Inner City Press' Federal Reserve Reporter
Archive 2000 #1 (Jan. 1 - March 27, 2000)
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March 27, 2000
As predicted, on March 21, the FOMC raised interest rates 25 basis points. The March 21 statement implies further rate hikes, saying that increases in demand will continue to exceed the growth in potential supply. Look for another 25, or even 50, basis point rise in late May.
The morning after the FOMC meeting, Fed Chairman Alan Greenspan delivered a half-an-hour speech to the National COMMUNITY REINVESTMENT Coalition in Washington. Weve capitalized the two words for a reason -- despite the venue, Greenspan claimed he was prohibited from commenting on the Community Reinvestment Act, because we are now in the final stages of drafting regulations on the Sunshine Provisions of the Gramm-Leach-Bliley Act. This was an artful dodge, an allusion to legal principles in order to mystify. Agencies are constantly in the rule-making process; if this precluded them from commenting on the underlying laws, they would never speak at all. In fact, Comptroller John Hawke, whose agency is participating with the Fed in writing the CRA Sunshine rules, spoke extensively on CRA on March 21.
The day before Greenspans speech, senior Fed staffer Sandra Braunstein was asked what we would be speaking about. Ms. Braunstein declined to provide an advance copy of the speech, but, to her credit, proffered an answer: Technology and changes in banking, she said, continuing: Not CRA -- thats too political. Separately, another Fed staffer, senior economist Rafael Bostic, acknowledged that the Fed had gotten involved in politics last year -- but only on structural issues, he added. Analysis: Greenspan is not prohibited from commenting on CRA; rather, he does not want to anger the anti-CRA Senator Gramm, who delivered such a Fed-friendly deregulation bill last year.
The majority of Greenspans speech extolled the virtues of the new economy (and by implication, of his stewardship over it). TV cameras from the financial news networks whirled in the back of the room; CNN-fn was ready to cover it live, if Greenspan took questions (which he didnt). The live audience, primarily representatives of grassroots community groups, waited for any reference to their issues -- if not CRA, at least fair lending. Finally, well past the half-way point of the speech, it came. In paragraph 17, Greenspan alluded to wealth disparities between whites and non-whites and Hispanics. And, in paragraph 19, Greenspan expressed concern about abusive lending practices, and said that the Fed recently convened an interagency group to identify aberrant behaviors and develop methods to address them.
This single paragraph became the lead for most press coverage of the speech. Reuters headline was, Greenspan Says Fed To Target Abusive Lending. Hardly -- the Fed convened this interagency group in October 1999, and it has only met twice since. Since 1995, the Fed has been charged with issuing a regulation defining unfair and deceptive lending practices, under the Home Ownership and Equity Protection Act of 1994 -- but has yet to issue any such regulation. When confronted last year with evidence of Bankers Trusts (now Deutsche Banks) and Republics (now HSBCs) involvement with predatory lenders, the Fed claimed it could do nothing. The American Banker, to its credit, captured some of this Johnny-Come-Lately (if Johnny comes at all) aspect to Greenspans speech, headlining its story, Greenspan Wades In On Predatory Lending, Joining Other Regulators.
Whether Mr. Greenspans one paragraph on predatory lending represents a wading in on the issue, or simply a toe momentarily dipped in the water, remains to be seen.
* * *
Overseas, Bill McDonough of the New York Fed told the Monetary Authority of Singapore, in a March 24 speech, that there are some situations where... the number of financial institutions is simply too great and therefore there has to be a rationalization of the industry. Thats a good thing to gather institutions, creating stronger institutions. As previously noted, the Fed loves mergers, fewer and fewer institutions, all under the Feds umbrella supervision.
Fed legal brief of the month was its filing in the 10th Circuit Court of Appeals in Denver, opposing a motion to stay the pending Zions - First Security merger. Even though the deal would combine the two largest banks in Utah, the Feds legal division states, of the Utah consumers bringing the case, the impact of the transaction on them would appear to be nil. The Feds brief quotes from the Boards 1998 NationsBank - Barnett approval order -- a case in which Governor Meyer included a statement that the Fed should be acting more, and not less, forcefully on overconcentration of market power in adjacent markets. That cryptic promise has been left unfulfilled. Will the Feds new interest in predatory lending be any different?
In other Fed Governor news, Gov. Gramlich is slated to tour New York with Senator Chuck Schumer on April 28. Last Fall, Schumer was pegged as one of the soft Democrats who sided with Gramms version of the law, anti-CRA provisions and all. This is the Feds (at least the Governors) kind of Democrat...
Final Fed / FOMC watchers note: this week will see the release of data on February existing (Monday) and new (Wednesday) home sales, and February personal income and spending patterns (Friday). Retreating from the circle of Fed watchers is Cleveland-based KeyCorp, which has eliminated and will farm out its chief economist job function....
March 20, 2000
No-brainer prediction (two days before the FOMC meeting of March 21): the Fed will raise rates a quarter point, to six, the highest rate since 1995. Lees likely, it might be a half-point, particularly in light of the stock market frenzy of March 17. The hardly progressive National Association of Manufacturers is opposing any raise in rates, accusing Greenspan of shooting a shotgun at something that should be shot at with a rifle. We could veer from this into a discussion of NRA versus Clinton -- but we wont... Rather, continuing NAMs gun analogy, well hope that Mr. Greenspan arrives unarmed for his March 22 speech about the Community Reinvestment Act (7:30 a.m. at the Omni Shoreham Hotel in D.C. see last item in ICPs 3/20 CRA Report). Shotgun or rifle -- either will be picked up by the metal detectors...
Strange timing noted on the Fed Beat: as the Mexican government puts previously-bailed out Serfin up for sale, and Banamex and Santander are among the four registered bidders (along with Citigroup and HSBC), the Fed on March 13 quietly lifted its cease-and-desist order (for money laundering) against Banamex and Santander. As with Bank of New York, the policy seems to be, never let money laundering stand in the way of a new acquisition... Fed watchers noted that the Fed included Santander on its March 11th list of 117 companies given financial holding company status under the 1999 deregulation law -- and also included the mysterious Caymen Investment Company Omega -- ah, financial deregulation.... Interestingly, Bank of New York was NOT on this initial list... Nor is Charles Schwab Corp., currently applying to buy the Fed mis-supervised U.S. Trust Corp. Formal protest to that deal has asked the Fed to strip U.S. Trusts banks of the questionable wholesale status the Fed gave them (despite the banks involvement in retail mortgage and small business lending). Schwab spokesman Glen Mathison has said: U.S. Trust should and will maintain its wholesale institution status. Community Group Protests Schwab-U.S. Trust Merger, by Chris McCarter, DJNS, March 15. The same article, however, quoted Federal Reserve Board senior attorney Mark Van Der Weide that we certainly have the discretion to change the [CRA] classification from wholesale to non-wholesale. Which is precisely that the Fed should do, under the CRA regulation. Glad to see Fed staffers able, in this instance at least, to comment on issues like this. A new openness at the Fed? Unlikely...
March 13, 2000
...In bank (mis-) supervision news, federal prosecutors last week unsealed an indictment against the president of MTB Bank of New York, which the Fed has supposedly been supervising. The 51 count indictment alleged that from 1992 on, MTB took part in a scheme to overvalue gold it imported from Argentina, thereby depriving the government of Argentina of hundreds of millions of dollars in revenue. In 1996, ICP opposed an application to the Fed from MTB, to establish an Edge Act Corporation in the Cayman Islands. The Fed denied access to almost all documents. Representing MTB Bank on the application was... the law firm of Shaw Pittman, which in 1999 represented HSBC before on the Fed, on its takeover of Republic New York Corporation. And the games go on... For example, Bank of New York, still embroiled in the Russian money laundering scandal, nonetheless announced on March 9 that it will acquire the U.S. corporate trust business of Japans Sakura Bank, Ltd. The Fed just keeps rubber stamping acquisitions, ignoring compliance...
Meanwhile, the Fed on March 10 met in closed session to hand out over 100 designations as financial holding companies, the new conglomerate structure allowed by the financial deregulation bill of 1999. According to the American Banker (Dean Anason, 3/10), the Fed refused Thursday to divulge which companies had applied or even how many applications it has received. But a spokesman confirmed the central banks governors plan to meet in closed session today to approve somewhat over 100 applications....
These were listed as including the application of Charles Schwab Corp., which is seeking to become a bank holding company by acquiring the elitist and exclusionary U.S. Trust Corporation, long (mis-) supervised by the Fed. Examples: while the New York Fed sent a representative to the explosive hearings on U.S. Trusts questionable administration of the Doris Duke estate, the Fed never took action on the facts about U.S. Trust that came out. On CRA, the Fed had allowed U.S. Trusts New York bank to designate itself as a wholesale bank, simply by selling off the mortgages it originates (entirely to affluent, non-minority customers -- click here for analysis, including of the Feds most recent CRA exam of U.S. Trusts New York Bank, which states for example that [d]irect lending initiatives accounted for $3.2 million... This total included $360 thousand in loans and lines and credit and $2.9 million in standby lines of credit. That is to say, 90% of the direct lending that the Fed gave USTCNY CRA credit for was nothing more than standby letters of credit. The Fed exam acknowledges that [t]here was no community development lending in MSA 5380 (Nassau-Suffolk, NY). Id. As to U.S. Trusts supposedly Qualified Investments, the Fed CRA exam states that [m]ost investments are through financial intermediaries and can be routinely provided by other investors. And the FRB exam gives U.S. Trust CRA credit, under the heading Services Targeted to LMI Individuals, for advisory and trustee activities for... the American Red Cross of Greater New York. While the Red Cross is, to be sure, laudable, there is little basis for characterizing it as targeted at LMI individuals, not for giving U.S. Trust CRA credit for trustee activities for it.
As demonstrated in a comment ICP has just filed with the Fed, U.S. Trusts CRA programs are laughable, as are the Feds most recent efforts to find things for which to give U.S. Trust CRA credit. ICPs Comment concludes: The underlying proposal is to merge a retail, 300-branch, credit-extending institution with an exclusionary, dubiously wholesale holding company of banks, which, contrary to the CRA, explicitly pitches itself only to affluent individuals and their families. ICP reiterates: the CRA mandates service of the convenience and needs, including credit needs, of their entire communities, including low- and moderate-income neighborhoods. Congress, after debate, explicitly retained the CRA (and its mandate of service to low and moderate income communities) in enacting the GLBA. How is this first post-GLBA proposed combination consistent with the CRA? As set forth above, it is not.... What will the Fed do? Well see...
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"Consumer" Advisory Council?
On January 5, 2000, the Fed announced the appointment of seven new members to its thirty-person Consumer Advisory Council. As Inner City Press reported at that time, five of the seven new members represent financial institutions. ICP filed a Freedom of Information Act request for background documents, to which the Fed last week finally responded, with over 700 pages. The documents reflect how even the Feds one consumer advisory body has been hijacked by the institutions the Fed is supposed to be regulating -- hijacked with the Fed Governors encouragement and consent.
In June, 1999, the Fed invited nominations for the seven upcoming vacancies on its Consumer Advisory Council. The documents reflect the log-in of 167 nominations, suggesting 125 different people. A Dec. 13, 1999 memo to the Governors from the Fed staff makes clear that the Feds goal is that full half of the 30 seats on the Consumer Advisory Council be held by Industry Members -- that is, bankers. The other fifteen seat are split between what the Fed calls Academic / State Government Members and Consumer / Community Members. While of the seven Members whose terms expired on Dec. 31, 1999, three were Consumer / Community and four were Industry, they were replaced by five Industry representatives, supplemented by one representative of a community development intermediary, and a lawyer for the Chickasaw Nation, who used to be Senior Counsel at Fannie Mae.
While withholding all information about how the Fed staff and Governors Meyer and Gramlich arrived at their recommendations, the Fed has provided ICP with documents reflecting all of the nominations the Fed logged in. The first nomination listed was submitted by Senator Phil Gramm (R-TX), who nominated Dan Angel, the President of Stephen F. Austin State University in Nacogdoches, Texas, who is already on the board of the Dallas Fed (perhaps explaining that Reserve Banks series of anti-Community Reinvestment Act research reports).
There were several other interesting nominations:
Bob Dole, now of the law firm Verner Liipfert Bernhard, nominated Russell Shrader, SVP of VISA U.S.A., who was selected by the Board. Mr. Schader was also nominated by Doles partner Ann Richards, by Sens. Barbara Boxer, Richard Shelby and Tim Johnson, and Reps. Peter King and Marge Roukema -- reflecting the clout of the credit card industry.
New York Rep. John LaFalce nominated the Legislative Counsel of MNBA America Bank.
The Feds fair lending specialist / consultant, Robert Cook of the Maryland law firm Hudson Cook, LLP, nominated Lester Firstenberger, the general counsel of the Mortgage Lenders Network of Middletown, Connecticut (who the Board ended up appointing to the CAC).
The Mortgage Bankers of America (where ex-Governor Lyle Gramley works) nominated Teresa Bryce of Bank of America Mortgage (who was, in fact, accepted by the Board).
The Richmond Feds Al Broaddus nominated Elizabeth Schulhof, a vice president with Bank of America in Richmond.
The San Francisco Feds Robert Parry nominated the Compliance Officer of Union Bank of California. Parry also nominated Kelly Walsh, CRA officer of Bank of Hawaii (who used to be the head of CRA at the San Francisco Fed). Parrys successful nomination was of the CRA officer of CAL FED Bank.
The Cleveland Feds Jerry Jordan nominated the Compliance Officer of Security National Bank of Springfield, Ohio, and the Corporate Community Development Manager of National City Corp., Pittsburgh, PA.
The St. Louis Feds Randall Sumner nominated the CRA officer of Mercantile Bank.
The Philadelphia Feds Ed Boehne nominated the Community Affairs Director of Greenwood Trust Company in New Castle, Delaware, as well as an official of FCC National Bank in Wilmington, Delaware.
Wells Fargo General Counsel Stanley Stroup nominated his own banks CRA officer, Karen Wegmann.
The Compliance Officer of Chevy Chase Bank, FSB, Richard Harvey, nominated himself.
The IBAAs Ken Guenther nominated Anthony Abbate of Interchange Bank in New Jersey, whos always been fast with a quote trashing the CRA.
Lawyer Thomas Noto of Kirkpatrick & Lockhard nominated the General Counsel of PNC Mortgage Corporation of America.
House Democratic leader Dick Gephardt, along with Rep. Ike Skelton, nominated the CEO of Great Southern Bank of Springfield, Missouri.
Rep. Tom Barrett (as well as Reps. Jerry Kleczka and Jim Sensenbrenner) nominated William Brouse, CEO of The Brouse Company of Brookfield, WI, who the Fed listed under the rubric, Government.
New Jersey Senator Bob Torricelli nominated the general counsel of the NJ-based finance company, The CIT Group.
From these nominations, the Fed selected five industry representatives, supplemented by one representative of a community development intermediary, and a lawyer for the Chickasaw Nation, who used to be Senior Counsel at Fannie Mae. Thus the Fed is advised on consumer issues...
* * *
Update to last weeks amplification: The same day that Chase Manhattan wrote to criticize Inner City Press for not highlighting that Chase Mortgage Brokers, being closed by the North Carolina Attorney Generals Office, is not related to Chase Manhattan, Chase in New York announced that from 1936 to 1941 it helped Nazi Germany obtain U.S. dollars for German marks that may have come from the forced sale of Jewish assets. Chases simultaneous policing of the Internet for any blurring of its subprime lending brand name seems a strange sidelight to this more serious announcement...
Furthermore, on Feb. 22, Inner City Press responded to Chases demand for a clarification by asking Chase for an explanation of its plan to close its Bronx branch at 3821 White Plains Road. Chases response, from the e-mail address that had just sent the demand for clarification, was that I will be out of the office from 02/21/2000 [on]. Meanwhile, Chase is also moving to close its Upper Manhattan branch at 513 West 207th Street, and its Brooklyn branch at 2818 Avenue U. And the Beat goes on...
February 22, 2000
Fed Chairman Alan Greenspans Feb. 17 Humphrey-Hawkins testimony beat the drum for further interest rate hikes, referring to imbalances that, unless contained, threaten our continued prosperity.
Meanwhile, in Arkansas, St. Louis Fed president Bill Poole offered his own translation of the FOMCs Feb. 2 statement: There is a higher probability of inflation being a half a percent higher than it would be a half a percent lower. Thats the way I would translate the FOMC statement, he said at Arkansas State University. Who knew that the Reserve Bank presidents could offer their own explicit translation of the FOMCs statements?
Back in Washington, the Board hauled off and approved an application by Kookmin Bank of Seoul, South Korea, noting favorably the system of bank supervision in Korea, despite the 1997 blow-up there, and even though Korea has not adopted the anti-money laundering recommendations of the Financial Action Task Force. Question the Feds seriousness: it continued to approve Bank of New Yorks expansion applications; now (Feb. 17) at least two BONY officials have pleaded guilty in the Russian money laundering scandal. In further surreal news, the United Nations will hold its March 30-31 anti-money laundering Plenary Forum -- in the Cayman Islands....
The Fed Boards most recent Capital Connections newsletter (Winter) praises various Reserve Bank programs, including one in Birmingham, Alabama. Note that in 1999, the Fed approved the expansion of AmSouth / Deposit Guaranty, just before the Department of Justice announced a rare fair lending charge and settlement against the bank. That -- didnt make it into Capital Connections.
Also of interest: while the Fed approved the Fleet - BankBoston merger, conditioned on a sale of over 250 branches to Pennsylvanias Sovereign savings bank, the Office of Thrift Supervision has now ruled that Sovereign cant afford to buy all the branches, at one time, at least. Sovereign did not have the financial capacity, an analyst tells the American Banker (Feb. 18). Where were the Feds vaunted economists on this (fairly obvious) issue?
Another Fed-approved merger continues to have fall out: last week, Japanese companies sued HSBC for $500 million dollars, for losses in the Republic / Armstrong scandal. Martin Armstrong, from jail, continues to blame Republic / HSBC, and the truth may yet out. The Fed, of course, made up its mind months ago...
This month, Fed staff in Washington have questioned Dime Savings Bank and Hudson United Bank about their subprime lending practices. The Feds Feb. 4 letter to the banks, responded to Feb. 15, asked: If either Dime or Hudson have a referral program for loan applicants who do not meet the standards for the credit products offered by either institution, please describe the referral program, including the circumstances under which referrals are made and the entities to which such loan applicants are referred. In addition, provide a copy of the fair lending policies governing the referral process.
Dimes response reveals that its North American Mortgage Company (NAMC) currently has a program to refer declined mortgage loan applicants to its own, in-house subprime lending unit.... Dime FSBs Consumer Lending Division began a pilot program in October, 1999 to refer declined home equity loan applications to NAMC for underwriting, as agent for Dime FSB, as subprime loans. This pilot program is similar to the program described above, with the exception that the application form for a Dime FSB home equity loan contains a box with the applicant can check to have the application referred to an alternative lender in the event that the application is declined. Dime then withholds its fair lending policy.
Hudson Uniteds response is shorter and (even) more mysterious: With the customers consent, Hudson Bank refers loan applicants who do not meet standards for residential mortgage products to either Option One or Residential Funding Corp., RFC. Applications from potential borrowers who do not qualify for standards for residential mortgages are advised of the availability of the subprime programs. If the applicant approves, the loan application is sent to these investors for consideration. Ignoring Hudsons grammar (qualify[ing] for standards, Applications... are advised), the response does not even claim that the referred (or would that be, steered?) customers receive the required notices of adverse action. Also mysterious: why are Option One and RFC described as investors?
The next question is whether the Fed will accept this garbled and ambiguous answer, on the important question of subprime lending. This is an issue that the Fed continues to ignore, as even the GAOs November 1999 report documented. Last week, FDIC Chairman Donna Tanoue announced that the FDIC will review our CRA examination practices to ensure that a banks purchase of loans containing predatory terms from low- and moderate-income areas does not serve to improve the banks CRA rating. The FDIC can apply this only to state-chartered banks that are not members of the Federal Reserve System. What will the Fed do? At the state level, North Carolina Attorney General Mike Easley last week stripped the license of subprime lender Chase Mortgage Brokers, triggering a process to close the companys Wilmington, NC office. The New York State Banking Department, after closing the comment period on its predatory lending regulation on Feb. 14, is said to be trying to finish the final reg in time for its next meeting, in early March. Meanwhile, the Fed says it has no interest in performance consumer compliance and fair lending exams of bank holding company subsidiaries that engage in subprime lending. The current question is whether Hudson Uniteds (and Dimes) answer will fly with the Fed...
Amplification, Feb. 22, 2000, 4:40 p.m.:
Inner City Press has received this afternoon the following letter regarding the above Report:
Dear Mr. Lee:
Chase notes the reference in Inner City Press web site that the North Carolina Attorney General stripped the license of subprime lender Chase Mortgage Brokers, triggering a process to close the companys Wilmington, NC office.
Chase Mortgage Brokers, whose legal name is Dylan Mortgage, Inc., is not in any way related to or an affiliate of The Chase Manhattan Corporation or Chase Manhattan Mortgage Corporation. In fact, in January 1999, in response to Chases objection, the company agreed to cease using Chases name.
As many of your readers will assume that Chase Mortgage Brokers is a Chase affiliate, I am requesting that you clarify this information on your web site. I know that you would not want to mislead your readers.
Mark A. Willis
Executive Vice President
The Chase Manhattan Bank
Editors note: Since Chase Manhattan was not mentioned elsewhere in the above Report, ICP saw no needs to state no relation to Chase Manhattan in order to avoid misleading its readers. Nor, for example, did the Raleigh, NC News and Observer of Feb. 15, 2000 (although that paper did run a clarification on Feb. 16, apparently at Chase Manhattans request, stating that its previous story should have said that the Wilmington-based company has no connection to Chase Manhattan Mortgage Corp.). To assist Chase Manhattan in its efforts, ICP notes that Chase Mortgage Brokers is still listed by that name in the Nashville (TN) Life, on the web site of the state of South Carolina, Registered Mortgage Brokers (Dylan / Chase), and in Mortgage Magazine. Furthermore, a recent (Feb. 14, 2000) online article refers to Chase Enterprises, a Hartford-based developer, without stating that it too is unrelated to Chase Manhattan. For the record, (1) Chase Mortgage Brokers is unrelated to Chase Manhattan Corporation; (2) Chase Manhattan Corp., a Fed-supervised bank holding company, does engage in subprime, high interest rate lending, through its Chase Manhattan Funding unit, which will be analyzed in a future (unrelated) Report. If any reader was misled by the Report above, this clarification is being posted less than 24 hours after initial publication, and thirty minutes after receipt of Chase Manhattans request. --ML
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January 31, 2000
Leading into the FOMCs Feb. 1-2 meeting, the American Bankers Associations Economic Advisory Committees chairman predicted (drum roll...) that the FOMC will raise rates at that meeting, and beyond, saying that last years three rate hikes have yet to stem the tide of rapid growth. The Fed Governors met with the ABA committee last week; no minutes were released, despite Chairman Greenspans statement last week to the Senate Banking Committee that:
We also need to explain to the public what we are doing and why. Importantly, in our democratic system, our explanations provide... the people... with the information necessary to evaluate our actions and to hold us accountable for them.
Last week, Inner City Press received from the Fed six hundred pages of documents responding to ICPs Freedom of Information Act request about the Feds fair lending enforcement. The documents reflect that on January 20, 1998, the Feds Division of Division of Consumer and Community Affairs circulated to the Governors a memo urging them to vote to adopt a policy to not conduct consumer compliance examinations of, nor to investigate consumer complaints regarding, nonbank subsidiaries of bank holding companies. This proposal to adopt a policy, that would affect the public, was never put out for public comment. Nor, apparently, did the Fed ever discuss it with its Consumer Advisory Council. The internal Fed committee that proposed the policy was composed of Glenn Loney of Board staff, Michael Collins of the Philadelphia Fed, Joan Cronin of the St. Louis Fed and John Yorke of the Kansas City Fed. Before being presented to the Board, it was run by Governor Meyer and then Vice-Chair Rivlin. The memo, among other things, states that over the years an informal policy had developed to encourage Reserve Banks to investigate Congressionally referred complaints involving nonbank subsidiaries of bank holding companies -- but no others.
The documents the Fed provided to ICP concerned the General Accounting Offices study of the Feds enforcement of fair lending laws. Despite the contents of the GAO report (specifically admonishing the Fed for, inter alia, not conducting exams of nonbank subsidiaries of bank holding companies), on September 14, 1999, Governor Gramlich and Dolores Smith and Glenn Loney of Board staff presented the Governors with a memorandum reporting that [t]he GAO did not find substantive weakness in the way the Board considers fair lending issues in processing bank holding company applications. One can only hope that the other Governors took the time to read the GAOs report (and did not rely on the self-serving, white wash memo they were provided with).
The documents also show that, in 1998, less than four percent of bank holding company applications subject to CRA were protested (and that the Fed is the weakest fair lending enforcer, of the four banking agencies, in terms of fair lending referrals made to HUD). The Fed, of all four federal banking agencies, made the fewest referrals; the Office of Thrift Supervision made the most. Heres the table:
Fair Lending Referrals to HUD by the Banking Agencies
OCC 5 18 7 30
FDIC NA 14 15 29
OTS 46 31 37 114
FRB 12 5 5 22
Also included in the documents the Fed released to ICP was a table reflecting the number of bank holding company applications from 1995 to 1998, and the number that were subject to CRA protest. The small percentage of applications that were protested (and the notable decline in the number of protests in 1997 and 1998) are further evidence of the overkill on this issue in last years Congress:
Total BHC Apps
subject to CRA 773 683 672 696
Total CRA Protested 49 40 21 25
In 1998, less than four percent of BHC applications subject to CRA were protested. The idea that allowing public comment periods imposes a burden on the banking industry is more and more laughable.
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January 10, 2000
President Clinton on Jan. 4 renominated Alan Greenspan to four more years as Fed chairman. This was followed by a flurry of self-congratulatory press releases, from bank trade associations and Republican in Congress. Senate Banking Committee chairman Phil Gramm (R-TX)s statement emphasized that I have strongly supported his renomination, and I am delighted the president has reached the same conclusion. The Chairman himself went folksy / mystical: Its like eating peanut -- you keep doing it, keep doing it, and you never get tired, because the future is always, ultimately, unknowable....
The Greenspan renomination seemed to remind the press of the moribund nomination of Chase Manhattans Carol Parry. The American Banker newspaper called Ms. Parry for an interview, and she came out fighting, throwing humility to the wind: Im clearly qualified, she said, and I have the support of both Republicans and Democrats in the Senate... Its critical that there be someone on the board who understands the business of banking... and right now you dont have anyone.
Ms. Parrys last-quoted statement ignores that the Fed governors hear more from bankers than anyone else -- including on the one committee that is supposed to advise the Board on consumer issues. On Jan. 5, just after Greenspans renomination, the Board announced it has named seven new members to three-year terms on its Consumer Advisory Council. Incredibly, fully five of the seven new members work for banks (from whom the Fed hears through its Federal Advisory Council, its Thrift Advisory Council, and more informally). Onto its consumer council, the Fed on Jan. 5 named bankers from BankAmerica, Cal Fed Bank FSB, Mercantile Bancorporation, Visa USA and the Mortgage Lenders Network USA, Inc.. On the other side of the equation are two non-bankers: a lawyer for the economic development division of the Chickasaw Nation, and the CEO of the Philadelphia-based Reinvestment Fund. The Feds Consumer Advisory Council remains top-heavy with bankers, including from Huntington, Banco Popular, ABN AMRO and the State Bank & Trust Company of New Ulm, Minnesota. More on the Feds selection process later.
Ms. Parry also tried to distance herself from the Community Reinvestment Act. I obviously bring a special expertise in consumer issues to the board. But I dont bring a pure advocates zeal. Im a banker. I would bring a balanced view in terms of consumer regulations, she added, noting that only late in her career at Chase, Chemical Bank and Manufacturers Hanover did she work on the CRA issue.
The lack of purity (see above) is demonstrable in the public record. See, e.g., the U.S. Banker magazine of August 1997, at 44 et seq.:
USB: So youd like a safe harbor provision?
Parry: Yes... There was a lot of debate about [a safe harbor] in the process of re-developing the regulations. And there was too much negative reaction by the community advocates. It may be that a safe harbor for banks would be a good idea. It went down in flames because the industry couldnt support it
See also, New York Newsday of April 30, 1996, at A29:
"'It's our view that outstanding banks should be given some consideration,' said Parry. Bankers want a safe harbor -- freedom from challenges to their merger applications -- if they get good ratings."
Ms. Parry, who left Chase on June 30, 1999, and has reportedly been spending time not only in Arizona, but in Washington at the Board, blows hot and cold regarding her support for CRA, depending on the audience and the politics of the moment. On March 1, 1999, Inner City Press reported that it had been informed, by knowledgeable inside the Beltway (make that, inside the Capitol) sources, that the CRA officer of Chase Manhattan Bank, Carol Parry, is actively promoting and supporting the safe harbor concept that Senator Gramm has proposed.
On March 3, 1999, ICP received a communication from Ms. Parry, stating in pertinent part that:
I was distressed to read... the totally erroneous report that I am promoting and supporting the safe harbor concept proposed by Senator Gramm. I am not, in any way, promoting or supporting this concept. I have not spoken with any member of Congress or their staff regarding this issue. Nor have I made any public statements regarding the CRA proposals that are being discussed in conjunction with financial modernization. Whoever gave you this information is make a serious error.
In fact, I personally do NOT support a safe harbor for all satisfactory and outstanding rated banks. I have long felt that banks with outstanding ratings should be given a positive incentive to become and remain outstanding. I am certain there are a number of ways that this could be done, with the safe harbor for outstanding being only one option.
I am requesting that you correct the information on your web site immediately.... I look forward to hearing from you. I am also faxing this to you.
--03/03.99, 11:28 AM, to [Inner City Press]
In a subsequent interview, Ms. Parry told ICP that it was Chases Government Relations department which was dealing with the then-proposed (and since-enacted) financial modernization legislation, and not her Community Development department, that that, if asked to testify before Senator Gramms Banking Committee, she would not support a safe harbor for banks with a Satisfactory rating. Asked for amplification of her written statement to ICP that banks with outstanding ratings should be given a positive incentive to become and remain outstanding. I am certain there are a number of ways that this could be done, with the safe harbor for outstanding being only one option, Ms. Parry stated that she has not given this much thought, but that one idea would be some form of expedited approval for banks with Outstanding ratings. Repeated reference was made to the Administrations probable veto of any legislation that would weaken the CRA -- a prediction that was off the mark, as it turned out in October and November, 1999.
This Administrations Parry nomination can be seen as a form of sleight of hand: Clinton agreed to (and signed) a financial modernization bill that most community groups (and most bank trade associations) see as being a step backward, on balance, on CRA. But the nomination of Ms. Parry is supposed to convey the Administrations ongoing commitment to the law it just sold out. Is it? Ms. Parry has been perceived as one of the more abrasive of the big bank CRA officers, apparently growing from her experience with merger opponents and neighborhood advocates during the Chase-Chemical merger process. Some question whether the presence of Ms. Parry on a seven-person Board that votes on protested merger application, most often from large banks with the attendant (inflated) high CRA ratings, might not result in less rather than more scrutiny of the issues raised by community groups. In the alternative, some feel that the Board and its Chairman, never overly attentive to communities concerns on mergers, might become even more empowered to dismiss public comments, due to the ground cover resulting from having a purported CRA person voting with them on the Board. Others counter that beggars cant be choosers. All valid points, perhaps -- and all moot, most likely...
[In the spirit of being constructive, ICP notes a potential nominee for Fed Governor whos actually an economist: Joseph Stiglitz, set to step down as chief economist of the World Bank. Heres betting that the case Stiglitz would make would be based on the effects of interest rate hikes on moderate income workers, and not a shrill iteration of his qualifications, or political support he purports to enjoy...].
In the above-reported interview of Ms. Parry, Inner City Press, citing Senator Gramms January 12, 1999, statement that [W]e will take a look at the whole CRA law... I am asking the Federal Reserve Bank [sic] to undertake a major study and survey... to try to build a database so that we have something to work from in this area... what I have asked the Federal Reserve Bank to join me in, is to try to come up with language.... (Federal News Service, January 12, 1999), ICP asked Ms. Parry, who was then in the third of her three years on the FRBs Consumer Advisory Council, whether this matter had arisen at the CAC meetings. Ms. Parry stated that she anticipated the issue arising at the next CAC meeting.
Inner City Press thereafter obtained the transcripts of the then-most-recent CAC meeting. At this March 25, 1999 meeting, then-Governor Rivlin posed this question:
At the risk of stirring up a hornets nest, perhaps, weve been dealing with here with the good Senator from Texas, Senator Gramm who feels very strongly that CRA is a bad thing and has led to extortion and I forget what his other words are, but his concept is that there is a great deal of sort of blackmail in which community organizations hold up the banks for contributions. I just would like to have a little comment on that, if we could.
Carol Parry, still at Chase, answered the question:
We actually in the Chase Chemical transaction did not make any agreements with any community group to do anything. We still made an $18 billion, five year public commitment to do lending that we felt was needed in low and moderate income communities... We did it to reassure the public.... Since there were no real negotiations, there clearly was no extortion and no blackmail.
While this position -- that Chase doesnt negotiate -- was and is convenient to Ms. Parrys FRB aspiration (given Sen. Gramms attacks on the CRA), it is hard to square with Ms. Parrys earlier statements. For example, the American Banker of July 29, 1997, reported:
Ms. Parry alleges [an activist] refused to negotiate. I asked him repeatedly to put on the table what he wanted the bank to do, and instead he filed a CRA protest, she said.
It is difficult to square Ms. Parrys complaint about a community group which refused to negotiate with Chase with her more recent statement that Chase did not and does not negotiate. Is this an attempt to ease possible nomination hearings before the Senate Banking Committee chaired by Phil Gramm? An attempt to distinguish Chase from the banks to which Gramm and his staff are now making subpoena threats? Despite Ms. Parrys more recent statement, during the Chase-Chemical merger, Chase did announce a new home counseling program with a prospective challenger. That was convenient for Chase at the time; now Ms. Parry claims that we actually in the Chase Chemical transaction did not make any agreements with any community group to do anything. Chases own submissions to the Fed during the merger process say otherwise -- and were submitted to allow the Fed to say that Chases programs were expanding.
On May 24, 1999, Chase issued its second annual press release of its performance under its $18.1 billion, 5-year pledge. The first annual press release, dated May 13, 1999, broke down the numbers by geography, stating that in 1997... $1.1 billion was invested in New York State, and $775 million in New York City. The May 1999 press release, reporting on 1998, contains no such break-out, for New York or any other area. It is also noteworthy that first release claimed $26 million in grants in 1997, and the second release claims on $24 million in grants in 1998. In the interim, Chases asset size (and stock price) have risen. Was the decline in grants intended to convince Senator Gramm that Chase is not a grant-giver, as Ms. Parry in March stated that Chase did not and does not negotiate? We await Chases May 2000 report on its 1999 activities, and will report it on this site.
In one of the few interest rate-relevant Fed stories of the week, Boston Fed President Cathy Minehan, in a Jan. 6 speech to the Connecticut Business and Industry Association, beat the drum again: Theres a case to be made that the economy has been growing beyond what is sustainable. More on this as we approach the next FOMC meeting.
Finally, the Federal Reserve System did not pass the century-change entirely unscathed. $700,000 in tax payments from 60 depository institutions in the Feds Seventh District (Chicago) could not be posted on January 3. The Chicago Feds media relations manager, Suzanne Heffner, said the problem was resolved on Jan. 4. Fed spokeswoman Rose Pianalto characterized it as a minor glitch. In the Greenspan love-fest of Jan. 4, this story went unreported, and was not commented on by Congress people. Had it been the FAA, however, or HUD or the EPA, thered be oversight hearings....
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January 3, 2000
The Fed has announced few to no Y2K glitches -- now, expect the FOMC to get back on the interest rate warpath, at its meetings of Feb. 1, March 21, May 16 and June 27. The Reserve Bank presidents who will vote on rates in 2000 include longtime hawks Jerry Jordan of Cleveland and Al Broaddus of the Richmond Fed (notwithstanding the folksy photo of Broaddus ambling through Bayview, Virginia in a plaid shift that was included in the Richmond Feds most recent Marketwise magazine).
Several bank regulatory issues await the Federal Reserve System in the year 2000. How, for example, will the Fed review the compliance records of the insurance companies that either seek to buy banks, or which bank holding companies seek to acquire? Various Fed Governors have claimed that the System is ready, based in its experience with the combination of Citicorp and Travelers (which the Fed approved, in a final disregard of then-current law, in 1998). The series of compliance scandals swirling around Citigroup throughout 1999, as well as misvaluations at Chase, shady Section 20 dealings at the now-swallowed Republic National Bank (and Bankers Trust), etc., call this into question.
Even more serious questions are raised by the Feds proposed implementation of the Gramm-Leach-Bliley Act, which would allow bank holding companies to acquire insurance companies, whatever their size or compliance record, without any public notice or comment, without even applying for the Feds prior approval. It appears that on such proposals, the only pre-consummation review will be by the state insurance regulator in which the target insurer is domiciled (legally headquartered). The new law also allows insurers to easily shift their headquarters from state to state, seeking out the weakest regulators. This bodes badly not only for public input, and CRA / fair lending enforcement, but also for safety and soundness and, ultimately, the taxpayers. The Fed is rushing its regulations, in order to allow the mega-combinations as quickly as possible. The degree to which the Fed further eliminates the public comment process on these mergers bears watching...
On the fair lending front, it has now been reported that the Feds stealth settlement with the tiny ($45 million) Foxdale Bank, announced by vague Fed press release on Dec. 6, concerned Foxdales purchase of auto loans on which the initial lenders charged discriminatory prices. Strangely, the Fed uses a (correct) legal theory against a $45 million bank that it refused to equally apply to the $45 billion bank of Republic New York Corporation, which bought mortgage-backed securities based on high interest rate loans issued by subprime lenders like Delta Funding, even after Delta was deemed a predatory and discriminatory lender by New York State authorities. The Feds fair lending theory apparently rides on the size of the bank at issue -- or the Feds desire to approve mega-acquisitions like HSBC - Republic. This theory, too, bears watching in 2000...
See also, ICPs CRA Reporter, as to the Federal Reserve Systems mishandling of issues surrounding Internet banks, another issue of particular importance in the year 2000.
Until next time, for or with more information, contact us.
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