1998 Ron Paul 33:1
Mr. PAUL.
Mr. Speaker, since I was the first
one in this Congress to step forward and introduce
legislation affirming the NCUA’s position
allowing multiple common bonds for credit
unions and signed on as a cosponsor of H.R. 1151 as originally written, I feel that I am in a disagreement among friends. I must oppose
this bill because of the new regulations it imposes
on credit unions and does nothing to
address the legitimate concerns of the banks.
1998 Ron Paul 33:2
While I strongly support the expansion of
the field of membership for credit unions, the
new regulations imposed upon them demonstrate
a decision to follow the wrong path to
“level the playing field” with banks and other
financial institutions. A better approach would
have been to lead the congress towards less
taxes and less regulation. H.R. 1151, The
Credit Union Membership Access Act, as
amended by the committee, follows a path of
more regulations and leads toward higher
taxes on credit unions while the Financial
Freedom Act, H.R. 1121, which I introduced a
year ago, lowers taxes and regulations on
banks. While H.R. 1151 does not impose new,
direct taxes on credit unions, I fear that that
day is just around the corner.
1998 Ron Paul 33:3
The NCUSIF was the only deposit insurance
fund started without any federal seed money
and the credit unions never came to Washington
for a taxpayer-funded bailout. In fact, allowing
multiple common bonds for credit
unions enhanced their safety and soundness. This bill will add new “safety and soundness” and CRA-like regulations on credit unions. These regulations will add a burdensome regulatory
cost. This cost will be passed on to the
consumer in the form of higher fees, higher interest
rates and less service. It is the marginal
consumer who will lose the most when this bill
becomes law.
1998 Ron Paul 33:4
The estimated, aggregate cost of bank regulation
(noninterest expenses) on commercial
banks was $125.9 billion in 1991, according to
The Cost of Bank Regulation: A Review of the
Evidence, Board of Governors of the Federal
Reserve System (Staff Study 171 by Gregory
Elliehausen, April 1998). It reports that studies
estimate that this figure amounts to 12 percent
to 13 percent of noninterest expenses. These
estimates only include a fraction of the “most
burdensome” regulations that govern the industry,
it adds,
“The total cost of all regulations
can only be larger.”
These regulations, under which the credit
unions will now suffer a greater burden with
the passage of this bill, impose a disproportionate
burden on smaller institutions. These
increased, and unfairly imposed, regulations
will stifle the possibility of new entrants into
the financial sector and contribute to a consolidation
and fewer market participants of the industry. As the introduction of new entrants into the market becomes more costly, smaller institutions
will face a marginally increased burden
and will be more likely to consolidate.
“The
basic conclusion is similar for all of the studies
of economies of scale: Average compliance
costs for regulations are substantially greater
for banks at low levels of output than for
banks at moderate or high levels of output,”
the Staff Study concludes.
1998 Ron Paul 33:5
Smaller banks face the highest compliance
cost in relation to total assets, equity capital
and net income before taxes, reveals Regulatory
Burden: The Cost to Community Banks,
a study prepared for the Independent Bankers
Association of America by Grant Thornton,
January 1993. CRA compliance costs for
small banks was $1 billion and 14.4 million
employee hours in 1991. For each $1 million
in assets, banks under $30 million in assets
incur almost three times the compliance cost
of banks between $30-65 million in assets. This regulation almost quadruples costs on
smaller institutions to almost four times when
compared to banks over $65 million in assets. These findings are consistent for both equity
capital and net income measurements, according
to the report.
1998 Ron Paul 33:6
The IBAA study identifies the Community
Reinvestment Act as the most burdensome
regulation with the estimated cost of complying
with CRA exceeding the next most burdensome
regulation by approximately $448 million
or 77%. Respondents to the IBAA study rated
the CRA as the least beneficial and useful of
the thirteen regulatory areas surveyed. In
short, this bill takes the most costly and least
beneficial and useful regulation on banks and
adds a similar, new regulation on credit
unions. Reducing the most costly, and least
beneficial and useful regulation on the banks
would have been a better approach.
1998 Ron Paul 33:7
In addition to all of the problems associated
with the obligations and requirements that the
government regulations impose on the productive,
private sectors of the economy, the regulations
amount to a government credit allocation
scheme. As Ludwig von Mises explained
well in the Theory of Money and Credit in
1912, governmental credit allocation is a misdirection
of credit which leads to
malinvestment and contributes to an artificial
boom and bust cycle. Nobel laureate Frederick
A. Hayek and Murray Rothbard expounded on
this idea.
1998 Ron Paul 33:8
The unintended consequences of the passage
of this bill, as written, will be to stifle the
formation on new credit unions, consolidate
current credit unions into larger ones better
able to internalize the cost of the additional
regulations, and lower productivity and economic
growth due to the misallocation of credit. This increased burden must ultimately be
passed on to the consumer. The increased
costs on credit unions this bill imposes will
lead to a reduction of access to credit unions,
higher fees and higher rates. These provisions
are anti-consumer. The marginal consumers,
those who currently can only receive a loan
from a credit union without the burden of CRA,
are the ones who will suffer under the provision
of this bill. I hope that the bill can be improved
as the process continues and lead to
less regulations and other taxes on banks
rather than more regulations and other taxes
on credit unions.
Note:
1998 Ron Paul Chapter 33
The text of this chapter was inserted into CongressionalRecord as an extension of remarks and was not spoken on the House floor.
