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CounterPunch
December
4, 2002
Make the Banks
Insure Themselves
by RALPH NADER
Washington is in the midst of its biennial guessing
game about what legislation will get the green light when the
108th Congress convenes next month. Many Committee chairpersons,
of course, are just waiting to get their marching orders from
the White House and their friends among the army of lobbyists
(aka campaign contributors).
But at least one new Committee Chairman
-- Senator Richard Shelby of Alabama -- is making it very clear
that he isn't waiting on instructions from anyone. The votes
had hardly been counted from the November 5 election when Senator
Shelby announced an agenda for his Banking Committee that sent
an early wintry chill through the ranks of big lobbying firms
on K Street in Washington.
Shelby is talking about "safety
and soundness" of financial institutions, a phrase that
had been all but dropped from the vocabulary of most of the
members of the House and Senate Banking Committees in the rush
 to meet the demands of the financial
industry for more power and less regulation. And he is making
it clear that federal regulators charged with safety and soundness
responsibilities meet those responsibilities. It sounds like
the regulators better be prepared to make lots of trips to the
Senate next year.
In interviews, the new Chairman has announced
plans for hearings on whether Congress went too far in the passage
of the financial modernization legislation (Gramm-Leach-Bliley
Act) in 1999 and, in the process, jeopardized the safety and
soundness of the banking system and the taxpayer-backed deposit
insurance funds. The key component of the legislation was authority
for banks, securities firms and insurance companies to merge
and form giant financial conglomerates.
Now the corporate scandals involved in
the collapse of corporations like Enron and World Com are raising
new questions about the conflicts of interest created by the
legislation. Are banks making risky loans to corporations to
assure that their securities affiliates can peddle lucrative
investment banking services to the same corporation? Are there
other tying arrangements involving loan and investment products
that could jeopardize safety and soundness of insured banks?
Shelby is giving every indication that he intends to explore
these questions fully.
His inquiry will add new heat to various
investigations of lending and securities underwriting relationships
already underway involving banks such as Citigroup, Suisse First
Boston, and J. P. Morgan Chase.
Senator Shelby was assigned to the Senate
Banking Committee in the late 1980s just as the savings and
loan industry was collapsing, something that undoubtedly influences
his concern over the safety and soundness of banks and the
health of deposit insurance.
"It all goes right back to the insurance
funds," he said in an interview with the American Banker.
"I believe that we have to look at setting banking policy
from the context of making sure the funds are sound, so we will
not visit the taxpayers again, like we did in the thrift debacle."
Shelby opposes increasing the current
$100,000 insurance limit on individual accounts and questions
the "free ride" that banks are receiving through the
1995 suspension of premiums for deposit insurance for all but
the most risk-prone banks.
"I never have insurance on any building
I have unless I pay the premium...I don't know what the premiums
should be, but to just let a few people pay the bank insurance
premium and give everybody insurance...that ought to be looked
at," Shelby said when asked about deposit insurance by
a reporter.
Shelby is right. There is no legitimate
rationale for the banks to escape paying for their own insurance
when the taxpayers are on the hook for hundreds of billions
of dollars for a bailout when the fund is depleted. As the
Senator points out that is exactly what happened in 1989 to
the savings and loan insurance fund. Although largely overlooked
at the time and seldom mentioned, the bank insurance fund also
fell into the red in 1991, forcing Congress to adopt provisions
for a $30 billion contingency fund for commercial banks which
is still on the books.
But, for all of his concern about safety
and soundness and the viability of deposit insurance funds,
very high on his agenda is privacy -- the safeguarding of financial,
medical and other personal data of individuals.
During the consideration of the financial
services legislation in 1999, he and Representative Ed Markey,
Democrat from Massachusetts, fought hard to include a strong
privacy provision that would have required consumers to have
agreed in writing before any personal data could be released
by a bank, credit card company or other financial institution.
The consumer would have to "opt in" specifically to
any data being sold or otherwise distributed to any third party
under the Shelby-Markey provisions.
After strong privacy language failed
on the floor of the Senate, Shelby renewed the battle when the
House and Senate versions of the bill were being reconciled
in a joint conference.
Once again, the pro bank forces from
both the Senate and House, pushed hard by a horde of financial
lobbyists, blocked Shelby's efforts and adopted a privacy provision
that provides no real privacy for the personal information
of financial consumers.
The weak privacy language was one of
the big factors in Shelby casting one of only eight votes in
the Senate against the adoption of the conference report for
final passage of the financial services modernization bill.
Opponents of financial privacy may find the going much tougher
with Richard Shelby wearing the chairman's hat.
None of this is to suggest that consumers
will not have reasons to disagree with the Senator from Alabama
on issues in coming months, for example items like bank redlining
and the Community Reinvestment Act. But, Senator Shelby does
come into the Chairmanship with a solid understanding of the
Senate Banking Committee's responsibility for insisting on
the safety and soundness of insured financial institutions,
tough oversight of regulatory agencies and the protection of
citizens' privacy. Those are some welcome and big steps forward.
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December 1,
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