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CONTENTS
THURSDAY , JULY 7, 1988
Page
Opening
remarks
ofSenator
Proxmire
....
Opening
statement
ofSenator
Kennedy
Complete
prepared
statement
ofSenator
Kennedy
Opening
statement
ofSenator
Kerry.
ementofSenatorGarn
Openingstat
Complete
prepared
statement
ofSenator
Garn.......
OpeningremarksofSenator
Shelby
r
1
e
r2
N
e
O
r
o
c
W3
A
4
4
Complete
prepared
statement
ofSenator
Shelby
.
t ofSena
torDixon....
ngstatemen
Openi
t ofSenatorChafee
ngstatemen
Openi
g state
mentofSenatorKarnes
Openin
14
WITNESS
JohnP. LaWare, nominatedto be a member of the Boardof Governors
,
FederalReserveSystem......
Viewson theris
plan.
k-basedcapital
Difficult
levels
tolegis
late
ofrese
rves
Third
World
debt
and thepolicy
oftheFed
It's
notthesize
ofthe bank,butitscompeten
ce.
tment
.......
nityReinves
Act.......
Commu
The Cokeformula
....
Laborunionsin banks..
Continental
stockholders
tooka bath...
Should
offshore
deposits
beinsured
?
Bankslending
toforeign
countries
arealerted
topitfalls
weregiven
No insuran
cebut,notes
Payingintere
ston reserves
The Baker Plan....
Merger mania.
Suit
against
Shawmutregarding
ATM's
9
9
11
16
17
18
19
20
22
23
25
27
28
30
32
33
ADDITIONAL MATERIAL SUPPLIED FOR THE RECORD
Biographical
sketch
ofthenominee..
34
Letter
from the FederalReserveGeneralCounseltothe Office
ofGovernment
nominee
concerning
Ethics
questions
Response
of:
towritten
52
68
73
Senat or D' Amato .
Senato
r Karnes..
(III)
NOMINATION
OF
JOHN
MEMBER , BOARD
RESERVE
P. LaWARE , TO
BE
A
OF GOVERNORS , FEDERAL
SYSTEM
THURSDAY
, JULY 7, 1988
U.S.SENATE,
COMMITTEEON BANKING,HOUSING,AND URBAN AFFAIRS,
ngton, DC.
Washi
tee met at 10:40a.m., in room SD-538, Dirksen
The commit
teOff
Sena
iceBuildi
ng,Senato
r William Proxmire(chairmanofthe
g.
committee)presidin
Present
: SenatorsProxmire
, Dixon
, Shelby
, Graham, Garn,
D'Amato
,Chafee
,and Karnes
.
OPENING
REMARKS
OF CHAIRMAN
PROXMIRE
The CHAIRMAN .The committeewillcome toorder
.
We aredelighted
tohaveourtwodistinguished
Senators
from
Massachusetts
here tointroduce
Mr. LaWare, who'sbeennominat
ed as a Governorof the FederalReserveto serveuntiltheyear
2002.
a longway away.
Mr.LAWARE.Soundslike
The CHAIRMAN
. Well
, I'll
be outinthecemetery
forabout5 of
thoseyears
.[Laughter
.]
Sena
torCHAFEE.Running,notres
ting
.[Laugh
ter.]
The CHAIRMAN .It's
good to seeyou.
Senator
SHELBY
.Mr. Chairman
,ifyou wouldyield
,Iwouldhope
youallbotharen't
inthecemetery
, because
otherwise
he wouldn't
maketheterm
.[Laughter
.]
The CHAIRMAN. Well, I'm sureMr. LaWare looksin fineshape
andhe's
a much younger
man andthere's
something
about
Massa
chusetts
thatmakes people
live
a longtime.
I'mgoing
toaskbefore
wehavestatements
fromthemembersof
thecommittee
,because
ofthepressure
oftimeand because
the
>
Senatorsfrom Massachusetts
have alreadybeen overhere
, I'm
goingtoaskSenator
Kennedyand Senator
Kerrytomake what
everstatement
theywouldliketomake in connection
withthe
nominee .
STATEMENT
OF EDWARD
M. KENNEDY
,U.S.SENATOR
FROM
THE
STATE OF MASSACHUSETTS
Senator
KENNEDY
. Thank you verymuch. Mr. Chairmanand
membersofthecommittee
,I wanttosaythattoday
Massachusetts
claimsa special
relationship
withthe nomineebut we alsoknow
(1)
2
that's
sharedwithWisconsinbecauseMr. LaWare was born in Wis
consin
andspenthisearly
yearsinthatState
.
I'mdelighted
tohavetheopportunity
topresent
him tothecom
mittee
. Mr. LaWare has beena distinguished
successful
business
man in the bankingindustry
of Massachusetts
involved
in the
ShawmutBankandbrought
ittooneofthemostprestigious
posi
tions
within
thenational
banking
systemdealing
withthenew
challenges
thatderegulation
hasbrought
. He'sbeenverysuccess
ful.
I thinkmany ofus in our Staterealize
thatwithhissuccessful
voteintheU.S.Senate
we'regoingtolosea person
who'sbeen
enormously
involved
andactive
withinthecommunityofBostonas
wellastheCommonwealth
. He hasdemonstrated
areally
unique
involvement
inboththegreatmedical
institutions
and educational
institutions
.Much morethanjust
a letterhead
inanypublication
,
he hasbeenvery
,verymuch involved
and hasmade an extremely
important
contribution
tomany ofthese
institutions
andthegain
to the FederalReserve willbe the lossto those institutions
.
At a timewhenwe arefacing
extraordinary
challenges
interms
oftheinternational
bankingsystem
,ThirdWorld debt
, and other
financial
international
challenges
, I thinkthe FederalReserve
Boardwill
bewellserved
byMr.LaWare
. I havegreat
confidence
inhis judgment
, although
thatconfidence
was really
questioned
when I found out thatMr. La
Ware
made a contribution
of $500 to
Ray Shameein Massachusetts
, but my confidence
was restored
when I foundoutthatitwasn't
when Mr. Shameewas running
against
me ,butmy colleague
,John Kerry
.[Laughter
.]
sense
ofse
hisrecord
hehashadan impeccable
So throughout
lection
andgoodsuccess
.
Mr. Chairman
, Iappreciate
thechancetobe hereand present
him and I'dlike
tofile
my complete
statement
.
[Committee
insert
ofSenator
Kennedy's
statement
follows
:]
PREPARED STATEMENT OF SENATOR KENNEDY
Mr.Chairman
,members
oftheBanking
Committee
,Iam delighted
tobeherethis
morning
withJohnLaWareandtounreservedly
commendhim toyou.Innominat
ingMr.LaWaretotheBoardofGovernors
oftheFederal
Reserve
, thePresident
hasmade a wisechoice
.I should
note
,Mr. Chairman
, thatIhad intended
toextol
thevirtues
ofthissonofMassachusetts
, but,infact
, he was bornand raised
inCo
lumbus
,WI.Iguess
we will
havetoshare
himwithyou
.
JohncametoBoston
over10years
agoand during
theensuing
decade
hasleft
a
large
imprint
onourcommunity
. During
histenure
,theShawmutCorp.
hasgrown
andprospered
. Todayitisamongthelargest
andsoundest
bankholding
companies
intheNation
andit
played
a major
role
infinancing
theeconomic
recovery
ofMas
sachusetts
and theregion
.
Iam sure
that
his
professional
accomplishments
arewell
knowntothemembers
ofthiscommittee
and require
no celebration
fromme ,but I wouldlike
totakea
ismore than a wise and successful
banker
minuteofyourtimetonotethat
who willmake a fineGovernorofthe FederalReserveBoard.
Inaddition
toleading
Shawmutinto
a newworld
ofderegulated
regional
banking
,
he hasalsoledtheinstitution
intoactive
involvement
withthecivil
life
ofBoston
.
Thatinvolvement
hasgonewellbeyondtheusualname on a letterhead
and from
Children's
Hospital
toRoxbury
Community
College
,ourcity's
life
ismuch richer
because
ofJohnLaWare
.Imustsaythat
my oneregret
concerning
this
nomination
isthatsomany ofthemostimportant
educational
institutions
andhospitals
that
gracemy home State
will
lose
hiswisecounsel
and energetic
support
.
TheFederal
Reserve
Boardfaces
daunting
challenges
aswe enter
thelast
decade
ofthecentury
. Deregulated
and internationalized
financial
markets
, seemingly
in
3
tractable
debtburdens
intheThird
World
, andan evenworsening
crisis
inour
thrift
industry
heada long
list
.As theBoardconfronts
these
andother
questions
in
theyears
ahead
,Iam surethat
hiscolleagues
will
learn
,asIhave
,toturntoJohn
forwisecounseland advice
.
Once againMr.Chairman I congratulate
thePresident
on thisnomination
and
commend JohnLaWaretoyou.
Imustexcuse
myself
inorder
tochair
another
hearing
butifIcanbeofanyhelp
asyouproceed
Iam atyourdisposal
.Thankyou.
The CHAIRMAN
.Senator
Kerry
,it's
yourturntodiscuss
theman
whocontributed
$500toyouropponent
.[Laughter
.]
STATEMENT OF JOHN F.KERRY ,U.S.SENATOR FROM THE STATE
OF MASSACHUSETTS
Senator
KERRY
.Well
,obviously
,Mr.Chairman
,thatcontribution
raises
morequestions
about
my judgment
inbeing
herethanhis
,
>
butnotwithstanding
my obvious
badjudgment
Iam delighted
tobe
abletobehereandjoin
my senior
colleague
inintroducing
a good
friend
.
I did think about the $500 and I came to the conclusion
that
since
themaximum was $1,000
and he onlygave$500
,he obviously
wasjust
doing
it
because
he felt
compelled
tokeepthedemocratic
process
movingforwardand itwas mitigated
by the other$500
thatdidn't
gothere
. [Laughter
.]
Mr. Chairman
, I thinkthatmy senior
colleague
hasobviously
in
troduced
thequalifications
andtheextraordinary
background
that
JohnLaWarebrings
tothis
jobprospectively
.
He really
hasbeenoneofthemostimportant
cogsintheMassa
chusetts
economic
wheel
,ifyouwill
.He'sbeenchairman
oftheAs
sociation
Companies
obviously
ofBankHolding
. He hasplayed
a
keyrole
aschairman
ofoneofourmostimportant
banking
institu
tions
. Butbeyondthat
, he hasreally
contributed
significantly
to
theentire
community
,not justin hiscontributions
to theimpor
tant
debate
which
hasgoneonaswe havecomeinto
increasingly
difficult
questions
abouttheflowofcapital
inthenew global
mar
ketplace
,aboutregulatory
reforms
andissues
aboutthestructure
offinancial
institutions
aswe move intothefuture
, and I thinkhe
willclearly
be ableto address
thosekindsofconcerns
here
, as
membersofthecommittee
havealready
heardhim tointhepast
.
Butinaddition
tothat
,I thinkthat
he hasdeepunderstanding
about
thecompetitive
needs
ofthis
country
andthewaysinwhich
Reserve
Boardacts
theFederal
tobe botha protector
aswell
as a
catalyst
inthatprocess
ofguaranteeing
theeconomic
security
of
thecountry
and I'mquite
confident
thathisservice
on thatboard
,
ifitisthefullservice
intothe5 yearsofyourpresence
inthecem
etery
, Mr.Chairman
, will
atleast
guarantee
thesecurity
ofthat
plot
.
TheCHAIRMAN.How reassu
ring
can youget
?(Laught
er.]
Senator
KERRY
.Thoughobviously
noneofusbelieve
thatthatis
true
,Mr.Chairman
.You will
outlive
allofusaschairman
insome
respect
,emeritus
.
Mr.Chairman
, I really
thinkthatJohn
.LaWare isoneofthe
mostcapable
people
who could
benominated
forthis
jobandwhile
concerns
about
Iknowthechair
hasexpressed
theoverlapping
and
thequestion
of thenumber ofnomineesthe incumbent
President
mighthaveappointed
versus
whoever
mightbe thefuture
Presi
4
dent
, I'mquite
confident
thatanyPresident
oftheUnited
States
wouldhaveseenfittonominateMr. LaWare because
ofhiscapac
ity
,hisfairness
, hisdecency
, andhisverydeepunderstanding
of
theissues
thatwe face
.
And I'mdelighted
tobe heretojoininintroducing
him.
TheCHAIRMAN
.Thankyouverymuch,Senator
Kerry
.
I'mgoing
toyield
toother
membersofthecommittee
andthenI
willswearMr. LaWare in.SenatorGarn.
OPENING STATEMENT OF SENATOR GARN
Senator
GARN.Thank you,Mr. Chairman
.
John
, I'dlike
towelcome
youbacktotheBankingCommittee
.
Thisisnot yourfirst
appearance
before
thecommittee
.I congratu
late
youon yournomination
tobe a Member oftheBoardofGover
norsoftheFederal
Reserve
System
.
I believe
the President
has made an excellent
choice
. You have
handson experience
in theday-to-day operations
ofa commercial
bank and you willbe a greatasset
to a great
Federal
Reserve
Board of Governors.
John LaWare, inmy opinion
, willbringtotheBoardan impres
siverecord
of hands
-on experience
. Altogether
, he has over35
yearsofexperience
incommercial
banking
withtwoofthemostre
spected
commercial
banksinthecountry
. As I've
already
suggest
ed, Mr.LaWareisno stranger
toWashington
.Many ofthemem
bersofthiscommittee
gotto know him when he served
as chair
man oftheAssociation
ofBank Holding
Companies
in 1986and
1987.
In thatrole
,Mr.LaWarewas a thoughtful
and persuasive
voice
advocating
expanded
products
andservices
forfinancial
serv
companies
holding
ices
.
As everyone
hereknows, I joinMr. LaWare ina conviction
that
suchan expansion
ofproduct
andservice
offerings
will
leadtosig
nificant
benefits
forconsumersof financial
services
and alsowill
leadtoa strengthening
ofthecompetitiveness
ofAmerican
finan
cialinstitutions
and the Americanfinancial
markets.
Mr.LaWare,Ihopethatoneofthefirst
experiences
youhaveas
a Member oftheBoardofGovernors
willbe to seethePresident
sign
thekindofprogressive
financial
restructuring
bill
thatyou've
workedsolongandhardtobringtofruition
-andI'mparticularly
referring
totheProxmire
bill
.
We'rehappytohaveyoubefore
thecommittee
today
.
[Thecomplete
prepared
statement
ofSenator
Garnfollows
:
PREPARED STATEMENT OF SENATOR GARN
Todaywe hearfromeachofourpast
three
BankBoardChairmen
.Yesterday's
witnesses
fromthethrift
industry
pointed
fingers
atjust
about
everyone
inspread
ingtheblamefortheFSLIC problem
- except
themselves
—buttheyreserved
their
special
venomfor
thepolicies
ofeachofyou.Now isyourchance
torespond
. How
muchof theproblem
was caused
by BankBoardpolicies
? Whatisthesituation
now?IstheBankBoardregulatory
system
up tothetask
ofhandling
theproblems
before
itinboththeshort
termandthelong
term?These
arequestions
youshould
address
.
Itisalso
yourchance
totell
uswhereyouthink
Congress
should
gofromhere
,
bothintheshorttermand thelongterm
. Iwillbe particularly
interested
tohear
yourviews
ontheestablishment
ofa bipartisan
commission
tomake recommenda
tions
abouttheproblem
inthenext6 months
.
5
The CHAIRMAN .Senator Shelby.
OPENING
REMARKS
OF SENATOR
SHELBY
Senator
SHELBY
. Mr.Chairman
, I havea written
statement
for
the recordthatI'dliketo submitforthe recordand ask unanimous
consent to do that.
The CHAIRMAN. Withoutobjection
, itwillbe printedin full
,
alongwithSenator
Dixon's
prepared
statement
.
[Committee
insert
ofSenator
Shelby's
and Senator
Dixon's
pre
paredstatements
follow
:)
STATEMENT OF SENATOR RICHARD SHELBY
Mr.Chairman
,I'd
first
like
tocommendyouforholding
this
hearing
today
.Iam
gladthatthis
committee
hasthis
opportunity
tomeetMr.
LaWare and discuss
some
ofthe issues
thathe wouldaddress
inhiscapacity
ofa Federal
Reserve
Governor
.
Mr.LaWarewouldbring
totheFederal
Reserve
34years
ofbanking
experience
.
He worked
hiswayup the
ladder,starting
ina banktraining
program
,andending
asachairman
andCEO.During
histenure
, itisfair
toassume
thatMr.LaWare
hasdeveloped
a great
wealth
ofexpertise
.
Traditionally
,Mr.Chairman
, Ibelieve
weappoint
economists
totheFederal
Re
serve
Board
.I havenothing
against
economists
,indeedIhavea greatrespect
for
their
particular
sortofesoteric
wisdom
, butI believe
thatFederal
bankingregula
tion
could
nothelpbutbenefit
fromtheexperience
ofa successful
,lifelong
banker
.
Onceagain
,I appreciate
yourscheduling
this
hearing
.I lookforward
tohearing
from Mr.LaWare .
STATEMENT OF SENATOR ALAN DIXON
Mr.Chairman
,Iam pleased
tobeherethis
morningastheBanking
Committee
meets to consider
the nominationof John LaWare to be a Member ofthe Board of
Governors
oftheFederal
Reserve
System
.I lookforward
tohearing
theviewsofthe
nominee
onthe manydifficult
economic
issues
currently
facing
theUnited
States
andourbanking
system
.
This
is
a timeofmajor
change
for
ourfinancial
services
industry
.Ourfinancial
markets
havefundamentally
changed
,andourlawsandourregulatory
systems
mustrecognize
thatchange
.Further
,withtheUnitedStates
facing
record
trade
and
budget
deficits
,the
conduct
ofmonetary
policy
is
probably
also
moredifficult
now
thanithaseverbeeninthepast
.Thisisa time
, therefore
,ofrealchallenge
forthe
Congress
andfortheFederal
Reserve
Board
.Itisabsolutely
imperative
tohave
Governors
thatcanmeetthese
challenges
.
SHELBY
,wanttowelcomeyou tothe
Senator
. Mr. LaWare,I,too
,the
experience
withyourlongbanking
committee
.I am impressed
, butmorethan
background
fact
thatyouhavea goodeducational
, and I believe
youspentinbanking
years
that
, the30-something
,as
BoardandI believe
Reserve
thatwouldadda lottotheFederal
,thatyouwill
Kerrybothhavesaid
Kennedyand Senator
Senator
.
bringsome otherdimensionsthere
I lookforward
tothehearing
and lookforward
tosupporting
you .
Mr. LAWARE.Thank you,Senato
r.
The CHAIR MAN . Senator Chafee.
OPENING STATEMENT OF SENATOR CHAFEE
Senator
CHAFEE
.Thankyou,Mr.Chairman
.
I, too, want to welcome Mr. LaWare here. He has a connection
withourState
since
hisbankhasa banking
subsidiary
inRhode
Island
.So we're
experienced
withMr.LaWareandhavegreat
re
spect
and admiration
forhim.
6
He hasthis
vastexperience
ashasbeenmentioned
.He served
as
a Member oftheFederal
ReserveAdvisory
Boardand alsoofthe
Board of Directors
of the Boston Fed. So he doesn'tcome to this
without
knowinga gooddealabouttheFederal
Reserve
.
I thinkit's
splendid
thattheFederal
Governmenthasbeenable
toentice
a person
ofMr.LaWare's
abilities
into
theFederal
Gov
ernment
. That's
what we want. And I thinkwe'refacingtremen
douschallenges
inthewholebanking
system
,particularly
withthe
competition
fromabroad
. And Mr.LaWare
,as thechairman
and
chief
executive
officer
ofa majorregional
bank, canmake a tre
mendous contribution
.
It seemstome inthis
yearwe oughttoselect
somebody
from
Massachusetts
togo intoFederal
service
and I thinkMr. LaWare is
theman.And also
,Ithink
oneisenough
.[Laughter
.]
Ialso
looked
over
thelist
ofMr.LaWare's
political
contributions
and, Mr. Chairman
, I canassureyou thathe'sbeenconsistently
a
Democratic
contributor
, whichI'mnotsurewhat itshows
. He did
givesome dollars
toMargaretHeckler
, soitshowsthateverycon
tribution
he'smadehasnotbeentoa winner
, butdespite
thefact
thathe's
hada predilection
fortheother
side
,I think
he'll
makea
wonderfulMember of the FederalReserveand we'revery, very
gladyou're
taking
iton.
Mr. Chairman, I hope thiscommitteecan move rightforward
todayand gethim confirmed
assoonaspossible
.
The CHAIRMAN . Senator D'Amato .
OPENING REMARKS OF SENATOR D'AMATO
Senator
D'AMATO
. Mr.Chairman
,I havea numberofquestions
I'dliketosubmitfortherecord
and askthattheybe responded
to
inwriting
.
The CHAIRMAN.Withoutobjection
,soordered
.
Senator
D'AMATO.Thank you, Mr. Chairman
.
TheCHAIRMAN
.Mr.LaWare
,will
youraise
yourright
hand?
[Whereupon
,thewitness
was dulysworn.]
TheCHAIRMAN
.Mr.LaWare
,I'mentering
into
therecord
atthis
point
a copyofa July6 letter
fromthe Federal
Reserve
general
counsel
tothe Director
oftheOffice
ofGovernmentEthics
concern
ingyour nomination
.
Thatletter
refers
tovarious
commitments
youmadetodispose
of
yourstockand torecuse
yourself
fromvoting
orparticipating
in
certainmatters.
Willyou committo thiscommittee
to observe
alloftheagree
ments
referred
tointhegeneral
counsel's
letter
ofJuly
6?
,I will
.
Mr.LAWARE.Yes,sir
The CHAIRMAN.Thank you.
Mr.LaWare
,on February
23ofthis
yearyounegotiated
a rather
lucrative
golden
parachute
agreement
withtheShawmutNational
Corp.
Underthatagreement
youwill
receive
5 years
' salary
plus
increases
,whether
ornotyouremployment
termination
wasinvol
untary
.
One oftheprovisions
ofthatagreement
required
theShawmut
National
Corp.toreimburse
you forany excess
parachute
pay
mentsundersection
280(g)oftheInternal
RevenueCode.
7
As you know,that's
theexcise
tax.Inotherwords
,ifyou haveto
payanexcise
taxon it
,whichtheCongress
decided
should
bedone
in goldenparachute
cases
, it wouldn't
adversely
affect
you, it
wouldadversely
affect
yourformercompany..
As you know,the Congress
tookaction
inthetaxlawtoreduce
theexcessive
golden
parachute
payments
. Youragreement
seems
tobean attempt
togetaround
thatpublic
policy
.
How much ofyourgolden
parachute
payments
will
besubject
to
an excisetax under the Tax Code ?
.
inmy head,Senator
havethatfigure
Mr.LAWARE.Idon't
The CHAIRMAN
. Iunderstand
thatyourpayisabout$500,000
a
yearandsothegolden
parachute
at5years
wouldbe$2.5million
,
andasI understand
it
,the lawprovides
that3 years
isthemaxi
mum thatwouldnotbe subject
to thetax. Therefore
, itwouldbe
about$1 million
thatwouldnotbe taxedby you butwouldbe
taxed
totheShawmutCorp.
soyouwouldbesavedapproximately
$200,000
.
How canyoujustify
this
attempt
tododgetheprovisions
ofthe
Tax Code ?
Mr. LAWARE.Well,I'mnotquitesureI thinkit's
dodging
it
,sir
.
Thecontract
wasnegotiated
onthis
basis
as partoftheir
merger
of
officers
thetwoorganizations
. The foursenior
ofthecompanyhad
essentially
thesamekinds
ofcontracts
.Because
ofmy age—my ad
vancedage, being10 or 11 yearsolder
than theotherthreemem
bersofthesenior
management
group- Iwasgiven
theprivilege
of
leaving
atanytimebutstill
having
thatstream
ofincomesecure
toage 65.
Thefeeling
wasthatifthere
wasa violation
oftheintent
ofthe
lawwithrespect
toexcess
parachute
payments
andifthis
was re
garded
asa parachute
,thenthecompanywouldundertake
togross
up theamount paidto me tocoverthattax. So thetaxisgetting
paidregardless
.So I'mnotsurethatthere's
a taxdodgeinvolved
since
the Federal
Government
isgetting
the sameamount of
money theywould have received
otherwise
.
The CHAIRMAN. Well
, the Federal
Governmentis
, but the idea
,
asI understand
it
,wasto discourage
excessive
payments
whichdi
rectors
andofficers
ina sensevotedthemselves
attheexpense
of
thecorporation
and ofthestockholders
.
As you may know, theSenatevotedon a goldenparachute
amendmentoffered
by thedistinguished
SenatorfromColorado
,
SenatorArmstrong
, who'sa member ofthiscommittee
, and that
was a measurethatwouldhave prohibited
goldenparachutes
flatly
. Itpassed
theSenate
98 to1 a short
timeago.My staff
re
.
mindsme itwouldhaveprohibited
theexcess
paymentsunless
ap
proved
by thestockholders
.
Was yoursettlement
approved
bythestockholders
?
Mr.LAWARE. Specifically
, itwasnotvoted
on by thesharehold
ers
,buttheshareholders
,in approving
themerger
, hadapproved
theprinciple
ofhaving
thesenior
officers
covered
byemployment
contracts
whichyou wouldcall
, or you wouldclassify
, as a para
shareholder
approval
chute
.So that
,inprinciple
,without
regard
to
thespecific
amounts
andspecific
terms
,isintherecord
.
The CHAIRMAN.The specific
amountsofcourse
isthewholecrux
ofit
.Obviously
, ifthereisa provision
fora relatively
modestset
8
tlement
foran executive
leaving
a corporation
, that's
onething
.
But3 years
wasthedefinition
ofwhatmightbeconsidered
by Con
gress
tobe inexcess
and yourswas 5,and obviously
a $2.5million
settlement
isgolden
inan important
sense
.
Mr. LAWARE. Yes. I thinkthatthe directors
who approved
unanimously
thestructure
and thespecifics
ofthosecontracts
felt
thattheywereacting
fortheshareholders
and on thesharehold
ers
'authority
asgranted
intheapproval
ofthemerger
.
The CHAIRMAN.Mr. LaWare,letme now getinto
something
else
.
I'mconcerned
,andI'msureyoumay well
be concerned
,withthe
enormous debt in thiscountryand the huge increasein debt in
recent
years
.The Federal
debtiswhat we'vebeenconcerned
with
andareresponsible
forintheCongress
.It's
enormous
,$2.5
trillion
.
Business
debt
, as I understand
it
, ismuch bigger
thanthatand
household
debtisover$3 trillion
andbusiness
debt
,ifyouinclude
notonlycorporate
debt
butfarmdebt
,unincorporated
debt
,includ
ingproprietorships
and individual
partnerships
and soforth
, is
over$ 4 trillion
, according
towhat Igot fromtheFederal
Reserve
justa fewdaysago.
Thisaddsup toabout$10trillion
indebt
.As youknow, it's
in
creased
enormously
inrecent
years
.One reason
why it's
increased
itseemstome isthattheregulator
ofdebt
,whichisreally
interest
payments
,has been somewhatencouraging
to peopleto getinto
debtanddiscouraging
people
tosavemoney.
The household
debt
has increased
ata timewhensavings
have
dropped
lower
thanthey've
beenhistorically
throughout
mostof
ourhistory
anditseemstome on thatbasis
, ifwe're
going
todo
something
direct
and explicit
aboutencouraging
saving
and dis
couraging
debt
,oneway wouldbetofollow
monetary
policies
that
would tend to increase
interest
rates
. I realize
thathas otherim
portant
ramifications
,butwhat's
yourreaction
tothat
notion
?
Mr. LAWARE. Householddebt
,to the extentthatitconstitutes
mortgage
debtorcredit
carddebtorinstallment
debtisgenerally
atpretty
highlevels
ofinterest
rates
now.And inspite
ofthefact
thatoursavings
rates
— that
is
,rates
ofinterest
onsavings
kinds
of
instruments
haverisen
since
deregulation
in1982
,people
still
have
a propensity
toborrowforhousehold
purposes
andtheydidsoeven
when rates
wereat20 or 21 percent
.Credit
cardswereusedexten
sively
.
I'mnotsurethatraising
rates
isnecessarily
goingtodiscourage
people
,households
andtheconsumers
inparticular
, fromborrow
ing
.Ithink
we haveseensomeleveling
offinourconsumer
spend
ingandtosomeextent
thegrowthinsomeconsumer
debtisa
result
,I'mpersuaded
, ofthe1986taxrevision
whichremoved
the
deductibility
ofinterest
onnormal
installment
debt
.
Theworrisome
consequence
ofthatisthat
a lotofborrowing
has
shifted
intoequity
borrowing
against
people's
homes, and while
thatinitself
isnotan evil
thing
,it's
a question
ofhow it's
adminis
tered
. Iftheamountsof debtaretoo highin relationship
to the
valueofthehome oriftheyaredifficult
forborrowers
toservice
given
any kindofa downturn
intheeconomy
,thenI thinkthat
could
bea baddevelopment
.Butwe don't
seeany signs
ofthatat
thisstageofthegame.
9
TheCHAIRMAN
.Mr.LaWare
,my timeisup. I'mnotgoing
toask
you toanswerthisorwe'dgo on and on,but Imightpoint
outthat
Ithink
everybody
agrees
thatborrowing
tobuyhomesisenormous
lysensitive
tointerest
rates
.Ifyouraise
interest
rates
,youjust
see
a verysharppromptfalloff
inhousingstarts
because
ofthesensi
tivity
ofitandbecause
people
lookatthemonthly
payments
they
have to make .
The same thingistrue
, toa lesser
extent
, but it's
still
trueof
autoloans
.So theenormousamountofborrowing
goesintobuying
homesand buying
cars
wouldbeobviously
directly
affected
bythe
level
ofinterest
rates
.My timeisup.I'll
be back.
Senator Garn .
Senator
GARN.Thank you,Mr.Chairman
.
Mr. LaWare, before
I askany questions
, didyou desire
tomake
an opening
statement
?
Mr.LAWARE. Well
,I haveaboutsixlines
herethatI wouldlike
to read
STATEMENT OF JOHN P.LaWARE ,NOMINATED TO BE A MEMBER
OF THE BOARD OF GOVERNORS ,FEDERAL RESERVE SYSTEM
Mr. LAWARE.Mr. Chairmanand otherdistinguished
membersof
thiscommittee
, I am highlyhonoredto havebeen nominatedby
the Presidentto the Board of Governorsof the FederalReserve
System.
I wanttothankyou,Mr.Chairman
,andthecommittee
forhear
ingme today
andthankSenators
Kennedy
, Kerry
, andChafee
for
their
verygenerous
remarks
aswell
as yours
,Senator
Garn.
I am a banker
,notan economist
.I am a pragmatist
,notan ideo
logue
. I believe
thatmy 35yearsofexperience
in banking
will
enableme to make a significant
contribution
to the work of the
Boardintheyears
to come. I'll
behappytoansweranyquestions
.
The CHAIRMAN .SenatorGarn, I want to thank you very much
fordoingthat
.I should
have donethatandIapol
to you, sir
ogize
.
Itwas a fineopeningstateme
nt.
Mr.LAWARE. I suspect
youlike
itbecause
itwasbrief
,Senator
.
[Laughter
.]
Senator
GARN.Thatreminds
me ofa story
thatI mightaswell
tell
you.When Iwaschairman
ofthecommittee
,theformer
Chair
man oftheFederal
ReserveBoard,PaulVolcker
,came intotesti
fy. I askedhim one day ifhe wouldplease
summarizehisstate
ment when he wasmakinghissemiannual
report
,andhe did
.Six
monthslater
when he cameback
,I askedhim ifhe wouldplease
readtheentire
statement
sothatitwouldtakelesstime
. [Laugh
ter
.]
Mr.LaWare
,whatareyourviewson therisk
-based
capital
plan
thathasbeenproposed
by thebank regulators
?
VIEWS ON THE RISK -BASED CAPITAL PLAN
Mr.LAWARE.I think
it's
a greatstepintheright
direction
.I
thinkthatviewissharedinprinciple
by mostleaders
inthebank
ingbusiness
.Therehasbeensomeconcern
that
someofthemeas
urementsaretoorestrictive
,butI thinkthaton balance
it's
a very
fair
approach
.Thebanksinsomeofourcompeting
countries
,nota
10
blyJapan
, havehadtomake sacrifices
intermsoftheway they
countcapital
thathaveprobably
beenmoresevere
thanthoseim
posedon U.S.banks
.I thinkwe'vestruck
a verygoodbalance
,and
I thinkittends
tolevel
theplaying
field
. I'msurethattheU.S.
bankswill
be ina more evenly
and competitive
environment
.
SenatorGARN. What aboutitseffect
on safety
and soundness
regulation
?
Mr. LAWARE. Well, I thinkitshouldhelpsafety
and soundness
because
itisrisk
-related
intermsoftheamountofcapital
required
to carrycertain
kindsof assets
, and therefore
itwillencourage
banks to be more careful
abouthow theyallocate
theirfunds
.
Whiletheneteffect
isnottobring
abouta significant
increase
in
basiccapital
in the system
, itwilltendto bringup some of the
banksthataretheskinniest
intermsofcapital
overa period
of
timetoa level
wheretheywereseveral
yearsago.
SenatorGARN. So you wouldfeelthaton a netbasisit's
a net
plusbothforsafety
andsoundness
anda netpluson competitive
ness?
Mr. LAWA RE .Yes, sir
.
Senator
GARN. In thepastyou havebeena championforthe fi
nancial
services
holding
companyapproach
torestructuring
thefi
nancial
services
industry
. In thatlight
, what isyourview on S.
1886
,which
istheProxmire
orSenate
-passed
banking
bill
?
Mr. LAWARE.I thinkit's
an enormousstepintheright
direction
.
I support
itgenerally
andspecifically
.I'mdelighted
that
thebanks
will
now havethe
congressionally
approved
ability
toparticipate
in
a big
thesecurities
markets
andcertainly
thatguarantees
a
step
for
wardin enabling
U.S.bankstobe more competitive
withtheir
brethren
around
the worldwho already
haveaccess
tothesecuri
tiesmarkets.
I'm verydisap
GARN.Well
, I mightsayatthispoint
Senator
pointedthat afterallthe work the chairman and otherson this
onthe
sooverwhelmingly
andpassed
putinonthatbill
committee
monthsago,thattheHouseofRepresentatives
several
floor
Senate
theyare
. And I'madvised
toactonanything
notseenfit
hasstill
is Julyand we'reprobably
, but this
talking
aboutdoingittoday
foryou,
a message
isn't
30.So this
going
toendup by September
,
fortheHouseofRepresentatives
. Thisisa message
Mr.LaWare
beentreading
. They've
abouttimetheydidsomething
thatit's
toaddress
beenhereand unwilling
waterforthe14yearsthatI've
changes
. So I
marketplace
services
ofthefinancial
therealities
todayand getittothe
wouldhope theywouldtakesome action
sothatthechairmanand I cango to con
floor
assoonas possible
work out a billthatwill
ference
withthe House and hopefully
become law thisyear.
listening
.
Mr.LAWARE.I hopethey're
Senator
GARN. Whileproblems
remainwiththebudget
deficit
and thetrade
deficit
, theU.S.economyinrecent
years
hasbeen
theenvyoftheworld
.Oureconomy
isinthelongest
peacetime
ex
pansion
inthepostwar
era
.We havecreated
12million
new jobs
overthelast
5 years
,while
Western
European
economies
havenot
on balance
created
any new jobs
.
11
Whatrole
doyousee
formonetary
policy
inmaintaining
sucha
healthy
economic
growth
aswe continue
toworkonthebudget
and
tradedeficits
?
Mr. LAWARE.Well,I thin
k monetary pol
icycanattemp
t topro
vid
e stabil
ityin value
ofthe curre
ncy,a lowrateofinf
latio
n,and
both oftho
seeleme
nts Ithin
k are veryimportan
t increati
ngan
environ
ment in which the growth in the economy can continue
withou
t recessi
on.And I thinkthat isessen
tialaswe begintowork
do wn these other deficits
.
The dangerat the moment wouldseem to me tobe to prevent
theeconomy
fromoverheating
andwhenwe're
running
at80or83
percent
ofcapacity
, we'vegottomake surethatwestayon the
ball.
Senator
GARN. The GeneralAccounting
Office
recently
released
a study
suggesting
thattheFederal
Reserve
does
notrequire
suffi
cient
reserves
against
potential
losses
fromThirdWorlddebt
.
Do you agreewiththe GAO's study?
DIFFICULT TO LEGISLATE LEVELS OF RESERVES
Mr. LAWARE. No ,I don't
,because
I thinkthatit's
verydifficult
tolegislate
levels
ofreserves
on netdebts
. We havereserve
levels
typically
amongthebankswho areheavy
lenders
tothelesser
de
veloped
countries
ranging
anywherefrom25 to30 percent
up to75
percent
. I thinkthatisless
reflective
ofvaluation
oftheloans
than
individual
itisofthestrategies
ofthose
bankmanagements
.The
people
whoarereserving
the25to30percent
level
Ithink
arestra
tegizing
that
they're
going
tohold
onto
that
debtandthateventu
ally
itwillbe substantially
paidoff
. They're
in forthelongpull
.
Thebanksthathavereserved
atthe60or75 percent
level
essen
tially
aregetting
their
reserves
up tothepoint
wherevirtually
all
ofthose
loans
areinthemarketable
category
without
taking
any
further
hit
toearnings
.Those
banks
I would
submit
areprobably
managing
those
portfolios
down, getting
themoutthrough
swaps
,
or what have you.
So it's
verydifficult
toarbitrarily
setlevels
ofreserves
on anyof
those
debts
because
inthelongrun-andI do mean longrun- I
think
they're
going
tobepaidoff
infull
.
Senator
GARN.Thank you, Mr. LaWare.
The CHAIRMAN .SenatorChafee.
Senator
CHAFEE.Thankyou,Mr.Chairman
.
Mr.LaWare
,you've
touched
a bitontheinternational
competi
tivesituation
ofU.S.banks
.In 1970
, whichisonly18yearsago,of
the10 biggest
banks in theworldI believe
9 were American
. In
1988
,9 outofthetop10aren't
Americanand 1 ofthe10is
.And as
I understand
it,thenextranking
U.S.bankis24th
.We don't
have
a stack
right
behind
just
below
the10margin
.
Now my question
istwofold
. One, whatdifference
doesitmake
asfarasU.S.
jobs
,theU.S.economy
,ifwe don't
havebanksinthe
question
top10? That's
the first
.
Mr. LAWARE . I don'tthink it makes much difference
. I have
neverfelt
thattherelative
worth or strength
or position
of banks
intermsofbottomline
on their
balance
sheetwas therealanswer
.
It's
howwell
managed
they
areandhowprofitable
they
arethat
I
12
thinkreally
istheperformance
measurement
of banks
, and I
wouldsubmit
thatU.S.banksarecompetitive
intermsofprofit
ability
andcertainly
competitive
inmanagement
withanybanking
system in the world.
SenatorCHAFEE
. So we shouldn't
getdistressed
ifthe highest
U.S.bankwerethe25thbiggest
intheworld
.Isthatright
?
Mr. LAWARE .I don'tthinkthat's
a matterofconcern
. Now I'm a
little
bitofa maverick
on thatbecause
many ofmy colleagues
are
veryconcerned
aboutthebalance
sheet
size
.I'mmoreconcerned
withtheprofit
and loss
statement
.
Senator
CHAFEE
.Allright
.Let's
say 9 ofthe10biggest
banksare
Japanese
or8 ofthe10- let's
say5 ofthebiggest
10.
Doesthat
give
themtheopportunity
tocomeoverhereandcompete
toa greater
extent
thaniftheyweren't
asstrong
astheyare?
andeggtypeofprop
kindofachicken
Mr.LAWARE.Well, that's
growth
isbecause
theyhavebeen
someoftheir
osition
.Ithink
that
stakes
havesubstantial
.As youknow,theyall
hereandcompeting
either
boughtbanksorestablished
now, having
on thewestcoast
. They arevery
that
are doingquitewell
branches
orsubsidiaries
managed
.
andtheyareverywell
competitive
among
agreement
capital
-based
risk
thatthis
One ofthethings
to
you're
going
since
I thinkisthat
willaccomplish
the12nations
baseforallthese
the same kind of capital
essentially
require
of thepricing
in the rationalization
, thatwillbe reflected
banks
helptomakeourbanksmore
banksand will
forthese
mechanism
capitalized
,
thinly
banksthatwereoriginally
because
competitive
andstill
getgood
price
atlowermargins
,could
nominally
atleast
.
returnson theirstatedcapital
Now since
thecapital
will
beallthesame,thesamekindofpric
ingpressures
aregoingtobe thereforforeign
banksas arethere
forU.S.banks.
Senator
CHAFEE
.Mr.Chairman
,I've
gotanother
question
.What
are allthesebellsfor?
TheCHAIRMAN
.There's
going
tobea voteina fewminutes
.
Senator
CHAFEE.Well, Mr. LaWare,I havekindofa gutfeeling
thatwhen you seeU.S.banksfall
fromthe9 outof the10biggest
to1 outofthe10biggest
,itmakesme nervous
andjust
like
Ilike
toseeGeneralMotorsora U.S.automobile
manufacturer
thelarg
estintheworld,itmeans we'reselling
carsinAustralia
and Eng
landandWestGermanyandFranceandallover.And I canonly
assumethatwhen ourbanksareknockedoutofthetopspotthat
somebody
else
isgetting
thebusiness
somewhere
. But you don't
share that concern.
Mr.LAWARE. Well
, no,I'm notsaying
thattheyaren't
getting
thebusiness
;butI'msaying
thatgivencompetitive
equality
and
thesame opportunities
, Americanbankscanbe competitive
. And if
thatmeansgrowing
insize
,theywill
growinsize
. I think
thatthe
chairman's
bill
will
be a goodstepin theright
direction
togive
U.S.banksa morecompetitive
position
, notonlyindomestic
mar
ketsbutinworldmarkets
.Maybe some ofthosepositions
willshift
backagainaswe getthatmore competitive
stance
.
Senator
CHAFEE
. Well
,Icertainly
hopeso.I share
yourenthusi
asm forthechairman's
bill
and shareSenator
Garn'sconcern
that
nothing
ishappening
ornothing
hashappened
intheHouseon it
.
13
Thank you,Mr.Chairman
.
The CHAIRMAN.Thank you.II promised
Senator
GarnIwouldrec
ognizehim fora unanimous consentrequest.
SenatorGARN . SenatorKarnes was here and had to leave
. I'd
liketoask unanimousconsent
thathisstatement
be placed
inthe
record
.Inaddition
,there
aresomequestions
thathe wouldlike
to
haveMr.LaWare respond
toinwriting
.
The CHAIRMAN.Withoutobjection
,soordered
.
[Committeeinsert
ofSenator
Karnes
'statement
.
]
88-455 - 88 - 2
-
-
14
Dave
Kames
JULY 7 , 1988
STATEMENT IN SUPPORT OF THE NOMINATION OF
JOHN P. LA WARE TO BE A MEMBER OF THE
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Chairman
, I am pleased to be here today to join in
supportingPresidentReagan'snominationof John P. Ware to be a
member of the Board of Governorsof the FederalReserve system.
John La Ware has had a distinguished career in the
operationalaspectsof commercialbanking, and he would bring a
wealth of experienceand talent to the FederalReserveBoard.
He
has been Chairman of the Board of Directors of the Shaumut
NationalCorporationsince 1978.
Shaumut
is one of the 25
largestbankholdingcompanies
in theUnitedStatesand is the
product of a mergerwith the HartfordNationalCorporation
.
Prior to joiningShaumut, Mr. La Ware was with the chemical
Bank in New York for a period of 25 years where he worked his way
throughthe organizationto the positionas a seniorofficerof
the institution .
15
Page 2
He was awardeda Bachelorof Arts degree from Harvard
Universityin 1950 and a Master of Arts degree from the
Universityof Pennsylvaniain 1951.
residents of Massachusetts
John
and his wife
are
and have two children .
Mr. Chairman
, I have had the opportunityto meet with Mr. La
Ware and he has impressed me . He currently serves as a director
of the Federal Reserve Bank of Boston , and he has served as a
directorand the chairmanof the Associationof Bank Holding
Companies .
His philosophy favors principles of financial
ion and relianceon the marketplace to drive the outcome
deregulat
of important issues .
In short, I believe that , with 35 years of hands-on
experiencein commercialbanking, John La Ware is just the type
of person who will serve his countrywell in this appointment
.
I
thereforebelievethat the Committeeshould reportthis
nominationwith a recommendation
of approvaland I trust that the
Senate will act swiftlyto confirmthe President'snominationof
Mr. La Ware to be a memberof theBoardof Governors
of the
federal
Reser ve Sys tem .
Thank you Mr. Chairman .
I ask that my formal written
statement be entered in the record.
16
The CHAIRMAN .SenatorGraham .
Senator
GRAHAM.Thank you,Mr.Chairman
.
Mr.LaWare
, I'mverypleased
tohavethis
opportunity
totalk
withyou.WhileI wasa resident
ofyourcity
,I was a small
client
ofyourbankand I appreciate
theexcellent
service
thatwe re
ceived.
I am interested
intheissue
ofThirdWorld debtand thepolicy
of
theFederal
Reserve
Boardrelative
tothat
.We'vediscussed
briefly
thequestion
ofrisk
-based
capital
andtheeffort
being
made among
themajorindustrial
nations
'central
bankstoregularize
thatproc
ess .
There's
concernthatthe adoption
ofthe risk
-basedcapital
will
makeitmoredifficult
togetthenew start
capital
into
countries
in
LatinAmerica and elsewherein the world and willnecessitate
a
revisitation
ofourpolicy
relative
toThirdWorlddebt
.I wonderif
you couldcomment .
TheCHAIRMAN
.Mr.LaWare,before
you respond
,I'mgoing
togo
tothefloor
tovoteandI'mgoing
toaskSenator
Grahamtopreside
fora few minutes
. He'll
have toleave
, too
,shortly
, but thatway
we'll
savea little
timeinthehearing
.
. Areyou
yourquestion
Mr.LAWARE.I'mnotsurethatI follow
against
ofthereserves
ofthedisallowance
saying
thatbecause
that
debtas partofprimarycapital
country
developed
lesser
SenatorGRAHAM . The thesisisthatin orderforthesecountries
tohaveanychance
ofpaying
their
existing
debtthatthey've
gotto
reenergize
their
economies
. To do thattheyhaveto havesome
freshcapital
, thattherisk
-basedcapital
systemisgoingtomake it
more difficult
for them to attract
the new capital
which their
economies
require
. That's
theessential
thesis
. Do youagreewith
that
?Ifnot
,whynot?And ifso,whataretheimplications
?
Mr. LAWARE. I'mnot surethatIdo agreewithit
.I thinkthat
there
is somemisinterpretation
thatthereserve
requirement
wouldbea disincentive
for
makinganyadditional
advances
.
On theother
hand,I thinkthere
isa strong
understanding
in
thebanking
system
- andI'mtalking
now aboutthemajorbanks
who havemajorcommitments
inLatinAmerica
particularly
—that
those
economies
aregoing
toneedcapital
inflows
,that
there
hasto
beaa restoration
ofinterbank
deposits
into
those
countries
,andthat
thatcan takeplace
y ifther
e isa perc
onthattheyhavethe
onl
epti
ngroomneces
athi
bre
sarytorevita
lize
s.
their
economie
example
,themostrecent
I thinkthatthekindofrestructuring
an environment
, tendstocreate
ofwhichwe'veseenin Brazil
in
moneygoing
. There's
fresh
room
wherethey
do havebreathing
debt
.Atthe
theexisting
be usedtoservice
andmostofthatwill
constant
forthis
someofthepressure
, theyarelifting
sametime
room.
togivethem somebreathing
restructuring
Ithink
moreofthat
kindofapproach
tothesolution
withregard
toMexicoandArgentina
canbea veryconstructive
thing
. We've
comea longway inthelast
4 or5 yearsindealing
withthis
prob
lem.The amountoftheseloansinrelationship
tothecapital
ofthe
banksthatareinvolved
hasgonedown fromabout190percent
to
less
than100percent
ofthecapital
. That's
still
toohigh
, butwe
areworking
it
down andwe aregetting
someintelligent
,long
-term
17
restructuring
. I thinkinthefinal
analysis
that's
what'sneededin
ordertogivethemsomebreathing
room.
SenatorGRAHAM. Mr. LaWare, I apologize
, but we have a vote
underway
. We will
recess
atthispoint
and reconvene
assoonas
possible
.
Mr. LAWARE . Fine.
[Recess
.]
,youwrotean op
The CHAIRMAN. Mr.LaWare, on June 22,1986
ed pieceforthe New York Times.You made a goodcaseforour
, butyou
thebill
of course
itpreceded
,although
bill
inthatpiece
in
Glass
-Steagall
thatwouldrepeal
madea goodcaseforthebill
.
inunderwriting
bankstocompete
andpermit
effect
ITSNOT THE SIZEOF THE BANK ,BUT ITSCOMPETENCE
And IwasgladtohearyouranswertoSenator
Chafee's
question
on thesize
ofbanksandhow it's
notthesize
, it's
thecompetence
,
and ourbanksarebigenoughtodo thejob
. As a matteroffact
,as
I understand
it
,theeconomyofscale
stops
witha relatively
small
bank and we don'thave to have aa colossal
size
.
ButIwant toask youaboutthat lette
rbecausein that lette
ryou
make a statement which concernsthisSenator and I think would
concerntheCongr
essconsi
ly. You saywithresp
derab
ecttothe at
er groupsthathave beencrit
titude
ofconsum
ical
ing
ofbank
, you
say:
Regrettably
,consumer
groups
seeintheemergency
atmosphere
an excellent
op
portunity
toadvance
their
agenda
.Theyareurging
Congress
totighten
further
the
regulatory
noosethatformore thanhalfa century
has constrained
theability
of
banks
tocompete
.Specifically
,they
are
pushing
for
a test
that
interstate
acquisi
tions
would
notdilute
local
competition
,forpublic
disclosure
oftheacquiring
bank's
community
reinvestment
record
, andfordisclosure
ofthegeographic
placement
of
loans
by theacquired
bank.
Now partofthatwas certainly
asfarasthecommunityreinvest
ment recordisconcerned— Iwas the authorofthatI believe
and it
went throughthiscommitteeand itwent throughtheCongress
withconsiderable
enthusiasm
and itseemsto me thatthelogic
behind
thatCommunityReinvestment
Actmakesallthesense
in
theworld.
What we're
simply
saying
isthatifa bank islocated
ina par
ticular
communityand takesdeposits
in thatcommunity
, that
thereatleast
oughttobe some kindofa record
ofthatfactmade
public
,made available
tothepublic
,andthattheFederal
Reserve
Board
,theregulators
, should
takeintoconsideration
whether
or
notthebank reinvested
inthecommunityfromwhichthedeposits
came
.
As you know, we'vehad a problem
overtheyearswithred
lining
.We'vehad hearings
before
this
committee
thisyearwhich
haveindicated
significant
redlining
. We'vehad great
leadership
frombanksinPhiladelphia
and elsewhere
which
have saidthey
will
makea loan
toanyethnic
groupinanyarea
,black
,white
,his
panic
,whateveritis
, depending
on thecredit
record
oftheborrow
erand thesoundness
ofthestructure
inwhichtheyaremaking
the loan.
They've
donethatandthey've
donethatprofitably
andthey've
found
there's
beenno significant
loss
inthatkindofan operation
.
18
Infact
,its
beenprofitable
toproceed
thatway. Butsomehowwe
havea record
ofregulators
being
veryweakinenforcing
theCom
munityReinvestment
Act
.It's
like
a professor
who gives
everybody
intheclass
an A eveniftheydon't
come toclass
and it's
beena
situation
wheretheonlyrealenforcement
ofCRA isby thecom
munities
themselves
when theyhaveactivist
people
comeinand
insist
on getting
therecords
and thenpublicizing
therecords
.
COMMUNITY
REINVESTMENT
ACT
Thatwas truein Chicagoand itwas truein some otherplaces
.
So I'mconcerned
withyouas a regulator
andbecause
youhave
perhaps
moreexperience
thananybody
else
ontheFederal
Reserve
Boardasa governor
theywill
look
toyouforadvice
andforleader
ship- I'mconcerned
thatthe Community Reinvestment
Act and
otherconsumer
protection
legislation
, likethe Truth
-in
-Lending
Actand soforth
,may notbeinwarm,friendly
handswithyouas
the leaderon the board.
Mr.LAWARE.I think
perhaps
you're
misinterpreting
whatI said
inthatquotation
.Ihavenoquarrel
atall
withtheCommunity
Re
investmentAct nor with itsenforcement
.
TheCHAIRMAN
.Well
,letme just
say
,we havea quarrel
withthe
enforcement
. We thinkit's
beenveryweak and veryinadequate
and notatallvigorous
.
Mr. LAWARE.I mean withtheprinciple
ofenforcement
.
The CHAIRMAN.OK .
Mr. LAWARE. We havean excellent
recordin my institution
in
CRA andI think
thatyouwill
find
thattheFederal
Reserve's
ap
proval
ofapplications
hasbeenquite
forceful
inobtaining
satisfac
tion
forcommunity
groups
who haveobjected
toa particular
appli
cation
on thebasis
thatthebanksinvolved
havenotbeen living
up
tothespirit
oftheCommunity
Reinvestment
Act.
Thereisno stipulation
thattheyhavetoactually
turnonedown,
butIthink
that
themoral
pressure
that
hasbeen
exerted
insever
alinstances
has resulted
in veryconstructive
application
ofthe
CommunityReinvestment
Act.
I couldn't
agree
withyoumorethata bankthatoperates
inany
community
hasa responsibility
inthat
community
toall
thepeople
inthecommunity
andwe havea verygoodrecord
inthatrespect
in Boston.
What Iwasobjecting
tointhepiece
intheNew YorkTimeswas
the proposal
thattherebe some sortofscoreattached
totheper
formanceofindividual
institutions
.
The CHAIRMAN.What'swrongwiththat?
Mr. LAWARE. And then putthatup inpublic
.Well,inthefirst
place
, it's
a verysubjective
kindof a judgmentas to whether
there's
beencompliance
.
TheCHAIRMAN
. Well
,letme give
youanexample
. Supposing
the
regulators
find
thata bankhastakenits
deposits
overwhelmingly
fromthecommunity
, 80 percent
,and onlyreinvested
40 percent
or
20percent
inthe
community
.Why shouldn't
thepublic
knowthat
?
Mr. LAWARE. Well
, what'sthe standard
against
which that's
being
measured
?Letme just
digress
for
just
a second
.TheFederal
funds market
19
TheCHAIRMAN
. Well
,ifyoucanjustify
it,fine
. I'mnotsaying
that
40percent
or 20percent
may bejustifiable
,butjustify
it
.Why
notletthepublic
know whatyourarguments
arefordoingthat
?
Mr.LAWARE. Yes,buttheproposal
wasthatyouhavea score
of
some kind.
The CHAIRMAN.Well,that's
what thescore
wouldbe basedon,as
I understand it.
Mr.LAWARE. Ifyou've
gota score
,an absolute
measurement
of
somekind
,andyou're
going
toapply
thattoevery
community
,how
thencanyoujustify
it? You say,well
,you geta C -minusbecause
you're
only40percent
reinvested
in thecommunity
andyetthat
maybejustifiable
inthat
community
,buthowdoyoudefend
your
self
against
theC-minuswhichisbeinghanded
outtoyou.
The CHAIRMAN
. Well
, I wouldn't
necessarily
arguefortheC
minus
, butI wouldargue
fordisclosing
theproportion
that
goes
backinto
thecommunity
compared
tothedeposits
thatcomefrom
thecommunity
. Again
,itmay be wiseforthecommunity
inthe
longrun tohave a bankhavea relatively
lowscore
,butthenthey
shoulddefendthatand there's
no reasonwhy thepublic
shouldn't
know it
.
Mr. LAWARE. I don'thave any problemwiththat
, Senator
, but
whatI do havea problem
withwas somesort
ofa rigid
scoring
system
thatcan't
be applied
toanything
that's
subjected
to
The CHAIRMAN
. Well
,Ithinkrigidity
inthesense
thatyougive
thefacts
, you letpeople
know (a)whatthedeposits
are;and (b)
wherethatmoney hasgone.
Mr.LAWARE.Idon't
haveanyproblem
withthat
.
The CHAIRMAN
. Thenyouhavean interesting
sentence
inyour
statement
.You say:
Thesameholds
truefordisclosing
a geographic
placement
ofloans
.Fora bankto
reveal
thissortofinformation
islike
Coke revealing
itsformula
. Such a require
mentwould
discourage
manybanks
fromengaging
inrescue
operations
.
THE
COKE
FORMULA
Just2 daysagotheWallStreet
Journaldiscussed
theCoke for
mulaandsaid
thatCokeisn't
namedCokebyanyaccident
,thatit
contains
cocoabeans
, thesame thingthatcocaine
comesfrom, and
someofthereasons
why people
geta habit
fromdrinking
Coke
,
whichI know you and Idon't
drink
, isbecause
theygetthesame
thingthattheygetiftheysnorted
coke- cocaine
I mean.
Mr. LAWARE.Ihope you're
notmakingany analogies
tothe
bankingbusiness
.We don'tsnort
.[Laughter
.]
The CHAIRMAN.Well,yourstatement
was thatitshouldn't
be re
vealed
. Itseemsto me itwas goodto reveal
— I can'tunderstand
why theCoca-Colaformulaisso precious
, why itshouldn't
be re
vealed
tothepublic
. At thesametime
, I can't
understand
whythe
geographic
placement
ofloans
shouldbesacred
. You say
,“The
same
holds
true
for
disclosing
the
geographic
placement
ofloans
.
It's
likerevealing
theCoke formula
.
Why shouldn't
itbe desirable
forthe public
to know ? What's
wrong witha bank beingrequired
tosay,“We invest
so much in
thecommunity
and somuch goestoCentral
America
andsomuch
goestoCalifornia
,toWisconsin
,to Columbus
," whatever
?
20
Mr.LAWARE.Iguess
thatmay bean industry
attitude
. We think
thatwe givepretty
full
disclosure
ofwhatwe do. Our 10(k)sand
ourannual
reports
probably
givemoredisclosure
thanalmost
any
other
industry
. And it's
probably
a sortof defensive
reaction
towardtheencroachment
ofevenmore disclosure
without
anybody
really
caring
.Who careswhere a bank has itsloans?
The CHAIRMAN.Well,I'll
tell
you.
Mr. LAWARE.To say
, well
,we have$50 million
ofloansinArizo
na,and we have$100million
ofloansin Wisconsin
, and we have
$5 billion
ofloansinMassachusetts-
itsmoney
The CHAIRMAN. I wouldcareifa bank wereputting
about
.I'dbe concerned
now intoTexasorintoSouthAmerica
right
that.
Mr.LAWARE.Well
,itisn't
somuch putting
itinthere
now.It's
trying
togetitout.
The CHAIRMAN
. Well
,that's
right
. ButI don't
know why disclo
sure
, which of courseisthe essence
of Truth-in-Lendingand so
much else
thatwe'vebeenabletoprogress
withoverthelast
20
years
,shouldn't
be useful
fortheconsumerand forthebank.They
cancompetemore effectively
ifpeople
know.
Mr. LAWARE. In principle
, I have no problemwithdisclosure
if
there's
somegoodreason
for
disclosing
andifthepublic
ortheCon
gress
initswisdomdecides
thatkindofdisclosure
isappropriate
,
I'msurethebanking
industry
wouldcooperate
.
LABOR
UNIONS
IN BANKS
The CHAIRMAN
.Mr.LaWare,Shawmutisnotrepresented
byany
labor
unions
.During
thelast
decade
twounions
wereorganized
but
laterdisbanded.
Why doyoubelieve
thatlabor
unions
haven't
succeeded
atShaw
mut ?
goodcompensation
,we havea pretty
,frankly
Mr.LAWARE.Well
and wagesare
, oursalaries
workingconditions
, excellent
program
. Unionshave a great
inthe marketplace
more than competitive
off
thattheywouldbebetter
ouremployees
difficulty
inconvincing
ina union. Witnessthe factthatone ofthe unionsthatwas formed
.
toaskfordissolution
themembersvoted
subsequently
The CHAIRMAN. In Boston
, isituncommon fora bank tohavea
unionrepresent
theemployees
?
Mr.LAWARE.Yes,it's
veryuncommon.
TheCHAIRMAN
.I think
that's
probably
true
.Ithink
it's
unfortu
natebecause
my experience
asan employer
and previously
as a
unionmember werethatifyouhavea unionshopyoucanhire
anybodyyou want and theunioncan negotiate
ona more or less
equalbasis
withtheemployer
forwagesand working
conditions
and I thinkit's
a healthy
situation
. But I understand
ifyou havea
situation
wherenoneof yourcompetitors
haveit
,it's
expecting
a
lottosetthepaceinthatparticular
area.
Letme askyou this
.On May 8,1987
,Shawmut paid$295,000
in
civil
penalties
in connection
withinfractions
ofantimoney
launder
inglawbetween1980and 1985.
Shawmut was credited
withvolun
teering
itsguilt
and withinstituting
corrective
measures
.
21
Can youtell
me thehistory
ofShawmut's
infractions
andthose
corrective
actions?
Mr. LAWARE.Yes,sir
.In 1980
,thecashdisclosure
orcashtrans
action
reporting
requirements
werechanged
. Wherepreviously
a
bankcouldexemptcertain
customers
fromtherequirements
of
thatreporting
mechanism
totheTreasury
Department
,thenew re
quirement
was thatyou couldhavenamesof customers
on the
exemptlist
onlyafter
theyhadbeenspecifically
approved
by the
Comptroller's
office
.
We picked
up thechanges
thathadbeenpublished
,butwe failed
apparently
toflag
themsufficiently
sothatourbranches
left
cus
tomerson theexemptlist
and failed
to report
subsequent
cash
transactions
really
without
anyintent
toviolate
thelawbutsimply
because
theyhadnot picked
up thechanges
.
The CHAIRMAN
. How longdidittakeyoutomake thatcorrec
tion?
Mr.LAWARE. Well
,we didnotpickitup and theexaminations
didnotpickitup andwhenoneofoursister
institutions
inBoston
was getting
a lotofunfavorable
publicity
forfailure
tofile
these
reports
, we instituted
our own investigation
ofour own bank and
discovered
these
nameson theexemptlist
thathad notbeenau
thorizedto be there.
So we went immediately
totheComptroller
and totheTreasury
andreported
thefact
thatwe weredelinquent
andhadnotbeenin
compliance
, and we made allthosepastdue filings
and brought
the
record
up todate
.
We weretheninvestigated
by theU.S.attorney
inBostontosee
iftherewereany criminal
involvement
. They foundthattherewas
none
.Sowe paidthestatutory
fine
forthefailure
tofile
those
ap
plications
.But itwas a civil
fine
, nota criminal
fine
.
The CHAIRMAN. Now a recentarticle
in the WashingtonPost
stated
:
,a 36.8percent
in
last
year
to$ 368.2
billion
America's
foreign
debtclimbed
total
astheworld's
solidified
its
position
States
,astheUnited
over
the1986total
crease
debtor
nation
.
largest
Now ina press
briefing
on thismattertheCommerceUnderSec
retary
,Robert
Ortner
,theadministration's
spokesman
,argued
that
these
figures
should
notbea causeforconcern
.He said
:
Foreigners
arevoluntarily
participating
inoureconomy
because
they
finditat
tractive
.I thinkthisisa much fairer
description
thanAmericaasa debtor
nation
.
So letme askyou,doesAmerica's
increasing
debtor
status
cause
you concern
and,ifso, why ?
Mr. LAWARE. Yes, I don'tlike
the trend
.I wouldliketo seea
somewhatmore favorable
one. Unfortunately
, the numbersthat
we're
dealing
withherearenota terribly
accurate
appraisal
of
what the situationis.
If you remember
, the greatburstof Americaninvestment
abroad
,whichisoursideofthatbalance
sheet
, was made any
wherefrom30 to40years
agoright
after
thewar andduring
the
1950's
and 1960's
.Thoseitemsarecarried
inthis
report
atbook
value
, whichistheoriginal
investment
valueatthetimethosein
vestments were made .
22
On theotherside
, theinvestment
intheUnitedStates
, much of
whichhastakenplace
inthelast
5 to10years
,isalsocarried
at
bookvalue
,butthose
values
arehigher
.
TheCHAIRMAN
.Letme interrupt
. That's
a veryinteresting
com
parison
, butwerethesedebtsreally
40-yeardebts
?That's
unusual
.
Mr. LAWARE. Well,itisn't
debt
.It'sinvestment
. We call
itdebt
,
butit's
foreign
investment
inthis
country
.It's
notthatwe arenec
essarily
borrowing
fromabroad
.
The CHAIRMAN .You mean the investmentthatwe made abroad
that
yousayis40years
oldor30or40years
old
,thata great
pro
portion
ofithasneverbeenturned
over
, there's
never
been any
transactions
that
wouldbring
itup sothatitdoesn't
reflect
infla
tion
,itdoesn't
reflect-
Mr.LAWARE.It's
never
beenmarkedtomarket
,ifyouwill
,Mr.
Chairman
. Ifyoumarkedittomarket
, itwouldbesubstantially
higher
.
The CHAIRMAN
. I'dlike
toseean analysis
ofthat
. Maybethe
Federal
Reserve
hassomething
.That's
a veryinteresting
qualifica
tionin our net debt.
Mr.LAWARE.Itdoesn't
change
theworrisome
nature
ofthecur
renttrend
,butI think
itmay changethatbalance
numberinthe
analysis
final
.
I am inclined
tothinkthattheinvestment
in thiscountryisa
relatively
healthy
thingifitdoesn't
getso large
— thatis
, thebal
ancedoesn't
getsolargethatwe wouldhavedifficulty
servicing
it
.
The CHAIRMAN
.Well, I agree
with that
. It's
theonesidedness
thatisofconcern
.The mobility
ofcapital
isfine
.
Mr. LAWARE.Beinga debtor
nation
- after
all
,we werea debtor
nation
up until
thebeginning
ofWorldWar I anditwasthatfor
eigninvestment
thatbuilt
our railroads
and mostofourindustry
.
TheCHAIRMAN
. Well
, that's
right
,butwe certainly
don't
have
thatkindofa situation
now oranything
like
whatitwaswhenwe
werebuilding
ourindustry
inthe19thcentury
.
TheFederal
Deposit
Insurance
Corporation
isrequired
toinsure
deposits
up to a valueof$100,000
in theeventofa failure
ofan
insured
institution
. In practice
, alldeposits
, including
thoseover
andabove$100,000
havebeeninsured
.Therehaven't
beenanyreal
losses
indepositors
.
Isthis
policy
ofinsuring
alldeposits
a wiseone? Can youdiscuss
theramifications
oflimiting
theguarantee
tothe$100,000
limit
?
Shouldwe make theguarantee
explicit
toalldepositors
?
Mr.LAWARE.Well,many ofuswereopposed
toraising
thede
positcoverage
from$ 40,000
to $ 100,000
which was done several
years
ago,feeling
thatyou canneverreverse
thatkindofa trend
.
Therefore
,thehigher
theceilings
were
,themorewe werebuilding
expectations
thattherewas somesortofa safety
netthatwas
goingtocoveralldepositors
.
CONTINENTAL
STOCKHOLDERS
TOOK A BATH
Unfortunately
, therealities
ofsome oftheselarge
troubled
bank
operations
andContinental
isperhaps
thebest
example
- arethat
you couldnotstabilize
thesituation
and stoptherun because
it's
largely
acorporate
runbydepositors
who heldmorethan$100,000
.
23
You couldn't
stabilize
thesituation
without
ineffect
implying
or
stating
a guarantee
forallthedepositors
. And that
, ofcourse
,
brings
up theethical
question
ofwhether
bigbanksaretoobigto
fail
andwhetherthatisn't
unfair
tothesmallbanksthatinfact
areallowedtofail
?
I wouldsubmit
to you thatin thecaseofthesmallbanks
, it's
tragic
because
itisa disruption
in thatcommunity
when a bank
fails
, butforthemostpart
the depositors
havenotbeendamaged
when thathappens
. It's
theshareholders
and themanagementwho
are washed out.
TheCHAIRMAN
.That's
truewiththebigbanks
,too
,isn't
it?
Mr. LAWARE .Sure.
The CHAIRMAN . When Contine
ntal
, forinstanc
e, the manage
ment was in effect
kickedout,the stock
holde
. That
rs tooka bath
wasexactly
thesameasa fa
ilure
would be ofa man
ufact
urin
g
company,excep
t the depos
who had a commitment were saved
itors
.
That's all.
by the
, justified
was, I feel
Mr. LAWARE. The rescueoperation
ofthatbankwouldhave
effect
ofthefailure
thattheripple
fact
butabroad
,notjustinthiscountry
crisis
created
a majorfinancial
choice
thatsays
.So we arefacedwiththatveryunpleasant
aswell
ofwhich
and thefailure
aresomebanksthatareso large
there
systemthat
inthebanking
wouldbeso damagingtoconfidence
ithappen
.
let
youcan't
SHOULD OFFSHORE DEPOSITSBE INSURED ?
TheCHAIRMAN
.Before
Iyield
toSenator
Graham
,let
me askyou
oneotherquestion
alongthisline
. Shouldtheoffshore
deposits
of
U.S.headquartered
banksbe insured
and shouldthe FDIC assess
premiumson thosedeposits
theinsurance
?
?
deposits
ofU.S.banks
Mr.LAWARE.Theoffshore
deposits
ofU.S.headquar
. Theoffshore
The CHAIRMAN. Yes, sir
tered banks.
Mr. LAW ARE .No ,Idon'tthinkso.
The CHAIRMAN.Thank you,sir
.
Senator Grah am .
SenatorGRAHAM .Thank you,Mr. Chairman .
I wouldliketoreturn
tothequestion
thatI was asking
before
relative
standards
totheeffect
ofrisk
-basedcapital
on developing
nations.
require
a percentage
will
-basedcapital
,therisk
As Iunderstand
oftheloansand thatforlesser
basedon theriskiness
ofreserves
list
of
fora scheduled
loansthatthatreserve
developed
nation
reserve
re
is100percent
ofcountries
countries
orcharacteristics
.
quirement
is
,itseems
statement
ofwhattheproposal
Ifthatisan accurate
forcommercial
disincentive
tome thatthatwouldbeaa significant
whichisa predicate
moneylending
makingthefresh
institutions
ina posi
these
countries
andplacing
theeconomies
torestarting
obligations
.
financial
domestic
andforeign
tomeettheir
tion
Mr. LAWARE. Senator
, I thinkthere's
a little
bitof misunder
standing
there
. Idon't
think
thattheregulators
aresaying
thatall
of theselesser
developed
countryloansrequire
100 percentre
24
serves
. What theyare sayingisthatreserves
thatarespecifically
allocated
toa specific
country
debtora specific
groupofcountries
'
debtcannot
becounted
as primary
capital
. And that's
whatI was
getting
atbefore
you left
togo voteinsaying
thatsome ofmy col
leagues
interpret
thatasa disincentive
forreserving
against
those
loans
at allsince
you move itoutofthatcalculation
of primary
capital
.
On theother
hand,there
isno requirement
thatthatreserving
go to100percent
ofthevalue
oftheloan
.It's
just
thatportion
of
thereserve
thatisspecifically
allocated
fora specific
loancannot
becountedaspartoftheprimarycapital
.
So I don't
think
thatisa sufficient
disincentive
atthis
stage
of
thegametoslowdowntheprocess
oftrying
todosomething
about
restructuring
thesedebtsand getting
some
fresh capital
intothose
countries
.
SenatorGRAHAM . Would itbe fairto concludefrom thatstate
ment thatyou do notfeelthatany changeinpolicy
oftheTreas
uryor theFederal
Reserverelative
totheeconomic
circumstances
nations
ofthese
debtor
isrequired
asa consequence
oftheadoption
system
oftherisk
-basedcapital
?
Mr. LAWARE. Therehavebeenseveral
proposals
. There
have
beenproposals
forforgiveness
ofsomeportion
ofthose
debts
.There
havebeenproposals
forsomesort
offacility
tobeestablished
with
public
fundstobuy up someofthatdebt
. Iam veryviolently
op
posed
toa taxpayer
bailout
,andwhen youstart
using
public
funds
forthatpurpose
,that's
whatyou've
got
.
I am confident
thatbasedon theprogress
thatwe'vemadeover
thelast
4 or 5 yearsthatifwe cancontinue
alongthisline
,we can
getthis
situation
under
control
using
theprivate
sector
andnegoti
ation
and getthose
capital
flows
going
againandthose
interbank
deposits
being
madeagain
sothat
these
countries
canservice
their
debt.
But some alleviation
oftermsisgoingtobe implicit
inthatsolu
tion
, probably
withregard
tointerest
rates
and probably
with
regard
tomaturities
ofprincipal
, sothattheyhavesome breathing
room and cangettheignition
going
.
we are now
that
GRAHAM. Basedon the experience
Senator
and
made inthe1970's
living
throughwithloansthatwerelargely
was
Reserve
oftheFederal
theposition
where I gather
early1980's
areany
thatthere
,doyou believe
-offposition
a hands
essentially
thatshould
standards
lending
initiated
Federal
Reserve
additional
with
experience
banksbasedon this
toU.S.commercial
be applied
it
?
thegoalofnotrepeating
And I wouldgiveasa specific
example
thedifference
between
Argentina
andBrazil
whereinBrazil
there
appears
tohavebeena
highpercentage
oflending
thatwent totangible
projects
thathad
aneconomically
advantageous
relationship
tothecountry
andthe
ability
ofthecountry
to repaytheloan
, whereasin Argentina
much ofthemoneyallegedly
wentinto
noneconomically
productive
purposes.
Usingthosetwo countries
as an example
, do theyindicate
the
needforany Federal
Reserve
regulatory
policy
relative
toforeign
lending
so as to mitigate
the prospects
of a recurrence
of what
we'renow living
through
?
25
Mr.LAWARE.Well
,fortheFederal
Reserve
oranyother
regula
tortotryto establish
credit
standards
forbanksin theirlending
policies
wouldbea complete
departure
fromanyhistoric
precedent
thatI'm aware of.
There are to my knowledgeno lendingstandardsthatare im
posedby regulators
and I thinkitwouldbe a mistaketodo that
.
BANKS
LENDING
TO FOREIGN COUNTRIES ARE ALERTED TO PITFALLS
I wouldsubmit
thatifyou havetouched
thestove
and gotten
burned
that
youstay
veryfarawayfromthestove
fora while
,and
I wouldguess
thatbanksentering
intoforeign
lending
havebeen
alerted
tosomeofthepitfalls
andare going
to be a lot
more cau
tious
inthefuture
on justwherethemoney goesand whetherthe
propersequence
forproperrepaymentand service
ofthatdebtis
there.
Justasa digression
ifIcantakea couple
minutes
,thehistory
of
ourlending
inLatin
America
particularly
,buttoall
thedeveloping
countries
, isa veryinteresting
one.Itaroseasa result
ofthehuge
pool
ofwhatwe called
atthetime
petrodollars
thatcameoutofthe
repricing
ofpetroleum
in1973
,andthis
moneywasgrowing
inthe
handsoftheOPEC countries
, hugepools
ofit, all
in dollars
be
causetheoilsales
were alldenominated
in dollars
.Itevengotto
thepoint
wheretheSwiss
werecharging
a negative
rate
ofinterest
tokeepthemoneyfor
the petroleum
countries
andtheyhadtodo
something
withitand everybody
said
,well
,the private
banking
systemoughtto helpin recirculating
or reallocating
thosefunds
.
So thebankssaid
,OK ,we think
that's
a great
idea
, andthede
posits
begantocomeinto
theUnitedStates
French
,
,British
,Japa
nesebanks
,forthepurpose
ofbeing
recycled
.
Now theycameinon 90and 180daycertificates
ofdeposits
. So
theyturnedaroundand said
,well
, wherearewe goingtolendthis
money? Well
, we're
goingtolend
it toMexico
andArgentina
and
Brazil
and various
countries
in Africa
and what isthepurpose
going
tobe?Well
,it's
going
tobeproject
planning
.We're
going
to
build
a subwayin MexicoCityandsteelmills
in Brazil
and so
forth.
Now that's
thekindoflending
thatyou wouldordinarily
do on
25or30yearterms
,butifyoursource
offunding
forthose
loans
is
90 days
,you're
really
stretching
ittoputiton 3 yeartermsand
theproject
wouldn't
be evenfinished
before
itwouldbe maturing
.
Well,fora numberof years
those
werejust
rolled
over
.When
thematurities
came,thetermswerereset
and theloanwas rolled
over .
When political
problems
aroseinMexicoin 1982and thebanks
beganto loseconfidence
inthepolitical
situation
thereand with
drew interbank
deposits
, theMexicansdidn't
have thedollars
to
service
thedebt
, and ithad a dominoeffect
.They said
,OK , ifthat
canhappeninMexico
, canithappeninBrazil
andArgentina
? So
thewholethingcollapsed
. So therewerelots
ofmistakes
made.
We wereforced
tolendshort
because
our supplies
ofmoney were
short
,andweprobably
didn't
exercise
the
diligence
over
where
the
money wentthatwe shouldhave.I don'tthinkthose
mistakes
can
be made again
.
26
agreewith the premiseof your
SenatorGRAHAM. I basically
judgment
should
be a marketplace
practices
answerthatlending
banks
.I
, inthiscasecommercial
institutions
made by thelending
boundaries
national
toworkacross
thatwhen you start
do believe
havetotakeon a different
economics
thatsome ofAdam Smith's
inwhat
flavor
forsome oftheexactexamplesthatyou justcited
is
proposal
-based
capital
thattherisk
,andIwouldsuggest
happens
in lending
thatthereneedstobe somestandards
itself
a statement
community
.
intheinternational
Theconsequences
ofsomeoftheactivities
thatyoudescribed
are
notjustbeingfelt
by thecommercial
banks.Our tradedeficit
isto
a substantial
degree
, maybeasmuch as30percent
,a function
of
thefalloff
ofourability
toexport
into
these
countries
,particularly
inLatin
America
whichused
tobesomeofourmajor
trading
part
nersandtheir
inability
topurchase
ourgoods
asa function
oftheir
internal
economicproblems
whicharesignificantly
a function
of
theirexternaldebt.
So itisnotacross
national
borders
justa matter
ofmarketplace
economicsand I thinkthatitwould be in the nationalinterest
if
theFederal
Reserve
Boardweretogivesomethought
towhatits
roleshould
be basedon recent
experience
looking
tothefuture
whereglobal
economics
arelikely
tobe a greater
nota lesser
part
ofourtotal
national
economic
well
-being
.
.
atthatverycarefully
belooking
Mr.LAWARE. I'msurewe will
.
,Mr.Chairman
GRAHAM.Thankyou
Senator
totakeyoubacktoyourbe
.Mr.LaWare, I'dlike
The Chairman
, WI,
, WI .When you came out of Columbus
ginningin Columbus
.We'vegota
very
unusual
. That's
University
youwent toHarvard
, asyouknow,butI madethesame
inWisconsin
gooduniversity
mistake
.
Mr.LAWARE.My wifewenttotheUniversity
ofWisconsin
.
The CHAIRMAN
.Well
, that's
great
.And thefactthatyou were
borninColumbus
, ofcourse
,isvery-Ihada business
inWaterloo
,
WI,whichisn't
veryfaraway,asyouknow.
Thereason
I'm getting
on this
beatisbecause
youfinished
your
education
and thenyouhad 2 yearsinwhichyou werea pilot
- or
youwereintheAirForce
intheKoreanwar.
Mr.LAWARE.Theywouldn't
letme nearan airplane
withmy
eyes.
TheCHAIRMAN
. ButyouwereintheAirForce
. Youserved
your
country
intheAir Force
.ThenyouwenttoworkattheChemical
Bank in New York, one of thegreatmoney center
banksinthe
country
,andyourose
veryrapidly
andyoubecame
a topofficial
in
thatbank. I guessan executive
vicepresident
or something
like
that.
Mr.LAWARE .Seniorvicepresiden
t.
The CHAIRMAN.Beforeyouwent toShawmut.
Mr. LAWARE .Yes,sir
.
The CHAIRMAN
.Now I hopethatasa Governor
oftheFederal
Reserve
underpinnings
Boardyouwill
notlose
yourveryimportant
inColumbus
,WI.I saythatbecause
I hadan experience
-Ihad a
business
inWaterloo
and we had a local
bankertherewho was ter
rific
.He made allthedifference
.We werea profitable
business
.We
grew
. We didverywell
. He helped
us withourcostaccounting
27
system
. He helped
us withourpurchasing
. He gaveus excellent
advice
- notcredit
— thatwas important
, but more important
was
the advicehe gaveus.
And I thinkthisisone ofthereasons
why you have a situation
whereinthelast
10years
we hadan increase
ofabout
10million
injobs
, allofwhichhasoccurred
insmallbusiness
.Bigbusinesses
,
theFortune500, haveactually
reducedtheir
employment
. So the
greatgrowthinthiscountry
and somuch oftheinnovation
and so
forth
hascomefromsmall
business
andsmall
banksthatnotonly
provide
credit
butprovide
something
more important
, whichisex
cellent
financial
advice
and makesaabigdifference
.
The reason
Igointo
thatisbecause
I notice
inyourletter
inthe
New York Timesand ofcourseinyourassociations
theremay be
tendency
foryou,as theguruoftheFederal
Reserve
Boardinthe
future
on banking
, to favorbank concentration
, banksmovingin
andgrowing
through
huge branches
, and neglect
ofcommunity
banking
. And I thinkthegreatgenius
ofoureconomic
systemtoa
considerable
extent
isthefact
thatwe have14,000
independent
banksandnoother
country
hasanything
like
it
.Ourbiggest
banks
onlydo about30 percent
ofthebusiness
. It's
big
,andasyouhave
already
said
,theycompete
effectively
abroad
,butIjust
don't
want
toseethatmarvelous
baseofcommunity
banksinplaces
like
Co
lumbus
,Waterloo
and thousands
ofother
small
townsinourcoun
tryeroded
by banksmovinginbecause
oncea bankbecomes
part
ofa bigholding
company, theremay be some kindsofefficiencies
,
but therearegreatlosses
because
you justdon'thave the same
kindofcommitment
tothelocal
community
thatyouhaveifyou
havea bankerwho lives
there
,who'spartofthecommunity
.
ThatWaterloo
bank, forinstance
, isowned by 103people
, allof
whichlive
intheWaterloo
area
,noneofwhom live
morethan20
milesaway.How aboutthat?
Mr.LAWARE.Icouldn't
agree
withyoumore.As a matter
offact
,
I'mnotsoconcerned
about
thedanger
ofbigbanksasIam delight
ed withthefact
thatwe arechartering
morenew banksall
the
time.
The CHAIRMAN
. Well
, that's
veryimportant
, keeping
up that
charterbusiness.
Mr.LAWARE.Absolutely
. IfIcan takea momenttoreminisce
a
little
bit
. When the bankholiday
came in 1933
, oneofthetwo
banksin Columbusreopened
almostimmediately
because
their
loan
portfolio
wasmostly
government
bonds
andthings
backed
by
excellent
collateral
.
NO
INSURANCE
Theother
bank
,whichwasverymuchdedicated
tothecommuni
tyand had thebulkoftheloans
to thefarmers
and thelocal
busi
nessmen
,didn't
reopen
.And agroupoflocal
businessmen
who had
notlost
everything
in thecrash
stepped
forward
andsaid
,we will
recapitalize
thebankandgetitreopened
andwe will
payoffthe
depositors
who lost
inthis
process
because
there
wasno deposit
in
surance
in thosedays
; overtimewe willgive
you allnotes
for
whatever
.My father
had a balance
ofperhaps
$200or$300inthat
bankthatfailed
andhe gotthefinal
checkfromthat
groupwho
28
tookitoverin1946
,13yearslater
.But that's
thekindofcommuni
ty identification
and dedication
thatyou're
talking
aboutand I
thinkit's
wonderful
.
In Massachusetts
where we have had a lotof consolidation
re
cently
,Ithink
we havechartered
overthepast18monthsabout12
new banks
, anditistheperception
thatfroma competitive
point
ofviewthatthesmall
, dedicated
, locally
identified
,highquality
service
bankcan compete
withthebigguyandruncircles
around
him.The highest
performing
bank wehave inMassachusetts
isone
downontheCapethat's
a couple
hundred
million
dollars
insize
andjustdoesa superjoband theyearnalmost2 percent
return
on
assets
,which isphenomenal.
The CHAIRMAN.That'
s very reas
surin
g.
Mr.LAWARE.I'm withyou,Mr.Chairma
n.
The CHAIRMAN
. What areyourviewson thequestion
ofthede
sirability
ofseparation
ofbanking
andcommerce
?They're
moving
,
asyouknow, verymuch inthedirection
of- especially
bigaggres
sive
corporations
havebeentrying
togetinto
S &L'sandtrying
to
getinto
banking
.
Mr. LAWARE .Thatworries
me .I don'tthinkwe understand
yet
wellenough
whattheimplications
ofthat
wouldbetomoveinthat
direction
atthispoint
. I wouldbe infavorofkeeping
thebarriers
betweenbankingand commerceuntilwe know more aboutit
.I
thinkit's
goingtobeoneoftheissues
,Iagree
.
PAYING
INTEREST
ON
RESERVES
The CHAIRMAN
. FormerFDIC ChairmanIsaacs
hasproposed
a
restructuring
of the Federal
Deposit
Insurance
Systemwhich
wouldusefundsfromtheFederal
Reserve's
interest
earnings
on its
open
market
portfolio
topayfor
therecapitalization
ofthe
Savings
and Loan Insurance
Fund, provided
the banks at a laterdate
would receive
interest
on reserves
.
Do you believe
itisadvisable
to pay back interest
on theirre
serves?
Mr.LAWARE.Well
,thelack
of payment
ofinterest
on reserves
is
really
a hiddentaxon thebankingsystem
.
TheCHAIRMAN
.Well
,theyought
topaysometax
.Theydon't
pay
verymuch really
.
Mr. LAWARE .We payourtax.
You knowthatthebanksinMassachusetts
arethehighest
taxed
by theState
ofany State
intheUnitedStates
?And it's
aThe CHAIRMAN.Well,you don'tpay verymuch really
inFederal
income
taxes
. Theypay aboutasmuch as theyfeel
theyshould
from a PR standpoint
.
Mr.LAWARE.I won't
accept
thatformy bank
. Ifyou'll
lookat
therecord
,I thinkyou willfindwe pay ourtaxes
, ourfairshare
.
The CHAIRMAN.So doesyouranswermean thatyou thinkthatit
wouldbeadvisable
topaybanksinterest
ontheir
reserves
?
Mr. LAWARE. No , I didn't
mean to make a blanketstatement
like
thateither
. Itisa question
ofwhereyouwanttoallocate
the
taxburden
. Ifyoupay banksinterest
on their
reserves
, then
there's
goingtobe lessmoney turnedoverthe Treasuryby the
29
Federal
Reserve
System
,andthey'll
havetopickup thatshortfall
in revenuesomeplace
.
The CHAIRMAN. Well, do you favorusingthe resources
of the
Federal
Reserve
Systemtobail
outthesavings
andloanindustry
?
Mr. LAWA RE .No ,sir
.
The CHAIRMAN.You'reopposedtothat?
Mr. LAWARE .Yes, sir
.
The CHAIRMAN . Wh y ?
Mr.LAWARE. Well,theFederal
Reserve
hastolendagainst
ac
ceptable
collateral
, and thestandards
forthatcollateral
arewell
spelled
out
,andI'mnotsurethere's
thatkindofcollateral
avail
ablein theS& L industry
.
TheCHAIRMAN
. Yes
,butwe havea terrific
problem
.We had
hearings
before
thiscommittee
, and thelatest
estimates
,evenafter
thehearings
, were thatthebailout
isgoingto havetocome,it's
inevitable
,andthatitwill
be between
$25billion
and$75billion
.
themoney come from?
Whereshould
tothatone.
answer
Mr.LAWARE.IwishI hada quick
itshould
notcomefromtheFeder
saying
.You're
The CHAIRMAN
, however.
alReserve
Mr. LAWARE . That'scorrect
.
TheCHAIRMAN
.Well,ifitdoesn't
comefromthere
,do we appro
priate
$25 billion
to$75 billion
and thenjustrun up thedebtthat
much or increasetaxes?
Mr. LAWARE. Either
that
or provide
someotherway that
the
FSLICcanfunditself
.Thatis
,either
perhaps
guarantees
thebor
rowing
The CHAIRMAN
.We'vegoneawfully
fardownthatroadalready
,
as you know .
Mr. LAWA RE .I understand,sir.
The CHAIRMAN
. Wouldwe impose
now a premiumofone-eighth
on topoftheone-twelfth
-inaddition
totheone-twelfth
thatthey
have topay on theirdeposits
, terrifically
burdensome
forthe
S &L's
,thehealthy
S& L's
?
Mr.LAWARE. Thereisa variety
of solutions
orpartial
solutions
thathavebeen proposed
likerisk
-related
premiums
,but that's
almost
counterproductive
because
theonesthatareintrouble
are
theones
least
abletopaymore.Sothatdoesn't
soundright
.
TheCHAIRMAN
.Well
,shouldn't
we promptly
insist
thatanynew
insurance
ofdeposits
canonlygotoaninstitution
whichcomplies
withFederal
restrictions
on investment
? You see,we havea situa
tion
whereCalifornia
andTexas
, particularly
, haveveryloose
re
strictions
.InTexas
,Iunderstand
,theS & L's
canevengetinto
equi
ties
.Theycangetintoallkindsofrealestate
ventures
,and soforth
.
And therisks
areveryhigh
. And atthesametime
,95percent
of
theirliabilities
areinsured
.
Mr.LAWARE.One ofthefallouts
ofthedualbanking
system
is
thatyouhavethese
banksthatarechartered
by andoperate
inin
dividual
States
and theStates
feel
thattheyhavetheright
toregu
lateto some extentwhat thebanks in thatStatecan do.
The CHAIRMAN .Well,lettheStateinsurethem.
Mr.LAWARE.I thinkthatwe may be headedtoward
thepoint
thatinordertobe eligible
forFederal
insurance
,thatyou haveto
havesomelevel
ofcompliance
withFederal
standards
.
88-455 - 88 - 3
-
30
TheCHAIRMAN
.And hadn't
we better
veryrapidly
,because
this
isgetting
worseby themoment ?
Mr. LAWARE. I wouldnotbe in favorofthe dissolution
ofthe
system
dualbanking
.
The CHAIRMAN. Well, neither
wouldI,butitwouldjustseem to
me thatifwe aregoing
toprovide
deposit
insurance
,we oughtto
justinsist
on investment
standards
thatotherwise
we arejust
goingtobe constantly
bled
. The estimate
now iswe arelosing
$ 13
billion
a year
,basedon thelosses
inthefirst
quarter
forS & L's
.
That is$1 billion
a month.
Mr. LAWARE.As Senator
Dirksensaid
, thatbegins
tosoundlike
realmoney .
TheCHAIRMAN.Right
.
UnitedStates
current
accountdeficits
for1988are likely
tobe
wellover$130billion
.At thesame time
,many experts
aresuggest
ingwe stabilize
the dollar
at current
levels
. The dollar
haseven
riseninrecentdays.
How willtheUnitedStates
and therestoftheworldadjust
to
eliminate
oratleast
drastically
reduce
theU.S.trade
imbalance
,if
thedollar
doesnotdecline
anyfurther
?
Mr.LAWARE.Well
,theother
partofthat
,ofcourse
,istheinfla
tionary
pressure
. Ifthedollar
goesdown significantly
moreand
thatcreates
a further
demandonourability
toproduce
whenwe're
already
operating
at 83 percent
ofcapacity
, I thinkyou'dhave
inflationary
pressures
severe
.
The CHAIRMAN
.Yes, butthatwasn't
my question
. The question
goesbackup again
is
,whatifthedollar
?
Mr.LAWARE.Ithink
thatwe havetobealert
tonothaving
itgo
up sohighthatitreverses
thefavorable
trend
inourtrade
balance
that
hascomeabout
,atleast
partially
,because
ofthedecline
.
The CHAIRMAN
.So we havetoproceed
on kindofa knife's
edge
there.
Mr.LAWARE.Yes,sir
.And thestability
ofthedollar
isprobably
the bestanswer .
THE
BAKER
PLAN
country
debt
The CHAIRMAN. Now theBakerplanfordeveloping
.
in thedebtorcountries
. First
, the adjustment
parts
hasthree
,and
capital
, and third
financial
, injections
ofmultilateral
Second
by banks. And
, new lending
thisiswhat I want toaskyou about
.
tohavebeenforthcoming
doesn't
appear
third
part
that
You've
hadveryimpressive
experience
as a banker
. Wouldyou
please
explain
why bankshavebeenreluctant
to adhereto their
portion
oftheBakerplan?
Mr. LAWARE. I thinkthebigbankshavegenerally
gonealong
withit
.Theyhavethebiggest
stake
, obviously
, andtheyhavethe
mostsophisticated
understanding
oftheproblem
andtherealiza
tionthatfreshmoney inevitably
has togo in there
. The smaller
participants
, some oftheregional
banksand some of thelocal
bankswho gotinthrough
participations
andsyndications
, arebe
wildered
by thefactthattheyarebeingcompelled
tothrowwhat
theyconsider
goodmoneyafter
bad.
31
So therehas been a considerable
amount of resistance
from
smallerbanks and regional
banks to thosecallsforadditional
funds
.Thosearethebanksthattendtobe,asI outlined
inanswer
toan earlier
question
, theoneswho aretrying
togetoutofthose
loansnow, and theyaretheonesthathavetakenthe bigreserve
hits
,andtheyaretrying
tomanagethose
portfolios
down.
The bigger
fellows
believe
thatthismoney will
allbe collected
in
the final
analysis
, and theyhavebeen more willing
to make the
additional
investment
togivethese
countries
theturning
around
timethattheyneed.
Itishardtofault
either
strategy
,and Ithink
itisjust
going
to
thateverybody
isn't
goinginlockstep
beinevitable
.
The CHAIRMAN. Mr.La are, you area ver
y, veryimp
ressi
ve
cand
idat
e forthe Fede
ralReser
ve Board. You arethe first
person
I've
seen inthe30 years
I havebeen on thi
scommi
tteewho has
made more than,asI countthe
m , at least
75 separ
atecont
ribu
tions
topolitic
alcandida
tesforoffice
. Imade my first
con
tribu
tion
toa candidat
e foroff
icejustthislastweek,thefirs
t one I've
made
in30years— itwasn
'tmade tomyself.
Maybeyoucangiveussomehelp
.Youare obviously
a fine
citi
zenand a veryhonest
person
.Do youthink
thatoursystem
ofrais
ingthousands
ofdollars
frompeople
who havesomeinterest
inleg
islation
needstobe reformed
effectively
, and do you haveany rec
ommendations
on how we should
do it
?
Mr.LAWARE. I thinkitisveryunfortunate
, Senator
.
The CHAIRMAN
. You thinkitisveryunfortunate
. Comingfrom
you,that's
veryinteresting
,because
youarea realist
,andyourec
ognize
that's
theway thegame isplayed
.
Mr. LAWARE . Thatiswhy youread 75or 80 different
contribu
tions
there
overa period
of8 or9 years
.That's
theway thesystem
works
.Thosecontributions
,bytheway,arenotmadeinconnection
with specific
piecesof legislation
but ratherwithconcern for
having
qualified
people
inoffice
, andyouwill
notethattheyare
notallforonepartyorthe other
.
The CHAIRMAN
. Well, they're
mostly
Democrats
, whichspeaks
wellforyourjudgment
.(Laughter
.]
Mr. LAWARE .And my regi
strat
ion,sir.
The CHAIRMAN.But youthinkthatisthemotivation
ofmostcon
tributors
?
Mr. LAWARE. No. No , I really
don't
. Obviously
, political
action
committees
andorganizations
like
thatdistribute
campaign
funds
intheir
own self
-interest
. Thatistheway thesystemhas evolved
andthat
seemstobe theway itworks
.Thatdoesn't
mean anyof
us have to likeit
, and leastofall
, probably
the candidates
who
havetoraise
themoney torun theseexpensive
campaigns
.
You area notable
exception
tothatatanylevel
ofgovernment
thatI am awareofand tobe congratulated
, butmostcandidates
don't
havetheimpeccable
record
thatyouhavethatenables
youto
without
spending
money.
getreelected
The CHAIRMAN
. Well
, youknow, I am absolutely
convinced
that
at least
two-thirds
oftheMembers oftheSenatecouldrun forre
election
without
spending
a nickel
,andtheywouldwin.The advan
tagesof incumbencyare colossal
. You have a million
a yearfor
your staff
; you have anothermillion
bucks to send out newsletters
32
to your constituents
. You have almostunlimited
accessto the
media
, whichyouropponent
doesn't
have
. You havea record
of
having
run.People
, oncetheyvoteforyou,they're
likely
to do it
again
, justoutofhabit
, ifnothingelse
.You havecolossal
advan
tages.
And thenin addition
tothat
, you come up withtwice— asmost
incumbents
do,twice
asmuch moneyasyouropponent
. Itisalmost
having
thetenure
ofa college
professor
.You're
inforgood
.
Letme just
asktwomorequestions
, sir
.I knowI've
keptyou a
longtime,butthese
are,Ithink
,important
.
Mr.LAWARE.I'mhaving fun.[Laugh
ter.]
MERGER
MANIA
The CHAIRMAN. First
, the merger mania. Merger mania is
swamping
America
,an unprecedented
debt
.Mostofthis
debtisin
theformof immediate
and long
-termdebt
.Hostile
takeover
financ
ingbeginswithshort
-termbank loans
.
What isyourviewofthis
debtproblem
?What cantheFeddo to
addressit, and do you favormore activist
enforcement
of the
margin rules
?
Mr. LAWARE. Well, I'm worriedabouta lotof the huge debts
thataretakenon by thesecompanies
,intermsoftakeovers
and in
termsofsomeoftheleveraged
buyouts
. Idon't
think
thatyoucan
condemntakeovers
buyouts
simply
oryoucancondemnleveraged
because
someofthemareextreme
.What happens
,typically
,inone
ofthese
high
-cost
debt
-financed
takeovers
ofone firm
byanother
is
thedebtlevel
resulting
after
theconsolidation
issoheavythat
theystart
dismembering
thecompanythattheyfought
tobuyin
ordertopayitdown.
TheCHAIRMAN.That's
exac
tlywhatconcer
nsme.
Mr. LAWARE.And what worri
esme isthat
go inand they
. Even when people
The CHAIRMAN. Win or lose
has
thatprevails
, themanagement
who prevail
lose
it
,thepeople
, buy thecorporate
. Theyborrowmoney
gotten
in debtto do it
way.
ofthestock
andwinthat
stock
,biduptheprice
Mr.LAWARE. Or thecompanythat
defended
hastojustify
toits
shareholders
down ordefending
against
thereasonforturning
an
(
offer
whichmay havesounded
pretty
goodtotheshareholders
,and
so theyhavetogo outand create
a special
dividend
or a liquida
tion
ofsomething
togive
theshareholders
someadvantage
.SoIam
notsurethatin thelongrun whether
thatserves
management
goals
verywell
.Butthething
thatworries
me asa banker
is that
iftheyareverythinly
structured
, inother
words
, theleverage
is
)
toohigh
, and ifwe go intoa period
wherewe have a downturn
,
thentheability
toservice
that
debtmay notbethere
.
The CHAIRMAN. Extremelyvulnerable
, not onlythat
, but they
havea mandate toput thatmoney intopayinginterest
instead
of
research
and development
, instead
ofmanpowertraining
, instead
ofallthethings
thatwillmake them more competitive
. Investment
inbetter
equipment
andsoforth
.
.
notproductive
Mr.LAWARE.Itiscertainly
€
33
SUITAGAINSTSHAW MUT REGARDING ATM's
tion
.In December 1986 Bay
The CHAIRMAN. One otherques
ines.
g autom
aticteller
mach
ntrega
rdin
ustcom
plai
an antitr
d Shawmut andfour otherNew England banks with
Banks charge
Inits
suit
BayBanks
charged
thatits
competitors
sought
tore
strain
trade
, tomonopolize
the marketforautomatedteller
sery
ices
inMassachusetts
andtoemploy
unfair
methods
ofcompetition
,
unquote.
As oneexample
Bay Bankspointed
toa feethatShawmutwas
planning
tocharge
its
customers
whentheyusedother
ATM's.The
feewasgoingtobe a hefty
8 percent
ofthetransaction
fee
.This
planhasbeendropped
andthesuit
hasbeensettled
.
Nevertheless
, Mr. LaWare,theseproposals
suggest
exactly
what
Bay Bankscharged
.
suit
?
inthis
defense
Can you expandon Shawmut's
Mr.LAWARE.We thought
thesuit
had no merit
. What we had
doneinconjunction
withbanks
in Connecticut
andother
banksin
Massachusetts
and New Hampshirewas toforman ATM network
wherethecardholders
fromany ofthebanksthatweremembersof
the association
coulduse the ATM's of any othermember. Bay
Bankswas invited
tojointhisprocess
,buttheyfelt
thattheywere
at a disadvantage
, iftheyjoined
, thattheywouldbe giving
up
more thantheywould be getting
from membership
, because
they
hadthelargest
proprietary
arrayofATM's inNew England
, and
thattheholders
ofotherbankswouldbe using
their
ATM's, and
properly
compensated
theywouldn't
begetting
forit
.
Theytried
to
, inouropinion
,sir
,slowdown theprocess
ofthe
formation
ofthis
new network
by bringing
this
suit
.Thesuitwas
settled
,theywithdrew
thecomplaint
, andI think
that's
all
ancient
history
. Idon't
think
that-certainly
, ourlawyers
felt
there
wasno
meritin the antitrustaccusations
.
The CHAIRMAN
. Ifthere
was no merit
,why didtheydropthe
suit ?
Mr.LAWARE.Probably
theyrealized
there
wasn't
anymerit
toit
either
.
The CHAIRMAN
.Why didtheydropthefee
?Why didShawmut
dropthe fee?
sucha problem
thatifthefeecreated
Mr.LAWARE. We decided
,thenitwascoun
aswell
outofthenetwork
mightstay
thatothers
thesame kindof
,becausethewholeideaistocreate
terproductive
.You canuseyour
cards
environment
thatwe havenow forcredit
, and we wanted
cardanywherewithany bank'smerchant
credit
with debitcardsto be ableto use an ATM thatbe
our cardholders
with
provide
theconsumer
theycould
longed
toanybank,so that
. And ifthefeewas goingto
ofthatkindofservice
theconvenience
and
tothatandkeepbanksfromjoining
becounterproductive
makingtheir
ATM'savailable
,thengiveitup.
TheCHAIRMAN
.Thankyou,sir
. Thankyouverymuch.
Mr. LAWARE. Thank you, Mr.Chairman
.
The CHAIRMAN .The committeewillstandin recess
.
[Whereupon
at12:30
p.m.
,thehearing
wasadjourned
.]
[Additional
material
supplied
fortherecord
follows
:)
34
STATEMENT FOR COMPLETION BY PRESIDENTIALNOMINEES
>
Name :
LaWare
John
Patrick
NOT
(OTMERO
D
Pos
Dateof
ition
towhich
nominated
: Governor
, Federal
Reserve
Board nomination :
Date
ofbirth
: 20
(DAV
Marital
status
:
Name and ages
of children
:
02
28
CONTIN
Columbus
, Wisconsin
, U.S.A.
Full
nameof spouse
:_Marger y Ann Ninabuck Laware
John Kevin
Margaret
Education
:
Place
ofbirth
:.
CTWO
Marrie d
Ann
31
29
Date s
attended
Institution
Degrees
Datesof
received
degrees
Harvard University
1946-1950
B .A.
1950
University of PA
1950-19
M .A.
1951
New York University
1954-1956
Harvard
Business
School
Advanced Management
Program
2 /75-5/75
ate'75
Certific
Honors
andawards
: List
below
all
scholarships
,tellowships
,honorary
degrees
,military
medals
,honorary
society
memberships
,andanyother
special
recognitions
for
outstanding
service
orachievement
.
Honorary Doctor Humane Letters, Suffolk University
MinutemanCouncilB.S.A.
, Distinguished
citizen
Northeastern University, College of Business, CEO of the Year
B'nai Brith-AntidefamationLeague, Outstanding Citizen
1
35
Memberships
:
membe
List
below
all
rships
andoffices
held
inprofes
sional
,fraterna
l,business
,scholarl
y.
ci
,cha
ritable
andotherorganiza
vic
tions
.
Omce held
(ifany)
Organization
S EE
ATTA CHED
Dates
L IST
Employment
record
: List
below
all
positions
held
since
college
,including
thetitle
ordescription
ofjob
,nameof
employment
,location
ofwork
,anddates
ofinclusive
employment
.
1.
U.S. Air Force, July, 1951-August, 1953, 2nd Lt.
2.
Chemical Bank, New York , October, 1953 -October , 1978
Startedin trainingprogram
; became LoanOfficer
;
rose to Senior Vice President in charge of Holding
Companyoperations
,
3.
Shawmut Corporation, Boston, MA (Bank Holding Company)
.
Joinedin 1978as Presidentand Director
Chairman
4.
and C.E.O.
1980 -Pres ent ,
Shawmut National Corporation, Boston , MA and
Hartford , CT
(Bank Holding Company )
ChairmansinceFebruary1988 (date thatoperations
commenced)
2
N
36
MEMBERSHIPS
AND_OFFICES
HELD
Shawmut National Corporation, Boston, MA and Hartford, CT
Chairma n
2/1988 to present
Bank HoldingCo.
, MA
Shawm
ut Corporatio
n, Boston
Bank Holding Co.
President
10/1978
Chairman
6/1980 to present
Shawraut Bank , N.A. , Boston, MA
Commercial Bank
President
Chairman
to 6/1980
10/1978 to 6/1980
6/1980 to present
Shawm
ut CreditCorporatio
n , Boston, MA
Di rector
10/1978 to present
Commercial Finance
ShawmutSecuri
tiesClear
anceCorporati
on (activi
ties
transferred to Hartford Trust Company, New York )
Trust Company Activities (inactive)
10/1978 to present
Director
Chairma n
6/1980
to pr esent
ShawrautFinancial Corporation,Boston ,MA
Sale of Commer
)
cial Paper (inactive
Director
Securities Compudata, Inc., Bosto
n , MA
Inactive Company
Director
Chairman
10/1978 to present
1/1979 to present
6/1980 to present
,MA
r ), Boston
ShawmutAssoc
porate
iationIncor
d (NewPa
Director
10/197 8 to pr esent
10/1978 to 1980
Inactive
President
Chairman
6/1980 to present
ShawmutBoston Intern
ation(formerly
ationa
l BankingCorpor
ShawmutInternational
Corporation
), Miami, Florida
11/1978 to present
EdgeAct Corporation Director
6/1980 to present
Chai rman
Americ
an AgCredi
t Corporat
ion,FortWorth, Texas
)
Agric
ultura
l Finance(inactive
Directo r
3/1980
to 11/1985
AtlanticInternational
Bank Limited
, London, England
England Offshore Bank
Alternate
Director
Director
Deputy Chairman
11/1978 to 11/1980
11/1980 to pres ent
6/19 83 to 9/19 85
e Finan
cial ServiceCorporatio
n , Boston
Devonshir
, MA
al-purpose Financi
al Company (inactive)
Speci
Director
President
C.E.O .
Chai rman
Atlanti
c Capita
l Limite
d , Hong Kong
OffshoreDeposit-takingCompany
Dir ect or
on, MA
Libert
ance Co., Bost
y Mutual Insur
Director
Casualty Insurance
Liberty Mutual Fire Insurance Co. , Boston , MA
Direct or
Casualty Insurance
11/1978 to present
11/197 8 to present
11/1978 to pre sent
6/1984 to presen t
8/1980 to present
5/1980 to present
5/1982
to present
37
Memberships and offices Held (continued )
Travele rs Real Estate Inve stment Trust , Boston , MA
Real Estate Investm ent Trust
T rustee
2/1984 to 1986
Travelers Realty Income Investors , Boston, MA
Real Esta te Inves tment Trus t
Truste e
6/1985
to 1986
The Equitable Life Mortgage and Realty Investors , Boston , MA
Real Estate
Investm ent Trust
Trus tee
1980-1
982
Associat
ion of Bank Holdi
ng Compani
es, Washing
ton, D.C.
Trade As sn .
Chairman
Direct or
United Way Of Massachusetts Bay, Boston, MA
Charitable
Chairm an
Direct or
Jobs for Massachusetts , Boston, MA
Publ ic Servi ce
Direct or
Massachusetts Business Roundtable , Boston , MA
Public Serv ice
Cha irm an
Director
Boston Aquarium , Boston, MA
Trustee
Aquarium
Boston Children's Hospital , Boston , MA
Vice Ch air man
Hospital
Tru ste e
Northeastern University , Boston , MA
Education
Vic e Cha irm an
Member , Finance
Co mmi tte e
Chairman , Finance
Committee
Mount Holyoke College , South Hadley , MA
T rus tee
Education
Ha rva rd Club of Bost on , Bosto n , MA
Soc ial C lub
Gov erno r
5 /1986- to 5/1987
1984 to pres ent
1 /1985
to
1/1 987
1984 to prese nt
1980 to present
5/1985 to 9/1986
1980 to prese nt
4/1981 to present
12/1983 to present
1980 to presen t
5/1985 to present
11/1981 to 11/1985
11/1985 to present
11/1983 to present
3/1986
to 3/198 7
Interbank Card Association, New York City
Credit Card Assn .
Dir ect or
1968 -19 72
Eastern States Bankcard Association , New York City
Credit Card Service Organization
Dire cto r
AmericanBankers Assoc
iation
on, D.C.
, Washingt
Trade As sociat ion
1968-1 972
1960 to present
Association of Reserve City Bankers , Washington, D.C.
Trade Asso ciatio n
1979 to present
Commit tee Member
Bank Marketing Association, Washington, D.C.
Member
Professional Assn .
1965-1 978
Commit tee Memb er
38
Membershipsand officesHeld (continued
)
Massachusetts Bankers Association, Boston, MA
Trade Association
Pa st
Chai rman
Coordinating Committee , Boston , MA
Pub lic Ser vic e
Past Chai rman
1978 to present
1980 to present
Massachusetts Business Roundtable, Boston, MA
Publi c Servi ce
Past Chairman
1980 to present
Boston Museum of Science, Boston , MA
1980 to present
Corpor ator
Museum
Boston Symphony Orchestra , Boston , MA
Overse
Orche str a
1980 to present
er
Harvard Business School, Alston, MA
Board of Ass ociate s 1984 to presen t
Ed ucatio n
International Financial Conference, Washington, D.C.
Public Policy Discussion Forum
Member
1982 to present
Special Commis
sionon Bird IslandFlats, Boston, MA
Pu blic Usa ge
Master Tax Commission
Committee
for Commonwealth
Member
1981
of Massachusetts
Studyof Tax Policyand Structure
Committee
Member
1983 to present
Massachusetts Taxpayers Foundation, Boston, MA
Nonprofit
Watchdog
AgencyforStateandLocalGovernment
to 1982
Director
Scarsdale Roundtable, Scarsdale, New York
Discussion
Group
Member
1979
1945-1946
Federal Advisory Council of the Federal Reserve System,
Member
12/1986 to 12/1987
Washington, D.C.
Federal Reserve Bank of Boston, Boston, MA
Director
1/1988 to present
Algonquin Club of Boston , Boston, MA
None
Social Club
1979 to present
Somerset Club, Boston, MA
Social Club
N one
1984 to present
The Country Club, Brookline , MA
Golf Club
None
1979 to pre sent
Sea Island Golf Club, St. Simons Island, Georgia
Golf Club
None
1987 to present
St. Simons Islan
s Island, Georgia
d Club, St. Simon
Golf Cl ub
None
Scarsdale Golf Club, Scarsdale, New York
Golf Club
N one
Fox Meadow Tennis Club , Scarsdale, New York
None
Racquet Club
Union Club, Cleveland, Ohio
Social
Clu b
Member
1987 to present
1963 to present
1962 to present
1976-1978
1
39
ment
Govern
experience
:
List
anyexperi
ence
inordire
ctassociati
onwit
h Federal
,State
,orlocal
governm
ents
,in
.
orpositions
.
,honorary
orother
part
-time
service
anyadvisory
,consultative
cluding
Federal Advisory Council of the Federal Reserve System (member )
Federal Reserve Bank of Boston (director ).
Bird Island Flats
Commissi on Boston , MA
r ).
(membe
Special Commission on Determination of Need Massachusetts (menbei
Master Tax Commission for Commonwealth of Massachusetts (member
Published
writings
:
List
thetitles
,publishers
anddates
ofbooks
,articles
,reports
orother
published
materials
ten.
you have writ
ks
ive forfailingBan
A ViableAlternat
0.P.ED. Page, New York Times, 22 June 1986
Political
affiliations
andactivities
: List
all
memberships
andoffices
heldinandservices
rendered
toall
political
parties
or
10years
.
committees
during
thelast
election
Registered Democrat,
No offices
held
no election activities.
40
Political
ons:
contributi
Itemize
all
political
contributions
of$500ormoretoanyindividual
,campaign
organiza
.
tion
,political
party
,political
action
committee
orsimilar
entity
during
thelast
eight
years
andidentify
thespecific
amounts
,dates
,andnamesoftherecipients
.
S ee
ons
Qualificati
:
List
Attac hed .
State
fully
your
qualifications
toserve
intheposition
towhich
youhave
beennamed
.
(attach
sheet
)
See Attached
Sheet .
Futu
ment
reemploy
relationships
:
1.Indicate
whether
youwill
sever
all
connections
with
yourpresent
employer
,business
firm
,association
ororganization
if
youareconfirmed
bytheSenate
.
Ye s
2.Asfar
ascanbeforeseen
,state
whether
youhave
anyplans
after
completing
govern
.
ment
service
toresume
employment
,affiliation
orpractice
with
your
previous
em.
ployer
,business
firm
,association
ororganization
.
None
3. Hasanybody
madeyoua commitment
toa jobafter
youleave
government
?
No
4.Doyouexpect
toserve
the
full
term
for
which
youhave
been
appointed
?
Ye s
41
4
POLITICAL CONTRIBUTIONS :
1
CitizensCommitteeto ElectFinnegan
07/18/79
07/07/80
12/01/80
$500.00
(Mayoral Candidate)
Massachusetts Bankers Association PAC
150.00
The Bulger Committee
250.00
(Massachusetts
SenatePresident
)
06/01/81
Friends of Larry DiCara
(Candidate in Mayoral Primary 1979)
Committee to Elect Barney Frank
(Candidate for Congress)
Committee to Elect Ed King
(Governor Candidate)
Committee to Elect John Brennan
(State Senate Candidate)
The Bulger Committee (State Senate
07/29/81
09/25/81
09/25/81
09/29/81
100.00
50.00
500.00
100.00
100.0 0
President )
10/26/81
Heckler CongressionalCommittee
(Candidate for Congress)
400.00
04/14/82
Committeeto Re-electTimothyBasset
100.00
(Candidate, State Legislature)
Committee to Retain William Q. MacLean
(State Legislature)
Friends of Ed King
(Candidate for Governor)
05/06/82
05/06/82
200.00
300.0 0
06/30/82
Heckler
10/13/82
(Candidate for Congress)
Barney Frank for Congress
500.00
10/15/82
(Fund - raiser Dinner )
Sears for Governor Committee
500.00
Committee
300.00
(Candidate for Governor, Massachusetts)
10/21/82
Committee to Re - elect Thomas P. O'Neill
(Candidate for Congress )
150.00
10/21/82
Committee to Re-elect George Keverian
(Candidate for State House of Representa
100.00
01/07/83
The Bulger Committee
tives )
(Massachusetts
02/01/83
05/02/83
.05/ 17 /83
200.00
Senate President )
The Bulger Committee
Barney Frank for Congress Committee
(U. S. Congressman, Massachusetts)
200.00
250.00
Tsongas for the Senate
500.0 0
(U. S. Senator from Massachusetts)
Terry McDermott Committee
05/18/83
150.00
(StateLegislator
)
06/15/83
08/16/83
.
11/10/83
Markey for Congress Committee
(U. S. Congressman, Massachusetts)
200.00
Committeeto Re -electKevin Fitzgerald
100.0 0
(State Legislator, Massachusetts)
Friends of
od Government
500.00
(BostonCoordinating
CommitteePAC)
12/26/83
Committee to Elect Ray Flynn Mayor
(Candidate for Mayor of Boston)
100.00
42
POLITICALCONTRIBUTIONS
(Continued
)
Page Two
03/06/84
03/07/84
Committee to Elect Mel King
(Candidate for Mayor
pay off debt)
The Larry DiCara Committee
$
200.00
200.00
e)
(Former Mayoral Candidat
04/19/84
D'Amours for Senate Commi ttee
250.0 0
(Candidate for Senate , New Hampshire)
04/20/84
05/24/84
Massac husetts Bankers Assn . PAC
Committee to Re -elect Thomas W. McGee
100.00
100.00
(Massachusetts Legislator)
fo r G overn or
07/02/84
Wick
07/02/84
(Candidate for Governor of Vermont)
Barney Frank for Congress
(Candidate for Relect
100.0 0
100.00
n)
07/11/84
Atkins for Congress Committee
(Candidate for Congress)
500.00
07/27/84
08/08/84
Massachusetts Bankers Assn . PAC
Tsongas Commit tee
(Senator )
150.00
500.00
09/18/84
10/12/84
Committee to Elect Andrew J. Rogers
100.0 0
150.00
10/18/84
Ray Shamie for U. S. Senate
(Candidate for U. S. Senate )
11/15/84
Friend s of Pau l Ki rk
Re -elect Nancy Johnso n
(Connecticut Candidate for Congress)
(Chairman of Democratic Party. Not
sure it constitutes political contri
500.00
1,000.00
bution )
12/28/84
Fall / 85
The Governor's Inaugural
(Sununu, New Hampshire)
Contributionto David Dinkins
150.00
250.00
(Candidatefor ManhattanBorough
Presidency
)
03/01/85
The Bulger Committee
(State Senate President )
Rep . Thomas Finneran Committee
(State Legislator )
Committee for State Senator John W. Olver
(State Senator )
100.00
06/03/85
Senator Slade Gorton Campaign
(U. S. Senator, State of Washington)
500.00
06/20/85
08/13/85
Shawmut Citizens Action Group PAC
500.00
Re-elect Nancy Johnson to Congress
(Connecticut Congresswoman)
200.0 0
09./11/85
Committee to Elect Raymond L. Flynn
200.00
03/27/85
05/03/85
100.00
100.00
(Mayor of Boston)
10/31/85
Friends of Good Government
03/18/85
g Committee PAC)
natin
(Boston Coordi
ies
ationof Bank Holding Compan
Associ
PAC
1,000.00
1,000.00
43
POLITICAL CONTRIBUTIONS (Continued)
Page Three
01/30/86
The Bulger Committee
(Massachusetts State Senate President)
Association of Bank Holding Companies
01/31/86
The Sununu Commit tee
03/11/86
BarneyFrank for Congre
ss
04/04/86
Represenatative
01/24/86
$
PAC
250.00
1,500.00
150.00
500.00
(Candidate for Congress)
Thomas Finneran Committee
100.00
(StateLegislator
)
04/15/86
Committee to Retain William 0. MacLean Jr. 100.00
05/12/86
(StateLegislator)
Raymond L. Flynn Committee
(Mayor of Boston)
100.00
05/16/86
Fund for America's Future
250.00
(George Bush)
06/13/86
Rudman for the Senate Committee
150.00
07/18/86
(Senator, New Hampshire)
The Doug Barnard Campaign
(U. S. Congressman , Georgia)
500.0 0
08/21/86
The
200.00
08/25/86
08/27/86
10/14/86
10/16/86
D' Amico
Co mmitt ee
(State Legislator, Massachusetts)
Re-elect CongresswomanNancy Johnson
(Connecticut Congresswoman )
Friends of Good Government
(Boston Coordinating Committee PAC)
The Olver Committee
(Massachusetts State Senator)
Jim Shannon State Committee
100.00
250.00
100.00
200.00
(Candidate for Attorney General)
10/22/86
Committee to Re -elect Governor Sununu
(Governor of New Hampshire)
01/12/87
The Bulger Committee
250.00
100.00
(Massachusetts Senate Presiden
cy)
02/17/87
Association of Bank Holding Companies
PA C
03/06/87
04/03/87
04/09/87
05/15/87
06/10/87
The Thomas Finneran Committee
(Massachusetts State Legislator)
Dukakis for President Committee
The Blanchette Campaign Committee
(Massachusetts State Legislator)
Raymond L. Flynn Committee
(Boston Mayor)
J oh n Bur ke Co mm itt e e
(State Legislator)
06/23/87
Ed Markey for Congress
1,500.00
100.00
1,000.00
100.00
100.00
100.00
125.00
(U. S. Congressman, Massachusetts)
10/21/87
The Sununu Committee
150.00
(Governor of New Hampshire)
03/08/ 88
Committee to Re -elect Robert Q. Crane
(Massachusetts State Treasurer )
125.0 0
44
1
QUALIFICATIONS
I have been a banker for thirty-four years, with
extensive experience in consumer, commercial, real estate
and international
lending
, assetand liabilitymanagement
,
mergersand acquisitions
, consumer
affairs
, andcommunity
,
governmentand regulatoryrelations
. During a significant
portion of my career , I have had senior executive
responsibility
for bank and bank holdingcompany
operations
, includingsubsidiary
management
, general
managementat the chiefoperatingofficerlevel, and
strategicplanningand development
.
During the period from 1980 to 1988, I served as
chairman and chief executive officer of a major regional
financialinstitution
and have been activelyinvolvedfrom
a private perspective in the public policy issues affecting
banks and bank holding companies. As a member of the
FederalAdvisoryCouncilof the FederalReserveSystem
(since 1986) and the Board of Directors of the Federal
Reserve Bank of Boston (since January of 1988). I have had
the opportunityto considerthesesame publicpolicyissues
from the perspective of the Federal Reserve System.
I believe all of this experience is relevant to
the various roles of the Board of Governors of the Federal
1
1
45
ReserveSystemin its activitiesrelatingto monetary
policy and regulation. An intimateunderstanding
of the
structure and operation of the banking system should be a
valuablecontribution
to the Board in the years ahead, at a
time when the bankingsystemmay be under significant
pressure .
46
Potential
conflicts
of interest
:
compensation
orother
arrangements
ordeferred
agreements
anyfinancial
1.Describe
continuing
dealings
withbusiness
associates
,clients
orcustomers
whowill
beaf
.
focted
bypolicies
which
youwill
influence
intheposition
towhich
youhavebeen
nominated
.
No ne
2.List
anyinvestments
,obligations
,liabilities
,orother
relationships
which
might
involve
potential
conflicts
ofinterest
with
theposition
towhich
youhave
beennominated
.
Shawmut
Stock
Chemical Stock (held by Wife )
Chittenden
Bank Stock
3. Describe
anybusiness
relationship
.dealing
orfinancial
transaction
(other
thantax
.
paying
)which
youhavehadduring
thelast
10years
with
theFederal
Government
,
whether
foryourself
,on behalf
ofa client
,oracting
asanagent
,that
might
inany
wayconstitute
orresult
ina possible
conflict
ofinterest
with
theposition
towhich
you
have
beennominated
.
Because
of my present
position
as Chairman
of Shawmut
National
Corporation
, a bankholding
company
thatis
regulated
by the FederalReserveBoard, a questionmight
arise regarding a conflict of interest due to my financial
interestin ShawmutNationalCorporation
or an appearance
of conflict due to my past association with Shawmut.
47
4. List
anylobbying
activity
during
the
past
10years
inwhich
youhave
engaged
for
the
purpose
ofdirectly
orindirectly
influencing
thepassage
,defeat
ormodification
of
any
legislation
atthe
national
level
ofgovernment
oraffecting
the
administration
and
execution
ofnational
laworpublic
policy
.
See Attached
List
5.Explain
howyouwill
resolve
anypotential
conflict
ofinterest
that
maybedisclosed
by
nsestotheaboveitem
yourrespo
s.
Se e
Attac hed
S heet
Civil
,criminal
and
investig
atory
actions
:
1.Give
thefull
dciails
ofanycivil
orcriminal
proceeding
inwhich
youwerea defendant
oranyinquiry
orinvestigation
byaFederal
,State
,orlocal
agency
inwhich
you
were
.
thesubject
oftheinquiry
orinvestigation
None . Information regarding investigationsof Shawmut.
Bank, N.A. and Chemical Bank, but in which I was neither
a defendant nor a subject is attached for the information
of
the
Committee
.
2.Givethefull
details
ofanyproceeding
, inquiry
orinvestigation
byanyprofessional
association
including
anybarassociation
inwhich
youwerethesubject
ofthepro
ceeding
,inquiry
orinvestigation
.
None
48
TESTIM ONY
In 1970, I appearedbeforethe HousePost Office
Committee on behalf of the American Bankers Association
regardingcreditcard legislation
.
In 1986, I appearedbeforethe HouseBanking
Committee on behalf of the Association of Bank Holding
Companiesregardingthe financialservicesholdingcompany
concept .
In 1986, I appeared before the Subcommitteeon
Commerce, Consumer and Monetary Affairs of the House
Committee on Government Operations on behalf of the
Associationof Bank HoldingCompaniesregardingproposals
for restructuring
the financialservicesindustry
.
In 1987, I appearedbeforethe SenateBanking
Committee on behalf of the Association of Bank Holding
Companies regarding proposals for restructuringthe
financial services industry .
In 1987, I appearedbeforethe Subcommittee
on
International
Economic Policy , Trade , Oceans & Environment
of the Senate Committee on Foreign Affairs. I appeared at
the request of the SubcommitteeChairman to present my
49
on general
views as the Chairmanof ShawmutCorporation
issuesrelatingto trade legislation
.
Duringthe past 10 years, in my capacityas a
seniorofficerof ShawmutCorporationand ShawmutNational
Corporation, I have had periodic contacts with Senators,
Congressmenand theirstaffswith respectto legislation
affectingor potentially
affectingthe bankingindustry
.
50
RESOLUTION OF POTENTIAL CONFLICTS OF INTEREST
Item
1
I will terminateall financialrelationships
with
Shawmut National Corporation prior to assuming office.
If
permitted
, I will retainsupplemental
healthcoverage
availabletoretired ChemicalBankingCorporation
employees under a plan administered by Metropolitan Life
HI
ME
Insurance Company .
Item
2
I will dispose of all stock listed under Item #2
prior to assuming office.
23
Item 3
SO
64
To eliminateany potentialconflictsof interest
arising from my financial interests in Shawmut National
Corporation, I will terminate all such interests prior to
assuming office. To eliminate any potential appearance of
conflict, I will recuse myself from any matter involving
Shawmut for one year after taking office.
Item
4
I willterminate
membership
in organizations
under Item #4 prior to assuming office.
51
CIVIL , CRIMINAL AND INVESTIGATORYACTIONS
ChemicalBank, in about1977, pled guiltyto
several misdemeanor
chargesin connectionwith a money
launderinginvestigation
of severalbranches
.
I had
no
responsibility
forChemical's
branchoperations
duringmy
employment with Chemical.
voluntary
As a resultof ShawmutCorporation's
disclosure of failure to report certain cash transactions
in excessof $10,000
, ShawmutBank, N.A. paid a civil
settlementof approximately
$295,000
. Following the
voluntarydisclosure
, the U.s. Attorneyin Boston
, but no chargeswere
initiateda criminalinvestigation
brought .
52
RD
COA OM
OF GOVERNORS
OF THE
BOARD
RESERVE
FEDERAL
SYSTEM
WASHINGTON,D.C.20551
COE ERY
RA!
RES
41
M ICH AEL BRA DFIE LD
G ENE RAL COU NSEL
15
11
Te
* 4
July 6 , 1988
13
i
The Honorable Frank Q. Nebeker
Director
Office of Government
P.O. Box 14108
Washington, D.C.
Ethics
20044
Re :
John Patric k Lawa re
Dear Judge Nebeker :
In view of President Reagan's nomination of John
Patrick LaWare to be a member of the Board of Governors of the
Federal Reserve System and the requirementsof 5 C.F.R.
$734.604(c)(2)(iii), I have reviewedthe finances, investments
,
and liabilitiesof Mr. LaWare and his wife, Margery LaWare, and
the business and other affiliationsof Mr. LaWare as reported
in his official filingwith this agency, in order to ascertain
whetherany factsor circumstances
existthat couldpresenta
conflict
of
interest with
the execution
of Mr. LaWare's
prospective
officialresponsibilities
as a Boardmember
.
In conducting this inquiry , I have had discussions
with Mr. LaWare , the Counsel to the President , staff members of
the Senate Committee on Banking, Housing and Urban Affairs,
your staff , and others .
I have examined various documents
required to be prepared and submitted by Mr. LaWare, all of
which he has now submitted , including his SF 278 Financial
DisclosureReport, filed with the Board and with your office
pursuant to Title II of the Ethics in GovernmentAct. This
report sets forth Mr. LaWare's and his wife's investments ,
income , liabilities , outside affiliations and activities and
other required information . A copy of Mr. LaWare's SF 278
financial disclosure report, certified by the Board's Ethics
5
3
-2
Official, is enclosed with this letter (Enclosure No. 1).
also
have
reviewed
materials
submitted
by
counsel
I
for
Mr. LaWare regarding the proposed resolutionof compensation
and benefitsdue Mr. LaWareunderhisemploymentagreement
with
Shawmut National Corporation
, Boston, Massachusetts ("SNC");
his current employer, and under various benefit plans of SNC
and its subsidiary
. ShawmutCorporation("Shawmut
"), and
Mr. LaWare'sformeremployer
, ChemicalBankingCorporation
, New
York, New York( "Chemical
"), as well as othermemorandaand
.
documents submitted to this office by Mr. LaWare's counsel and
the General Counsel and Secretary of SNC regarding these
matters .
Mr. LaWare has also advised me by letter of certain
actions
that
he has
taken
or will
take
in connection
with
his
nomination , including the divestiture of all bank and bank
holdingcompanystockand certainotherassetspresentlyowned
by Mr. LaWare .and his wife , Mr. LaWare's resignation from
positionswith bankingorganizations
, businessesand other
organizations
, recusals from certain matters that may come
before
the
Board ,
and
other
arrangements
.
A
copy
of
Mr. LaWare's letter is enclosed (Enclosure No. 2 ) . Mr. LaWare
has taken or will take all these actions to comply with the
requirementsof the Federal Reserve Act and other applicable
authorities
, including 12 U.S.C. SS241, 244 and 260, 18 U.S.C.
S9208
(a) and 209(a), and the voluntaryGuide to Conductfor
Senior Officials of the Federal Reserve System .
Based upon the foregoingreview
, I have reachedthe
following conclusions :
1.
Ownership of Bank Stock
The Federal Reserve Act prohibits Board members from
owning stock in a bank, banking institution
, trust company
(12 U.S.C.$244) or Edge corporation(12 U.S.C.$620).
Th e
Voluntary Guide to Conduct for Senior Officials of the Federal
Reserve System extends this prohibition to any affiliate of a
bank and to spouses and dependent children of Board members .
Mr. LaWare has advised me that, before he takes the
- oath of office , he and his wife will divest all shares of stock
they own in any such institutions
, includingSNC, Chittenden
Corporation , Burlington , Vermont , and Chemical , each of which
is a bank holding company .
Mr. and Mrs. LaWare will divest these bank holding
company shares by sale, gift to charity and to their adult
children , or by both sale and gift . If Mr. and Mrs. LaWare
elect to divest these shares by gift , they may decide to do so
54
-3
by transfer to an irrevocabletrust that will be administered
by an independenttrustee, probably a financial institution
.
Whether divestiture of these shares is by sale or gift or by
both sale and gift , it will be an irrevocable and complete
transferof Mr. and Mrs. LaWare's interestin these shares.
the
case
of dispositionby irrevocable trust, the trust
In
instrument
will grant authorityto the trusteeto administer
the trust in the trustee's absolute discretion .
If Mr.
ir revo cab le
trus t
and Mrs.
as
LaWare
des cri bed
elect
abo ve ,
to establish
I
will
rev iew
an
the
proposed trust instrument prior to its execution and before
Mr. LaWare takes the oath of office as a Boa rd mem ber
compliance with the above requirements .
I wi ll
for
also sub mit the
trust instrument to your Office for review .
Neither Mr. nor Mrs. LaWare has any equity interestin
an Edge Act corporation
.
2.
Marketable United States Government Securities
The Voluntary
Guideto conduct
prohibitsBoardmembers
States
government
owning any marketable United
securities . Mr. LaWare dnes not own any Treasury bills, notes
or bonds . He does own less than $5,000 in U.s. Savings Bonds,
from
which mature in September , 1988 .
Mr. LaWare plans to hold
these savings bonds until maturity. I do not view this holding
as inconsistentwith the VoluntaryGuide.
3.
Stock in u.s. Government Securities Dealers
The Voluntary Guide to Conduct also prohibits Board
members from owning stock in any U.S. government securities
dealers . As shown by his SF 278 financial disclosure report ,
Mr. LaWare does not own any such stock .
4.
Directorships
serving
The Federal Reserve Act prohibits Board members from
a
director of a bank , banking
officer
or
as
institution
, trust company, Federal Reserve bank (12 U.S.C.
$244) or an EdgeAct corporation
(12 U.S.C.$620).
The Federal
Reserve Act also requires Board members to "devote their entire
time to the business of the Board " (12 U.S.C. § 241 ) .
Mr. LaWareis presentlyservingas a
director
of
the
Federal Reserve Bank of Boston and of SNC and several companies
affiliatedwith SNC, includingan Edge Act corporation
. He has
informed
me
that
before
he takes
the
oath
of office
as a Board
1
55
-4
member , he will resign his position as a member of the boards
of directors of these companies . Following these resignations,
Mr. LaWare will no longer serve as an officer or director of a
bank , banking institution, trust company , Federal Reserve bank ,
or Edge corporation , or a holding company for any such
institution
.
Mr. LaWare is presently serving as a membe r of the
boards of directors of a number of other organizations , as
detailed in his SF 278 report .
He has advised me that , prior
to taki
ng the oathof offic
e , he will resi
gn from all positio
ns
with these institutions, except as discussed below.
5 .
Continuationas Trustee and ProspectiveChairman of Boston
Children's
Hospital
Mr. LaWare has decided to retain, in his private
,
Hospital
ofthe BostonChildren's
, his trusteeship
capacity
Children's
, and its affiliate , The
Boston, Massachusetts
the Office of
, and to assume
Medical Center Corporation
Chairman of the board of trustees this fall . He would receive
no compensation for these services . I have advised Mr. LaWare
that he may retain and assume these duties in his private
capacity without use of his official title or any official
and
working time or Board resources . Mr. LaWare understands
agrees to these restrictions .
The board of trusteesof Boston Children'sHospital, a
nonprofit organization
, meets once a month to consult with the
presidentof the hospitalwho is responsiblefor its management
and operations . The Chairman sets the agenda for these
meetings and serves as the presiding officer . When a vacancy
occurs in the office of president of the hospital, the board
also
selects
a
new
president .
The responsibility
of
the
Chairman, and of theboard as a whole, is policymaking and
consultative in nature, with occasional responsibilityfor
selecting
the president
of the hospital
.
Mr. LaWare has advised this Office that he would not
permithis serviceon the hospital's
board of trusteesto
with
the
discharge
of
his
manner
any
interfere
in
responsibilities
as a member of the Board of Governors . He
expectsthat his serviceto the hospitalwill requireonly a
limited amount of time, typicallyno more than one meeting of
the board of trustees per month, during which time Mr. Laware
would be accessibleby telephone. Based upon these assurances
,
I do not believe Mr. LaWare's service on the board of trustees
of the hospital would be inconsistent with the requirement of
the
Federal
Reserve
Act
that
Board
members
"devote
their
time to the businessof the Board..." (12 U.S.C. $241).
entire
56
-5
In
addition
to
its buildings
, furnishings
, and
equipment, the hospital'sassets consist of various parcels of
real estate
and securities .
The
securities portfolio is
managed, including all buy-sell decisions, by an outside
investment adviser . This outside company reports both to the
Investments Committee , a subcommittee of the hospital's Finance
Committee , and also directly to the Finance Committee .
The board of trustees of the hospital does not approve
11
hospitalinvestments and is not invo
lved with fund
-raising.
The outside investment adviser has full management of the
hospital's securities , subject only to the guidance of the
id
Finance Committee and the hospital's chief financial officer.
1
The FinanceCommitteeconsistsof hospitalofficials
,
three or four hospital "overseers ,
persons chosen for their
financialexpertise, and some of the trustees of the hospital.
The
chief
function of
the Committee
is to
review
the
performance of the investment adviser. The chief financial
officer of the hospital reports on budgets and investmentsto
both the Finance Committee and the board of trustees .
Mr. LaWare has stated that, during his tenure as
a
member of the Board of Governors , he will not serve on the
finance committee of the hospital or its affiliate . In order
to avoid having any connectionwith hospital investments
, Mr.
LaWare has agreed not to offer any investment advice to the
hospitalpresident
,not to participate
in discussions
or votes
about investmentpolicy or fund raising, and not to review, or
receive any informationabout, hospital investments
, including
the monthly report of the chief financialofficer to the board
of trustees .
Under the facts and circumstances presented here and
subject to Mr. LaWare's commitment to isolate himself from
knowledge, of or participation in the management of the
hospital's investments
, I do not believe that Mr. LaWare's
uncompensated services as a trustee of the hospital and his
prospectiveservice as Chairman of the board of trusteeswould
present a disqualifying financial interest under 18 U.S.C.
$ 208 (a).
Bas ed
upon the foregoing, and after
Mr.
La Wa re
completes the divestitures of bank stock and resignations
described above, it is my opinion that Mr. LaWare will have
complied with the requirements of the Federal Reserve Act, 12
57
-6
U.S.C. SS 241, 244 and 620; the Voluntary Guide to Conduct for
Senior Officials of the Federal ReserveSystem; and 18 U.S.C.
S 208 (a ) .
6.
Salary
Retirement , Pension
and Other Interests
As noted in Mr. LaWare's SF 278 report, Mr. LaWare
currently has certain rights under an employmentagreementwith
SNC and under various retirementand otherbenefit plans from
SNC , Shawmut , and Chemical .
Counsel
for
Mr.
Laware
has
submitted a memorandumto this Office describingthese various
benefit plans and the actions that Mr. LaWare proposes before
taking the oath of office as a Board
member
to
terminate
his
employment agreementwith SNC and his interestin these plans.
Mr. LaWare'sinterests
underthe agreementand benefitplans
and the actions he proposes to take
interests are discussed below .
A.
to
terminate
these
Lump -Sum Payment of Salary Under 5 -Year Employment
Agreement
On February 23 , 1988 , SNC entered into an employment
agreement with Mr. LaWare as Chairman of the institution. The
agreement
is for a term af five years and provides that upon
Mr. LaWare's termination from SNC's employment , he would be
entitled to the continuationof his salary for the remainderof
the term of the five-year agreement
, includingannual increases
of not less than the percentage increase approved for SNC's
salarystructure
for thatyear.
Counsel for Mr. LaWare has advised that Mr. LaWare
will relinquishhis rights under the employment agreement and
other SNC and Shawmut benefit plans and arrangements in
exchangefor lumpsum paymentsrepresenting
the balancedue him
for salaryand for pensionrightsand otherbenefitsunderthe
SNC employment agreement and benefit plans. In making the
calculations regarding the lump-sum payments for salary and
supplemental
retirement benefits ,
SNC has
assumed
annual
increases in salary over the remaining term of the agreement
equivalent to the average of salary increases for Shawmut and
Hartford over the past five years. These payments will be made
to Mr. Laware upon his terminationfrom SNC's employment. The
General Counsel of SNC has advised this Office by letter that
the manner of resolving specific benefits due to Mr. LaWare
from SNC is the same as or comparable
to the mannerin which
SNC, ShawmutCorporation
, HartfordNationalCorporation
, or
their affiliateshave resolved benefits due to other officers
upon their voluntary terminations .
58
-7
Mr. LaWare's employment agreement with SNC w as
negotiated in connection with the February 29 , 1988 ,
consolidation of Shawmut Corporation and Hartford National
Corporation to form SNC, the 22nd largest bank holding company
in the United States with assets of appr
oxima
tely $26 bill
ion.
In connection with that merger, Mr. LaWare, then the Chairman
and Chief Executive Officer of Shawmut , and Mr. Alvord , then
the President and Chief Executive Officer of Hartford , and the
two next most senior officers of Shawmut and Hartford (Mr.
Hamill of Shawmut and Mr. Overstrom of Hartford) agreed to
waive certain rights and employment arrangements they had with
Shawmut and Hartford . The Proxy Statement for the merger ,
published in October 1987 , states that it was anticipated SNC
would enter into new employment agreements with these four
indi vidua ls .
At
Resou rces
their
February
Commi ttee
of the
23 , 1988 meetings , the
SNC
boar d of dir ector s
and
Hum an
the SNC
board of directors considered and approved the employment
agreement for Mr. LaWare as Chairman of SNC , which he executed
the same day . Co unsel for Mr. LaWar e sta tes th at the
on
employment agreement for Mr. LaWare is, in general , identical
to those of Mr. Alvord , President and Chief Executive Officer
of SNC , and Messrs . Hami !' and Overstrom , each a Vice -Chairman
of
SN C .
The agreements with these individuals were
al so
approv
ed by the SNC Human Reso
urcesCommitt
ee and boar
d of
directors on February 23 , 1988 , and executed on that day .
Counsel states that the termination provisions of Mr. LaWare's
agreement differ from the comparable provisions of the other
three senior SNC officers in recognition of the fact that
Mr. LaWare would not be serving as chief executive officer of
SNC and his age .
The General Counseland Secretaryof
. SNC has advised
this Office by letter that he has reviewed the agreementsof
the four senior SNC officers and that they are substantially
identical , except in the following four areas . Under the
agreement , Mr. LaWare is entitled to salary continuation upon
his voluntary terminationfrom SNC for any reason. The other
three senior SNC officers are entitled to salary continuation
only if their employmentterminationis for cause, for example,
where the individual is not reelected to the board or his
duties are materiallydiminished. In addition, the employment
agreements for these individuals provide that the salary
payments they receive from SNC subsequent to their employment
terminationwill be reduced by any salary received upon
reemployment .
Mr. LaWare's agreement provides that his salary
from SNC will be not be reduced unless he is reemployedat a
higher base salary .
Mr. LaWare's employment agreement also
59
-8
providesthatSNC will pay to Mr. LaWarethe amountof any
excise tax he would be required to pay if payments due him
under the agreementare determined
to be subjectto federal
excise tax under section 280G of the Internal Revenue Code
(generallyrelatedto so-called"excessparachute
“ payments
).
Finally
, SNC's GeneralCounselhas advisedthat there
were differencesin the augmented retirementbenefits awarded
Mr. LaWare and the other three individuals under their
employment agreements . Mr. LaWare's increased benefitswere
determined
by a formulatiedto his currentsalaryas increased
from time to time asdescribedabove
, whereasthe otherthree
individuals
were creditedwith additional
years of service
.
The GeneralCounseladvisesthat thiswas donebecause
of Mr.
LaWare's seniority and closeness to retirementrelativeto the
other three individuals
. He states that the different
treatment
was accordedinorder to achieveapproximate
equity
among the four given the differencein age between Mr. Laware
and the other three individuals at the time the agreement was
entered into .
The SNC General Counsel has advised that the above
differences in the employment terminationprovisions of Mr.
LaWare's agreement and that of the other three senior SNC
officers were in recognitionof Mr. LaWare's age (60) relative
to the others and the fact that he would not be chief executive
officer of the combined organization
. The absence of a salary
mitigation provision was to negate any implicationthat Mr.
LaWare would, in the event of his employmenttermination
, have
an obligationto seek re -employment
.
Counsel for Mr. LaWare and the SNC General Counsel
have further advised this Office that the terms of these four
employmentagreements
were developedin the lastquarter
of
1987 and in early 1988 in consultationwith outside counselfor
SNC and a compensation
and benefitsconsulting
firm (Towers
,
Perrin, Forster and Crosby), which Hartford had used for ten
years prior to themergerto make recommendations
regarding
executive compensation based on an analysis of peer group
compensation arrangements and other factors . We are advised
that SNC followed this same general approach with respect to
the compensationof the four SNC senior officers, includingMr.
LaWare, utilizing largely Hartford personnel. The General
Counsel of SNC states that outside counsel advised SNC that the
four employment agreements
, including that of Mr. LaWare, were
withinthe normsof corporatepracticewith respectto such
agreements
and that Towers , Perrin advised SNC that the
package of compensation and benefits available to these
60
-9
individualsand the levels of compensationand benefitswere
within the range of compensationand benefitsprovidedby SNC'S
peers within the banking industry .
2
basic
The SNC General Counsel has also advised that the.
reason for th e employment agre em en ts w a s
the
consolidation of Hartford andShawmut and that the agreements
were authorized by the SNC board of directors and intended to
allow the four senior SNC officers to devote their full
attention to the operations of the newly consolidated
organization without any concern as to how they could be
IL
affected personally by the merger .
The precise level of salary to be paid these
individuals under their employment agreements approved and
executed on February 23, 1988, was not fixed in the agreements
,
but was establishedat the March 22, 1988 meetings of SNC's
Human Resources Committee and board of directors .
In addition,
at those meetings the Committeeand board of directorsapproved
compensationpackages, including stock options and restricted
stock awards , for these four individuals .
Counsel
has
2
advised
that at thatmeetingMr. LaWareand Mr. Alvordwere recommended
th at
th ese
for
identical levels of compensation and
compensation recommendations were essentially the same as those
considered by the Human Rvsources Committee at the February 23,
1988 meeting . The mi nut es of th e Ma rch 22 Com mit te e and bo ar d
of directors meetings indicate that Mr. LaWare and Mr. Alvord
I
received identical salaries , grants of stock options and
restricted stock awards . Tho se minu te s fur th er sh ow tha t
Mr. LaWare's salary and that of the other three senior
officials was raised by varying amounts with Mr. LaWare's
representing the smallest increase in absolute dollar terms
ov er
198 7 .
2
Materials submittedby counsel for Mr. LaWare to this
Office also indicate that Mr. LaWare's employmentagreementwas
negotiated
beforeMr. LaWarewas contactedby the WhiteHouse
Personnel
Officeregarding
his consideration
for serviceas a
member of the Board of Governors .
Counsel for Mr. LaWare has
indicatedthat Mr. Lawarewas firstcontactedby the White
House PersonnelOffice regardingthe possibilityof his
appointment
to the Boardof Governorsby telephone
on April1,
1988 ; that he received a written request for information
subsequently , dated April 2 , 1988 ; and that he met with various
officials in Washington, D.C. on April 19 and 27 , 1988 ,
regarding the appointment .
not until
there was
Counsel
for Mr. LaWare has also advised
that it was
mid -March
1988 that Mr. LaWare became
aware that
not an active candidate
under consideration
for the
1
61
-10
existingvacancyon the Board of Governors
.
At that time ,
counsel states that Mr. LaWare informally considered various
issues that might be involvedin connectionwith an appointment
to the Board of Governors, including the possible financial
impact . Counsel has advised that while Mr. LaWare discussed
the matter with various individuals at SNC , no outside director
and no member of the Human Resources Committee of SNC was
informedof the possibilitythat Mr. LaWare might be considered
for appointmentto the Board or that he might have an interest
in such an appointment
, prior to the publicationof an article
to that effect in the Wall Street Journal on April 22, 1988.
Mr. Laware has confirmed these statements and has
advisedthisOfficethathe was firstcontacted
by a memberof
the federal government regarding the possibility of the .
appointment to the Board on April 1 , 1988 .
He
has
further
advised that the benefits he is due under his employment
agreementwith SNC and SNC's retirementand other benefit plans
were negotiated before he was contacted by the White House
regarding appointment to the Board or considered such an
appointment, and that they are not intended to supplementhis
salary as a federal official.
The SNC General Counsel has advised that he was
directly involved on a day-to-day basis in the negotiation
,
drafting and executionof Mr. LaWare's employmentagreementand
those of the other three senior SNC officers , and that he
attended all meetings of SNC's Human Resources Committee and
board of directors at which the agreementswere acted upon. He
states that he was unaware Mr. Laware was under consideration
for appointmentto the Board until the middle of April 1988 or
of any indication
on the partof membersof the HumanResources
awareof such a possibility
priorto
Committee that they were
April 1, 1988.
B.
Lump_Sum Paymentof RetirementBenefits
Counsel
for Mr. LaWare
has also
advised
that
Mr. LaWare will receive, prior to taking the oath of office,
lump -sum payments representing an amount calculated to produce
the discountedequivalentafter-tax economic benefit he or his
survivorwould be due underShawmut'sSupplementary
Executive
Retirement Plan, dated January 1, 1985, as modified by
Mr. Laware's February 23, 1988 employment agreementwith SNC,
from the date of his employment termination until age 65 in the
case of the early retirement benefit. under the plan; and
continuingthereafter
for an assumedlifeof 20.3years( based
upon 1983 Group Annuity Mortality Table , single life ) in the
case of the supplemental normal retirement benefit under the
62
- 11
plan; and for an assumed 8.7 additional years (based upon 1983
Group Annuity Mortality Table, joint and survivor) in the case
of the supplementary survivor benefit under the plan.
C.
Prorated
Bonus
Pursuant to SNC's Annual Incentive Plan , members of
SNC senior management are awarded annual cash bonuses.
annual
bonus
for
Mr.
LaWare
is set
by
SNC's
Human
An
Resources
Committee on the basis of his performance during the preceding
year . Mr. LaWare will forfeit any entitlement for 1988 under
Plan .
this
Lump . Sum Payments For SNC Stock
Restricted
Stock Award Plan
D.
Option
and
SNC'S Stock Option and Restricted Stock Award Plan ,
the
to
successor
the
Shawmut
Performance
Share
Plan ,
was
approvedby the Shawmut and Hartfordshareholdersin connection
with the merger of Shawmut and Hartford into SNC. The Plan is
availableto senior SNC executiveofficers. On March 22 , 1988 ,
withstockappreciation
30,000options
Mr. Lawarewas granted
The exerciseprice of each
rights under the Stock Option Plan .
option is $23.875 . The closing price for SNC on July 1 , 1988 ,
was
$ 25.875 .
Becauseof the one-yearminimumwaitingperiod
prior to exercise of the options, it is doubtful whether
Mr. LaWare will exercise these options upon terminationof his
employment with SNC .
If he does not exercise the options
before terminatinghis employmentwith SNC, he will surrender
them
to SNC
at that
time .
Pursuantto this plan and subsequent
actiontakenby
SNC's board of directors on March 22 , 1988 , Mr. LaWare also
received an award of 27,000 shares of restricted SNC stock .
Under the EmploymentAgreement, SNC's Human Resources Committee
is required to take all actions necessary to provide for the
full vesting of the restrictedstock awards upon Mr. LaWare's
termination of employment with SNC .
The
SNC
General
Counsel
has advised that in recognitionof this contractualprovision,
the distribution of 27,000 shares of SNC will be made to
Mr. LaWare upon his termination from SNC's employ . Mr. LaWare
has statedthat, immediatelyafter receivingthis stock and
before he takes the oath ofoffice as a Board member, he will
divest these shares by sale, or by gift to charity or to his
adult
children .
63
- 12
E.
Lump.Sum Payments For Insurance
(i) Split dollar life insurance.
Under Mr. LaWare's
employmentagreement with SNC, and pursuant to a plan available
to the senior officers of SNC and its subsidiaries
, SNC is
required to maintain split-dollar life insurancecoverage for
Mr. Laware through February 22, 1993. The policy provides for
life insurance for Mr. LaWare until he reaches the age of 65 in
the amount of at least four times Mr. LaWare's
annual
compensation
. Afterage 65, Mr. LaWarehas a choiceof either
(I) receiving retirementpaymentsfrom SNC under the policy, or
(II ) continuing insurance coverage .
SNC owns the cash value of
the policyand is a beneficiary
underthe policyto the extent
of premium amounts paid by SNC.
At the time that Mr. LaWare resigns from the company,
SNC will make a lump sum payment to the insurance carrier of
its portion of the premium on the split-dollar life insurance
for coverage through February 22, 1993. At the same time ,
Mr. LaWare will pay the carrier his share of the premium for
insurance coverage until age 65 . Mr. LaW are wi ll also waive
his right to elect continued insurance coverage beyond age 65 .
In addition , SN
will make a lump sum payment to
Mr. LaWare in an amount that representsthe discountedpresent
value of the retirement payments SNC would have made to
Mr. LaWare, upon his election of retirementbenefitsunder the
insurancepolicy beginningat age 65.
Upon Mr. LaWare's death , SNC is entitled to receive
from the death benefitproceedsof the policythe lump sum
payments paid to the insurancecarrier and to Mr. LaWare at the
time of Mr. Laware'sresignation
fromthe company
.
I believe that the above arrangementsatisfies the
requirementof 18 U.S.C. S 209(b) in that it appears to be a
bona fide benefit plan from a former employer. The plan is
available to senior SNC executive officers, one of whom is Mr.
LaWare . Mr. LaWare is entitled to receive the life insurance
pursuant to his employment agreement , whether he remains in the
employof SNC or resigns
, and the continuing
insurance
isnot
linked to his prospective federal appointment
. Because SNC
will provide the insurancecarrier with a lump sum payment in
full for its obligations through February 22, 1993, thereby
severingits relationship
with Mr. LaWare
, the insurance
will
not be a "financialinterest
" in SNC for Mr. Lawarethatwould
bar his officialparticipation
in SNC mattersunder18 U.S.C.S
208 (a ) .
64
-13
(ii )
Medica l
Health
Insura nce .
Pu rsuan t
to the SNC
employment agreem
ent, Mr. La Ware is entitled to various
medical
an d
insura nce
health
benefi ts ,
which ,
up on
his
resignation from the company , he will waive to theextent that
similar coverage is provided by the Board of Governors .
compensate for medica l and healt h ben efits
To
Mr. LaWare presently has from SNC that would not be available
from the Board of Governors , if any, SNC will either give
an equivalent lump sum cash payment for these
Mr. LaWare
an alternative arrangement for benefits
benefi ts , or make
acceptable to Mr. LaWare and the Board of Governors . We wou ld
apprise your office of any such arrangements .
F.
Payment of Excise Tax Under $ 2806_of the Internal
Revenue
Code
Mr. LaWare's employment agreementwith SNC provides
that, in the event that payments and benefits provided to Mr.
LaWare under the agreement are deemed to be covered by the
so-called "excess parachute payments" in section 280G of the
InternalRevenue Code so that an excise tax must be paid, SNC
is obligated to reimburseMr. LaWare for the amount of any
excise tax incurred .
SN
and Mr. LaWare have consulted an
independentpublic accountingfirm to determinethe amount, if
any , that may be payable as excise tax pursuant to section 280G
of the
Internal
Revenue
Code .
Before
Mr.
LaWare
takes
the oath
of office , SNC will pay him a lump sum for the amount of excise
tax so determined , if any, or will place such amount in an
escrowaccountwith any overpayment
to be remitted
to SNC.
7.
Benefits Deriving From Employment by Shawmut Corporation .
A.
Lump Sum Payment for Benefits Under Shawmut
Corporation Employees ' Retirement Plan . The
Shawmut Employees' RetirementPlan is a qualifiedpension plan
that covers all Shawmut employees who have at least one year of
service and who meet other plan requirements
.
Benefits
are
subject to forfeiture upon termination of employment before age
65 with less than 10 credited years of service.
It
is not
likelythat Mr. LaWarewill satisfythe 10-year servicecredit
requirement (employment until October 31, 1988 , would be
required ) to qualify for regular retirement benefits under this
plan . Instead , these payments will be covered by the Shawmut
Supplementary Executive Retirement Plan ("SSERP ") , as amended
by Mr. LaWare's employment agreement with SNC, as described
above . If, however, service credit requirementsshould be met,
the amount due under the Shawmut retirementplan amount will be
65
- 14
paid out in a lump sum in a manner consistentwith the Plan,
and payments under SSERP and the employment agreement will be
reducedaccordingly
.
B.
Shawmut Performance Share Plan .
About 50 Shawmut
employees participatein this plan. Pursuant to the terms of
the plan, dated January 1, 1986, and its predecessorplan,
Mr. LaWare will receive an award of shares and cash (half and
half) based upon Shawmut'sperformancefor the period prior to
1988, and SNC's performancefor the part-year 1988 to his date
of resignation
. Actual performanceis measured against ROA and
ROE goalsestablished
in the plan, except
that on February18,
1988, the Shawmut CompensationCommittee decided to adjust the
goals for calendaryear 1987 to excludethreeextraordinary
items: LDC provisions
, merger expenses and Shawmut's pension
gains .
For part-year 1988 , ROA and ROE goals will be based on
SNC's current performanceforecast.
Mr. LaWare will receive the cash portion of the award
outright, and will divest the stock portion of the award,
approximately
7,400sharesof stock
, beforetakinghis oath of
office .
C.
Shawmut Thrift Plan . The Shawmut Thrift Plan is a
qualified plan, available to all employees with one year's
service
, that permitsdeferralof certaincompensation
for tax
purposes , with a matching contribution equal to one -half of the
first six percent of deferred compensation
. Under the Shawmut
Thrift Plan, employeesmay elect to leave funds investedin SNC
stock or one of two stock funds or to receive a lump sum
distribution of vested benefits . Mr. LaWare will receive a
lump-sum distributionof vested benefits, which will be placed
in an IRA rolloveror comparableaccount.
D.
Shawmut Employee Stock Option Plan ("ESOP " ).
The
Shawmut ESOP is being terminated for all employeeseffective
July 1 , 1988 . Distributionsof vested benefits are being made
as of
that
date .
Mr. LaWare's lump sum distribution of vested
benefits will be placed in an IRA rollover or comparable
account .
E.
Other
Benefits .
Pursuant
to
Mr.
LaWare's
employment agreement, he is also entitled to seven or eight
other benefits , which he will either waive or forfeit before
taking his oath of office as a Board member.
66
- 15
8.
Lump Sum Payments for Benefits from Chemical Banking
Corporation
A.
Retirement
Pension .
Plan
Mr. LaWare's
vested pension rights in
Chemical's retirementplan are for past services rendered to
Chemical , which services ended more than 10 years ago , and are
also in no way connectedto his appointment
to the Boardof
. Before taking his oath of office, Mr. LaWare will
receive a lumpsum distribution of vested pension benefits,
Governors
whichwill be placedin an IRA rollover
or comparable
account
.
B.
SupplementaryHealth Benefits. Participationin
Chemical'shealth insuranceplan is available to all Chemical
retireeswhose positionswere similar to the one held by Mr.
LaWare during his tenure at Chemical. Mr. LaWare will receive
a lump sum cash payment in lieu of his right to supplementary
medical benefits under the Chemical Bank RetirementPlan ; or,
if the lump sum payment is not feasible, then Mr. LaWare will
waive these benefits , if any .
CONCLUSIONS
Mr. LaWare's acceptance of the above-described lump
sum payments will sever
his relationships with SNC and
Chemical
, and he will have no other continuing
arrangements
with these banking organizations
, or with any other former
employer . For a brief period of time, Mr. LaWare will continue
to participate
in SNC and Chemicalmedicaland healthinsurance
plans in order to continue this protection for himself and his
wife .
Based upon the above submissions by counsel for
Mr. LaWare regarding the background and circumstancesof
Mr. LaWare's employmentagreement, the statementby the General
Counsel of SNC regarding that agreementwith SNC, the relevant
minutes of SNC's board of directors and Human Resources
Committee, and Mr. LaWare's statement, it is my opinion that
Mr: LaWare'sreceiptof the above
-described
payments
due under
the SNC employment agreement, related pension and otherplans
of
SNC
and
Shawmut ,
and
his
benefits
under
Chemical's
Retirement Plan were not intended as a supplement to his salary
as compensation for his service as a federal official and would
not , therefore , present a question under 18 U.S.C. $209 (a ) .
It is also my opinion that Mr. LaWare's receipt of
these payments will remove any "financial interest" Mr LaWare
may have in SNC or Chemical that could bar his prospective
g
d member in matters involvin
official participation as a Boar
these financial institutions under 18 U.S.C. § 208(a).
67
- 16
In order to avoid any appearanceof a conflict of
interest that may arise from any of Mr. LaWare's benefits from
a former employer or his present business or other
affiliations , however, Mr. LaWare will not, for a period of one
year followinghis appointmentto theBoard, vote on, or
participate in any discussionswith other Board members or
staff relatedto any particular
matterthat comesbeforethe
Board
for decision that involves SNC or Chemical or that
directly affectsor involvesany companyor organization
(other
than
the Reserve Bank ) that he has served as an officer,
director or trusteeduringthe last 12 months
, including
particularly SNC and its affiliatedcompanies. In addition
,
Mr. LaWare has advised that if he decides to give his shares of
SNC to his adultchildreneitherdirectlyor by establishing
an
irrevocable trust for their benefit, in order to avoid the
appearanceof such a conflictof interest
, he will not voteon,
or participatein discussionswith other Board members or staff
regarding, any applicationor other particular matter that
directly involvesSNC so long as the childrenor the trust held
this
SNC stock .
Accordingly , and ba sed u pon the act ions that
Mr. LaWare has already taken with regard to his investments and
outside activities, and commitments he has made in his SF 278
t and in the writte
n statemen
t concer
repor
ning divesti
tures
,
tions and recus
als, it is my opini
resigna
on thatMr. LaWar
e
wil
have
of of fice
satisfied, or will satisfy pri
as
a
member
of
to taking the oath
the Board of Governors , all
ents for eligib
ility to take this oath, otherthan
requirem
ativefilingrequ
nts.
certain administr
ireme
Sincerely ,
Michael/Beadfied
Enclosures
68
QuestionsSubmittedby SenatorD'Amato to Mr. LaWare
Nomination
Hearing
--July7, 1988
:
Question 1:
At the time of the Shawmut disclosure of
its failure to report cash transactions, what was your position
at Shaw mut ?
Answer :
I was Chairman of the Board and Chief
ExecutiveOfficerat ShawmutCorporationand Chairmanof the
Board and Chief ExecutiveOfficerof ShawmutBank of Boston,
N.A.
Question 2:
to dis close ?
Whendid you becomeawareof the failure
Answer : Neitherpast audits by Shawmut'sinternalor
externalauditors, nor in examinationsby the Office of the
Comptroller
of the Currency
, revealed
currency
transaction
reportingerrors. Afterthe publicdisclosure
in earlyFebruary
1985 that Bank of Bostonhad paid a fine for violationof the
Bank SecrecyAct, I directedseniormanagementto conductan
intensive
reviewof Shawmut's
own procedures
for complying
with
the BankSecrecy
Act. Throughthatreview
, whichwas begun
immediately
, we discovered
errorsin Shawmut's
procedures
for
complyingwith that Act.
69
-2-3
Questi
cipat
n to
on 3: Did youparti
e in thedecisio
make voluntar
y disclosur
e?
Answe
eredthattherehadbeen
r: When we discov
report
ent of Shawmutto makea
ing errors, I directedthe Presid
voluntar
sureof the res
ultsof therevie
w tothe
y disclo
Depart
Comptro
mentof theTreas
ury.
llerof theCurrenc
y andthe
This disclosu
re was madeon Febr
uary19, 1985.
Question4: Are youawareof the conclusions
of the
U.S. Attorney's
investigation
?
Answer
: Thestaffattorney
at theDepartment
of the
Treasury
whowasreviewing
Shawmut's
voluntary
disclosure
case
informed
Shawmut
inlate1986thattheinvestigation
bythe
Office
of theU.S.Attorney
fortheDistrict
ofMassachusetts
hadbeenconcluded
without
an adverse
finding
withregard
to
Shawmut Bank .
70
-4-5
on 5: The Federal Reserve Board currently finds
Questi
g contro
versyabout"mone
itself inthe centerof a wide-rangin
tary policy. Many industries are operating near capacity, and
ent is relativ
ploym
ely low in the countryin gener
unem
al. These
signals indicate a risk of inflation . Yet many believe that the
Fed's tightmoney policyof lastyear promptedtheOctob
er stock
marke t crash . What is your pers
onalbelief aboutthe econo
my's
immed iate future ?
Answer :
How should the Fed respond?
In many respects, we can be pleased with the
curr ent econ om ic sit uat ion .
The expansion has passed the five
an
and a half year mark and the prospects are highly favorable that
it wi ll co nti nu e .
One reason that we can be optimistic is that
we have not experienced the pickup in inflation that has
acc
omp
er econo
aniedoth
mic expansi
ever, I don'tthink
ons . How
we can be complacent about wage and price trends, given that
unemployment rates have declined this year to the lowest levels
in some time and labor markets have become quite tight in many
areas . Also, plantutilization
rateshavereachedhighlevels
in some major industries . And we cannot ignore the inflationary
risks that are presenttoday in the farm sector. It is impor
tantthatmonetary
policybe perceived
as a stabilizing
influence.
I do not believethatthe stockmarketexperience
of
lastfallshouldbe a seriousdeterrent
to monetary
restraint
,
if that were to be necessaryto check growinginflationary
2
71
-6-7
pressures
. Higher
interest
ratesmayhaveplayed
somerolein
the decline of stock prices after last August. But it is impor
tant to recognize
thatsharepriceshad climbedto unsustainable
levels . Whatevermay have triggeredthe Octoberbreak--and the
trade outlook
or taxandbudgetary
concerns
werecertainly
major
factors alongwith interest
rateworries
--was largelyincidental
t o
an inevitable market correction .
Question 6 : How would you assess theFed's performance
under Chairman Greenspan as compared to the Fed under his prede
cessor , Mr. Volcker?
Answer :
The Fed's performanceunder ChairmanGreenspan
has beenoutstanding
, justas it was underMr. Volcker
.
72
-8
Question 1: Do you believethat the currentregime of
federalfinancialservicesregulationcan be improvedby
centralization
of regulation
undera singleorganization
?
Answer : The highlyinte
grate
d natureof our financi
al
system sugge
sts the import
anceof coordin
ationamong the vari
ous
regulatory agencies that oversee financial institutions and
markets .
The need for such coordinationis underscoredby the
increasing
evidence
of overlapin functions
betweenproviders
of
securitiesand of bankingservices. Banks, for example, have
made the naturalextensioninto securitizedproducts, while
securities
firmshavecontemporaneously
undertaken
manyof the
activitiesthat have been traditionallythoughtof as unique to
banking. In light of this situation
, it may well be appropriate
to consider
ways thatcoordination
and cooperation
can be
strengthened .
However, I see no need at the presenttime for a
"super
-regulator
" or forthecentralization
of regulation
for
the entirefinancial
services
industry
undera single
organization
.
1
73
juestions
Submitted
by Senator
KarnestoMr. LaWare
NominationHearing-- July7, 1988
Question 1 :
Over the last several years there has been
rabletake
overacti
vityin the corpo
rateworld
conside
, and some
of it has been hostile in character . Banks have, for the most
part , been spared of this.
In your view, are hostiletakeoversbeneficialin
restructuring
American
industry
andhow doesthisrelateto
banks as takeovertargets
?
Ans wer :
Hostile
takeovers
can be beneficial
in
restructuringindustry
. Such takeoverssubjectpoorly or mar
ginallyperforming
management
to marketdiscipline
by offering
shareholders
an opportunity
to selectnewmanagement
. Since
bankingorganizations
are required
to competein financial
mar
ketswithothercorporations
, it is reasonable
thatmanagement
of bankingorganizations
shouldbe subjectto the sametypeof
discipline
. Prohibiting
hostiletakeovers
of bankingorganiza
tions could, in the long run, be detrimentalto the banking
system
because
of thegreater
likelihood
of entrenching
management
of poorly
performing
organizations
.
Contested
banking
acquisitions
should
notbe considered
to be fundamentally
different
fromnegotiated
acquisitions
. A
contestedtakeoversimplyindicatesthe targetcompanymanage
ment's oppositionto the offer. Theuncertainty
generated
by
management's
opposition
is justanotherfactorto be considered
in determining
whether
an acquisition
proposal
is in thepublic
interest
as required
by the BankHoldingCompanyAct.
The
Board'sapplication
procedures
enableit to evaluate
each
proposalon its own merits, and to imposeadditionalconditions
if necessary
(e.g., highercapitalization
) to ensurethe safety
and soundnessof the acquiredorganizationand the banking
sys te m as a wh ole .
74
-3
Question 2: As an executive and a director of a bank
onalregula
tionfirst
dingcom
pany
e seenfuncti
-hand
.
hol
, youhav
Do you believethatfunctional
regulation
worksand do
you
have anyfearsof whata "super
-regulator
" wouldmeanfor
the financial markets ?
Answer :
tiona
My exper
eststhat func
l
iencesugg
iate approach for
regulation is indeed a workable and appropr
izatio
t organ
ns are
ensur
ar activiti
es in differen
ing thatsimil
--regardl
superv
ess of the nature or
y and equitably
isedevenl
charter of the institution that carries out the activity.
ormit
Functi
y in the
ationcan helpto achieveunif
onalregul
o
te
tutio
offic
sightof financia
l insti
ns and can elimina
ial over
singfrom
ualit
etiti
iesari
unn
stifi
ve ineq
ecess
ed comp
aryor unju
the imposition of different supervisory or regulatory systemson
the same activity conducted in separate firms .
While cooperationand coordinationamong regulatory
and
circumstances
, underpresent
desirable
ishighly
authorities
all
overseeing
-regulator
I seeno needfora super
conditions
among
aspects of our financial markets . Clearlycoordination
, giventhatrigidlinesno
is essential
agencies
regulatory
longer completelyseparatethe activitiesand powersof banking
of financial
firmsand otherproviders
, securities
organizations
services .
The financialinstitutionregulatoryagencieshave
--both
a numberof ad hoc and ongoingarrangements
developed
and
ofbanking
theoversight
--tocoordinate
formal
andinformal
my responsibilities
. As I assume
companies
financial
services
75
on the Board, I intend to take an active interestin what
additionalsteps, if any, are necessaryto improveor expand
effortsto coordinate
supervisory
and regulatory
activities
with
respect to our banking and financial markets.
Question3: It has been said that the risks associated
with margin in the securitiesmarkets and those of the futures
marketsare different.
Do you agree that there is a differencein the related
risksand shouldthosemarginrequirements
be identical
or
should they be coordinated
?
Ans we r :
I find myself in agreement with the conclusion
ofthe Preside
nci
ets on the
nt'sWorkingGrou
p onFina
alMark
188ue of margin levels. The Working Group concludes that from
the standpoint of protection of the market system from large
pricemovements, the present higher margin levels on individual
stocks are quitecomparable to the lower margins on stock index
fu tu res . This is beca
use fluctuations in the prices of indi
vidual stocks are larger than broad stock indexes and individual
stocks typically have longer settlement periods. Thus, margin
.
levels need not be identical across these markets .
O
88-455 (80 )
@FedFRASER