Industrial Bank Holding Company Act Of 2007

Floor Speech

INDUSTRIAL BANK HOLDING COMPANY ACT OF 2007 -- (House of Representatives - May 21, 2007)

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Mr. GILLMOR. I want to thank Chairman Frank for all his leadership on this issue, not just in this session, but in previous sessions, and also thank Ranking Member Spencer Bachus for his consistent support of the principles embodied in this legislation.

Chairman Frank and I have cosponsored meaningful reform of the ILC charter option for a number of years now. We have gotten a bill, passed the House twice, it died in the Senate. I think this year, though, the third time may be the charm. I think we have substantially more support for this legislation in the Senate than in the past.

While it's available in only a handful of States, the ILC charter is the last loophole remaining for commercial firms wishing to engage in full-service banking.

While a majority of current commercial owners of industrial banks refrain from using all the banking powers available to them, the broad ILC charter does allow for a complete mixing of banking and commerce, which I and other objective observers, such as Alan Greenspan, Chairman Ben Bernanke and others, consider to be financially unwise.

The trend in Congress over the past several decades has been one of removing loopholes and exceptions in the bank law. We did it most recently in 1987 and in 1999, and the trend is clear: If you want to engage in full-service banking, you must become a bank or a thrift holding company.

Chartering an ILC in Utah is really your only option to make an end run around our bank laws, and the secret is out. ILC assets have grown more than 3,500 percent over the past decade. Applications for new ILCs look nothing like they did 80 years ago when this charter was created. States such as California, Maryland and others have taken notice of this alarming trend in ILC applications and have installed roadblocks to an extension of the charter.

State action alone is insufficient, however. It's time that Congress address this policy concern, using the time which was wisely given to us by the FDIC-imposed moratorium. I also want to commend Chairman Bair and the FDIC for listening to the concerns of Congress and imposing that moratorium.

Should Congress fail to send H.R. 698 to the President, we will be increasingly in danger of creating a parallel banking system to that which we have now and which has served the country very well. Both financial and commercial firms will look to this industrial bank option as a way to escape the rules that apply to everybody else. The banking system is well served by the different charter options available to them, but the universe in which an industrial bank can operate is more expansive than any other.

This is poor public policy. Simply saying that since no ILC has yet taken full advantage, that Congress shouldn't act, is wrong.

We are currently in a time of banking stability. Up until recently the FDIC had gone a record 952 days without a bank failure. But I don't like to think about the type of hit that the deposit insurance fund would have taken,
and the hit that taxpayers would have taken, if Enron had had an industrial bank prior to their collapse.

This bill is a combination of significant bipartisan effort undertaken by myself and Chairman Frank to strike a balance between protecting those ILCs already in existence and preventing any further widening of this loophole by commercial firms.

The list of supporters for this reform measure is long and growing. We have 145 cosponsors of this measure to date, and the other body has already begun its deliberations of an identical bill.

So I want to sincerely thank Chairman Frank, Ranking Member Bachus, and their staff for the hard work on this bill, and urge my colleagues to support this bipartisan legislation.

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Mr. GILLMOR. Mr. Speaker, let me commend the gentleman from Utah for an articulate presentation. He is protecting the hometown industry, and there is nothing wrong with that.

I think this bill, though, involves something much broader than that; and it involves a very important financial principle that has been recognized for decades, which is a separation of banking and commerce.

Really, the fact that some of these ILCs have not utilized all the powers they could have isn't really an argument against this bill. Because the business plan of some of the new industrial companies trying to take over ILCs, Home Depot is a great example, is totally different than what the history in the past has been. So that history I don't think is really relevant to what this bill is aimed at.

But that having been said, I am very pleased to yield as much time as he may consume to the ranking member, the gentleman from Alabama (Mr. Bachus).

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