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House of Representatives,
Committee on Banking and Financial Services,
Washington, DC.

    The committee met, pursuant to call, at 2:12 p.m. in room 2128, Rayburn House Office Building, Hon. James A. Leach, [chairman of the committee], presiding.
    Present: Chairman Leach; Representatives Roukema, Baker, Bachus, Campbell, Lucas, Ney, Ehrlich, Snowbarger, Redmond, LaFalce, Kanjorski, Kennedy, Gutierrez, Barrett, Watt, Bentsen, Kilpatrick, Hooley, Weygand, and Sherman.
    Chairman LEACH. The hearing will come to order. As Members were notified last week, the committee is meeting to address two important matters. First, the committee will hold a hearing and a markup on H.R. 2343, which is entitled the ''Thrift Depositor Protection Oversight Board Abolition Act.''
    Second, the committee will consider an amendment to the committee rules to account for an increase in membership of the two subcommittees as a result of the committee being expanded by two additional Members, and we want to welcome both additional Members. Let me just stress that the committee has been embellished and we are very happy with that thought.
    Mr. Sherman, who brings to us a great background in a number of fields, and Mr. Weygand as well. I am particularly impressed—I do not mean to undercut Mr. Sherman's great resume—but we finally have an architect on the panel, and that is appreciated, Mr. Weygand.
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    Mr. CAMPBELL. Would the Chairman yield?
    Chairman LEACH. Yes, of course.
    Mr. CAMPBELL. Thank you, Mr. Chairman. I just wish to draw to my colleagues' attention that Mr. Sherman comes to our Congress with expertise from the Board of Equalization of the State of California and a real expertise in financial matters. Thank you, Mr. Chairman.
    Chairman LEACH. Well, that is rare, real expertise in financial matters. So, we are delighted to have you with us.
    Mr. SHERMAN. Thank you, Mr. Chairman. They told me that was not a disqualification.
    Chairman LEACH. Mr. Weygand, do you wish to speak?
    Mr. WEGAND. If I could, Mr. Chairman. It is a pleasure to be finally seated on this committee, and I certainly appreciate your warm welcome and that of our Ranking Member. I had the great pleasure of working with John on a number of other committees, Small Business as well, and I will look forward to it. And I think that Brad and I are very, very happy to be here and we look forward to the work of this committee.
    Chairman LEACH. Good. Thank you. I will be very brief and just mention that Members have been provided with a section-by-section analysis of the bill. The background is one that relates to history. The Depositor Protection Oversight Board was created in the midst of a crisis to serve a purpose. Secretary Hawke has provided the committee with a history of the role of the board, which I have in my hand. And if there is no objection, I would like to ask unanimous consent that it be presented for the record.
    The crisis is now over. The Oversight Board's role appears to be not required, and for that reason I think it is appropriate that we move toward the abolition.
    I would also ask unanimous consent to insert a fuller statement in the record on the subject.
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    Chairman LEACH. At this point I would turn to Mr. LaFalce and ask if he has an opening statement he would like to make.
    Mr. LAFALCE. I thank the Chair very much. First of all, Mr. Chairman, I want to join with you in welcoming our new Democratic Members. Not only are they both extremely well qualified for this committee, but both were extremely desirous of joining this committee. So, they have the ability, but they also have the motivation to serve in a very, very distinguished manner. I think the public is going to benefit through their service on this committee.
    With respect to the bill you have before us today, I think it is noncontroversial and I think that virtually everyone will be supportive of it, and I look forward to an expeditious hearing and an expeditious markup and an expeditious passage of this legislation. I thank the Chair.
    Chairman LEACH. Thank you, Mr. LaFalce. Does anyone else have an opening statement?
    If not, I will turn to our first witness, who is the distinguished Under Secretary of the Treasury, Mr. John Hawke, who some people refer to as ''Jerry,'' and he is one of the most distinguished people to have ever held the position he currently holds. We welcome you, Mr. Hawke, and please proceed.

    Mr. HAWKE. Thank you, Mr. Chairman and Members of the committee. I am pleased to appear today in support of H.R. 2343, the Thrift Depositor Protection Oversight Board Abolishment Act. I have been designated by Secretary Rubin to serve as Acting Chairman of the Oversight Board.
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    As you know, the Treasury Department transmitted to the Congress in June a virtually identical legislative proposal to abolish the Oversight Board and to transfer certain of its remaining routine tasks to the Secretary of the Treasury. We are happy to report that the other two members of the Oversight Board—Chairman Greenspan and Housing and Urban Development Secretary Cuomo—support this proposal. We greatly appreciate the committee's assistance and support in this effort to streamline Federal Government operations, to eliminate needless Federal spending, and to close this chapter on the savings and loan clean-up.
    And, Mr. Chairman, the staff report that you put in the record is a very complete history of the RTC and the Oversight Board, and we have some additional copies available if other Members of the committee would care to have them.
    The crisis in the savings and loan industry during the 1980's led to the depletion of the reserves of the Federal Savings and Loan Insurance Corporation, as this committee is well aware. By the end of the decade, FSLIC lacked funds to close hundreds of failing thrifts. In FIRREA, Congress created the Resolution Trust Corporation in response to this crisis with the responsibility for closing or selling those failing thrifts, managing and disposing of their assets, and protecting their insured depositors.
    FIRREA also established the Resolution Trust Corporation Oversight Board, chaired by the Secretary of the Treasury, primarily to provide general oversight of, and policy guidance for, the RTC and to approve its funding requests. Subsequent legislation in 1991 redesignated the Oversight Board as the Thrift Depositor Protection Oversight Board and charged it with reviewing the RTC's overall strategies, policies, and goals and continuing to approve the RTC's financial plans, budgets, and financing requests prior to implementation. Congress believed it was important to have strong oversight of an agency charged with spending an extraordinary sum of taxpayer funds to cover losses in failed S&Ls and to make good on the Government's commitment to insured depositors in those institutions. It expected the Oversight Board to review how effectively the RTC managed and disposed of its enormous asset caseload and to ensure that the RTC was formulating and implementing policies responsive to the various goals of the law, such as closing insolvent thrifts at the least possible cost and pursuing recoveries from wrongdoers.
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    From its inception in 1989 through its closure at the end of 1995, the RTC took over and resolved 747 failed thrifts having over $400 billion in assets at book value. The RTC ultimately disposed of all but $8 billion of those assets, which were transferred to FDIC management at the sunset of the RTC, along with the RTC's remaining liabilities. According to the latest GAO financial statement audit of the FDIC, the RTC incurred total costs of $86.4 billion. Overall S&L clean-up costs significantly exceed that amount, however, because of losses incurred by FSLIC between 1986, when it officially became insolvent, and 1989, when the RTC assumed responsibility for resolving failed thrifts. Based on GAO and FDIC estimates, overall S&L clean-up costs since 1986 totaled $156.4 billion, of which taxpayers financed $128.4 billion, or 82 percent of the total cost.
    The Oversight Board was in the forefront of numerous, ultimately successful efforts to secure sufficient funding for the RTC to complete its mission. The Oversight Board and its staff worked closely with the RTC to implement management reforms, improve internal controls, and ensure the prudent expenditure of taxpayer funds. It provided important guidance to the RTC in formulating effective policies intended to meet RTC's case resolution, asset sales, affordable housing, contracting, and other goals.
    Thrifts today—those that survived the S&L debacle—are profitable and well-capitalized. The Office of Thrift Supervision has just reported that OTS-regulated thrifts had an average annualized return on assets of .9 percent in the first half of 1997, very strong by historical industry standards, an earnings performance not consistently observed since the early 1960's. As a result of last year's special assessment on the industry, thrifts also have a fully capitalized deposit insurance fund and only one thrift has failed since the beginning of 1996.
    When the RTC closed at the end of 1995, the Oversight Board's primary reason for existing—to oversee and monitor the RTC's operations—ceased. Yet the Board—reconstituted at the beginning of 1996 to include the Secretary of the Treasury, the Chairman of the Fed and the Secretary of HUD—is not scheduled to go out of existence for another 33 years, when the last of REFCorp bonds that were issued to help pay for the savings and loan clean-up mature.
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    The Board retains only two programmatic responsibilities, consisting largely of routine tasks. It has formal responsibilities for the Resolution Funding Corporation, REFCorp, which issued $30 billion of bonds from 1989 to 1991 as part of the RTC's initial funding. The last of these bonds matures in the year 2030, which would otherwise trigger the Oversight Board's termination. The other programmatic responsibility consists of non-voting membership, through the end of the fiscal year 1998, on the Affordable Housing Advisory Board. The Affordable Housing Advisory Board was created by the RTC Completion Act of 1993 to advise the Oversight Board and the FDIC Board of Directors on affordable housing policy and to review the plan for unifying the RTC and the FDIC affordable housing programs. The Oversight Board, however, has no responsibility for FDIC properties, including those of the former RTC. With the closure of the RTC and the termination of the Oversight Board's primary responsibilities, the Oversight Board's staff has declined from a peak of approximately 40 employees to only one, the Acting Executive Director.
    Nonetheless, the Board has continuing ministerial responsibilities, imposed for the most part simply because it exists as a distinct entity of the Government. It must not only file an annual report of its operations, but also several periodic reports that are standard for all Federal agencies, including ethics, regulatory, Freedom of Information Act, Inspector General, and internal controls reports. The Oversight Board has either to hold periodic meetings or to keep Oversight Board members informed of any activity by some other means. Under current law, these sorts of administrative obligations will continue unless and until the Oversight Board goes out of existence. While we have made every effort at Treasury to minimize Oversight Board costs, including personnel, space, equipment, supplies, and other overhead costs, we are unable to eliminate the remaining routine functions by executive action alone.
    House Resolution 2343 would abolish the Oversight Board and transfer its formal responsibilities for REFCorp to the Secretary of the Treasury. Because the REFCorp oversight tasks are largely routine, the Secretary could handle them with its existing staff. The Treasury is the logical successor to this role because it pays approximately $2.3 billion of the $2.6 billion in annual interest payments on the REFCorp bonds. The proposal would restructure the Affordable Housing Advisory Board to eliminate the non-voting seat held by the Oversight Board.
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    Abolishing the Oversight Board would streamline Federal Government operations by eliminating the need over the next 33 years to make agency filings of little significance. Eliminating the Oversight Board would also serve the taxpayers' interest by cutting out unnecessary Federal expenditures. We estimate that it would yield annual savings of over $250,000 in personnel and overhead costs.
    In conclusion, H.R. 2343 would result in a more efficient and less expensive Federal Government. The Oversight Board, like the RTC, has successfully accomplished its mission and is no longer necessary.
    We thank you again, Mr. Chairman and Members of the committee, for your prompt attention to this proposal and we stand ready to work with the committee and the Congress to ensure its expeditious enactment.
    Chairman LEACH. I thank you very much for your statement. And let me say, because I have been informed by Mr. LaFalce and others, that this bill is not overwhelmingly controversial, there is some chance we can move very quickly to markup.
    But is there anyone that wants to ask Mr. Hawke any questions? If not, I will adjourn the hearing and proceed to the markup.