October 2, 2003

The Honorable David M. Walker
Comptroller General
U.S. General Accounting Office
441 G Street, N.W.
Washington, D.C. 20548

Dear Mr. Walker:

I am writing with further reference to my letters of July 11, 2002, September 12, 2002, and November 4, 2002, asking the U.S. General Accounting Office (GAO) to study the significant public policy issues raised by tying practices at large banks and to update the May 1997 GAO report, which was prepared at my request. By letter of August 20, 2002, GAO accepted my request. By letter of March 11, 2003, following an extensive design phase with staff, GAO committed to issue a report to me by October 6, 2003. I appreciate the hard work and professionalism of the GAO staff assigned to this project, and have the following comments and questions as a result of several subsequent events:

1.   I have been informed that GAO transmitted the confidential draft report to the Board of Governors of the Federal Reserve (Federal Reserve) and the Office of the Comptroller of the Currency (OCC) on September 17, 2003, for sensitivity review and comment. While GAO's protocols provide a comment period of up to 30 days, they also authorize you to attempt to obtain comments in a shorter period of time. It is my understanding that you have requested comments by the end of this week, and intend to issue the final report to me by October 10, 2003. I have no problem with the new issue date.

2.   Press reports last year, e.g., "NASD Examines Issue of 'Tying' Of Bank Loans," The Wall Street Journal, Friday, September 20, 2002, at A3, disclosed that the NASD was conducting an investigation of bank tying. Does the GAO report include the results of this probe and/or any related information on what NASD is doing to ensure compliance by its membership? Has NASD been asked to comment on the draft report?

3.  On August 27, 2003, the Federal Reserve Board announced the issuance of a combined Consent Order to Cease and Desist and an Order of Assessment of a Civil Monetary Penalty against WestLB AG, Dusseldorf, Germany, and its New York Branch. The order, to which the foreign bank consented without admitting or denying the allegations, requires WestLB to pay a civil money penalty of $3 million and implement various policies and procedures designed to prevent future violations of the anti-tying restrictions in section 106 of the Bank Holding Company Act Amendments of 1970 and related unsafe and unsound banking practices. By letter dated August 13, 2002, the Federal Reserve and the OCC informed me: "We have not identified illegal tying by banks." By letter dated September 12, 2002, I sent them a credible written complaint about alleged tying violations by WestLB.

• The routine compliance examinations conducted by the bank regulators include a tying module. Please advise whether those inspections detected this problem, and, if not, why not. I relay complaints to the regulators when I receive them, but these examinations should be better designed to pick up these problems, especially where the conduct is blatant.

• The Federal Reserve's litigation release and combined order provide only the sketchiest of information and none of the detail such as that provided by the SEC in its enforcement settlements regarding individuals and specific conduct comprising the offenses for educational and deterrent purposes. Does your report compare and discuss this discrepancy and shortcoming?

4.  I am transmitting a written complaint regarding alleged tying violations by Summit Bank and Summit Financial Services Group (enclosure). The Federal Reserve and the OCC were copied on this complaint. Please inform me of the outcome of their respective reviews.

5.  On August 29, 2003, there appeared in the Federal Register proposals by the Federal Reserve for (1) an interpretation of the anti-tying restrictions of section 106 and related supervisory guidance, and (2) an exception from the restrictions for financial subsidiaries of state nonmember banks, with requests for public comment by September 30, 2003. On September 25, 2003, the OCC released a white paper, Today's Credit Markets, Relationship Banking, and Tying. Please advise whether the GAO report will address these recent developments.

6.  I referred to GAO an anonymous complaint from "A concerned OCC employee" alleging that his supervisors had suppressed information regarding tying violations by a major national bank and its securities subsidiary. Please inform me of the outcome of that investigation, along with any recommendations for further action.

7.  On April 29, 2003, the Chairman and Ranking Member of the House Committee on Financial Services wrote to GAO mirroring my request. I am informed that GAO intends to issue an identical report to the Financial Services Committee with no reference to the requests that led to this report, and no process protections despite GAO's prior commitment. Please advise whether my understanding is correct.

Thank you for your cooperation and attention to this matter.

Sincerely,

JOHN D. DINGELL
RANKING MEMBER

Enclosure

cc: The Honorable W.J. "Billy" Tauzin, Chairman
Committee on Energy and Commerce

The Honorable Michael G. Oxley, Chairman
Committee on Financial Services

The Honorable Barney Frank, Ranking Member
Committee on Financial Services