FROM THE OFFICE OF PUBLIC AFFAIRS

SUMMARY

In 1996, Congress and the Administration, working together, demonstrated we could relieve regulatory burden on depository institutions without sacrificing either the safety and soundness of those institutions or important protections for consumers and communities. We welcome the opportunity to work with you on additional meaningful reform.

The Administration is particularly pleased that S.1405 does not propose to weaken the Community Reinvestment Act. Under CRA financial institutions have become increasingly important sources of capital for the revitalization of our low- and moderate-income neighborhoods. All the banking agencies have made a determined effort to rework their CRA rules to emphasize performance over paperwork. In 1996, the Administration urged Congress to allow time for these changes to take effect, and the results have validated Congress's decision to do so.

Attached to this testimony is a section-by-section analysis of the bill setting forth our understanding of each provision and the Administration's position on it.

Removal of Interest Rate Restrictions

Section 102 would repeal existing prohibitions on banks and thrifts paying interest on demand deposits. The Administration supports eliminating this needless government control, with an appropriate transition period to allow depository institutions to adjust their funding sources to reflect the new market rate.

Section 101 would permit the Federal Reserve to pay interest on reserves that banks are required to hold at Federal Reserve Banks. The effect of section 101 is to shift significant revenues from the taxpayers to the banking industry. Given the many high priority claims that we and the Congress have on scarce budget resources, we do not believe that there is sufficient reason to make this change at this time.

Reform for Savings Associations

The bill contains several helpful reforms for savings associations. Section 104 would repeal the dividend notice requirement for thrifts and section 106 would permit the OTS to approve interstate acquisitions of savings associations by savings and loan holding companies on the same basis as intrastate acquisitions. We support these provisions but note that they would cause some disparity in the regulatory treatment of banks and thrifts. We would prefer that the statute treat banks and thrifts equally.

Elimination of Unnecessary Bureaucracy

Section 306 would eliminate the Thrift Depositor Protection Oversight Board. The Department of the Treasury proposed this change last year. Similar legislation passed both the House and Senate last year and is now awaiting conference on a provision unrelated to elimination of the Board.

Federal Home Loan Banks

We have fundamental concerns about the provisions that affect the FHLBank System. There must be comprehensive reform of the System, and piecemeal amendments make such reform more difficult both conceptually and politically. In addition, some of the amendments would be poor public policy in any context.

The development of the secondary mortgage market and the authorization of adjustable-rate mortgages have eroded the System's original public purpose. It's balance sheet, however, has grown rapidly. At the end of 1997, the System had nearly $360 billion in assets of which about $150 billion were in investment securities unrelated to the System's mission -- a sort of money market fund for the benefit of System members managed by the System and funded with debt securities subsidized by taxpayers.

Consumer Protection Issues

In the 1996 Act Congress made progress in the consumer protection area. This bill, however, proposes several reforms that would tilt the balance against consumers including: section 206 that affects real estate settlements, section 402 concerning methods for advertising credit terms, and section 204 eliminating restrictions on tying. We have serious concerns about provisions that would weaken important consumer protections.

Reform for National Banks

The bill contains general burden-reducing provisions for national banks. Clarifying that banks can purchase their own stock is especially important now, when banks find themselves flush with liquidity and therefore more likely to make marginal loans. Section 113 would make it easier for banks to choose the alternative of buying back their own stock. We support this provision and recommend that Congress consider repealing the current restriction altogether.

Relief for the Regulators

Sections 304 and 302 are intended to relieve burdens not on the financial services industry but rather on its regulators. We believe that each provision should be eliminated or modified.

TABLE OF CONTENTS

A.Removal of Interest Rate Restrictions ................................................................2

B.Reform for Savings Associations .........................................................................3

C.Elimination of Unnecessary Bureaucracy............................................................4

D.Federal Home Loan Banks ..................................................................................4

E.Consumer Protection Issues ................................................................................. 6

F.Reform for National Banks .................................................................................7

G.Relief for the Regulators ......................................................................................8

CONCLUSION .....................................................................................................10

Appendix

Mr. Chairman, Senator Sarbanes, Members of the Committee. Thank you for this opportunity to present the Administration's views on S. 1405, the Financial Regulatory Relief and Economic Efficiency Act of 1997.

Mr. Chairman, I would like to commend you, Senators Shelby and Mack, and the other Senators who introduced S. 1405. Your commitment to rationalizing the regulation of our nation's financial institutions is longstanding. In 1996, the Administration was pleased to support final passage of the Economic Growth and Regulatory Paperwork Reduction Act of 1996. That legislation demonstrated that Congress and the Administration, working together, could achieve meaningful reductions in the regulatory burden on depository institutions without sacrificing the safety and soundness of those institutions or important protections for our nation's consumers and communities. We welcome the opportunity to work with you on additional meaningful reforms.

The Administration is particularly pleased that S. 1405 does not propose to weaken the Community Reinvestment Act. Under CRA, insured depository institutions have become increasingly important sources of capital for the revitalization of our nation's low- and moderate-income neighborhoods, bringing billions of dollars in investments to local economies. As the Committee knows, all the banking agencies have made a determined effort to rework their CRA rules to emphasize performance over paperwork. In 1996, the Administration urged Congress to allow time for these changes to take effect, and the results have validated Congress's decision to do so. As one ABA official has put it, the new CRA regulations "reduced record keeping, exams went quicker, and banks now know what is required of them." CRA is working.

I should note that the Administration has taken additional steps to reduce regulatory burden. Examples include directing each agency to undertake a line-by-line review of its regulations to streamline procedures, eliminate redundant requirements, and write rules in plain English. In addition, the Administration encouraged the OCC and OTS to streamline their examination process for smaller, well-capitalized, well-managed institutions.

I am attaching to my testimony a section-by-section analysis of the bill setting forth our understanding of each provision and the Administration's position on it. Rather than repeat that discussion in my testimony, I will highlight some areas we believe to be of particular comfort or concern.

A. Removal of Interest Rate Restrictions

Section 102 of the bill would authorize banks and thrifts to offer NOW accounts for businesses and repeal existing prohibitions on their paying interest on demand deposits. Section 102 would thereby eliminate a needless government control on the price banks pay for funding, consistent with earlier elimination of Regulation Q ceilings on rates paid on deposit accounts. The result should be more efficient resource allocation. Moreover, small businesses, including minority-owned businesses, stand to benefit significantly from increasing the rate they earn on deposits from zero to a market rate. Larger firms are better able to earn interest through corporate sweep accounts or price concessions on other bank products in order to offset the below-market rate earned on deposits. The Administration therefore supports permitting depository institutions to pay interest on demand deposits with an appropriate transition period to allow banks to adjust their funding sources to reflect the new market rate.

Section 101 would permit the Federal Reserve to pay interest on reserves that banks are required to hold at the Fed. The Fed would pay a rate or rates not to exceed "the general level of short-term interest rates," thereby eliminating a cost to banks that is not imposed on their non-bank competitors. Banks can reduce this cost, but only if they expend resources to avoid it through sweep accounts and other machinations. In addition, the Federal Reserve believes that the payment of interest on reserves should help to reduce the volatility of the federal funds rate and resulting inefficiencies in short-term credit markets, thereby making monetary policy easier to implement through open market operations.

However, the effect of section 101 is to shift significant revenues from the taxpayers to the banking industry. Given the many high priority claims we and the Congress have on scarce budget resources, and the current high level of earnings in the banking industry, we do not believe that there is sufficient reason to make this change at this time.

B.Reform for Savings Associations

S. 1405 contains several helpful reforms for savings associations. Section 104 would repeal a requirement that the Office of Thrift Supervision (OTS) require 30 days notice of any dividend paid by a savings association that is a subsidiary of a savings and loan holding company. No similar statutory notice requirement applies to savings associations owned by individuals or bank holding companies, though OTS has imposed a notice requirement under other authority. The OTS now would like to waive the notice requirement for adequately capitalized, highly-rated savings associations, regardless of their ownership structure, and section 104 would allow it to do so.

We support this step but note that although section 104 repeals the notice requirement for savings associations, it leaves in place a dividend approval requirement for national banks.

In addition, section 106 would permit the OTS to approve interstate acquisitions of savings associations by savings and loan holding companies on the same basis as intrastate acquisitions. As a result, savings and loan holding companies would not have to comply with certain state laws, such as age and concentration requirements. We support this provision but note that it would continue a disparity in the treatment of interstate acquisitions between bank holding companies acquiring banks and savings and loan holding companies acquiring thrifts.

C. Elimination of Unnecessary Bureaucracy

Section 306 would eliminate the Thrift Depositor Protection Oversight Board and direct the Secretary of the Treasury to assume the Board's remaining responsibilities -- overseeing the Resolution Funding Corporation for the next 30 years, and serving as a nonvoting member of the Affordable Housing Advisory Board until the Advisory Board terminates in October 1998. The Department of the Treasury proposed this change last year.

Terminating the Oversight Board would eliminate the costs associated with preparing mandated agency filings -- such as Privacy Act reports and Federal Managers Financial Integrity Act reports -- over the remaining 33 years of the Board's life. Similar legislation passed both the House and Senate last year and is now awaiting conference on a provision unrelated to elimination of the Board.

D. Federal Home Loan Banks

We have fundamental concerns about the provisions in S.1405 that affect the Federal Home Loan Bank System. Our concerns are two-fold. First, we believe that there must be comprehensive reform of the Federal Home Loan Bank System, and that piecemeal amendments make such reform more difficult both conceptually and politically. Second, we believe that some of the FHLB amendments in S. 1405 would be poor public policy in any context.

The Federal Home Loan Bank System's role in financial markets has changed significantly in recent years. The development of the secondary mortgage market and the authorization of adjustable-rate mortgages have eroded the System's original public purpose. The System's balance sheet, however, has been growing rapidly. At the end of 1997, the System had nearly $360 billion in assets, but only $200 billion of those assets were advances. About $150 billion of the System's assets were investment securities unrelated to the System's mission -- a sort of money market fund for the benefit of System members managed by the System and funded with debt securities subsidized by taxpayers.

In the early 1990s, the Federal Home Loan Banks pointed to the combination of diminished demand for member advances and the fixed $300 million a year REFCorp obligation as a justification for building large investment portfolios. Since that time, there has been a steady increase in the demand for member advances, but the Federal Home Loan Banks have increased rather than decreased their investment portfolios. While the higher dividend rates that result from the investment portfolios may help retain members in the System, these investments do not contribute to the Federal Home Loan Banks' public purpose and are unnecessary to fund a REFCorp obligation that is small in comparison to the overall size of the System. Thus, any meaningful Federal Home Loan Bank legislation must include eliminating investments that do not directly serve the mission or safety and soundness of the system, better ensuring that advances to members are used to further their intended purpose; rationalizing the rules for FHLB membership; and reforming the capital structure of the Banks.

The FHLB provisions of S. 1405 do not serve these goals. For example, section 118 provides the Federal Home Loan Banks exemptions or special treatment with regard to Federal Reserve daylight overdraft regulations. Exemptions from daylight overdraft regulations could give the Federal Home Loan Banks a price advantage with regard to intra-day credit. Such advantage would serve no public purpose, could add risk to the payments system, and would create an unfair advantage for FHLBanks over both depository institutions and other GSEs.

Some of the FHLB provisions in section 119 that devolve decision making from the Finance Board to the Federal Home Loan Banks, such as eliminating Finance Board approval for Federal Home Loan Bank directors' salaries and Federal Home Loan Bank dividends, may be appropriate. However, it is inappropriate to give the FHLBanks greater autonomy absent other changes that would make the system both sounder and more accountable.

E. Consumer Protection Issues

In the Economic Growth and Regulatory Paperwork Reduction Act of 1996, Congress made some progress in the consumer protection area. Reform of the Truth in Lending Act and the Real Estate Settlement Procedures Act (RESPA) required the elimination of duplicative and needlessly burdensome requirements in the home mortgage lending process. These improvements will serve the interests of both consumers and the industry by reducing information overload and the costs of loan originations.

S. 1405, however, proposes several reforms that we believe would tilt the balance against consumers. We have serious concerns about the following provisions that would weaken important consumer protections.

Section 206 would permit a settlement service provider to pay an "affinity group" for a written or oral endorsement in an advertisement or mailing if the service provider clearly disclosed the payment in its first written communication to the consumer.

We have concerns that, under the existing statutory regime, such changes could spawn sham affinity groups seeking to avoid RESPA's anti-kickback provisions. It would be difficult to distinguish between bona fide and sham affinity groups. Moreover, the Committee has requested recommendations on fundamental statutory reform to RESPA and TILA. Any affinity group exemption proposal should be considered in that context.

Section 402 would amend TILA by (1) eliminating the repayment period and number of installments as terms that trigger disclosure requirements (regarding the down payment, terms of repayment, and APR) in closed-end credit advertisements; (2) eliminating disclosure of the highest possible APR in advertisements for open-end, variable-rate, home-secured credit; and (3) providing that instead of including current disclosure requirements, credit advertisements on radio or television in those media could state basic rate information, give a toll free number, and state that further information is available upon request.

We have concerns about section 402. We believe that consumers receive valuable information through advertising disclosures, and that this change would curtail that information. We understand that a nearly 40-organization Mortgage Reform Task Force, formed as a result of Section 2101 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996, is looking into this issue as well as the issues raised in Section 206. We believe the agencies and this working group should be allowed to finish their assignment before legislative language is enacted.

Section 204 would repeal a statute that prohibits banks from "tying" -- that is, requiring a customer to purchase one product in order to receive another or to receive a better price on another. In order to avoid disrupting traditional banking relationships, the anti-tying statute already allows banks to tie traditional bank products -- allowing depositors to receive preferential rates on loans, for example. The statute also authorizes the Federal Reserve to grant further exceptions by regulation or case-by-case. We oppose repealing this prohibition. We are aware of no evidence that it has imposed unreasonable burdens that the Federal Reserve has been unable to address through its exemptive authority.

F. Reform for National Banks

S. 1405 contains several burden-reducing provisions for banks. For example, section 110 expedites the procedure by which a national bank may reorganize to become a subsidiary of a holding company, section 111 provides national banks with the flexibility to stagger the election process of members of their boards of directors, and section 112 provides procedures by which a national bank could merge with nonbank subsidiaries or affiliates.

The Administration also supports section 113 which clarifies that banks can purchase their own stock. Current law prohibits a national bank from owning or holding its own stock except to prevent a loss on a debt previously contracted and sold or disposed of within six months. The OCC has interpreted this language to permit national banks to acquire their own stock for certain legitimate corporate purposes.

Legitimate purposes include reducing capital when consistent with safety and soundness and called for by either market conditions or internal operations, or holding stock in order to offer it to employees as part of a stock sharing plan.

Clarifying that banks can purchase their own stock is especially important now, when banks find themselves flush with liquidity. In such circumstances, banks are more likely to make marginal loans. Section 113 would make it easier for banks to choose the alternative of buying back their own stock. Indeed, we further recommend that Congress consider repealing the current restriction altogether.

G. Relief for the Regulators

Two sections of S. 1405 are intended to relieve burdens not on the financial services industry but rather on its regulators. We believe that each provision should be eliminated or modified. The first, section 304, would repeal the requirement that each federal banking regulator submit an annual report to Congress concerning the differences among the regulators' capital and accounting standards. We believe that this reporting requirement is an important means for the regulators to identify and harmonize any differences that develop in their capital rules. We believe that capital regulation is an area where consistency is important. As an alternative, we propose allowing the regulators the option of producing one joint report each year, rather than four separate reports. To the extent that the capital standards become and remain truly consistent, the report should be simple to prepare.

The other provision, section 302, would repeal the requirement that the federal banking regulators develop jointly a method for insured depository institutions to provide, to the extent feasible, supplemental disclosure of the estimated fair market value of assets and liabilities in any financial report. We have concerns about eliminating this requirement. Repeal could be read as a retreat from the current trend toward better disclosure.

CONCLUSION

We look forward to working with the Committee as this bill makes its way through the legislative process. Working together, we can eliminate regulatory burden while maintaining important and necessary public protections.

I would be glad to respond to any questions the Committee may have.

APPENDIX
SECTION-BY-SECTION COMMENTS
ON S. 1405,
FINANCIAL REGULATORY RELIEF AND ECONOMIC EFFICIENCY ACT OF 1997

Sec. 101. Payment of interest on reserves at Federal Reserve Banks.

Section 101 would permit the Federal Reserve to pay interest on reserves that banks are required to hold at the Federal Reserve. The Federal Reserve would pay a rate or rates not to exceed "the general level of short-term interest rates." Currently, banks expend resources to avoid the reserve requirement through sweep accounts and other machinations. In addition, the Federal Reserve believes that the payment of interest on reserves should help to reduce the volatility of the federal funds rate and resulting inefficiencies in short-term credit markets, thereby making monetary policy easier to implement through open market operations.

However, the effect of Section 101 would be to shift significant revenues from the taxpayers treasury to the banking industry. Given the many high priority claims we have on scarce budget resources and the current high level of earnings in the banking industry, we do not believe there is sufficient reason to make this change at this time.

Sec. 102. Amendments relating to savings and demand deposit accounts at depository institutions.

Section 102 would authorize banks and thrifts to offer NOW accounts for businesses and repeal existing prohibitions on banks' paying interest on demand deposits. Section 102 would thereby eliminate a unique government control on the price banks pay for funding, consistent with the earlier elimination of Regulation Q ceilings on rates paid on deposit accounts. The result should be more efficient resource allocation. Moreover, small businesses, including minority-owned businesses, would appear to be potentially significant beneficiaries of increasing the allowable rate on deposits from zero to a market rate. Larger firms are better able to earn interest through corporate sweep accounts or to demand price concessions on other bank products in order to offset the below-market rate earned on deposits.

We would support the payment of interest on demand deposits with an appropriate transition period to allow banks to adjust their funding sources to reflect the new market rate.

Sec. 103. Repeal of savings association liquidity provision.

Section 6 of the Home Owners Loan Act authorizes thrifts to make "liquidity investments" -- cash and certain securities with unexpired maturities of one year or less -- in an amount no less than four percent to 10 percent of a thrift's total demand deposits and borrowings payable within one year. The OTS is authorized to select the applicable percentage within the prescribed range. Section 103 would repeal this requirement.

We support this change. The statute reflects an outmoded approach that fails to take account of new methods of asset/liability management. Commercial banks and state savings banks are not subject to a similar requirement. The liquidity of these institutions is monitored through the examination process pursuant to flexible safety and soundness guidelines developed by the federal banking agencies. The OTS uses similar safety and soundness guidelines when conducting its examinations.

Section 103 would also expand the "liquidity investments" that thrifts are permitted to make by allowing the OTS to make the determination. Section 103 specifies cash, funds on deposit at a Federal Reserve Bank or a Federal Home Loan Bank, and bankers' acceptances as possible liquidity investments. Similarly, section 103 would replace the term "liquid assets" in the definition of portfolio assets that qualify under the QTL test with the phrase "cash and marketable securities identified by the Director."

Although the expansion of permissible liquidity investments gives examples of the types of investments that the OTS ought to considered liquid, section 103 fails to place any limits on what the OTS can identify as a "liquidity" investment. We would recommend giving the OTS authority to expand the list of permitted investments with investments of comparable liquidity.

Sec. 104. Repeal of dividend notice requirement.

This provision would repeal the statutory requirement imposed on savings association subsidiaries of savings and loan holding companies to provide the OTS with 30 days advance notice of dividend payments. No similar statutory notice requirement applies to savings associations owned by individuals or bank holding companies. The OTS has existing regulatory authority to require advance notice when deemed appropriate for safety and soundness purposes, and OTS regulations require prior notice of such distributions from all institutions.

The statutory notice requirement prevents the OTS from applying these regulations even-handedly across all savings associations. As part of its ongoing effort to reduce regulatory burden, the OTS recently proposed to amend its dividend regulation (which applies to all thrifts, not just those owned by savings and loan holding companies) to exempt adequately capitalized, highly-rated savings associations from providing advance notice of dividends under certain circumstances. Unless the statutory notice requirement is repealed, this proposed change to OTS's dividend regulation will, when promulgated in final form, apply only to savings associations not owned by savings and loan holding companies.

We therefore support section 104.

In addition, we would prefer treating all federally insured depository institutions the same in this regard. Current law requires national banks owned by bank holding companies to obtain OCC approval to pay dividends in excess of an amount determined by a statutory formula.

Sec. 105. Thrift service companies.

Under current law, a federal savings association may invest in the stock of a corporation only if all of the corporations's stock is owned by savings associations located in the same state as the corporation. OTS regulations permit such service corporations to engage only in activities "reasonably related to the activities of financial institutions."

Section 105 would (1) repeal the geographic and ownership limitations on investments; (2) codify the OTS's "reasonably related" test; and (3) subject savings association service companies to OTS examination and regulation to the same extent as if such services were being performed by the savings association on its own premises.

(1) We support repealing the geographic and ownership limitations.

(2) We believe that the activities of thrift service corporations should be addressed through comprehensive financial modernization legislation. Codifying the "reasonably related" test would constitute a legislative determination that different standards should govern the activities of service corporation subsidiaries (those activities "reasonably related to the activities of financial institutions") and bank holding company affiliates (those activities "closely related to banking").

(3) We support granting OTS examination and regulatory authority over service companies.

Sec. 106. Elimination of thrift multistate multiple holding company restrictions.

Current law prohibits a savings and loan holding company from controlling savings associations in more than one state unless permitted under one of three exceptions: (1) if the holding company acquires an institution in another state in an FDIC-assisted transaction; (2) if its interstate activities are grandfathered; or (3) if it is permitted by the law of the state where the institution to be acquired is located. This provision would repeal the prohibition, thus permitting the OTS to approve interstate acquisitions of savings associations by savings and loan holding companies on the same basis as intrastate acquisitions. As a result, savings and loan holding companies would not have to comply with certain state laws, such as age, concentration, and community reinvestment requirements.

We do not object to section 106. We do note that it would continue a disparity in the treatment of interstate acquisitions between bank holding companies acquiring banks and savings and loan holding companies acquiring thrifts. Under the Riegle-Neal Interstate Banking and Branching Act of 1994, out-of-state bank holding companies acquiring banks in a host state must comply with age, concentration, and community reinvestment requirements.

Sec. 107. Non-controlling investments by savings association holding companies.

This provision grants the OTS the discretion to permit a savings and loan holding company to acquire or to retain more than five percent of the voting shares of a savings association or another savings and loan holding company that is not a subsidiary. Current law permits such acquisitions in only limited circumstances (e.g., if the shares are acquired in a fiduciary capacity or pursuant to a previously contracted debt). Although the OTS has the discretion to permit a savings and loan holding company to acquire "control" of such institutions, the OTS lacks the authority to permit non-controlling ownership of more than five percent of the voting stock. Bank holding companies, on the other hand, may acquire non-controlling ownership of any proportion of voting stock until the Federal Reserve deems control to exist.

We support section 107, which tends to provide parity in this area between savings association holding companies and bank holding companies.

Sec. 108. Repeal of deposit broker notification and record keeping requirement.

This provision would repeal the requirement that deposit brokers register with the FDIC, and be subject to any FDIC reporting requirements. The FDIC proposed this provision, arguing that the requirement serves no useful purpose because the FDIC currently has no authority to disapprove or to deny registration and has no enforcement authority over deposit brokers.

We strongly support the requirement in current law that institutions be well capitalized or have FDIC permission to accept brokered deposits. Within such a legal framework, we can support elimination of the registration requirement.

Sec. 109. Uniform regulation of extensions of credit to executive officers.

Under current law, depository institutions are prohibited from extending credit to their executive officers except (1) to finance the purchase of a residence; (2) to finance the education of the officer's children; or (3) for other purposes prescribed by regulation by the institution's appropriate federal banking agency. This provision would transfer this exemptive authority to the Federal Reserve, which has general authority to promulgate regulations under section 22(g) and has created exemptions from this requirement.

We believe section 109 would result in no substantive change. In 1994, Congress directed the federal banking regulators to "work jointly . . . to make uniform all regulations and guidelines implementing common statutory or supervisory policies." The OCC recently amended its regulations to make national banks subject to the Federal Reserve's regulations. In addition, the OTS follows the Federal Reserve's rules, while the FDIC has adopted similar regulations.

Sec. 110. Expedited procedures for certain reorganizations.

Under current law, a national bank that seeks to reorganize as a subsidiary of a bank holding company must complete a cumbersome multi-step process. First, a bank holding company is formed, and a "phantom bank" subsidiary is chartered. The existing bank is then merged into the phantom bank subsidiary, and its stock is converted to stock of the bank's holding company. The resulting bank differs from the preexisting bank only in that its stock is owned entirely by the holding company. However, the phantom bank must be chartered like any other bank, with the required costs and procedures.

Section 110 would expedite this process by permitting a national bank, with the approval of two-thirds of its shareholders and the OCC, to reorganize into a subsidiary of a bank holding company without first forming a phantom bank. It would also retain for dissenting shareholders all of the rights they would have if a national bank reorganized in a different manner.

We support section 110.

Sec. 111. National bank directors.

Under current law, national bank directors may hold office for only one year and must be elected annually. In addition, a bank's board of directors must consist of no fewer than five and no more than 25 members. The OCC does not have authority to waive this limitation, which banks sometimes seek when boards merge along with their institutions.

This provision would permit national banks to elect their directors for terms of up to three years in length, and would permit these directors to be elected on a staggered basis in accordance with regulations issued by the OCC. This provision would also grant the OCC the authority to permit national banks to place more than 25 members on their boards of directors. The lower limit of five would remain.

We do not object to section 111. Rather than grant the OCC authority to provide exceptions to what is already a lenient rule, however, Congress may wish to consider deleting the provision altogether, relying on the OCC's supervisory authority to make certain that each board of directors is exercising its responsibilities.

Sec. 112. Amendment to Bank Consolidation and Merger Act.

The National Bank Consolidation and Merger Act contains procedures for the merger or consolidation of national banks with other national banks or with state banks. However, no federal law explicitly authorizes national banks to merge with subsidiaries or other nonbank affiliates. Instead, the bank must purchase the assets and assume the liabilities of the subsidiary or affiliate.

Although the result of a purchase and assumption is the same as a merger, transfers of individual assets must be documented and can entail issues of corporate succession that do not arise in a merger.

Section 112 would permit a national bank, upon approval of the OCC and pursuant to OCC regulations, to merge with a subsidiary or nonbank affiliate. This provision explicitly retains the current statutory requirement that such transactions involving uninsured institutions be undertaken only with the prior written approval of the responsible agency.

We support this provision, and would further suggest that Congress add language to ensure consistent treatment for federal savings associations.

Sec. 113. Loans on or purchases by institutions of their own stock; affiliations.

Current law prohibits a national bank from owning or holding its own stock except to prevent a loss on a debt previously contracted and sold or disposed of within six months. Section 113 would amend this prohibition to codify an OCC interpretation stating that a bank may purchase shares of its own stock for legitimate corporate purposes, but not for speculation. It would also clarify that a national bank may acquire its own stock to prevent a loss on a debt previously contracted in good faith. It would also apply the same rule generally to all depository institutions.

Finally, section 113 would repeal language prohibiting a depository institution from affiliating with a GSE. The provision would permit a GSE to purchase a bank if the acquirer were willing to comply with the Bank Holding Company Act.

We do not object to allowing a national bank to own or hold its own stock. In light of modern capital requirements backed by prompt corrective action, we do not believe the restriction serves any useful purpose today. We suggest repealing the prohibition altogether.

We oppose repealing the GSE affiliation prohibitions. We question what public benefit would be achieved through such an affiliation, and we are deeply concerned at the potential for repeal to allow GSEs to expand their activities, and thereby further leverage their GSE status, in ways that do not further the public purposes they are intended to serve.

Sec. 114. Depository institution management interlocks.

The Depository Institution Management Interlocks Act generally precludes management officials of one depository institution from being management officials in another unaffiliated depository institution. The term "management official" refers to employees, officers, directors, and certain other individuals. The Act also provides several exemptions from its restrictions. One exemption permits, under certain conditions, a director of a diversified savings and loan holding company to be a director of an unaffiliated depository institution or depository holding company.

This provision would replace the term "director" with the term "management official," thereby permitting an officer or employee of a diversified holding company to serve as a director of an unaffiliated bank or bank holding company.

We have no position on this provision, although we note that an interagency rulemaking is currently in progress that would allow the regulators to oversee such interlocks. If Congress chooses to amend the Depository Institutions Management Interlocks Act, it may want to examine other aspects of the Act as well.

Sec. 115. Purchased mortgage servicing rights.

Current law permits purchased mortgage servicing rights (PMSRs) to be included in risk-based capital if, among other things, the rights are valued at not more than 90 percent of their fair value. Since enactment of the 10 percent haircut, however, accounting standards have been changed to ensure that MSRs are conservatively valued, and a separate capital rule imposes a capital deduction on any institution with a concentration of PMSRs that exceeds 50 percent of tier 1 capital. Section 115 would repeal the 10 percent haircut.

We note that the agencies have recently proposed to raise the level at which PMSRs would be deducted from capital from 50 percent of tier 1 capital to 100 percent. In doing so, the agencies relied in part on the level of supervisory comfort provided by the 10 percent statutory haircut. We believe that the proponents of this amendments have the burden of demonstrating that the statutory and regulatory initiatives are reconcilable, and that each of the two safeguards is not being eliminated in reliance on the continued existence of the other.

Sec. 116. Cross marketing restriction; limited purpose bank relief.

This provision would repeal current nonbank bank limitations on cross marketing and affiliate overdrafts imposed by the Competitive Equality Banking Act (CEBA).

Section 116 would eliminate a limitation that artificially constrains competition -- a goal that we support. We would support this provision in the context of comprehensive financial modernization legislation.

Sec. 117. Divestiture requirement.

Section 117 would modify a provision of the Competitive Equality Banking Act (CEBA) that requires divestiture of a nonbank bank in the event the nonbank bank or its owner fails to remain qualified for the CEBA exception. It would allow nonbank bank owners to avoid divestiture by correcting the violation within 180 days of receipt of notice from the Federal Reserve and by implementing procedures to prevent occurrences of the violation in the future.

This provision would eliminate an unduly harsh penalty, but in a way that might fail to deter wrongdoing. As drafted, this provision requires the Federal Reserve to notify the nonbank bank of the violation (rather than the reverse), thereby allowing violations to continue until detected in an examination. Even after the Federal Reserve detects the violation, the nonbank bank is given six months to correct it. Any relief in this area should at least impose a duty on the nonbank bank to immediately notify the Federal Reserve of any violation, demonstrate that the violation was inadvertent, and promptly correct it.

Sec. 118. Daylight overdrafts incurred by Federal Home Loan Banks.

Generally, the Federal Reserve permits some level of daylight overdraft to its members because members hold reserves with the Federal Reserve Banks, which could be used to cover them. However, the Federal Home Loan Banks (FHLBanks) hold no such reserves. Although the FHLBanks use the payment system to provide banking and correspondent services to their member institutions, they hold no reserves and are therefore prohibited by the Monetary Control Act from receiving intra-day credit.

This provision would amend the Federal Reserve Act to provide that any Federal Reserve policy or regulation governing payment system risk or intra-day credit either (1) exempt the FHLBanks; or (2) include net debit caps appropriate to the credit quality of each FHLBank and impose daylight overdraft fees calculated in the same manner as fees for other users.

We oppose this provision because it would unfairly advantage the FHLBanks relative to other government-sponsored enterprises and relative to other depository institutions. The exemption is not needed for the System to undertake its core activities.

Sec. 119. Federal Home Loan Bank governance amendments.

This provision would permit the FHLBanks to do the following without the direct approval of the FHFB:

• set salaries for their directors;
• buy, construct, or lease for more than 10 years a building to house the bank;
• prescribe, amend, or repeal the FHLBank's bylaws;
• determine the form to be used by members applying for advances;
• grant advances on specified conditions;
• determine the type of collateral that would be appropriate to renew an advance existing on August 9, 1989, where the member lacks sufficient eligible collateral to renew;
• determine the applicable rate for an advance;
• determine the form containing the terms agreed to by a member obtaining an advance;
• sell any advance to another FHLBank without recourse or engage in a participation; and
• pay dividends.

Although certain elements of this section constitute a reasonable devolution of authorities from the Federal Housing Finance Board to the FHLBanks, some elements go too far. Further, such changes should be made in the context of comprehensive reform. The future structure and purpose of the System should be considered in any amendments to the System. The issues presented by this provision should be addressed as part of that comprehensive reform. Indeed, we believe it unwise to give the FHLBanks greater autonomy absent changes that would make the System both sounder and more accountable.

Sec. 120. Collateralization of advances to members.

This provision would expand the eligible collateral for Federal Home Loan Bank System (System) advances to include mortgages on improved residential property insured or guaranteed by the U.S. government or any agency thereof, including second mortgages. This provision would also remove the ability of a FHLBank and the Federal Housing Finance Board to renew a member's advance if (1) the advance existed on August 9, 1989, and (2) the member lacks sufficient collateral to otherwise renew the advance. (We note that section 120(2) should probably refer to 12 U.S.C.  1430(a)(5), rather than 12 U.S.C. 1430(a)(4)).

Section 120 is unnecessary. There is no evidence that FHLBank members face collateral constraints in accessing FHLBank advances. The purpose and uses of collateral should be reevaluated as part of comprehensive reform of the FHLBank System.

Sec. 201. Updating of authority for community development investments.

Under current law, a savings association may invest in real estate or loans secured by real estate in areas or neighborhoods designated by HUD to receive development assistance from the Community Development Block Grant program. The aggregate amount of real estate investments made under current law may not exceed two percent of the thrift's assets, and the aggregate real estate investment plus loans made may not exceed five percent of the thrift's assets.

As a practical matter, HUD no longer designates such neighborhoods, and the grants are given directly to states and cities, rather than targeted to designated areas. Thus, investment opportunities that meet the technical requirements of the statute are virtually nonexistent.

Section 210 would replace this obsolete language with the same statutory language that currently defines the types of community development investments that can be made by national banks and state member banks.

We support section 210.

Sec. 202. Acceptance of brokered deposits.

Under current law, a bank may obtain brokered deposits only if it (1) is well capitalized, (2) is adequately capitalized and obtains a waiver from the FDIC, or (3) is in FDIC conservatorship. Banks obtaining brokered deposits through the last two options (waiver or conservatorship) may not pay a rate of interest on those deposits that is higher than prevailing local market rates. Furthermore, a bank may solicit deposits directly by paying higher than prevailing local market rates only if it is well capitalized. The purpose of these provisions is to limit moral hazard by preventing management of troubled institutions from raising funds -- either through brokers or above-market rates -- in a taxpayer-guaranteed gamble to turn the bank around.

Section 202 would move from a local to a nationwide standard in determining what constitutes an above-market rate. We support this change, as it reflects the realities of today's nationwide credit markets. Defining regional rates can also be an inexact science.

We understand from the FDIC, which proposed this provision, that the provision also sought to clarify existing law. We support such clarification. However, we believe that the provision as drafted could create additional confusion and understand that the FDIC is redrafting it.

Sec. 203. Federal Reserve Act lending limits.

This provision would repeal the current restriction that prohibits banks from making loans secured by stocks or bonds to one borrower in excess of 15 percent of the bank's unimpaired capital and surplus.

We support this provision. In 1982, Congress raised the overall national bank lending limit to 25 percent of unimpaired capital and surplus (not more than 15 percent of which may correspond to loans not fully secured), but did not raise the limit addressed by this provision. This hinders a national bank's ability to collateralize its loans to the maximum extent possible if the best available collateral happens to be stocks or bonds.

Sec. 204. Eliminate unnecessary restrictions on product marketing.

Section 204 would repeal a statute that prohibits banks from "tying" -- that is, requiring a customer to purchase one product in order to receive another or to receive a better price on another. In order to avoid disrupting traditional banking relationships, the statute already allows banks to tie traditional bank products -- allowing depositors to receive preferential rates on loans, for example. The statute also authorizes the Federal Reserve to grant further exceptions by regulation or by order.

We oppose this provision. We are aware of no evidence that these restrictions have imposed unreasonable burdens that the Federal Reserve has been unable to address through rulemaking. Absent such a showing, there is no reason to eliminate them at this time.

Sec. 205. Business purpose credit extensions.

This provision would authorize credit card banks and nonbank banks to provide credit card accounts for business purposes. Current law prohibits credit card banks from making commercial loans and authorizes them to issue credit cards only to individuals.

We do not object to permitting credit card banks or nonbank banks to issue business credit cards so long as they do not accept retail deposits. However, we oppose extending that authority to nonbank banks that have chosen to retain their exemption from the Bank Holding Company by not making business loans, while accepting retail deposits.

Sec. 206. Affinity groups.

This provision would permit a settlement service provider to pay an "affinity group" for a written or oral endorsement in an advertisement or mailing, provided that the service provider clearly disclosed the payment in its first written communication to the consumer. This provision would define an "affinity group" as an entity established for common objectives or purposes and not established by a settlement service provider for the principal purpose of endorsing a settlement service provider.

We have concerns that, under the existing statutory regime, such changes could spawn sham affinity groups seeking to avoid the anti-kickback provisions of Real Estate Settlement Procedures Act (RESPA). It would be difficult to distinguish between bona fide and sham affinity groups. Moreover, a process for considering the treatment of affinity groups under RESPA is already underway. Section 2101 of the Economic Growth and Regulatory Paperwork Reduction Act of 1996 directed HUD and the Federal Reserve to unify RESPA and Truth in Lending Art disclosures. Pursuant to this task, the nearly 40-organization Mortgage Reform Task Force has been formed, the members of which include consumer groups, mortgage banks, and commercial banks. We believe the agencies and this working group should be allowed to finish their assignment before legislative action is taken.

We also note that section 206 does not purport to amend any statute. We believe that any such provision should not stand alone, but should amend RESPA, as earlier versions did, because it relates directly to RESPA's coverage of settlement service providers. Moreover, if the amendment were made to RESPA, HUD would have implementation and oversight authority over affinity groups.

Sec. 207. Fair debt collection practices.

Section 207: (1) excludes from the definition of "communication" any communication made pursuant to federal or state rules of civil procedure or a nonjudicial foreclosure proceeding; (2) excludes from the definition of "debt" a draft drawn on a bank for a sum certain, payable on demand, and signed by the maker; and (3) allows a debt collector to continue debt collection activities and communications during the 30-day period following the legislatively- required written notice of such activities, unless the consumer requests the cessation of such activities.

For reasons set out in detail in the comments submitted by the Comptroller of the Currency, we have concerns about each of these changes.

Sec. 208. Restriction on acquisitions of other insured institutions.

Current law permits the owners of nonbank banks to buy insured institutions from the FDIC, RTC, or OTS and insured institutions found to be in danger of default, without losing their Competitive Equality Banking Act exemption. This provision would allow such companies to also purchase undercapitalized insured institutions without losing their exemptions.

While allowing owners of nonbank banks to acquire institutions in danger of failure would add to the range of bidders for such institutions, we believe the powers of nonbank banks and their owners should be considered within the context of comprehensive financial modernization legislation.

Sec. 209. Mutual holding companies.

Under current law, a mutual savings association may become a holding company by: (1) chartering a savings association the stock of which would be owned by the mutual association; and (2) transferring the substantial portion of its assets and liabilities to the newly chartered savings association.

Section 209 would also allow such reorganizations through the following means: (1) having the mutual association convert to a stock association and simultaneously forming a subsidiary stock holding company that owns all of the voting stock of the converting association; and (2) in any other manner approved by the OTS.

Section 209 would explicitly authorize federally chartered mutual holding companies to convert to a state charter, and vice-versa. It would also permit: (1) a savings association or subsidiary stock holding company to issue two classes of voting shares that would be identical except for dividend payments; (2) subsidiary holding companies of federally chartered mutual holding companies to be state-chartered; and (3) limiting subscription rights of mutual account holders.

We share the OTS's concern that this provision may not adequately protect depositors and that it would unnecessarily preempt a new OTS regulation that addresses these issues and will become effective on April 1, 1998.

Sec. 210. Call report simplification.

This provision would require the federal banking agencies to work jointly to develop a system under which: (1) insured depository institutions may file call reports and other disclosures electronically; and (2) such reports and disclosures may be made available to the public electronically. A report to Congress on this matter, including any recommended legislative changes, must be submitted within one year of enactment.

The provision would also require the regulators to work jointly: (1) to adopt a single form for the filing of core information required to be submitted by federal law by all of the agencies; and (2) to simplify instructions accompanying such reports and to provide an index to the instructions. Finally, each regulator would have to review the information required by schedules supplementing the core information and eliminate unwarranted requirements

We believe this provision is unnecessary. The same language has already been enacted as section 307 of the Riegle Community Development and Regulatory Improvement Act of 1994.

Sec. 301. Scheduled meetings of Affordable Housing Advisory Board.

This provision would reduce from four to two the number of times the Affordable Housing Advisory Board must meet each year. It would also repeal the requirement that the Board meet in different regions of the United States.

We do not oppose this provision. It is included in legislation we strongly support -- legislation eliminating the Thrift Depositor Protection Oversight Board -- that passed both the House and the Senate last year but was not enacted because provisions unrelated to the Oversight Board must go to conference. However, under current law the Affordable Housing Advisory Board will expire in October of 1998, and this provision therefore will become increasingly unnecessary as we draw closer to that date.

Sec. 302. Elimination of duplicative disclosure of fair market value of assets and liabilities.

The Federal Deposit Insurance Corporation Improvement Act requires the federal banking agencies to develop jointly a method for insured depository institutions to provide, to the extent feasible, supplemental disclosure of the estimated fair market value of assets and liabilities in any financial report. This provision would repeal this requirement.

We have concerns about eliminating this requirement. Unless it is replaced by some effective signal of Congressional support for balance sheet transparency, repeal could be read as a retreat from the current trend toward better disclosure.

Sec. 303. Payment of interest in receiverships with surplus funds.

This provision would grant the FDIC express rulemaking authority, as receiver, to pay post-insolvency interest to creditors and to establish an interest rate on those payments after it has paid the principal amount of creditor claims.

We support section 303.

Sec. 304. Repeal of reporting requirement on differences in accounting standards.

This provision would repeal the requirement that each federal banking regulator submit an annual report to Congress on the differences among the federal banking agencies' capital and accounting standards.

We believe that this reporting requirement is an important means for the regulators to identify and harmonize any differences that develop in their capital rules. We believe that capital regulation is an area where consistency is important. As an alternative, we propose allowing the regulators to produce one joint report each year, rather than four separate reports. To the extent that the capital standards become and remain truly consistent, the report should become easier to prepare.

Sec. 305. Agency review of competitive factors in Bank Merger Act filings.

This provision would eliminate the requirement that the responsible regulator in a Bank Merger Act transaction request a competitive factors report from the other three federal banking agencies as well as from Justice by decreasing that number to two: the responsible regulator and Justice.

This provision would also require the responsible regulator to consider the following competitive measures when considering the competitive effect of mergers: (1) competition from non-depository institutions that provide financial services; (2) efficiencies and cost savings that the transaction may create; (3) deposits of the participants in the transaction that are not derived from the relevant market; (4) lending by institutions other than depository institutions to small businesses; (5) the capacity of savings associations to make small business loans; and (6) such other factors as the Federal Reserve deems relevant.

We support reform in this area. As part of our financial modernization proposal, we devised a method of reducing the duplicative review of Bank Merger Act filings. We believe that our proposal provides a more comprehensive approach to competitive issues.

Sec. 306. Termination of the Thrift Depositor Protection Oversight Board.

This provision would wind down the affairs of the Thrift Depositor Protection Oversight Board and eliminate it within three months of enactment. The Secretary of the Treasury would assume the responsibility for overseeing the Resolution Funding Corporation.

We strongly support this provision. In fact, we proposed similar legislation last year that has been passed by both the House and Senate and is now awaiting conference on a provision unrelated to eliminating the Board. The Board's primary mission to oversee the RTC has been completed and the Board's only remaining substantive responsibility -- oversight of the REFCorp Board -- would be transferred to the Secretary of the Treasury. As a separate governmental unit the Oversight Board must generate all of the regularly mandated agency filings -- such as Privacy Act reports and Federal Managers Financial Integrity Act reports -- even though the Oversight Board now has no employees. Abolishment of the Board would eliminate the costs associated with preparing such reports over the remaining 33 years of the Board's life.

Sec. 401. Alternative compliance method for APR disclosure.

Under current law, for a variable rate, open-end credit home mortgage loan, creditors must provide borrowers with a table depicting how the interest rate and minimum payment amount would have been affected during the preceding 15 years.

Section 401 would allow a creditor to provide either the 15-year historical table or a statement that "periodic payments may increase or decrease substantially." It would retain the current requirement to provide a maximum annual percentage rate and the associated minimum payment whether or not the creditor opts to disclose the historical example.

The Mortgage Reform Task Force discussed under section 206 is also taking a comprehensive look at annual percentage rate disclosure generally. Thus, statutory changes may be premature.

Sec. 402. Alternative compliance methods for advertising credit terms.

This provision would amend the Truth in Lending Act by: (1) reducing the number of terms that trigger disclosures for closed-end credit by eliminating the period of repayment and number of installments as trigger terms; (2) eliminating disclosure of the highest possible annual percentage rate under the plan in advertisements for open-end, variable rate, home-secured credit; and (3) providing a uniform rule for all credit products advertised on either radio or television. As an alternative to current disclosure requirements, credit advertisements in those media would state basic rate information, give a toll free number, and make further information available upon request.

We have concerns about section 402. We believe that consumers receive valuable information through advertising disclosures, and the provision appears to curtail that information. Establishing a uniform disclosure method for radio and television has merit, but we are not convinced that the proposal best serves the needs of consumers.

Sec. 501. Position of Board of Governors of the Federal Reserve System on the Executive Schedule.

This provision would increase the salaries of the Chairman of the Federal Reserve and the members of the Board of Governors of the Federal Reserve. The Chairman's pay would become commensurate with Secretaries of the major cabinet departments (i.e., the position would be upgraded from Executive Schedule II to Executive Schedule I). The Governors' pay would become commensurate with the Deputy Secretaries of major cabinet departments (i.e., the positions would be upgraded from Executive Schedule III to Executive Schedule II).

We have no position on section 501.

Sec. 502. Consistent coverage for individuals enrolled in a health plan administered by the federal banking agencies.

This provision would generally allow FDIC employees and Federal Reserve employees and retirees who are enrolled in health plans scheduled to terminate on January 3, 1998, to continue their coverage, but under a health plan generally available to federal employees.

We do not object to section 502. It would allow the Federal Reserve to switch out of an expensive health plan and extend coverage in the new plan to those who would retire before otherwise vesting in the plan's benefits. It is identical to the relief enacted for the OCC in 1994.

Sec. 503. Federal Housing Finance Board.

Under current law, the Federal Housing Finance Board (FHFB) is governed by a board of directors consisting of five directors: the Secretary of HUD and four citizens appointed by the

President, by and with the advice and consent of the Senate. The citizen directors must have various types of expertise. For example, one must be chosen from an organization with a more than two-year history of representing consumer or community interests on banking services, credit needs, housing, or financial consumer protections.

This provision would remove the requirement described above that one FHFB director be a consumer representative. Given the System's mission, eliminating this requirement seems contrary to efforts to ensure that mission is accomplished.

In any event, we oppose piecemeal reform of the Federal Home Loan Bank System. We believe these any such changes should be considered within the context of comprehensive System reform.

Sec. 601. Technical correction relating to deposit insurance funds.

This provision would correct an errant citation. Section 2707 of the Deposit Insurance Funds Act of 1996 amends section 7(b)(2) of the Federal Deposit Insurance Act (FDIA) to provide that assessment rates for SAIF members may not be less than assessment rates for BIF members. It currently begins as follows: "Section 7(b)(2) of the (12 U.S.C. 1817(b)(2)(E), as redesignated by section 2704(d)(6) of this subtitle) is amended--". The proper reference is to section 7(b)(2)(E) of the FDIA.

We support section 601.

Sec. 602. Rules for continuation of deposit insurance for member banks converting charters.

This provision would correct an omitted citation. Section 8(o) of the Federal Deposit Insurance Act (FDIA) provides for termination of deposit insurance when a member bank ceases to be a member of the Federal Reserve System, subject to an exception for certain mergers or consolidations. Prior to the Financial Institutions Reform, Recovery, and Enforcement Act (FIRREA), section 4(c) and (d) were referenced in a single subsection: subsection (b). In FIRREA, Congress divided former section 4(b) into two separate sections, 4(c) and 4(d), but neglected to change the reference in section 8(o). Later, in a technical amendment designed to correct the error, Congress amended section 8(o) to include an exception for section 4(d). This incomplete amendment was insufficient to encompass the original intent of section 8(o), because no exception was included for section 4(c), which provides for state-to-federal and federal-to-state conversions. Providing a technical amendment to section 8(o) to include a cross reference to section 4 would remedy this omission and restore the original intent.

We support section 602.

Sec. 603. Technical Amendment to the Revised Statutes.

This provision would simply update section 11 of the United States Code to reflect that national banks no longer issue national currency, while maintaining the provision that prohibits the OCC from owning interest in the national banks it regulates.

This provision would repeal longstanding minimum capital requirements for national banks that range from $50,000 to $200,000, depending on the bank's location. Last amended in 1935, these outdated requirements do not reflect current minimum capital adequacy standards.

This provision would provide that the OCC may waive the U.S. citizenship requirements for any national bank director for up to a minority of a national bank's directors. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 granted the OCC the authority to waive the requirement that national bank directors must reside within the state in which the bank is located or within 100 miles of the bank. As drafted, however, it inadvertently deleted the long-standing authority of the OCC to waive the citizenship requirement for up to a minority of directors of national banks that are subsidiaries or affiliates of foreign banks.

We support section 603.

Sec. 604. Conforming change to the International Bank Act.

This provision would eliminate obsolete language requiring annual examinations of federal branches and agencies.

We support section 604. The Economic Growth and Regulatory Paperwork Reduction Act of 1996 replaced the annual examination requirement for branches and agencies with a requirement that they be examined as frequently as would a comparable bank. Given the statutory 18-month cycle for certain banks, the conforming change should be made.