Senate Committee on Banking, Housing, and Urban Affairs -- http://banking.senate.gov
Welcome to PMC!
This background paper should serve as the starting point for your individual research of a specific policy topic. Here you will find information on your committee's jurisdiction, subcommittees, and current hot topics. However, do not stop here - keep your eye on news events, check out government websites, search the internet for interesting topics that fall within this committee's scope, and above all -- think about important and relevant legislative issues that matter to you. We look forward to reading your bill and to hearing a thoughtful debate on its merits at the conference. Please remember to research the facts that drive your bill in order to solidify your arguments. Use the links on the Delegate Start Page to help you in this endeavor. After your bill is submitted, review some of the other topics your committee is currently tackling in order to form opinions on issues engaged by the bills of your fellow delegates.
We look forward to seeing you this year at the conference and good luck!
Senate Committee on Banking, Housing, and Urban
Affairs
JURISDICTION:
This committee’s scope
of jurisdiction covers the following areas:
Banks, banking, and
financial institutions.
Control of prices of
commodities, rents and services,
Deposit insurance.
Economic stabilization
and defense production.
Export and foreign
trade promotion.
Export controls.
Federal monetary
policy, including the Federal Reserve System.
Financial aid to
commerce and industry.
Issuance and
redemption of notes.
Money and credit,
including currency and coinage.
Nursing home
construction.
Public and private
housing (including veterans housing).
Renegotiation of
Government contracts.
Urban development and
urban mass transit.
The committee also
studies and reviews on a comprehensive basis matters relating to international
economic policy as it affects United States monetary affairs, credit, and
financial institutions; economic growth, urban affairs, and
credit.
SUBCOMMITTEES:
Subcommittee on
Securities and Investment
Subcommittee on
Financial Institutions
Subcommittee on
Housing and Transportation
Subcommittee on
Economic Policy
Subcommittee on
International Trade and Finance
CURRENT AND PAST TOPICS OF LEGISLATION:
Hearings regarding
Jewish war funds
The recent publicizing
of Swiss bank accounts linked to World War II survivors has sparked interest in
the federal government. Claims by many groups, the strongest from Jewish
survivors and their families, have charged Swiss banks with investing and
banking money which the Nazi government in Germany stole from many citizens
prior and during World War II. Currently, this committee has held hearings to
discuss the role of the United States in rectifying this misdeed.
Credit card and
cellular phone fraud
The recent increase in
crimes relating to credit cards and cellular phones has prompted interest in
signing laws that would strengthen penalties against such acts. These crimes
include utilization of a person’s credit card number for purposes other than
that intended, stealing of a person’s cellular phone codes in such a way as to
steal phone time from that person, and obtaining funds illegally through
exploitation of another’s credit cards or cellular phone. Because credit cards
and cellular phones are open such open forums for abuse, the federal government,
via this committee, is currently examining its future role in crime prevention
in this area.
Interest rates and
monetary policy
The prime rate, though
technically the interest that the Federal Reserve charges banks to borrow from
it, has, in actuality, a huge influence on the economy. Through manipulation of
the prime rate, the Federal Reserve Board (FRB) can signal to the private
banking community what the federal government’s current monetary policy is. When
the FRB lowers the prime rate, it tells private banks that it wants to increase
the money supply and accelerate the expansion of the national economy. When the
prime rate is raised, just the opposite message is sent; the FRB wants to
decrease the money supply and slow the rate of economic expansion. Banks will
generally follow the FRB’s lead and match prime rate increases/decreases with
increases/decreases of their own interest rates. This should affect the amount
of lending and borrowing being done in the economy (decreases in interest rates
will encourage borrowing while increases in interest rates will have the
opposite effect). However, there is no guarantee that such adjustments will have
the intended result. Hasty and reckless changes in the prime rate will, however,
spur inflation and damage the economy in the long run. It is important to
remember that the FRB is an executive institution and therefore not under the
direct control of Congress. The FRB is therefore not legally bound to respect
the wishes of Congress, but if there appears to be a consensus on Capitol Hill,
the FRB can hardly ignore the highest legislative office in the United States.
Foreign corporations and the NYSE
The New York Stock
Exchange (NYSE) and the Securities Exchange Commission (SEC) are presently
debating whether or not foreign corporations should be listed in the NYSE while
using their own, foreign accounting procedures. Right now, there are about 900
multinational corporations that do substantial amounts of business in the United
States and would like to be listed on the NYSE. Companies listed by the NYSE
have their shares traded on the floor of the NYSE, which is currently the
largest stock exchange in the world. However, the SEC requires that all
companies traded on the floor of the NYSE must conform to "generally accepted
accounting procedures (GAP)." These GAP procedures are those in use almost
universally in the United States but differ greatly from those in many foreign
countries. Since there is no international consensus on the best way to account,
each nation has its own procedures. Therefore, foreign companies cannot join the
NYSE unless they rewrite their books according to American methods. Some
companies, such as Sony, have chosen to do this, but most others refuse because
of the great expense and complications that arise from such a switch. Foreign
corporations also resent having to adopt American standards that may not be
better than their own. The SEC rightly argues that many foreign accounting
practices hurt investors and limit their ability to keep a close eye on their
money. The SEC therefore opposes listing foreign companies using their own
accounting procedures, insisting that investors will be confused and the
efficiency of the market will be impaired by shady accounting in foreign
countries. The NYSE and its current members (mainly investment banking firms)
strongly advocate listing foreign companies, contending that many people
currently invest in foreign corporations despite the slightly greater risks
involved. Listing multinational companies would also increase the size of the
market by almost one-half, providing far greater access to foreign markets and
more opportunities for all Americans to make money. Congress has not yet taken a
stand on this issue, but since investment bankers donate more money to Senators
than investor advocate groups, it seems likely that the issue will surface soon.
Corporate ownership of
banks
The United States
currently bars commercial corporations from controlling banks on the principle
of separation of banking and commerce. However, many feel that American
corporations should be allowed to control banks like their counterparts in much
of the rest of the world. Advocates of the current system fear that corporations
owning banks will force their subsidiaries to give them preferential lending. In
other words, an unhealthy corporation might make their bank lend them money even
though they are a bad credit risk. The corporation also might not choose to
charge itself interest for the loans it takes. However, as the proponents of
corporate bank ownership argue, such practices are currently illegal. Also,
their main argument for corporate ownership of banks is really just the reverse.
Banks should be allowed to own corporations. In today’s financial markets, more
and more investors are flocking to worldwide stock markets, leaving banks to
compete for an ever smaller share of investors. Their profits decline
accordingly, and they must constantly shrink to stay alive. If they had the
option of buying corporations, banks could supplement their borrowing and
lending profits with those gained in other enterprises. Unhealthy banks could
improve their balance sheets with their profits from other enterprises and thus
avert collapses that are costly to taxpayers. Advocates of change also point out
that many large corporations already have "non-bank" subsidiaries that lend
money. For example, General Electric’s GE Commercial Credit is a large and
perfectly legal provider of commercial credit in the U.S. that is not
technically classified as a bank. It therefore has many more rights than a
"real" bank. On the other hand, opponents of change rightly point out the
difficulty of making sure that the laws are upheld and that creditors are
protected. Perhaps they are right, but now that banks are forced to find
additional ways of generating revenue, this proposal might have some serious
appeal.
In the wake of the
Savings and Loan debacle that has cost American taxpayers hundreds of billions
of dollars, some members of Congress are addressing ways in which both the
integrity of deposits can be maintained and the American taxpayer can be
protected from financing future bailouts. Congressman Tom Petri recently
introduced a bill which seeks to privatize deposit insurance. For all practical
purposes, the bill was introduced too late to receive serious consideration this
term, yet it is certain to provoke controversy during the next session.
Essentially Representative Petri's privatized system would entail
"cross-guarantees" between banks, thrifts, insurance companies and other
financial institutions. Each savings institution's deposits would be guaranteed
by other private institutions rather than by a government-run insurance fund.
More specifically, a depository institution would belong to a syndicate of
institutions between which contracts would be set up guaranteeing each other's
deposits. Thus, institutions belonging to a syndicate would be responsible for
overseeing the credit worthiness of the institutions they guarantee. As a
result, loans would be priced more risk-sensitively, as the guaranteeing
institution would charge more to guarantee riskier loans and the institution
issuing the loan would pass the extra cost on to the borrower. Such risk
sensitivity in loan guarantees would lower insurance premiums. This would occur
because unsound lending would be deterred by the higher price charged by
guarantors for riskier loan portfolios. Deposits would also be guaranteed
ultimately by the government who would serve as the guarantor of last resort in
the system in order to maintain consumer confidence. That is, if a syndicate
were to become insolvent the government would step in to repay the depositors.
However, it is hard to conceive of a syndicate's becoming insolvent due to the
risk spreading features of the plan known as "stop-loss contracts". Such
contracts include the passing on of a portion of the liability from the primary
guarantor to the primary guarantor's guarantor, or the secondary guarantor, once
the burden becomes sufficiently large for the primary guarantor. More
information on the technical aspects of a privatized system is sure to be
distributed at the outset of the next term, yet the concept of removing the
government (taxpayers) from the responsibility of future bailouts is certainly
worth debating as the budget deficit grows ever larger.
According to the
Kean-Ashley Commission, overall housing affordability had actually improved
during the 1980's. But in many areas of the country, regulatory policy has
gotten out of hand. Builders have begun building primarily for the upper end of
the housing market knowing that only upper income families can afford the steep
costs of government intervention. One of the most controversial aspects of
housing regulation is the policy of rent control. Many argue that rent control
discriminates against the poor and benefits only upper-middle class buyers. In
addition, many residents will remain in their rent-controlled apartments, thus
locking low-income buyers out of the market. One possible solution to the
growing problems in housing is to allow the department of Housing and Urban
Development to grant federal housing assistance only to the states that are
already progressing toward reduction. Steps are being taken in legislation such
as the National Affordable Housing Act and the Treasury Department's Low Income
Housing Tax Credit and Mortgage Revue Bonds. Another idea for greater
affordability is the policy of mutual housing. This includes a community wide
committee staffed by residents and business leaders. Together, they would insure
that rents cover expenses and that tenants living together do not quarrel with
one another. The greatest appeal for this policy is that it is designed to pay
for itself. The owner of the housing, which is a non-profit community
organization, would set a rent that recovers slightly more than the group's
expenses. This provides the tenants with stable bargain rents. The group would
also set aside approximately five percent of its cash flow to the development of
new housing. This program has received some opposition because mutual housing
requires more cooperation and involvement than most Americans want. In order to
sustain a necessary level of commitment, mutual associations have to screen out
casual tenants. This inevitably bars low-income residents as well. The lack of
direct ownership also makes it difficult to sell housing since there is no
direct profit or capital gains. The need for a policy to make housing more
affordable to people of all income brackets is a crucial aspect of current
domestic policy.
MEMBERS:
Richard C. Shelby
(R-AL) (Chairman)
Robert F. Bennett
(R-UT)
Wayne Allard (R-CO)
Michael B. Enzi (R-WY)
Chuck Hagel (R-NE)
Rick Santorum (R-PA)
Jim Bunning (R-KY)
Mike Crapo (R-ID)
John E. Sununu (R-NH)
Elizabeth Dole (R-NC)
Lincoln D. Chafee
(R-RI)
Paul S. Sarbanes
(D-MD) (ranking member)
Christopher J. Dodd
(D-CT)
Tim Johnson (D-SD)
Jack Reed (D-RI)
Charles E. Schumer
(D-NY)
Evan Bayh (D-IN)
Zell Miller (D-GA)
Thomas R. Carper
(D-DE)
Debbie Stabenow (D-MI)
Jon S. Corzine
(D-NJ)