheeling financial practices to provide the impetus for legislation to end such abuses.
Nothing happened. The Safe Banking Act is now in limbo, along with a more modest measure that the Senate passed by voice vote in August. Bert Lance notwithstanding the bankers of America still exercise a remarkable degree of influence on Capital Hill.
The still unfinished history of the safe banking bill is a case in point. It would prohibit overdrafts by bank officers, directors and employees and would strictly limit loans to bank insiders. It would forbid many of the cozy [WORD ILLEGIBLE] among financial institutions, stiffen the power of bank regulators and call for disclosure of many tightly held secrets, such as the amount of questionable loans pinpointed by bank examiners.
As chairman of the House Subcommittee on Financial Institutions, Rep. Fernand St. Germain (D-R.I.) introduced the legislation Sept. 13 in the midst of the climatic Senate hearings on Bert Lance.
"This bill (H.R. 9066) is an affirmative step to meet the public's demand for firmer and more vigorous federal regulation of financial institutions - in place of the present timid, hesitant supervision which serves neither the interests of the public nor the banks," St. Germain said.
Plainly counting the impetus and insights provided by the investigations of Lance, St. Germain opened his own hearings the next day, Sept. 14. He enthusiastically predicted passage of a bank reform law by the end of the year.
The bankers slapped down that prospect in short order, as they have methodically done with other "reform" bills in recent years. They insisted that they Lance case was an aberration and the safe banking bill an insult to the rest of them. St. Germain tried to establish that the problems were far from isolated.
"Thirty per cent of the banks on the problem list of the Federal Deposit Insurance Corp. right now involve excessive overdraft abuses," St.Germain noted recently in an appearance on the McNeill-Lehrer Report (WETA-TV). "In 57 per cent of the bank failures since 1960," he added, "the primary cause of the failure was self-dealing insider loans."
The Senate report on the more limited legislation adopted in that body suggest a further need for new guarantees of safe and sound banking practice.
"Banking institutions have experience rapid growth during the past 25 years," the Senate Banking Committee said in that report. "Unfortunately, the capitalization of the banking system - and of especially the larger banks - has not kept pace with this explosive growth. At the same time the number of 'problem banks' has become substantial. For example, according to the FDIC the number of insured banks in problem categories increased from about $25 billion in assets at the beginning of 1976 to $75 billion at the beginning of 1977."
The House bill, which now covers 183 pages, contained 13 titles in all, with some provisions giving federal banking authorities stiffer powers than did the Senate-passed bill. Other sections proposed new standards for bank-holding company acquisitions and required down payments for the acquisition of bank stock. Still another provision would have prohibited bank officers, directors and stockholders from obtaining loans at a correspondent bank.
The American Bankers Association sent out a nationwide alarm on Sept. 23, churning out 14,000 copies of a special "Executive Report" from ABA executive vice president Willis W. Alexander. Although the bankers had been none too delighted with the Senate-passed measure, S. 71, Alexander sounded almost wistful about it now.
Bankers can lie with S. 71, he advised his colleagues. "But it's clear they cannot live with the needless strictures imposed by certain features of H.R. 9086 - restrictions that would bring about no demonstrable public benefit and do serious harm to bankers' ability to serve their customers."
Alluding to the "crisis atmosphere" for bankers produced by the Lance affair, Alexander hinted that a waiting game would be best and said the House bill would have much less chance of approval with the return of a "calmer, more rational climate" to Washington.
"Nonetheless, we cannot take any chances," the bankers were told. "If the restrictive provisions of H.R. 9086 are a matter of concern to you, contact your elected representatives. Tell them what this bill would do to your bank - how it would affect your ability to attract qualified directors, to make full use of the correspondent banking system, to serve the needs of your community. And send me a blind copy," Alexander suggested.
The letters poured in, many of them repudiating Lance who had insisted that his habits were normal banking practice. The Independent Bankers Association of America also took part in the campaign. Delegations of hometown bankers visited the offices of some congressmen.
". . . . Rest assured that the way Bert Lance ran a bank is a strong exception to the way other banks are managed," wrote a South Carolina banker. "Just because an opportunist like Bert Lance has gotten himself into trouble, the federal government should not place a burdensome act on all banks," added a banker from South Dakota. ". . . (A)s a taxpayer and a banker," declared another from Texas, "I want you to know of my objections to your tirades against an honorable group of men."
The House, and especially its Banking Committee, have been traditionally receptive to such blandishments. Since House members started filing financial statements in 1968, more have reported an interest in banks, year in and year out, than in any other business. Last year, according to a compilation by Congressional Quarterly, 81 House members - 47 Democrats and 34 Republicans - reported an interest in or income from banks, savings and loan associations or bank holding companies.
The ABA, with a $22 million a year budget, 16 registered lobbyists, a phalanx of "contact bankers" back in the home districts and a reputation in some quarters as the most effective lobby in the nation's capital, does its best to maintain the rapport. Its political arm, Bankpac, doled out more than $31,000 in political contributions last year and newly $4,000 more this year just to members of the House Banking Committee. On the other side of the Capitol, the bankers association ranked fourth in 1976 in the payment of honoraria to distinguished Senate speakers. It also mounted a massive and effective campaign to kill the so-called Financial Reform Act of 1976, a bill that never got out of House Banking despite the support of Chairman Henry S. Reuss (D-Wis.).
"We've often talked of retiring some of the chairs in our committee room with brass plaques for some of the our more prominent banking lobbyists," said an aide to St. Germain of the usual audience at House Banking productions.
"This year the one thing the bankers were afraid of," said another Hill staffer, "was that any bill that hit the floor after the Lance affair posed a real danger. The bankers can control the committee and the [financial institutions] subcommittee pretty well, but they were worried that the House, in an excess of populist reform, might make it really tough. I think their game plan was to prevent any bill, no matter how modest, from coming to the floor this year."
There have been suggestions that St. Germain played right into their hands. On Oct. 17, he introduced a 188-page substitute bill make some concessions to the criticisms that had been voiced - dropping, for instance the proposed ban on loans from correspondent banks and calling for disclosure instead - but keeping the meausre largely intact.
"He could have gotten pieces of his own package along with S. 71," says one Treasury Department official. "The [St. Germain] bill is an incredible grab bag of stuff. I assumed he'd drop out a lot of it and he didn't. That surprised me."
Markup sessions began the next day, Oct. 18, and the opposition produced the House version of a filibuster. The senior Republican on the subcommittee, Rep. John Rousselot (Calif.), insisted on a line-by-line reading of the bill.
The charade lasted through five meetings. By Oct. 27, the subcommittee's "reader," staff director Richard Still, finally reached the end of Title I, on page 77. Whereupon Rep. Clifford R. Allen (D-Tenn.) offered an 81-page substitute.
Rousselot called for a line-by-line of that, too. "I hate to put the committee through this," he said cheerily, but "the clerk is in such good fettle today and good voice."
With the Houseabout to go into hibernation to wait for for an energy bill, St. Germain gave up hopes of action this year with a spirited denunication of "the bankers' scare tactics." He said he had hoped to get a bill to the floor, but instead "we have been faced with slowdowns, filibusters, interventing votes on the floor and, at times, other committee priorities.
"We also have to face the fact that this subcommittee and this legislation, have been at the eye of a bank lobbying effort seldom matched in teh hstory of this committee," St. Germain protested. "The House has been flooded by mail from literally thousands of banks and much of this mail has been filled with distortions and highly misleading statements about the effects of the bill. It is a nationwide campaign being orchestrated through the Washington offices of the American Bankers Association under the guise of 'grass roots' opinion."
In a telephone interview, St. Germain vowed to "crank up again" with markup sessions as soon as the House returns to full-time business in January. He also took sharp exception to any notion that he didn't really try to get a bill this season.
"I knew of no way to get it through the way it was written when it was first introduced," he said. But he said he had no reason to think major surgery was required before the markup began.
"I don't have a crystal ball," he said. "I felt, up to a week before we recessed, that we'd be in session until December."
The bankers and their allies evidently think they will have little problem stripping the measure to a skeleton when the House returns.
"I don't think there's that much need for new legislation," Rousselot said in a telephone interview. "I think we'll probably come out with something like S. 71. He maintained the federal banking agencies already have most of the regulatory powers they need.
St. Germain feels they will need statutory marching orders. Critics say the agencies, especially the comptroller's office, have been far too lax and permissive.
"The bankers keep saying, "We'll take care of ourselves,' but unfortunately they don't," St. Germain said. 'Do they allow overdrafts? Do they allow insider loans? They are not policing themselves."