The Citibank-Travelers Steamroller

[Robert Weissman <rob@essential.org>]

Two quick notes before this week's column:

* In our previous column, "Accident or Corporate Manslaughter?" the date
of the alcohol-related death of MIT student Scott Krueger was mistakenly
reported as September 27, 1998. The date should have appeared as September
27, 1997.

* Following this week's column is a reposting of information on how to
subscribe to Z Magazine's Left On Line University, including the course on
corporate power.

Robert Weissman
Essential Information			|   Internet:	rob@essential.org

Civil disobedience works.

That's the effective mantra of two unlikely sources, Citicorp and
Travelers Group, two giant multinationals who have put to shame the civil
disobedience records of radical environmentalists,  old-line civil rights
activists and faith-based pacificists.

In April, Citicorp and Travelers announced plans to undertake a merger
that was prohibited by law. Although federal law bans corporate marriages
between banking and insurance companies, the two companies took advantage
of a loophole in the law that permits a two-year review by the Federal
Reserve -- with an up-to-three-year extension -- before such mergers must
be disallowed.

Citicorp had long opposed efforts to roll back the Bank Holding Company
Act provisions that bar banking, securities and insurance firms from
owning each other, but following the merger announcement, it changed its
position overnight.

Operating under the misleading banner of "financial modernization," John
Reed, CEO of Citicorp and Sanford Weill, CEO of Travelers, quickly became
the leaders of the corporate crusade to permit common ownership of banks,
insurance companies and securities companies.

Their legislative vehicle is known as HR 10. With bickering among
insurance agents and bankers over relatively unimportant issues resolved,
momentum is now building to speed the legislation through the Senate. The
House of Representatives passed a different version in May, but Speaker
Newt Gingrich has indicated the House will rubber stamp any banking bill
that emerges from the Senate.

Much more is at stake in HR 10 than the parochial interests of Citicorp
and Travelers. HR 10 is an invitation for a new round of financial
industry mergers. It is also likely to spur a new assault on the wall
separating banking and commerce. Although banks are not permitted to own
commercial firms, HR 10 contains a grandfather clause that permits
insurance and securities firms to maintain their existing commercial and
industrial holdings, even after merging with banks. That breach in the
barrier between banking and commerce is likely to quickly expand and
destroy the wall altogether.

At a time when the financial world is in serious turmoil, with
international loans going bad and the bailout of the Long Term Capital
hedge fund perhaps foreshadowing a new area of widespread financial
weaknesses, HR 10 introduces more uncertainty into the system at the worst
possible moment.

At the same time, HR 10 does nothing to coordinate the banking and
insurance regulatory system -- now scattered among six federal agencies
and the states -- which is sure to be overwhelmed by the rash of
megamergers and new gigantic financial institutions.

And when financial regulations are weak, imprudent behavior is almost sure
to follow. In other words, if HR 10 is adopted, expect to see lots of bad
loans, bad investment decisions, teetering banks and tottering insurance
companies -- and a series of massive financial bailouts of new
conglomerates judged "too big to fail." The concern will be that a
permitting, say, an insurance company to fail would endanger the health of
its conglomerate parent, which would in turn threaten a crisis of
confidence in the entire financial sector.

HR 10 also raises serious concerns about the provision of consumer
services: big banks tend to charge much more for consumer services; the
bill fails to require banks to provide  reasonable cost checking and
savings accounts to the poor; and the legislation not only fails to extend
but weakens the Community Reinvestment Act, which imposes obligations on
banks to make loans in low-income neighborhoods.

All of these risks and costs are justified as necessitated by the
imperatives of "modernization" and "globalization." But these amorphous
terms have no concrete meaning. The only gain promised to consumers is
"one-stop shopping" for financial services, a dubious benefit at best.

There is still time to stop HR 10. Some members of the Senate may be ready
to stand up for consumer and taxpayer interests and block movement of the
bill. And the Clinton administration, which favors the essential
provisions of the legislation, is threatening a veto over regulatory turf
fights that are important, but orders of magnitude less consequential than
the core concerns about economic concentration.

Civil disobedience can be a compelling way to speak truth to power. But
the Citicorp-Travelers merger and HR 10 are more about power riding
roughshod over truth.

Russell Mokhiber is editor of the Washington, D.C.-based Corporate Crime
Reporter. Robert Weissman is editor of the Washington, D.C.-based
Multinational Monitor.

(c) Russell Mokhiber and Robert Weissman

Focus on the Corporation is a weekly column written by Russell Mokhiber
and Robert Weissman. Please feel free to forward the column to friends or
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****************************************************************

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