1999 0625 - GOV (House) - Risky Business in the Operating Subsidiary: How the OCC Dropped the Ball
- 1999 0625 - GOV (House) - Risky Business in the Operating Subsidiary: How the OCC Dropped the Ball, Fred Upton (R-MI) --- [BonkNote]
- [PDF-106p, VIDEO-?]
- House - Committee on Commerce - Subcommittee on Oversight and Investigations
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- (p3) - Tom Bliley - Chair, Committee on Commerce (R-VA) - Alan Greenspan has indicated that operating subsidiaries pose serious risks to banks and to their deposit insurance funds.
- Op-Subs threaten to infect America with this crony capitalism.
- Op-Subs expand taxpayer subsidiary from banks to securities and merchant banking. Securities firms are not in need of a taxpayer handout.
- Still, the Administration persists in its turf grab against the interests of efficient free markets.
- Today the O&I subcommittee will take a look at the OCC’s supervision of existing Op-Subs.
- The Treasury wants more power for op-subs.
- Today we pose a simple questions—How are they doing with the one’s they have?
- The answer is disturbing. In the wake of massive fraud in an operating subsidiary of NationsBank, the OCC rated NationsBank’s compliance with its guidance as satisfactory. The OCC did not investigate customer complaints arising out of the fraud.
- They limited their discussions to the persons who perpetrated the fraud.
- ⇒ When approached by elderly investors who had been defrauded by the op sub, the Comptroller indicated that it could be of no assistance because the matter was the subject of private litigation.
- Hundreds of elderly people were defrauded by the NationsBank op sub.
- (p6) - Denise Voigt Crawford, Securities Commissioner, Texas State Securities Board On Behalf Of North American Securities Administrators Association, Inc (NASAA)
- <WishList> - In his Business Week Commentary of May 18, 1998, David Greising discussed both the NationsBank settlements and the need for functional regulation of securities activities at banks.
- (p8) - Testimony Of Mary Griffin - Consumers Union
- (p8) - When consumers walk into a bank, they are faced with a wide array of choices ranging from mutual funds to stocks to life insurance.
- Notwithstanding the changes that will be brought about by H.R. 10, retail sales of insurance and investment products has been a rapid growth business for banks over the past few years.
- According to the Association of Banks-in-Insurance (ABI) survey, 96% of all banks with assets greater than $10 billion are in the insurance business.
- Banks produced $27.8 billion in insurance premium in 1997, a huge increase from the $16.5 billion reported in 1996, with annuities accounting for 68% of the premium.
- And, 68% of banks selling insurance market other products, including individual life, commercial property/casualty and personal property/casualty.
- (p10) - In our March 1994 issue of Consumer Reports, we reported on the results of an undercover investigation we conducted of 40 bank salespeople from different parts of the country.
- Only 16 of the 40 salespersons contacted even bothered to ask questions that would have indicated what products were suitable for the investigator.
- (p15) - Alpert, Jonathan L., Senior Partner, Alpert, Barker, and Rodems - The script goes on to compare investment products with bank products. It technically, but not meaningfully, reveals the non-existence of FDIC insurance for investments
- (p15) - Customer Confusion
- First Union National Bank blurred the differences between government guaranteed or backed bank products and securities. Illustrative of this is a letter to one of our clients on January 25, 1993, on the stationary of First Union National Bank.
- The letter discusses a government agency guaranteed security which, although guaranteed against default, has no guarantees as to interest rate risk, market risk or other risks.
- [Attachment 8] First Union trained its brokers to make sure not to set up two brokerage accounts because some of its customers did not even know they had one [Attachment 12]; to conceal the risk of loss by not answering ‘‘Yes,’’ to the question, ‘‘Can I lose money in this?’’.
- A training video which we obtained states, ‘‘You didn’t say yes, you could lose money. What I don’t want you to say is [yes, you could lose money.] Negative. You don’t want to be negative.’’ [Attachment 15-16]
- (p71) - Richard Burr. (R-NC) - Let me ask you— ... You said in your testimony—I want to be accurate—that the scripts that you referred to by First Union were technically right, but not meaningfully revealing of nonexistence of FDIC insurance.
- What do you mean? What’s technically right, but not meaningful?
- (p100) - 12 As you know, however, insurance industry trade groups have filed suit in federal court challenging the OCC’s approval of the sale of fixed rate annuities by national bank operating subsidiaries. See Variable Annuity Life Insurance Co. [VALIC] v. Clarke, 786 F. Supp. 639 (S.D. Tex. 1991); National Association of Life Underwriters v. Clarke, 761 F. Supp. 1285 (W.D. Tex. 1991). While the lower court decision in VALIC upheld the OCC’s approval, this case presently is on appeal. The final resolution of this litigation could result in a different outcome and possibly affect the Partnership’s ability to engage is such activities.