tion could withhold deposited funds from a customer. This legislation was later incorporated into the Competitive Equality Banking Act of 1987.

FSLIC Recapitalization Act

In early 1987, two sets of hearings on H.R. 27; a bill to recapitalize the Federal Deposit Insurance Corporation (FSLIC) through a $3 billion capital infusion by the Federal Home Loan Banks that would establish a new financing corporation (FICO) that would in truth raise roughly $15 billion for the FSLIC through the issuance of bonds. The Full Committee hearings on January 21st and 22, 1987, and the Financial Institutions Subcommittee hearings on March 3rd and 4, 1987, gave the Committee an opportunity to hear from federal regulators, as well as representatives from all areas of the thrift industry prior to reporting out the legislation that would eventually be incorporated into the Competitive Equality Banking Act of 1987.

United States-Canada Free-Trade Agreement

On May 24, 1988, the Full Committee met to receive testimony on the United States-Canada Free-Trade Agreement which was signed by President Reagan and Canadian Prime Minister Brian Mulroney on January 2, 1988.

The portion of the treaty concerning the Banking Committee (Section 308 of H.R. 5090, the bill implementing the treaty) represents the first bilateral agreement between the United States and Canada covering the entire financial services industry.

Anti-Apartheid Act Amendments of 1988

On June 2, 1988, the Full Committee received testimony regarding H.R. 1580, the Anti-Apartheid Act Amendments of 1988. Witnesses included Representative Howard Wolpe and a representative of TransAfrica. Statements were also received in writing from the Department of State and Treasury.

General Capital Increase for the World Bank

On June 15, 1988, the Full Committee met to receive testimony from Secretary of the Treasury James A. Baker III, supporting H.R. 4645; a bill authorizing U.S. participation in the proposed $75 billion general capital increase for the World Bank. Under H.R. 4645, the Congress would appropriate $420 million over the next six years for the World Bank and the African Development fund and contribute almost $13.5 billion to callable capital which guarantees the World Bank's borrowing in case of default.

OVERSIGHT HEARINGS

Full Faith and Credit for FSLIC Notes

On September 8 and 13, 1988, the Full Committee received testimony from panels of witnesses on a proposal to extend "The Full Faith and Credit" of the U.S. Treasury to debt obligations issued by the Federal Savings and Loan Insurance Corporation (FSLIC).

The panel appearing before the Committee on September 8, consisted of M. Danny Wall, Chairman, Federal Home Loan Bank Board, and George D. Gould, Under Secretary for Finance, Department of the Treasury. The second panel, testifying on September 13, 1988, consisted of Representatives of the GAO, Ely & Company Inc., and the Accounting Standards Executive Committee.

Condition of the Federal Deposit Insurance Funds

On July 7th and August 3, 1988, the Full Committee received testimony from the Federal Home Loan Bank Board (FHLBB)/Federal Deposit Insurance Corporation (FSLIC), and the Federal Deposit Insurance Corporation (FDIC), respectively, on the financial condition of the Federal Deposit Insurance Funds. Chairman M. Danny Wall, accompanied by members of the FHLBB, and Chairman L. William Seidman, delivered testimony concentrating on the regulatory environment surrounding financial institutions, recent rescue operations of selected financial institutions, and the general financial condition of funds, with emphasis on projections for the capital required to resolve the current crisis in the savings and loan industry.

Impact of the Stock Market Drop and Related Economic

Developments

Following the October 19, 1987 drop in the World's financial markets, the Committee held two oversight hearings to explore the possible ramifications of the market drop and what specific impact it could have on the nation's economy. On October 29, 1987, the Full Committee received testimony from a panel of economic experts on the possible causes and effects of the collapse. On February 3, 1988, the Subcommittee on Financial Institutions received testimony from GAO, including a report entitled: Financial Markets-Preliminary Observations on the October 1987 crash.

Conduct of Monetary Policy

On February 23, 1988, the Full Committee received testimony from Alan Greenspan, Chairman, Board of Governors of the Federal Reserve. Chairman Greenspan's testimony was part of the semiannual report to Congress on the conduct of monetary policy. This regular report to Congress is in accordance with the HumphreyHawkins Full Employment Act of 1987.

Thrift Audits by Public Accounting Firms

On November 18, 1987, Chairman St Germain requested on behalf of the House Banking Committee, that GAO review the quality of thrift institution audits by the public accounting profession. Independent audits performed by public accounting firms determine whether an institution is fairly reporting its financial condition and whether the institutions are providing sufficient disclosure of all matters necessary to ensure that financial statements are not misleading. These financial audits are relied upon by depositors and shareholders of thrift institutions, as well as by the Congress and federal regulators who oversee those institutions.

The Committee believes that the public accounting profession has performed substandard independent audits of thrift institutions. Too often thrifts have failed or experienced severe financial difficulty which have received unqualified audit opinions from the independent public accounting firms while the federal government is left bearing the cost through the FSLIC. This request is still active.

Financial Analysis of FADA's 1987 Financial Statements

On December 10, 1987, Chairman St Germain requested on behalf of the House Banking Committee, that GAO identify and explain the major differences between the Federal Asset Disposition's unaudited preliminary financial statements for the year ended December 31, 1987, and its final statements for that period, as audited by Peat Marwick Main & Co. This request was fulfilled on August 5, 1988.

In summary, the changes to the financial statements resulted in a reduction of $4.2 million in FADA's losses for 1987, primarily attributable to a new agreement with FSLIC to increase FADA's asset management fees for legal, appraisal and accounting services not specifically covered in FADA's contract with FSLIC.

Federal Savings and Loan Insurance Corporation's Continuing Need for the Federal Asset Disposition Association

On October 20, 1987, Chairman St Germain requested on behalf of the House Banking Committee, that GAO conduct a review of the cost effectiveness and performance of FADA as compared to similar services provided by FSLIC and by private sector asset management firms. This request was fulfilled on January 1988.

In summary, GAO found that private sector contractors were able to provide the same services to FSLIC that FADA was providing at a greatly reduced price. Also, GAO determined that FADA was illegally established as a federally chartered savings and loan association. Finally, GAO found no compelling evidence that FADA is essential to FSLIC's management and disposition of acquired assets.

FSLIC's combined use of private sector asset management firms, federal employees in FSLIC's headquarters and regional offices, and experts under personal services contracts with FSLIC receiverships is currently an efficient manner of managing assets and could be expanded to provide the service now done under contracts with FADA.

Merger of Various Federal Deposit Insurance Funds

On May 29, 1987, Chairman St Germain requested on behalf of the House Banking Committee, that GAO study the options for merging the three Federal deposit insurance funds. The FSLIC is insolvent and lacks the financial resources to address the problems present in the savings and loan industry. Nearly 500 thrifts are either insolvent or nearly insolvent. Regional economic problems have compounded savings and loan failures from imprudent thrift management decisions and outright fraud and insider abuse.

Merger of the healthy Federal insurance funds with FSLIC has been suggested by some as one way to provide FSLIC additional financial resources to act more quickly and decisively in restoring the savings and loan industry's health. This request is still active. SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

LEGISLATIVE HEARINGS

Globalization of Financial Markets and Related International Banking and Supervision Issues

On July 30, 1987, the Subcommittee received testimony from the Hon. Paul Volcker, Chairman, Board of Governors, Federal Reserve System. The focus on the hearing was globalization of financial markets, international financial supervision issues, and the current problems with third world debt. The eight members of the Full Committee not sitting on the Subcommittee were invited to participate in this hearing. This was the first in a series of hearings on the Reform of the Nation's Banking Systems (H.R. 5094.)

Money Laundering Control Act of 1988

On May 6th and June 9, 1987, and June 8, 1988, the Committee met to hear testimony regarding the need to enact further legislation (H.R. 4853) to prevent U.S. banks from being used to launder funds generated through illegal drug trafficking. testifying before the Subcommittee in 1987 and the Full Committee in 1988, were representatives from the Departments of Justice and Treasury, the Federal Reserve and the primary financial institutions regulators.

Truth in Savings Act

On May 20, 1987, the Subcommittee received testimony on H.R. 176, the Truth in Savings Act. The bill requires financial institutions which advertise interest bearing accounts to clearly disclose the terms of such accounts to customers when advertising or soliciting business. The Subcommittee heard testimony from a panel of representatives from three consumer groups and received the written statements of three financial institution trade associations and the Board of Governors of the Federal Reserve.

Federal Asset Disposition Association H.R. 4646, H.R. 5521, and H.R. 5094 (Title VII)

On October 15, 1987, M. Danny Wall, Chairman, Federal Home Loan Bank Board (FHLBB), testified before the Subcommittee regarding the accountability of the Federal Asset Disposition Association (FADA) to entities other than itself, and on FADA's value to the FSLIC regarding the managing and marketing of the $9 billion in assets currently held under the receivership of FSLIC.

Title II of the Export Trading Company Act

On March 31, 1987, the Subcommittee held a hearing to investigate the progress of Bank Holding Company owned export trading companies and to consider the need for an amendment to the

Export Trading Company Act of 1982 as set forth in H.R. 1661. The panel of distinguished witnesses included members of both Houses of Congress, the Secretary of Commerce, the Vice Chairman of the Board of Governors of the Federal Reserve, as well as Industry and Trade Associate representatives.

Reform of the Nation's Banking and Financial Systems H.R. 5094

The Subcommittee conducted a series of 12 hearings between July 30, 1987 and February 8, 1988 on the reform of existing banking laws. The topics covered in the hearing included reform of the Blass-Steagall Act, bank real estate activities, insurance, consumer services, the Community Reinvestment Act and regulatory safeguards and enforcement powers. The Subcommittee heard testimony from panels consisting of Federal Regulators, Consumer Groups, and Academics specializing in economics and the financial services industry. The objective of the hearings was to determine what legislative action was needed to further consumer interests, while simultaneously allowing U.S. financial institutions to remain competitive in the global market without jeopardizing the safety and soundness of the financial services industry.

SUBCOMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

LEGISLATIVE HEARINGS

Rural Rental Housing Displacement Prevention Act of 1987

On March 11, 12, 19, 24 and 26, 1987, hearings were held entitled "Housing, Community Development, and Homelessness Prevention Act of 1987" (H.R. 4). In particular, on March 19 and 24, 1987, H.R. 1070 was discussed. H.R. 1070 became part of H.R. 4. For further action see S. 825.

Jesse Gray Housing Act (H.R. 918)

The purpose of this hearing was to receive testimony from members of the National Tenants Organization. The hearing gave residents of public housing projects an opportunity to present their assessment of the state of public housing today.

Emergency Housing Assistance Act of 1988

H.R. 4292 would provide temporary financial assistance for homeowners of non-FHA insured single-family homes who are faced with the threat of foreclosure due to involuntary unemployment or substantial loss of income. The Subcommittee heard testimony on the nature of the national mortgage foreclosure problem and how legislation can best approach this issue with respect to local differences non-profit organization involvement, and fiscal considerations.

Community Housing Partnership Act

H.R. 3891 would authorize grants and loans to non-profit sponsors through cities, states and as direct recipients to maintain, rehabilitate and construct rental and homeownership units for low