Public Meeting Regarding First Chicago and Banc One
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
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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,
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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
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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
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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.
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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.
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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
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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
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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.
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.