Public Meeting Transcripts
Public Meeting Regarding Fleet Financial Group, Inc., and BankBoston Corporation
Wednesday, July 7, 1999
Transcript of Panel Eleven
25 CONGRESSMAN FRANK: Thank you very much. I 0287 1 appreciate being taken at this point. And I, thanks 2 to the Massachusetts Legislature's whims, have a 3 district that goes from about a mile away from here 4 down to Wareham, and I was in parts of it today, in 5 Fall River and New Bedford, and wasn't able to get 6 in earlier. I appreciate your accommodating me now. 7 This decision that the federal regulators 8 will be making is very important both in itself and 9 as an example of the most important public policy 10 issue, I believe, facing this country today. I feel 11 similarly today the way I did when we passed the 12 banking bill last week, a very important piece of 13 legislation that will be soon going to a 14 House-Senate conference. And I expect to be a 15 conferee, and I want to make the same point in that 16 venue that I want to make here. 17 We have been doing an excellent job in 18 America in fostering the conditions in which 19 capitalism can flourish, and that's a good thing. 20 We all benefit when capitalism flourishes. Wealth 21 is created, and that wealth is available for 22 satisfying our needs. 23 We have not done nearly as well in seeing 24 to the equity with which that wealth is distributed. 25 And in some cases, we're not simply talking about 0288 1 the rich getting richer and the rest being left 2 behind. In some cases, the very process by which 3 capitalism flourishes erodes the condition of some 4 other people. 5 There are elements of that in the 6 international competition in technological advance. 7 And what we have got to do is to find a better way 8 to go forward with setting the rules by which the 9 capitalist system advances, but we do better by the 10 people who are not automatically going to benefit. 11 Let me say this is not simply a matter of 12 equity, it is a matter of self-interest. A country 13 in which a substantial number of the population sees 14 itself more threatened than advanced by economic 15 measures of the sort we talked about in the Congress 16 last week or this merger represents will block that 17 from happening. 18 People who are in the financial community 19 ought to understand, if they don't do a better job 20 of dealing with these equity and fairness issues, 21 they will generate resistance to those measures 22 which they believe, and which I often agree with 23 them, are in our overall interest. People will not 24 sit idly by and be left behind. 25 And in deference to the chairman of this 0289 1 august system, the Federal Reserve System, Mr. 2 Greenspan, I have to differ with him. He gave a 3 speech a couple of months ago. This is really very 4 relevant. He was talking about trade, but it has to 5 do with the whole process of technical and economic 6 advance. He said, "Yes, sometimes some people will 7 get hurt, but they should understand that this is 8 part of the process of creative destruction 9 described by Joseph Schumpeter, and it leads in the 10 end to better results." 11 Perhaps he would like to come to Fall River 12 and New Bedford and preach Schumpeter to people who 13 are losing their jobs. I have not found it 14 fruitful, and it is not a process that I wish to 15 pursue. 16 Instead, what I want to do is to say we 17 will understand that there is an element of creative 18 destruction. It's very important for us to 19 understand this. Progress overall will mean some 20 pain for some people, and we have a responsibility 21 to alleviate that. That's what I'm talking about 22 here today, because unlike some others who may be 23 critical of this merger, I think it's inevitable, 24 and therefore a good thing, because I think it is a 25 bad thing to object to the inevitable. 0290 1 Technology is clearly driving the market. 2 Clearly, a merger was called for. Having it 3 headquartered in our area, I think, is a good thing. 4 So I am in favor of this merger. I think it is a 5 recognition of economic reality, just as I was in 6 favor of many of the pieces of legislation we voted 7 on last week that would relax restrictions on banks 8 and allow banks and other financial institutions to 9 come together more. I think that's where the 10 technology and the market take us. 11 But just as I voted against that bill last 12 week, I would vote against this merger, if I had to 13 vote on it today, under the conditions that have 14 been presented to us. That is, it does a good job 15 of advancing the functioning of the capitalist 16 system in our region. I do believe the 17 intermediation function will do well. 18 Having these two institutions merge has a 19 great deal of promise and was probably driven by 20 market forces, but it is not enough just to do that. 21 It is not enough to say, to the significant 22 percentage of our people who will be left behind, 23 that that's all we're going to do. 24 We recently had a very good report issued 25 by Ed Muscovitch about the 495 dividing line in 0291 1 Massachusetts, about our two economies, about an 2 economy where technological change and globalization 3 are very good news. People who are in the 4 information industry, people who are in software, in 5 biotechnology, in financial services, they do very 6 well. 7 But I just left a lot of people who used to 8 be fishermen, people who did basic manufacturing, 9 people in industries where America is not advancing 10 as much. And they're being left behind, and there 11 is no reason for that. That's a failure of will; 12 it's not a failure of capacity. So that's the model 13 that I hope you will insist on in this case. 14 Yes, the merger should go forward, as long 15 as, as part of that merger, the legal and moral 16 obligations represented by the Community 17 Reinvestment Act are fully supported, and it is very 18 important that the Community Reinvestment Act be 19 seen both as a legal and a moral obligation. 20 Those who are wealthy and will get 21 wealthier, those who will prosper, those who will 22 progress, have an absolute obligation to extend a 23 helping hand to the people who would otherwise be 24 left behind. And it's not just their obligation, 25 it's common sense, because if they don't, they will 0292 1 build up resistance. 2 Now, let me say I have been talking to CEOs 3 of banks for some time. I have urged them to meet 4 with a variety of groups that are interested in 5 affordable housing and economic development. They 6 have begun the process of meeting. 7 But I must tell you that, watching them 8 deal with various aspects of this, it is clear to me 9 that meeting the moral and legal obligations of the 10 Community Reinvestment Act have not been highest on 11 their agenda. 12 We have some substantive promises that look 13 reasonable, but they are at this point only promises 14 with very little in the way of specifics, either as 15 to what actually is going to happen in the housing 16 and economic development area in particular 17 regions -- you can't build housing in general, you 18 can't help economic development in general; it has 19 got to be specific as to where it's going to happen, 20 and you have to be talking about organizations you 21 are going to work with. We have to know that 22 they're going to be monitoring operations. 23 So I will be strongly urging -- I am doing 24 this now -- the Federal Reserve to hold off on 25 approval of this merger until we get from the two 0293 1 institutions specific, reasonable statements of what 2 they plan to do to meet their community reinvestment 3 obligations in conjunction with the very responsible 4 organizations that have a great deal of experience 5 in doing this. That is, I think the merger is a 6 good thing on its own terms, but I voted against the 7 bill last week, as I said, not because of what it 8 did, but because of what it didn't do. I approved 9 of what it did, but it didn't do enough. 10 The merger taking these two important New 11 England institutions and giving them a chance to 12 work together, that's a good thing, but it is not a 13 sufficient thing. I guess that's the answer. The 14 merger of these two institutions is a necessary but 15 not a sufficient set of actions for what we need in 16 our region. 17 Yes, I want to see a strengthened 18 institution, but I want to see as well specific 19 actions promised and described that are going to 20 help the people who otherwise get left behind. 21 I should add finally that I was very 22 pleased with the Justice Department statement that 23 among the things we will have is a bidding process 24 for the assets to be divested. That will allow 25 community banks to be strengthened. Efficiency is a 0294 1 good thing, large institutions do good work, but 2 having locally based institutions are a part of the 3 kind of overall picture we want. 4 So I urge you very strongly, as I said -- 5 and I will be continuing this view in other 6 forums -- I know the Federal Reserve will have a 7 great deal of interest in the outcome of the 8 Conference Committee. And as a member of that 9 Conference Committee, my view on the speed with 10 which we can pass a banking bill will be somewhat 11 colored by how well we do with the current process. 12 And I hope that we will have some -- I hope you will 13 show me that the Fed is capable of enforcing the 14 Community Reinvestment Act. 15 Let me just close with a quotation. Some 16 people have argued that the Community Reinvestment 17 Act is kind of a nuisance and an interference and it 18 detracts from the ability of the capitalist 19 institutions to perform their important function, 20 and it is very important function. 21 I received a letter from the Governor of 22 the Federal Reserve Board a few years ago whose 23 responsibility it was on the Board to monitor the 24 Community Reinvestment Act, the Home Mortgage Act, 25 and other social elements. And he wrote me a long 0295 1 letter amplifying testimony which said, "There is no 2 evidence that any of these laws have caused us any 3 harm whatsoever. They have not raised safety or 4 soundness issues. They have no way interfered with 5 the main function of banks." 6 The author of that letter is a man named 7 Lawrence Lindsey. He is no longer the Fed Governor 8 in charge of this. He is now the chief economic 9 advisor to Governor George W. Bush. So I think we 10 have a pretty good pedigree here to say that there 11 is no reason for capitalists to fear this. Indeed, 12 in their own self-interest, I hope they will embrace 13 it with more enthusiasm than they have shown so far. 14 Thank you. 15 HEARING OFFICER SMITH: Thank you very 16 much. 17 CONGRESSMAN DELAHUNT: Thank you. I think 18 I'll just associate myself with the remarks of my 19 colleague on the Banking Committee. I do share a 20 lot of his sentiments. 21 He referred to substantive promises 22 combined with a lack of specificity and a lack of 23 detail. That causes me a similar concern. 24 I think what would be appropriate here is a 25 thoughtful conversation, negotiations if you will, 0296 1 among the stakeholders to design a plan with 2 specificity memorialized in writing to be reviewed 3 by the Board. 4 And I'd go beyond what Barney just 5 articulated in terms of the CRA. I would suggest 6 that the resulting entity has clearly a legal 7 obligation but also truly, as he indicated, a moral 8 obligation far in excess of the CRA. 9 He and others have talked about the fact 10 that it's a good merger because it's inevitable. 11 There is this aura of, well, inevitability: "We're 12 here. Truly, the economy has changed. We are now 13 in a different world." It's true that the economy 14 is global in nature. Competition has changed. We 15 now compete on an international level. 16 Now, I don't know whether that's good or 17 bad. I have serious reservations about it. I only 18 hope that someday we will not rue the consequences 19 of not having done something positively and 20 constructively and thoughtfully and reflectively 21 until we reach that time that everybody predicts we 22 will have two or three large megabanks in this 23 nation. 24 I daresay I would hope that they would not 25 err and make the same mistakes as we all witnessed 0297 1 back in the late '80s and in the early '90s. It 2 clearly had a devastating impact here in the 3 Northeast. But I also, too, recognize that the 4 world is change and it is inevitable. 5 I would like to address -- I'm not going to 6 get into the specifics, but what I would like to 7 address is the broader transformation of the 8 financial services industry of which this particular 9 transaction is really only the latest manifestation, 10 and to the extent to which what is happening in this 11 industry is part of an avalanche, if you will, of 12 mergers taking place on an unprecedented scale, 13 again, not just domestically but internationally. 14 And I also clearly recognize your role in 15 reviewing this transaction is a narrow one, and your 16 task is to examine the effects of this particular 17 merger on competition and on the convenience and 18 needs of the communities served by these 19 institutions. Yet I suggest that you cannot carry 20 out this mandate without taking into account the 21 competitive environment in which this merger is 22 taking place. 23 It was just about a year ago that the House 24 Judiciary Committee held an antitrust hearing on 25 consolidation and competition in the financial 0298 1 services industry. At that hearing -- and I'm 2 quoting here -- Governor Lawrence Meyer of the 3 Federal Reserve Board testified that over 7,000 bank 4 mergers had taken place since 1980 and that the pace 5 was continuing to accelerate. 6 At that time, nearly 75 percent of domestic 7 banking assets were held by the 100 largest banks, 8 25 percent by the top ten banks alone. I guess this 9 is what we talk about when we use the term 10 "inevitability." 11 That was before, by the way, this past 12 year's string of colossal mergers, including the 13 acquisition of the Bank of America by NationsBank, 14 which I understand placed 8 percent of all U.S. bank 15 deposits under the control of the resulting entity. 16 And I'll acknowledge that this phenomenon is not 17 unique to the financial sector. 18 Again, having served on the Judiciary 19 Committee, we have had the opportunity to review the 20 impact of mergers and acquisitions on many sectors 21 of our economy. And it seems to me that whether one 22 looks at banking or aerospace, health care or 23 telecommunications, the ultimate question ought to 24 be the same: What is the effect of these 25 transactions on the life of our communities and the 0299 1 well-being of our workers, consumers, and the 2 neighborhoods that sustain them? 3 I would suggest that this is the concept of 4 moral responsibility that my colleague referred to 5 earlier. 6 Now, some mergers will create some economic 7 efficiencies that are and will be in the interests 8 of both shareholders and the public. Now, some may 9 be consolidation mergers dictated by genuine 10 business necessity as opposed to proxy fights and 11 leveraged buyouts and hostile takeovers that we saw 12 in the 1980s. 13 But even where this is the case, most of us 14 would agree, hopefully, that economic efficiencies 15 are not the only values at stake. And whether your 16 preferred metaphor is the demise of the independent 17 drugstore with its soda fountain or the Bailey 18 Building and Loan Company immortalized by Frank 19 Harper, the displacement of local institutions 20 represents a loss of much of the glue that binds us 21 together as communities through the hard times. And 22 that's what we're really talking about. 23 There is great prosperity right now. We 24 all know that this is not going to last forever. 25 And it was only 30 years ago that Justice Douglas on 0300 1 the Supreme Court warned that economic control was 2 being transferred from local communities to distant 3 cities where men on the 54th floor with only balance 4 sheets and profit-and-loss statements before them 5 decide the fates of communities with which they have 6 little or no relationship. 7 It seems to me that the sheer pace and 8 volume of today's merger mania suggests that the 9 danger that Douglas was describing is at least as 10 great now as it was back then. 11 Again, we all recognize that change is an 12 irreducible fact of life, this sense of 13 inevitability. But to me, it isn't mere nostalgia 14 or being sentimental to worry about the damage that 15 may be done to local economies when a giant bank 16 merger closes scores of branches and wipes out 17 thousands of jobs. 18 It's not naive to ask what happens to lower 19 and middle class families struggling to afford a 20 home, what happens to neighborhood businesses that 21 need fresh capital to expand or simply to stay 22 afloat, what happens to the local tax base when 23 these businesses go under, and what happens to local 24 charities that depend on corporate support to make 25 their payroll. 0301 1 Now, I know that such concerns are unlikely 2 to prevent this merger from going forward, and it 3 will proceed like thousands have before it. 4 According to Governor Meyer's testimony last year, 5 the Board has only denied some four merger 6 applications during the entire decade. 7 But I think it's important, and 8 Representative Frank indicated, there is unanimity 9 among the Congressional delegation, I think it is 10 important to state, at least members of the House, 11 to ask that the Board require the parties, as a 12 condition of approval, to enter into clear and 13 enforceable undertakings that will mitigate these 14 concerns. Get it in writing. Let's have it in 15 writing after a negotiated process with the 16 stakeholders in the community. 17 Now, these commitments should provide for 18 increased lending in underserved communities, new 19 investments to revitalize older, lower-income 20 neighborhoods, and assistance to the some 5,000 -- 21 that's what I read in the newspapers -- 5,000 22 workers and their families who will lose their 23 livelihoods as a result of this transaction. 24 And I thought it was interesting to note -- 25 and, again, I'm quoting here -- a spokesman for 0302 1 Fleet Bank, Mr. Mahoney, who stated severance 2 packages for laid-off workers will be among the most 3 generous in any merger. Well, let's get it in 4 writing, and let's hope that that is the case. 5 And as, again, Representative Frank 6 indicated, a divestiture plan that makes adequate 7 provisions for bids by smaller and medium-sized 8 institutions with roots in the communities they 9 serve. 10 I would also suggest and submit that these 11 commitments, once they have been entered into, the 12 Board and the Department of Justice carefully 13 monitor their implementation to assure they are 14 fully carried out once the merger has been 15 consummated. 16 And while I don't have a specific remedy in 17 mind, I believe the Board should exercise its 18 authority to fashion significant sanctions to be 19 applied if full compliance is not achieved. If it's 20 not achieved, there ought to be a sanction imposed 21 upon the resulting entity. 22 Now, this is especially important in light 23 of a study that was presented by economists and 24 community organizations regarding Fleet's conduct 25 following previous mergers. Let me cite this one 0303 1 study done by a professor from the University of 2 Massachusetts. Clearly, I can't verify its 3 accuracy, its methodology, but this is what was 4 said. 5 He looked at mortgage lending by Fleet and 6 Shawmut in 1995 and compared those figures to 7 Fleet's lending levels in 1997 following its 8 acquisition of Shawmut. According to Professor 9 Campen, Fleet's 1997 lending, both overall and to 10 traditionally underserved borrowers, was 11 approximately half of what Fleet and Shawmut had 12 done jointly in 1995. 13 Well, if such statistics are to be 14 believed, they suggest that binding commitments are 15 important. I also recognize that the Bank of Boston 16 in a different way had a much different record and 17 was very positive. 18 But let me conclude by daresaying that I 19 would hope that the Board would take these 20 suggestions and reflect on them. And to sum it up, 21 I guess it's get it in writing, and if there is not 22 full compliance, that there be a mechanism to impose 23 sanctions on the resulting entity. 24 Thank you. 25 HEARING OFFICER SMITH: Thank you very 0304 1 much. 2 Any questions? 3 Thank you very much for coming this 4 afternoon. And now we will move back to Panel 11. 5 (Pause) 6 HEARING OFFICER SMITH: Thank you very much 7 for your patience. 8 Now, where we have two people from the 9 organization, is one of you making the presentation? 10 MS. ALLEYNE: Both of us. 11 HEARING OFFICER SMITH: Are you sharing 12 your five minutes? 13 MS. ALLEYNE: Yes. 14 MR. CALLAHAN: We're actually told we had 15 five minutes each. I am planning to take one 16 minute. 17 HEARING OFFICER SMITH: And then she will 18 have four. 19 MR. CALLAHAN: Can she have five? We have 20 been here since nine. 21 HEARING OFFICER SMITH: Can we start with 22 Mr. Callahan. 23 MR. CALLAHAN: Sonia is going to start. 24 HEARING OFFICER SMITH: Okay. Fine. 25 MS. ALLEYNE: First of all, I would like to 0305 1 thank you for the opportunity -- 2 HEARING OFFICER SMITH: Would you say your 3 name and organization, please.
Last update: December 3, 2010