Mary Clay Berry
Mary Clay Berry

Fellowship Title:

Financial Reform and Fourteen Thousand Bankers

Mary Clay Berry
August 5, 1976

Fellowship Year

"The core issue may well be, who is running this committee and this Congress. Is it the bankers or is it the public interest?"


WASHINGTON — On May 3, 1976, sweeping banking reform legislation died in the House Banking, Currency and Housing Committee. The most controversial proposals were sent to the Financial Institutions Supervision, Regulation and Insurance Subcommittee for further study, dealing a death blow to banking reform in the 94th Congress.

Chairman Henry S. Reuss blamed it all on that “selfish and petulant dinosaur,” the American Bankers Association. The ABA had flatly opposed the legislation, refused to entertain suggestions for improving it, and recruited hundreds of local bankers to tell their congressmen in person or over the telephone how awful the bill was.

In the hall outside the committee room, the bankers were jubilant and self-congratulatory.

“That’s the way to do it,” said one .

“You have my congratulations,” said another.

The death throes of the Financial Reform Act of 1976 were brief.

This speedy defeat of bank reform legislation — just two and a half months from start to finish — adds one more chapter to the legend of invincibility the bankers’ lobby has in the mid-1970s when “grassroots” lobbying has replaced back-room wheeling and dealing as the successful way to influence legislation. This doesn’t mean that other kinds of lobbying — secret meetings, lavish receptions and outright gifts of money, transportation or sex — have ceased to exist but rather that a new kind of lobbying has come to be used effectively by all sorts of special interests, from environmentalists to gun collectors. This marshaling of “public opinion”, real or phony as far as the public is concerned, has been refined by interests as varied as the National Right to Work Committee and the National Rifle Association.

The ABA has developed grassroots lobbying in a rather special way since its “grassroots” consists of 14,000 commercial bankers whose influence with congressmen is generally a little bit greater than the average constituent’s. “That banker’s phone call will cut through the 50 or so other phone messages a Congressman receives,” Gerald M. Lowrie, the executive director of the ABA’s Government Relations Staff, told a Wall Street Journal reporter in one of a number of articles which appeared this past spring exploring the bankers’ mystique. As far as most members of the banking committees are concerned, Lowrie is probably right.

Some groups, such as the American Petroleum Institute, the chief trade association for the petroleum industry, have trouble putting together an effective grassroots lobbying campaign. Even though the API and many of the major oil companies have spent millions of dollars in recent years on media advertising in an attempt to alter their industry’s generally poor public image, the API comes on much as the ABA would if all its members were the size of Citibank. The beauty of the ABA is that it also represents the Shoshone First National Bank of Cody, Wyoming and the Bank of Harlan in Harlan County, Kentucky. The ABA relies upon the top officers of these and other small banks to do its “hard lobbying” for it since many large banks have their own lobbyists in Washington anyway.

Other major lobbying groups, such as the AFL-CIO, reject grassroots lobbying as not being the most satisfactory way to make their members’ views felt. “They’re damn vocal but not very good at writing,” remarked AFL-CIO lobbyist Kenneth Young recently of union members. Furthermore, he added, they don’t have secretaries and they can’t write letters or make telephone calls on company time. Most grassroots labor lobbying consists of getting a Member of Congress out to the plant where union members can tell him what is on their minds, Young said. “One of the lovely reasons for a coalition with a group like the League of Women Voters is that we do a lot of work on the hill and they provide the mail.”

However, one labor group in town, the Oil, Chemical, and Atomic Workers International Union, spends considerable time on grassroots activity. The OCAW’s Washington representative, Anthony Mazzocchi, a veteran of S.A.N.E. and the anti-Vietnam war movement as well as a union member for most of his adult life, has a reputation for being something of a maverick among labor lobbyists. In fact, Mazzocchi rejects the label “lobbyist” on the grounds that he spends much more of his time “in the field” marshaling public opinion on issues of concern to his union than “tramping up to the Hill.” (The OCAW’s Washington office supplies local union leaders with the names of key congressional aides and asks them to contact them directly, thus doing their bit of grassroots lobbying this way.) Mazzocchi readily acknowledges that the reason he does not have to spend time on Capitol Hill is that he has the AFL-CIO, with which the OCAW is affiliated, to keep track of legislative matters for him, thus pinpointing one crucial element in any successful grassroots lobbying campaign. It must have a continuous source of reliable information about what is going on in Washington.

“A lobbyist is the eyes and ears of an association or industry,” said Charles 0. Zuver, associate federal legislative counsel to the ABA.

As living proof of that statement, Chuck Zuver, a pleasant, sandy-haired man who once worked for Sen. Carl Hayden of Arizona, took a telephone call and gave his unidentified caller a complete rundown on what had happened in the House banking committee that morning once the bank reform bill was scuttled. Zuver was following one of three offshoots of the original reform legislation, a bill dealing with the operations of foreign banks in the United States, Zuver proceeded to tell his caller what Rep. Thomas M. Rees, a member of the committee, planned to do the following day; said he had tried to find out what amendments the Federal Reserve Board and the Treasury planned to offer but “they’re being very close mouthed”; and offered his opinion that the desire of the Israeli Discount Bank of Tel Aviv to continue to accept domestic deposits was behind still another proposed amendment. He was quick, concise and well-informed.

The ABA is a continuous source of reliable information about what is going on in Washington for member banks. More than 200 of its nearly 300 employees are involved in “education” of some sort. They put out publications and offer expert advice to members.

“We used to say we were the largest educational institution in the area, except the University of Maryland,” laughed Zuver.

It hasn’t always been that way.

Time was when the ABA really was a dinosaur of a trade association, lumbering along in New York, far from the federal scene. “We hardly ever saw them,” recalled a bank lobbyist who was then a member of the Senate banking committee staff. “I remember one time when I was on the committee staff, I went to an ABA convention and all they talked about was legislation, but you couldn’t tell it from where I was sitting.”’

Most people credit Charles E. Walker with turning the ABA around. Walker, who is now a lobbyist in his own right, the head of Charles E. Walker Associates, Inc., a Washington consulting firm that represents such diverse clients as Allied Chemical, Bethlehem Steel, the Ford Motor Company, General Motors, Gulf Oil, Proctor & Gamble, and Time, Inc., was vice president of the ABA between 1961 and 1969. In 1969, Walker moved the ABA to Washington, then left it to become President Nixon’s number two man in the Treasury Department.

Today the ABA represents about 95% of the nation’s commercial banks. It has an annual budget of $22 million. Its employees work on several floors of a glitteringly garish Connecticut Avenue office building in the heart of downtown Washington. The ABA office is only a short distance from the offices of the Federal Reserve Board, the Treasury Department, and the Comptroller of the Currency (until his recent resignation, a former ABA lobbyist). It is a ten minute taxicab ride to Capitol Hill.

Fifteen members of the ABA staff are presently registered as lobbyists, including executive vice president Willis W. Alexander and the association’s general counsel and tax counsel. The real lobbyists are the “legislative representatives” or “legislative counsel” who spend much of their time on Capitol Hill. They work out of cluttered cubicles off a reception area in the ABA headquarters. On one interior wall is a scoreboard on which someone marks the status of legislation in which the association is interested. It is rarely up to date.

Zuver’s cubicle was piled with the paraphernalia of Congress that May afternoon after the banking committee buried the reform bill — bills and reports, copies of testimony, and the green and grey volumes which contain transcripts of Congressional hearings. Zuver’s work this spring, in addition to the foreign bank bill, included legislation dealing with student loans and access to bank records.

ABA policies originate with the Government Relations Council for which Gerald M. Lowrie serves as executive director (Lowrie registers as a lobbyist). The council consists of 83 bankers representing a cross section of the industry “from Citibank to a $2 million [deposit] bank in Wisconsin,” according to Zuver. The members also represent a geographical cross section.

In addition to this policy-making group which meets periodically, there is an 18-member administrative committee which meets monthly to deal with the nitty-gritty of the legislative process, “what you think you’re going to get and what you can live with,” as Zuver put it.

Members are kept informed of their trade association’s position on issues and the progress of legislative and executive matters by letters and publications from the Washington office and by contact with state and local banking associations.

When it comes time for the “hard lobbying”, the marshaling of the troops for a march on Capitol Hill such as occurred in March and April of this year in response to the Financial Reform Act of 1976, word goes out to politically active bankers that it is time to get in touch with their legislators personally. The ABA spent $27,958.60 on mailgrams and printed mailings to member bankers about the bank reform bill in the month of March alone.

The ABA’s campaign against the bank reform act began when the Government Relations Council met in Washington on January 20 of this year. The Senate had just passed the Financial Institutions Act, a piece of legislation which took most bankers by surprise since it contained a provision that allowed banks to pay interest on demand deposit accounts. “Up to the final mark up session, the bill was generally satisfactory to most bankers,” recalled John H. Yingling, a partner in the law firm of Yingling & Shay and a lobbyist for Citibank. “What aroused most of the bankers was interest on demand deposits. No one really expected it to happen. It was a drastic step. I didn’t think the committee as a whole would go for it.”

But they did, and, on December 11, 1975, the Senate passed the bill. In January, the ABA Government Relations Council took a position on both the Senate-passed bill and reforms which were under consideration, although not in the form of legislation, by the House banking committee, the result of the exhaustive Financial Institutions and the Nation’s Economy (FINE) Study commissioned by the committee. The Senate-passed bill was “not acceptable to the commercial banking industry”, the council said and it expressed extreme nervousness about the outcome of three weeks of hearings on “discussion principles” held by Reuss’ committee in December.

In mid-February, Reuss introduced the 217-page Financial Reform Act. Among other things, the bill would have put thrift institutions and credit unions in a better position to compete with commercial banks for consumer accounts by allowing all financial institutions to offer checking accounts and to pay interest on these accounts starting in 1978. It would have given savings and loan associations the power to make other loans than just home mortgages, such as personal loans. And it would have allowed credit unions to make larger loans for longer periods of time.

The ABA’s administrative committee quickly reviewed the Reuss bill. On February 28, in a speech to the Texas Bankers Association in Houston, ABA president J. Rex Duwe, also the president and chairman of the board of the Farmers State Bank of Lucas, Kansas, announced the committee’s decision: “Total, all-out opposition…to the House banking committee’s version of financial reform.”

On March 1, the ABA and its 50 state associations gathered in a motel near Chicago’s O’Hare International Airport along with representatives of other banking groups to plot anti-reform strategy. Three days later, Duwe sent a mailgram to the chief executives of all the member banks urging them to take action before it was too late, (That effort alone cost more than $18,000.)

The potential threat to the existing banking system which the House reform bill posed was sufficient to alarm the bankers. They came to Washington as fast as they could.

While the anti-reform campaign this spring was probably the bankers’ biggest lobbying effort to date, the association all along has stressed the importance of local bankers maintaining direct contact with their elected representatives in Washington. Although Duwe denied to a Washington Post reporter this spring that the bankers use their so-called political action fund (amounting to about $100,000 annually in past years) to make their voices heard, campaign contributions from the Banking Profession Political Action Committee are usually presented in person by a banker from the politician’s own district, according to one Member of Congress.

The ABA’s National Governmental Affairs Conference at the Shoreham Americana Hotel in Washington in July 1975 is a good example of the importance the ABA places upon “grassroots” contacts to influence legislation. Bankers from 42 states and the District of Columbia, as well as a number of Members of Congress, heads of executive agencies, and staffers from both branches of the federal government, met for two days to discuss a wide range of topics, from the bankers’ public image (generally poor, their consultants told them) to “Lobbying — A First Amendment Right.” At one point, the then chairman of the Government Relations Council, John H. Perkins, also the President of the Continental Illinois National Bank and Trust Company of Chicago, gave a rundown on pending legislation, regulations and litigation affecting banking. The bankers were then urged to spend the afternoon meeting with their congressmen. You must make the appointment yourself, ABA staff members told the visiting bankers, but we will offer you every support necessary, rooms for conferences or cocktails, dinner reservations, anything to smooth the process of successful lobbying. Only the initial initiative was left up to the hometown banker.

This spring Duwe was quoted in the American Banker, an authoritative trade newspaper which chronicled the anti-reform campaign on a blow-by-blow basis, as harking back to the bankers’ successful campaign against NOW (negotiable order of withdrawal) accounts in October 1975 as an example of the sort of lobbying campaign he hoped ABA members would mount against reform. “Almost a thousand bankers wrote, called or telephoned their representatives,” Duwe told the American Banker. As a result, the House of Representatives voted by a wide margin not to allow thrift institutions throughout the country to offer what amount to interest-bearing checking accounts. Grassroots lobbying by bankers also killed a proposed moratorium on the expansion of electronic banking until a national electronic funds transfer commission could make its report, and watered down a curb on “red-lining”, mortgage discrimination in older urban neighborhoods. Most recently, the telephone calls of local bankers were instrumental in killing a Senate proposal requiring payers of interest or dividends to withhold federal taxes before paying recipients.

The bankers’ anti-reform campaign came on the heels of newspaper reports of unsound lending practices by banks in the past, The resulting publicity raised hopes that Reuss’ bank reforms actually had a chance of passing Congress. The recommendations of the FINE Study were drawn up before any reports of unsound lending practices surfaced, but did address the failure of bank regulation and proposed a consolidation of regulatory powers. This consolidation was opposed by the commercial banks which had been successfully playing one regulatory agency off against another to their own advantage. But the FINE Study recommendations were broader than just a restructuring of the regulatory system. Their real thrust was to make the various segments of the banking industry more nearly competitive.

Although the thrift institutions, under the leadership of their trade associations, the US League of Savings Associations, the National Association of Mutual Savings Banks, and the National Savings and Loan League, supported the “basic thrust” of the reform legislation, many bankers had misgivings about what a restructured industry would mean for the thrift institutions. Specifically, savings and loan associations were worried about what would happen to them without Regulation Q, the federal regulation which limits interest rates that can be paid on savings deposits but also gives savings and loan associations a one-quarter of one percent advantage over commercial banks. Various proposals were considered as alternatives to Regulation Q but the savings and loan associations remained worried. Thus their support of reform was, at best, qualified.

Where the money would come for new housing worried the National Association of Home Builders which feared the reform bill could slow down new housing starts since savings and loan associations might not get money for new housing. The AFL-CIO also feared anything that might make houses less available to their members. In fact, one of the fascinating aspects of the debate as it droned on day after day in the House committee’s big hearing room on the first floor of the Rayburn Building was the repeated evocation of housing, and particularly new housing, as the Heart’s Blood of America. “Oh, the aura that housing has!” said a longtime bank lobbyist with a cynical snort. He went on to say that, in his opinion, one reason the savings and loan associations were such effective lobbyists was that many Members of Congress had never really thought through the housing question. “Just housing is good — period.”

Also on the bankers’ side against reform was the Independent Bankers Association of America, a smaller, less-potent group that often finds itself on the opposite side of intra-industry fights from the ABA. This is because the ABA represents the nationally-chartered banks and the IBAA, the smaller, state-chartered ones. On some issues, such as the expansion of electronic banking, the twain never meet.

Consumer groups such as the Consumer Federation of America were in favor of Reuss’ bill. It was, after all, legislation in which consumers had an immense stake since its object was to increase competition in the banking industry to the consumer’s advantage, insure the fair treatment of small savers, and guard against the periodic breakdown, during times of tight money, of the system for providing loans for housing. However, consumer lobbyists had little impact. CFA’s legislative director, Kathleen O’Reilly, who is a bit breathless and passionately earnest, got a lot of teasing by Republican members of the committee the day she testified which provided some comic relief but little ammunition with which to counteract the anti-reform campaign of the bankers. The only consumer group which did have an impact, the AFL-CIO, was on the other side.

Labor’s opposition may have been crucial. Twenty members of the 42-member banking committee were freshmen congressmen facing re-election this fall for the first time.

Thirteen were Democrats who could probably count upon labor support in their upcoming elections as a matter of course. Campaigning without the support of labor which provides money and, more importantly, manpower can be a hard row to hoe. With his local bankers and his local union leaders opposing the same piece of legislation, it was understandably hard for the new Democratic congressman to go out on a limb for reforms that mattered little to most of his constituents.

At public hearings, Reuss regularly castigated the ABA. The bankers ignored his rhetoric and plied the halls of the congressional office buildings singly, in pairs, or in small groups. When the hearings were over, the possibility that Congress would actually pass the bank reform bill grew steadily slighter.

After a caucus of the committee’s Democratic members in late March, Reuss and financial institutions subcommittee chairman Fernand St Germain announced that the original omnibus Financial Reform Act would be split into three parts. The most controversial proposals were all contained in one of the new bills.

This announcement came a few days after a fundraiser for St Germain which got accidental publicity when a television crew from WNET in New York decided to film guests coming out of the National Capital Democratic Club, a few steps from the House office buildings, after the reception. The guests, of course, were lobbyists who had paid up to $100 apiece to attend the party.

“God Almighty, my position [St Germain had supported the reform bill] is well known,” St Germain protested to a reporter, arguing that the fundraiser had nothing whatsoever to do with the business pending before the banking committee.

Maybe not; however, the financial details of that fundraising event tell a good deal about the interface between lobbying and political contributions. The day the reform bill was scuttled, St Germain remarked, “I’d rather not hear from the trade associations any further because they’ve wreaked enough havoc with this.” But he was perfectly willing to take their money.

The chairman of the financial institutions subcommittee made $22,549 on March 23. (An earlier party in his home state of Rhode Island netted St Germain nearly $33,000.) The Savings Association Political Election Committee, created by the US League of Savings Associations, was the largest single contributor, giving $2,000 to the Congressman St Germain Campaign Committee. Perhaps appropriately, considering St Germain’s protestations about the reform bill, the smallest banking industry contribution listed on records filed with the Clerk of the House was the ABA’s Banking Profession Political Action Committee’s $200. (Smaller contributions, which made up most of St Germain’s take that night, are not itemized on campaign financing records kept in the House.) Other bank groups represented that night included the California Savings and Loan League which, through its Century Club, gave $1,000; the Security Pacific National Bank of California which, through its Security Pacific Active Citizenship Today Committee, gave $100; a group of New York savings banks which, through the Savings Bankers Non-Partisan Political Action Committee, gave $400; the Independent Bankers Association of America which, through the Independent Bankers Political Action Committee, gave $300; and the Mortgage Bankers association which, through its Mortgage Bankers Political Action Committee, gave $600. Other large contributors to the Rhode Island congressman’s re-election campaign that day included labor unions, life insurance underwriters, the American Trucking Association and the National Education Association. It was a pretty impressive turnout for a congressman with only token opposition.

One month later, confronted with a motion to recommit (which was never actually offered but would have succeeded if it had been), Reuss bowed to the inevitable. As a committee aide observed, if you ever get all the bankers on the same side of an issue, there is no way the committee can stand up to them. The ABA could chalk one up in their favor on the big scoreboard in the office, if they wanted to bother.

They didn’t or at least they hadn’t by late the same afternoon. In the business of lobbying, a battle that is over, whatever its outcome, is as dead as yesterday’s newspaper story. The next day brings new issues and new allies.

“There’s little animosity among lobbyists,” said Chuck Zuver that afternoon. He recalled that earlier in the day he had lunched with lobbyists for both the credit unions and organized labor at the Democratic Club.

“The more people you talk to the better ideas you get,” he said.

Received in New York on August 5, 1976.

©1976 Mary Clay Berry

Mary Clay Berry, a freelance writer, is an Alicia Patterson Foundation award winner. She is studying lobbying in Washington, DC. This article may be published with credit to Ms. Berry as a Fellow of the Alicia Patterson Foundation. The views expressed by the author of this newsletter are not necessarily the views of the Foundation.