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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