Crawford, was there anything in there pertaining to that? Did you look at the Mellon Bank at all? Was that one that you tested?

Ms. CRAWFORD. No, sir. We did not test that bank.

Mr. SCHAEFER. Mr. Chairman, thank you very much. I yield back.

Mr. DINGELL. The Chair thanks the gentleman.

Members of the panel, the committee is very grateful to you for your presence here. I have a few questions that I would like to direct at you at this particular time.

Perhaps I could direct all of these questions to all members of the panel so that you each have the opportunity to address then in such order as you might choose.

You have talked about the research studies, or sending testers into banks, or taking polls. Starting with you, Ms. Crawford, what are your feelings about the situation that you are finding, and what do you feel the implications of it might be?

Ms. CRAWFORD. Well, as you might expect my answer is that in my view the situation is very bad. It is a frightening situation, and I think it has very far-reaching implications.

The thought that we have many, many millions of Americans who are dissatisfied with the interest rate that they are receiving on their insured investments are now switching over to uninsured investments on the premises of banks, where perhaps they have been doing business for many decades or their entire lives, where they are not asked any questions that lead to a determination of whether switching to an uninsured product would be suitable for them, where they may have no reason on earth to believe that what they are going to switch into does not have the full faith and credit of the United States behind it. It is just frightening.

We have heard from the Lincoln Savings prosecutorial group, and I think that many of the things they had to say were analogous to things that people could be saying to this committee several years hence if something is not done.

Mr. SCHAEFER. Thank you. Ms. Archuleta?

Ms. ARCHULETA. I think I just wanted to add that I live in a high-rise of senior citizens of about 100 people. It is always amazing to me that they continue to go to the bank that is clear across town because they know the people and they trust them. So I think we need to do many of the things that we have talked about this morning in order to protect those people.

Sometimes when I discuss this issue with my neighbors and I talk about uninsured and insured products, and they will say, "Well, I wonder if my mutual funds are insured?" And I say, well, no they are not, and they say, "Oh," but they do not say anything

more.

Many people are unwilling to tell you that they have lost money because maybe they think $2,000 was really not too much, but it was really quite a bit in their terms.

Mr. SCHAEFER. Ms. Colasanto, would you like to tell us whatever you might have in mind on that?

Ms. ČOLASANTO. Sure. I think the survey evidence is very clear that bank customers are confused. They simply are not aware or have the wrong impression about whether their investments that they purchase at banks are FDIC insured.

I think one other thing that came out in our study that I want to note is who is buying these products. It is people at the lower end of the income scale who are purchasing these products as well as people who have a little bit more of an income cushion, so the implications for the individuals who are taking on this risk could be great.

Mr. SCHAEFER. Thank you. Mr. Lewis?

Mr. LEWIS. Obviously, we believe that there is a very serious problem here. We have got millions of consumers out there who are willingly and unwillingly placing their savings at risk. We are not talking about spare change here.

It is probably on the order of $2 billion a week in consumer savings that are being put into uninsured investment instruments on or through bank sales programs, and that number is probably going up as each week progresses. So we have a very serious concern about whether or not the channeling of these savings is being done in an informed manner.

As I noted in my oral statement, this certainly brushes against whether or not we are, as a Nation, retaining the integrity of the FDIC program; at what cost this activity and the level of confusion and the level of confusion has for the integrity of the FDIC program.

Finally, we are very much concerned about the lack of consumer protection programs at the banking regulatory agencies. This has not been their traditional focus. In fact, historically they have been very poor performers in consumer protection, and have no track record really in investor protection.

I noted some of the very serious problems we have with their current guidelines, which are only guidelines; these are not mandates. There are, as evidence presented here, very serious compliance problems with those guidelines, much less their basic inadequacies, but I think we are very concerned about consumers making uninformed decisions and the lack of an effective consumer compliance and enforcement program amongst banking regulatory agencies.

Mr. DINGELL. Can you give me your thoughts now, please, members of the panel. What are your thoughts regarding security salespersons at banks in gaining access to individual bank records and customer lists. Do you have a feeling on that, Ms. Crawford? You are regulatory, and you understand these matters very well. What are your thoughts?

Ms. CRAWFORD. Well, it seems entirely inappropriate. I certainly think that if the vast majority of Americans were aware that that could occur, they would be up in arms and would probably be storming your office.

I think there is a level of innocence, if you will, about that kind of activity. It is something that makes it very difficult for securities regulators to deal with, though, because, as Chairman Levitt pointed out this morning, securities regulators for the most part can only go so far. They can only get certain records.

If the bank itself is engaging in the activities, there is nothing under the securities law that allows the securities regulator to obtain that sort of information and see if it is being misused.

Mr. DINGELL. Would it be fair to say that it is a situation rich in opportunity for wrongdoing, pressure and impropriety?

Ms. CRAWFORD. Absolutely.

Mr. DINGELL. Ms. Archuleta, do you have a comment?

Ms. ARCHULETA. No.

Mr. DINGELL. How about it, Mr. Lewis?

Mr. LEWIS. The sharing of private, personal, financial information with the consumer being unaware that that information is being slid to another corporate entity is very troublesome to us, particularly, obviously, in the area of the roll-over of CD's of large savings.

I know that this is one matter that is addressed in pending legislation across the hall in the banking committee. I do not know why we need to await legislation here. The regulators ought to just outright ban the sharing of private of financial information.

I very much agree with the comments of Ms. Crawford that if the consumers we talked to were aware that this information was being shared, they would be outraged.

Mr. DINGELL. Now, Ms. Crawford, OCC and Mellon are promising aggressive campaigns relating to visual devices to be used to sell securities such as logos, prospectus, and signed statements in order to dispel the notion that mutual funds are insured. However, we heard from the previous panel that the single most important aspect was conversations between the salespeople and the buyers. Do you agree with that, and do you believe that it is necessary for Mellon, OCC, and FDIC to use testers to assess what is actually going on and what is being said to potential buyers to ensure the protection of customers of the banks against undue pressure, deceitful and improper practices?

Ms. CRAWFORD. Mr. Chairman, you have asked two questions. In answer to the first, absolutely, I agree with that statement.

As to the second, I do not see how any regulator can tell what is going on if they do not send somebody into the institution to test. Whether you call it an examination or testing or whatever, it is absolutely essential that that be done.

I might add that it would be more useful to actually have people that have a preexisting relationship with the institution serve as testers because, as was pointed out to us at NASAA in the Keating situation, it appeared that there was a difference in approach taken with regard to individuals who had a preexisting relationship with the financial institution as opposed to those people who did not have such a relationship.

In the latter circumstance, they were treated much more with kid gloves. All the "i's" were dotted; all the "t's" were crossed, which was not the case when a person who had the preexisting relationship came into the financial institution.

You can see why that would be the case if you are selling a product based upon the trust that you have enjoyed with this individual through the years. If you were preying upon that then there is no need to dot the "i's" and cross the "t's" if you are not of a bent to do so.

Mr. DINGELL. Ms. Archuleta and Mr.Lewis, do you have feelings on that matter?

Ms. ARCHULETA. No, sir.

Mr. DINGELL. Mr. Lewis?

Mr. LEWIS. We very much think that testers should be part of an ongoing enforcement regime. We do not have much confidence in self-testing by institutions themselves.

I think it is important to note that testing is a detection effort to determine whether or not agreed upon sales practice and conduct practices are being adhered to or not. We believe that we need to remove as many of the incentives that currently exists to misinform consumers about the nature of insured-of the uninsured status of securities products from the marketplace.

That is why we are very much opposed to the payment of referral fees to tellers and to other personnel of the insured institution, and there should be no commingling of personnel between the insured institution and the uninsured sub or contracted brokerage firm, obviously.

Second, we believe that there ought to be some consideration for a prohibition on any commission compensation that does provide an incentive for a bank employee or a hired hand to gloss over in their communication with the consumer the full nature of a marketed investment instrument, and that perhaps we ought to, for purposes of sale of these instruments in banks, they ought to only be done by salaried personnel, not those that are subject to the colluding influence of commissions.

Mr. DINGELL. Do you agree with that, Ms. Crawford?
Ms. CRAWFORD. Yes, sir. I do.

Mr. DINGELL. Now, we find ourselves here with the situation at hand. Just yes or no. Do each of you believe that regulators such as the OCC and FDIC are aggressively protecting consumers in these matters?

Ms. CRAWFORD. No.

Mr. DINGELL. Ms. Archuleta?

Ms. ARCHULETA. No, I do not.

Mr. DINGELL. Mr. Lewis.

Mr. LEWIS. No.

Mr. DINGELL. Should we encourage the further expansion of banks into the mutual fund business under the current regulatory scheme and regime?

Ms. CRAWFORD. No.

Mr. DINGELL. Ms. Archuleta?

Ms. ARCHULETA. No, Mr. Chairman.

Mr. LEWIS. We have a forest fire out there, and I do not know why we would need one; why we would ever want to put more fuel on it. We've got to put this out. We have to first find the tools that we need to put onto it that will distinguish the firestorm of confusion and deception that is at play. Obviously, we do not think we should add to the problem.

Ms. CRAWFORD. Mr. Chairman, I would like to add if I may that it is important to note that we are talking about shares of mutual funds today, but there is absolutely nothing that would stop these financial institutions from selling interests in limited partnerships or perhaps the more arcane derivative products in the future, which cause many more problems than what we have discussed here this morning and early this afternoon.

Mr. DINGELL. I think you have raised an excellent point to which the committee had not really fully addressed itself, but you are talking about derivatives, you are talking about a potential for futures, you are talking about mutual funds, you are talking about over-the-counter sales of stocks of different kinds, perhaps, penny stocks, perhaps stocks that are regulated by the SEC or stocks that are simply regulated by the States. You are talking about the penny stocks, which everybody knows are poorly regulated, which could be sold under similar circumstances.

Now, would you favor any of those activities being expanded within the borders of the banks?

Ms. CRAWFORD. No, sir. I would not.

Mr. DINGELL. Well, the Chair wants to express the thanks to the committee and also my personal thanks. The Chair notes with some regret that those two lights and those bells that you have been hearing tells us we have votes on the floor, and my watch says I have a minute and 15 seconds to get over there.

The committee stands adjourned with our thanks to you all. [Whereupon, at 2:20 p.m., the subcommittee hearing was adjourned, to reconvene March 3, 1994.]