(Archived Content)
Chairman Barr, Mr. Watt, and Members of the Subcommittee, I appreciate the opportunity to appear here today to discuss administrative and procedural aspects of the joint Federal Reserve-Treasury rule proposal on whether to permit financial holding companies and financial subsidiaries of national banks to engage in real estate brokerage and real estate management under the Gramm-Leach-Bliley Act (GLBA).
The four-month public comment period for this proposal ended May 1 st of last year. Based on the substantial number of comment letters that the Treasury and the Federal Reserve Board (Board) have received, there clearly is wide public interest in this proposal. The volume of letters demonstrates the sensitivity of this particular determination as well as the difficulty of the task that Congress gave us in promoting competition in financial services.
We also received letters from 160 Members of Congress, some of whom transmitted comments from their constituents and some of whom set forth comments of their own. We are carefully reviewing the issues raised by all the commenters.
On April 22 nd, Secretary O'Neill informed Chairman Oxley by letter that, in consultation with Chairman Greenspan, he had decided that the Treasury will not make a final determination on this proposed rule until next year. It is incumbent on us to carefully review all the issues in keeping with the statutory criteria and purposes of the GLBA and to carefully articulate criteria that can guide our review of future requests. Given other Treasury priorities in the wake of September 11, we do not believe such a deliberative review can be completed until next year.
Because the rulemaking is pending, I will not be able to discuss the Treasury's views on substantive issues involved in making a final decision about the proposed rule. Instead, my prepared remarks will briefly describe the process and factors we considered in making the proposal and where it stands today.
By way of background, let me begin by highlighting the key provisions of the GLBA that relate to the rulemaking.
Rulemaking Provisions of the Gramm-Leach-Bliley Act
At its core, the GLBA stimulates greater competition and innovation in the financial services industry. At the same time, the legislation promotes consumer protection and safety and soundness, and restricts the mixing of banking and commerce.
To accomplish these outcomes, the GLBA amended the Bank Holding Company Act to permit financial holding companies to engage in a broad range of activities specifically listed in GLBA, as well as other activities that the Board determines, in consultation with the Treasury, to be financial in nature or incidental to a financial activity. According to the Conference Report, the financial in nature or incidental standard represents a significant expansion of the closely related to banking standard that the Board previously applied in determining the permissibility of activities for bank holding companies.
The GLBA also amended the National Bank Act to allow national banks to control qualifying financial subsidiaries that are permitted to engage in most of the same financial in nature or incidental activities that the GLBA authorizes for financial holding companies. Activities in which financial subsidiaries may not engage under the GLBA generally include insurance underwriting and merchant banking. GLBA also explicitly prohibits financial subsidiaries from engaging in real estate development and investment.
Just as GLBA requires the Board to consult with Treasury before approving new activities as financial in nature or incidental to a financial activity for financial holding companies, GLBA also requires Treasury to consult with the Board in determining whether a new activity should be approved as financial in nature or incidental for financial subsidiaries. Under the GLBA's consultation requirement, neither the Treasury nor the Board may determine that an activity is financial in nature or incidental to a financial activity if the other agency disagrees with such a determination in writing. Treasury and the Board have developed procedures for those requesting determinations under the financial activities provisions of GLBA and for coordinating and consulting with each other. Treasury and the Board are working cooperatively in considering these determinations, as the joint proposal on real estate brokerage and management demonstrates.
In making determinations for financial subsidiaries, the GLBA requires Treasury to take into account, among other factors:
- the purposes of GLBA and the National Bank Act,
- changes in the marketplace in which banks compete,
- changes in the technology for delivering financial services, and
- whether the activity is necessary or appropriate to allow a bank and its subsidiaries to compete effectively with any company seeking to provide financial services in the United States.
Let me turn now to a description of the process that the Treasury and the Board are following and where the rulemaking stands currently.
Status of the Rulemaking Process
The rulemaking process was initiated after Treasury and the Board received requests from the American Bankers Association, the Financial Services Roundtable, and the New York Clearing House Association asking that we determine that real estate brokerage and real estate management activities are financial in nature or incidental to a financial activity. Shortly thereafter, the National Association of Realtors sent a letter opposing such a determination.
In March 2000, the Treasury issued an Interim Final Rule setting forth specific procedures for requesting determinations under the GLBA, and invited the American Bankers Association and the Financial Services Roundtable to resubmit their requests to conform to these procedures. The American Bankers Association did so in July 2000, and a month later Freemont National Bank submitted a request that referenced the American Bankers Association's request.
After considering the factors specified in the GLBA and other relevant information, and consulting with the Federal Reserve Board and its staff, in December of 2000 the Treasury agreed with the Board to issue a joint notice of proposed rulemaking with a 60-day comment period. The proposal was published in the Federal Register on January 3 rd 2001.
Following publication, it soon became apparent that there was a great deal of public interest in the proposal. Given this wide public interest and our desire to give the public sufficient time to consider and comment on the proposal, and in view of letters we received requesting an extension, the Treasury and the Board decided to extend the comment period another 60 days.
As I mentioned, the comment period closed on May 1, 2001. Of the 34,735 comment letters we have received, most have come from real estate brokers expressing the same or similar views. We are giving serious consideration to the views expressed.
Conclusion
In conclusion, Mr. Chairman, we intend to carefully consider the issues raised by all the commenters. As we move forward next year, the Treasury will work closely with the Federal Reserve to ensure that this and other rulemakings under the financial in nature authority are consistent with the criteria Congress prescribed, the legal process, and the public interest.
Thank you. I am happy to respond to any questions.