Mar 19 2003

SHELBY ADDRESSES AMERICAN BANKERS ASSOCIATION
TEXT OF SPEECH

"I appreciate the opportunity to speak to you this morning. Despite the many difficult economic and geopolitical challenges we face today, your industry is doing well. While consumer confidence and business investment has been slowed by uncertainty, interest rates have remained low, facilitating a boom in home purchases and refinancings. And although a cloud continues to hang over our equity markets - investors have turned back to more secure investments, such as insured deposits."

"You represent an important part of our economy and therefore, your health and success is critical to achieving greater economic growth."

"As a small business owner, I am well aware of the cost of regulation on the bottom line. And I fully appreciate that within the financial services sector there is an abundance of it."

"But, as I mentioned earlier, you play a vital role in our economy and there are some areas of such extreme importance, that regulation is absolutely necessary. For instance, where issues like safety and soundness and criminal activity are concerned, regulation is necessary to minimize the greater costs to the economy and the public good."

"This sets up the basic challenge: balancing the larger needs of the system against the burdens that industry participants must bear."

"To me, achieving the appropriate balance involves ensuring that when we must regulate we do so in a way that minimizes its costs on industry and the economy and recognizes the value and function of market forces."

"This balance is a constant one. Dynamic markets are often constrained by static laws and regulations."

"What worked 10 years ago, doesn’t necessarily work today as we all know well. We compete in a global marketplace and many of the regulatory challenges we face are similarly international in scope."

"As Chairman of the Banking Committee, I intend to look for ways to ensure that our banking system continues to operate in the most efficient, competitive and sound manner possible."

"One area where I think regulatory restructuring could serve both the larger needs of the system and the particular needs of financial firms is reform of the Federal Deposit Insurance System."

"The system presently lacks flexibility and contains inefficiencies which could lead to serious and costly problems at a later time."

"I strongly support many of the reforms suggested by the FDIC and have asked the Administration and the regulators to work together to draft a bill that incorporates many of these reforms."

"I know the ABA has announced its support of the House bill, sponsored by my colleague Spencer Bachus."

"I recognize your concerns about changes that would increase your costs and reduce predictability on the size and timing of assessments."

"I do not believe, however, that a bill that significantly expands coverage levels serves your interests and I KNOW that it does not protect the larger interests of the banking system and the taxpayers."

"As Alan Greenspan recently testified before our Committee:
“Raising the ceiling now would extend the safety net, increase the government subsidy to banking, expand moral hazard, and reduce the incentive for market discipline without providing any real evident public benefits.”

"Moreover, the additional coverage provided under the bill is not likely to come for free - there is a strong possibility that extending coverage is going to lead to premium assessments."

"I believe that a focused reform bill that excludes the unnecessary and risky proposals to increase coverage would provide the greatest amount of benefits and involves the fewest risks and costs."

"A merged fund would provide a deeper, more diversified insurance pool, thereby reducing the likelihood of assessments."

"Giving the FDIC greater flexibility would address the problems created by the pro-cyclical nature of the present system, ultimately providing greater economic stability."

"I also believe through the appropriate use of credits, there is a way to employ risk-based pricing that does not impose excessive costs or unnecessarily drains capital away from the economy."

"Ultimately, I approach this issue mindful of a broad range of concerns including the taxpayer’s interest, the safety and soundness of the banking system and the stability of the economy. I do not feel that this is about putting the interests of a particular geographic region, or type of institution, or of a particular regulator, first."

"Another area where I hope to make changes to reduce costs and increase efficiency is in the area of check truncation."

"Presently, banks must physically present and return original checks absent an agreement to do so by electronic means. Considering the state of electronic imaging technology, the fact that the law requires literally tons of checks to be trucked and flown back and forth across the country makes very little sense."

"The proposal by the Fed would end the requirement to move paper by allowing banks to transfer electronic images of checks rather than the originals. In cases where a hard copy of a check were needed, a legally equivalent substitute could be downloaded from the electronic image. The end result is considerable savings in time and money through the elimination of an outdated law."

"I expect the Committee to hold a hearing on the Fed’s proposal in early April. It is my hope that we can work quickly to pass this necessary improvement to our payment system."

"We have a tremendously dynamic economy where change is a constant and driving force. Businesses need to be able to adapt to changing markets. There are instances, however, where laws and regulations impede this ability. The purpose of regulation is to establish fair markets that promote competition and innovation. Outdated laws only act as a drain on productivity and growth."

"Some areas we will consider include interest on business checking and sterile reserves, S. corporation reform, moving the thresh hold for Community Reinvestment Act streamlined evaluations from $250 million to $1 billion, among others."

"It is my intention to work with the regulators and the financial services industry, to continuously review regulations to ensure that they function effectively. As I have in the past, I will introduce regulatory relief legislation as we identify areas requiring reform or change."

"Beyond traditional regulatory relief matters, there are also larger questions regarding the overall structure of the regulatory regime. From my perspective, it is just as likely for a particular law to become outdated as it is for a regulatory entity."

"Our responsibility therefore, extends beyond reviewing the content of regulation. We must pay close attention to the structure of regulatory organizations to ensure they function effectively."

"Bankruptcy should be a last resort, not a way to avoid paying your obligations. Our current system is flawed and promotes poor economic decisions."

"I strongly support passage of the Bankruptcy bill and intend to do whatever I can to help expedite its passage. The bill is moving again on the House side and I would like to see this legislation finally completed."

"There is no question that the Fair Credit Reporting Act is an important law that requires careful consideration."

"Credit helps fuel our economy and our greatest interest is ensuring that our laws continue to promote the availability of credit for consumers."

"Recognizing this, I have established what I hope will be a deliberative process to ensure that as we consider the reauthorization of some the law’s provisions we fully appreciate the economic costs and benefits, policy values and goals we ultimately must balance."

"We are in the process of conducting comprehensive staff briefings on the full range of FCRA related issues and I expect the Committee to continue briefings for several more weeks."

"We will hold HEARINGS on re-authorization following completion of the briefings."

"The Administration is also very engaged on this issue and I intend to work with them as this process moves forward."

"I am sure you are all aware of my general concerns regarding financial privacy. That said, while I do have strong views, I have not prejudged or predetermined the final contents of any legislation. And as one Senator, albeit the Chairman, I intend to work closely with my colleagues as we proceed on this important legislation."

"Another issue currently drawing attention involves the Federal Home Loan Bank System. I strongly support the role the System plays. Home Loan Bank advances are a vital resource for institutions nation-wide. By enhancing liquidity, the System makes possible the lending activity that is critical to economic growth and development."

"I also support the Administration’s call for more and better disclosure on the part of all the GSE’s, including the Home Loan Banks. Disclosure of pertinent financial information, essentially, transparency, is important for the protection of investors and taxpayers."

"However, it is not as simple as making a general request of all GSE’s to disclose in like manner. There needs to be an appreciation of the differences amongst the various GSEs. The disclosure method should match the particular risk disclosure is intended to address."

"There is both promise and concern associated with the ongoing negotiations on the new Basel capital accords. I know that many of you are watching this issue closely. "

"While all the details have yet to be worked out, the underlying concepts that form the framework could lead to significant changes in our regulatory system. Such change raises real questions of costs and competitiveness."

"In light of this, I believe the Committee must review the proposal and get an understanding as to what it will mean for American financial services institutions."

"There are a whole host of Gramm-Leach-Bliley related issues that I think are worth Committee consideration."

"For instance, the Securities and Exchange Commission is still working on G-L-B required rules on bank broker-dealer registration requirements. I recognize why you have identified the need to provide parity for thrifts. I will closely follow the SEC’s efforts as this process moves forward."

"I recognize your interest in this issue. I believe this touches on one of the most sensitive areas - the mixture of banking and commerce - that the Committee deals with. I believe permitting banks to engage in these activities would set a dangerous precedent and so therefore I am opposed to the Federal Reserve and Treasury going forward with a rule that would permit it."

"Secretary Martinez has proposed some sweeping changes in this area. The housing market is one of the most important areas of our economy and I believe it is the Committee’s responsibility to take a very close look at these proposed changes. We have scheduled hearings and will consider this issue in the very near future."

"In closing, I want to thank you again for asking me to join today. While I have touched on only a few key areas today, I expect the Committee to be actively engaged across its jurisdiction. I look forward to a busy year. And I would be pleased to take any questions you might have for me."