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
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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
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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.
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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
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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
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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
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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
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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
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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,
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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
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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
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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
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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
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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.
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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
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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
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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.