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.

 

Privatizing deposit insurance

 

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.

 

Urban housing affordability

 

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)