House Banking Committee

Battles can rage in Congress over budgets, health care, government ethics and a multitude of other headline grabbing issues, but the Banking Committee of the U. S. House of Representatives just plugs along year after year in splendid isolation trying to meet the wish lists of the financial industry.

The Committee’s efforts this year are centered on what it calls “modernization” of financial services. It’s a new and more benign sounding term, but its the same old crusade to seek out new profit centers for banks.

The Committee has rushed into a series of hearings on proposals that would allow banks to merge with insurance companies, securities firms and, in some cases, big industrial corporations to form powerful conglomerates that would dominate important sectors of the economy.

The Committee has been rushing the legislation through hearings and hopes to put it on a fast-track for consideration by the full House of Representatives early this summer. The Committee acts like there is a crisis and that the banking industry is in desperate need of more profits.

But, banks are awash in profits that have been mounting quarter and quarter since 1992. Last year banks recorded profits of $52.4 billion–the first time the industry’s earnings topped the $50 billion mark in a single year. The Federal Deposit Insurance Corporation reports that 98.4 percent of the nation’s banks are well capitalized compared to 93.8 percent at the end of 1992.

Not to be outdone, the Clinton Administration’s Treasury Department has been working behind closed doors on its own version of a merging of various financial and industrial sectors with banks. Not wanting to offend any of the interests, Secretary of the Treasury Robert Rubin has released a proposal that contains a series of “options”–something to please everyone in the banking and corporate worlds.

Just as it did in the 1980s for the savings and loan industry, Congress is rushing forward with the new powers for banks without full study and without a proper recognition that the nation’s consumers–taxpayers–stand behind the deposit insurance system. If these new schemes go wrong, the taxpayers will be forced to pick up the tab just they did when Congress and state legislatures loosened the restrictions on investments by savings and loans.

Regulation of banks is carried out in a disjointed system of overlapping agencies that devote much of their energies in unproductive and, at times, dangerous battles to protect their bureaucratic turfs. Congress needs to rationalize and consolidate the regulatory system before moving forward with new powers for banks.

Congress needs to make the most careful study of how the regulatory machinery is operating today and how well it can cope with the complex system that would be created by a merger of insurance companies, securities firms and industrial corporations.

Unfortunately, Congress seems content with taking the word of the regulators that all is well without conducting its own independent investigations with the assistance of the General Accounting Office. That is exactly what it did in the 1980s when the Federal Home Loan Bank Board–the regulator of the savings and loans–came to Congress repeatedly with bland optimistic statements and rosy scenarios–that proved to be dead wrong.

Before it acts, the Banking Committee also needs to know how this world of “modernized” banking will affect the delivery of credit and services to communities, small business and low and modest income families who already find bank services scarce and costly. At the moment, the Committee doesn’t have a clue, but that doesn’t stop it from plowing ahead with the legislation. It just hangs out its “caveat emptor” sign.

A multitude of issues for consumers are piling up while the Committee is preoccupied with the “care and feeding” of the financial industries.

For example, at the end of next year, 10 million new customers will be pushed into the banking system when a new law goes into effect requiring that virtually all government benefits and payments be made electronically to the recipients’ accounts. In addition to these consumers, another 10 to 15 million persons are estimated to be outside the banking system and relying on an ad hoc, expensive and sometimes dangerous financial underworld. But, the Committee takes little interest.

The rapid growth of electronic banking, debit cards and smart cards poses major new issues for consumers, not the least of which is the security of these new systems.

Banks continue to reach into their customers’ pockets for fees on virtually every service. There are fees for using a counter deposit slip, fees for depositing and withdrawing money, fees for making a telephone inquiry, fees for transferring money, fees for low balances, fees for talking to a human employee of a bank…the list goes on and on and it is growing.

And then there are the famous fees tied to the banking system’s favorite bit of “modernization”–the Automatic Teller Machine (ATM).

With surcharges being tacked on nearly every machine, the average ATM user will be paying more than $155 in fees this year. Surcharges alone are expected to add $1.9 billion in revenues to the industry annually.

Instead of filling the annual wish lists of the industry groups, the Congress should start dealing with these problems and devoting resources to the delivery end–the consumer end–of banking.

There is no urgency to provide new powers for an already overfed and highly profitable financial industry, but there is an overdue and overriding need to provide economic justice for consumers and communities that are trapped in an expensive and often unresponsive banking system.