Home > Banking Information & Regulation > Public Meeting Transcripts > PMT - Agendas August 13, 1998
Public Meeting Transcripts
Public Meeting Regarding Banc One and First Chicago
Thursday, August 13, 1998
Transcript of Panel Two
15 MS. CARSON: Thank you very much. I'm Julia 16 Carson, Congresswoman, Indianapolis, Indiana, 17 member of Congress, sit on the banking committee 18 for US Congress. Is this microphone on? 19 MR. ALVAREZ: It's not on, ma'am. 20 MS. CARSON: Okay. I'm Julia Carson, 21 Congresswoman, Indianapolis, sit on the banking 22 committee for the United States House of 23 Representatives. 24 I have listened with interest. I have 28 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 another more painful side to tell of the latest 2 story of merger mania. I urge a conservative 3 course, a careful investigation of the facts, the 4 history and the harm. 5 They claim that mergers benefit companies, 6 employees and consumers, increasing competition. I 7 favor growth, but not at the cost of harm to the 8 community and to the people. 9 Indianapolis is where the two giant merger 10 partners have, perhaps, the greatest business 11 overlap, facing each other next to the Federal 12 courthouse, a massing $17.6 billion in assets 13 between them. 14 Court is where this matter will end up if 15 this process is not well and thoroughly conducted. 16 There is a better way. 17 Our Indianapolis Star newspaper warns the 18 most pressing concern is customer service and 19 cost. If history is any guide, the former will 20 drop and the latter rise as banks become more 21 competitive. 22 Joining the Star, grassroots 23 organizations, community groups and activists from 24 Indianapolis and across the country warn, too, 29 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 because of the harms threatened. These voices 2 cannot all be wrong. 3 The point of business is to beat the 4 competition. We believe the competition is healthy 5 because it benefits the consumer. 6 Our law, our public policy, encourages 7 competition by legal protection. Beating the 8 competition is okay, but killing it is not. 9 And antitrust law will make the superbank 10 reduce its markets here. Selling deposits will 11 make the purchaser a new competitor. The 12 requirement to slim down is powerful. Branches 13 will be closed, operations consolidated. 14 Each bank now has 60 or more branches in 15 central Indiana. Banc One alone has 27 on the 16 block. Each branch is a center of local commerce, 17 competing with others. 18 Closing cuts consumer choice. Merger 19 will close competitive branches, neighborhood by 20 neighborhood, as the new superbank makes the 21 rational decision not to compete with itself. 22 I doubt that the buyer bank will keep these 23 branches going. 24 The incentive is small. Deposits are the 30 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 most portable form of assets. Real estate and bank 2 worker -- 6,000 in central Indiana -- complicate 3 the bottom line. This plan makes them expendable. 4 More harm is predicted by history. A Wall 5 Street Journal analysis of the five largest bank 6 acquisitions last year showed that small business 7 lending fell six percent through business lending 8 increase, less for beginning businesses. 9 In Indianapolis, we need more business 10 formation, not less. Small business opportunity 11 based at home, growing over time into big 12 business. That's what works for our people. 13 Our law forbids mergers which 14 substantially lessen competition unless these facts 15 are outweighed in the public interest by the 16 probable effect of the transaction in serving the 17 convenience and needs of the community. 18 Our law is devoted to preservation, the 19 conservation of economic values vital to our way of 20 life. Our people ask that the law be applied to 21 save their jobs, their prosperity, our 22 neighborhoods. 23 For American banking, a great windfall 24 approaches. Printing and mailing of most 31 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 government checks will end in 1999. These 2 transfers will be made by electronic means, flowing 3 billions of dollars through the banks, especially 4 on September the 3rd of every month when the Social 5 Security checks are transferred. 6 For direct deposit, you will need a bank 7 account. To get one, you will have to find a 8 branch, harder and harder where I live. 9 Fewer branches mean less access for a 10 whole new throng of American consumers brought into 11 the banking system by this way of the future. 12 The longer it takes to cash a check, the 13 more the money earns for the bank holding the 14 funds. 15 Nationally, we are at the door of a new 16 era in competition. This merger threatens to slam 17 doors firmly closed Indianapolis just as they begin 18 to crack open across the country. 19 For Indianapolis, the view differs 20 painfully. You will hear complaints about bank's 21 behavior hurting those with low income, about an 22 investigation for lending discrimination against 23 low to moderate income borrowers, Hispanics and 24 Blacks. 32 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 I fear untold number of bank workers out 2 of work with more pain. And Community Reinvestment 3 assessments tell us that tale. 4 I'm happy that I had an opportunity to 5 come today because, for the first time, I've met 6 the chairmen of those two banking institutions and 7 had myself approached them and introduced myself to 8 them. Thank you very much. 9 MS. SMITH: Thank you. Mr. Davis. 10 MR. DAVIS: Ms. Smith, members of the panel, 11 Mr. Istock, Mr. McCoy and other participants, I'm 12 Danny Davis, Congressman of the 7th Congressional 13 District here in the state of Illinois. 14 And for those of you who are from out of 15 town, let me welcome you to the city of Chicago, 16 the most fascinating city in all of America, and to 17 the 7th District, which I represent, and it also 18 happens to be the most intriguing of all 19 Congressional districts in the country. 20 I want to begin by thanking the Federal 21 Reserve for holding these hearings. As I will 22 indicate in my testimony, the issues before us are 23 critical to the well-being of this and many other 24 communities throughout America. 33 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 We need to guarantee that the merger 2 before us meet the criteria of protecting workers, 3 minorities, consumers depositors, businesses, 4 non-profits and other partners with special needs 5 in community development. 6 We've set our public policy for bank 7 mergers based on some historical lessons, and as 8 a result of some laxness to the financial sector. 9 These decisions once taken cannot be undone. 10 In his classic 1946 film, It's a Wonderful 11 Life, Frank Capra laid before us two fundamental 12 questions which have resonated with great empathy 13 with the American public. 14 He asked us to ponder the role of the 15 community bank and the community banker in the life 16 of the community. 17 And he asked us to think about the nature 18 of history in the highly divergent paths which 19 history can take, to be changed for better or for 20 worse by the actions of those of us who make 21 decisions. 22 Those are precisely the questions we face 23 in these hearings this morning. It is not my 24 intent or desire to romanticize the state of 34 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 community banking in Chicago. 2 However, the relations between Chicago's 3 First National Bank and Chicago's extraordinarily 4 rich economic, social and cultural life have 5 developed over many years and as the result of the 6 efforts of many individuals and institutions. 7 We simply cannot afford to throw away or, 8 through our inaction, allow years of community/bank 9 relationships to dissipate. 10 In response to those who say the mythical 11 unregulated market is best arbiter economic 12 structures, I would assert that lack of control of 13 markets brought us the ubiquitous crack salesman, 14 one in seven children without health insurance, a 15 mountain of garbage in Lawndale and the lamentable 16 need in this day and age for a task force on 17 sweatshops in Chicago. 18 I would urge that the Federal Reserve 19 consider the impact of this merger on the health of 20 the financial industry as well as the rest of the 21 community. 22 And I am certain that you're making a 23 careful analysis of that aspect, but I would like 24 to suggest that the financial industry's health is 35 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 inseparable from the health of the broader 2 community. 3 It follows logically that we should strive 4 to understand the impact of this merger on the 5 larger community and weigh that impact against any 6 benefits which may accrue. At a minimum, we should 7 consider structuring the merger to minimize 8 negative impacts on the broader community. 9 I would hope that the Fed would consider, 10 attempt to quantify and to take into account these 11 concerns; the number of jobs which may be lost, 12 especially those in the back rooms and not up 13 front, the number of jobs which may be accessible 14 to welfare to work participants; the amount of CIC 15 lending and community development investment with 16 community partners, the agreements with the Chicago 17 CRA Coalition can serve as a model for all markets 18 served by the merged companies. 19 Certainly such agreements would go far in 20 stabilizing the process of community reinvestment. 21 Lack of such agreements would certainly threaten 22 the process of reinvestment both in their direct 23 impact and as a negative signal to other investors 24 and institutions. 36 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 The impact on minority lending, both the 2 availability of loans and any disproportion in the 3 rates which loans are offered. Serious questions 4 have been raised regarding the Banc One record 5 regarding minority lending such as Denver and 6 Milwaukee. 7 We believe that personnel have been 8 developed in the city of Chicago, but we would want 9 to make absolutely certain they are, in fact, 10 retained and those experiences used as Banc One 11 continues to proliferate and carry on its activity 12 in all of its marketplaces. 13 I guess there's no doubt about my time 14 being over. Lights go out. I thank you very 15 much. 16 MS. SMITH: Mayor Goldsmith. 17 MR. GOLDSMITH: Thank you, Congressman. 18 I will be sensitive to time. The 19 Congresswoman got a bell and the Congressman got 20 the lights off, so I worry about the next step. 21 I'm the Mayor of the city of 22 Indianapolis. And the heart of our city is the 23 district represented by Congresswoman Carson, so we 24 have many of the same concerns. I appreciate the 37 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 attention of the Federal Reserve in this matter. 2 These two banks are both extraordinary 3 citizens of the city of Indianapolis, both have 4 outstanding records and both have been partners of 5 the city around the community for some time through 6 community lending and other initiatives. 7 This hour is a very important moment in 8 the future of our city. Because of the leadership 9 and partnership of these institutions, if the 10 merger is not done correctly, then the progress in 11 our city and its citizens are threatened. If it's 12 done correctly, the leadership played by the banks 13 is continued. 14 This is a defining point in the future of 15 Indianapolis. It's not the merger, per se, that 16 concerns us. We've been there. We've done that. 17 Banc One purchased American Fletcher 18 National Bank. And its record after the purchase 19 and merger was every bit as good as they had 20 been before. 21 Indiana National Bank was purchased by 22 NBD, which was then purchased by First Chicago or 23 merged or whatever the right word would be. And 24 their records continue to be very strong and their 38 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 community participation are every bit or greater 2 than they had been previously. 3 So to me, the issue is not one of merger. 4 It's more an issue of attitude, commitment on the 5 part of management and their approach going 6 forward; not the size of the bank, but the attitude 7 of the bank that makes a difference. 8 In that regard, I'd like to make brief 9 points about what I regard to be the role of banks 10 in urban communities. 11 It is clear from the 30 years up to the 12 1990s, there will be structural investments. The 13 cash just flowed out of the center of cities and 14 into suburban communities. 15 Some of this is because the cities didn't 16 manage their own communities very well, with high 17 taxes and high prime and the capital found 18 friendlier places to go after this merger occurs. 19 It's been my goal that the merged banks 20 pay attention to the urban core and in four ways. 21 One, these banks can locate their business centers 22 and their employees anywhere in the world. They're 23 international banks. And we would appreciate the 24 sensitivity to the core that has existed 39 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 premerger. 2 Secondly, community lending. There are a 3 number of great cities in the midwest. And we hope 4 that the bank will use its size to bring the best 5 practices of Chicago or Detroit or Columbus to the 6 citizens of Indianapolis, particularly those 7 citizens who are the poorest and in the most need 8 of access to capital, many of those living in 9 Congresswoman Carson's district. 10 Third, we need small business lending. 11 In this regard, Indianapolis is different than 12 the other cities. I think what will drive small 13 business lending is competition. And the Justice 14 Department is looking at the anticompetitive 15 effects in Indianapolis from the merger of the 16 banks. 17 So the size of the divesture and the 18 ability of the new bank to compete with the merged 19 banks will be, to me, the most important element of 20 assuring small business access to capital. 21 Fourth, and perhaps a little bit 22 different, this merger truly will be a grand thing 23 if I were the Mayor of Chicago, but my prediction 24 is the headquarters of the bank will be in Chicago 40 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 and not in Indianapolis, therefore, I am sensitive 2 about the fact that decision-making needs to be 3 decentralized as it relates to community investment 4 and civic participation. 5 What concerns me most about the merger is 6 the ability of the people located in Indianapolis, 7 a fairly good-sized business center for the banks, 8 to make decisions that are in the best interest of 9 Indianapolis citizens. 10 So the fourth area is civic involvement. 11 These banks have had a great history. They've had 12 a great history because local officials have had 13 the authority to make decisions. 14 If these four issues are addressed, then 15 we can receive some confidence. 16 And in conclusion, essentially our 17 position is that our citizens have a right to 18 certain expectations to be filled. 19 Those expectations would include a 20 commitment to recognizing that the core of a 21 regional economy is important, that the regional 22 economy cannot succeed without the core being 23 successful and that the employment in the core is 24 critical, real estate decisions in the core are 41 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 critical and lending policies in the core are 2 critical as well. 3 Our citizens have a right to expect the 4 best possible access to capital. The best 5 practices anywhere in the world engaged in by this 6 bank should be available to the citizens of 7 Indianapolis. 8 We've conducted our due diligence. We 9 have lawyers who've hired financial experts. We've 10 met with the chairman and the president. We've met 11 with officials in both banks. And we've looked at 12 this in great detail. 13 We've received assurances from both banks 14 that the issues that I have raised will be 15 addressed and they'll be addressed in a 16 constructive way. 17 Based on these assurances and the track 18 record of those banks, I remain anxious, but 19 confident, that the merger will be done in a way 20 that will continue the important role that the 21 banks have played in the city's past; and that 22 these banks after the merger, if they conduct their 23 affairs with some degree of commitment, can be done 24 equally good and equally to the benefit of our 42 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 citizens. Thank you. 2 MS. SMITH: Mayor King. 3 MS. CARSON: You were way past your time. 4 MR. KING: Good morning. I'm the Mayor of 5 Gary, Indiana, a city of about 120,000, about 30 6 miles around the lake from here. 7 It's a pleasure to have been afforded the 8 opportunity to speak from our perspective. And it 9 was interesting listening to Mayor Goldsmith's last 10 comment about his fears of the impact of moving 11 decision-making out of his city to Chicago and what 12 his concerns are. 13 And to quote your children, Mayor, been 14 there, done that, in Gary. And it's not a good 15 prospect. 16 One of the problems that I see with this 17 merger, quite frankly, is that individually these 18 banks in the city of Gary, whose population is 19 85 percent African American, have not individually 20 established an appropriate track record of lending, 21 of investing, of involving the community that 22 they're in. 23 And I suspect it's not due to any malice 24 on the part of the top executives of either 43 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 entity. I suspect it's due, in part, to the larger 2 you get, the more difficult it is within any 3 institution to have policy implemented at the top 4 actually carried out by middle management and 5 below. 6 I can tell you, as Mayor, I have never had 7 the occasion of a department head to walk into my 8 office and say, Mayor, I'm doing a lousy job of 9 implementing the policy that you asked my 10 department to do. It doesn't happen. 11 And I suspect for both the gentlemen who 12 preceded us on this panel, it's not a matter of 13 malice, it's a matter of a lack of awareness. 14 In the banking industry and in African 15 American communities, the truth is, whether in Gary 16 or wherever in this country, they do not have -- 17 they do not enjoy a good track record. 18 One of the remaining vestiges of 19 historic race discrimination today is economic 20 discrimination. That remains a barrier for the 21 people I serve, to get into the mainstream of our 22 economy. 23 The banks, along with other industry in 24 the city of Gary and the other cities in the 44 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 so-called rust bill, have about three decades of 2 disinvestment in the cities. 3 The banks went. The mills went. The jobs 4 went. And what was left was a community that 5 continued to make it day-to-day, but was cut off 6 from resources enabling it to be competitive. This 7 is made all the more frightening to me with some 8 recent studies. 9 Historically, I believe banks have 10 presupposed unfairly that investment in inner 11 cities is high risk, bad investment. 12 Well, lo and behold, a bank, Bank of 13 America, several years ago decided to find out 14 scientifically was that true or not as a premise. 15 They commissioned a study. And lo and 16 behold, the results of their study was that that 17 was a myth and a false one. 18 The truth is, the inner cities, the urban 19 centers, are good places to invest in small 20 business and housing to promote home ownership. 21 These studies commissioned by banks are there. 22 Now, I'm a realist. I'm a realist. I 23 understand we may very well face the prospect of 24 this merger being approved. 45 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 If it is approved, if we are going to 2 truly be sensitive, whether it's Indianapolis, 3 Gary, whatever city we're talking about, I believe 4 it is up to this board and this entity to put some 5 teeth in the tiger of the Credit Reinvestment Act, 6 to carefully scrutinize when you're getting 7 reporting, go behind the numbers. 8 I can tell you, we've not had -- we have 9 not had more good than bad. I will not castigate 10 either bank. 11 There are some things they have done in 12 our community that have been credible, but on the 13 whole, my concern is it will get worse. 14 We have some new banks that have come into 15 our city. And I can tell you, it's been a 16 refreshing change to see honest enthusiasm about 17 making lending opportunities to the people I 18 serve. 19 My concern is by making this merger occur 20 and making them bigger, it could thwart the 21 competitiveness that's just starting our city in 22 banking and continue the legacy of what I believe 23 to be unfair practices in making capital available 24 in minority communities. 46 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 I thank you for the opportunity. 2 MS. SMITH: Congresswoman Carson, would you 3 like to have another minute or so? 4 MS. CARSON: I was feeling jumped upon. 5 MS. SMITH: Maybe you can have the mike. 6 MS. CARSON: I really appreciate your 7 courtesy. I feel more at home now. 8 But I, too, am optimistic about the 9 ultimate outcome of this application for merger. I 10 would simply like to echo the words of the 11 Honorable Mayor King from Gary, and that is to 12 ensure that CRA is enhanced for the benefit of the 13 urban community. 14 An urban community, regardless of 15 someone's view, does not necessarily mean Black 16 community. People who are low income and moderate 17 income are persons who live in urban America. And 18 all of them don't come with the same color on their 19 faces. 20 And so it is an equal opportunity for all 21 American citizens to be able to access economic 22 opportunities to financial institutions who thrive 23 on the profits that they generate from urban 24 America. 47 McCORKLE COURT REPORTERS, INC. CHICAGO, ILLINOIS - (312) 263-0052 1 MS. SMITH: Thank you very much. 2 MR. ALVAREZ: Ms. Carson, you had a written 3 statement. If you would give us a copy of that, 4 we'll make sure the whole statement is put into the 5 record. 6 MS. CARSON: We have left several copies of my 7 statement, but not the latter part. I didn't know 8 I was going to get another minute. 9 MR. ALVAREZ: That's all right. And anyone 10 else on the panel that wasn't able to finish. 11 MS. SMITH: Thank you very much for coming this 12 morning. We appreciate it. 13 Okay. With Panel 3, we will start with 14 the Honorable Hiawatha Davis, Junior.
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