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I, JAKE GARN, being duly sworn do depose and state as follows:

1. I am presently a member of the United States Senate from the State of Utah. I have served in the Senate for the past 16 years.

2. I first became aware of Charles H. Keating, Jr. in late 1980. My calendars reflect a meeting scheduled with Mr. Keating on December 3, 1980. This meeting was cancelled and rescheduled for December 10, 1980. (My calendars are attached hereto as Exhibit 1.) The meetings may have been scheduled at the request of Senator Dennis DeConcini. Although I have no specific recollection of this, Senator DeConcini may have attended the meeting on December 10, 1980. It is my practice not to refuse a request from a colleague to meet with a constituent. I had never met with Mr. Keating before this time, and knew only that he was from Arizona and was a constituent of Senator DeConcini's. My meeting with Mr. Keating generally focused on the issue of home-building and problems with interest rates.

3. At the December 10, 1980 meeting, Mr. Keating told me that it was his intention to build homes in Utah. I was somewhat concerned by this comment. It raised a red flag in my mind. I do not generally give appointments for people who bring up that they are campaign contributors, and Mr. Keating's statement had a similar tone.

4. I met again with Mr. Keating on May 14, 1981. (My calendar reflecting this meeting is attached hereto as Exhibit 2.) It is my recollection that Mr. Keating requested this meeting. According to my records, Danny Wall, a member of my staff at the time, may have attended the meeting. I recall Mr. Keating again discussing home-building problems and high interest rates. There was no discussion of the savings and loan ("S & L") industry. Mr. Keating was not in the S&L business at this time.

6. At the conclusion of the May 14, 1981 meeting, I instructed my secretary that Mr. Keating should never be given an appointment with me again. I gave this same instruction to Mr. Wall. Although Mr. Keating made no llegal or unethical offers or demands, and in no way threatened me, I was oftended by his arrogance and "pushy attitude".

6. Although I received approximately $4000 in campaign contributions during 1980-1986 from Mr. Keating and individuals affiliated with him, I was not aware of this fact until December 1989. I learned about the contributions from Glenn Simpson, a reporter from Roll Call who had researched Federal


Election Commission records for an article he was writing. I never discussed campaign contributions with Mr. Keating.

7. I recall receiving a telephone call from Senator DeConcini on or about January 3 or 4, 1985. Senator DeConcini said he was concerned with the consequences of the Federal Home Loan Bank Board's ("FHLBB") policies regarding state-chartered thrift institutions. I do not recall whether Senator DeConcini specifically mentioned Mr. Keating's problems with the FHLBB. Although I do not remember the specifics of this conversation, it is likely I told Senator DeConcini that it was my position that the FHLBB should be tougher on the thrift industry. At that time, I was concerned with the worsening condition of the thrix industry. Although I am not certain whether Senator DeConcini asked me to contact Ed Gray, I am certain that if he did, I would have told Senator DeConcini that I supported the Direct Investment Rule and Ed Gray's policies on that issue.

8. From 1981-1986, I served as Chairman of the Senate Banking Committee. During 1987-1988, I was the ranking Republican member of that Committee. In 1986, while I served as Chairman, Senators Cranston, DeConcini, and Glenn, wrote to request that the Committee hold an oversight hearing on the direct investment regulation. I did not schedule such a hearing, since I believed such investments could be a serious problem and therefore supported the regulation.

9. I recall that Lee Henkel received a recess appointment to the FHLBB in the fall of 1986. Although I do not recall being aware at that time of Mr. Henkel's ties to Mr. Keating, I knew that Mr. Henkel had some personal financial problems. I recall receiving a lot of negative feedback on Mr. Henkel. I determined that Mr. Henkel was someone who should not be on the Bank Board. Consequently, I opposed his nomination. Mr. Henkel was aware of my opposition and made reference to it during hearings held by the House Banking Committee on Nov. 7, 1989.

10. During my interview in the matter before the Senate Ethics Committee, I reviewed a copy of a document which apparently was sent by Mr. Keating to Senator Cranston's office regarding Mr. John Rousselot's proposal to purchase Lincoln Savings and Loan Association ("Lincoln"). The document, attached hereto as Exhibit 3, dated April 8, 1989 reads in part: "Somo politically important person has got to lay it on the line to Danny Wall and Jake Garn that they inescapably and must decisively approve the deal. They must do it in such a way that forcefulness cannot be misunderstood." I recall no contact from Senator Cranston or any of the other Senators under investigation regarding any proposals to purchase Lincoln.

11. I have no personal knowledge of the facts involved in the matter now under investigation by the Senate Ethics Committee. Consequently, I am not in a position to pass judgment on the conduct of Senators Cranston, DeConcini,


Glenn, McCain or Riegle. In my office, it has been and continues to be my practice that I will not intervene on behalf of a single constituent or institution to influence a regulatory decision. I would not consider it appropriate for me to engage in such conduct. Requests from individuals are referred to my staff who are instructed that they may make status inquiries only.

12. My view that the Bank Board should take tougher, rather than weaker actions to reign in the speculative activities of state-chartered institutions, was clearly and publicly articulated. For example, in Banking Committee hearings held on May 14, 1986, Ed Gray described the need to limit the activities of state-chartered institutions. He noted that many states authorize activities far beyond those permitted for federally-chartered institutions. However, the insurance risk was borne by the Federal Government. Even further, Mr. Gray felt that the basic policy of providing Federal Home Loan Bank credit for institutions engaging in these state authorized activities was improper. I stated in response to these comments:

Well, I don't disagree. We have a difficult problem because no one is more of a defender of States rights than I. But on the other hand, it's an area we have to pursue and I don't have the answers. If it endangers the Federal insurance fund and it is also unfair to Federalchartered institutions who are not allowed to do those sorts of things and, in my opinion, should not be allowed to do those sorts of things, you've got an unfairness issue there as well.

13. Later in this same hearing I elaborated on this point during a discussion with William Bergman, representing the National Association of State Savings and Loan Supervisors. Following Mr. Bergman's remarks in opposition to Bank Board restrictions, I stated:

But I think Mr. Gray makes a very good point as far as the insurance
fund is concerned. I've got another responsibility and that is to do
everything I can in this committee to provide for the safety and
soundness of institutions and provide the credibility and confidence in
both the FDIC and the FSLIC.
So how do we rationalize that problem? First of all, it's up to the State
legislature to decide what to do, but if they are under the umbrella of
the FSLIC which gives their customers a great deal more confidence and
ability to work and function within their State, how do we solve that
problem? Like I say, nobody is more strongly for States rights than I,
but I also don't think that it's fair to allow those State-chartered
institutions that may be getting into a so-called go-go category... of
operations, to have the advantage of that Federal insurance, and yet,

taking some very risky business opportunities that help endanger that

Is risk-related insurance the way to go? How do you resolve that
difference? Both of you are here advocating leave us alone. When
you've got that Federal insurance, how are we going to protect that fund
and leave you alone at the same time?

14. On August 12, 1986, I wrote to the President of the U.S. League of Savings Institutions:

I believe that the Federal Home Loan Bank Board under Chairman Gray
has also been mindful of its responsibility to protect the FSLIC and has
carried out its duties courageously. You point out the extraordinary
atmosphere in which your industry and the Bank Board have had to
operate these past few years, and I could not agree more that this
environment has presented major challenges to everyone.
I have not agreed with each and every action of the board; I doubt that
any member of Congress could say that he endorses any Federal agency
100 per cent. But I have been as aware as any Congressional observer
of the operations of the Board, and overall I rate its performance as
superior. (Exhibit 4).

16. On December 16, 1986 I wrote to Ed Gray and the other members of the Bank Board. I urged them to extend the direct investment regulation: The letter stated:

I strongly recommend that the Bank Board extend the direct investment
regulation for at least one year, making only those modifications, if any,
that it believes are currently justifiable. (Exhibit 6).

16. During the Bank Board's meeting in December 1986, my lettor was
cited by Ed Gray in support of extending the direct investment regulation
(Exhibit 6 at 2).

17. In 1986, I introduced comprehensive legislation to recapitalize FSLIC with $16 billion of industry funds, to provide for an overall modernization of our financial services laws, and to give the Bank Board new enforcement and supervisory powers, including the power to institute risk-based insurance assessments. One provision in particular was designed to clear up any ambiguity with respect to the legal authority of the Bank Board to promulgato its direct investment regulation. Section 507 of the bill I introduced stated

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"Issue such rules, regulations, and orders as it deems necessary or appropriate to define any terms used in any section of this Act and administer and carry out its purposes, including without limitation regulation of risk-taking and prevention of unsafe or unsound practices by insured institutions;

and to require compliance therewith and prevent evasions thereof."

18. Unfortunately, it soon became clear that the Congress would not pass a comprehensive bill. In an effort to save the FSLIC recapitalization provisions, I announced on August 7, 1986 that I would proceed with a limited bill containing only recapitalization and provisions dealing with the regulators' authority to arrange emergency interstate requisitions.

19. On October 18, 1986 I explained the urgent need for Congress to recapitalize FSLIC in a statement in the Congressional Record:

Mr. President, FSLIC recapitalization is urgently needed. FSLIC must
now keep insolvent thrifts open because it does not have the funds to
close them. This risks far larger losses to the fund in the future and
unfairly permits insolvent institutions to compete for deposits with
healthy thrifts and banks. GAO estimated that the minimum cost of
delaying case resolution will be $1.4 billion over the next 2 years--if
interest rates remain the same. If they rise, the costs will be far, far
greater. Furthermore, these estimates do not take into account credit
risk, deteriorating asset quality, or deposit losses of competing
institutions, all of which could make the overall losses even worse.
There is no questions in anyone's mind--including all the financial
regulators--that FSLIC recap is necessary. The real question is whether
it's necessary this month, next month, or in 6 months, and the answer is
that we should not tempt the hand of fate by doing nothing now. The
consequences of that kind of inaction are bleak: potentially devastating
losses to the FSLIC fund, the possibility of a merger of the FSLIC fund,
and even the possibility of direct Federal appropriations.

20. Although the recapitalization plan passed the Senato, despite my best efforts it was not enacted into law in 1986.

21. In 1987 the Administration again requested a $16 billion recapitalization for FSLIC. However the House of Representatives only passed a $6 billion plan, and the Senate Banking Committee under a new chairman, proposed a $7.5 billion plan. At the beginning of the Banking Committee's consideration of this legislation on March 10, 1987, I expressed my frustration at the process as follows:

It just seems to me that it is time to forget all the special interest groups, yet everyone who has been lobbying for one part or another of

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