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you have leveled these requirements on two, but apparently not on others.
Mr. LUDWIG. Mr. Chairman, two things I'd like to make clear. I just want to make certain. The document we submitted last evening was not complete. We submitted a substitute this morning because there had been a computer error.
Ms. WASHINGTON. You are correct. The document that you submitted last evening had a list of 33.
a Mr. LUDWIG. Fine. Just so you have the complete
Ms. WASHINGTON. We received the new document and the chairman used the new number, which is 65.
Mr. LUDWIG. That's fine. I just want to make sure. As I mentioned, we are looking very hard at changing our Part 5 so that novel and complex applications of this sort are subject to a public comment period. We're in the process of reviewing that regulation right now.
Mr. DINGELL. We've dealt so far with the questions with regard to the procedure; in other words, whether these would be put out for comment and that sort of thing. But we have not discussed whether you would impose the same regulatory requirements on all these people. In other words, are you going to impose one set of regulatory requirements, for example, on Dreyfus and Mellon and perhaps on First United or are you going to impose them on all previous and all subsequent applicants?
Because you have defined a certain set of rules and procedures that you've indicated to us you expect to see followed by the banks which go into this kind of activity. I'm curious. Would you then apply these same kind of requirements to others, including those previous or those who will come after?
Mr. LUDWIG. In many cases, maybe even most, and we're prepared to provide to the committee the specific approvals, we have, in fact, imposed conditions or have had commitments that we thought were substantial.
Your question as to whether or not there is a core here of requirements that we might impose on a consistent basis is something we're looking at and considering.
Mr. DINGELL. Here's the situation. You have two banks doing business in the same State or same town. They have branches across the street from each other. If you apply one set of rules to one and one set of rules to another, you have a competitive advantage or disadvantage between the two.
If you apply one set of rules, for example, in Michigan and another set in Ohio, you, again, have a different competitive situation and money flows according to the most advantageous return to the holder of the money.
My question is doesn't fairness require that you achieve a level playing field on this matter?
Mr. LUDWIG. With respect, we very much want to achieve a level playing field. Let me say, however, that in terms of these individual applications, depending on the application and the actual activity involved and the precise nature of an institution's business, we might well impose conditions that would be idiosyncratic to the individual institution in terms of our concerns about safety and soundness in the specific case. So while we may well come to a core of requirements, we might well have certain approval-specific requirements in one case that we might not have in another.
Mr. DINGELL. So you have, then, the question of both investor protection and, very frankly, the question of fairness between different participants in the financial business, and you would want to achieve fair treatment of both.
Mr. LUDWIG. Absolutely.
Mr. DINGELL. All right. Mr. Ludwig, there is a rather simple solution out of this quagmire. Rather than having you have to stretch the interpretation of your statutes, it appears to me to be quite sensible to simply repeal the bank investment adviser and brokerdealer exclusions in the securities laws and to impose the voluntary commitments in Mellon's policy statement by law.
Mr. Moorhead, Mr. Markey, Mr. Fields and I have a little bill, H.R. 3447, that would do just that. Would you have any strong objections to us doing that?
Mr. LUDWIG. Well, the administration does not have a position on that legislation at this time. As a matter of fact, we do take, as you know and as I think you'll hear today, a number of your concerns seriously. At the same time, we don't have a position on the legislation and I'm not at liberty to take a position on it.
Mr. DINGELL. Of course, Mellon's policy statement adopts most of the provisions of H.R. 3447. Their testimony acknowledges that fact. The Mellon-Dreyfus letter of February 18, 1994 to the subcommittee says that this "reflects Mellon's and Dreyfus' agreement with Chairman Dingell's statement that H.R. 3447 provides a strong and responsible framework for functional regulation to strengthen taxpayer and investor protections in the wake of recent decisions allowing banks to expand their securities activities."
Would you be willing to work with the committee to help get H.R. 3447 enacted?
Mr. LUDWIG. As I said, the administration doesn't have a position on the legislation and I'm not at liberty at this point to make that commitment.
Mr. DINGELL. I would be rather naive if I didn't assume that you had a substantial influence on the position that the administration is ultimately going to take.
Mr. LUDWIG. I would have some.
Mr. DINGELL. Now, Mr. Ludwig, some of us had the privilege of watching your Senate testimony on consolidation of bank regulators on C-SPAN yesterday and you said one thing which I thought was very interesting and I think quite persuasive. You said: "one bank regulator is necessary because fraud could fall through the cracks." You also said: "one uniform set of rules should apply to all banks.”
Earlier this week, Secretary of the Treasury Bentsen was quoted as saying “Bank regulation should not be like Noah's Ark—two of everything.” Also, yesterday's Wall Street Journal article, “Senate Banking Panel Hears Regulatory Plan," reported that Secretary Bentsen called the cost and complexity of overlapping regulation a serious disadvantage in today's competitive world.”
Do you agree with those statements?
Mr. DINGELL. Mr. Ludwig, I then find it somewhat amusing and I think a little bit inconsistent the way things are going. You are out creating a second SEC within the OCC. I'm not sure that you really need to go to all that sweat and blood and tears and suffering to achieve it when we have a perfectly good SEC out there ready, willing and able to regulate people who are doing the business, that they regulate in exactly the same way that they regulate everybody else that does that business, Doesn't this have a modest level of appeal to you?
a Mr. LUDWIG. I understand your functional regulation argument, and I can say that given our current system, there is, I think, a valued cooperative effort between our regulatory apparatus and the SEC. The difference with a consolidated bank regulator is that what you're doing is regulating the same type of entity. Why have different regulators regulating the same type of entity different ways?
In respect to the SEC versus the bank regulator's jurisdiction, the bank is a specialized entity. And it seems to me as long as there is cooperation, using our mechanisms in a cooperative and genuinely forthcoming manner, we can do a good job.
Now, I'm not saying that that's the ultimate solution or the best solution. I'm saying that we're working with the system we have and we're trying to do it aggressively and effectively.
Mr. DINGELL. One of the things that seemed to make the Chairman of the SEC sad, and he seemed to be quite sad about it, was the fact that somehow or other, never have you and he or your Agency and his Agency gotten into firm agreement on how you're going to regulate the banks in their securities activities; that you held infrequent meetings; that your meetings had brought you to no successful conclusion of the controversies between you or the issues that you were trying to address.
Can you tell us of any solid agreements you have with the SEC which relate to their conduct of their business and the conduct of your business with regard to broker-dealers or people who are providing full broker-dealer services inside banks?
Mr. LUDWIG. Absolutely. We have agreed with them. We don't have it in writing, but we have agreed with them and are working with them on a consumer study and on various enforcement actions which are going on right now.
Mr. DINGELL. You've agreed that you were going to work with them. Do you have a memorandum of understanding with them?
Mr. LUDWIG. We do not have a written memorandum of understanding.
Mr. DINGELL. You have agreed with them that you're going to work together. Now, what form has that agreement taken? That you're going to apply their rules to the bankers who are engaged in the sales of securities inside the bank's premises or by a bank's subsidiary?
Mr. LUDWIG. I am definitely committed to a more cooperative effort.
Mr. DINGELL. More cooperative. Now, when you tell me you're going to be more cooperative, does that mean that you've been less cooperative up till now? I'm trying to understand this. I get the inference that perhaps up till now you've been less cooperative.
Now, this comforts me greatly to understand you're going to be more cooperative, but the question is why have you been less cooperative and how are you going to be more cooperative?
Mr. LUDWIG. Well, I think there is a great deal of cooperation that we can achieve with the SEC which past Comptrollers have not. I think that both the Chairman of the SEC and I are committed to that. We've met several times, our staffs are meeting, and we're doing a great deal more together than has been done in the past.
Mr. DINGELL. Well, he didn't seem as comfortable with this matter as you do. The record says that there's a lot of things that he would like to do with regard to people who are selling securities, on matters where it's affecting the integrity and the soundness of the market, and he can't do them because under your law and his law, he can't go in there and do it.
He couldn't tell us. I asked him to tell us of one concrete agreement, one concrete conclusion which he had arrived at which would make his mission and your mission of regulating the sales of securities out of banks more effective, and he couldn't tell me of any.
So my question to you is what have you done in terms of coming to a solid agreement with him that makes the regulation of securities sold by banks better?
Mr. LUDWIG. Well, we don't have a written agreement. I take your point on a written agreement, and maybe there's some value in it. It's something we haven't explored together, but we are working more cooperatively than the organizations have worked in the past, and we intend to continue.
Mr. DINGELL. Go ahead. I'm sorry.
Mr. LUDWIG. I'm sorry. I said that we intend to continue to work cooperatively.
Mr. DINGELL. Would you submit to us, please, a list of any and all meetings that you've had with the SEC or that officials of the OCC have had with the SEC.
Mr. LUDWIG. Absolutely, pleased to do so.
Mr. DINGELL. The conclusions that were arrived at at the meetings, the subjects which were discussed, the agreements which were achieved, and the progress which was made on the issues that are before two of you which relate to the sale of securities by banks.
Mr. LUDWIG. Absolutely. We'll be pleased to do it.
Mr. DINGELL. Now, I guess we've got to get this—we're talking here about a broker-dealer who is inside a bank. and a broker-deal
a er who is outside the bank. The broker-dealer outside the bank is regulated by the SEC. The broker within the bank is regulated by OCC.
Why should that be?
Mr. Ludwig. Well, I must say that we have, I think, a very able supervisory force, as I mentioned, and I think we do a good job. I think we can enforce these rules well using our supervisory mechanism.
Mr. DINGELL. Well, here is what you said the other day. You said "one bank regulator is necessary because fraud could fall between the cracks.” Can't you substitute “one securities regulator” for that so that fraud doesn't fall between the cracks?
Mr. LUDWIG. We're certainly committed to no fraud falling between the cracks.
Mr. DINGELL. You are committed to that, but how can you give me the firm assurance that this situation is going to work that way?
Mr. LUDWIG. As I mentioned, we can enforce the securities laws, the fraud provisions of the securities laws, and —
Mr. DINGELL. What is there that is so unique about a bank that the securities laws should be enforced by a bank regulator rather than by a securities regulator?
Mr. LUDWIG. I would say
Mr. DINGELL. Same document, same obligations, same financial questions, often the same buyers. Why does this require your special attention rather than the attention of the SEC and the application of this wonderful document which you asked people to refer to, the manual of the NASD?
Mr. LUDWIG. The fact that we're in these institutions all the time, I think, is advantageous in terms of actually enforcing seriously in this area. I think there is a virtue to using the various arms of the Federal Government in an efficient fashion. That is to say we're in there anyway and we're also doing a serious job in a variety of areas of the institution.
We have a number of people in this enforcement area in our mutual fund effort that I think are being put to good use.
Mr. DINGELL. Do you want me to believe that your success in giving firm protection to the Widow Goodbody is complete and that she is receiving the same protection with regard to the securities that she gets from her banker that she is when she goes down to somebody who is regulated by NASD?
For example, your capital requirements are different. Your rules on paper trails are different. Your rules on insider trading are different. Your rules on frontrunning are different. You actually have no specific legislative powers to address these matters.
Now, while we're talking about that, what specific rules do you have on frontrunning, any?
Mr. LUDWIG. As I mentioned, we have our Part 9 trust powers, fiduciary powers that would apply in this case, and we have our Part 12 disclosure rules.
Mr. DINGELL. Those are sort of general. How about insider trading? What specific rules have you got? The same rules?
Mr. LUDWIG. Violations of insider trading rules would violate all kinds of things. They would violate the fraud provisions of the securities laws, which we can apply. They would violate our fiduciary rules, and we would use our 1818 powers in this kind of a case.
Mr. DINGELL. Would you submit to us a list of all the actions taken against banks which were engaged in the securities business by the OCC where insider trading, frontrunning, conflict of interest, lack of proper supervision or failure to supervise, unsuitability, which is a major question, and also any questions that relaterather, any other enforcement proceedings which you've had over time? Would you do that for us, please?
Mr. LUDWIG. Yes, sir.
Mr. DINGELL. Mr. Ludwig, an insurance company and its employees who want to sell securities and render investment advise have