addition to Section 217 of H.R. 10. Just as advisers to investment companies should be subject to the substantive regulatory provisions of the Investment Advisers Act of 1940, NASAA believes it imperative that advisers to retail clients be subject to appropriate federal and State provisions, regardless of whether the investment advice is offered by a bank or nonbank adviser. Consistent with the exceptions for "qualified investors," it would appear consistent to permit banks to provide advice to "qualified investors" other than investment companies and still maintain the exception from the definition of "investment adviser" This exception would also be consistent with the private securities offering exception in proposed Section 3(a)(4)(B)(vii) discussed previously. NASAA's concern is that those advisers providing advice to retail clients be subject to even-handed and fair regulation at the local level. NASAA would respectfully suggest that the proposed definition of "investment adviser" be amended slightly as follows (this language assumes the amendment proposed at Section 217 of H.R. 10): (11) "Investment adviser" means any person who, for Honorable TOM BLILEY Committee on Commerce NATIONAL ASSOCIATION OF INSURANCE COMMISSIONERS Honorable JOHN D. DINGELL Ranking Minority Member Committee on Commerce 2328 Rayburn HOB Washington, DC 20515 STATE INSURANCE REGULATORS OPPOSE HR 10 AS PASSED BY THE HOUSE BANKING COMMITTEE BECAUSE THE BILL IS HOSTILE TO CONSUMERS AND THE STATES GENTLEMEN: HR 10, as passed by the House Committee on Banking and Financial Services, is very harmful to insurance consumers and the States. Consequently, we believe it is absolutely essential that the Committee on Commerce exercise its jurisdiction over insurance matters to fix HR 10, and protect the American public from the dangers of unregulated insurance products in the marketplace. In its current form, HR 10 needlessly sweeps away State authority used to regulate the solvency and market conduct of insurance activities conducted by banks and traditional insurers that affiliate with them. If the Federal government prevents the States from supervising those insurance activities, they will not be regulated at all. There is no Federal guarantee program for insurance losses, so the costs of such regulatory failures will fall directly upon policyholders, claimants, State guarantee funds, and State taxpayers. The NAIC requests that the Committee on Commerce correct the insurance regulatory problems in HR 10. To help accomplish that goal, State regulators are undertaking two important initiatives (1) NAIC is providing the Commerce Committee with a package of amendments to HR 10 that, if adopted, will adequately protect insurance consumers and the States without impairing the goals of the bill's sponsors; and (2) NAIC and State regulators are commencing an intensive, public cam paign to inform consumers, State officials, and Members of Congress regarding the harm that passage of HR 10 will cause. As an organization of State officials responsible for protecting the public, the National Association of Insurance Commissioners (NAIC) pointed out the following serious flaws in HR 10 during our testimony before the House Banking and Financial Services Committee on February 11, 1999. • HR 10 flatly prohibits States from regulating the insurance activities of banks, except for certain sales practices. There is no justification for giving banks an exemption from proper regulations that apply to other insurance providers. • HR 10 prohibits States from doing anything that might "prevent or restrict" banks from affiliating with traditional insurers or engaging in insurance activities other than sales. This exceedingly broad standard undercuts ALL State supervisory authority because every regulation restricts business activity to some degree. HR 10's total preemption of State consumer protection powers goes far beyond current law, and casts a dangerous cloud over the legitimacy of State authority in countless situations having nothing to do with easing financial integration for commercial interests. It could also throw into question the regulatory cooperation between State insurance regulators and Federal banking agencies being achieved under current law. • HR 10 uses an "adverse impact" test to determine if State laws or regulations are preempted because they discriminate against banks. This unrealistic standard fails to recognize that banks are government-insured institutions which are fundamentally different from other insurance providers. Sound laws and regulations that are neutral on their face and neutral in their intent would still be subject to preemption under such a standard. • HR 10 does not guarantee that State regulators will always have equal standing in Federal court for disputes which may arise with Federal regulators. Frankly, we are quite disappointed and concerned that the House Banking and Financial Services Committee chose not to fix these and other problems pointed out by NAIC. We were told that all parties affected by HR 10 will suffer a certain amount of pain, but nobody has informed insurance consumers that they are among the groups who will suffer when State laws and regulations are preempted. The NAIC and State insurance regulators strongly oppose HR 10 as passed by the Banking and Financial Services Committee. Nor do we believe the public will be complacent about the negative impact that HR 10 will have upon the safety and soundness of financial products involving insurance, a unique product which is purchased to protect people during the times in their lives when they are most vulnerable. The NAIC looks forward to working positively and cooperatively with the Commerce Committee and its Members as you perform your responsibilities on HR 10. We cannot-and will not-stand by silently if the push for HR 10 becomes a means for effectively deregulating the insurance activities of banks and the traditional insurance providers who affiliate with them. The public interest would not be served with that outcome. Sincerely, GEORGE M. REIDER, JR. President, NAIC GEORGE NICHOLS, III Chairman, NAIC Committee on Financial Services Modernization cc: Honorable Michael G. Oxley, Chairman Honorable Edolphus Towns, Ranking Minority Member ABA SECURITIES ASSOCIATION April 21, 1999 The Honorable THOMAS J. BLILEY, Chairman The Committee on Commerce 2125 Rayburn House Office Building U.S. House of Representatives Washington, DC 20515 DEAR CHAIRMAN BLILEY: In this letter, the ABA Securities Association (“ABASA”) respectfully submits its views on the capital markets provisions in H.R. 10, the “Financial Services Act of 1999," which the Commerce Committee is scheduled to consider during the next month. ABASA is a separately-chartered subsidiary of the American Bankers Association ("ABA") that represents the banking organizations that are most actively involved in securities and capital markets. In general, ABASA strongly supports the existing capital markets provisions of H.R. 10. Among its many positive provisions are full securities underwriting and dealing authority for affiliates and subsidiaries of banks; removal of the existing prohibition on director, officer, and employee interlocks between banks and securities firms; broadened “merchant banking" investment authority; increased authority for banks to underwrite and deal in municipal bonds; and an expanded definition of the types of financial activities in which bank holding companies would be permitted to engage. At the same time, H.R. 10 would significantly roll back the existing securities law exemption from broker-dealer regulation that is now expressly applicable to all banks. The result would be that certain lawful banking activities would be “pushed out," or exposed to push-out, from the bank to a separate affiliate that was registered and regulated as a securities broker-dealer. However, H.R. 10 recognizes that many of the traditional banking activities should not trigger brokerage registration. H.R. 10 does this through a series of narrowly drawn exemptions from push-out for specific types of activities in which banks currently engage. ABASA has long opposed push-out provisions as costly, unnecessary, and inconsistent with the fundamental purposes of financial services modernization. Despite this long-held position, ABASA has continually worked hard and in good faith to support a constructive compromise on push-outs that would help lead to passage of an overall bill that included the positive capital markets provisions described above. These efforts have included many worthwhile exchanges with your Committee, the House Banking Committee, the Senate Banking Committee, the federal banking regulators, the Securities and Exchange Commission, and the Treasury Department. In addition, at the request of House leadership in the 105th Congress, ABASA participated with our colleagues at the Securities Industry Association ("SIA”) in compromise discussions regarding this same issue. After many years of these intensive discussions and negotiations, the result has been an extremely hard-fought and carefully-balanced compromise involving substantial concessions from all parties involved. The compromise replaces the existing blanket exemption from push-out for all banking activities with a set of specific statutory exemptions for particular types of banking activities that have been and will continue to be more appropriately regulated under the banking laws than the securities laws. Other existing banking activities not covered by the exemptions such as retail securities brokerage would be pushed out to a broker-dealer. All of these new exemptions are spelled out in detail in statutory language in order to provide market participants with some high degree of certainty. In this context, ABASA strongly supports the push-out provisions in the Senate Banking Committee's version of financial reform legislation. ABASA also continues to support the push-out provisions of H.R. 10 as reported by the House Banking, which, although involving more push-outs than the Senate version, is nevertheless consistent with the fundamental compromise described above. Indeed, it is our understanding that the H.R. 10 provisions are nearly identical to those included in the financial services legislative compromise that resulted at the end of 1998 from last year's negotiations among you and the Chairmen of the House and Senate Banking Committees, and that the SEC, while not agreeing to this version, made clear at the end of last year's debate that they would not strongly oppose the final compromise bill that included these provisions. Accordingly, ABASA urges the Commerce Committee to adopt the securities and capital markets provisions in H.R. 10, including the push-out provisions reflecting the compromise discussions from last year. We firmly believe that the hard-fought compromise it reflects is an extremely delicate one, and that any significant departure from it would jeopardize critical support for the overall legislation. Thank you for considering our views. We look forward to working with you and your staff, and answering any questions you may have. Sincerely, THE ABA SECURITIES ASSOCIATION cc: The Honorable John D. Dingell, Ranking Minority Member, Committee on Commerce The Honorable Michael G. Oxley, Chairman, Subcommittee on Finance and Hazardous Materials The Honorable Edolphus Towns, Ranking Minority Member, ABA INSURANCE ASSOCIATION The Honorable JOHN D. DINGELL Ranking Minority Member The Committee on Commerce 2322 RHOB U.S. House of Representatives Washington, DC 20515 DEAR REP. DINGELL: The American Bankers Association Insurance Association, Inc., is writing regarding the insurance provisions in H.R. 10, which has been approved by the House Banking and Financial Services Committee and is now pending in the House Commerce Committee. The ABA Insurance Association (ABAIÀ) is an affiliate of the American Bankers Association. Its members are the leading banking organizations in the United States involved in the business of insurance. While the insurance provisions in H.R. 10 are not perfect, ABAIA supports them. As approved by the House Banking Committee, the bill would permit banks to affiliate with an insurance company or insurance agency. Such affiliates would be regulated principally by the states, subject to an anti-discrimination standard intended to ensure that banks and their insurance affiliates are treated fairly. States would have the right to review affiliations between banks and insurance firms, and the federal banking regulators would be required to defer to the states in the examination and supervision of insurance affiliates. The insurance provisions in H.R. 10 reflect a fragile compromise between the interests of the banking and insurance industries, state and federal regulators, and consumers. These provisions, particularly Section 104, reflect months of negotiations between interested parties, including ABAIA, and we fear that a departure from them could cause the entire bill to unravel. Therefore, we urge you to maintain the compromise as it stands. We would, however, like to raise two matters, which are not within the scope of the insurance compromise. First, Section 176 of the bill directs the federal banking regulators to establish an "appropriateness" standard applicable to the sale of insurance by a bank. This is an undefined standard, which we fear could lead to significant litigation. Furthermore, it is a standard that would be applicable only to banks engaged in the sale of insurance, not to insurance companies or agencies unaffiliated with banks. Consumer confusion would be inevitable. Therefore, we recommend the elimination of this requirement. Second, Section 305 prohibits a national bank or a subsidiary of a national bank from underwriting or selling title insurance, unless the bank or subsidiary was engaged in the activity prior to the date of enactment of the bill. This is an anti-competitive provision that simply has no place in a financial modernization bill. Title insurance sales, in particular, pose no safety and soundness threat to a bank or its depositors. With this provision in place, a mortgage banking subsidiary of a national bank could not sell title insurance lawfully underwritten by a holding company affiliate. We urge the elimination of this anti-competitive, anti-consumer provision. Thank you for your consideration of these views. Sincerely, ABA INSURANCE ASSOCIATION [Wednesday, April 28, 1999-The Wall Street Journal] SITTING PRETTY By S. Karene and David Wessel, Staff Reporters of The Wall Street Journal When Asia's economies hit the skids nearly two years ago, it looked like Down Under was soon to be down and out. After all, 60% of Australia's export goods were bound for Asia, many of them commodities such as copper, nickel and aluminum, whose prices were tumbling. Asians also accounted for about half the nation's foreign tourists, and hotels like the Radisson Resort, along the beach-strewn Gold Coast of Australia's eastern shore, soon reeled from a decline in arrivals. Several private economists looked around and cut their growth forecasts. But Australia hasn't just avoided the Asian-Pacific downturn; it has roared ahead. While the economies of most of its Asian trading partners contracted last year, Australia's expanded 5.1%, surpassing the U.S.'s 3.9% pace and making it one of the fastest-growing economies in the developed world. And 1999 is likely to be its eighth consecutive year of growth. After a decade of unflattering comparisons to Asia's once-booming economies, Australia now is basking in praise from the most unlikely sources including the proud Singaporeans who had looked down on Australians as poor cousins. Tortoise vs. Hare During a visit to Australia last month, Singapore Prime Minister Goh Chok Tong recalled the fable of the tortoise and the hare, likening Australia to the tortoise who surprises the Asian hares by winning the race. "Australia has a good record over the past 15 years or so" of policies that "have given an underpinning to the country," Mr. Goh said. "In many parts of Asia, we were concentrating on fast growth, quick infrastructure, but forgetting the fundamentals." What accounts for Australia's success? Equal parts good fortune and good management. Australia's central bank had begun cutting interest rates for domestic reasons a year before the Asian crisis began in July 1997, so there was a strong dose of stimulus in the country's economic pipeline. Moreover, the nation had weathered an Asian-style banking aft in the 1980s; by the mid-1990s, Its banks had been rebuilt and its regulators were battle-hardened. "The one, two and three main reasons that Australia isn't in the contagion is because of the strength and soundness of the banking system." says Robert Joss, an American banker recruited in 1993 to turn around Westpac Banking Corp., one of Australia's biggest banks, after it nearly collapsed under bad debt. On the management front, Australia let its dollar float freely back in 1983, so it had no rigid exchange rate to defend, as did such countries as South Korea and Thailand, which tried unsuccessfully and expensively to tie their currencies to the U.S. dollar. Once the Asian crisis was afoot, its central bank-in contrast to that of neighboring New Zealand-read the situation correctly, and didn't tighten monetary policy to shore up its currency. Meanwhile, Australian exporters-which deregulation and privatization had forced to become more nimble diverted their wares from sinking Asian economies to healthier ones elsewhere. When the South Korean market went sour, for example, Qantas Airways redeployed aircraft on more promising Indian routes. As Indonesia's economic crash hammered sales of live cattle there, Australian producers began wooing buyers In Mexico and Libya. All told, Australia's sales of goods to Asia, including Japan, slid 6% last year, in value terms, from 1997, while exports to the U.S. and Europe climbed 34% and 42%, respectively. And its total exports of goods and services rose in 1998, by a modest 2%, to 114.9 billion Australian dollars (US$74.56 billion). Australia's floating dollar apparently has allowed it "to sail almost unscathed through the Asian crisis," says Paul Krugman, an international economist at the Massachusetts Institute of Technology. In a new book, he asks: "If Australia could so easily avoid getting caught up in its neighbors' economic catastrophe, why couldn't Indonesia or South Korea do the same?" His controversial answer: The financial markets have a double standard. When the currency of a country in which they have confidence, say Australia, plunges, they see it as an excuse to buy; the country benefits, and the market's good opinion is confirmed. When the same thing happens elsewhere in Indonesia, for example— investors flee, the country suffers, and the market's bad opinion is ratified. But John Edwards, chief economist of HongkongBank of Australia Ltd., contends that the answer lies in the structural changes Australia has made. "They weren't the reason we grew, but they were the reason we weren't a victim of the Asian crisis, although we shared a number of characteristics of countries that were victims." These include a heavy foreign-debt load and a relatively big deficit in the current account, a gauge of trade in goods and services, plus certain fund transfers. Though "you can't just take a template from somewhere else and slap it on,” Australia is “an inspiration for implementing tough economic reforms," because it has overcome "a number of challenges that Asian economies are going to face," says Alex Erskine, who watched the Asian crisis unfold as Citibank's regional market strategist in Singapore. Of course, the story isn't over yet. Economic growth is likely to slow in the months ahead, though the IMF is predicting better than 3% growth for 1999, and Australia's already large trade deficit is widening. However, for all their differences in geography, natural resources, history and culture, Asia's economies might have learned something by studying Australia's mistakes of the 1980s. Long before Asia overdosed on easy credit, Australia had done much the same thing, though on a smaller scale. It deregulated its financial sector and, in 1985, opened the doors to 16 foreign banks. Hungry for market share, the new competitors |