[House Hearing, 108 Congress]
[From the U.S. Government Publishing Office]





                   H.R. 1375--THE FINANCIAL SERVICES
                     REGULATORY RELIEF ACT OF 2003

=======================================================================

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED EIGHTH CONGRESS

                             FIRST SESSION

                               __________

                             MARCH 27, 2003

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 108-15



89-080              U.S. GOVERNMENT PRINTING OFFICE
                            WASHINGTON : 2003
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
DOUG BEREUTER, Nebraska              PAUL E. KANJORSKI, Pennsylvania
RICHARD H. BAKER, Louisiana          MAXINE WATERS, California
SPENCER BACHUS, Alabama              CAROLYN B. MALONEY, New York
MICHAEL N. CASTLE, Delaware          LUIS V. GUTIERREZ, Illinois
PETER T. KING, New York              NYDIA M. VELAZQUEZ, New York
EDWARD R. ROYCE, California          MELVIN L. WATT, North Carolina
FRANK D. LUCAS, Oklahoma             GARY L. ACKERMAN, New York
ROBERT W. NEY, Ohio                  DARLENE HOOLEY, Oregon
SUE W. KELLY, New York, Vice         JULIA CARSON, Indiana
    Chairman                         BRAD SHERMAN, California
RON PAUL, Texas                      GREGORY W. MEEKS, New York
PAUL E. GILLMOR, Ohio                BARBARA LEE, California
JIM RYUN, Kansas                     JAY INSLEE, Washington
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         CHARLES A. GONZALEZ, Texas
WALTER B. JONES, Jr., North          MICHAEL E. CAPUANO, Massachusetts
    Carolina                         HAROLD E. FORD, Jr., Tennessee
DOUG OSE, California                 RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               KEN LUCAS, Kentucky
MARK GREEN, Wisconsin                JOSEPH CROWLEY, New York
PATRICK J. TOOMEY, Pennsylvania      WM. LACY CLAY, Missouri
CHRISTOPHER SHAYS, Connecticut       STEVE ISRAEL, New York
JOHN B. SHADEGG, Arizona             MIKE ROSS, Arkansas
VITO FOSELLA, New York               CAROLYN McCARTHY, New York
GARY G. MILLER, California           JOE BACA, California
MELISSA A. HART, Pennsylvania        JIM MATHESON, Utah
SHELLEY MOORE CAPITO, West Virginia  STEPHEN F. LYNCH, Massachusetts
PATRICK J. TIBERI, Ohio              BRAD MILLER, North Carolina
MARK R. KENNEDY, Minnesota           RAHM EMANUEL, Illinois
TOM FEENEY, Florida                  DAVID SCOTT, Georgia
JEB HENSARLING, Texas                ARTUR DAVIS, Alabama
SCOTT GARRETT, New Jersey             
TIM MURPHY, Pennsylvania             BERNARD SANDERS, Vermont
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
KATHERINE HARRIS, Florida
RICK RENZI, Arizona

                 Robert U. Foster, III, Staff Director
       Subcommittee on Financial Institutions and Consumer Credit

                   SPENCER BACHUS, Alabama, Chairman

STEVEN C. LaTOURETTE, Ohio,          BERNARD SANDERS, Vermont
Vice Chairman                        CAROLYN B. MALONEY, New York
DOUG BEREUTER, Nebraska              MELVIN L. WATT, North Carolina
RICHARD H. BAKER, Louisiana          GARY L. ACKERMAN, New York
MICHAEL N. CASTLE, Delaware          BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
SUE W. KELLY, New York               DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                CHARLES A. GONZALEZ, Texas
JIM RYUN, Kansas                     PAUL E. KANJORSKI, Pennsylvania
WALTER B. JONES, Jr., North          MAXINE WATERS, California
    Carolina                         NYDIA M. VELAZQUEZ, New York
JUDY BIGGERT, Illinois               DARLENE HOOLEY, Oregon
PATRICK J. TOOMEY, Pennsylvania      JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
MELISSA A. HART, Pennsylvania        RUBEN HINOJOSA, Texas
SHELLEY MOORE CAPITO, West Virginia  KEN LUCAS, Kentucky
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
MARK R. KENNEDY, Minnesota           STEVE ISRAEL, New York
TOM FEENEY, Florida                  MIKE ROSS, Arkansas
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            ARTUR DAVIS, Alabama
TIM MURPHY, Pennsylvania
GINNY BROWN-WAITE, Florida
J. GRESHAM BARRETT, South Carolina
RICK RENZI, Arizona


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    March 27, 2003...............................................     1

Appendix:
    March 27, 2003...............................................    41

                               WITNESSES
                        Thursday, March 27, 2003

Buck, Carolyn, Chief Counsel, Office of Thrift Supervision.......    14
Dollar, Hon. Dennis, Chairman, National Credit Union 
  Administration.................................................     7
Gee, Gavin M., Director of Finance, Idaho Department of Finance, 
  on behalf of the Conference of State Bank Supervisors..........    16
Kroener, William F. III, General Counsel, Federal Deposit 
  Insurance Corporation..........................................    12
Lattimore, Jerrie J., Administrator, Credit Union Division, State 
  of North Carolina, on behalf of the National Association of 
  State Credit Union Supervisors.................................    17
Olson, Hon. Mark, Member, Board of Governors of the Federal 
  Reserve System.................................................     6
Williams, Julie L., First Senior Deputy Comptroller and Chief 
  Counsel, Office of the Comptroller of the Currency.............    10

                                APPENDIX

Prepared statements:
    Bachus, Hon. Spencer.........................................    42
    Gillmor, Hon. Paul E.........................................    43
    Hinojosa, Hon. Ruben.........................................    44
    Royce, Hon. Edward R.........................................    45
    Sanders, Hon. Bernard........................................    47
    Buck, Carolyn................................................    49
    Dollar, Hon. Dennis..........................................    62
    Gee, Gavin...................................................    69
    Kroener, William F. III......................................    84
    Lattimore, Jerrie J..........................................   114
    Olson, Hon. Mark W...........................................   124
    Williams, Julie L............................................   134

              Additional Material Submitted for the Record

Buck, Carolyn:
    Written response to questions from Hon. Ruben Hinojosa.......   161
Kroener, William F. III:
    Written response to questions from Hon. Ruben Hinojosa.......   163
Lattimore, Jerrie J.:
    Written response to questions from Hon. Ruben Hinojosa.......   166
Olson, Hon. Mark W.:
    Written response to questions from Hon. Ruben Hinojosa.......   168
Williams, Julie L.:
    Written response to questions from Hon. Ruben Hinojosa.......   172
America's Community Bankers, prepared statement..................   176
National Association of Federal Credit Unions, prepared statement   204

 
                   H.R. 1375--THE FINANCIAL SERVICES
                     REGULATORY RELIEF ACT OF 2003

                              ----------                              


                        Thursday, March 27, 2003

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 10:10 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Bereuter, Baker, Royce, 
Gillmor, Biggert, Capito, Tiberi, Hensarling, Brown-Waite, 
Barrett, Oxley (ex-officio), Sanders, Maloney, Watt, Sherman, 
Moore, Waters, Hooley, Lucas of Kentucky, and Ross.
    Chairman Bachus. [Presiding.] Good morning. This is the 
Subcommittee on Financial Institutions and Consumer Credit. The 
subcommittee meets today for a legislative hearing on H.R. 
1375, the Financial Services Regulatory Relief Act of 2003. 
That legislation was introduced by our colleagues on the 
subcommittee, Ms. Capito, of West Virginia and Mr. Ross of 
Arkansas. It is similar to the regulatory relief package, H.R. 
3951, that was approved last year by the subcommittee and by 
the full committee after two hearings before our subcommittee. 
That legislation was largely a product of recommendations that 
the committee received from federal and state financial 
regulators in response to a request for regulatory relief 
recommendations from Chairman Mike Oxley.
    Earlier this year the Chairman again requested that the 
financial regulators recommend regulatory relief proposals. 
And, H.R. 1375 is essentially last year's legislation with the 
addition of various, what we think are uncontroversial 
provisions recommended by regulators. The banking industry 
estimates that it spends somewhere in the neighborhood of $25 
billion annually to comply with regulatory requirements imposed 
at both the federal and state level. A large portion of that 
regulatory burden is justified by the need to ensure safety and 
soundness of our banking institutions to enforce compliance 
with various consumer protection statutes and combat money 
laundering and other financial crimes.
    However, not all regulatory mandates that emanate from 
Washington or State capitols across the country are created 
equal. Some are overly burdensome, unnecessarily costly or 
duplicate other legal requirements. Where examples of such 
regulatory overkill can be identified, Congress should act to 
eliminate them. The bill that Congresswoman Capito and 
Congressman Ross have introduced, and which, I, Chairman Oxley 
and several other members of this body are co-sponsors, 
contains a broad range of constructive provisions that, taken 
as a whole, will allow banks and other depository institutions 
to devote more resources to the business of lending to 
consumers and less to the bureaucratic maze of compliance of 
outdated and unnecessary regulations.
    Reducing the regulatory burden on financial institutions 
lowers the cost of credit and will help our economy as it 
strives to emerge from recession.
    In closing, let me once again commend Ms. Capito and Mr. 
Ross for this important legislative initiative, as well as the 
full committee chairman, Mr. Oxley, who is an original co-
sponsor of the legislation. I also commend the ranking member, 
Mr. Sanders, for the cooperation that his staff and the 
democratic staff has put forth in composing this bill.
    Chairman Oxley's demonstrated a strong commitment to 
getting regulatory relief legislation enacted this year. The 
Leadership has endorsed his efforts. And, finally, I want to 
thank the federal banking agencies represented on our first 
panel for their important input and technical assistance in the 
drafting in process.
    With that, I am pleased to recognize, the ranking member, 
Mr. Sanders, for an opening statement.
    Mr. Sanders. Thank you, Mr. Chairman. And thank you for 
holding this hearing. Let me begin by apologizing and saying I 
am going to be running back and forth between this hearing and 
another hearing on a committee that I am in. So, I will be 
drifting back and forth.
    Among other things, the Financial Services Regulatory 
Relief Act would make it easier for some of the largest banks 
and other financial institutions in this country to merge. 
Specifically, the bill would reduce the federal review process 
for bank mergers from 30 days to a mere five days. The bill 
would allow the Office of the Comptroller of the Currency to 
waive notice requirements for national bank mergers located 
within the same State. The bill would end the prohibition of 
out of state banks merging with in-state banks that have been 
in existence for less than five years.
    The bill also gives federal thrifts the ability to merge 
with one or more of their non-thrift affiliates. Finally, the 
bill would eliminate certain reporting requirements for bank 
CEO's in regards to inside lending activities.
    Mr. Chairman, I have serious concerns regarding these 
provisions in the bill. During the past 22 years the banking 
industry has experienced unprecedented merger activity. From 
1980 to 2002 there were over 9,500 banking mergers with total 
acquired assets of more than $2.4 trillion. During the 1990s 
many of these mergers involved large banks. Some of the 
proposed mergers had the potential for serious anti-competitive 
effects in local markets.
    Yet, during this period, hardly any mergers were denied 
based on competitive grounds. Huge anti-competitive situations, 
but none of these mergers, very few of them were denied. As a 
result of merger mania there has been a substantial decline in 
the number of commercial banking organizations in the United 
States. We have gone from 12,741 commercial banks in 1989 to 
7,903 in 2002. In 1998 several of the largest bank mergers in 
history took place. For example Nations Bank merged with Bank 
of America resulting in the third largest banking organization 
with approximately 580 billion in assets.
    In addition, Norwest merged with Wells Fargo and Bank One 
merged with First Chicago. Finally, Travelers Group and 
Citicorp has merged and formed the largest banking organization 
in the United States. The 25 largest banks in this country now 
account for more than half of all of the total deposits in the 
United States. It is my understanding that the Federal Reserve 
Board and the Office of the Comptroller of the Currency have 
published descriptive material on fewer and fewer of these 
merger decisions. And I think that that is, in itself a serious 
problem.
    I am very concerned that as a result of these mergers an 
increasing number of banks are considered too big to sale, too 
big to sale. In other words, these banks are now so big that if 
they should get into trouble it will be the American taxpayer 
who will have to bail them out because the argument will be 
made that the consequences of those failures are so great for 
our economy that the taxpayers of this country must bail them 
out.
    I would like to hear discussion today from some of our 
witnesses as to how many banks they consider too big to fail. 
What are the dangers for the taxpayers of this country in terms 
of reliving the S&L crisis, which cost us so many billions of 
dollars?
    Mr. Chairman, has merger mania led to reduction in bank 
fees for the American consumers? We are talking about fewer and 
fewer and larger and larger banks that obviously the assumption 
is the average person benefits. I guess fees must have been 
reduced. Low-income people, working people, must be better off. 
Unfortunately, the evidence seems to indicate that mergers have 
not worked for the benefit of ordinary people. In fact, the 
American consumers today are facing a real crisis in banking 
services. More than 12 million American families cannot afford 
bank accounts and those who can afford them are paying too 
much, especially if they bank at big banks.
    Since bank deregulation began in the early 1980s consumer 
groups, such as U.S. PIRG have documented skyrocketing consumer 
banking fees. Bank fees are rising dramatically. Big banks are 
getting bigger and bank fees are going up. And I think the 
American people want a hard look at that. The average annual 
cost to a consumer of maintaining a regular checking account 
rose to more than $200 over the past few years, an increase of 
$17 compared to 1997. Consumers who bank at big banks paid more 
than $220 a year for the privilege of maintaining a regular 
checking account, that is a lot of money for a regular checking 
account.
    Furthermore, what needs to be looked at what are the 
implications of these mergers for workers, the people who work 
at banks? Are we creating more jobs or are we creating fewer 
jobs? What happens when the workers in one bank have a defined 
benefit pension plan and they merger with another bank that has 
a cash balance pension plan and when these two banks merge, do 
the workers who had the better pension lose out? There is 
evidence that that may be the case.
    So, Mr. Chairman, I want to thank you for holding this 
important hearing. And I will be skipping in and out and 
apologize for that. But, there are some important questions 
that I think need to be answered by our witnesses and I thank 
you, again, for holding this hearing.
    Chairman Bachus. Thank you, Mr. Sanders for pointing out 
those issues.
    I want to first apologize to our State banking regulators 
and credit union regulators. Mr. Gee and Ms. Lattimore are here 
representing State regulators. So, when I commended our Federal 
regulators for being here, I did not mean to leave the two of 
you out, but obviously I did and I apologize for that. Our 
state regulatory bodies are very important to us. So, please 
accept my apologies.
    At this time I am going to recognize the chairman of the 
full committee for remarks. And, then, the ranking member, Mr. 
Frank, is not here, if he arrives. And then the two sponsors of 
the legislation for their opening remarks.
    So, at this time I am going to go to Chairman Oxley.
    Mr. Oxley. Thank you, Mr. Chairman. And I appreciate you 
holding the hearing today on this important subject of 
regulatory relief. Two years ago I asked the financial 
regulators to recommend current statutes that could be altered 
or eliminated to lighten the regulatory burden on insured 
depository institutions, as well as much needed technical 
corrections. Part of our role in this committee is to 
periodically review and, if necessary, change banking statutes 
that have outlived their usefulness. It was also my intention 
to counter-balance the added regulatory responsibility given to 
the financial services industry in the Patriot Act, which had 
gone through our committee in the last Congress.
    In response, the regulators, as well as the industry, 
submitted a number of wide-ranging proposals affecting banks, 
savings associations and credit unions resulting in H.R. 3951, 
which was introduced last year by Representative Capito and 
approved by this subcommittee and the full committee. I am 
pleased that Ms. Capito recently introduced H.R. 1375, the 
Financial Services Regulatory Relief Act of 2003. H.R. 1375 is 
essentially last year's bill with a few revisions and about a 
dozen new items requested by regulators to achieve the 
balancing act necessary for this bill. Not only does 
Representative Capito deserve a great deal of credit, but so do 
the regulators who have come to the table to identify the 
provisions included in this bill and are testifying today.
    And, let me say that we are particularly appreciative of 
the regulatory agencies' suggestions. It is pretty easy to go 
to the regulated community and ask for horror stories and ask 
them about regulations that they feel are unfair or burdensome. 
It is quite another for the regulators to step up and identify 
those regulations and, indeed, some statutes that have outlived 
their usefulness as a result of changes in technology and 
changes in the market place. The financial services industry 
spends a lot of money complying with outdated and ineffective 
regulations. That is money that could instead be lent to 
consumers and businesses for new homes, cars and projects that 
fuel growth in the local community.
    Financial institutions play an important role in preventing 
money laundering and protecting against terrorist financing. 
They should not be burdened by unnecessary regulatory 
requirements.
    So, I look forward, Mr. Chairman, to working with you and 
Ms. Capito and Representative Ross, who have joined me as 
original co-sponsors as we begin hearings on this important 
legislation. I am pleased to yield back.
    Chairman Bachus. Thank you.
    At this time Ms. Capito?
    Mrs. Capito. Thank you, Mr. Chairman. I appreciate you 
holding this hearing today and I want to thank our 
distinguished witnesses for appearing before this subcommittee. 
I want to thank Chairman Oxley and my colleague from Arkansas, 
Mike Ross, for working with me on this legislation.
    As was the case last year, the intent of this bill is to 
eliminate outdated laws, update those requirements that have 
not kept pace with technology and streamline several reporting 
requirements to eliminate unnecessary redundancies. This type 
of regulatory review is especially important, given the 
significant changes that the Gramm-Leach-Bliley Act and the 
Patriot Act brought to the financial services industry.
    H.R. 1735 is essentially the same legislation the committee 
considered last year, incorporating most of the changes made 
during the subcommittee and full committee markup. Regrettably, 
we were unable to consider this on the floor in the 107th 
Congress, but since that time we have received additional 
feedback from the various regulators, and, as a result, have 
added several new sections to the bill, many of which I hope 
will be discussed during this hearing.
    Many of the provisions in this legislation are very 
technical in nature. And I will encourage my colleagues to take 
full advantage of the experts before us this morning.
    Mr. Chairman, while federal regulation plays an important 
role in protecting consumers, instilling confidence and 
ensuring a level playing field, over regulation can depress 
innovation, stifle competition and actually inhibit our 
economy's ability to grow.
    I look forward to working with my colleagues and the 
chairman in reviewing the changes outlined in this legislation 
with the goal of creating common sense regulatory relief bill 
that will help the financial services community thrive, compete 
and offer the best services for its consumers.
    I thank the Chair.
    Chairman Bachus. Thank you.
    At this time I am going to recognize Mr. Ross for an 
opening statement. And are there other members on our side that 
wish to make an opening statement? So, if not, we will have Mr. 
Ross's opening statement and then we will hear from the panel.
    Mr. Ross. Well, good morning, Chairman Bachus and Ranking 
Members Sanders and members of the committee and I think by the 
time it gets to me just about everything that can be said has 
probably been said. But, I want to thank you, Mr. Chairman for 
this hearing today on H.R. 1375 to discuss ways that Congress 
can provide the regulators with the assistance needed to 
streamline the operations and hopefully improve productivity.
    I can say a lot of things about this bill that I am proud 
to co-sponsor, but the bottom line is its common sense 
legislation that is badly needed. And I look forward to the 
testimony of the witnesses and working with my colleagues on 
this important piece of legislation.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    At this time, if no other members have an opening 
statement, let me introduce the panel. And I am going to go 
from my left to right. We have the Honorable Mark Olson, who is 
a member of the Board of Governors of the Federal Reserve 
System here in Washington. Welcome. We have the Honorable 
Dennis Dollar, Chairman, National Credit Union Administration. 
We have Ms. Julie L. Williams who is the First Senior Deputy, 
Comptroller and Chief Counsel for the Office of Comptroller of 
the Currency. We have Mr. William Kroener, General Counsel of 
the Federal Deposit Insurance Corporation. And, I drop the 
third from my name sometimes, so I am doing this to you this 
morning.
    Ms. Carolyn Buck, Chief Counsel, Office of Thrift 
Supervision; Mr. Gavin Gee, Director of Finance, Idaho 
Department of Finance, on behalf of the Conference of State 
Banking Supervisors; and Ms. Jerrie J. Lattimore, who is the 
Administrator of the Credit Union Division, State of North 
Carolina, on behalf of the National Association of State Credit 
Union Supervisors.
    So, we welcome all of you all. We will start our opening 
statements. You have probably been told to limit it to the five 
minutes. But, we do allow people to run over a minute or two. 
And we will do that this morning. But, it is not encouraging 
you to go more than five minutes, but you do have that 
opportunity.
    Governor Olson, we will start with you.

  STATEMENT OF MARK OLSON, MEMBER, BOARD OF GOVERNORS OF THE 
                     FEDERAL RESERVE SYSTEM

    Mr. Olson. Thank you very much, Mr. Chairman, and thank you 
for holding this hearing. And, thanks also, to the chairman of 
the full committee for his asking us, as you pointed out in 
your opening remarks, to submit suggestions to you for 
inclusion in this legislation.
    We have submitted a statement for the record. I would just 
like to highlight a few of the items that we have included and 
then we will be able to respond to questions in greater detail 
if there are any from the members. One of the suggestions that 
we have included concerns interstate branching. In the Riegle-
Neal legislation interstate branching was allowed for the first 
time, but it was allowed on an opt-in basis by the State.
    17 States have adopted the opt-in and 33 have not. And, as 
a result of that, it particularly impacts, we believe, the 
smaller banks whose natural markets are along State borders. 
Whereas, a large bank organization could branch into a state 
through an acquisition, a smaller bank would find that to be 
expensive and cumbersome. And we think that this will encourage 
branches in those markets, many of which are now somewhat 
underserved.
    We would also point out, however, that if the committee 
chooses to include this recommendation, that it would not 
include the ILC's, the industrial loan companies that operate 
outside of the construct of the Gramm-Leach-Bliley provisions 
that were so carefully put together by the Congress in 1999.
    A second issue that is important is allowing insured banks 
to engage in interstate mergers with thrifts. Right now banks 
are allowed to merge interstate with other banks, but not with 
thrifts or with uninsured trust companies. So, those 
acquisitions now do take place, but they only take place after 
the thrift goes through a conversion to a bank charter. And it 
is an unnecessary, expensive and time-consuming step.
    The third provision that we have interest in involves the 
merchant banking provisions under the Gramm-Leach-Bliley Act. 
There are certain cross marketing opportunities that are 
allowed in a very narrow sense for merchant banking, companies 
that are held in the merchant banking portfolio by insurance 
entities that are part of the financial holding company, but 
are not allowed at the moment for banks that have ownership of 
a corporation in its merchant banking portfolio. These are very 
limited cross marketing opportunities, and we are suggesting 
that the banks ought to have the same opportunities as the 
thrifts.
    Also, we do not believe that the cross marketing provision 
should be included where the banks portion consists of less 
than a controlling ownership in the merchant banking 
investment.
    A fourth provision that is of interest concerns the 
attribution rule for stock that is owned under trust 
provisions. In certain instances, where a company's stock is 
owned under certain trust provisions for the benefit of the 
employees or stockholders or members, those shares are included 
in the attribution rule for purposes of determining whether or 
not there is control.
    We have found that there are a certain limited number of 
cases, mostly involving the 401k's or IRA's where there are 
self-directed investments; where the attribution rule in net 
appropriation. We are asking for the opportunity to waive the 
right, not to repeal the statute, but to waive the right in 
certain instances where that is determined to be the case.
    A final one that I would like to mention this morning is 
the post-approval waiting period. That is now a 30-day period 
by statute. It can be reduced to 15 days. We are suggesting 
that it could be reduced again to a five-day waiting period. 
Importantly, that would only be done after the U.S. Attorney 
had reviewed the case and determined that there were no anti-
competitive issues involved.
    We have some other provisions, Mr. Chairman, that I would 
be happy to respond to questions, but I think those are the 
ones that I would like to mention in my opening statement.
    [The prepared statement of Hon. Mark Olson can be found on 
page 124 in the appendix.]
    Chairman Bachus. Thank you.
    Chairman Dollar?

  STATEMENT OF HON. DENNIS DOLLAR, CHAIRMAN, NATIONAL CREDIT 
                      UNION ADMINISTRATION

    Mr. Dollar. Well, thank you, Mr. Chairman. We appreciate so 
much the opportunity to be here today on behalf of the National 
Credit Union Administration. I think it would be very difficult 
with our names for Ms. Buck and I not to be here to discuss 
common sense legislation.
    Chairman Oxley, we appreciate his leadership and 
Representative Capito and Representative Ross for theirs as 
well on this particular piece of legislation.
    We continue to believe that this legislation will 
positively impact our ability to provide a safe and sound 
regulatory environment for America's credit unions in what is, 
indeed, an ever-changing and dynamic financial marketplace. And 
I would like to just briefly discuss the following 
recommendations that are included in H.R. 1375 that address 
regulatory relief and productivity improvement for federal 
credit unions.
    These proposals, as presented in the bill, are consistent 
with the mission of credit unions and the principles of safety 
and soundness. First is regarding check cashing, wire transfer 
and other money transfer services. In order to reach the 
unbanked, Mr. Chairman, Federal credit unions should be 
authorized, we believe, to provide these services to anyone 
eligible to become a member. This is particularly important to 
the overwhelming majority of federal credit unions whose field 
of a membership include individuals of limited income or means. 
These individuals, in many instances, do not have mainstream 
financial services available to them and are often forced to 
pay excessive fees for check cashing, wire services, wire 
transfers and the like. We are pleased to see that Section 307 
of the bill does include this provision and we certainly 
support that.
    The one-size-fits all 12-year maturity limit on federal 
credit union loans is also outdated and unnecessarily restricts 
federal credit unions' lending authority. NCUA is pleased that 
our recommendation regarding this has also been incorporated in 
the bill in Section 304, and we support this.
    The 1 percent aggregate investment limit for a credit union 
in a CUSO or a credit union service organization, is a 
statutory provision that is unrealistically low and forces many 
credit unions to either bring services in-house, thus, 
potentially increasing risk of the credit union and the 
insurance fund or to turn to outside providers and run the risk 
of losing control.
    NCUA is very comfortable with the solution that has been 
proposed by the legislation in Section 305, which increases 
that CUSO investment limitation from 1 percent to 3 percent.
    The Federal Credit Union Act also, we feel should be 
amended and this legislation does do so to provide some 
additional conservative investment authorities that have been 
proven sound and safe by State chartered credit union and some 
other financial institutions. With proper restrictions as 
drafted in the legislation, as has been provided in Section 
303, we can support the provisions that you have given to 
expand credit union investment options in a safe, sound and 
conservative manner.
    The Federal Credit Union Membership Act also allows 
voluntary mergers of healthy federal credit unions. There is no 
logical reason, however, to require in connection with those 
mergers, that groups of over 3,000, or any group for that 
matter, be required to spin-off and form a separate credit 
union. These groups are already included in a credit union in 
accordance with statutory standards and that status is 
unaffected by a merger. NCUA is pleased to see that Section 308 
of the proposed legislation as drafted addresses these 
concerns.
    Another item that we are pleased to see included in this 
year's bill, Section 313, is the provision to provide 
regulatory relief from the requirement that credit unions 
register with the Securities and Exchange Commission as broker 
dealers when engaging in certain specified de minimus 
securities activities. The requested parity relief is 
consistent with that granted to thrifts in this legislation and 
it would apply only to those activities otherwise authorized 
for credit unions under applicable credit union chartering 
statutes. It does not in any way increase the authorities of 
credit union for such things, but it does allow them to 
continue to do such things as third party brokerage 
arrangements, sweep accounts and certain safekeeping and 
custodial activities without requiring the cost and the burden 
of registration.
    We have also reviewed the other provisions that have been 
added to the bill that were above and beyond the items that 
were submitted by us as a regulator last year. All of those 
provisions we have reviewed from a safety and soundness 
perspective and have no safety and soundness concerns 
whatsoever with those additions.
    One last item I would like to address before I close, Mr. 
Chairman, is regarding the issue of privately insured credit 
unions and the Federal Home Loan Bank membership. Last year, 
NCUA took no formal position on that section of the bill. And, 
again, we take no official position on the public policy issue 
involved in that section this year. However, we do find 
ourselves uncomfortable with changes to Section 301 as it 
appears in that section of the bill this year for the following 
reasons:
    Our concern stems from the language which has been added to 
the original section, which makes it appear that oversight 
responsibility for non-federally insured credit unions and 
certain State regulated private share insurance companies rest 
with NCUA. NCUA, Mr. Chairman, has no legal authority, 
regulatory or supervisory jurisdiction over these non-federally 
insured credit unions or commercial insurance companies, nor do 
we seek it. In our view the language requiring private 
insurance providers to submit copies of their annual audit 
reports to NCUA should be considered for being removed to avoid 
any potential consumer confusion and misunderstanding. In its 
passage of the FDICCIA Act in 1991, Congress designated the 
Federal Trade Commission as the agency responsible for 
oversight of private deposit insurance companies and the 
protection of consumers through appropriate disclosure 
provisions. As the matter remains one of consumer awareness, 
disclosure and notification, and not of federal credit union 
regulation, NCUA feels strongly that the Federal Trade 
Commission should retain this oversight authority. The 
additional language, which could be interpreted to infer an 
NCUA role that is neither appropriate, nor statutorily 
authorized to provide oversight to either State chartered 
privately insured credit unions or a private insurance company 
regulated by an agency designated by State statute should, in 
our opinion, be removed from Section 301.
    It has been five years, Mr. Chairman, since Congress has 
thoroughly addressed our statutes and the regulations that 
emanate from them. The review and relief sought in this 
proposed legislation is, indeed, both needed and timely. Our 
goal at NCUA as we implement these regulatory relief provisions 
and any others that Congress ultimately chooses to enact, will 
be to take all actions with an eye towards removing unnecessary 
regulatory burdens while maintaining, as is proven by the 
historical strong performance of America's credit unions, our 
first and foremost priority and commitment to both safety and 
soundness and necessary regulation to protect the American 
public. On behalf of the NCUA board, I am glad to be here today 
to work with the committee, to work with the subcommittee as we 
draft this important, and, I agree, again, common sense 
legislation.
    Thank you, Mr. Chairman.
    [The prepared statement of Hon. Dennis Dollar can be found 
on page 62 in the appendix.]
    Chairman Bachus. Deputy Comptroller Williams?

STATEMENT OF JULIE L. WILLIAMS, FIRST SENIOR DEPUTY COMPTROLLER 
  AND CHIEF COUNSEL, OFFICE OF THE COMPTROLLER OF THE CURRENCY

    Ms. Williams. Chairman Bachus and Members of the 
Subcommittee, I appreciate this opportunity to appear before 
you again to express the views of the Office of the Comptroller 
of the Currency on H.R. 1375. Let me also thank Congresswoman 
Capito again for sponsoring a bill that includes sensible and 
appropriate regulatory burden relief for national banks and for 
other financial institutions. Let me also note that we very 
much appreciate the courtesies extended by Committee staff as 
we and the other federal banking agencies have developed 
proposals and discussed issues with the staff leading up to 
today's hearing.
    This morning I will highlight just a few of the provisions 
in the bill that we believe are especially important. My 
written testimony goes into additional detail and covers a 
number of other provisions.
    The bill contains several provisions that streamline and 
modernize aspects of the corporate governance and interstate 
operations of national banks. We strongly support these 
measures. Although some may seem like relatively technical 
points, as Congresswoman Capito pointed out in her opening 
remarks, they can make a big difference in practice for banking 
institutions.
    For example, the bill modifies the so-called qualifying 
shares requirement currently in the National Bank Act, which 
has made it difficult for some national banks to obtain 
favorable tax treatment as a Subchapter S corporation. The 
qualifying shares provision currently requires every national 
bank director to hold a minimum equity interest in his or her 
national bank. Because of this requirement, however, some 
national banks may end up with more shareholders than the law 
permits for a corporation wishing to elect Sub-S status. 
Community banks are most disadvantaged by this result.
    The bill would solve this problem by authorizing the 
Comptroller to permit the directors of banks seeking Sub-S 
status to hold subordinated debt instead of equity securities. 
Holding subordinated debt would not cause a director to be 
counted as a shareholder for purposes of Subchapter S and would 
address the problem that I described.
    A second important provision that has been added to the 
bill this year clarifies that the OCC may permit a national 
bank to organize in business forms other than what is known as 
a body corporate. This may sound arcane, but if a national bank 
were able to organize as a limited liability national 
association, for example, the bank may be able to take 
advantage of the pass-through tax treatment that is available 
to comparable limited liability entities under certain tax 
laws. This would eliminate double taxation under which the same 
earnings are taxed both at the corporate level as corporate 
income and at the shareholder level as dividends.
    Some States already permit state banks to be organized as 
unincorporated limited liability companies, and the FDICC has 
recently adopted a rule allowing state bank LLC's to qualify 
for deposit insurance if they meet certain conditions. This 
provision in the bill may be especially useful for community 
national banks, again, in the long run.
    Another provision we strongly endorse repeals the 
requirement in current law that a State must affirmatively 
enact legislation in order to permit national and State banks 
to conduct interstate expansion through so-called de novo 
branching. Banks and their customers would benefit from this 
change, which would permit a bank to choose the form of 
interstate expansion that makes the most sense for its business 
needs and customer demand.
    Federal thrifts have enjoyed this type of flexibility for 
decades. In today's internet age when customers can communicate 
remotely with banks located in any state, restrictions on where 
a bank may establish branch facilities in order to serve 
customers in person are an unnecessary legacy from a 
protectionist era that detracts from healthy competition and 
from customer service.
    The bill also contains provisions that help enhance the 
safety and soundness of the banking system. For example, the 
bill expressly authorizes the agencies to enforce an 
institution-affiliated party's or a controlling shareholder's 
written commitment to provide capital to an insured depository 
institution. This provision would enable the agencies to hold 
parties to the capital commitments that they make and could 
help mitigate lawsuits against the deposit insurance funds.
    Two other important new provisions have been added to the 
bill since last year that promote safety and soundness. First, 
the bill addresses the fact that independent contractors, such 
as accountants for insured depository institutions, are treated 
more leniently under the enforcement provisions in the current 
banking law than are directors, officers, employees, 
controlling shareholders and even agents for the institution. 
The bill addresses this disparity by holding independent 
contractors to a standard that is more like the standard that 
applies to other institution-affiliated parties.
    The bill also addresses safety and soundness issues that 
have arisen for the banking regulators when a so-called 
stripped-charter institution is used to acquire a bank with 
deposit insurance through a Change in Bank Control Act notice 
without the prospective acquirer submitting an application for 
a new charter or an application for deposit insurance. The 
agency's primary concern with this type of Change in Bank 
Control Act notice is that the acquirer of the stripped charter 
is effectively buying a bank charter without the scope of 
safety and soundness review that the law requires when 
applicants seek a new charter and deposit insurance even though 
the risks presented by the two sets of circumstances may be 
substantively identical.
    In conclusion, as I noted, my written statement makes 
suggestions for some additional amendments to the current law 
that we believe would make useful improvements to the bill. We 
very much look forward to working with the Subcommittee and 
with the other federal banking agencies as the bill advances.
    Mr. Chairman, Congresswoman Capito, on behalf of the OCC, 
we thank you for your support of this legislation. At the 
appropriate time I will be happy to answer any questions you 
may have.
    [The prepared statement of Julie L. Williams can be found 
on page 134 in the appendix.]
    Chairman Bachus. Thank you.
    Chief Counsel Kroener?

STATEMENT OF WILLIAM F. KROENER, III, GENERAL COUNSEL, FEDERAL 
                 DEPOSIT INSURANCE CORPORATION

    Mr. Kroener. Thank you. Mr. Chairman, and Members of the 
Subcommittee, I appreciate the opportunity to present, again, 
the views of the Federal Deposit Insurance Corporation on 
proposed legislation to provide regulatory burden relief.
    The FDICC shares the Subcommittee's continuing commitment 
to eliminate unnecessary burden and to streamline and modernize 
laws and regulations as the financial industry evolves. FDICC 
Vice Chairman John Reich is leading the Federal Financial 
Institutions Examination Council effort to conduct a thorough 
review of regulations to identify outdated and otherwise 
unnecessary ones.
    This review, which is mandated by the Economic Growth and 
Regulatory Paperwork Reduction Act of 1996, is not due until 
2006. By advancing it as we have, the FDICC sees it as an 
opportunity to reinforce ongoing efforts to lessen regulatory 
burden and identify other areas of regulatory overlap and 
inefficiencies. The FDICC is also leading interagency efforts 
to implement improved collection management and distribution of 
Call Report information using XBRL, a data standard for 
transporting and displaying financial reporting information 
using the Internet.
    We are working with other regulators, accounting firms, 
software companies and financial services providers around the 
world to promote transparency, processing efficiency and 
improved risk management techniques using the new data 
standards.
    The FDICC continues its extensive efforts to provide 
regulatory relief for the industry by streamlining examination 
processes and procedures with an eye toward better allocating 
FDICC resources to areas that could pose the greatest risk to 
the insurance funds. These FDICC efforts to reduce burden 
include targeted examinations based on the institution's risk 
profile. By use of risk focused examination procedures the 
FDICC has reduced the average time spent conducting risk 
management examinations in qualifying institutions by well over 
our original 20 percent goal.
    Chairman Powell remains keenly interested in exploring all 
measures to eliminate inefficiencies and costs in the 
supervisory and regulatory systems. We have on our website an 
opportunity for institutions to suggest ways to reduce burden, 
and we take those suggestions seriously and follow-up on them 
as promptly as we can.
    The FDICC commends the Subcommittee for holding this 
hearing and Representative Capito for introducing legislative 
changes to lessen the regulatory compliance burden on insured 
depository institutions. The FDICC staff worked closely with 
the Subcommittee staff in developing several of the provisions 
contained in the proposed legislation, including many that will 
help the FDICC become more efficient and effective in 
regulating insured institutions.
    The FDICC enthusiastically supports the provisions in H.R. 
1375 that we suggested for inclusion in the bill. The 
provisions that the FDICC endorses include:
    (1) those that clarify that the agency may suspend or 
prohibit individuals from participation in the affairs of any 
depository institution and not solely the insured depository 
institution with which the individual is or was associated;
    (2) those that specify the time period during which the 
appointment of the FDICC as conservator or receiver of a failed 
insured depository institution could be challenged;
    (3) those that modify the requirement for retention of old 
records of a failed insured depository institution at the time 
a receiver is appointed;
    (4) those that permit the FDICC to rely on records 
preserved electronically such as optically imaged or computer 
scanned images; and,
    (5) those that clarify existing authority of the FDICC as 
receiver or conservator to enforce written conditions or 
agreements entered into between insured depository institutions 
and institution affiliated parties and controlling 
shareholders.
    The FDICC also supports section 409 that amends the Change 
in Bank Control Act to address an issue that arises when a 
``stripped charter'' institution is the subject of a change in 
control notice. This is the provision that Deputy Williams 
mentioned in her oral statement. Section 409 clarifies the base 
on which such notices may be disapproved and expands the base 
for extensions of time for considerations of notices raising 
novel or significant issues.
    The FDICC also supports a number of the provisions that 
were requested by our fellow regulators here on the panel today 
and were included in the proposal. For example, the provisions 
that streamline merger application requirements and those that 
permit bank examiners to receive credit from any insured 
depository institution so long as it is on the same terms and 
conditions as credit offered to the general public.
    The FDICC recommends that the Subcommittee include a number 
of additional regulatory relief items in the bill. For example, 
we recommend inclusion of language that provides each of the 
other federal banking agencies with express authority to take 
enforcement action against banks they supervise based on 
violations of conditions imposed by the FDICC in writing in 
connection with approval of an institution's application for 
deposit insurance. We also recommend amendments to the Bank 
Merger Act and Bank Holding Company Act to require 
consideration of potentially adverse effects on the insurance 
funds of any proposed bank merger transaction or holding 
company formation or acquisition and language that improves our 
ability to act as receiver of failed institutions--language 
that provides for the FDICC to gain access to individual FICO 
scores to improve our ability to evaluate assets and recommend 
transaction structures for failing banks, and a provision to 
clarify the FDIC Act relating to the resolution of deposit 
insurance disputes in the case of failed insured depository 
institutions.
    I have included the legislative language on these and 
several other provisions with my written statement. Thank you, 
again, for the opportunity to present the FDICC's views on 
these issues. The FDICC supports the Subcommittee's continued 
efforts to reduce unnecessary burden on insured depository 
institutions and we continually strive for efficiency in the 
regulatory process and are pleased to work with the 
Subcommittee in accomplishing this goal.
    I look forward to your questions at the appropriate time, 
Mr. Chairman. Thank you.
    [The prepared statement of William F. Kroener, III can be 
found on page 84 in the appendix.]
    Chairman Bachus. I thank the General Counsel.
    Now, we will hear from Chief Counsel Buck.

  STATEMENT OF CAROLYN BUCK, CHIEF COUNSEL, OFFICE OF THRIFT 
                          SUPERVISION

    Ms. Buck. Good morning, Mr. Chairman and members of the 
subcommittee. Thank you for the opportunity on behalf of OTS to 
testify on H.R. 1375, the Financial Services Regulatory Relief 
Act of 2003 sponsored by Congresswoman Capito and Congressman 
Ross. I commend them on the bill and their efforts to reduce 
regulatory burden on depository institutions.
    During periods of economic uncertainty it is particularly 
important that we make every effort to remove unnecessary 
regulatory obstacles that divert valuable resources and hinder 
innovation and competition in our financial services industry. 
In my written testimony I discuss a number of proposals that we 
believe would significantly reduce burden on thrift 
institutions. And I ask that the full text of that statement be 
included in the record.
    Today, I will highlight the portion of H.R. 1375 that would 
provide the most significant relief to thrifts. These are the 
proposed amendments that would treat thrifts and banks the same 
under the federal securities laws. Banks and thrifts may engage 
in the same types of activities covered by the investment 
advisor and broker dealer requirements of the federal 
securities laws. And these activities are subject to 
substantially similar supervision by OTS and bank regulators. 
The key point is that banks, but not thrifts, are exempt from 
registration under the Investment Advisors Act of 1940 and 
banks, but not thrifts, enjoy an exemption from broker dealer 
registration under the 1934 act for certain activities 
specified in the Gramm-Leach-Bliley Act. For purposes of the 
broker dealer requirements the SEC does treat thrifts the same 
as banks. That is the commission has exercised its exceptive 
authority, for now, to treat thrifts the same as banks. But the 
SEC has not extended that same parity to the investment advisor 
requirements. We believe that treating thrifts and banks the 
same under the federal securities laws makes sense for a number 
of reasons. Thrifts fill an important niche in the financial 
services arena by focusing their activities primarily on 
residential, community, small business and consumer lending. 
The Homeowners Loan Act allows thrifts to provide trust and 
custody services on the same basis as national banks, and 
investment advisor and third party brokerage in the same manner 
as banks. Not only are the authorized activities the same, but 
OTS examines activities in the same manner as the other banking 
agencies.
    While the bank and thrift charters are tailored to provide 
powers focused on different business strategies, in areas where 
the powers are similar, the rules should be similar. No 
legitimate public policy rationale is serviced by imposing 
additional and superfluous administrative costs on thrifts to 
register as an investment advisor or broker dealer when banks 
are exempt from registration. There should be similar 
treatments for regulated entities under similar circumstances.
    And the circumstances here are that, first, thrifts, like 
banks, have a regulator that specifically supervises the type 
of activities covered by the investment advisor and broker 
dealer registration requirements. Second, thrifts, like banks, 
are subject to the same functional regulatory scheme that was 
endorsed by the Gramm-Leach-Bliley Act. And, third, thrifts, 
like banks, are subject to substantially similar customer 
protections with respect to the activities covered by the 
registration requirements, which, by the way, are based on the 
SEC's own customer protection rules.
    The only difference is that thrift, unlike banks, are 
subject to an additional and clearly burdensome administrative 
registration requirement. As best stated in the SEC's own 
words, from the preamble to their May 2001 interim rule 
extending broker dealer parity to thrifts, quote, insured 
savings associations are subject to a similar regulatory 
structure and examination standard as banks. Extending the 
exemption for banks to savings associations and savings banks 
is necessary or appropriate in the public interest and is 
consistent with the protection of investors. End quote. We 
could not have said this better ourselves.
    For that reason, OTS strongly supports the amendments in 
H.R. 1375 to extend the bank registration exemption to thrifts. 
Absent this treatment, thrifts are placed at a competitive 
disadvantage that is without merit and that imposes significant 
regulatory costs and burdens. As recently as the Gramm-Leach-
Bliley Act, Congress affirmed the principles underlying the 
bank registration exemption. We believe the best way to resolve 
this matter for thrifts with certainty and finality is for 
Congress to extend by statute the same exemption to thrifts.
    This would also have the beneficial effect of avoiding the 
need for a series of SEC administrative exemptions as the need 
arises, another potential regulatory burden. OTS itself is 
committed to reducing burden whenever it has the ability to do 
so, consistent with safety and soundness and compliance with 
law. The proposed legislation advances this objective and we 
appreciate that many of the reforms that we have long desired 
are included in the bill.
    I especially thank you, Mr. Chairman, Congresswoman Capito, 
Congressman Ross and all the others who have shown leadership 
on this issue and we look forward to working with the 
subcommittee on this legislation. Thank you.
    [The prepared statement of Carolyn Buck can be found on 
page 49 in the appendix.]
    Chairman Bachus. Thank you.
    And, Mr. Gee, and it is Director Gee, I pronounced your 
name Gee when I introduced you. We have a Gee's Bend in Alabama 
and it is spelled the same way, so I guess in Mississippi it 
may be Gee, but everywhere else it is probably Gee.

     STATEMENT OF GAVIN M. GEE, DIRECTOR OF FINANCE, IDAHO 
  DEPARTMENT OF FINANCE, ON BEHALF OF THE CONFERENCE OF STATE 
                        BANK SUPERVISORS

    Mr. Gee. That is fine, Mr. Chairman. I have been called 
much worse.
    Good morning, Mr. Chairman and members of the subcommittee. 
My name is Gavin Gee I am the Idaho Director of the Department 
of Finance and Chairman of the Conference of State Banks 
Supervisors. Thank you for asking us to be here today and to 
share the view of CSBS, the Conference of State Bank 
Supervisors, on regulatory burden reduction and the Financial 
Services Regulatory Relief Act of 2003. And, thanks also to 
Representatives Capito and Ross for your hard work on this 
legislation. We applaud your efforts to reduce the burdens 
imposed by unnecessary or duplicative regulations that do not 
advance the safety and soundness of the nation's financial 
institutions.
    The most important contribution toward reducing regulatory 
burden may be empowering the State banking system. State banks 
and State chartering system have created the vast majority of 
innovations in banking products, services and business 
structures. For this reason we are disappointed that a 
provision to allow State chartered member banks to utilize the 
powers of their charter is not included in the bill. Through 
innovation, coordination and the dynamic use of technology, 
States have made great strides in reducing regulatory burden 
for the institutions that we supervise.
    My submitted testimony describes these efforts in much more 
detail. The Financial Services Regulatory Relief Act of 2003 
can be a valuable federal compliment to these efforts. With 
respect to interstate branching requirements, as you may know, 
current Federal law has taken an inconsistent toward to how 
banks may branch across State lines. While Riegle-Neal gave the 
appearance that States could control how banks may enter and 
branch within their borders, this has not always been the 
reality. Perhaps, because it was believed that the federal 
thrift charter would be eliminated at the time Riegle-Neal was 
adopted, the law was not applied to federally chartered 
thrifts. The result is, that a federal thrift can branch 
without regard to State law and rules of entry. Since the 
passage of Riegle-Neal, the OCC has promulgated creative 
interpretations of the National Banks Act that effectively 
circumvent the application of Riegle-Neal to branch-like 
operations.
    The result is that State chartered institutions, 
particularly community banks wishing to branch interstate are 
at a competitive disadvantage to those institutions that can 
use federal options to branch without restrictions. Presently, 
only 17 States now allow de novo branching. Whatever the 
outcome of your review of Federal law, we urge Congress to 
eliminate the disadvantage it has created for State banks 
because of the inconsistent application of Federal law.
    CSBS also hopes that the committee will rethink, including 
the State member bank powers amendment. There is a detailed 
discussion of the amendment in my written testimony. 
Additionally, we encourage the committee to work with the 
Internal Revenue Service to reconsider its interpretation of 
the tax status of State chartered banks structured as limited 
liability corporations. While we understand that tax issues are 
not in the committee's jurisdiction, this would be meaningful 
regulatory relief for community banks.
    CSBS believes that improved coordination and cooperation 
between regulators should be a cornerstone of regulatory 
relief. In that spirit, we suggest that Congress could improve 
the Federal Financial Institutions Examination Counsel by 
changing the State position from one of observer to that of 
full voting member. We also ask the committee and Congress to 
address the implementation and implications of regulatory 
preemption by the Office of the Comptroller of the Currency and 
the Office of Thrift Supervision. CSBS believes this request 
for review of preemption and applicable law is appropriately a 
regulatory burden reduction matter as well. Our banking system 
is a complex and evolving web of State and Federal law, 
particularly for State chartered institutions. Greater sunshine 
on OCC and OTS interpretations of applicable law for the 
institutions they charter would also help clarify applicable 
law for our nation's more than 6,000 State chartered banks 
representing nearly 70 percent of all insured depositories.
    A clear articulation of OCC and OTS standards of preemption 
would also lessen the legal burden of litigation over the 
federal regulators sometimes-tenuous interpretations of federal 
law.
    In conclusion, the quest to streamline the regulatory 
process while preserving the safety and soundness of our 
nation's financial system is critical to our economic well-
being and to the health of our nation's financial institutions. 
We commend this committee for its efforts in this area.
    Thank you for the opportunity to testify on this important 
subject. And we look forward to any questions that you and 
members of the subcommittee might have. Thank you.
    [The prepared statement of Gavin M. Gee can be found on 
page 69 in the appendix.]
    Chairman Bachus. Thank you. And, for the record that was 
four minutes and 53 seconds. You have the record right now.
    Administrator Lattimore, we welcome you.

 STATEMENT OF JERRIE J. LATTIMORE, ADMINISTRATOR, CREDIT UNION 
 DIVISION, STATE OF NORTH CAROLINA, ON BEHALF OF THE NATIONAL 
         ASSOCIATION OF STATE CREDIT UNION SUPERVISORS

    Ms. Lattimore. Thank you, Mr. Chairman and members of the 
subcommittee. My name is Jerrie J. Lattimore. I am the North 
Carolina Regulator for State chartered Credit Unions and the 
Chairman of NASCUS; NASCUS is the National Association of State 
Credit Union Supervisors. We regulate 4,300 State chartered 
credit unions throughout the United States, which is almost 50 
percent of all the credit unions.
    NASCUS is supportive of your efforts to reduce regulatory 
burden. I will comment today on those aspects of H.R. 1375 that 
directly impact State chartered credit unions and also would 
suggest some further revisions to the Federal Credit Union Act 
as outlined in our letter to Chairman Oxley dated January 23, 
2003.
    Section 301 of H.R. 1375 would authorize State chartered 
privately insured credit unions to be eligible for membership 
in the Federal Home Loan Banks. Expanding the field of 
institutions eligible for membership in no way alters the 
vigorous credit underwriting standards that an institution must 
meet in order to join the Federal Home Loan Bank or receive an 
advance. In addition, every Federal Home Loan Bank advance is 
fully secured by marketable collateral. It is our understanding 
that none of the banks has ever had a loss on an advance. This 
provision would allow qualified institutions to have an 
additional source of credit to use for the purpose of extending 
homeownership to their members. We urge the committee to 
approve this provision of the bill that would help achieve our 
nation's goals of homeownership.
    Secondly, Section 313, NASCUS supports that section that 
would provide credit union's relief from the SEC registration 
requirements. The NCUA has endorsed provisions of this bill 
that would grant parity of treatment to all Federal and State 
federally insured credit unions and has previously submitted 
language to that effect.
    NASCUS would urge the committee to approve such a provision 
for all State chartered credit unions. It should be clearly 
understood that this provision does not create any new powers 
for State chartered credit unions.
    There are two other legislative issues that NASCUS would 
like for this committee to consider. The first is relief from 
member business loan constraints that were added by the Senate 
to the Credit Union Member Access Act of 1998. Historically, 
many credit unions have provided loans for their members' 
business purposes. Member business lending not only meets the 
credit needs of the member, but also serves as a valuable 
source of financing for community development and local job 
creation.
    Credit unions are not in the business of lending to foreign 
corporations or governments. Their business loans are made 
locally and the funds recycle throughout the community. In an 
economic environment where entire industries are severely 
affected, businesses are closing and jobs are being lost, these 
member business loans are vital to the economy.
    NASCUS would urge that the restrictions on member business 
lending be removed from the Federal Credit Union Act for State 
chartered credit unions and returned to the State legislators 
and the credit union supervisors to regulate. If that solution 
is not acceptable, NASCUS would then urge that credit unions be 
granted business lending authority equivalent to that proposed 
for federal savings institutions, that is, the asset limitation 
contained in the Federal Credit Union Act for business loans 
should be raised from 12.25 percent to 20 percent, which is the 
same percentage proposed for federal savings associations.
    Secondly, micro member business loans that are less than 
the Fannie Mae and Freddie Mac ceiling, which is roughly 
$322,000, be excluded from the member business loan definition.
    The second issue is to permit credit unions to include 
supplemental capital as part of net worth for prompt corrective 
action. The combination of prompt corrective action 
requirements established by Congress in 1998 and the subsequent 
rapid deposit growth has created a financial and regulatory 
dilemma for many State chartered credit unions. PCA net worth 
requirements are higher for credit unions than they are for all 
other financial institutions. All types of financial 
institutions currently employ supplemental capital in some 
form. It is already authorized for low-income and corporate 
credit unions. All credit unions should be afforded the use of 
supplemental capital if they so desire. With the flight to 
quality from the stock market, many credit unions are 
experiencing rapid share growth, which results in reduced net 
worth ratios. It makes good business sense to include other 
forms of capital that lend additional soundness to an 
institution. We should take every financially feasible step to 
strengthen this nation's credit unions, which, in turn, 
strengthens the financial condition of its members.
    To further support this proposition I have a Filene 
Research Institute Study done by Dr. James Wilcox of the 
University of California at Berkley. His conclusion was that 
marketing of subordinated debt would require increased 
transparency and disclosure about a credit union's financial 
condition. And it would create a larger cushion for the share 
insurance fund. Subordinated debt would impose an element of 
direct market discipline on the industry. This study is 
lengthy. I will not submit it for the record. But, I do have it 
for any members of the committee, who would like a copy.
    During the last Congress, Representatives Brad Sherman and 
Robert Ney introduced amendments addressing supplemental 
capital and we hope these amendments will be enacted during 
this session. Again, we thank you very much for this 
opportunity to testify and we look forward to helping this 
subcommittee in any way that we can.
    Thank you.
    [The prepared statement of Jerrie J. Lattimore can be found 
on page 114 in the appendix.]
    Chairman Bachus. Thank you.
    I have got one brief question I am going to ask Mr. Gee. 
And then I am going to surrender the balance of my time to Ms. 
Capito.
    You talked about a possible disadvantage of a State 
chartered institution branching across State lines and I want 
to address that. You talked about the improvements in 
coordination between the State regulators to support interstate 
operations. We have received a proposal, which would give 
greater certainty to State charters operating interstate 
reflecting the current state cooperative agreements signed by 
all the States. Does the Conference of State Banking 
Supervisors support that amendment? Are you aware of it and do 
you support it?
    Mr. Gee. Thank you, Mr. Chairman, for the question. You 
mentioned the interstate cooperative agreements, and yes these 
agreements have been in place, I believe, since about 1994. 
Generally they have worked very well among the States. We work 
to provide seamless supervision, a single point of contact. We 
have similar agreements with the federal agencies to provide 
the same thing. And I would have to say from our perspective, 
for the most part, those work very well on an interstate 
environment. We are aware of these proposals. And, to answer 
your question specifically, yes, we do support them. We would 
look forward to providing greater certainty for those banks 
that are, I guess, either uncomfortable with just the 
cooperative agreement that are essentially voluntary 
cooperative agreements. They do not have the force and 
effective law. So, we would be very interested in working with 
the committee and you, Mr. Chairman, on those proposals, and, 
yes, we would support them.
    Chairman Bachus. Thank you. And I know that there is some 
controversy. Mr. Hensarling was here earlier and I know he has 
some interest in the State of Texas. I am not sure that it will 
be in this legislation.
    Ms. Capito?
    Mrs. Capito. Thank you, Mr. Chairman.
    And, thank you all for your testimony.
    I would like to ask Governor Olson a question as to the 
shortening of the post-approval waiting period for bank 
mergers. In some of the opening statements, it was alluded to 
and I would like for your clarification on this. Would you 
describe the review process and the waiting periods? And, it is 
my understanding the Attorney General would have to sign off on 
this before the five-day waiting period would go into effect.
    Mr. Olson. You are correct, Congresswoman. The process, the 
application process is a lengthy and very time-consuming 
process and there is a lot of input that is received regarding 
all of the implications of the application. After the approval 
has been made by all of the appropriate regulatory authorities 
there is then a time period that is allowed for the U.S. 
Attorney General to determine if there are any anti-trust 
implications in it. That is a 30-day period that can now be 
reduced to 15 days.
    And we are suggesting that when, and only when, the 
Attorney General indicates that there are no anti-competitive 
implications of the merger, that then it could be reduced to a 
five-day period.
    Mrs. Capito. But, in no way would it affect the overview 
oversight?
    Mr. Olson. It does not. This is post-application approval, 
during which time it is the time period allowed only for the 
Attorney General to respond.
    Mrs. Capito. Thank you.
    I have a question for Chairman Dollar. You support Section 
313, which exempts the federally insured credit unions from 
certain broker dealer, and you spoke about this in your opening 
statement. You point out that this is--this exemption will have 
somewhat more limited application to credit unions than to 
other depository institutions. There is some concern from 
others about this provision. Would you explain how the 
exemption would apply in the credit union context and why it is 
more limited at scope and how does NCUA oversee investment and 
advisor activities specifically regarding disclosure and level 
of competency?
    Mr. Dollar. Well, Congresswoman, the primary reason why it 
is not as in broad scope as other financial institutions is 
that credit unions are limited by law as far as the types of 
services they can provide. And nothing in this provision, as 
you well know, expands in any way the authorities that credit 
unions are able to offer.
    I think that the reason that this, of course, comes to the 
forefront, the reason that it has been included in the bill is 
because the parity provision that was provided for the thrifts 
was then brought to bear for credit unions as well. And I think 
that this is appropriate because there is a burdensome nature 
to the registration as a broker dealer. When all you are going 
to be doing is basic safekeeping, serving as a depository, or 
holding of items that the credit unions are authorized to do. 
Credit unions that might buy a municipal bond and decide that 
they are going to hold it in their portfolio rather than having 
it held by another broker or safe keeper. Certainly there are 
some sweep account arrangements that credit unions do that are 
very basic de minimus type of activities that they are able to 
do that we just feel like it would be very burdensome for them 
to have to register as an SEC--with SEC as a broker dealer to 
be able to do that. But, this does not, you are correct, in 
anyway increase credit union authorities in any areas of 
investment services or brokerage services that they do not 
presently have the legal authority to offer.
    Mrs. Capito. Okay. Thank you.
    And I would like to ask Ms. Buck the same question. I know 
you addressed this in your opening statement. In terms of 
disclosure or level of competency, do you see this having an 
impact?
    Ms. Buck. No, it does not, Congresswoman Capito. We have, 
just in the last two years, updated all of our examination 
guidance on these kinds of activities so that they would be 
equivalent to what is provided in the national bank context and 
last year we updated our regulation applying to securities and 
record keeping requirements for entities that are engaged in 
these kind of activities, again, to make them consistent to 
those that apply in the bank context.
    We have a regular examination process. We examine every one 
of our institutions on anywhere from a 12 to 18 month basis, so 
we are taking look at the kinds of activities they are engaging 
in and making sure that they are complying with laws. So, I do 
not see any diminution of customer protections in these 
activities.
    Mrs. Capito. Thank you.
    I would like to ask Ms. Lattimore along the same lines. Do 
State Regulators oversee this investment advisor activities in 
terms of competency and disclosure? Do you have any role in 
that?
    Ms. Lattimore. We do. We oversee all parts of the credit 
unions in every business that they are--and every investment 
that they are involved in. But, as Mr. Dollar pointed out, the 
credit union's role is much more limited just by its very 
nature.
    Mrs. Capito. And I have one final question again for 
Governor Olson. There is a section that is related to insider 
lending. And, would you explain what the reporting requirements 
are and why they should be eliminated? My understanding is 
there is duplication, but if you could just explain it.
    Mr. Olson. Well, let me first talk about what they do not 
alter. They do not alter in any way any of the regulation 
provisions, and they do not alter any way any of the rules 
regarding insider lending. But, there are three separate 
reports that are required now, one of which is a report for 
loans by an executive offices of a bank from another bank in 
excess of the lending limit of that bank. Another involves 
loans that are made between reporting periods. And another 
involves the report that I cannot--I do not have the third one 
right in front of me, but I can find it for you real quickly if 
you would like.
    In each case they are reports that, in our judgment, do not 
contribute to or assist us in the enforcement of the insider 
lending provisions, but are simply additional reports that are 
required under the statute.
    Mrs. Capito. Thank you. I would say in the sense of the 
bill in terms of being common sense regulatory reforms, 
certainly in eliminating duplication is one of our goals here, 
but certainly not any kind of lessening of enforcement powers 
or in any of the areas that we have discussed today.
    Mr. Olson. That is an important clarification. And this 
does not in any way reduce any of the impact of the insider 
lending laws, which we take very seriously.
    Mrs. Capito. Thank you.
    I have no further questions. Thank you.
    Chairman Bachus. Thank you.
    Ms. Waters?
    Ms. Waters. I thank you very much, Mr. Chairman. I am sorry 
that I could not be here for the entire hearing. But, I thank 
all of the representatives of the regulators that are here. I 
have a lot of questions. I cannot possibly ask them all. But, 
let me target a little in on payday lending.
    As you know, payday lending is a big concern of some of us 
who represent districts where these operations are 
proliferating. As I understand it at OCC you have some 
oversight when they are connected to a national bank. How do 
you feel about banks renting their charters or allowing their 
preemption privileges to be rented or purchased by payday 
lending? Should this practice continue or should we try and 
outlaw that practice all together?
    Ms. Williams. Congresswoman, we have very, very strong 
feelings against the so-called rent-a-charter relationships 
that we have seen. We had four situations, not a whole lot, 
where we had national banks that entered into contractual 
arrangements with payday lenders. As a policy matter, those 
arrangements raised substantial concerns in the rent-a-charter 
category that you described. I think it is important to also 
emphasize that as a supervisory matter, the way in which those 
arrangements were actually being conducted, the way in which 
the banks were conducting their operations, the way in which 
customers were being treated pursuant to those arrangements, 
raised very, very substantial safety and soundness and 
compliance issues. We have taken consensual enforcement actions 
in all of those four cases, and there are no longer any 
national banks----
    Ms. Waters. I appreciate that, but I do not have a lot of 
time. Should we outlaw the practice all together?
    Ms. Williams. I am not sure how you would specifically 
define a rent-a-charter arrangement; that might be challenging.
    Ms. Waters. All right. Let me ask some of these payday loan 
operations have operations in more than one State.
    Ms. Williams. That is correct.
    Ms. Waters. The definition of a national bank is a bank 
that has chapters or operations in more than one state.
    Ms. Williams. Not necessarily. We have many national banks 
that are located in multiple states, but we have many community 
national banks that are locally based.
    Ms. Waters. If, in fact, we are not sure about whether or 
not we should outlaw the practice all together because it is 
hard to define, should we then preempt the states and take 
under supervision payday loans, particularly where they are 
interstate operations?
    Ms. Williams. I think that raises the larger question of 
creating a federal standard with respect to payday lending, if 
I am understanding you correctly.
    Ms. Waters. Yes.
    Ms. Williams. That in and of itself raises some issues, but 
that certainly would be one way to go at the problem.
    Ms. Waters. Would you favor if we could do nothing else but 
disallow the practice of postdated checks in these 
transactions?
    Ms. Williams. I am not sure if I understand the----
    Ms. Waters. When pay lenders operate in such a way that 
when they make these small loans they had to borrow, make out a 
postdated check for the interest and the principal. So, that if 
it is $100, as indicated in some of the information we have 
today, it would be $115. When they come back to repay it two 
weeks later, if they do not have that money they can roll it 
over, roll it over, roll it over and I am really interested in 
what we can do about interfering with the ability for these 
rollovers that increase the amount of the loan to sometimes 
1,000 percent interest rates or something like that.
    Ms. Williams. I think that one of the areas where the 
abuses are most notable is where you have multiple rollover 
situations, and that would be one way to go at it. And, if you 
are focusing just on the use of the postdated check as the 
vehicle for the payday loan, I think one important thing to 
note here is that there can be different ways that one 
structures a payday loan product. I would not want to foreclose 
the possibility that you could have a small denomination loan 
product that would not be abusive.
    Ms. Waters. Would you favor putting a limit to the number 
of rollovers that could be done in one of these kinds of loans?
    Ms. Williams. When we looked at the characteristics of 
payday lending, we thought that would be one area that would be 
most promising to avoid abuses. Yes, Congresswoman.
    Ms. Waters. I am going to be looking for something in 
legislation that is going to deal with the abuses of the payday 
loan industry. And while your oversight is very limited to 
those national banks who rent their charters, I certainly hope 
you would help to give us some assistance and leadership to do 
something about this terrible practice.
    Ms. Williams. I think probably all of the banking agencies 
would be very interested in providing what they know about how 
this affects their regulated institutions if you want to pursue 
that.
    Ms. Waters. That is some help in the legislation. Thank 
you.
    Thank you very much, Mr. Chairman.
    Chairman Bachus. Thank you.
    Mr. Bereuter?
    Mr. Bereuter. Thank you, Mr. Chairman. I want to thank the 
witnesses for their testimony today as we consider this 
important legislation.
    Prefatory to my questions, I want to say that I think that 
one of the reasons the stock market is doing so badly, one of 
the reasons are economic recovery is being delayed is because 
of lack of investor confidence. They are concerned about high 
profile abuses in corporate governance and they are concerned 
about abuses and incestuous relationships between the 
securities industry and the corporations whose stock they are 
attempting to advise their clients on.
    And, so, following up the kind of question that Ms. Capito 
asked to Chairman Dollar, I would like to pursue that area a 
bit with two other panel witnesses. First, Ms. Buck, the OTS 
supports Section 201, according to your testimony, which 
exempts thrifts from broker dealers and investment advisor 
registration requirements. How would the OTS oversee investment 
advisors' activities specifically regarding disclosure and 
level of competence?
    Ms. Buck. As I was explaining, we have regular examinations 
that we conduct on 12 to 18-month basis. Initially when the 
institution or entity comes to us and either asks to engage in 
trust powers if it is an entity we already regulate, or if an 
institution or entity comes and want to obtain a thrift chart 
and wants to engage in trust activities, we look very closely 
at the competence of the individuals who will be running those 
operations and determine that they do have the ability both to 
manage the asset and to provide the necessary protections for 
the customers. In fact, there are times when we would not allow 
them to open until we are sure that they have those people on 
staff and ready to operate.
    As far as the customer protection requirements are 
involved, we do look at these for compliance with our own 
regulations and our handbook requirements on assuring that 
customers understand that the individuals who are operating the 
thrift are disclosing any conflicts of interest and are 
conducting the other kinds of disclosures that are necessary 
for the customers.
    Mr. Bereuter. Is the OTS prepared to exercise this 
regulatory authority very aggressively, especially in light of 
all the lack of consumer investor confidence?
    Ms. Buck. Yes, we are. We have approximately 100 
institutions right now that have trust powers and we have 
expanded both the number of examiners who are experienced in 
this and we have expanded our training in this area to make 
sure that we are fully capable of overseeing this activity.
    Mr. Bereuter. Thank you.
    I would like to ask related questions to Administrator 
Lattimore. You support Section 313, which gives both federal 
and State chartered credit unions an exemption from broker 
dealer and investment advisory requirements. Why should we have 
the confidence in state-by-state quality of regulatory 
oversight?
    Ms. Lattimore. I do not know why there would be a lack of 
confidence. The state supervisors are very diligent in carrying 
out their duties. We have a responsibility to the citizens of 
our State to be sure that the financial institutions that we 
regulate are closely regulated. We take action when it is 
necessary. If such a new program were instituted we would 
carefully examine that program and, as Ms. Buck said, if they 
were--if we did not feel like the institution could offer the 
services we would not allow them to do it. But, I think State 
chartered credit unions are as well regulated as other credit 
unions. And, certainly the numbers prove that out.
    Mr. Bereuter. Do you understand my point of view? I think 
it is representative of a lot of people that you have to pursue 
this very aggressively if you have this responsibility.
    Ms. Lattimore. Yes, sir. And, we would take that 
responsibility very seriously. Our credit unions are owned by 
the members. That is what makes them very unique. And we cannot 
allow credit unions to offer anything to their own membership 
that owns them that is not completely on the up and up. So, the 
members would not stand for it. And, that would create real 
problems in the credit union, that is why we would ask to take 
it and would take it very seriously.
    Mr. Bereuter. Thank you very much.
    Director Gee, I have an unrelated question. There are some 
33 States that do not allow de novo interstate branching, I 
believe, something like that, 33 States. Yet, you say in your 
testimony we appreciate your revisiting the Riegle-Neal Act and 
we urge Congress to eliminate the disadvantage it is created 
for state banks because of inconsistent application of federal 
law. I am kind of surprised that that point of view is offered 
for you in behalf of the people you are representing today. Can 
you explain?
    Mr. Gee. Yes, Representative. Thank you for the question. 
As I commented in my remarks, and there is more detail in my 
written comments, the biggest problem is that the state charter 
is disadvantaged. Right now, federally chartered thrifts, 
federally chartered credit unions, largely national banks, can 
branch interstate. And, so, this puts the state charter, the 
State chartered bank at a disadvantage. They do not have the 
ability to do that in most states and, because of those 
interpretations of federal law and because of the application 
of federal law. And in many States they would like to have that 
ability especially community banks where they are on the border 
or near the border of another State to be able to branch across 
the State line. But, we see it as a charter disadvantage for 
the State charter and only for the State chartered bank, 
because virtually every other charter has the ability to engage 
in that activity across State lines.
    Mr. Bereuter. It is a disadvantage. But, would you admit 
that some States are not in favor of de novo branch banking in 
general for any kind of institutions, federal or State 
chartered?
    Mr. Gee. I would absolutely agree with you. The problem is, 
that because the other charters do have that ability it creates 
a disadvantage for our charter, for the state bank charter, and 
we do not like to see our State bank charters disadvantaged.
    Mr. Bereuter. Mr. Chairman, thank you very much.
    Chairman Bachus. See, I told you it was controversial. I 
told you that might be a controversial.
    Mr. Watt, the gentleman from North Carolina?
    Mr. Watt. Thank you, Mr. Chairman. And, I want to do two 
things preliminarily. First of all apologize to the witnesses 
for not being able to be here for all of your testimony. 
Unfortunately, I had to do something on the floor of the House 
and could not get here until I did. And, second, thank all of 
you for being here, particularly Ms. Lattimore who does such a 
find job in the State of North Carolina from whence I hail, and 
welcome her in particular, not that I am not welcoming 
everybody else too.
    Ms. Lattimore has put a couple of things on the table that 
I want to get reactions of other panel members to. The first 
one has to do with the desire of credit unions to do business 
loans to their members. And, I am wondering two things about 
that.
    Number one, Mr. Kroener, whether that would have any 
deposit insurance implications and if so, what they are.
    And the second thing I am wondering for anybody else on the 
panel who might have a position on it is whether there are any 
policy differences that would come into play, is that a good 
idea, if there is anybody on the panel who has a different 
perspective about whether it is a good idea as a policy 
perspective.
    So, Mr. Kroener, first deposit insurance implications. And, 
second, anybody who might have a different policy perspective.
    Mr. Kroener. I thank you for the question, Congressman 
Watt. From a deposit insurance perspective, we do not, at least 
any longer--I think we did in the 1940s--insure credit unions. 
We insure banks and theifts. So, you are talking about a group 
of institutions that the FDICC does not insure. So, any deposit 
insurance implications would be quite indirect instead of 
direct for that reason. There has been general concern among 
the institutions we insure about the competitive parity between 
banks, insured banks as a group and credit unions because of 
their different tax status. But, that would be quite remote, 
quite indirect. This would impact that competitive parity I 
think.
    But, even those are quite remote from any implications from 
a deposit insurance standpoint. But, I defer to others on the 
panel if they care to add anything.
    Mr. Dollar. Congressman, if I might and the NCUA is the 
agency that insures federally insured credit unions.
    Mr. Watt. I got the wrong person to ask the question to, I 
am sorry.
    Mr. Dollar. That is quite all right.
    Mr. Watt. Sorry about that.
    Mr. Dollar. I whispered to Bill that he could kick it to me 
if he wanted to and I do not think he got my whisper. But, let 
me just say that we are of the belief that there needs to be 
more start up entrepreneurial capital in this country, not 
less. And there needs to be more access to it, not less. And we 
believe that credit unions are a viable source for small start 
up entrepreneurial capital. We call it member business lending. 
That is a distinction from commercial lending as we may know it 
in the traditional financial institutions.
    Mr. Watt. Where would you draw that line? I mean, how do 
you draw that line?
    Mr. Dollar. Well, Congress drew the line in 1998 when 
Congress said that anything below $50,000 did not have to count 
as a member business loan. We actually believe, though, that as 
the credit union community begins to extend itself more and 
more as it is into underserved communities, one of the 
advantages of the field of membership law that you passed in 
1998 enabled credit unions to adopt underserved areas into 
their field of membership, which they have done by record 
numbers, over 40 million Americans living in underserved areas 
that were not eligible to join a credit union two years ago are 
now eligible to join. We think if those credit unions are going 
to really make a true difference in those communities they have 
to be more than merely an alternative to the payday lenders.
    Mr. Watt. So, you think it is a good idea. I do not mean to 
rush you. I just want to make sure I get to the second----
    Mr. Dollar. I think it is a great idea.
    Mr. Watt. ----the policy side of this before I run out of 
time.
    Mr. Dollar. But, the one size fits all statute that you 
have in place which limits credit unions to 12.25 percent of 
their total assets in member business loans is thwarting many 
credit unions who would like to offer those small business 
start up loans.
    Mr. Watt. Okay. Does anybody have a response on the other 
policy issue?
    Mr. Olson. Congressman, on behalf of the Federal Reserve 
Board, we have not taken a position on that issue.
    Mr. Watt. Has any of the regulators taken a position on it 
or they--you all want us to grapple with it? Okay.
    All right. Well, I thank you. I am just trying to figure 
out where people--the various regulators stand on these things. 
I appreciate it.
    I yield back.
    Chairman Bachus. Instead of alternating, I am going to go 
to Ms. Maloney. She has been here quite some time and then I 
will----
    Mrs. Maloney. I thank you, Mr. Chairman. And I have to 
mention your positive role in deposit reform. And I understand 
it is going to be on the floor next week. So, congratulations 
on your leadership on that.
    And I thank Mr. Bereuter on the help that we--the work we 
did together to make sure that banks pass credit with observed 
included in the bill.
    I want to thank the sponsors of this legislation for 
putting this package together. And I am very supportive of the 
bill and regulatory relief efforts in general, provided it does 
not endanger the safety and soundness of the financial system. 
And, I have a few brief questions about certain sections in the 
bill and I would like to ask each panelist to respond with 
their views as to whether these sections will in anyway affect 
safety and soundness.
    I do want to make it clear that I supported the legislation 
last year and it is not my view that the bill negatively 
affects safety and soundness. However, I believe that it is 
very important to hear from the regulators and to have your 
points of view placed on record on this issue.
    First, Ms. Williams, Section 601 of the bill allows the OCC 
to adjust its mandatory examination schedule to concentrate 
examination resources on troubled or risking institutions. And 
what is the impact of this provision on safety and soundness?
    Ms. Williams. Just to clarify at the outset, it is not 
limited to the OCC; the flexibility would be available for all 
of the federal banking agencies. I would hope that the impact 
of the change would actually be to enhance safety and 
soundness. It is designed to accomplish that purpose. It would 
give the regulatory agencies a little more flexibility in 
scheduling their exams so that they can concentrate their 
resources on particularly troubled or risky institutions and 
institutions with emerging problems. None of us intend or 
envision that this would result in any substantial slippage in 
the exam schedules, but it will give us a little bit more 
flexibility in order to tailor where the exam resources are 
used in order to address the highest risks in the system. So, I 
think it would enhance safety and soundness.
    Mrs. Maloney. Okay. Thank you.
    Chairman Dollar, I want to thank the credit unions for 
providing the financial services in many areas of districts 
that I have represented that had really no banks there, really. 
It was the only source of banking services, loans and so forth. 
But, I would like you to address the impact of Section 308, 
which repeals the requirement that groups of over 3,000 be spun 
off into new credit unions during mergers and the impact of 
Section 303, which relaxes some restrictions on credit union 
investments and what is this impact, if any, on safety and 
soundness?
    Mr. Dollar. Let me start with the first one as it relates 
to the merger authority. In actuality I believe that it would 
have an adverse effect upon safety and soundness if you have 
two credit unions that sought to merge and we were to intervene 
regulatorily to say that before you can merge you have to spin 
off one of your larger groups because they might or might not 
be viable enough to charter a credit union on their own. They 
had already made the business decision to affiliate with the 
existing credit union that is being merged. So, actually the 
present situation, which requires us to evaluate the 
possibility of a spin off has potentially more adverse safety 
and soundness ramifications than it would with what the bill 
has provided and that is to say that a spin-off of a group is 
not required.
    From the safety and soundness perspective as it relates to 
investment authorities, the investment authority basically that 
we are looking for and that the language of Section 303 
provides is very strictly drawn, very conservative in nature, 
very consistent with the types of investments that credit 
unions presently are authorized to make. The only thing we are 
asking is if some of the investments that have proven to be 
very conservative and workable at the state level be also 
authorized for federally chartered credit unions.
    Mrs. Maloney. Thank you.
    Thank you and my time is almost up, but Governor Olson, 
Section 404 raises the restriction on the size of institutions 
that can have common management officials and are you confident 
that this will not lead to business loans to bank insiders that 
could endanger safety and soundness?
    Mr. Olson. Congresswoman, there was a provision put in the 
law in 1978 allowing for overlapping directors only in standard 
metropolitan areas, MSA's, where the institutions were very 
small. And it addressed the issue of small banks being able to 
attract directors who would be helpful to them in the 
management of that institution. $20 million was the figure that 
was put in in 1978, we are suggesting $100 million at this 
point. If we raise it every 25 years or so, which is what the 
request would be, we think an appropriate level would be to go 
to $100 million at this point.
    Mrs. Maloney. Thank you very much. My time is up.
    Chairman Bachus. Thank you.
    Mr. Sherman?
    Mr. Sherman. Thank you.
    Mr. Dollar, during the consideration of the regulatory 
relief at the full committee last year, Representative Nye and 
myself offered an amendment dealing with supplemental capital. 
And this would have allowed credit unions to apply secondary 
capital to their net worth for purposes of meeting the minimum 
net worth ratio requirements mandated by the prompt corrective 
action regulations. This supplemental capital would be similar 
to that available by banks, to banks, rather, by the Office of 
Comptroller of the Currency in determining the definitions of 
capital. It is allowed to low income credit unions. They can 
get supplemental capital. I would like to know whether you 
think that this is an effective way of allowing credit unions 
to service their existing customers and accept new customers 
and whether there has been any problem with the use of 
supplemental capital by low-income credit unions?
    Mr. Dollar. Thank you, Congressman. Indeed, as you are 
aware, Congress in 1998, when you passed the Credit Union 
Membership Access Act defined in the prompt correction action 
section of the law, what can count as net worth for credit 
unions, which was retained earnings only. That was a public 
policy decision that Congress made at that time. It has been 
suggested by some credit unions, particularly those that, as a 
result of deposit growth, may be bumping against some of those 
prompt corrective action guidelines that an alternative for an 
additional buffer might be secondary capital.
    Certainly, as the regulator who is responsible for 
protecting the share insurance fund, which is the buffer 
against the taxpayers and when net worth is the buffer against 
the share insurance fund, anything that might provide an 
additional buffer we would be more than willing to sit down 
with the committee and work on.
    But, I am sure that you are aware that the concept of 
secondary capital for credit unions is quite controversial, 
both within the credit union community and outside the credit 
union community. There are issues that we would have to address 
that we would be willing to work with you on, such as should it 
be limited to only members of credit unions or could non-
members be able to purchase this subordinated debt? Can you 
restrict one credit union who receives supplemental capital 
from being able to then deposit in another institution's 
supplemental capital where you might have one credit union take 
the same a million dollars, deposit it in this one, then this 
one deposits in this one and 25 credit unions pass around the 
same million dollars, all of them counting it in their net 
worth. There are issues that would have to be addressed.
    Mr. Sherman. That we would clearly--since it is quite 
possible that we will reintroduce an amendment this year, I 
would hope that your office would provide us with language that 
might solve that problem.
    Mr. Dollar. We would be glad to work with you. If you and 
the Congress are interested in pursuing this public policy 
decision of reexamining PCA in this regard, we would be glad to 
work with you. And may I just quickly say that if we are going 
to look at reexamining PCA, one of the issues we may want to 
look at is whether or not PCA should be made risk based instead 
of based upon total assets as it presently is. Prior to 1998, 
credit unions reserved based upon their risk assets, not their 
total assets. One of the reasons credit unions are bumping 
against the PCA one-size-fits-all target is because it is based 
upon total assets rather than risk assets. In a risk-based 
safety and soundness structure, risk-based assets should be the 
denominator.
    Mr. Sherman. That would be more sophisticated. We now have 
low-income credit unions accepting supplemental capital.
    Mr. Dollar. That is correct.
    Mr. Sherman. I am not aware of any of the low-income credit 
unions getting together and passing around the same million 
dollars, although it would be good to plug that theoretical 
loophole. Have you discovered any problems with supplemental 
capital usage by the low-income credit unions?
    Mr. Dollar. Frankly, there are many low-income credit 
unions, Congressman, that without supplemental capital would 
not be in operation today. It is essential for the 
establishment of the net worth that they need. However, at this 
stage, as you know, it is limited only to low income credit 
unions. But, there have not been any problems----
    Mr. Sherman. So, it has been priory positive, then you are 
not aware of any negatives?
    Mr. Dollar. There have not been any negatives that have not 
been manageable, Congressman.
    Mr. Sherman. Another approach to this would be lowering by 
1 percent the required capital, make it more equivalent to 
other depository institutions. What is your view on that?
    Mr. Dollar. Well, there is no doubt that the credit union 
prompt corrective action, one-size-fits-all number is 1 percent 
higher than the other financial institutions. I personally 
think, rather than lowering that number, that, again, a better 
answer would be to calculate that percentage with a denominator 
of risk-based assets rather than total assets, then you would 
have many credit unions that would not fall into potential non-
compliance.
    Mr. Sherman. Now, with risk-based asset structure, is there 
subjective decisions that would have to be made by your 
auditors and, or, is it simply well you are in the category of 
credit cards, your category of this kind of this kind of asset, 
credit card or auto loan or home loan. Is it just put it in the 
right box or is it evaluated loan by loan?
    Mr. Dollar. It would have to be done through regulation. 
And if you did authorize the prompt corrective action 
percentages for net worth to be calculated on risk-based 
assets, then we would have to come forward as a board and set 
that regulatory policy. But, everyone must understand that 7 
percent capital in a credit union that has all U.S. Treasury 
securities is different than the one that has 30-year fixed 
rate mortgages. There is a difference in the risk portfolio in 
individual institutions. We would have to, by regulation, draft 
a proposal that weighted those risk factors. But, this has been 
done previously. It was the way that we did prior to 1998 by 
statute and it can be done again.
    Mr. Sherman. So, you do have the staff resources to make 
and audit these more sophisticated decisions?
    Mr. Dollar. Indeed and to address it from what is our first 
priority of safety and soundness.
    Mr. Sherman. I wonder if Ms. Lattimore could comment on 
this as well?
    Ms. Lattimore. Yes, sir, I would be happy to on several 
issues. We have a lot of low-income credit unions in North 
Carolina. We probably have 20 CDCUS. I would say that probably 
all but one of them uses supplemental capital. It does not make 
good business sense to me to have a low income credit union 
have that ability, but not a healthy credit union, particularly 
when you are all in the same PCA box. The standards are not 
different for those when you put them in PCA. But, your 
suggestion of lowering from 7 percent, if you lowered it by 1 
percent that would match the other financial institutions. That 
would only help in the percentage, it would not assist in 
anyway in the retained earnings being the only way to achieve 
net worth.
    Mr. Sherman. And, that was not so much a suggestion as a 
question. I would like to see credit unions with more capital, 
with more cushion and able--as far as I am concerned, since I 
know whose the taxpayers behind is ultimately behind all of 
this, my constituents would like as many different cushions of 
as many different sizes, shapes and colors as possible. And the 
fact that all credit unions do not have this cushion simply 
exposes taxpayers to more risk then they would face otherwise.
    I have concluded my questions.
    Chairman Bachus. Thank you.
    General Counsel Kroener, we are attempting in Section 
Section 615 to address misrepresentations of FDIC deposit 
insurance coverage. And I know that you we are going to work 
with you on fine-tuning that section. But, would you briefly 
describe such misrepresentations, what they are today in the 
market? Also, what is the extent of your current enforcement 
abilities, first of all and then I will ask a follow-up on----
    Mr. Kroener. Right. Let me start with the efforts we 
undertake. We do it just through monitoring market developments 
and through people reporting to us. We do become aware, in the 
course of our normal supervisory and regulatory activities of 
instances where institutions, that are, in fact, not insured 
banks, may be misrepresenting, particularly on the Internet--
and this is a particularly recent development--that their 
products, in one way or another are insured products. Under 
existing law we refer those instances to appropriate U.S. 
Attorneys. In general we are talking about a violation of a 
criminal law here. We are not a criminal enforcement agency.
    Frequently these may be involved in jurisdictions that are 
outside the United States where we do not have the right kind 
of subpoena power. That describes the legal picture. As a 
practical matter, where we can find out who it is, we will 
contact them and seek to get them to discontinue the activity. 
And, in some instances then, in fact, in most instances where 
we can find out where it is coming from, which is not always 
the case, we have been successful in having that activity 
discontinued. As a legal matter, as I say, what we do is refer 
it to U.S. Attorneys and they may, depending upon how serious 
it is and what their priorities may be, they may or may not 
take action.
    Section 615, as it was proposed, I think is going to 
require a great deal of work with your staff because there is a 
mismatch. Right now our jurisdiction is over banks, not 
persons. The standard that is brought in there is a criminal 
standard of beyond a reasonable doubt, which is one we do not 
normally deal with. And, it may be difficult to get to 
something at the end of the day that we can really get 
comfortable with. It is worth the effort. I should add that on 
the pure misrepresentation side it is an area that falls into 
the FTC jurisdiction right now I believe.
    But, we are prepared to try to work with the staff to see 
where we can get on this.
    Chairman Bachus. Sure.
    Mr. Kroener. Or there might be other ways to approach the 
problem. As I say, just the straight going back and trying to 
discourage it has been, I think, reasonably successful in 
instances where you are not dealing with a remote jurisdiction 
that we cannot get to.
    Chairman Bachus. Okay. The section before that, Section 
614, concerns your enforcement actions against independent 
contractors like accountants.
    Mr. Kroener. Right.
    Chairman Bachus. What problems have you encountered with 
independent contractors and how will this provision make your 
job easier? And it is my understanding that you are comfortable 
with Section 614?
    Mr. Kroener. Right. Yes, we are. Deputy Comptroller 
Williams, in fact, mentioned that in her oral statement, it is 
something that affects all the agencies. And, as she said, we 
have enforcement authority against a wide range of parties. 
But, for independent contractors, unlike all other parties, the 
standard is higher. It is a knowing and reckless standard and 
where, for example, you are dealing with accountants, there has 
been a concern and a reluctance to bring enforcement actions 
because of the facts of the higher standard. We have had some 
situations involving accountants, particularly in recent bank 
failures, where I think there has been some reluctance to bring 
enforcement actions because of this higher standard. And the 
section is intended to address that concern for all of the 
agencies, not just the FDICC.
    Chairman Bachus. Chief Counsel Williams, anything you would 
like to add? Not suggesting that you do.
    Ms. Williams. No. I agree completely with what Bill just 
said.
    Chairman Bachus. Sure. Okay.
    And, I think my question will be for you, but it is on 
Section 101. That expands the eligibility of community banks 
for treatment as Subchapter S corporations. In addition to 
Section 101 we have got Section 110, which makes it easier for 
community banks with national bank charters to qualify for 
certain favorable tax treatment as limited liability companies. 
Now, both those, I believe, were suggested by the OCC. And, 
would you explain why you made those requests and that we 
include them in the present legislation, which we have now? I 
know easing the tax burden on community banks is commendable 
and I am sure that is part of it, so they can devote more of 
their resources to lending to the community. But, I would like 
your further response.
    Ms. Williams. I could not really say it too much better 
than that, Mr. Chairman. Both sections address issues that 
arise out of relatively old provisions in the National Bank Act 
that are not completely in sync with some of the flexibilities 
that are available today under modern corporate forms or, with 
respect to Section 101, the qualifying shares requirement, the 
fact that you can reflect the director's interest in the 
institution in ways other than the typical stock in the 
institution. And, so, the changes are designed to modernize the 
law. The burden relief, I think, will be primarily felt by 
community national banks. And, we are very comfortable that 
there are not any negative safety and soundness implications 
with these changes.
    Chairman Bachus. Thank you. Okay.
    My last question is for Governor Olson. Section 501 amends 
some cross marketing restrictions that were imposed by Gramm-
Leach-Bliley. How would this change current law and practice 
and will it expand the ability of financial holding companies 
or their subsidiaries or affiliates to engage in otherwise 
prohibited commercial activities? Will it expand their merchant 
banking authority?
    Mr. Olson. To the last two questions, no. But, let me 
address your question in reverse order. It does not expand the 
merchant banking authority. But, there are different 
provision's within the merchant banking section for an 
insurance company as opposed to a bank. There is an exception 
that is now provided for insurance companies that hold stock in 
companies in their merchant banking portfolio. It is a very 
limited exception involving statement stuffers and use of the 
Internet. What we are suggesting is that same provision ought 
to be allowed for banks. But, it does not, beyond that, broaden 
in any way the cross marketing provisions and it does not limit 
in any way the anti-tying provisions either.
    Chairman Bachus. So, it tries to eliminate a competitive 
disadvantage that you might have----
    Mr. Olson. That is correct.
    Chairman Bachus. ----with anti----
    Mr. Olson. And our recommendation includes one more change 
where the bank, in its merchant banking portfolio does not have 
a controlling interest, it eliminates the prohibition of cross 
marketing where control is not at issue.
    Chairman Bachus. So, it gives parity between----
    Mr. Olson. That is true.
    Chairman Bachus. Okay.
    Mr. Sanders?
    Mr. Sanders. Thank you, Mr. Chairman. Again, my apology to 
you and the panel. I just have to be at another hearing.
    Chairman Bachus. And, let me say in the defense of all the 
members, we have briefings this morning again on Iraq. As I am 
sure to most of you all, some of the reports are very 
disturbing about Iraqi soldiers basically violating the Geneva 
Convention in all sorts of ways using civilians as human 
shields, dressing in coalition uniforms, offering to a 
surrender and then executing ambushes. And, apparently, some of 
the latest activity is setting up and firing from schools with 
children there. So, that obviously is a distraction from this 
hearing.
    Mr. Sanders?
    Mr. Sanders. Thank you, Mr. Chairman.
    A couple of issues that I would like to pursue, the first 
issue, going back to my opening statement is that in recent 
years, as all of you will concur with, I think, and if you do 
not, please tell me, there are fewer, as a result of a lot of 
mergers, there are fewer and fewer banks and they are, in many 
instances, larger and larger. The phenomenon of too big to fail 
is something that interests me very much because I think it has 
huge potential danger for the taxpayers of this country. If a 
decision is made that a bank is about to fail and it is the 
economic implications of that are such that it would be a huge 
disaster for the economy, then what people here in Congress 
would say, well, we are not happy about it, but we have to bail 
it out because it will be less painful, less onerous to bail 
them out then allow them to fail.
    But, you have that potential when you have banks that reach 
huge size.
    So, Mr. Olson, if I may start off when you and anyone else 
who wants to pipe in on this, please do. In your judgment, how 
many banks do we have in this country that, in fact, are too 
big to fail? Is Citigroup too big to fail? Is Bank of America 
too big to fail? Is JP Morgan Chase too big to fail?
    Mr. Olson. Zero. There are no banks in this country that 
are too big to fail. You are on a subject that I feel very 
strongly about and I have looked at very carefully. I began 
most of my banking career as a community banker, although I did 
work for a large banking organization. During the deliberations 
on FDICCIA, during which the Congress directed the regulators 
as to what our responsibilities are with respect to that issue, 
I do not see how any regulator could read the provisions of 
FDICCIA and have any feeling that there is any ambiguity in the 
directive that has been given to us by the Congress with 
respect to too big to fail.
    There is a provision in the FDICCIA legislation that would 
require a process that would go all the way to the president if 
we were to pursue it. But, I would say to you that one of the 
reasons that we have continuous supervision of our largest 
banking organizations is that we do not believe there should be 
and do not believe that there is a too big to fail policy.
    Mr. Sanders. Let me just--I am glad to hear that. I am not 
sure that I agree with you.
    Mr. Olson. Well, can I----
    Mr. Sanders. Let me just ask you this----
    Mr. Olson. Okay.
    Mr. Sanders. Several years before the S&L fiasco, which 
costs us what, several hundred billion dollars, the taxpayers?
    Mr. Olson. It is a large number, you are right.
    Mr. Sanders. Okay. Might it not have been possible that 
somebody sitting over your chair would have said the same thing 
in response to a question from up here? Now, for example, we 
can all understand that this is a very unstable international 
economy. I do not think there is any doubt about that. You have 
got war. You have got terrorism. You got all kinds of strange 
economic things happening all over the world. Now, what happens 
if a bank like Citigroup, which has huge foreign investments, 
suddenly started losing their shirt? What you are telling the 
chairman and myself, now that you have not the slightest doubt 
that Citigroup, you know, the airlines are running in here for 
their welfare payments right now. But, you are absolutely 
assured that CitiGroup and JP Morgan will never come in here 
and say, look, if you do not bail us out these are the 
ramifications. And, you better bail us out because it will be 
worse if you do not.
    Mr. Olson. I cannot tell you what they will do. But, what I 
can tell you is what we will do. Because you have given us a 
very specific directive in the prompt corrective action that we 
do not have in this policy is too big to fail. We do not have 
in this country a too big to fail policy. I do not see how you 
can read the prompt corrective actions provisions and have any 
other--if you are a regulator, and have a sense that we have 
any other policy at work in this country.
    Mr. Sanders. But let me, in English, for the three people 
that might be watching this on closed circuit television, what 
you are saying, and I am not sure that I agree with you, is 
that the chairman and I need not worry that there will be a 
hearing at some day lined up with all of the big banking 
executives begging for their welfare payments and telling us 
what will happen if the taxpayers do not bail them out? You are 
absolutely assuring us that they will never come?
    Mr. Olson. Well, now you have just changed the question.
    Mr. Sanders. Not really.
    Mr. Olson. Because what you have asked me now is will the 
chairman hold a hearing where the banks will be invited----
    Mr. Sanders. Well, no, let's not play with words.
    Mr. Olson. Okay.
    Mr. Sanders. You know what I mean. Are the taxpayers going 
to be held liable for these huge mergers, which have enormous 
potential dangers?
    Mr. Olson. I can say to you with absolute full confidence 
that we do not have a too big to fail policy with respect to 
large banks.
    Mr. Sanders. But, you are not answering my question. You 
may not have that policy. Now, you are acting like a lawyer 
here. Are you a lawyer, sir?
    Mr. Olson. By the grace of God I am not burdened with a law 
degree.
    Mr. Sanders. All right, then do not sound like one. All 
right. You are telling me--I am asking you about the danger----
    Mr. Olson. Yes.
    Mr. Sanders. Are you telling me, in your judgment, there is 
no danger that taxpayers in this country will be held liable 
when banks become so big that if they fail the economic 
implications are so huge that it makes sense for the government 
to bail them out?
    Mr. Olson. The reason I think there is--I cannot tell you 
with that sort of specificity. And the reason I cannot is there 
is a provision in the bill that does allow for a too big to 
fail. But, that is only--that would involve all the regulators, 
it would involve the Secretary of Treasury and it would involve 
the President of the United States. And I believe that the 
reasons that that provision is in the bill and it would require 
that sort of complexity is because the direction that the 
Congress has given to the regulators is not to have a too big 
to fail policy.
    Now, I think there is a difference between today and the 
time to which you referred to the thrift industry problems of 
the early 1980s. My association with this issue goes back to 
the early 1980s with Continental Illinois. There is an all-
together different regulatory environment, post FIRREA and 
FDICCIA. And, so, I think we have been given very specific 
instruction. And I share your concern. And I applaud you for 
brining it up.
    Mr. Sanders. You share my concern. Boy, that sort of popped 
up. I thought you did not share my concern. Do you share my 
concerns or do you not share my concerns.
    Mr. Olson. No, our concerns are the same----
    Chairman Bachus. He said that he had concerns, but not--I 
think what he was saying is he feels those institutions are 
sound at this time.
    Mr. Sanders. Well, I am not arguing that. But, we are 
worrying about in an unstable, as you know, Mr. Chairman, it is 
a very volatile world out there. I assure you the airline 
industry five years ago probably felt pretty good too.
    All right. Let me go on to another.
    Mr. Kroener. Mr. Sanders, if I could please?
    Mr. Sanders. Yes, please.
    Mr. Kroener. Bill Kroener from the FDICC. First of all, let 
me say that I agree with everything that Governor Olson has 
said on this subject. I just wanted to add that to the extent 
there is a macro concern about going through resources in the 
insurance fund and ultimately reaching the taxpayers, one of 
the ways that that can be mitigated and this Congress can 
mitigate that, is with the deposit insurance reform proposal 
that I guess is going to the floor next week we now understand, 
because it would merge the funds and give us more flexibility 
to deal with your concerns. And I would call that to your 
attention and suggest that that is one way of responding to the 
concerns.
    Mr. Sanders. I understand that. But, you will, perhaps, 
disagree with me or not, but in the event of a real financial 
calamity there may not be enough money in those funds to do 
what has to be done and there be a necessity of going to 
taxpayers. Is that true or not?
    Mr. Kroener. I agree with the prior discussion with 
Governor Olson that you had--yes.
    Mr. Sanders. Let me change subjects, if I might, Mr. 
Chairman.
    Chairman Bachus. And I would remind--you know, this hearing 
is not on FDICCIA. It is on a limited bill----
    Mr. Sanders. No, I do understand that.
    Chairman Bachus. ----on reg relief, so it really is not the 
subject matter of this hearing. But, it is a concern.
    Mr. Sanders. And it touches in the sense that we----
    Chairman Bachus. ----and I know you are addressing it.
    Mr. Sanders. Because it----
    Chairman Bachus. This legislation is not----
    Mr. Sanders. No, I know. It is not 100 percent----
    Chairman Bachus. Except in that it will--and I think that 
it has such broad bipartisan support it will relieve some 
unnecessary regulatory burdens, which will strengthen all our 
institutions and be good for our economy.
    Mr. Sanders. If I might, Mr. Chairman, because, again, 
going back to the implications of mergers and I think too big 
to fail is one. Let me touch on another one that concerns me. 
And, I do not know about you, Mr. Chairman, but I hear from 
constituents fairly often on this, and that is the issue of 
banking fees. When people have an account at a bank. My 
question is, let me start off with the easy one. I am assuming 
people disagree with me if you might, if you want, my 
assumption is that bank fees have gone up in the last five to 
10 years. Does anyone disagree with that?
    As they say for the record, Mr. Chairman, I do not see 
anyone jumping up and down and saying they disagree with this. 
I am taking that as a yes.
    In terms of bank consolidation why should the average 
person, who is paying more for bank fees? And, in some 
instances really getting ripped off, if I might say so. Why 
would they want to see banks become larger, less competition 
and be forced to pay more in fees? Why is that a good thing Ms. 
Williams?
    Ms. Williams. Congressman, I think that what you are 
raising is a very complicated issue. What we have seen evolving 
in the banking industry over the period of time that you are 
describing is more large institutions, but also many very 
healthy and competitive community-based institutions. And, in 
fact, in many situations in many markets, what we have seen is 
that consolidation has actually created opportunities for new 
banks to be chartered and for banks that have a more local 
orientation, a more specialized orientation to operate. So, I 
think that customers of financial institutions today have more 
choices. There may be certain institutions that have had fees 
that have been increased, but there are other institutions that 
compete very effectively by promoting the fact that they have 
lower fees then their competitors.
    Mr. Sanders. Well, I am sure that in some parts of the 
country what you are saying is exactly true. But, would you not 
deny that with fewer numbers of banks that, in fact, in many 
communities, the majority of communities, there is less 
competition, not more. I am not going to say that is true in 
every instance, and that the result of that has been or at 
least one of the results of that has been higher fees for the 
average person?
    Ms. Williams. I am not in a position to say that that is 
across the board the case.
    Mr. Sanders. Well, I am not saying it is across the board. 
But, I am saying in many instances----
    Ms. Williams. I think the other thing to introduce here is 
that with the increased use of technology in the provision of 
financial services, individuals that are located in particular 
communities can do their banking very effectively with an out-
of-market institution that offers them the best price. So, the 
mix here, I think is more complicated than just that 
consolidation means higher fees across the board.
    Chairman Bachus. Mr. Sanders, actually we have run about 
seven minutes over, but I am going to allow----
    Mr. Sanders. I am sorry.
    Chairman Bachus. ----you one other question.
    Mr. Sanders. Okay. Thanks. Thank you, Mr. Chairman.
    A question for anybody who might know something about the 
issue, I represent a lot of workers who are concerned about 
various aspects of the economy. In your judgment, would 
somebody want to comment, how has--my impression is that 
mergers in many ways are resulted in fewer number of employees, 
layoffs and in some instances cut backs in pension benefits. 
Have mergers--my impression is that mergers have not been a 
positive thing for workers in the banking industry. Will 
somebody comment on that? Am I right or am I wrong?
    Mr. Olson. Congressman, I cannot speak to the pension 
benefits issue, because I do not have that information in front 
of me. But, there has been a reduction in the numbers of people 
employed in the banking industry. And, in part, I think it is 
because of the fact the banking industry is a mature industry. 
It is an industry that has not had the opportunity to grow 
laterally like a number of other industries have. And, as a 
result, as the banks have become increasingly efficient, 
largely through the opportunities available through technology, 
there has been a reduction in the numbers of jobs in the 
industry.
    Mr. Sanders. So, the growth, mergers, technology has 
resulted in fewer employees?
    Mr. Olson. I could not break it down specifically as to the 
extent to which it has been merger related. But, certainly 
there is a great deal for efficiency, much of which is a result 
of the--well, it is a result of a number of things. It is the 
desire to become increasingly efficient----
    Mr. Sanders. You are looking at it from the bank----
    Mr. Olson. ----and the opportunities of technology.
    Mr. Sanders. ----when you use the word efficiency, I use 
the word layoffs and workers who have lost decent jobs. And I 
understand where you are coming from. But, do not always look 
at it from one said.
    Mr. Olson. Okay.
    Mr. Sanders. Look at it from the worker who had a job for 
20 years, no longer has a job. Okay.
    Okay, Mr. Chairman, thank you very much.
    Chairman Bachus. This will conclude the hearing. I do want 
to make one general response to Mr. Sanders, just something for 
us all to think about. Twenty years ago if I wanted to bank I 
had to do it between the hours of 9:00 and 5:00. And I normally 
had to go anywhere from five to 15 miles to do it. Now, most of 
the transactions I want to do I can do within two blocks of 
where I am or four blocks from where I am. There are 
underserved areas. But, I can go to an ATM machine and quickly 
conduct my business and I pay a fee that did not exist 20 years 
ago, but certainly it saves me a lot of time and effort. So, in 
that regard, technology has certainly opened up our opportunity 
and the locations for banking.
    One thing that Mr. Dollar has said, and I would agree with 
him, is that we all go into certain communities where we see 
loan title shops, we see payday lenders, we see check cashers, 
we see pawn shops. And we are trying to find ways to give those 
people alternatives through both the provision in the FDICC for 
people with low income to have basically check free services, 
and some to reduce their fees, and also to allow our 
institutions to meet some of those that are underserved. In 
that area, I would agree that we have more work to be done. 
But, I think the way to eliminate payday lenders, is to offer 
an alternative to those people.
    Thank you.
    I appreciate the professional manner in which you all have 
responded to questions and given your testimony. And I ask 
unanimous consent to enter into the record statements that the 
subcommittee regards concerning this hearing. If there no other 
business before the committee, the committee is adjourned and 
the panel is discharged.
    [Whereupon, at 12:21 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                             March 27, 2003


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