SPEAKERS CONTENTS INSERTS
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BANKS, MERGERS, AND THE AFFECTED COMMUNITIES
Tuesday, December 14, 2004
U.S. House of Representatives,
Committee on Financial Services
Washington, D.C.
The committee met, pursuant to call, at 10:12 a.m., at the Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston, Massachusetts, Hon. Spencer Bachus [presiding.]
Present: Representatives Bachus, Murphy, Frank, Watt, Meeks, Lee, Capuano, Lynch. Also present was Representative Tierney.
Chairman BACHUS. Good morning. The Committee on Financial Services will come to order.
Today is a full Committee hearing requested by Mr. Barney Frank, Senior Ranking Member of the Committee, to examine the economic impact of large bank mergers, with particular focus on the two mergers we've had here in the Northeast. Gramm-Leach-Bliley have other factors contributed to me a large number of bank mergers we have seen recently.
Since the mid-'40s, there's been a decline of about 40 percent in the number of banking organizations; and the ten largest U.S. banking organizations, they've increased their deposit share or bank asset share from 20 percent to 46 percent by the end of last year. So there has been a tremendous consolidation in the industry.
In fact, three of our banks, Bank of America, who will have a witness testify today, along with JPMorgan Chase and Citibank, are actually bumping up against the 10 percent deposit limit of Riegle-Neal.
We're going to shorten our time for opening statements because we have three panels. Our first panel will be consumer advocates and public-interest advocates; our second panel will be representatives of the banks involved. We will have representatives from Bank of America and also from Sovereign Bank; and our third panel will have a state senator, state representative and a banking commissioner from the State of Massachusetts.
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Because we do want to get right to our witnesses, we're going to constrict our opening statements. I'll submit my entire opening statement for the record.
I would note that Bank of America and Fleet Boston did announce that they were stepping up their CRA commitments over a ten-year period as a result of the merger, and I'm sure there will be testimony on that and how that's going.
[The following information can be found on page 333 in the appendix.]
Chairman BACHUS. With that, Mr. Frank?
Mr. FRANK. Thank you, Mr. Chairman. I want to express my very deep personal appreciation. We often say that, but on occasion we really mean it; and this is one of them.
To the chairman of the full Committee, Mike Oxley, and to my colleague, Spencer Bachus, it is a refutation of the notion that partisanship has totally seized control of Congress that the Republicans, who are in the majority, agreed to this important hearing.
I am deeply appreciative to Chairman Oxley and his staff for this, to my two colleagues, Spencer Bachus and Tim Murphy, who at some inconvenience to themselves, at a time when frankly our workload is not supposed to be the highest, agreed to come here.
I want to express my appreciation also to other of my colleagues who joined us from elsewhere: Congressman Watt from North Carolina, Congresswoman Lee from California, Congressman Meeks from New York, as well as my Massachusetts colleagues who have joined us.
This is a very important issue, both specifically and generally. Obviously the impact of the Bank of America purchase of Fleet is of great significance to Massachusetts, and indeed to the rest of New England; but this is also symptomatic of a national set of issues. And this is not a hearing only about Bank of America; we will be hearing from one witness who has had dealings with JPMorgan Chase, which was mentioned by the chairman. These are not personal issues; there are very significant public policy issues here.
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I just want to add one thing. One of the concerns that I'm sometimes asked to address is, well, what business is it of you and other elected officials to dictate or put pressure on a private institution? How do you come to feel that you can tell a bank, well, you've hired too few people or you haven't done enough in this lending area.
The answer is, in part, that banks are a very important part of our free market system, and they perform an essential role. I think virtually every one of us on this panel has cooperated with the banks in things like allowing them to truncate checks, and we've tried to reform deposit insurance.
We are very much interested in a better functioning of the banking system in the interest of the economy as a whole, but let's also be clear: Banks have deposit insurance guaranteed by the federal government. They have access to the discount window in the Federal Reserve system. Banks are protected against competition by the restrictions on entry. In other words, banks are a very important part of our system, and they receive a great deal of protection and assistance from the government.
In return, Congress passed and the President signed the Community Reinvestment Act which imposes certain reciprocal restrictions; so when we discuss these things, it's in that context. It does not mean that we don't recognize that banks are essential to the functioning of our free market economy. It is that we recognize also that, given the advantages that we give banks so that they can perform that function, it is important that there be something in return.
I appreciate that, Mr. Chairman, and I thank you for holding this important hearing.
Chairman BACHUS. Thank you, Mr. Frank.
Chairman BACHUS. Mr. Watt?
Mr. WATT. Thank you, Mr. Chairman.
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We actually agreed not to make opening statements in the interest of time to get some witnesses who have some time problems to not just sit here and listen to all of us, but I asked them to give me one minute to make two disclosures, just in the interest of full disclosure.
First of all, one of the institutions that's represented here is based in my Congressional district, and that's Bank of America. So I wanted to welcome them, although I don't have the right to be welcoming anybody to Boston; but at least so that everybody would know that the home base of Bank of America is actually physically located in my Congressional district.
The second disclosure is that Juan Cofield, one of the witnesses on the first panel, who's over the NAACP branches here in this area, and I were classmates at the University of North Carolina. We in fact, between me, Juan, and James, his brother, represented one-fourth of the African-Americans in a class of over two thousand students when we started undergraduate school; and when we finished, we probably represented about one-half of the people in that class, because through attrition, some of them had gone and done other things.
So we go back a long way, and I want to welcome him and thank him for being here personally. Thank you very much.
Chairman BACHUS. Thank you, Mr. Watt.
Chairman BACHUS. I'd also note for the record that Charlotte also is about the second largest bank in my home town.
Mr. FRANK. Mr. Chairman, one last thing while we're acknowledging home towns. I think we should note that we are in the district of my colleague, Mr. Lynch; so our home Congressman is also here.
Chairman BACHUS. You might want to introduce the other Members of the Massachusetts delegation.
Mr. FRANK. Yes. We're joined by our Congressman John Tierney, from north of here, who is not a Member of the Committee, and we particularly appreciate his taking the time to be here; Congressman Lynch, who is a Member of the Committee; and Congressman Capuano, whose district is about a block away.
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Mr. CAPUANO. Across the street.
Mr. FRANK. Across the street. I'm delighted to have my colleagues here.
We have Congressman Meeks from New York; Congresswoman Lee from California, who also has a claim of former host, because the Bank of America name came from the Bank of America which was originally in the Bay Area. So Congresswoman Lee from Oakland has a piece of that claim.
Chairman BACHUS. We also have Mr. Murphy, who's from Pennsylvania; and Sovereign Bank is in your district.
Mr. MURPHY. Mellon.
Chairman BACHUS. Now that we've had those exciting opening statements, we'll turn to our first panelist, Ms. Maureen Flynn, deputy director of the Massachusetts Association of Community Development Corporations; Ms. Florence Hagins, director of Massachusetts Affordable Housing Alliance; Mr. Cofield, who has already been introduced. Juan Cofield?
Mr. COFIELD. Right.
Chairman BACHUS. New England Area Conference of NAACP; Ms. Irene Baldwin, executive director of the Association for Neighborhood and Housing Development; and Mr. Mathew Thall, senior program director of Local Initiative Support Corporation.
So we welcome you all, and at this time we will start with Ms. Flynn and hear your opening statement. Then we will go to Ms. Hagins and down the line.
STATEMENT OF MAUREEN FLYNN, DEPUTY DIRECTOR, MASSACHUSETTS ASSOCIATION OF COMMUNITY DEVELOPMENT CORPORATIONS, INC.
Ms. FLYNN. Thank you, Chairman Bachus, Congressman Frank and Members of the Committee, especially the Massachusetts delegation, for being here today. We appreciate your holding a field hearing in Massachusetts on the recent mergers.
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Before I start, I wanted to make clear that my testimony today includes the comments and the input of two other members of our statewide coalition on CRA issues, which is the Fair Housing Center of Greater Boston and the Lawyers' Committee for Civil Rights. They cannot testify today, but my comments include their comments.
I will address my comments in the order of the questions that were asked to us as a panel, and I have submitted written testimony; so this is a summary of what I've said in my written testimony.
First, regarding job loss: As a group that represents low- and moderate-income communities across Massachusetts, we are most disturbed by the job losses sustained by southeastern Massachusetts because of the most recent Sovereign acquisition of Seacoast Bank. The merger resulted in the elimination of 350 jobs in southeastern Massachusetts.
The recent Bank of America acquisition of Fleet Bank resulted in the loss of key bank positions and employees who were able to make a positive connection between Fleet Bank and the communities that they serve. In addition, Bank of America has effectively reduced its CRA staff, so that there is just one CRA officer now for two states, Massachusetts and Rhode Island.
Secondly, regarding the extent to which acquiring banks have entered into commitments during the merger process: On December 1, 2004, Sovereign Bank signed a new five-year community investment agreement. The details of that agreement are included in my written testimony.
The agreement, in essence, contains all of the provisions which the community coalition that worked with them on the agreement requested, most importantly, commitments to affordable housing, small business lending, a Massachusetts advisory council and goals on diversity in hiring and awarding contracts.
Could Sovereign do more to mitigate the effects of its acquisition of Seacoast Bank, especially for southeastern Massachusetts? Absolutely. Does the agreement contain a plan for mitigating the effects of job loss? No.
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Our work is not finished on the merger, and neither is theirs. We intend to work with them through the framework of this agreement and through the advisory council so that Sovereign Bank becomes a true partner and leader in southeastern Massachusetts. The fact that we have an agreement with them and an advisory council makes that continuing work possible.
As for Bank of America, in November of 2003, just after Fleet Bank announced that they were accepting an acquisition proposal by Bank of America, our community coalition proposed a Massachusetts-specific community investment plan to the bank based on what we understood are the community credit needs of our state. This proposal contained almost identical categories as those contained in previous Sovereign agreements and Citizens Bank agreements.
In February, after several meetings and intense discussions with Fleet Bank and Bank of America officials, the bank agreed, in writing, to a written Massachusetts plan. In the first few months of this year, Bank of America agreed to make several commitments on areas contained in our proposal, which I have again outlined in my written testimony.
We very much appreciate Bank of America's commitments to date and think the commitments are a good first step in partnering with Massachusetts communities. However, more than one year after Bank of America announced their plan to acquire Fleet, there are four extremely important outstanding issues on which Bank of America has not yet agreed to make commitments or set goals: Small business lending goals by loan type and area, goals for diversity in hiring, goals for diversity in awarding contracts, and the establishment of a formal Massachusetts community bank advisory council.
Without these goals set, Bank of America's promise to us hasn't been met. Without these goals set, there can be no written community investment agreement or plan with Bank of America that adequately attempts to serve the credit needs of the citizens of Massachusetts.
The information that Bank of America released to us this past Friday regarding their Massachusetts business strategy is not a plan for addressing the credit needs of low- and moderate-income individuals in Massachusetts; and in fact, the words ''low- and moderate-income'' only appear once, in the last sentence of the last paragraph of the last page of the document.
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The information gives us a general idea about how the bank will conduct its business. What we want to know is how they plan to meet the credit needs of low- and moderate- income individuals and communities based on the categories set out in the CRA regulations. It's that simple.
As we mentioned, we appreciate the commitments that the bank has made to Massachusetts so far. However, Sovereign Bank and Citizens have been able to meet the standard established by our state in terms of being parties to solid community investment agreements. We only ask that Bank of America meet that standard as well, or even, as their advertising campaign suggests, that they try to achieve a higher standard reflective of their preeminent ranking in the financial services industry.
Lastly, regarding whether current laws provide sufficient criteria for the review of the impact of bank mergers on communities, we feel that they do not, and they are inadequate to ensure communities' interests post-merger.
First, CRA regulations should include an assessment of how well banks have met the credit needs of communities of color.
Second, there are two inadequacies in the Bank Holding Company Act which require that in determining whether to approve an acquisition application, bank regulators must assess whether the merging banks have complied with the CRA law in meeting the credit needs of a community.
The assessment under the law requires that the regulators only look to the past record of the two merging banks on CRA issues, not how they are going to meet CRA in the future after they have merged.
Secondly, there is no requirement that the regulators compare the performance after the banks have merged on whether they have met the requirements under the law under CRA and the Bank Holding Company Act; and therefore, there's no incentive for banks to take into account any diminishing of services, investment or lending post-merger.
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So again, we thank the Committee very much for allowing us to submit testimony on these very important issues and for your coming to Massachusetts to hear us on these issues.
Chairman BACHUS. Thank you.
[The prepared statement of Maureen Flynn can be found on page 288 in the appendix.]
Chairman BACHUS. Ms. Hagins?
STATEMENT OF FLORENCE HAGINS, ASSISTANT DIRECTOR, MASSACHUSETTS AFFORDABLE HOUSING ALLIANCE
Ms. HAGINS. Thank you for the opportunity to testify today, Chairman Bachus, Congressman Frank, and other Members of the Committee. We appreciate the willingness of the Committee to come to Boston for this field hearing. We particularly thank Congressman Frank for his strong support for the CRA and his successful efforts to encourage banks to make specific commitments to the community they serve.
My name is Florence Hagins, and I am the assistant director of the Massachusetts Affordable Housing Alliance. MAHA is a non-profit organization that works to increase public and private sector investment in affordable housing and to break down the barriers facing first-time home buyers.
We have signed multi-year CRA agreements with most major banks in the state detailing commitments to the SoftSecond program, which is the state's most affordable mortgage project, and has helped over 7,700 low- and moderate-income home buyers buy their first home. As the leading anti-redlining program in Massachusetts, we have also worked closely with groups such as the Mass. Association of CDCs, Fair Housing Center of Greater Boston, and Lawyers' Committee for Civil Rights.
On January 13, 2004, Bank of America signed an agreement with MAHA for 3,000 SoftSecond loans in Massachusetts over the next ten years. In addition, Bank of America made public commitments to other housing programs. They agreed to remain a member of the Federal Home Loan Bank of Boston. They agreed to remain fully invested in the Massachusetts Housing Investment Corporation.
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Bank of America agreed to convert a portion of its loan commitment to the Massachusetts Housing Partnership to an $18 million grant; and Bank of America agreed to participate in the Massachusetts Basic Banking program by offering low-cost checking and savings accounts.
On housing, Bank of America has made the right commitments. Bank of America has a chance, as they enter this market, to be the lender of choice for low- and moderate-income residents in Massachusetts, but it will take an aggressive commitment to better serve these markets.
Bank of America needs to hire more loan originators from diverse backgrounds; increase its marketing in low- and moderate-income neighborhoods; and provide good and timely customer service throughout the mortgage process.
We have had discussions with Anne Finucane of Bank of America, and we are in agreement that staffing levels for loan originators need to be significantly increased in the Boston market. We appreciate the commitment that Bank of America has made to increase its staffing levels in the mortgage area.
Chairman BACHUS. Ms. Hagins, we're told that people in the back of the room can't hear; so I'm going to ask the panelists to pull the mike a little closer to you.
Mr. FRANK. Put it right in front of your mouth.
Ms. HAGINS.In addition, Bank of America senior management will need to emphasize the importance of increased production in the SoftSecond program.
In the first eleven months, we have seen mixed results under the Bank of America SoftSecond agreement. Bank of America has exceeded its commitment of 150 loans outside of the city of Boston by closing 165 mortgages, making them the number one lender in the program statewide.
In Boston, however, the numbers tell a far different story. Bank of America has closed 52 loans in the city of Boston against the commitment of 100 loans, making them only the third largest SoftSecond lender in the city of Boston.
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MAHA has also reached agreement with Sovereign Bank prior to its merger with Seacoast for commitments to the SoftSecond loan program. Sovereign has committed to a total of 575 SoftSecond loans during the next three years.
In 2004, Sovereign's commitment is for 75 loans in Boston and 100 outside of Boston. Through November 2004, they have closed 144 loans throughout the state, which makes them the second largest SoftSecond lender in Massachusetts. During the merger process, Sovereign officials were also willing to make specific commitments to New Bedford and the south coast region of Massachusetts.
We offer the following comments on the adequacy of the CRA.
One weakness of CRA, or at least as it is enforced by federal regulators, is that banks are not compelled to enter into signed written agreements with community groups. Many choose instead to make public commitments which do not include much in the way of detail.
Any other serious relationship between a bank and its customers, partners and vendors is typically in the form of a written agreement. CRA commitments should be no different.
CRA is a law that needs to be expanded to cover mortgage companies as well as banks. In Boston in 1990, banks controlled by CRA controlled 78 percent of the mortgage lending market. Last year, the bank market share percentage had slipped to 23 percent. Yet banks covered by CRA lend to lower-income and minority borrowers at a rate more than double that of largely non-CRA-covered mortgage companies.
We oppose the move by the Office of Thrift Supervision and the FDIC to raise the small-bank threshold from $250 million to $1 billion, allowing many banks to eliminate the investment and service components of the three-pronged CRA test.
We support expanding CRA to include disclosure of race information on small business loan data and to specifically include areas such as diversity in employment and procurement for minority- and women-owned business enterprises.
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We thank you for the opportunity to testify today and we would be happy to answer any questions.
Chairman BACHUS. Thank you.
[The prepared statement of Florence Hagins can be found on page 307 in the appendix.]
Chairman BACHUS. Mr. Cofield?
STATEMENT OF JUAN M. COFIELD, PRESIDENT, NEW ENGLAND AREA CONFERENCE OF NAACP
Mr. COFIELD. Good morning. I'm Juan Cofield, president of the New England Area Conference of the NAACP. The acronym for the New England Area Conference is NEAC and you will hear me referring to NEAC.
NEAC is the coordinating and governing body for the branches of the NAACP in the states of Rhode Island, Massachusetts, New Hampshire, Maine and Vermont. I want to express my sincere appreciation to Chairman Bachus, Ranking Minority Member Congressman Frank, and the other Committee Members for conducting this hearing here in Boston today. This hearing, in and of itself, has already had an impact on the delivery of banking services in this community.
NEAC is part of a loose coalition of non-profit organizations called the Community Advisory Committee, the acronym being CAC, formed to advocate for people of color and low- and moderate-income people in pursuit of improved banking services.
In general, my testimony is supported by the CAC. More specifically, I wish to indicate that the general thrust of my testimony has the support of the Lawyers' Committee for Civil Rights Under Law of the Boston Bar Association and the Fair Housing Center of Greater Boston.
To put my testimony in context, I would like to provide for you the vision and mission of the NAACP. The vision of the NAACP is to ensure a society in which all individuals have equal rights and there is no racial hatred or racial discrimination. The mission of the NAACP is to ensure the political, educational, social and economic equality of all persons and to eliminate racial hatred and racial discrimination.
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NEAC and the CAC requested two commitments from Bank of America which relate to the bank's employment at all levels of people of color and women and the procurement of goods and services from businesses owned by people of color and women.
Statistical data will clearly show that the percentage of people of color and women employed by Bank of America at all levels, nationally and in Massachusetts, is not matched by these categories of citizens' percentage of the population. An even worse disparity is reflected regarding the percentage of goods and services purchased from people of color and women.
NEAC and the coalition have requested that Bank of America set a goal and develop a plan such that the bank's employment at all levels again of people of color reflect the percentage of people of color in the general population in the Commonwealth of Massachusetts. A similar request has been made regarding the bank's procurement of goods and services.
These disparities are certainly not unique to Massachusetts and Bank of America alone did not create the disparity in Massachusetts or in our great nation. It is a problem of our American society and economy.
However, Bank of America must be part of the solution. The lack of employment and business opportunities has contributed to economic destabilization in communities with a dominant population of people of color.
The Community Reinvestment Act begins by reciting Congress's three findings in passing the law. First, banks are required to serve the convenience and needs of the communities in which they are chartered to serve. Economic stabilization is a dire need in many communities of color. Adequate employment and business opportunities will greatly contribute to stabilizing these communities.
Since Bank of America in its normal course of business provides employment opportunities and opportunities for businesses to sell the bank goods and services, NEAC and the CAC maintain that the bank has an affirmative obligation under the CRA to provide these same opportunities on an equal basis to communities with dominant populations of people of color.
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I aver that further evidence of Bank of America's affirmative obligation to provide employment and business opportunities is found in the investment test of the CRA regulations for large banks. The investment test evaluates the bank's community development investments. Of the four measures of a bank's investment, two are directly relevant: the bank's responsiveness to community development needs and the degree to which investments are not provided by other private investors.
Bank of America can present no reasonable argument that providing equal access to jobs and business opportunities in destabilized communities with a dominant population of people of color is not addressing a community need. Further, these investments are not being sufficiently provided by other private investors. NEAC and the coalition have sought a reasonable investment plan of employment and business opportunities from the bank to address these stark community needs.
To this point, Bank of America has not presented NEAC and the coalition with such a plan. Up to Thursday morning, December 9, discussions with the bank had been quite disappointing, to say the least. But on Thursday morning, I had a lengthy discussion with two senior bank officials: Doug Woodruff, president of CD Banking, Bank of America, and William Fenton, senior vice-president of Bank of America here in Boston. I am more hopeful today, as a result of that conversation, than I was prior to last Thursday, December 9.
The bank's attitude has been that it is developing a national plan and that Massachusetts will fit within that plan. It is a one-size-fits-all approach. However, this approach, in my humble and lay opinion, is not what the CRA intended to require.
CRA is the acronym for Community Reinvestment Act and not the Country Reinvestment Act. Any plan developed by the bank should be specific and tailored to the needs of the communities which each of you, our most honorable Congressmen, represent if the bank is providing banking services in your district.
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By contrast, I would like to point out what Bank of America's two largest competitors in Massachusetts are doing.
Sovereign Bank of New England and Citizens Bank Massachusetts have made a commitment and are developing plans for their respective banks' employment at all levels and procurement programs of goods and services, which reflect the diversity of the Commonwealth of Massachusetts.
These banks did not simply say, ''Come in and let us show you what we plan to do.'' These commitments were the result of an openness of attitude, a willingness to provide the best service to the communities which they serve, and an extended period of negotiations.
I know that each of these banks is proud of their commitments. They feel that implementation of the commitments will enhance their ability to serve the community. Additionally, they believe that implementation of these commitments will grow their revenue and profits.
In particular, and because you are reviewing Sovereign Bank's acquisition of Seacoast Banks, I want to take this opportunity to publicly state, on behalf of the New England Area Conference of the NAACP and the other organizations whose views are reflected in this testimony, that Sovereign Bank New England has distinguished itself in developing a relationship with the Community Advisory Committee.
The bank recently signed a comprehensive agreement with the CAC which includes definitive language on workforce and procurement diversity to reflect the ethnic and gender diversity of the Commonwealth of Massachusetts. The bank, I believe, is a prime example of a bank attempting to serve the totality of needs of the community. The leadership of the bank, of the Sovereign Bank of New England gets it.
I do urge you, the Financial Services Committee of the House of Representatives, to move forward to strengthen the CRA in three important aspects.
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One aspect is to ensure that major nationwide banks develop and implement plans that truly serve the totality of needs of the communities they serve. The communities that you represent will be the beneficiaries of such legislation.
Secondly, I would ask that you take action to provide specific language in the CRA to address the issue of ethnic and gender diversity. The issue of race continues as a serious problem in our nation. It is not too much to ask that a bank, in its normal course of business, be a part of the solution and not a part of the problem. The interest of our nation will certainly be enhanced.
Exactly eleven months ago today, I addressed the Federal Reserve Bank of Boston at its public hearing regarding the acquisition of Fleet Boston by Bank of America. At that hearing, I urged the Federal Reserve to defer a decision on the Bank of America's application for approval of the acquisition until such time that a definitive plan was presented addressing the full range of community needs. I continue to believe that such action would have been the proper course and the proper decision of the Federal Reserve Bank.
So third, I request that you strengthen the language of the CRA to provide for such a plan prospectively.
In closing, I am honored and, again, I do appreciate the opportunity to address the Committee on this important affect of your work. Thank you very much.
Chairman BACHUS. Thank you.
[The prepared statement of Juan Cofield can be found on page 270 in the appendix.]
Chairman BACHUS. Ms. Baldwin.
STATEMENT OF IRENE BALDWIN, EXECUTIVE DIRECTOR, ASSOCIATION FOR NEIGHBORHOOD AND HOUSING DEVELOPMENT
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Ms. BALDWIN. Good morning, Chairman Bachus, Congressman Frank, and other Members of Congress. I'm the executive director of the Association For Neighborhood and Housing Development.
We're based in New York City and we're a coalition of 93 non-profit neighborhood housing groups. Our member organizations work in low- and moderate-income neighborhoods around the city, and they work extensively with almost all the area banks on a range of community development initiatives.
My testimony today will focus on the JPMorgan Chase merger, the community development commitments the bank made at the time of that merger, and how they've been implemented over time.
At the time of its purchase of JPMorgan in 2000, Chase was considered a leader in community development in New York City. They were probably the dominant bank in New York City in community development lending and investment. JPMorgan was also very prominent in community development, and both banks were very well respected by our member organizations.
We were very concerned about the JPMorgan Chase merger. We couldn't afford to lose the activities or programs of either bank, and we thought there was a very good chance that might happen out of the merger, particularly in the case of JPMorgan, which was the bank that was being picked up by Chase.
So we met with leadership of Chase during the time of that merger, we met with a vice-chairman for the retail bank, two executive vice-presidents, several other Chase staff, and about a dozen community group representatives.
At that meeting, the bank made a number of commitments. These are discussed in some detail in my written statement, but essentially the bank promised to keep doing what it had been doing in the two separate banks. We weren't asking for an expanded commitment; we were just asking that they not roll back or pull back from what they were already doing.
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The main promises they had made to us were that all of the banks' community development programs would be coordinated and delivered through Chase's centralized community development group. We felt the community development group was very strong, and we wanted to make sure it survived the merger.
They also promised that the staff and programs of Morgan's CDC would be preserved; and further, they promised again that the separate levels of lending and investment of the two banks would be maintained after the merger. Again, we weren't asking them to do more; we were just asking them to promise not to do less.
We left that meeting very satisfied with the promises the bank made to us. We were confident that both Chase and Morgan's programs would continue intact.
After the merger was approved, however, the bank honored none of the commitments it had made to us. They almost immediately eliminated important community development programs, they cut their community development budget and staffing levels, and they began to break up the community development group.
So in this past year, when Chase then applied to purchase Bank One, we again submitted written comments to the regulators. These detail our experiences with the previous merger and also discuss how, as a result of the bank cutting back on programs, it was now less able to deliver services on a neighborhood level than it once had been.
Neither the bank nor the regulators responded to our written comments, including the issue we raised that Chase had not honored previous commitments.
So based on these experiences, it is our belief that current laws do not protect community interests after a merger. My written statement cites a number of areas where current law can be reformed. They're on Page 6 of my statement. Two of them echo what other witnesses have already said today. Currently regulators do not enforce CRA commitments, even those made in the course of a merger. We would urge the banks be held accountable for the CRA commitments they make.
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Second, the application review process looks at past CRA performance, but does not require that banks provide forward-looking CRA plans. We would urge that banks develop detailed specific CRA plans for each of their local markets as part of their merger application. Again, additional recommendations are in my statement.
With a continuing trend towards mega-bank mergers, what we saw play out with JPMorgan Chase, we expect to see in other banks, too. It's very timely that Congress consider this issue and find ways to strengthen the CRA to better protect our communities.
Thank you.
Chairman BACHUS. Thank you, Ms. Baldwin.
[The prepared statement of Irene Baldwin can be found on page 91 in the appendix.]
Chairman BACHUS. Mr. Thall?
STATEMENT OF MATHEW THALL, SENIOR PROGRAM DIRECTOR, LOCAL INITIATIVES SUPPORT CORPORATION
Mr. THALL. Members of the Committee, thank you for the invitation and opportunity to testify. My name is Mathew Thall; I'm the senior program director of the Boston Program of the Local Initiative Support Corporation, or LISC. I've been in that position for 13 years and previously was the executive director of a CDC in Boston for a decade.
LISC is the largest non-profit community development support organization in the United States. Since 1980, we have invested approximately $5 billion in 2,400 community development corporations working in and for low-income neighborhoods. This investment has entailed 147,000 affordable homes and over 22 million square feet of neighborhood commercial retail and community facilities space. In Boston, we've invested about $87 million over the past 24 years, leveraging about $725 million of other public and private investment, and helping to support over 6,000 affordable homes.
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LISC does a good deal more than just finance community development. We invest in building the capacity of CDCs and non-profits. We often serve as a catalyst to change the local system and attract new investments in community development. I have included in my statement a few interesting examples of this type of work in Boston, in Chicago, in Los Angeles and in Winston-Salem.
I think I can say unequivocally that LISC would not have been able to accomplish everything it has accomplished without the Community Reinvestment Act. The CRA made it possible for us to develop strong relationships with banks, in Boston and nationwide. As the banking industry evolves, it becomes increasingly important to maintain a strong CRA in order to maintain those relationships and to continue the capital flow.
CRA has worked remarkably over the past 25 years fostering and building public-private partnerships around community development. It has helped to weave a network of federal programs into private investment, including HOME, the low-income housing tax credit, new market tax credit. It has been a very, very powerful tool for building low-income communities.
Now that partnership is in jeopardy. LISC is deeply concerned that a series of proposals from the FDIC and the Office of Thrift Supervision would begin to dismantle CRA and the public-private partnership CRA has represented.
OTS has already reduced the oversight of mid-sized thrifts with assets between $250 million and $1 billion. The FDIC has proposed to do the same for the banks it supervises as well as to grant CRA credit for rural community development activities that do not serve low-income people or places. Now the OTS is considering letting institutions ignore investments and services under CRA.
It is especially disturbing that OTS and the FDIC have acted on their own, without coordination with the Federal Reserve Board and the Comptroller of the Currency, discarding over 25 years of joint policymaking on CRA. Fragmented regulatory policies are not just confusing; they also invite a race to the bottom as banks switch charters to the most lenient regulation and the regulators compete to offer it. We fear that other destructive proposals may follow until CRA loses all significance. Struggling communities would suffer in many ways.
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I have attached to my testimony a copy of an op-ed article by LISC's chairman, Robert Rubin, the former Secretary of the Treasury, and our president, Michael Rubinger, which appeared in the New York Times on December 4, 2004. The article lays out a compelling case for keeping CRA strong, and I request that it be included in today's hearing record.
The Committee has invited me to comment on Bank of America's performance to date on commitments that it made in connection with the merger with Fleet Boston.
First, I should say that Boston LISC's experience with Bank of America per se is still young. Bank of America has been a very strong supporter of LISC prior to the merger. I refer the Committee to the testimony of Michael Rubinger before the Federal Reserve earlier this year.
Bank of America has been a major and generous supporter of other LISC sites. Its staff have served on our local advisory committees, which are the local boards. Finally, Bank of America has directly financed and invested in CDC projects that have been ''seasoned'' by LISC's investments.
While Boston LISC is still building a direct experience with Bank of America, we have had many strong and positive experiences with its legacy institutions: Fleet Boston, BankBoston, Shawmut Bank, and BayBank, to name a few.
Several of Fleet's staff served on the Boston LISC advisory committee board and committees. LISC has done a tremendous amount of lending side by side with Fleet Boston in recent years. We have not only provided predevelopment loans to CDCs needed to get their projects ready to access financing provided by Fleet Boston, we have remained in a number of projects as a permanent lender with Fleet.
LISC would not stay in a deal as a lender subordinate to a bank that it did not trust and hold in high regard.
Bank of America has honored and in some ways strengthened the relationship we had with Fleet since the merger has occurred. We are partnering with the bank and the city of Boston on an initiative to address comprehensive community development needs in the Bowdoin/Geneva section of Dorchester, a neighborhood in Boston, a neighborhood that has often been overwhelmed by problems of poverty and crime. This was an initiative that the bank proposed, not LISC or the city.
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Boston LISC is about to enter the final year of a $33 million campaign to raise and invest funds in the neighborhoods, towns and cities in greater Boston. Bank of America has honored Fleet's commitment to that campaign and has reaffirmed its commitment to leadership of that campaign. We are delighted that Anne Finucane will be taking the reins of chairing that campaign in the next year.
In terms of concrete, measurable commitments, I believe that the merger of Bank of America and Fleet has definitely made substantially more resources available locally for community development. As part of the merger discussions, Bank of America agreed to convert a portion of a statutorily mandated loan to the Massachusetts Housing Partnership into an $18 million grant. There is no statutory or regulatory basis for securing this type of grant from an acquiring bank under Massachusetts law.
Certainly, our very talented and sophisticated advocates deserve much of the credit for this commitment. However, Bank of America was under no legal obligation to make such a commitment. And as far as I know, an $18 million grant by a bank to a state agency for community development and housing is unprecedented in this country.
$18 million for project financing, project and organizational support and technical assistance to non-profits will make a tremendous difference for a long time to come in supporting our collective efforts to develop more affordable housing and stronger communities.
I congratulate the Bank of America for this financial pledge, and I hope the bank will be recognized for this commitment and consulted on how these funds can be most effectively deployed throughout the Commonwealth.
Thank you again for the opportunity to testify.
Chairman BACHUS. Thank you.
[The prepared statement of Mathew Thall can be found on page 328 in the appendix.]
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Chairman BACHUS. At this time, we will entertain questions for our panel, and I'll pose the first question.
We've heard testimony about commitments and pledges made by Bank of America. My first question would be, are you satisfied with the commitments and pledges? Not that they haven't been honored yet. We won't know whether they're honored until two, three, four years from now. But are you satisfied with the level of commitments and pledges?
And I'll start with you, Ms. Flynn.
Ms. FLYNN. We're very satisfied with the commitments that have been made to date. The commitment, as Matt mentioned, to MHP is a great resource for non-profits to build affordable housing in Massachusetts. Their commitment to become a member of the Federal Home Loan Bank and other commitments that they've made to the SoftSecond program, they're wonderful.
But the commitments aren't complete, and so we have outstanding requests that we've made to the bank that they have not agreed to yet, and I've outlined them. Those are basically four——
Chairman BACHUS. It does seem to me that the level of commitments and pledges has been—I think there's even agreement on this panel, that if they honor the pledges and commitments they've made, that would be very significant.
Ms. FLYNN. In the areas of mostly affordable housing and investment in housing, but there's still outstanding commitments that they need to make.
Chairman BACHUS. A lot of that is that this merger was already approved, so there's no obligation for them to do so.
Ms. FLYNN. Well, under the CRA regulations, part of the lending test asks how they've met credit needs for small business lending.
Chairman BACHUS. Right, the service and investment.
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Ms. FLYNN. And those goals haven't been established yet by the bank.
Chairman BACHUS. But in some ways, I think I've heard testimony that maybe their commitments will go even beyond maybe what Fleet Boston was doing. Is that correct?
Ms. FLYNN. We don't know, because they haven't outlined, in terms of small business lending, what those commitments are.
Chairman BACHUS. My second question is, Ms. Baldwin talked about Chase and the fact that JPMorgan Chase made certain commitments, and I guess these are conversations with the bank officials. Were those reduced to writing, the ones that you say were not honored?
Ms. BALDWIN. In the case of JPMorgan Chase, it was just a meeting. I summarized the commitments in writing, but they didn't put it in writing. I did, and sent it to them, and sent it to the regulators.
Chairman BACHUS. You know, when you don't have it in writing, you learn in life that——
Ms. BALDWIN. Yes.
Chairman BACHUS. Have they denied that there were such conversations?
Ms. BALDWIN. No, they never denied. I should have pointed that out. And usually we do get them in writing. Usually the bank—we tend to be a little informal, because even if we had it in writing, we're not in any place to enforce it; so we tend to rely on the word and the good faith of the bank leadership. And this was the first experience I had where the bank just sort of blatantly didn't do what it said it would do.
Chairman BACHUS. But it's my understanding that some of this they submitted to the Federal Reserve, saying this is what we intend to do, which may not be a commitment. Is that true?
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Ms. BALDWIN. At the hearing on the most recent merger, they made a very broad-based commitment for $800 billion over ten years; and, I mean, I'd speak a little bit about how satisfactory those commitments are.
We have a one-page—all I know about that commitment is what I've seen at the Chase website. It's one page, and I don't know the details of it, so I don't know what they're going to be doing in New York City, which is how I define my community.
Chairman BACHUS. So the Federal Reserve, in reviewing these, is not asking for any specificity in the commitments or pledges or asking for any——
Ms. BALDWIN. I don't believe they even asked for commitments going forward, no.
Chairman BACHUS. Just review and see what they have done?
Ms. BALDWIN. I think so.
Chairman BACHUS. Let me close with this. One thing that Bank of America has done that we had at Wachovia Trust—which is the second largest bank in the state of Alabama, and they actually made no commitments to preserve employment levels. They actually said, you're going to lose over a thousand employees, which is obviously a discomfort. But we see that going both ways, businesses where one buys another.
You've got a commitment here, at least a representation that's been made to the public through the press by the Bank of America, I believe, that the employment rate, or the employment totals in the State of Massachusetts by 2006 will be at premerger levels, which is a pretty substantial pledge or commitment. Do you wish to comment on that?
And I know, Mr. Cofield, you've asked that, as they do, that they try to either preserve or be fair to both gender and race in doing that. But any comments there?
I mean, that to me is a substantial at least representation that it is their intention that jobs won't be lost. Now, there may be some higher-paid jobs that are lost and lower-paid jobs that are replaced. Any comment on that?
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Mr. COFIELD. I can't comment on the pledge of the overall job creation. That, I think, more than anything else, was a release in the papers and not necessarily a pledge to the community advisory group.
Chairman BACHUS. Of course, from a public relations standpoint, if it is released to the press and told by the press and it's out there, it's acknowledged by them, at least they're subject to——
Mr. COFIELD. Sure, and I understand that, and I appreciate that.
The concern that I expressed about employment and procurement being reflective of the community is an important one; and I contrast Bank of America, who has not to date been willing to make any commitments or have any serious discussions, I would argue, about these two issues, I contrast that attitude with their two largest competitors here in Massachusetts. Those two largest competitors have had serious discussions with us, negotiations that resulted in commitments in those two areas that are reflective of the diversity of Massachusetts.
That's important, and I have to say that I think that's a function in part—I certainly appreciate the leadership of the banks, and I think there is a lot of credit that is due the leadership of these two banks, and in particular Sovereign Bank of New England.
But I also think it's a function of a bank that doesn't have to answer day in and day out to a community. If a bank is nationwide, it might be a little less receptive to responding to community needs in this manner; and I would hope that you, the Committee, would give that serious concern, because again, as I said, the CRA stands for Community Reinvestment Act and not a country-wide reinvestment act.
Thank you.
Chairman BACHUS. And there certainly is a perception, I think, and a tendency, I think, for us to believe that a bank that is not locally owned or controlled may have a tendency not to be responsive.
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At this time I'll recognize Mr. Frank, Congressman Frank, whose efforts, I think, in regard to these mergers have already lessened the impact, the negative impact on the community; of him and the Massachusetts delegation as well.
Mr. FRANK. Thank you, Mr. Chairman. I guess lessening the negative impact is my goal for the next few years——
[Laughter.]
Mr. FRANK.——so it's good to have had that experience.
Chairman BACHUS. Or enhancing the positive.
Mr. FRANK. You do what you can in life.
Let me say, first, I have a couple specific questions for Mr. Thall. I very much appreciate your thoughtful warnings about what will happen to CRA.
I've been a big CRA supporter; in fact, I put that article by Mr. Rubinger, into the Congressional Record. I was particularly struck by Ms. Hagins' comment that lending to low-income in general, and minority low-income mortgage groups, in mortgages, is twice as great for people covered by CRA as for people who aren't. This is very relevant data for us.
And as you point out, because of changes in the financial sector, more and more mortgages are being granted by people who are not banks, and the banks who are under CRA are competing with them. I do think that's something we should be addressing, that there ought to be an extending of that CRA requirement, because I think it has had virtually no negative effect and some positive effect.
So I will tell you that I did have a conversation with Mr. Powell from the FDIC, and he indicated to me that he accepted the fact that deciding that all rural activity was automatically CRA was not a good policy; and I think we may be able to at least re-establish that test, that low-/moderate-income test as a prerequisite in the rural area, but I appreciate that.
Let me just say one of the things about Sovereign which I appreciated, and that is, Ms. Flynn mentioned one of the important things for us is the affordable housing program of the Home Loan Bank system, which is a program created by this Committee under the really superb leadership of the late Henry Gonzalez, who was then Chairman. We created this program where a certain percentage of the profits of the regional Home Loan Banks have to be put into an affordable housing program.
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With regard to Bank of America, the problem with the mergers goes to where the bank is headquartered, because when this program was set up, people weren't thinking that—I guess this used to be called the Banking Committee, and then it was changed to Financial Services.
Somebody said, are we ever going to change the name back? I said, yeah; but by that time, we may change it to the Committee on the Bank.
[Laughter.]
Mr. FRANK. What you have with the mergers is that there's now a disconnect between economic activity generated by a bank in a particular region and the Federal Home Loan Bank that gets the credit for that, because it goes to the headquarters of the bank.
Now, one of the things that B of A did, and Maureen Flynn correctly gave them credit for that, was voluntarily to agree to take out an additional charter in the Boston area so that the money generated by B of A will go to the affordable housing program. Sovereign, to its credit, was willing to do that, because as a unitary thrift, as I understand it, they can't do it as easily. They've been working with us, and I'm very appreciative of Sovereign's working with us to try and enhance that.
But now on Bank of America, let me say, I guess you get the question: Is the glass half empty or half full? And the answer is yes.
[Laughter.]
Mr. FRANK. As Maureen Flynn pointed out, with regard to housing, I am very pleased that Bank of America has been very responsive. I said to others, housing is probably the greatest thing we need here in our area because of the extraordinary housing prices; but we do need economic activity to go along with it.
Part of this may be a question of cultural difference. I understand for Bank of America to come into New England, sometimes things are done a little differently here. During the Democratic Convention, when some journalists were asking me why things seemed to be so hard-edged, people dealing with each other, I said, well, at some point we tend to do everything like we drive, in which you cut no one else any slack, but you get highly indignant if people don't cut you some.
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On the other hand, we have some real concerns here, and the economic one is real; and I must say, it has not seemed to me that what you were asking for was unreasonable.
Let me ask both Mr. Cofield and Ms. Flynn: It seems to me that, in part, the issue is not so much the quantity of what's being requested, it hasn't been that people have said that's unreasonable; it's kind of a cultural objection to having it be specific. Am I correct? Does that seem to be part of our problem?
Ms. FLYNN. Yes, that's correct. We're not arguing about the amounts of commitment, especially on the small business lending piece; but we want to know, where is the small business lending going to be made?
So, are there going to be loans in low- and moderate-income areas as the CRA calls for? Are there going to be loans of less than $100,000, again which is something that banks have to report on under the CRA regulations? And are there going to be loans—and this is perhaps the most important aspect to us—to companies with less than $1 million in revenue?
As CDCs, we have small business technical assistance programs for many of our CDCs that help very small businesses start and grow, and often those small businesses have a hard time getting credit. That's what we're looking for, is to meet the credit needs.
Mr. FRANK. Let me say, I understand there's a tendency, always has been, to withdraw in a little bit of anger when people question our bona fides. I guess I would urge the banks that, you're dealing with people who have no particular reason to know you; maybe their life experience with large financial institutions hasn't been among their seven favorite memories.
I would hope that the banks and Bank of America, would distinguish between—if you're being asked to do something unreasonable, let us know. And I would say to Mr. Cofield, obviously when we ask for a commitment in terms of percentages in diversity in both hiring and procurement, obviously we also have an obligation to make sure that we can show that it's reasonable, and be available to help achieve those goals. We understand naming the goal doesn't mean that you're automatically going to be able to achieve it. You have to work together towards it.
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But I would hope that people would not stand on the kind of ceremony and be offended at being asked to prove the bona fides. These are not personal relationships; this is not proof you love me. This is what has been an arm's-length situation, and there have also been these kinds of series of mergers, as Mr. Thall read off the list of entities that are now under the Bank of America roof. That's where we are.
Let me just ask a question of Ms. Baldwin, because you've been talking about the negative effects of the JPMorgan Chase merger on community reinvestment. What about, now, the addition of Bank One? Because this very big bank has just gotten bigger. What's the experience been? I know Bank One hasn't been operating in your area, but I know in the Midwest, it's particularly in that area, where the Chairman of our Committee is. What have you heard about the addition, or has that caused further problems; do you know?
Ms. BALDWIN. It's a little early. Actually, technically Chase is buying Bank One, although it's playing out as if Bank One had bought Chase.
One of our concerns is that the retail headquarters is going to move to Chicago, and the difficulties we have now working with Chase on a neighborhood level we're just concerned might be more difficult if everybody we speak to is coming out of Illinois.
Mr. FRANK. Let me just comment on that. I would hope all the banks would understand that it's a natural human tendency to feel more comfortable with people who are nearby, with people whom you know, who you think know you.
When these mergers happen and headquarters get moved further and further away, I hope the banks will understand that it is important to reassure people. They tell us there isn't going to be any real difference, et cetera. Well, then you shouldn't be reluctant to let people know, because the degree of unease that is cascading here is very significant.
Thank you, Mr. Chairman.
Chairman BACHUS. Thank you, Mr. Frank.
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At this time, Mr. Murphy?
Mr. MURPHY. Thank you, Mr. Chairman; and thank you, panelists, first of all for the people that you represent, the thousands, perhaps millions that you represent, and your care and concern about them.
I'm pleased you bring these issues before this panel, because although this is the Committee on Banking and Financial Services, ultimately our concerns reach down to individuals like you represent to make sure that people have opportunities always to live under an equality of law and have opportunities to climb upwards.
I'd like to start out by asking if any of you were individually involved in some of the discussions referred to before, with Sovereign Bank and Citizens Bank.
Ms. FLYNN. Yes. Actually, our three organizations were all involved in all of those negotiations.
Mr. MURPHY. Let me ask about this: How long did that process take from the time that the merger actually was finalized at the board until you achieved some results and agreements on this?
Ms. FLYNN. Well, the Sovereign negotiation wasn't pursuant to a merger; it was an extension of a previous commitment that they made. That agreement was almost complete a year after it began, but then it took a little longer than that, because there were some——
Mr. MURPHY. A couple years?
Ms. FLYNN. Almost two, I think.
And the Citizens one, I believe it was a lot shorter than that, but I'm not sure.
Mr. MURPHY. How much shorter, would you say?
Mr. COFIELD. Six months to a year. In a general sense, that was a general commitment made pretty quickly in both cases, and getting down to the specifics took longer in both cases.
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One of, I think, the important distinctions is an attitude about working with the community groups. We saw it with Sovereign and Citizens Bank pretty quickly, if not immediately. There was an openness and an attitude that we were trying to get to a goal, and it was just a series of negotiations.
I have not seen that with Bank of America until this past Thursday, December 9; and as I said in my opening remarks, you, by coming here and having this hearing, has had an impact in and of itself.
Mr. MURPHY. I have a feeling that's why we're here.
[Laughter.]
Mr. MURPHY. I want to ask, try and lay this out: This merger really didn't begin until March of this year, so it's about eight months—excuse me; it wasn't really finalized until March of this year, so really it was eight months away.
Ms. FLYNN. But we submitted our proposal in November right after the acquisition was announced.
Mr. MURPHY. And during that time, between when the intent of the acquisition was announced and when it was finalized, were there any discussions that took place at all.
Ms. FLYNN. Yes.
Mr. MURPHY. So they didn't shut you out. I just wanted to make sure of that.
Ms. FLYNN. But the discussions were around whether they were going to do a plan. The discussions with Citizens and Sovereign were about an agreement, a partnership, between the bank and the community.
Mr. MURPHY. Was there somebody even assigned to talk with you in these negotiations?
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Ms. FLYNN. With Sovereign and Citizens? Yes.
Mr. MURPHY. But also with Bank of America?
Ms. FLYNN. Yes.
Mr. MURPHY. I just want to make sure I'm understanding, because what you're describing is very, very important. In part, I want to make sure we're not—like we're in the third inning; we're not judging what's going to happen in the ninth inning.
But the other issue is, what you're describing is an important—I don't know if ''attitude'' is the right word, but an attitude of openness that you would like to see more of, at least as things have begun to happen.
Yes, Ms. Hagins?
Ms. HAGINS. To be fair, when they came and met with us in November—this is Bank of America—we talked to them about the SoftSecond mortgage program, which Fleet had already been doing for a number of years since they came into Massachusetts. We had an agreement almost within a couple of weeks in November with the SoftSecond mortgage program.
Mr. MURPHY. That's good to hear.
Ms. HAGINS. Because it's a mortgage product that works well.
Mr. MURPHY. So in some areas, they did move rather quickly; in other areas, you want to see their continued progress moving some of these, particularly the hiring practices and the availability of mortgage—I know in Pittsburgh, we went through some of this when Mellon Bank sold off all their branches to Citizens Bank.
It was locally of concern to them, the very same thing: What would happen to the local commitment? Who would be hired, and what jobs would be lost?
We found that, over time, growth was taking place. We also worried about the impact on all the other banks headquartered in the Pittsburgh region, some fairly sizable banks; wondered what would happen with those. Over time, I've seen a number of these things work out, and to a large extent because folks like yourselves remain vigilant to that.
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I see my time is up. Thank you, Mr. Chairman.
Chairman BACHUS. Thank you.
And, Mr. Watt, before you ask your questions, what we've done on this thing, normally what we would do is go by the Committee Members and those off the Committee; but the Committee felt like the Members from Massachusetts, whether they're on or off the Committee, we would go by seniority of all the Members here.
So the order will be Mr. Watt, Mr. Capuano, Mr. Meeks, Mr. Tierney, Ms. Lee—Capuano, Meeks, Tierney, Lee and Lynch. So that will be the order.
Later, as Members outside the state like Ms. Lee may have to catch a plane, we will allow them to go before other Members.
So at this time, Mr. Watt?
Mr. WATT. Thank you, Mr. Chairman. You've just reminded me how old I'm getting, if you start looking at it in those terms.
[Laughter.]
Mr. WATT. I've made five points that I want to try to make, not necessarily around questions.
First of all, I want to applaud Barney's role, Representative Frank's role, in this whole process.
Many of you probably don't know that the first news I got of the Bank of America/Fleet merger was from Barney. I had been in Detroit at a Democratic presidential debate, and I had been traveling all weekend, and then I was going from Detroit to Chicago for a meeting at the Board of Trade. The first person I ran into when I got to Chicago that morning was Barney Frank, with this white look about him, saying, your bank has taken over my bank.
Fortunately, the first time I had heard that, I heard it from folks in Florida when Bank of America went to Florida; I had heard it from folks in Texas when they went to Texas; I had heard it from folks in California when they went to California; and I had heard it in other contexts when First Union and Wachovia had gone to other places. So it's kind of a unique experience.
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Chairman BACHUS. We were also getting tired of it, you know.
[Laughter.]
Mr. WATT. But Barney's role in this, from that moment, we worked together to try to make sure that the commitments that were being made were genuine and that Bank of America lived up to the commitments that it made; and I want to applaud Barney's role in making sure that these hearings and the specifics of these commitments get lived up to.
Second, I want to applaud the panel this morning because you didn't come in talking about generalities; you recognized that specific commitments are talked about in communities where banks and people live; so every one of you, as you went down the roll, talked about the specifics of the communities that you represent.
I think that's an important challenge to make to Bank of America, because the comment about CRA not standing for Country Reinvestment Act but Community Reinvestment Act is an important one.
Third, I want to say that we have, in a sense, taken a lot of these kinds of things for granted in our Charlotte community, in our North Carolina community, from Bank of Charlotte to North Carolina National Bank to NCNB to Nations Bank to Bank of America.
There have been a certain set of expectations that we haven't even tried to document in our communities, because we have seen the dramatic impact that a financial institution, with good intentions and with lots of resources—in fact, three financial institutions—Bank of America, Wachovia and First Union, and now the combination of those two after the merger—can have on a community.
Bank of America and First Union and Wachovia have had transformative impacts on the skyline and the community fabric and the employment fabric and the procurement fabric of our communities in ways that—I mean, I could go on and on, including the neighborhood in which I live, when I was on the NCNB Community Development Corporation board, stabilizing that community.
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But it's all been an assumed part of what would happen rather than a contractual part. And when Barney was talking about the specific written commitments, I could understand the difference, because it hadn't always been about signing an agreement; it's been about seeing the results of those commitments without even having the benefit of an agreement.
But Bank of America needs to understand that as it expands to other parts of the world where they don't have the benefit of that good will, there needs to be a different dynamic; and the same kind of commitments that have been made or the same kind of performance that has been reflected in our communities that we have taken for granted will be now expected to be reduced to writing and delivered upon in different locations in a different kind of framework. That's the cost of becoming a national bank: the lack of community confidence that it will just happen.
So my final point—and I'll follow this up with questions to the Bank of America representatives when they come—is that the commitment to CRA, the lending commitment to serve the credit needs of a community, the commitment to employment, the commitment to procurement, it seems to me has to be as basic a part of a merger and results evaluation of a financial institution as serving the wealthy investment people—I notice we're moving 300 jobs here to serve the wealthier people—or it has to be as basic a part of the commitment as, what happens at the bottom line?
Because that's what we expect banks to do in this country; and while it's not mandated except in the CRA from the lending perspective, there is an expectation that banks and every institution in our society will do their part to eradicate the disparities that exist in employment opportunities and business opportunities and small business opportunities and procurement opportunities because those disparities continue to exist.
So I didn't ask a question; I made a series of comments. But I hope this helps put in context that national statistics don't always tell the story of community reinvestment. Community reinvestment is evaluated in communities in which institutions live and work, and those specific kind of expectations have to be a part of achieving the global CRA and community expectations that we all want to have, do have, sometimes in not so supportive political climates or economic climates, but the expectations and aspirations are still there.
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Chairman BACHUS. Thank you, Mr. Watt.
Mr. Capuano, you're recognized for any comments or questions you might have.
Mr. CAPUANO. Thank you, Mr. Chairman.
First of all, I want to welcome you all here to Boston. We tried to do the best we could with weather, but hopefully it won't snow before you leave.
I want to thank all the panelists for being here, and I also want to make a brief commentary first.
We're going to talk a lot about the future, but there's also one segment of the people impacted by this merger that are not directly represented here, and that's the employees of the former Fleet and the new soon-to-be, or actually now, Bank of America. And I will have some questions for the people who represent the bank later on.
But I actually think it's too bad that we don't have somebody that we could talk to about employees, and that's a function of the fact that the financial services industry is not very well unionized. Therefore, they don't have spokesmen. And I take this opportunity to encourage those people that work for various large institutions like that to get together so that people like me can have a representative to ask questions that you're not really qualified to answer.
I also want to make a point—and I know that people on the panel know, but I want everybody to make sure that we are very clear—though we've said some good things about other banks, Citizens is run out of Scotland; Sovereign is run out of Pennsylvania. They are not local banks.
I actually find it refreshing that although they are not technically local banks, we treat them as if they are. I think that's a function of leadership, and more importantly, the authority that the local leadership has been given by their various corporate boards to actually run it as a local bank, and I think the question is still there relative to the Bank of America.
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They have appointed some people that are local and that, as far as I'm concerned, are very good people that we can work with. I think, for me, the question is, do they have the authority to really act as a local bank? I think that just takes a matter of time to make that determination.
The questions I have really revolve around a document that I just got Sunday at 10:30 at night that I guess some of you—I assume all of you have seen it as of Friday, or most of you have seen it—something called the Community Development Strategic Business Plan from the Bank of America.
As the Chairman said earlier, I mean, some of the numbers here are pretty good. We've seen most of these numbers before, and it's great that affordable housing is going to get four billion one hundred eighty-five million dollars over the next several years. That's a wonderful number. Without having looked at the statistics as to whether that really is a wonderful number, I will accept it as such, because it's a huge number, and that's great.
Can any of you tell me where that money is going?
Ms. FLYNN. Any of us panelists?
Mr. CAPUANO. Yes.
Ms. FLYNN. No. We asked the question, what was included in that; and there was a little confusion around what was included within that category. So it seems to be affordable lending, some mortgage products, and some investment in rental and real estate projects; but we're not sure what——
Mr. CAPUANO. Have we defined the terms ''low'' and ''moderate income''? Have they accepted them as certain definitions, or are they generic definitions?
Ms. FLYNN. No, we don't know what the term ''affordable'' means under this.
Mr. CAPUANO. So we don't know what towns they're going to?
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Ms. FLYNN. No.
Mr. CAPUANO. We don't know what category of people?
Ms. FLYNN. No.
Mr. CAPUANO. Do we know whether these are homeownership or rental?
Ms. FLYNN. No.
Mr. CAPUANO. So we just know a number.
Ms. FLYNN. Right.
Mr. CAPUANO. What about small business? One billion three hundred fifty million.
Ms. FLYNN. The same. We don't know any information; we don't know how many small businesses, how many loans, if it's going to cover the entire state, whether outside of Boston will be the beneficiary of any small business loans, whether smaller small business loans will be able to access this kind of credit.
Mr. CAPUANO. So we know a number, and that's about it?
Ms. FLYNN. Right.
Mr. CAPUANO. I assume no one here is holding back information on this.
Ms. HAGINS. Well, we have a commitment for ten years for 3,000 mortgages, but it doesn't have a dollar figure.
Mr. CAPUANO. Mortgages to whom?
Ms. HAGINS. To the SoftSecond mortgage program.
Mr. CAPUANO. To the program that already exists?
Ms. HAGINS. Right.
Mr. CAPUANO. That's good. So that's a program we know is going to qualify, and we know how it's going to work. Good.
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Again, I read the document; I've read it several times now, and it's a pretty good document. I like the numbers, I like the generic, broad-bush thing; but I'm kind of left a little empty. I mean, promote affordable housing production through a continuation of partnerships with the Mass. Housing Investment Corp. Great organization; they do wonderful work. Mass. Housing Partnership; again, great. Mass. Development, Mass. Housing, CDAC—do we know how much each of those organizations are going to get?
Ms. FLYNN. We know just how much Mass. Housing Partnership has received, but that's a requirement under state law, for them to receive a certain amount of loan obligation. Bank of America did convert some of that loan obligation to grant, so we know how much that is.
Mr. CAPUANO. The thing I like is, the bank will convene a national advisory council made up of prominent public and private sector leaders throughout the Bank of America franchise. Could you tell me who the national advisory council would include? Any of you?
Ms. FLYNN. We don't know.
Mr. CAPUANO. Any of your organizations?
Ms. FLYNN. We don't know.
Mr. CAPUANO. I guess for me, it's a great document; there's really nothing I can criticize in this document; but, okay, now what? Have you had any idea of when we're going to get a little bit more meat on these bones?
Ms. FLYNN. No.
Mr. COFIELD. No.
Mr. CAPUANO. Just out of curiosity, when you did Citizens and Sovereign, which obviously I was involved in, did you get this level of detail or this lack of detail?
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Ms. FLYNN. We had an agreement with both of those banks, and they were probably six or ten pages each. I have copies of them here. They outline each of the areas that they are going to be lending in; the number of loans going to LMI areas, et cetera; the amounts of commitments to MHIC; the amounts of tax credits they're going to purchase.
Mr. CAPUANO. My final question, because my time is running out: Have you had any indication of when there might be meat added to these bones? I mean, are you meeting tomorrow to put some meat on this, or next week, or next month, or next year, or in my lifetime?
Ms. FLYNN. We understand that this is the plan they promised us from Massachusetts.
Mr. CAPUANO. Thank you, Mr. Chairman.
Chairman BACHUS. Thank you, Mr. Capuano. You probably should have been a lawyer.
Mr. CAPUANO. Would have made more money.
[Laughter.]
Chairman BACHUS. At this time, Mr. Meeks?
Mr. MEEKS. Thank you, Mr. Chairman.
And I, too, want to first thank all of you for your testimony today; but furthermore, I want to thank you for what you do every day, because what you do every day is looking out for those who may be less fortunate than most, and what you do every day is try to make sure people indeed have an opportunity to share in what folks call the American dream: that is home ownership, that is to have a job, a roof over their head, and that is to have a better life, to afford them the opportunity to give their children a better life than they had themselves when they were growing up.
So you should be commended for what you do every day. Most of your jobs I'm sure don't make you rich. You don't get the huge bonuses that others may get for what they do, but your commitment is what makes this country great, and I want to thank you for it.
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Financial institutions and financial services, of course, coming from New York, it's the backbone of New York. I've heard my colleague Mel Watt talk about Charlotte. I know we're here in Boston, et cetera; but without financial services in New York, this city, and indeed this nation, could be greatly affected.
I can recall, about twenty years ago in New York we had six major national banks. Today, they're down to three. I mean, it's like we had, I think it was Citibank, Chase Manhattan, Chemical Bank, Manufacturers Hanover Trust, NatWest, and eventually Fleet Bank, and of course JPMorgan was there doing all of the high-end privileged services.
Then we had Citibank; Citibank is still Citibank. Manny Hanny was swallowed by Chemical. Chemical then melded with Chase. Chase then merged with JPMorgan, which now has merged with Bank One.
The thing that concerns me at some times is that maybe ten years from now we'll have one bank, one insurance company, one securities company, and all will be affiliated through Gramm-Leach-Bliley, which can have an effect on competition, and therefore on services that may be in the community.
Now, I understand that financial institutions have to make some money, and I'm not opposed to them doing that. In fact, I want to encourage and help them to do that.
But I have some concerns with reference to making sure that we continue in the climate of the negotiations that go on once we have these mergers. What I'm hearing from the panelists here is, it seemed to have been a different climate when you had the negotiations with Sovereign as opposed to negotiations that are currently going on.
So I guess, before I make that assumption, is that correct? Is there a different climate in the negotiating rooms that you've had with both?
Mr. COFIELD. Certainly, on the two aspects that I spoke about, a very different climate. That's what I was making reference to when I referred to an attitude of openness. It's just quite different.
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Ms. FLYNN. I agree. The negotiations weren't pretty with Sovereign or Citizens. The bank pushed us; we pushed the bank. But in the end, what we got out of it was an agreement, a partnership, about how to meet low- and moderate-income credit needs in the Commonwealth.
So in the end, there was an agreement, a partnership.
Mr. MEEKS. Now, let me jump to—and I know Mr. Cofield mentioned this, but I'll open it up.
In regards to either with Sovereign and now dealing with Bank of America, is there any specificity with reference to any goals in regards to procurement, in regards to employment of African-Americans and minorities and women?
Mr. COFIELD. Yes, there is. And Maureen is absolutely right; that took some time and negotiation.
People of color represent roughly 20 percent of the population of Massachusetts—it's a hair under 20 percent—and people of color meaning blacks, Latinos, Pacific, Asian-Pacific and Native Americans. That represents roughly 20 percent, close to 20 percent, a hair less than 20 percent of the population of Massachusetts.
Our approach was, that diversity in Massachusetts ought to be reflected in the employment levels of the bank and in the way the bank does business; and we think that's reasonable, that the bank's business reflect the population.
We did achieve that aim with those two banks. With Sovereign, we first had a five-year agreement right after their merger; and because Sovereign was new here and we didn't know how they were going to work out, and they probably weren't so sure, the agreement called for a renegotiation of the five-year deal three years into the deal. So we had an agreement initially. That agreement was renegotiated over the past few months and signed a few days ago.
And let me say, to Sovereign's credit, what they've agreed to do is to sign a totally new five-year deal; so they have added on three more years beyond what was initially required in the five-year agreement.
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Mr. MEEKS. Are you anywhere currently with Bank of America in regards to goals?
Mr. COFIELD. No, we are not; and that's what I referred to as disappointing.
I had at least a refreshing conversation with the two bank officials on Thursday morning, and it was an extended conversation. But there has not been a definitive discussion about the two issues that I've raised at all, and what they have referred to is their national plan.
That's why I refer to the CRA being a community-based plan and not a country-wide-based plan. I hope we would get there; there was no indication that we would get to the community-specific level in the discussion on Thursday. I did see a change of attitude in that discussion, and I'm hoping that it would get to the level of specificity that we have with Sovereign and Citizens.
They are well aware that their two largest competitors in Massachusetts have provided the specificity, and that's what we're looking for, and we think it's most reasonable. To have any other plan would suggest that you're going to continue to have an employment level that shows disparity, and a procurement level that shows disparity.
Mr. MEEKS. My last question—I see my time is up—this is to anybody, because I haven't heard anyone speak of it, but I know particularly in communities where there are poor people, as far as education is concerned, one of the biggest disparities is the lack of understanding, in public schools in particular, where there's no financial literacy being taught.
So my question to anyone is, is there a discussion ongoing, whether it was with Sovereign or with Bank of America or with anyone, about a part of CRA being investments within particularly public schools in regard to teaching young people about financial—or making them become financially literate, so therefore they can take care of their money and understand better how to operate and deal on a personal level when they're banking with whatever the financial institution may be?
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Mr. COFIELD. Certainly some of the organizations that are a part of the Community Advisory Committee provide programs dealing with financial literacy. And I agree; I too think that that's very important.
To the extent that these institutions are supporting, by grant and in other manners, those organizations that are providing that program, I would answer yes.
Chairman BACHUS. Thank you, Mr. Meeks.
Mr. Tierney?
Mr. TIERNEY. Thank you.
Thank you, Mr. Chairman. I want to thank you for working with Congressman Frank to bring this hearing to Boston and the Massachusetts area, and I want to thank you also for allowing me to join the Committee, and all of the other Members for their courtesies in terms of letting me be here, as well as the order of speaking; and I appreciate that a great deal. I thank all the witnesses for their testimony and for what you contribute to our life around here.
I seem to hear over and over again that this is a situation where we need a good negotiation to be conducted on the important matters, and that where you've had that negotiation, everybody has benefitted. It's been good for the banks, good for the groups for which you advocate, and good for the community.
Somebody described—I don't know if it was Ms. Baldwin or who it was that said it—there was a push and shove, push with Sovereign, Sovereign pushed back, and the same with Citizens.
It appears to me here that in the past, Bank of America doesn't like being pushed, either because they think they're too big for it or because they haven't yet focused on the local idea in how allowing this to go on is really going to be important for this region and for the local aspect of this. So hopefully we can ask some questions about what the attitude situation is at the bank when we have those witnesses here.
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I would like to ask just two questions.
One, Mr. Cofield, when you talked about race, which I think is important, how would you propose that the current law be changed in order for us to address the continuing concerns regarding that issue?
Mr. COFIELD. It is my firm belief that we should be working towards a goal in which race is no longer an important issue in our nation and in our communities.
I would like to, at some day, see that there's no more of a need for an NAACP, that we as a nation have gotten beyond the issue of race.
I truly believe that if we're going to get anywhere near there, we need to work towards a solution that ends disparity and not supports disparity; and that's what I'm trying to convey and is the thrust of my presentation. We need a program that doesn't continue to support disparity.
That's the distinction that I've seen today between our dealings with Sovereign and Citizens. I think both of them get it, and I do give a lot of credit to the leadership of both. We just haven't seen it today.
Mr. TIERNEY. Can I interrupt you? Only because I'm limited in time, and I want to do this as respectfully as I can; but how specifically are we to change the law? I think your goal is exactly on point. But is it the law that we need to change, or is it the enforcement aspect?
Mr. COFIELD. It's probably both; but certainly as it relates to the law, in my opinion, there ought to be specific language in the CRA that requires an institution, when it goes or is already in a community, that it set up programs to reflect the racial and gender disparity in both of those areas, in employment and in procurement.
And I think that's rather easy. There is available census data that shows the diversity of a community, and in my opinion there ought to be specific language in the CRA regulations, in the CRA statute, that requires that a bank, in operating in a community, reflect the diversity in that community.
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Mr. TIERNEY. Thank you. And then I suspect that that wouldn't do much good unless we had some enforcement mechanism on that after the merger on that.
Mr. COFIELD. Absolutely.
Mr. TIERNEY. Ms. Flynn, let me ask you the same question, but this time with regard to the small business lending. What changes in the statute do you think are necessary to allow us to address the concerns that some institutions may not be focusing on how they're going to distribute small business lending?
Ms. FLYNN. I think the statute, as written, is pretty broad. It says that banks should affirmatively try to meet the credit needs of the communities in which they serve.
So even issues around race and how they are going to serve communities of color could be met under the current law. It's how the law is interpreted under regulation.
Right now, there is an emphasis in the regulation on serving the needs of low- and moderate-income communities, and that's great; but it doesn't exclude the need to look at how communities of color have been served.
So if the regulations were tweaked to be more specific about the communities and individuals within the community that should be served by the banks, that would be an improvement.
Secondly, on the small business aspect, again, the banks must report under CRA how they've done on those three categories of small business lending. So it's there, but perhaps a greater emphasis on that part of the test in awarding grades on CRA would be beneficial.
Mr. TIERNEY. Thank you very much.
Mr. Chairman, thank you again.
Chairman BACHUS. Thank you.
Mr. Lynch?
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Mr. LYNCH. Thank you, Mr. Chairman.
I have a statement I'll enter into the record, in the interest of time; but I do want to say, if I could go back to Mr. Frank's opening statement, he talked about the rhetorical question about what Congress's rightful role here is in requiring a private entity or private entities to make such sizable contributions to the public good and in some cases of a charitable nature.
I just want to emphasize or re-emphasize his conclusion that government has played a significant role in creating banks of this size. We have enhanced and protected the position of Bank of America. We have seen them acquire a number of banks, and now they have become so large and so overpowering and so overwhelming to the average citizen, and now even the average community, that I think it is entirely reasonable for citizens and their representatives to come to Congress to ask Congress, that created these conditions of powerlessness in many communities, to be their champion and to speak on their behalf.
I just want to thank the panel for measuring the unmet need in their communities and coming forward and articulating so well on behalf of all of our communities, of color and of need, and helping us to close the loop, if you will, with the Bank of America and Sovereign as well in terms of addressing that inequity in power between our local communities and this bank; and also somehow keeping that close connection between our banks and those local communities so that that community connection is not lost when these banks, as Bank of America has become a bank with over a trillion dollars in assets, and a far-flung empire from California to Boston and everywhere in between. It's very difficult for local communities to get response and to remain a viable priority in the eyes of such a huge organization.
So I want to thank the Chairman, and I want to thank my colleagues in the Congress for honoring us, really, and giving this wonderful courtesy to come to Boston, to my district.
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I also want in particular to thank Ms. Hagins for her work. I grew up in the Old Colony housing projects not too far from here, and I know how important that SoftSecond mortgage program is for a lot of my constituents who are still struggling to buy their first home.
That first homebuyer program is a great program, and we need to see more of that continue; and if it were not for the work that is being done by Ms. Hagins and others who are here today representing our CDCs and affordable housing advocates, this need would be lost. It would be lost in the shuffle, and the problem would grow worse, not only in the city of Boston that I represent, but also in the city of Brockton that I represent that is about 40 minutes from here, and all the towns in between.
So I appreciate the good work being done by this panel and the spirit of cooperation we've seen from Bank of America and Sovereign thus far.
Thank you.
Chairman BACHUS. Thank you.
Ms. Lee?
Ms. LEE. Let me first thank our Chairman and also Representative Frank for calling this hearing and for our panelists, for your very succinct testimony.
Of course, I have much history with Bank of America, going way back to before its leaving San Francisco and Oakland. During the late '80s, mid to late '80s, in low-income/moderate-income communities in my area, B of A unfortunately began to leave; it wasn't profitable enough. We saw then the rise of predatory and payday lenders, and there was a big void in the Bay Area as a result of that.
Then of course, unfortunately, with the move to Mr. Watt's district, we still haven't recovered from the negative economic impacts in terms of employment and really a turnaround in terms of what we had hoped to take place with regard to economic investment and compliance with CRA.
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A couple of things I'd like to just ask panelists.
First of all, in any financial transaction between a consumer and a financial institution or a credit card lender or any organization, the consumer is required to live up to their commitments as they engage in these negotiations and these agreements. There's a penalty if they don't live up to their commitments.
With regard to CRA—and I've heard this over and over and over again—commitments are made during the merger process; they may or may not be specific; but after the merger takes place, it's like you would never believe there were any commitments made.
We heard during this last election the notion of values, that ethics was very important; and I'm just wondering—and a consumer would be considered—you know, that behavior is considered unethical.
I'd like to just ask the panelists how you viewed not living up to a commitment in order to get a deal done, and then—and I'll ask the banks this, also—then say either we didn't make the commitment, we did make it, it wasn't what you thought it was, we need to go back to the drawing board.
What are the ethical kinds of dimensions of that that we really need to look at, aside from the legal aspects? Which I think there should be penalties, quite frankly; if in fact organizations and financial institutions say they're going to do something, then they should do it. But beyond that, how do we look at the correctness of that just in terms of American values?
Ms. HAGINS. I know we have written agreements with all of the banks that do the SoftSecond mortgage multi-year commitments. No, we can't go to court and use them, but we hope that they would live up to those commitments. We meet with the banks every year to make sure that they are on tune to do the number that they've agreed to do.
We will hold a community meeting, as we did—the last one was two years ago with 1,500 people in the room—and they have to be accountable to those people. So we try to make them accountable in that way, because we don't have any legal recourse other than that.
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Mr. FRANK. That does include the Bank of America in this case, correct? They have a written agreement.
Ms. HAGINS. Right, they have a written agreement for ten years for 3,000 loans for the State of Massachusetts.
Mr. COFIELD. Congressman Lee, I do see it as a moral commitment. And the role of the Community Advisory Committee and the organizations that compose that loose-knit coalition is to stay in place; one, first to negotiate what we believe is a reasonable agreement with the institutions, and then to work with the institutions to help them achieve the goal.
And generally that's the way it has been working here; sometimes better than others, but that's the way it has worked here, as we have reached these agreements, and the CAC stays in place and sees it as its role; and the banks that we have dealt with generally have seen that as a positive thing, so it has worked well.
But clearly, we believe that it's certainly a moral commitment, if not a legal commitment.
Ms. LEE. Ms. Baldwin, can you comment?
Ms. BALDWIN. Yes. I personally have had a lot of frustration with our experiences with JPMorgan Chase. I'm not naive, but I was sort of shocked that a reputable institution just wouldn't do what it said it would do.
Usually the discussion is around, well, gee, maybe we misinterpreted our various commitments, where the bank is saying they would do A and they thought they were honoring it, and we had a different idea in mind.
Most often we do get letters in writing, saying they'll do certain things. I have no idea if those are legally enforceable or not. And banks generally—where I run into difficulty is monitoring. I've had some banks tell me, yes, we're doing what we said we would do; but we won't give you the line-item detail on what these community development loans were. You just need to trust us that we're doing it.
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The other issue I have is that although these commitments aren't required to get the merger approved, they announced them in the course of the merger. So I do think, since that was the context they played out, the regulators really should look at it and hold them accountable to honor what they were doing.
Ms. LEE. Should past compliance with any type of CRA progress be part of the criteria for a merger, or is it only prospective? Or should it be just prospective?
Ms. BALDWIN. Well, it's actually overweighted on past performance; and my sense, from when I read the approval orders, they rely very heavily on CRA performance evaluations. Those CRA performance evaluations I don't think look specifically at how banks have honored existing CRA commitments. I'm not sure.
But there's no requirement that going forward, that any of these banks do a specific CRA plan.
Ms. FLYNN. I think one way to deal with this issue is, on the next exam after a bank, two banks have merged, on their next CRA exam, to bring this up as an exam question, if you will, that the banks should be graded on immediately after they merge so that they are held accountable to the promises and the commitments that they made before they merged.
Ms. LEE. Thank you very much.
Chairman BACHUS. Thank you very much; and Mr. Frank, as he said, your testimony was very helpful. We appreciate your attendance here today.
At this time we'll call our second panel.
Our second panel is Ms. Anne Finucane—is that correct?
Ms. FINUCANE. That's right.
Chairman BACHUS. You were formerly with Fleet Boston, and are now the president of Northeast Bank of America.
Ms. FINUCANE. That's right.
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Chairman BACHUS. And Mr. Joseph P. Campanelli.
Mr. CAMPANELLI. Yes, sir.
Chairman BACHUS. Chief operating officer of Sovereign Bank, New England Division, and Vice Chairman of Sovereign BankCorp.
Mr. CAMPANELLI. Yes.
Chairman BACHUS. So we welcome both of you.
As you probably heard the first panel, and I think they both referred to some of their discussions with you all, and I think were very favorable of some of your activities. So you're welcome to this hearing.
Ms. Finucane, we'll start with you.
STATEMENT OF ANNE FINUCANE, PRESIDENT, NORTHEAST BANK OF AMERICA CORPORATION
Ms. FINUCANE. Good morning, and thank you. Thank you, Chairman Bachus, Ranking Member Frank and the Members of the Committee.
Can you hear me?
Chairman BACHUS. Bring it a little closer. It won't sound natural, but it is.
He keeps saying I don't sound natural.
[Laughter.]
Chairman BACHUS. It doesn't do anything about accents.
Ms. FINUCANE. Good morning, Chairman Bachus, Ranking Member Frank, and Members of the Committee on Financial Services. My name is Anne Finucane, and I serve as the president of the Northeast region for the Bank of America. Ken Lewis, our president and CEO, has asked me to convey his regrets. Since he is attending our company's previously scheduled board meeting, he was unable to be with us here today. He has asked me to testify on his and our company's behalf.
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As a brief preamble, I'd like to state that as a result of the merger between Bank of America and Fleet Boston Financial, Massachusetts and the rest of the Northeast now serve as a key operational base for one of the country's premier financial services companies by almost any measure: number of customers, number of people employed, distribution, products and services, earnings and philanthropy.
Going into this transaction, we understood the important role that Fleet had played in fueling the local economy and enhancing the vibrancy of our communities as an employer, a lender, an investor, a philanthropic donor, a sponsor, and a community partner. As Bank of America, we are committed to continuing this important leadership position.
In negotiating this merger, both Chad Gifford and Ken Lewis agreed upon unprecedented initiatives in the area of employment and community development as well as philanthropy for this region's benefit. Each of these initiatives far exceeds what Fleet could have delivered if it had continued on its own separate path.
Now I would like to address the three primary questions posed to the Bank of America by the Committee.
On the question regarding jobs and employment levels, we take very seriously our commitment to maintain the premerger employment level of 17,900 full-time employees in New England. We believe that this, too, is an unprecedented commitment.
As of October 31 of this year, there were 15,000 full-time equivalent employees in New England, representing a loss or reduction of 2,900 associates, which essentially covers the merger-related lay-offs.
We recently announced plans to add 400 employees in our wealth and investment management headquarters in Boston, and another 700 more in Rhode Island, for a total of 1,100 additional full-time equivalent positions in New England, all announced in a four-month period. That puts our New England employee total at 16,100 to date, or a net reduction of 1,800 since the time of the merger.
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We will meet our commitments to the 17,900 employment number by 2006 relying on the same approach we have used to bring the 1,100 positions I just mentioned back to this region, which we announced in the last four months.
As for our Bank of America associates in the Northeast, we offer job opportunities, a comprehensive work life benefits program and new employment benefits previously unavailable to our Fleet associates. We are on our way to returning to premerger levels of employment.
On Question No. 2 regarding our commitments: Bank of America may be new to the Northeast, but like Fleet, the bank has a long tradition of growth through mergers. And at the heart of our experience is this philosophy: A strong business depends on a strong local community and a strong local business climate. We believe that we have an outstanding track record of putting this belief into action; and just by way of example, we are demonstrating our commitment to the Northeast by targeting $100 billion of the new $750 billion community development goal to this region.
During the course of developing these goals, we met with more than 100 community groups; and much of their input is reflected in the development of these goals. A great deal of progress has been made; and just to use Massachusetts as an example, we have committed to $406 million in loan financing, $18 million in grants for the Mass. Housing Partnership, $200 million in community development loans to the city of Boston.
We agreed to continue membership in the Federal Home Loan Bank of Boston to originate 3,000 mortgages over the next ten years with MAHA and to maintain a $20 million plus loan pool with the Massachusetts Housing Investment Corporation. And we have outlined our community development Massachusetts goals by category with an overall 24 percent lift over what we did at Fleet in the same time period.
In addition to our commitments to employment levels and to community development, we have committed not just to maintain but to increase our charitable giving in support of building healthy and vibrant neighborhoods. In 2004, Bank of America will have invested more than $9 million in philanthropy and community sponsorship funding for Massachusetts alone, which is more than we had done in 2003 as Fleet alone, focusing both on giving to large and small organizations, including a $1 million gift to Children's Hospital, a $1 million gift to City Year, $60,000 to the mayor's Main Streets program, and $200,000 each to Stride and the Lawrence Community Works program through our Signature Neighborhood Excellence Initiative.
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And if there are still concerns, consider this: that each bank on its own, Fleet and Bank of America, earned outstanding CRA ratings and exceeded our community commitment goals as individual banks. Bank of America is the number-one SBA lender in the country and the number-one SBA lender to minorities. We are the number-one mortgage lender to minorities as well.
In 2003, Bank of America spent more than $620 million with diverse suppliers, and we expect to exceed that goal in 2004. Just last week we were named the top corporation for multicultural business opportunities of 2004 by more than 350,000 diverse business owners.
Finally, on Question No. 3, the adequacy of current laws, let me turn to the merger approval process in connection with the Fleet/Bank of America merger.
We filed applications or notices with four federal agencies, more than 30 state agencies, several self-regulatory organizations, and more than two dozen foreign countries. We participated in four public hearings in three different states involving more than 200 witnesses, and we responded to nearly 400 comment letters.
The approval process spanned more than five months, with the last approval received the day before our scheduled merger date. Certainly an exhaustive process, but one we can appreciate.
In our opinion, there are adequate measures in place to ensure that a bank honors its public pledges. Further, we recognize that the more favorably customers view their bank, including its role in the community, the more likely we are to retain and grow their business. This is a premise underlying the way Bank of America has operated across the country.
In conclusion, I'd like to emphasize one key fact: that the new combined bank, the new combined company, enables us to do more for the New England region, more for Massachusetts, than Fleet Boston Financial could have done as a stand-alone company.
Thank you.
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Chairman BACHUS. Thank you.
[The prepared statement of Anne Finucane can be found on page 277 in the appendix.]
Chairman BACHUS. Mr. Campanelli.
STATEMENT OF JOSEPH P. CAMPANELLI, PRESIDENT AND CHIEF OPERATING OFFICER, SOVEREIGN BANK, NEW ENGLAND DIVISION, AND VICE CHAIRMAN OF SOVEREIGN