March 31, 1998
The Administration strongly opposes H.R. 10.
The Financial Modernization provisions of H.R. 10 would: (1) stifle innovation and efficiency in the national banking system; (2) undermine the Community Reinvestment Act by forcing financial innovation to occur in holding company affiliates rather than in bank subsidiaries; (3) diminish the ability of communities and consumers to benefit from the financial system; (4) eliminate advantageous features of the current thrift charter; and (5) impose needless costs on small banks. If H.R. 10 were presented to the President in the form of the Republican Leadership substitute, the Secretary of the Treasury would recommend that it be vetoed . The Administration, however, would support House passage of the credit union provisions of H.R. 1151 that have been included in H.R. 10 (excluding Section 402) on a stand-alone basis. The Administration would look forward to working with the Senate to improve the provisions of H.R. 1151. The Administration favors expeditious Congressional action on credit union legislation and believes such action should not be linked to controversies over financial modernization.
With the inclusion of H.R. 1151, H.R. 10 would also provide for interest to be paid on reserves at Federal Reserve banks (section 402 of H.R. 1151 as reported). OMB estimates that these provisions would have an estimated pay-as-you-go cost of $800 million over five years, by reducing the annual net income of the Federal Reserve, which is paid to the Treasury. This represents a transfer of resources from the taxpayers to the banking industry which cannot be justified. The Administration understands that an additional provision has been added to H.R. 10 which would require the Federal Reserve to transfer retained earnings to the Treasury in an amount sufficient to offset the pay-as-you-go effect of this provision of H.R. 1151. The Administration notes that the Senate-reported budget resolution repeats language in prior budget resolutions prohibiting the scoring of savings from the transfer of Federal Reserve retained earnings to the Treasury.
H.R. 10 is subject to the "pay-as-you-go" (PAYGO) requirements of the
Omnibus Budget Reconciliation Act of 1990. The Administration's PAYGO
estimate for this bill is under development. As noted above, the
provisions of H.R. 1151 would increase the deficit for pay-as-you-go
purposes by an estimated $800 million over five years. Unless its budget
effects are offset, enactment of H.R. 10 could contribute to a sequester of