[House Hearing, 109 Congress]
[From the U.S. Government Publishing Office]




 
                 FINANCIAL SERVICES REGULATORY RELIEF:
                         THE REGULATORS' VIEWS

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
               FINANCIAL INSTITUTIONS AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED NINTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 9, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-36


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    MICHAEL G. OXLEY, Ohio, Chairman

JAMES A. LEACH, Iowa                 BARNEY FRANK, Massachusetts
RICHARD H. BAKER, Louisiana          PAUL E. KANJORSKI, Pennsylvania
DEBORAH PRYCE, Ohio                  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 Chair   JULIA CARSON, Indiana
RON PAUL, Texas                      BRAD SHERMAN, California
PAUL E. GILLMOR, Ohio                GREGORY W. MEEKS, New York
JIM RYUN, Kansas                     BARBARA LEE, California
STEVEN C. LaTOURETTE, Ohio           DENNIS MOORE, Kansas
DONALD A. MANZULLO, Illinois         MICHAEL E. CAPUANO, Massachusetts
WALTER B. JONES, Jr., North          HAROLD E. FORD, Jr., Tennessee
    Carolina                         RUBEN HINOJOSA, Texas
JUDY BIGGERT, Illinois               JOSEPH CROWLEY, New York
CHRISTOPHER SHAYS, Connecticut       WM. LACY CLAY, Missouri
VITO FOSSELLA, New York              STEVE ISRAEL, New York
GARY G. MILLER, California           CAROLYN McCARTHY, New York
PATRICK J. TIBERI, Ohio              JOE BACA, California
MARK R. KENNEDY, Minnesota           JIM MATHESON, Utah
TOM FEENEY, Florida                  STEPHEN F. LYNCH, Massachusetts
JEB HENSARLING, Texas                BRAD MILLER, North Carolina
SCOTT GARRETT, New Jersey            DAVID SCOTT, Georgia
GINNY BROWN-WAITE, Florida           ARTUR DAVIS, Alabama
J. GRESHAM BARRETT, South Carolina   AL GREEN, Texas
KATHERINE HARRIS, Florida            EMANUEL CLEAVER, Missouri
RICK RENZI, Arizona                  MELISSA L. BEAN, Illinois
JIM GERLACH, Pennsylvania            DEBBIE WASSERMAN SCHULTZ, Florida
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin,
RANDY NEUGEBAUER, Texas               
TOM PRICE, Georgia                   BERNARD SANDERS, Vermont
MICHAEL G. FITZPATRICK, 
    Pennsylvania
GEOFF DAVIS, Kentucky
PATRICK T. McHENRY, North Carolina

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

                   SPENCER BACHUS, Alabama, Chairman

WALTER B. JONES, Jr., North          BERNARD SANDERS, Vermont
    Carolina, Vice Chairman          CAROLYN B. MALONEY, New York
RICHARD H. BAKER, Louisiana          MELVIN L. WATT, North Carolina
MICHAEL N. CASTLE, Delaware          GARY L. ACKERMAN, New York
EDWARD R. ROYCE, California          BRAD SHERMAN, California
FRANK D. LUCAS, Oklahoma             GREGORY W. MEEKS, New York
SUE W. KELLY, New York               LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      DENNIS MOORE, Kansas
PAUL E. GILLMOR, Ohio                PAUL E. KANJORSKI, Pennsylvania
JIM RYUN, Kansas                     MAXINE WATERS, California
STEVEN C. LaTOURETTE, Ohio           DARLENE HOOLEY, Oregon
JUDY BIGGERT, Illinois               JULIA CARSON, Indiana
VITO FOSSELLA, New York              HAROLD E. FORD, Jr., Tennessee
GARY G. MILLER, California           RUBEN HINOJOSA, Texas
PATRICK J. TIBERI, Ohio              JOSEPH CROWLEY, New York
TOM FEENEY, Florida                  STEVE ISRAEL, New York
JEB HENSARLING, Texas                CAROLYN McCARTHY, New York
SCOTT GARRETT, New Jersey            JOE BACA, California
GINNY BROWN-WAITE, Florida           AL GREEN, Texas
J. GRESHAM BARRETT, South Carolina   GWEN MOORE, Wisconsin
RICK RENZI, Arizona                  WM. LACY CLAY, Missouri
STEVAN PEARCE, New Mexico            JIM MATHESON, Utah
RANDY NEUGEBAUER, Texas              BARNEY FRANK, Massachusetts
TOM PRICE, Georgia
PATRICK T. McHENRY, North Carolina
MICHAEL G. OXLEY, Ohio


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 9, 2005.................................................     1
Appendix:
    June 9, 2005.................................................    39

                               WITNESSES
                         Thursday, June 9, 2005

James, Randall S., Commissioner, Texas Department of Banking, on 
  behalf of Conference of State Bank Supervisors, Inc............    14
Johnson, Hon. JoAnn, Chairman, National Credit Union 
  Administration.................................................    12
Kohn, Donald L., Governor, Board of Governors of the Federal 
  Reserve System.................................................     6
Latham, George, Deputy Commissioner, Bureau of Financial 
  Institutions for the State of Virginia, on behalf of National 
  Association of State Credit Union Supervisors..................    16
Reich, John M., Vice Chairman, Federal Deposit Insurance 
  Corporation....................................................     4
Riccobono, Richard M., Acting Director, Office of Thrift 
  Supervision....................................................    10
Williams, Julie L., Acting Comptroller, Office of the Comptroller 
  of the Currency................................................     8

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    40
    Bachus, Hon. Spencer.........................................    43
    Gillmor, Hon. Paul E.........................................    47
    Hinojosa, Hon. Ruben (with attachments)......................    48
    Royce, Hon. Edward R.........................................    62
    James, Randall S.............................................    63
    Johnson, Hon. JoAnn..........................................    79
    Kohn, Donald L...............................................    89
    Latham, George...............................................   111
    Reich, John M................................................   121
    Riccobono, Richard M.........................................   154
    Williams, Julie L............................................   176

              Additional Material Submitted for the Record

Bachus, Hon. Spencer:
    The SAR Activity Review, May 2005............................   224
    ABA Recommended Changes in Regulation........................   230
    ICBA Recommended Changes in Regulation.......................   235
Sherman, Hon. Brad:
    Inter-Agency Response to ABA Recommendations.................   237
James, Randall S.:
    Written response to questions from Hon. Spencer Bachus.......   242
Johnson, Hon. JoAnn:
    ``Prompt Corrective Action Proposal for Reform,'' National 
      Credit Union Administration, March 2005....................   245
    Written response to questions from Hon. Spencer Bachus.......   281
    Written response to questions from Hon. Brad Sherman.........   283
Latham, George:
    Written response to questions from Hon. Spencer Bachus.......   294
``2004 SAR Filings Rose by One-Third, Treasury Unit Says in 
  Latest Report'', article, June 9, 2005.........................   295


                 FINANCIAL SERVICES REGULATORY RELIEF:

                         THE REGULATORS' VIEWS

                              ----------                              


                         Thursday, June 9, 2005

             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 10:05 a.m., in 
Room 2128, Rayburn House Office Building, Hon. Spencer Bachus 
[chairman of the subcommittee] presiding.
    Present: Representatives Bachus, Kelly, Gillmor, Ryun, 
Biggert, Feeney, Hensarling, Pearce, Neugebauer, McHenry, Watt, 
Sherman, Carson, Green, Moore of Wisconsin, and Clay.
    Chairman Bachus. [Presiding.] Good morning. Today's hearing 
is a continuation of our hearings on regulatory relief. We 
heard last month from the financial services industry, and of 
course today we have a follow-up panel with regulators.
    I want to thank Vice Chairman Reich for your work on the 
EGRPRA and all the agencies; for I think you have done a 
splendid job of coming to a consensus on what needs to be done.
    I want to thank Chairman Oxley for his commitment to reg 
relief. With the Patriot Act, the Sarbanes-Oxley Bank Secrecy 
Act, we have not raised the threshold of SARs reports, and we 
continue to create new regulations on the banks. And Chairman 
Oxley and this committee are committed to trying to reduce the 
regulatory burden.
    I know Vice Chairman Reich testified before our committee I 
think in May of 2004 when you talked about 12 to 13 percent of 
banks' non-interest expenses were as a result of regulation, 
which is $36 billion in 2003. Now, a lot of that is necessary 
for safety and soundness, but a lot of it is unnecessary. It 
duplicates regulation or regulations which are duplicative.
    I also want to thank Jim Ryun, who has introduced 
regulations for the smaller banking institutions, and Jeb 
Hensarling, who has the reg relief bill, and also Mr. 
Kanjorski, who is not here. I think he and Mr. Royce have 
introduced legislation to ease the burden on our credit unions. 
And we are going to be considering all those pieces of 
legislation.
    Before I introduce the members of our first panel, I would 
like to ask if any members of the subcommittee have opening 
statements.
    All right. Gentlelady from New York, do you have an opening 
statement?
    Okay.
    Mr. Ryun?
    Mr. Ryun. Thank you, Mr. Chairman.
    I want to keep my comments brief because I am looking 
forward to what the panelists have to say. My position on 
regulatory relief is well documented, and I do look forward to 
hearing what the panel has to say.
    I believe the efforts of the committee on regulatory relief 
are timely and appropriate, and I think it is especially 
important for us to focus on the disproportional regulatory 
burden the small community banks shoulder. We have seen a 
tragic reduction in the number of small banks serving our small 
communities, and I believe this trend is largely due to the 
inability to provide the resources necessary for compliance 
with all the regulatory responsibilities put upon them.
    Community First Act is intended to relieve this burden in 
ways that are consistent with the goal of ensuring that the 
consumer is protected and properly served. I look forward to 
comments from our panelists on the specific areas of CFA that 
they believe will be worthwhile as well as any concerns they 
might have on language inside the bill.
    I look forward to taking the information shared today and 
working with my colleagues, Mr. Hensarling and Mr. Moore, to 
craft a bill to provide regulatory relief to financial 
institutions and ultimately serve the consumers of financial 
services throughout this country.
    I want to thank you again, Mr. Chairman, and I yield back 
the balance of my time.
    Chairman Bachus. Thank you.
    Are there other members--Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman. I want to thank 
you again for your leadership and holding this important 
hearing, and helping to do what we can to reduce the regulatory 
burden on our nation's financial institutions.
    I also want to specifically thank and recognize Chairman 
Powell and Vice Chairman Reich of the FDIC for their work in 
this area. I have reviewed much of it and found it to be very 
thorough, very thoughtful and very helpful.
    As we learned last month in our hearing, our financial 
institutions are in desperate need of regulatory relief and 
without it many Americans may be kept from purchasing their 
first home, buying an automobile for work, funding a child's 
education or starting a new business that creates new jobs.
    I think many of us have concluded that with meaningful 
regulatory relief we can free up more capital for these 
valuable purposes without undermining safety and soundness.
    Along with my colleague, Mr. Ryun and many of us on this 
panel, I am especially concerned at the disproportionate impact 
that the regulatory burden has on our smaller financial 
institutions, particularly our community banks and our small 
credit unions, and I hope each of our panelists will address 
that in specific.
    There are so many areas that we could get in to, but we 
need to recognize that corporately bank regulators, our 
financial institutional regulators, have now promulgated over 
800 regulations in the last 15 years. I do not know how we can 
expect our small community-based financial institutions to 
adapt and comply with this regulatory change or to keep up with 
this pace.
    And, again, there are many examples that I know we can 
address. Just a couple of examples come to mind. I hope that 
some on the panel will address, for example, the annual privacy 
notices of Gramm-Leach-Bliley and particularly with respect to 
financial institutions that do not share information.
    Is there really a pressing need if a bank does not share 
information, if they do not change their policies to send out 
these documents each and every year to their customers? Last 
month we heard where some community banks hire two to three 
employees to do nothing, nothing but Bank Secrecy Act 
compliance. Now, is anyone actually reading all of these SARs 
and CTRs, and is it a meaningful tool for our law enforcement 
officials? I think that is something that we need to examine.
    Anyway, Mr. Chairman, I am anxious to hear the testimony 
and I look forward to working with you, my colleague, Mr. 
Moore, and all my other colleagues to see what we can do to get 
more resources into the front lines of community lending and 
help more families.
    And I yield back.
    Chairman Bachus. Thank you.
    If there are no other opening statements, I would like to 
introduce the first panel.
    I would like to also comment that we did pass H.R. 1375 
last year by an overwhelming margin, and that bill actually had 
8 of the 10 recommendations that you all have reached consensus 
on. So we continue to look for other areas of regulatory 
relief.
    I know Mr. Hensarling and I have discussed some of the 
proposals on the SARs, on the filings of the SARs, either 
eliminate some of your filings by seasons to customers or 
things of that nature. But we probably will not take testimony 
on that this morning unless you all want to comment on how we 
might could reduce the number of those filings, particularly 
when there has been widespread publicity that our Government 
agencies are not reviewing those.
    Our panel consists of Mr. John Reich, vice chairman of the 
Federal Deposit Insurance Corporation--and we have already 
acknowledged your fine work on this interdisciplinary 
commission study; Mr. Don Kohn, governor, Board of Governors in 
the Federal Reserve System--welcome you back; Ms. Julie 
Williams, acting comptroller, Office of the Comptroller of the 
Currency--always good to have you, Ms. Williams; Mr. Riccobono, 
acting director, Office of Thrift Supervision.
    This is a group of really veteran witnesses today.
    The Honorable Joann Johnson, chairman of the National 
Credit Union Administration--welcome you, Chairman Johnson; and 
Mr. Randall James, commissioner of the Texas Department of 
Banking--and you are testifying on behalf of the Conference of 
State Banking Supervisors; and Mr. George Latham, deputy 
commissioner, Bureau of Financial Institutions from the State 
of Virginia and testifying on behalf of the National 
Association of State Credit Union Supervisors.
    We welcome each of you.
    And we will start, Vice Chairman Reich, with your 
testimony.

  STATEMENT OF JOHN M. REICH, VICE CHAIRMAN, FEDERAL DEPOSIT 
                     INSURANCE CORPORATION

    Mr. Reich. Thank you, Mr. Chairman. I want to thank you as 
well as Ranking Member Sanders, Congressman Hensarling, 
Congressman Moore and other distinguished members of this 
subcommittee for your continuing commitment to pursuing 
regulatory relief.
    I appreciate this opportunity to testify and update you on 
our efforts to reduce the regulatory burden on our nation's 
banks.
    I am here today as the interagency leader of the regulatory 
review process mandated by the Economic Growth and Regulatory 
Paperwork Reduction Act, EGRPRA.
    In a former life, I was a 23-year community banker in 
Sarasota, Florida, the last 10 years of which were as CEO of a 
community bank.
    When Congress enacted EGRPRA in 1996, it directed the 
agencies to work together in an effort to eliminate outdated, 
unnecessary and unduly burdensome regulations. I am pleased to 
report to you that over the last 2 years the agencies have 
worked well together, and I think we are making progress, but 
there is still much left to be done.
    There are three points that I want to make in my testimony 
this morning. My first point is that the banking industry has 
been on the receiving end of a substantially increased Federal 
regulation in recent years and is suffocating under the weight 
of an emulated regulatory burden which threatens, in my view, 
the future viability of community banking in particular. We 
need to act now to rebalance the scales, so to speak, provide 
regulatory relief to offset some of the regulatory load the 
industry is carrying.
    I think it is important for me to review with you the 
changing demographics that are taking place in the industry, 
which I think will provide some added context to the discussion 
of regulatory burden.
    Most people recognize that there has been considerable 
consolidation in the banking industry over the past 20 years, 
but not everyone fully appreciates the extent to which 
community banks have been disappearing from the scene.
    As chart one indicates that is before you now, with the red 
line, at the end of 1984, 20 years ago, there were 17,139 banks 
with less than a billion dollars in assets. By the end of last 
year, that number had dwindled to 8,378, a decline of 8,700 
institutions or a 51 percent decline over a 20-year period.
    Equally dramatically, look at institutions under $100 
million in assets. There were 11,700 banks and thrifts at the 
end of 1984 and only 4,094 at the end of last year--a 65 
percent decline in community banks, small community banks over 
the past 20 years.
    Let me turn to market share trends for the same-sized 
institutions on our second chart. Perhaps more dramatic than 
the decline in numbers of institutions has been the decline in 
market share. This chart shows that the total market share of 
institutions with less than a billion dollars in assets was 33 
percent 20 years ago at the end of 1984, and the fair market 
share has rather steadily declined to 14 percent at the end of 
last year.
    For the smallest community banks, those with less than $100 
million in assets, the market share has declined from 9 percent 
to 2 percent over the past 20 years. All of these numbers have 
been adjusted for inflation.
    I want to address the matter of industry profitability, 
because it is widely reported but little understood, and I 
would like to provide some context.
    By the end of 2004, there were 8,975 banks in the country, 
banks and thrifts, and for the fourth consecutive year there 
were record earnings in the industry. Those earnings totaled 
$122.9 billion. One point three percent of the total number of 
institutions in the country accounted for 73 percent of 
industry earnings. Those 1.3 percent were those institutions, 
117 institutions, with over $10 billion in assets. So 1.3 
percent of the institutions accounted for 73 percent of the 
earnings in the industry.
    Six-point-seven percent of the total number of institutions 
earned $107 billion of the $112.9 billion--87 percent of 
industry earnings. Those are all institutions over a billion 
dollars in assets. There were 597 of those. Those include those 
that are over $10 billion. Those 597 institutions accounted for 
87 percent of industry earnings.
    In sharp contrast, 93.3 percent of banks and thrifts, 8,378 
of the 8,975 that are under a billion dollars in assets, earned 
$14 billion, or 12.7 percent of industry earnings. And the 20-
year trend of industry earnings for institutions under a 
billion has reflected on chart 3 with the red line.
    To break it down one more step, the 4,093 community 
institutions have under $100 million in assets, they represent 
46 percent of our total banking industry in terms of number of 
banks in the country. They accounted for $2.1 billion of the 
$122.9 billion in industry earnings. One point seven percent of 
industry earnings, reflected by the blue line here, were 
represented by the 4,093 institutions, constituting 46 percent 
of our total number of institutions.
    Chart 4 is an update of the chart you saw last year. It 
speaks for itself. It is a listing of 851 final rules which 
have been enacted and imposed on the industry since FIRREA was 
enacted in 1989, an average of 50 a year over the past 16 
years.
    And a point that I would like to make to you as you look at 
this chart is to please realize that whether it is the 
Community National Bank of Brattleboro or JPMorgan Chase, every 
institution in the country must be on top of each of these 
rules and regulations to determine, one, does it apply to them 
and, two, if it does, what do we need to do?
    Let me add, Mr. Chairman, that although regulatory burden 
has a disproportionate impact on community banks, we are 
committed to addressing the problem for every financial 
institution. Banks, large and small, labor under the cumulative 
impact of regulations that diverts resources and capital away 
from economic development, extension of credit and job 
creation.
    So allow me to repeat my first point, which was and is the 
banking industry has been on the receiving end of substantially 
increased Federal regulation in recent years, is suffocating 
under the weight of that regulation, and it threatens the 
future viability of community banks in particular. We need to 
act now to rebalance the scales.
    My second point is that the industry and the regulators 
have reached consensus agreement on 12 recommendations to 
Congress for legislative relief. They are outlined in my 
written statement. I think they are included in most of our 
written statements today. We are providing also today a 
separate package which contains the actual legislative 
language.
    My third and final point is to make you aware that the 
people at this table are working together very well, I believe. 
We have a longer list of items that we are working on. We have 
reached consensus with the trade associations. There are 
upwards of 60 additional items in addition to the 12 that are 
being presented to you today and that I hope that as our 
conversations continue with each other here at this table over 
the next few weeks that we will be back with you soon with an 
additional list of recommendations.
    So in closing, Mr. Chairman, I would say that the degree of 
cooperation of the federal banking agencies and the extent of 
consensus that exists among the trade associations provides me 
with optimism that we are on the threshold of a significant 
opportunity this year to reduce regulatory burden.
    I look forward to working with you, Mr. Chairman, 
Congressman Hensarling and others who have a sincere interest 
in reducing regulatory burden on our banking industry.
    Thank you very much. I would be happy to take questions.
    [The prepared statement of John M. Reich can be found on 
page 121 in the appendix.]
    Chairman Bachus. Thank you. And I do appreciate you 
mentioning Congressman Moore, who was cosponsoring the bill 
with Congressman Hensarling. In my opening statement, I 
augmented referring to Dennis and Congressman Moore's done 
yeoman work in this regard.
    Governor Kohn?

 STATEMENT OF DONALD L. KOHN, GOVERNOR, BOARD OF GOVERNORS OF 
                   THE FEDERAL RESERVE SYSTEM

    Mr. Kohn. Thank you, Mr. Chairman.
    Mr. Chairman, members of the subcommittee, thank you for 
the opportunity to testify on issues related to regulatory 
relief.
    The board strongly supports Congress's efforts to review 
the federal banking laws to determine whether they can be 
streamlined without compromising other public policy 
objectives. The board strives to review its own regulations at 
least once every 5 years, and we have been an active 
participant in the ongoing interagency regulatory review 
process being conducted under EGRPRA.
    But some types of regulatory relief will require your 
action and the appendix to my testimony describes the numerous 
legislative relief proposals the board supports.
    I am pleased to note that three of the board's most 
important regulatory relief suggestions recently were passed by 
the committee and the full House as part of H.R. 1224, Business 
Checking Freedom Act of 2005.
    These amendments would authorize the Federal Reserve to pay 
interest on balances held at reserve banks, provide the board 
greater flexibility in setting reserve requirements and allow 
repository institutions to pay interest-on-demand deposits.
    These amendments would improve efficiency in the financial 
sector, assist small banks and small businesses and enhance the 
Federal Reserve's toolkit for efficiently conducting monetary 
policy.
    In addition, among the other amendments the board supports 
are ones that would remove outdated barriers to interstate 
branching by banks, raise the asset threshold below which an 
insured institution may qualify for an extended examination 
cycle, allow the board in appropriate circumstances to waive a 
special shareholding attribution rule in the Bank Holding 
Company Act and equalize and liberalize the cross-marketing 
restrictions that apply to certain investments made by 
financial holding companies.
    While the board strongly supports allowing depository 
institutions to pay interest-on-demand deposits and branch de 
novo across state lines, the board opposes amendments that 
would grant these powers to industrial loan companies that 
operate outside the regulatory framework established for other 
types of insured banks.
    Granting these expanded powers to exempt ILCs would permit 
them to become the functional equivalent of full service 
insured banks. However, these institutions operate under a 
special exemption in current law that allows their parent 
companies to avoid supervision and regulation under the Bank 
Holding Company Act.
    As a result, these proposals would create an unlevel 
competitive playing field; allow firms to own and control the 
functional equivalent of a full service bank without being 
subject to consolidated supervision at the holding company 
level; and may undermine the framework that Congress has 
established and reaffirmed as recently as 1999 to maintain the 
separation of banking and commerce.
    H.R. 1224 would allow exempt ILCs to offer business NOW 
accounts without adequately addressing these concerns. For 
example, the bill would allow those commercial and retail firms 
that acquired an ILC before October 1, 2003 to transform the 
institution into the functional equivalent of a full service 
bank. ILCs acquired after that date could also offer business 
NOW accounts if their parents are predominantly financial. 
Importantly, however, the bill gives the ILC's state supervisor 
the authority to make this determination rather than relying on 
the process established in the GLB Act.
    In addition, the bill fails to address the supervisory 
issues related to the potential lack of consolidated 
supervision of an ILCs holding company. Consolidated 
supervision provides an important protection to the insured 
banks that are part of a larger organization because financial 
trouble in one part of an organization can spread rapidly to 
other parts. For this reason, Congress has established 
consolidated supervision as a fundamental component of bank 
supervision in the United States.
    Let me be clear: The board does not oppose granting ILCs 
the ability to offer business NOW accounts or open de novo 
branches if the corporate owners of these institutions are 
covered by the same supervisory and regulatory framework that 
applies to the owners of other full service, insured banks.
    Mr. Chairman, I appreciate the opportunity to discuss the 
board's legislative priorities concerning regulatory relief. 
The board would be pleased to work with the subcommittee, the 
full committee and their staffs as well as our regulatory 
compatriots as you move forward in developing regulatory relief 
legislation.
    Thank you.
    [The prepared statement of Donald L. Kohn can be found on 
page 89 in the appendix.]
    Chairman Bachus. Thank you.
    Comptroller Williams?

 STATEMENT OF JULIE L. WILLIAMS, ACTING COMPTROLLER, OFFICE OF 
                THE COMPTROLLER OF THE CURRENCY

    Ms. Williams. Chairman Bachus, members of the subcommittee, 
I appreciate the opportunity to appear before you today to 
discuss the challenge of reducing unnecessary regulatory 
burdens on our nation's banking institutions. The Office of the 
Comptroller of the Currency does welcome your continued efforts 
to advance regulatory burden relief legislation. And I also 
want to express particular appreciation to Congressman 
Hensarling and Congressman Moore for their commitment to this 
issue.
    My written testimony and the appendices to that testimony 
describe a number of burden-reducing initiatives that the OCC 
supports. This morning, I would like to touch on just a few key 
points from that testimony. And I also want to lay out two 
broader themes that I hope will guide our mutual efforts to 
reduce unnecessary regulatory burden.
    My testimony emphasizes that the regulatory burdens on our 
financial institutions arise from several sources. First, we as 
federal banking regulators have a responsibility to look 
carefully at the regulations we adopt to ensure that they are 
no more burdensome than is necessary to protect safety and 
soundness, foster the integrity of bank operations and 
safeguard the interests of consumers.
    In this connection, I must mention and applaud the EGRPRA 
regulatory burden reduction initiative that is being led so 
ably by John Reich.
    As part of this process, the OCC, together with the other 
federal banking agencies, has been soliciting and reviewing 
public comment on our regulations and participating in banker 
and consumer outreach meetings around the country, using the 
input that has been gathered during the public comment and 
outreach process, the banking agencies are now developing 
additional specific recommendations for regulatory as well as 
legislative changes.
    Second, we also must realize that not all the regulatory 
burdens imposed on banks today come from regulations 
promulgated by bank regulators. Thus, we welcome the interest 
of the subcommittee in issues such as the implementations of 
Bank Secrecy Act and anti-money laundering standards and 
reporting requirements.
    And I would also like to thank you, Mr. Chairman, for your 
continuing involvement in an oversight of proposals by the 
Securities and Exchange Commission to implement the so-called 
push-out provision of the Gramm-Leach-Bliley Act. This 
attention has been invaluable in encouraging the development of 
rules that we hope that will be faithful to Gramm-Leach-
Bliley's intent and also not so burdensome as to drive 
traditional banking functions out of banks.
    A third key source of regulatory burden is federal 
legislation. Relief from some manifestations of unnecessary 
regulatory burden requires action by Congress. My written 
testimony contains a number of recommendations for legislative 
changes designed to modify or eliminate unnecessary 
requirements, provide additional flexibility and make the 
overall effect of particular laws less burdensome.
    The list includes consensus recommendations developed and 
agreed to in our discussions with the other banking agencies 
and with the industry.
    Before closing, I would just like to briefly highlight two 
broader themes that I hope will guide us in our efforts to 
tackle unnecessary regulatory burden.
    The first involves consumer protection disclosure 
requirements and here is an area where we have an opportunity 
to reduce regulatory burden and improve the effectiveness of 
our regulations. Today, our system imposes massive disclosure 
requirements and massive cost on financial institutions but 
does not generally produce information that consumers find easy 
to understand, and it often lacks the information that 
consumers most want to know.
    The success of the Food and Drug Administration's nutrition 
facts label proves that it is possible to deliver the 
information that consumers want and need in a concise and 
streamlined form.
    Key to this kind of result is using consumer testing. The 
Federal banking agencies have broken new ground recently by 
employing consumer testing as an essential part of the 
interagency project to simplify the Gramm-Leach-Bliley Act 
privacy notices, a project that has the potential to produce 
more effective and meaningful disclosures for consumers and 
reduce burdens on institutions that generate and have to 
distribute privacy notices. We need to do more of this.
    My second point goes back to the basics. Why do we care 
about regulatory burden? Isn't more regulation always better? I 
think not. We care because unnecessary regulatory burden saps 
the efficiency and competitiveness of American enterprise. And 
we particularly care because of the critical impact of 
regulatory burden on our nation's community banks.
    Community banks thrive on their ability to provide customer 
service, but the very size of community banks means that they 
have more limited resources available to absorb regulatory 
overhead expenses without impacting the quality and delivery of 
their services. We need to recognize that the risks presented 
by certain activities conducted by a community bank are simply 
not commensurate with the risks of that activity conducted on a 
much larger scale.
    One size fits all may not be a risk-based or sensible 
approach to regulation in many areas, and I hope we can do more 
to identify those areas where some types of distinction between 
banks based on the size and complexity and scope of their 
operations makes sense as a regulatory approach.
    In conclusion, Mr. Chairman, on behalf of the OCC, thank 
you for holding these hearings. The OCC strongly supports 
initiatives that will reduce unnecessary regulatory burden on 
the banking industry in a responsible, safe and sound manner. 
We would be pleased to work with you and your staff to make 
that goal a reality.
    Thank you.
    [The prepared statement of Julie L. Williams can be found 
on page 176 in the appendix.]
    Chairman Bachus. We thank you for that thoughtful 
testimony.
    Dr. Riccobono?

 STATEMENT OF RICHARD M. RICCOBONO, ACTING DIRECTOR, OFFICE OF 
                       THRIFT SUPERVISION

    Mr. Riccobono. Good morning, Chairman Bachus, members of 
the subcommittee. Thank you for the opportunity to testify on 
regulatory burden relief on behalf of the OTS.
    I want to thank you, Mr. Chairman, for your leadership and 
focus in this area, and I would also like to recognize the 
efforts of FDIC Vice Chairman Reich on the interagency EGRPRA 
project.
    And, Mr. Chairman, I would have said those nice things 
about Vice Chairman Reich even if he was not going to be my 
boss.
    We look forward to working with the subcommittee on 
legislation to address the issues we discuss today. While it is 
always important to remove unnecessary regulatory obstacles in 
our financial services industry that hinder profitability and 
competition and, in turn, hinder job creation and economic 
growth, this is a particularly good time to be discussing these 
issues given where we are in the economic cycle. Today, we have 
an opportunity to explore numerous proposals to eliminate old 
laws that, while well intended, no longer serve a useful 
purpose.
    Before addressing these issues, it is important to note 
that there are two areas that I will not be discussing today: 
Bank Secrecy Act requirements and the rules under Sarbanes-
Oxley. Virtually all institutions raise these two issues as 
regulatory relief priorities. While we recognize the need for 
relief in these areas, we are not at a point to be able to make 
sound recommendations on where to make reforms without 
compromising the underlying purpose of the laws, but we are 
working on it.
    In my written statement, I describe a number of proposals 
that would significantly reduce burden on savings associations. 
I ask that the full text of that statement be included for the 
record.
    Four items that we believe provide the most significant 
relief for savings associations are elimination of the 
duplicative regulation of savings associations under the 
federal securities laws, eliminating the existing arbitrary 
limits on savings associations and consumer lending laws, 
updating commercial and consumer business lending limits for 
savings associations and establishing statutory succession 
authority for the position of the OTS director.
    Currently, banks and savings associations may engage in the 
same types of activities covered by the investment advisor and 
broker dealer requirements of the federal securities laws. 
These activities are subject to supervision by the banking 
agencies that is more rigorous than that imposed by the SEC, 
yet savings associations are subject to an additional layer of 
regulation and review by the SEC that yields no additional 
supervisory benefits.
    While the bank and thrift charters are tailored to provide 
powers focused on different business strategies, in areas where 
powers are similar, the rules should be similar. No legitimate 
public policy rationale is served by imposing additional and 
unwarranted administrative costs on a savings association to 
register as an investment advisor or as a broker dealer under 
the federal securities laws.
    OTS strongly supports legislation such as that in section 
201 of H.R. 1375 to exempt savings associations from these 
duplicative investment advisor and broker dealer registration 
requirements.
    Another important proposal for OTS is eliminating a 
statutory anomaly that subjects the consumer lending authority 
of a federal savings association to a 35 percent of assets 
limit, but permits unlimited credit card lending. This exists 
even though both types of credit may be extended for the same 
purpose. Removing the 35 percent cap on consumer lending will 
permit savings associations to engage in secured consumer 
lending activities to the same extent as unsecured credit card 
lending. This makes sense not only from a statutory burden 
reduction perspective but also for reasons of safety and 
soundness.
    We also support updating statutory limits on the ability of 
federal savings associations to make small business and other 
commercial loans. Currently, federal savings association 
lending for commercial purposes is capped at 20 percent of 
assets, and commercial loans in excess of 10 percent of assets 
must be in small business loans.
    Legislation removing the current limit on small business 
loans and increasing the cap on other commercial lending will 
provide savings associations greater flexibility to promote 
safety and soundness through diversification, more 
opportunities to counter the cyclical nature of the mortgage 
market and additional resources to manage their operations 
safely and soundly.
    A final but important issue, is statutory succession 
authority for the position of OTS director. In many respects, 
this issue is more important for the thrift industry than it is 
for OTS. We strongly urge consideration of a provision 
authorizing the Treasury secretary to appoint a succession of 
individuals within OTS to serve as OTS acting director in order 
to assure agency continuity. It is equally important to 
modernize the existing statutory appointment authority to the 
OTS director by providing every appointee a full 5-year term.
    Statutory succession authority would avoid relying on the 
Vacancies Act to fill any vacancy that occurs during or after 
the term of an OTS director or acting director. This is 
important given our continuing focus on maintaining the 
stability of our financial system in the event of a national 
emergency.
    OTS is committed to reducing burden whenever it has the 
ability to do so consistent with safety and soundness and 
consumer protection.
    We look forward to working with you, Mr. Chairman, and the 
subcommittee to address these and other regulatory burden 
reduction items discussed in my written statement. I will be 
happy to any answer questions that you may have.
    Thank you.
    [The prepared statement of Richard M. Riccobono can be 
found on page 154 in the appendix.]
    Chairman Bachus. Thank you. We appreciate your testimony.
    Chairman Johnson, we welcome you, look forward to your 
testimony.
    And all the witnesses, your entire written testimony will 
be submitted in the record, without objection.

  STATEMENT OF JOANN JOHNSON, CHAIRMAN, NATIONAL CREDIT UNION 
                         ADMINISTRATION

    Ms. Johnson. Good morning, Chairman Bachus and members of 
the subcommittee. On behalf of the National Credit Union 
Administration, I am pleased to be here today to present our 
agency's views on regulatory efficiency and reform initiatives 
being considered by Congress.
    Enacting this legislation will directly and indirectly 
benefit the consumer and the economy by assisting all financial 
intermediaries and their regulators perform the role and 
functions required of them.
    The Subcommittee on Financial Institutions and Consumer 
Credit has been taking the lead over the last several years in 
many areas of interest to consumers and financial institutions 
such as credit unions. Legislation of the type being considered 
today epitomizes the real connection between and the benefits 
of effective financial institutions efficiently delivering 
consumer credit to the public.
    It is my strong belief that effective regulation rather 
than excessive regulation should be the underlying principle 
supporting NCUA's critical mission of ensuring the safety and 
soundness of federally insured credit unions.
    While we scrutinize one-third of our existing regulations 
annually to find ways to simplify or improve any rule that is 
outdated or in need of revision, these legislative proposals, 
if enacted, will allow credit unions to better serve their 
members and improve access to affordable financial services.
    Last year, I testified in favor of the credit union 
provisions in the Financial Institutions Regulatory Relief Act 
of 2004. Approved by the House Financial Services Committee and 
passed by the House of Representatives by a vote of 392 to 25, 
that legislation was a significant bipartisan achievement that 
NCUA greatly appreciated and enthusiastically supported. Those 
provisions merited your support in the past and NCUA supports 
inclusion of those credit union provisions in any new 
legislation that is introduced this year.
    The recent introduction of the Credit Union Regulatory 
Improvement Act of 2005, CURIA, also includes many of the same 
credit union provisions approved in last year's reg relief bill 
and addresses some of the most compelling statutory and 
consequently regulatory reform issues being discussed within 
the credit union industry today.
    CURIA of 2003 suggested that NCUA should be authorized to 
design and implement a risk-based prompt corrective action 
system for federally insured credit unions. In order for policy 
makers and credit unions to make an accurate assessment of the 
proposal, NCUA has worked to demonstrate how such a system 
could be implemented. I have provided the complete plan as an 
attachment to this testimony and would like to discuss it 
briefly here.
    The guiding principle behind PCA, or prompt corrective 
action, is to resolve problems in federally insured credit 
unions at the least long-term cost to the Share Insurance Fund. 
This mandate is good public policy and consistent with NCUA's 
fiduciary responsibility to the insurance fund.
    While NCUA supports a statutorily mandated PCA system, the 
current statutory requirements for credit unions are too 
inflexible and establish a structure based primarily on one-
size-fits-all approach, relying largely on a high leverage 
requirement of net worth to total assets. This creates 
inequities for credit unions with low-risk balance sheets and 
limits NCUA's ability to design a meaningful risk-based system.
    Credit unions should not be placed at a competitive 
disadvantage by being held to higher capital standards when 
they are not warranted to protect the insurance fund.
    For FDIC-insured institutions, a 5 percent leverage 
requirement, coupled with a risk-based system, has provided 
adequate protection for their insurance fund. In comparison, 
the credit union industry has a relatively low-risk profile, as 
evidenced by our low loss history. This is largely due both to 
the greater restrictions on the powers of credit unions 
relative to other financial institutions and also credit 
unions' conservative nature given their member-owned structure.
    In addition, the current 7 percent leverage requirement is 
excessive for low-risk institutions. A meaningful risk-based 
system working in tandem with a lower leverage requirement 
provides incentives for financial institutions to manage the 
risks they take in relation to their capital levels.
    We recognize that achieving comparability between the 
federal insurance funds requires us to factor in the Share 
Insurance Fund deposit-based funding mechanism. Thus, our 
reform proposal incorporates a revised method for calculating 
the net worth ration for PCA purposes by adjusting for the 
deposit credit unions maintain in this insurance fund.
    However, our proposed treatment of the Share Insurance Fund 
deposit for purposes of regulatory capital standards in no way 
alters its treatment as an asset under generally accepted 
accounting principles or our steadfast support of the deposits-
based nature of the Share Insurance Fund.
    For the risk-based requirement, our proposal tailors the 
risk asset categories and weights of BASEL II's standard 
approach as well as related aspects of the FDIC's PCA system to 
the operation of all credit unions. It is our intention to 
maintain comparability with FDIC's PCA requirements for all 
other insured institutions and keep our risk-based requirement 
relevant and up to date with emerging trends in credit unions 
and the marketplace.
    Concerning other provisions in the proposal, as I have 
previously testified, an important technical amendment is 
needed to the statutory definition of net worth. NCUA 
anticipates that the Financial Accounting Standards Board will 
act soon to the lift the current deferral of the acquisition 
method of accounting for mergers by credit unions, thereby 
eliminating the pooling method and requiring the acquisition 
method. This change will, in effect, discourage credit unions 
from moving forward with mergers which are clearly in the best 
interest of their members.
    Specifically, the change will provide that when two credit 
unions merge, the retained earnings of the discontinuing credit 
union would not be included with the post-merger net worth. 
This resulting lower net worth ratio has adverse implications 
on the statutory prompt corrective action regulations, and it 
will discourage voluntary mergers.
    On occasion, this will make NCUA-assisted mergers more 
difficult and costly to the national Share Insurance Fund. 
Without a remedy, an important NCUA tool for reducing costs and 
managing the fund in the public interest will be lost. FASB has 
indicated it supports a legislative solution and that such a 
solution will not impact their standard-setting activities.
    There are other provisions within the regulatory reform 
that are suggested that NCUA fully supports, including allowing 
check cashing, wire transfer and other money transfer services 
to be offered, especially in areas where in a field of 
membership those who are not members but are eligible for 
membership would be able to use these services, particularly 
helpful in areas of low income where they are susceptible to 
higher rates. It would assist them in becoming familiar and 
comfortable working with an insured institution.
    We also support improving and lifting the limitations and 
restrictions on the 12-year maturity limit that is currently 
reducing or limiting loans made on second homes, recreational 
vehicles and other conventional maturities that are commonly 
accepted in the market today.
    Mr. Chairman, we have reviewed all of the additional credit 
union provisions not originating from NCUA but included in 
previously mentioned bills, and we have no safety and soundness 
concerns with these provisions.
    Thank you for the opportunity to appear before you today. 
On behalf of NCUA and the credit unions and the 84 million 
credit union members, I am pleased to respond to any questions 
that you may have or be a source of additional information.
    [The prepared statement of Hon. JoAnn Johnson can be found 
on page 79 in the appendix.]
    Chairman Bachus. Thank you, Chairman Johnson.
    Let me say this: I think next week it is our intention to 
take an amendment to the statutory definition of net worth to 
the floor.
    Ms. Johnson. That is good news. Thank you.
    Chairman Bachus. Probably on suspension. And we hope to do 
that.
    Commissioner James, we welcome you. Anybody from the State 
of Texas is welcome to our committee.

 STATEMENT OF RANDALL S. JAMES, COMMISSIONER, TEXAS DEPARTMENT 
OF BANKING, ON BEHALF OF CONFERENCE OF STATE BANK SUPERVISORS, 
                              INC.

    Mr. James. Thank you, and good morning, Chairman Bachus and 
members of the subcommittee.
    For the record, my name is Randall James. I am the Texas 
banking commissioner, and I am very pleased to be here today on 
behalf of the Conference of State Bank Supervisors.
    Thank you for inviting CSBS to be here to discuss 
strategies for reducing the unnecessary regulatory burden on 
all of our nation's banks. We especially appreciate the 
opportunity to discuss our views in our capacity as the 
chartering authority and primary regulator of the vast majority 
of our nation's community banks.
    A bank's most important tool against regulatory burden is 
its ability to make meaningful choices about its regulatory and 
operating structures. The state charter has been and continues 
to be the charter of choice for community-based institutions, 
because the state-level supervisory environment is locally-
oriented, it is responsive, it is meaningful, and it is 
flexible, and that matches the way these banks do business.
    Our current regulatory structure and statutory framework 
may recognize some differences among financial institutions, 
but too often mandates an overarching one-size-fits-all 
requirement for any institution that can be described by the 
word ``bank.'' These requirements are often unduly burdensome 
on smaller and community-based institutions.
    My colleagues and I see growing disparity in our nation's 
financial services industry. The industry is becoming 
increasingly bifurcated between large and small institutions, 
and Congress must recognize this reality and the impact this 
bifurcation has on our economy.
    As Vice Chairman John Reich's testimony clearly points out, 
stifling economic incentives for community banks with excessive 
statutory burdens slows the economic engine of small business 
in the United States. Regulatory burden relief for community 
banks would be a booster shot for the nation's economic well-
being.
    CSBS endorses approaches such as Congressman Ryun's 
Communities First Act but recognize and encourage the benefits 
of diversity within our banking system. We ask that Congress 
include some type of targeted relief for community banks in any 
regulatory relief legislation.
    Today, if you will allow me, I would like to highlight a 
few specific changes to federal law that would help reduce 
regulatory burden on financial institutions. We ask that the 
committee include these provisions in any legislation it 
approves.
    First, CSBS believes that the Federal Reserve should have 
the flexibility it needs to allow state chartered member banks 
to exercise the powers granted by their charters as long as 
these activities pose no significant risk to the deposit 
insurance fund. Current law limits the activities of state-
charted fed member banks to those activities allowed for 
national banks. This restriction stifles innovation within the 
industry and eliminates a key dynamic of the dual banking 
system.
    Second, CSBS believes that the state banking regulator 
should have a vote on the Federal Financial Institutions 
Examination Council. The council's State Liaison Committee 
includes state bank, credit union and savings bank regulators. 
The chairman of this committee has input at council meetings 
but is not able to vote on policy that affect the institutions 
we charter and supervise. We ask that Congress change the state 
position on this council from one of observer to that of a full 
voting member.
    Finally, we believe that advances in off-site monitoring 
techniques and technology and the health of the banking 
industry make annual on-site examinations unnecessary for the 
vast majority of the healthy financial institutions we have.
    Therefore, we do ask Congress to extend the mandatory 
federal examination cycle from 12 months to 18 months for 
healthy well-managed banks with assets of up to $1 billion.
    As you consider additional ways to reduce burden on 
financial institutions, we urge you to remember that the 
strength of our banking system is its diversity, the fact that 
we have enough financial institutions of different size and 
specialties to meet the needs of the world's most diverse 
economy and society.
    While federal intervention may be necessary to reduce 
burden, relief measures should allow for further innovation and 
coordination at both the State and Federal levels for 
institutions of all sizes and especially to recognize the 
important role community banks play in our local economies.
    State supervisors are sensitive to regulatory burden, and 
constantly look for ways to simplify compliance.
    Your own efforts in this area, Chairman Bachus, have 
greatly reduced unnecessary regulatory burden on financial 
institutions. We commend you, Chairman Bachus, Congressman 
Hensarling and Moore and members of the subcommittee, for your 
efforts in this area.
    We thank you for the opportunity, and I will be glad to try 
to respond to any questions as you see fit.
    Thank you.
    [The prepared statement of Randall S. James can be found on 
page 63 in the appendix.]
    Chairman Bachus. Thank you.
    Commissioner Latham, we welcome your testimony.
    And, Mr. James, we would welcome your comments I think in 
enforcement of what Vice Chairman Reich said about the 
difference between the large banks and small banks. So I think 
you have it bifurcation is your word?
    Mr. James. Yes, sir.
    Chairman Bachus. Deputy Commissioner Latham, we welcome 
your testimony.

  STATEMENT OF GEORGE LATHAM, DEPUTY COMMISSIONER, BUREAU OF 
FINANCIAL INSTITUTIONS FOR THE STATE OF VIRGINIA, ON BEHALF OF 
     NATIONAL ASSOCIATION OF STATE CREDIT UNION SUPERVISORS

    Mr. Latham. Thank you, sir.
    Good morning, Chairman Bachus and distinguished members of 
the subcommittee. I am George Latham----
    Mrs. Kelly. Sir, please pull your microphone to you and 
turn it on.
    Mr. Latham. Okay. Can you hear me now?
    Chairman Bachus. Yes.
    Mr. Latham. I am George Latham, deputy commissioner of 
financial institutions for the Commonwealth of Virginia. I am 
also a past chairman of the Board of NASCUS, the National 
Association of State Credit Union Supervisors, who I am 
speaking on behalf of here today.
    NASCUS's priorities for regulatory relief legislation 
focuses on reforms that will strengthen the State system for 
credit union supervision and enhance the capabilities of state 
chartered credit unions.
    Capital reform continues to be a critical concern for the 
nation's credit unions. NASCUS strongly urges the subcommittee 
to adopt or amend the prompt correction action provision of the 
Federal Credit Union Act. This section would require federally 
insured credit unions to include all forms of capital when 
calculating the required net worth ratio.
    Under the Federal statute, credit union net worth is 
defined as and is limited to retained earnings. Therefore, the 
Federal Credit Union Act needs to be amended. In addition, 
amending the definition of that word cures the unintended 
consequences for credit unions of the Financial Accounting 
Standards Board standard number 141.
    As NASCUS testified before this subcommittee in April of 
this year, the retained earnings of a merging credit union 
would no longer be combined with those of the continuing credit 
union. This creates a potential significant dilution of 
statutory net worth and an unintended impediment to credit 
union mergers.
    Mergers are a safety and soundness tool regulators 
sometimes use to protect funds deposited by American consumers. 
This tool also preserves the vitality of the National Credit 
Union Share Insurance Fund.
    Chairman Bachus and members of the subcommittee, NASCUS 
applauds the introduction of H.R. 1042, the Net Worth Amendment 
for Credit Unions Act. Your bill allows the retained earnings 
of a merging credit union to be counted with that of a 
surviving credit union. We recognize and also appreciate that a 
similar provision was introduced into H.R. 2317, the Credit 
Union Regulatory Improvement Act.
    NASCUS has a long-standing policy supporting risk-based 
capital; therefore, NASCUS supports the risk-based capital plan 
presented in title one of H.R. 2317.
    NASCUS supports capital reform beyond risk-weighted 
capital. We believe credit unions should have access to 
alternative capital that is complimentary to their proposed 
risk-based system.
    As a regulator, I believe it makes sound economic sense for 
credit unions to access other forms of capital to improve their 
safety and soundness. Strengthening the capital base of this 
nation's credit unions is a priority.
    Strong capital reform requires that State and Federal 
regulators work together. In 1998, the Credit Union Membership 
Access Act, H.R. 1151, mandated that NCUA consult and cooperate 
with state regulators in constructing prompt corrective action 
and member business lending regulations. NASCUS stands ready to 
meet this mandate.
    We firmly believe that the cooperation between regulators 
yields better regulation and a safe and sound credit union 
system. It is therefore vital that credit union member business 
lending is available to consumers. Section 201 of H.R. 2317 
raises the statutory limit on credit union member business 
loans to 20 percent of total assets. This facilitates member 
business lending without jeopardizing credit union safety and 
soundness.
    And I know from Mr. Riccobono's testimony that they seek 
similar limit at 20 percent, and so there is agreement there 
between regulators, which is a good thing.
    Further, NASCUS supports section 202, which amends the 
definition of a member business loan by increasing the current 
amount from $50,000 to $100,000. Both of these provisions 
provide credit unions with regulatory relief and were included 
in H.R. 3579 which was introduced in the 108th Congress.
    NASCUS supports section 311 in CURIA that provides 
federally insured credit unions the same exemptions as banks 
and thrift institutions from Federal Trade Commission pre-
merger notification requirements and fees.
    NASCUS also supports 312 of CURIA. Federally insured credit 
unions should have parity treatment with commercial banks with 
regard to exemptions from Securities and Exchange Commission 
registration requirements. Without this parity treatment, the 
powers granted to state-chartered credit unions by state 
legislatures might be unnecessary preempted by SEC regulation.
    The 108th Congress recognized these provisions when they 
were included in H.R. 1375. NASCUS firmly believes that non-
federally insured credit unions should be eligible to join the 
federal home loan banks. There are 86 insurance companies, none 
of which are federally insured that already belong the federal 
home loan bank system.
    And, finally, recent preemptive actions by federal banking 
agencies could have a potentially significant impact on the 
dual chartering system for commercial banks. Unless Congress 
intervenes, NASCUS has concerns that the federal credit union 
regulator could use as precedent to initiate preemptive 
actions. Congress should resolve these preemption conflicts 
rather than delegate these fundamental issues to federal 
regulators.
    This concludes my remarks, Chairman Bachus, and NASCUS 
appreciates this opportunity to testify today, and we welcome 
further participation and dialogue concerning regulatory 
relief. I will be happy to respond to any questions that the 
subcommittee has.
    [The prepared statement of George Latham can be found on 
page 111 in the appendix.]
    Chairman Bachus. I thank you.
    At this time, I would like to introduce into the record the 
SARs activity reviewed by the numbers that was just issued by 
FinCEN, which again shows a substantial increase in the number 
of SARs and I think bolsters some of the testimony we have 
heard today, without objection.
    At this time, Ms. Kelly, you are recognized for questions.
    Mrs. Kelly. Thank you very much, Mr. Chairman.
    Ms. Williams, my subcommittee has taken a deep interest in 
the situation regarding the Government's actions with regard to 
Arab Bank. I certainly respect the limits of what you can say 
about the OCC actions in light of its ongoing nature, but I am 
wondering if you can share with the committee some of your 
thoughts about this situation and what impact it has had on the 
operation of the OCC.
    Are you able at this time to comment on claims that the 
branch was consistently given good grades by regulators in the 
years leading up to this action? That is my first question.
    My second question is, can you explain to the committee the 
timeline of events regarding Arab Bank from the OCC's 
perspective? I believe that there are many of us who have been 
watching this, and we have developed a strong interest in 
making sure this issue is resolved, and I mean fully resolved 
with a unified, fair response that will further strengthen 
efforts to secure the international financial system.
    Ms. Williams. Congresswoman Kelly, we share the concerns 
that you expressed in the latter part of your statement. I must 
limit my response to your questions about Arab Bank, because 
the OCC has an open pending enforcement case against the 
federal branch of Arab Bank.
    However, I can make the following statement: First, it is 
important to recognize that our authorities and jurisdiction 
with respect to BSA compliance that national banks and 
federally licensed branches of foreign banks is to assess a 
bank or branch's BSA systems and controls and to assure that 
they meet applicable standards.
    Specifically, in the case of the federal branch of Arab 
Bank, we supervise the federal branch. We do not supervise Arab 
Bank itself.
    During the course of a recent BSA examination of the 
branch, we determined that the branch did not have adequate 
systems and controls in place to monitor international wire 
transactions despite the high-risk nature of that activity.
    During the course of our work, in order to test that 
branch's system, the OCC compiled a list of individuals and 
entities with the same or similar names as reputed terrorists 
or terrorist organizations using publicly available information 
sources, such as criminal indictments, testimony before 
congressional committees and media reports.
    We ran that list against the branch's system. This process 
was extraordinarily challenging given the huge number of wire 
transfer transactions processed through the branch on a daily 
basis and significant language barriers. Nevertheless, our 
review disclosed that the branch had handled hundreds of 
suspicious wire transactions involving individuals and entities 
with the same or similar names as suspected terrorists and 
terrorist organizations and that many of these individuals and 
entities were customers of Arab Bank or its affiliates.
    Consequently, we issued a cease and desist order that 
required termination of this suspicious wire activity because 
the branch's systems were obviously insufficient to monitor and 
control it. We also required the conversion of the branch into 
a federal agency with limited banking powers pending further 
OCC evaluation of the branch's overall systems and controls. 
The order also required the branch to preserve its assets and 
books and records as well as to adopt other remedial measures.
    The penalty phase of this matter is currently pending and 
the OCC and FinCEN are coordinating. That is why I must limit 
my statement to the foregoing.
    Mrs. Kelly. I thank you. I look forward to working with you 
and learning more about this.
    I would like to ask this entire panel, in repeated 
testimony before this committee, I have been told that the 
freedom to change charters is one of the few options a 
financial institution has to impact its regulatory environment. 
While the press accounts suggest that the number of charter 
changes is increasing, there is also anecdotal evidence that 
the regulatory barriers to charter changes are also increasing.
    Please tell me what steps your agencies are taking to make 
the process of changing charters for financial institutions 
less burdensome. And, Mr. Riccobono, in particular, I am 
interested in what you have to say here.
    I wonder, let me just put it this way, since nobody's 
quickly jumping in here and I am running out of time. Mr. 
Riccobono, you regulate some of the credit unions that have 
converted to savings banks charters, right?
    Mr. Riccobono. Yes.
    Mrs. Kelly. Okay. And as a supervisor, the converted 
institutions have performed within--I assume they have 
performed within acceptable ranges?
    Mr. Riccobono. Oh, yes, absolutely.
    Mrs. Kelly. When you evaluate a credit union application 
for a savings association charter, what are the factors that 
the OTS considers?
    Mr. Riccobono. We treat the conversion of a credit union to 
a federal savings bank the same as you would a de novo 
application, although one with some history, having been in the 
banking business. In other words, an application is filed both 
with us as well as the FDIC for deposit insurance, and we 
conduct eligibility exams, both the OTS and the FDIC, before 
accepting the institution.
    Mrs. Kelly. The purpose of this hearing is to discuss 
regulatory burdens and how Congress needs to take steps to 
lower the burden on financial institutions. From your 
standpoint, as a regulator of converted credit unions, what 
steps could be taken to make the converting from a credit union 
to a savings bank simpler and less burdensome while maintaining 
appropriate supervisory oversight?
    Chairman Bachus. Actually, time has expired but maybe a 
brief answer would be----
    Mrs. Kelly. Thank you.
    Mr. Riccobono. Can I give my answer?
    Chairman Bachus. Absolutely.
    Mr. Riccobono. I think the process with respect to banks 
becoming savings associations and savings associations becoming 
banks has over time been itself very streamlined. When a 
thrift, and we have had many of them, decides to convert to a 
state commercial bank or national bank, it simply files a 
notice with OTS. There will be a vote, the stock institution 
shareholder vote, taken once.
    If it is a mutual institution, which represent around just 
slightly under 40 percent of the institutions that we are 
responsible for, they would take a vote of the membership--just 
one. And then it would be simply the obligation of the 
regulator receiving the charter to do their homework and to 
have dialogue with the previous regulator to make sure the 
institutions are run in a sound manner and in this case like a 
credit union coming over deposit insurance would be necessary.
    The current system that exists today is, I would believe, 
more burdensome with respect to credit unions becoming mutual 
charters simply because of the process of taking a membership 
vote.
    Chairman Bachus. On that note, Chairman Johnson, if you 
want to comment on that.
    Ms. Johnson. Thank you, Mr. Chairman. As the regulator of 
credit unions, we have been charged by Congress to proceed with 
the process when a conversion is to take place and to have 
rules for that process, that conversion process. NCUA has taken 
action to put forth some rules pertaining to disclosure.
    There is a difference in credit unions within the structure 
of credit unions with one member, one vote, and the disclosure 
gives the credit union member the opportunity to have the 
information to be informed to make a good decision of whether 
they want to move from that type of a structure, from one 
member, one vote, where the equity is actually put on the table 
and they give up ownership of that equity.
    If the member understands what is going to happen to their 
equity, that it will be set aside and basically they lose that 
equity, they have the opportunity to understand that and want 
to move forward, indeed that is their right to do so, because 
it is certainly legal for a credit union to convert to a mutual 
savings bank. But putting forth information that the members 
should have to make an informed decision, putting it out in the 
sunshine is right way to go for consumer protection.
    Chairman Bachus. Commissioner Latham, is that----
    Mr. Latham. Yes. I would just add that the subcommittee 
consider that a conversion from a credit union to a bank or a 
savings and loan type of institution is a conversion from a 
non-stock type of corporation to a stock corporation, and there 
are some inherent structural differences that require due to 
corporate governance and laws, State laws, federal laws, that 
require the application of getting a stock chartered 
corporation underway. So I am not sure how much regulatory 
relief can be granted to get around that process, but that 
needs to be taken into consideration.
    Chairman Bachus. Right.
    Mr. Riccobono. Mr. Chairman, just to correct that, we do 
have a mutual form of organization at the federal level, and 
many states have the same, so you can go from mutual to mutual 
or you could go from mutual and then eventually to stock.
    Chairman Bachus. All right. Thank you.
    The gentleman from Texas, Mr. Green?
    Mr. Green. Thank you, Mr. Chairman. And I thank also the 
ranking member equally as well. I thank the two of you for 
hosting these very important hearings.
    I would like to, if I may, ask that the outstanding members 
of the panel allow me to proceed en banc, meaning I will ask a 
couple of questions and your silence will give consent.
    [Laughter.]
    And if you differ, we beg that you would speak up.
    I am very much concerned about the CRA, Community 
Reinvestment Act. And my first question to you is, do you agree 
that the CRA has been beneficial in combating invidious 
redlining? By the way, all redlining, in my opinion, is 
invidious; I say it this way to make my point transpicuously 
clear--as well as onerous discrimination. Again, I am being a 
bit superfluous. But do you agree that the CRA has been 
beneficial in eliminating redlining and discrimination?
    I take it from your silence that you all agree?
    Do you agree that the CRA will benefit us as we move 
forward even in the world of electronic banking?
    I take it from your silence that you all agree, although I 
read body language quite well, and based upon your body 
language--my glasses are not as good as they should be, I 
suppose--this is Mr. Randall S. James, is that--no, it is Mr. 
Latham.
    Mr. Latham, your body language connotes at least an 
equivocation.
    Mr. Latham. Well, you are asking for my----
    Chairman Bachus. We will take a picture of the panel and 
include that.
    [Laughter.]
    Mr. Latham. You are asking my concurrence on the issue of 
using computers and so forth, electronic transfer, is that is a 
mechanism to get around redlining, and I am----
    Mr. Green. Not really.
    Mr. Latham. Okay.
    Mr. Green. Let me be more specific.
    Mr. Latham. Maybe I misunderstood.
    Mr. Green. I am asking you in an age wherein we have 
Internet banking, national marketing, niche banks, does the CRA 
have a place in this age, sir?
    Mr. Latham. Sorry, I misunderstood you on your question.
    Mr. Green. Quite all right. I sometimes do not communicate 
as efficaciously as I should. Given that we agree that the CRA 
has been effective, would someone care to tell me how we can 
make it even more efficacious, not effective but efficacious? 
To be effective means you get the job done. To be efficacious 
means that you get it done with a minimum amount of wasted 
effort. So I do not want to impose upon you the standard of 
being effective but rather being efficacious. How can we make 
the CRA more efficacious as we move forward?
    You see, you can kill a fly with an atomic bomb, that is 
being effective, but if you use a flyswatter, you can be 
efficacious. So how can we make it more efficacious as we move 
forward? And I would like to ask the first person who would 
like to respond to do so as quickly as you can. And if you can 
be terse, I would appreciate it.
    Ms. Williams. Congressman, I will take a crack at that. I 
think we are trying to do that right now in connection with an 
open rulemaking proposal that the OCC, the Fed and the FDIC 
have on the table right at this time. So we are looking at that 
very issue in connection with the application of CRA to banks.
    I do not feel comfortable commenting about exactly where we 
are with that or the particular issues that we are considering, 
because we are in the midst of a rulemaking.
    Mr. Green. Let me ask this: At the end of the day, will we 
still have a CRA, pursuant to what you are attempting to do, 
that will fight redlining and invidious discrimination? That is 
important. Do you all agree that we still have discrimination 
taking place? If there is anyone who differs, kindly speak up.
    Given that we still have discrimination taking place and we 
all agree that the CRA has been efficacious, effective as well 
as efficacious, I think we all ought to agree that we want a 
strong CRA as we go forward, not one that is overwhelming, not 
one that is burdensome but one that protects the minority 
population that is to this day being discriminated against. 
Because we have not eliminated discrimination in lending 
practices.
    I suspect that everyone agrees that you cannot find a 
legitimate study that will show that minorities receive 
advantages that majorities do not. There probably is no study. 
If you have a study that shows that minorities are receiving 
favoritism, I would like to see it. But every study, legitimate 
study shows that minorities who are equally as qualified as 
majorities, every study shows, not one single study, every 
study shows that they still get discriminated when they apply 
for loans at lending institutions.
    So I am just making an appeal to you to please let's do 
what we can to salvage the CRA.
    My final CRA question, Mr. Chairman, if I may, is this: Do 
you agree that lending institutions performing the same 
function, regardless of the style of their name, performing the 
same function should have to adhere to the same CRA 
requirements? Anyone who differs? Performing the same function, 
the same function, no deviation in function, do you agree that 
they all should adhere to the same CRA requirements?
    Ms. Johnson. Congressman, credit unions perform many of the 
same functions as other financial institutions, but Congress 
does not see fit to require CRA requirements for credit unions, 
that there was no need. As I understand, the CRA requirements 
were initiated when there was a deficiency cited in other areas 
but not for credit unions, so at this time there has been no 
call by Congress for those requirements.
    Mr. Green. It is interesting that you would mention this. I 
happen to have a study that shows that right now the banks are 
outperforming the credit unions when it comes to lending to 
blacks, Hispanics, low-to moderate-income borrowers, generally 
speaking, to women, low-to moderate-income minorities, low-to 
moderate-income women, to minority tracks, low-to medium-income 
tracks.
    So now right now the empirical data seems to indicate that 
we do need to do this.
    Chairman Bachus. Mr. Green?
    Mr. Green. Yes, sir.
    Chairman Bachus. That is all right.
    Mr. Green. If I may----
    Chairman Bachus. I guess I would just like to say in 
fairness I think there are studies that show that credit unions 
meet those needs very well. But, I mean, you know, there are 
studies--and I do not know who commissioned the study.
    Mr. Green. If I may then, let's take studies off the table 
and let's just talk about the same function and talk about the 
fact that we know that invidious discrimination exists. Do we 
only want to require one set of institutions to fight 
discrimination or should all institutions performing the same 
function?
    Chairman Bachus. It is almost 10 minutes, and I know these 
are very important. We will have a second round, and I will 
allow you to----
    Mr. Green. Yes, sir. I yield back. Thank you.
    Chairman Bachus. Thank you.
    Mr. Ryun? And on the Republican side, we go by who was here 
first, and the order is Mr. Ryun, Mr. Hensarling, Mr. Pearce, 
Ms. Biggert and Mr. Neugebauer and then Mr. Patrick McHenry.
    Mr. Ryun. Mr. Chairman, thank you for your time.
    Thank you to the panelists for coming today, and let me 
just express my appreciation for what you all do and my 
gratefulness for what you are trying to do in terms of 
providing additional regulatory relief for financial 
institutions.
    I have introduced H.R. 2061, the Communities First Act, and 
it is aimed at targeting regulatory relief to our community 
banks. In fact, I am going to borrow a quote, I think, from Mr. 
James who earlier said that our financial institutions are the 
engine of economic growth, and that is one of the reasons that 
I feel strongly about what we are doing here.
    Mr. James, I also appreciate your support and your comments 
and your opening statement.
    Now, I am going to pose an easier question to you, if I 
may, but before I do that, I want to touch on a couple of 
statistics that I think will reiterate part of where I am going 
and what I would like to do.
    As was well pointed out a moment ago with some of the 
charts, the last 2 decades have seen a number of community 
banks with less than a billion dollars in assets decline from 
17,000 in 1984 to just over 8,000 today. And along with that, 
the assets shared by these same banks have fallen from 33 
percent to 14 percent during this period of time.
    With these particular figures in mind, and I know all of 
you have had opening comments in which you have given some 
support for regulatory relief, what I generally want to do is 
to go back one last time and say, are there any other measures 
you would like to see as we move forward in terms of providing 
regulatory relief, especially in accomplishing these goals and 
helping our small institutions move forward in serving our 
communities in a better fashion?
    So I am going to leave it as a general question to all of 
you for any comment you would like to make.
    Mr. Reich. I would start, Congressman Ryun, by responding 
that there are a number of additional measures that some of us 
would like to see added to the current list that we are 
submitting. I indicated that out of our EGRPRA sessions we had 
a total of about 136 items that came out of the nine outreach 
sessions that we have had with the banking industry. We had a 
meeting with our interagency task force, with the 
representatives of all the bank trade associations and reached 
a consensus agreement on approximately 70 of those 136 items 
that all of the trade associations would support.
    Next, we circulated each of those items to each of the 
regulatory agencies and asked how many of those items that they 
can support. That work is underway. We have reached agreement 
on 12. There is a larger number that most of the agencies 
either support or do not object to, but all of our agencies 
have not had an opportunity to review all of these 
approximately 70 items, and therefore we have chosen not to 
make more specific recommendation as a part of our testimony 
today. We wanted to present a united front, and I am confident 
and optimistic that we will add some significant items to the 
12 that we have before you today.
    Mr. Ryun. I look forward to those. Anyone else who would 
like to comment?
    Mr. Chairman, that is the only question I wish to pose, and 
I yield back my time to the chair.
    Chairman Bachus. Thank you.
    At this time, Ms. Moore, do you have questions?
    Ms. Moore of Wisconsin. Well, thank you, Chairman Bachus, 
and thank this distinguished panel for convening here.
    I know the FDIC really has been the lead agency in 
developing some recommendations for Congress about regulatory 
relief after kind of an exhaustive bit of outreach meetings 
with bankers in eight cities in 2003-2004. But I really 
appreciate that, and I think that there were efforts to get 
community input before you put these recommendations before 
Congress. So I really do appreciate it.
    I could tell you that I heard it stated earlier in this 
meeting that the whole point was to provide regulatory relief, 
but I think that we have got to have regulatory relief that 
really is balanced with safety and soundness and fiduciary 
responsibility. I have not forgotten the difficulty with the 
thrift industry earlier, and I will have some questions for the 
gentleman from the thrift industry in a moment.
    But as I look over the top 10 things that you all came up 
with, the HMDA data, CRA, as Congressman Green has indicated, 
the truth-in-lending right to rescission, Truth-In-Lending in 
Real Estate Procedures Act, flood insurance, I am curious as to 
why we as Members of Congress should provide more regulatory 
relief.
    For example, I will just take one out of the blue, truth-
in-lending right to rescission, your findings were that bankers 
say that few if any customers really exercise this right and 
that they are frustrated when they have to wait 3 days before 
receiving their loan proceeds. But then on the other hand, you 
say that they are frustrated with the truth-in-lending in real 
estate settlement procedures, they are frustrated by the volume 
and complexity of documents they must sign to get a mortgage.
    Well, people need kind of a cooling off period to make sure 
they are not being a victim of a predatory lender, that they 
can read the fine print so that they can go and show a friend. 
The last closing, real estate closing that I was at was when I 
was selling my property to my daughter, and I was not 
frustrated by all of the paperwork. I wanted to see that the 
deal was going down the way I wanted it to go down so that my 
daughter would have a decent interest rate, so that she would 
not be a victim of predatory lending.
    And so I am wondering, quite frankly, what your discussions 
were other than just relieving yourselves of regulatory burden 
how balanced these things are with the examples that I have 
given.
    What would be wrong with the 3 days and saying to people, 
``This 3 days is for a cooling off period. We are sure that we 
are giving you the best product possible, and you might want to 
call your lawyer or your broker and look over and walk through 
one more time before you sign all these papers just so that you 
know that there are not balloons in there, that you know.'' So 
please share with me what you think would be a balancing act.
    And then I do want to reclaim some of my time, because I do 
want the gentleman from the thrift industry to explain to us 
why he thinks that they should be held to a different standard 
for CRA. Thank you.
    Mr. Kohn. Congresswoman, the Board of Governors shares some 
of your misgivings about removing this right of rescission just 
for the reasons that you articulated. These are very complex 
document. You are under a good deal of pressure at a closing to 
get the closing done.
    We think that perhaps Congress could work at structuring 
something such that if you were given the material ahead of 
time, a definite, say, 3 days ahead of the closing with some 
definite commitments by the lenders about what the closing 
costs would be and how they would be structured, then you could 
have the consultations that you suggested. People would come to 
closing and they could get their money at closing.
    So I think there may be ways of working around these issues 
to give both the immediate access to funds but also the time to 
consider them.
    Mr. Reich. Let me just say, Congresswoman Moore, two points 
to clarify.
    One is, I think you are reading from a top 10 list of 
issues that have been brought to our attention, the issues of 
greatest concern to bankers around the country. The top 10 list 
is not the regulatory burden relief recommendations that we are 
making today. They are simply a listing by bankers, a 
prioritization on their part of regulations that are most 
burdensome to them.
    With regard to right of rescission, let me say that at 
virtually every outreach meeting, we have had bankers stand up 
and say, ``I have been in the banking business for 35 years, I 
have been lending money that entire time. No one has ever asked 
to exercise their right of rescission.''
    That has been repeated at all of our outreach meetings 
across the country. They are not necessarily saying, ``Let's do 
away with the right of rescission,'' but they are suggesting, 
``Is there a way that we can perhaps give a customer who does 
not want to wait a day or 2 or 3 an opportunity to have his 
money by waiving his right of rescission?
    Chairman Bachus. Thank you.
    Ms. Williams. Congresswoman, I think you raise two really 
good points that are closely related, but there are two 
different issues. One is the right of rescission and the issue 
about access to funds. The other is the volume of information 
that you as a seller of a house in a particular type of 
transaction were given in connection with that transaction. And 
that gets to one of the points that I mentioned in my opening 
remarks.
    We have got a huge volume of information that is being 
provided to consumers in connection with various types of 
retail transactions. There must be away to distill down some of 
the key information so that you could get that and it would not 
take you 3 days to figure out if you have got a problem. I 
think that is an area in and of itself that is worth tackling.
    Chairman Bachus. Thank you.
    Mr. Hensarling?
    Mr. Hensarling. Thank you, Mr. Chairman, and I would like 
to continue on with this discussion about CRA, and I want to 
thank my friend and colleague and fellow Texan for enlightening 
me on the nuance of efficacious versus effective.
    Let's talk about being efficacious in CRA. A Congressional 
Research Service report estimates that a streamlined CRA exam 
can save 40 percent of a bank's overall compliance costs. I do 
not know their methodology, but that is a very, very 
significant number.
    The question I have, and anybody on the panel feel free to 
speak up, do you have any study, any data points that would 
show that banks participating in the streamlined small bank CRA 
exam are serving their communities less than those who are 
subject to the more expensive, burdensome, larger test? Anybody 
who would care to participate?
    Mr. Reich?
    Mr. Reich. We do not have any studies that I am aware of, 
Congressman Hensarling. All I can say is that regardless of the 
size of institution, whether it is a streamlined exam or a 
complete examination, CRA is the law of the land. Our examiners 
look for CRA compliance at every institution that they go in 
to, whether it is large or small.
    The bankers that are not subject to the streamlined 
examination complain about the reporting burdens and the time 
it takes. The 40 percent that CRS has suggested, that total 
compliance cost might be relieved by 40 percent because of the 
burden of CRA, I think sounds highly excessive to me. I do not 
think the compliance costs in any organization, in my own view, 
would approach 40 percent for CRA compliance.
    Mr. Hensarling. But nonetheless, it is still a costly 
requirement. I guess to put a fine point on the question, do 
any of you all have any data to show that banks who are subject 
to the small bank CRA exam discriminate more, less or about the 
same as those subject to the larger? If you have no data, 
perhaps you can shake your head in the horizontal fashion and 
let me know you have no data.
    Ms. Williams. Congressman----
    Mr. Hensarling. Yes.
    Ms. Williams.----we have a tremendous amount of data about 
performance by all of the banks and savings institutions under 
the CRA. Under the current regulations, the way in which banks 
or thrifts of given sizes perform and how they are measured is 
different. So they do well across the board in serving the 
needs of their communities under the different tests that exist 
today in providing that kind of access to credit services but 
in different ways based on their different sizes.
    Mr. Hensarling. Thank you. Moving on to a different 
subject, and certainly continuing to be a very expensive part 
of regulatory compliance, BSA. Clearly, we are all on the front 
lines of the war on terror, but at the same time, in 
conversations I have had with a number of financial 
institutions, they certainly cite BSA compliance as one of 
their more costly elements of their regulatory regime.
    I know that FinCEN is not represented here, but, for 
example, if I recall right, BSA was enacted in 1970, you had a 
CTR threshold of $10,000. That has never been inflation 
adjusted. Do any of you all have an opinion to try to--and this 
is all a question of balance, and I know it has to be balanced 
with legitimate law enforcement needs. B ut do you have an 
opinion on whether or not this committee should explore 
indexing for inflation this CTR threshold amount?
    Seeing none, I will move on--oh, there is one.
    Ms. Williams. I will tackle it. I think the threshold 
level, as you point out, has not been addressed in a long time, 
and it is probably appropriate to look at that. Exactly how you 
adjust it is a question that we have not gotten into the 
details of.
    Mr. Hensarling. Thank you.
    Chairwoman Johnson, a question for you, and I know that you 
are aware of this, but Community Credit Union of Plano, Texas, 
is in the midst of attempting to convert to a bank.
    Your agency on May 13 issued a letter that nullified their 
voting procedure, and as I understand it, fairly recently your 
agency promulgated new rules that required a certain box 
disclosure to go to the members of the credit union, and I 
believe it is your language that said it must be prominent and 
conspicuous in every mailing. And I believe it is also part of 
your regulation that there must be a minimum of three mailings, 
I believe, three solicitations of the vote.
    And I believe, as I understand it, I am going to have a 
two-part question here, that it comes down to a controversy of 
whether or not the box disclosure in one of the communications 
appeared on the front side or the back side of a piece of 
paper. I personally do not know how to judge the front side 
from the back side, because I do not see a logo, it does not 
say page one or page 2, but as I understand it then, it may 
actually come down to your agency holding up a possible $1.4 
billion transaction based upon how a piece of paper was folded, 
even though the disclosures otherwise meet your requirements 
and all members of the credit union will receive a minimum of 
three different copies of this particular disclosure.
    I have lots of friends in the banking community, and I have 
lots of friends in the credit union community. I do not know 
why these particular people want to convert. In a free society, 
I suppose that is their business.
    But my two-part question is this: Number one, do I have my 
facts correct, and if I do, then please explain to me and other 
members of this committee why we should not conclude that your 
agency is simply trying to make conversions more difficult and 
more burdensome and more costly.
    Ms. Johnson. Thank you, Congressman, and I am happy to 
address your question. First of all, no, your information is 
not entirely correct. NCUA has put into regulation disclosure 
requirements that are required prior to the time when a credit 
union, if they choose to convert to a mutual savings bank, 
which they are allowed to do, these disclosures must be 
presented and they must be presented in a way that the member 
has a reasonable opportunity to see those disclosures.
    There were many conversations that went on between our 
attorneys and the attorneys representing the credit unions, and 
this discussion centered on how to make these disclosures 
prominent and conspicuous to abide by our rules.
    The process that evolved was the agreement that the NCUA 
disclosure would be the first piece to meet the eye after the 
cover letter to the credit union members. We did not require 
the disclosure on the cover letter, the very first piece of 
paper, but we did require after the cover letter that the NCUA 
disclosure would be the next piece of information.
    The attorneys for the credit union lobbied long and hard to 
put their rebuttal on the back of our disclosure and we agreed 
to that. It was to be their cover letter to the member, our 
disclosure, their rebuttal. And, true, they did not number the 
pages, which would have been easy thing to do, nor did they put 
their disclosure on a separate piece of paper and number the 
pages, which would be easy to do.
    Upon receiving complaints from a number of credit union 
members, we investigated the actual package to the members. 
Upon opening the package, the first piece of paper was the 
disclosure letter to the member. The second piece, folded the 
same way as the letter to the member, was the rebuttal, ``Your 
credit union wants you to know the facts.'' You turn the paper 
over, and there is the NCUA disclosure.
    This is not about how a piece of paper was folded, 
Congressman, this is about a disclosure and following an 
agreement in the order of that disclosure to go in the package 
to the members.
    And that is where we are at. We have disavowed the vote 
because the first two mailings were sent out in this form with 
the letter to the credit union, the rebuttal, flip it over, 
NCUA disclosure, and that was not the agreement agreed to by 
the attorneys from NCUA and the attorneys representing the 
credit union.
    Chairman Bachus. Thank you.
    Mr. Sherman?
    Mr. Sherman. Thank you, Mr. Chairman. Thank you for holding 
these important hearings. I am sorry I had to go to 
International Relations and I am glad to be back.
    We seem to be focused here on the process by which a credit 
union would convert to another kind of organization and I will 
spare you further questions about how a particular document was 
folded and look more at the broader legislative issue of what 
kind of quorum is required or what level of participation is 
required.
    Under present law, can a credit union, following perhaps 
its own bylaws written decades ago, convert in some sort of 
vote in which less than 10 or less than 20 percent of the 
members even cast a vote one way or the other?
    Ms. Johnson. Currently, the way the law is, that is 
correct, it is only a simple majority of those who vote in the 
election that are required to make the conversion. There is no 
threshold.
    Mr. Sherman. I know how dedicated you are to this issue of 
how disclosures are folded. I know everyone on that panel is 
involved in detailed analyses of what disclosures should be 
given to those of us who are members or customers. I hate to 
disabuse you. I am very, very quick in throwing away everything 
my bank sends me that is not the checking statement itself and 
my canceled checks. I have got free trips to Bermuda in my 
trash can in less than 2 seconds.
    So one thing we have some expertise on here is voting. As a 
matter of fact, they are going to call votes on the floor 
pretty soon. And I would advise my colleagues that you would be 
surprised how much legislation we could pass if we just did not 
have that quorum requirement. Sometimes I stay in town on a 
weekend. I can get access to the floor. Mr. Chairman, you do 
not want to see the legislation I would pass if I was the only 
member on the floor.
    And so I would hope legislatively that we would require 
that if a credit union is going to do something as big as cease 
to be a credit union that we get 50 percent participation. 
Trust me, to rename a post office, I need 50 percent 
participation in the Congress, and I would hope that we would 
take a look at those quorum requirements.
    I leave to others the exact details of how the disclosure 
should be folded, because as I see this whole debate about the 
folding and whatever, it all relates to did the credit union 
members get information that they needed and make a decision? 
Well, if you get 50 percent of them to vote, then my guess is 
that a very large percentage of that 50 percent actually took a 
look at the paper and decided which way they wanted to vote. It 
is when you send this mailing and you have got 2, 3, 4 percent 
response, I do not know what it was in this particular matter, 
but you have to start worrying about how things were folded.
    I want to shift to another issue, and I guess anybody could 
answer this question. We have got the 3-day rescission by 
consumers under the truth-in-lending right of rescission. Which 
loans does that apply to, what kind of loan? Anybody know?
    Mr. Reich. Real estate mortgages. Loans secured by real 
estate.
    Mr. Sherman. So there is a 3-day delay in the process of 
closing that home loan.
    Mr. Reich. Correct.
    Mr. Sherman. And maybe we would want to explore whether 
that was--I see another panelist----
    Mr. Riccobono. I believe it is on refinances. It is any 
time that you put your house, your existing home, on the line.
    Mr. Sherman. Okay.
    Mr. Riccobono. So a purchase money mortgage it would not. 
If it were a refinance, I believe the original purposes of the 
law had to do a lot with the type of home improvement and 
purchasing merchandise and putting your home on the line. That 
was the cooling off period.
    Mr. Sherman. Okay. Let me go back to Ms. Johnson. You are 
proposing a level of capital similar to what banks have; that 
is to say 5 percent plus a look at a risk-based review of the 
individual institution. And since I work for the federal 
government and harken back to the 1980s, I am of course worried 
about, well, if it is not enough, is the federal government on 
the line?
    Now, obviously, the insured fund itself has capital, but 
correct me if I am wrong, the entire net worth of every insured 
credit union in the country stands between a default of the 
insurance fund and when the taxpayers have to come in. Is that 
correct?
    Ms. Johnson. Congressman, what we are looking to do is to 
incorporate a risk-based approach to capital and allowing 
credit unions to better manage their capital and then in 
reducing this leverage ration from 7 percent where it is 
currently to 5 percent. Five percent is what the other 
federally insured financial institutions have----
    Mr. Sherman. I understand all that. I think I understand 
all that. Go ahead.
    Ms. Johnson. And that is what we are seeking for credit 
unions.
    Credit unions typically have low loss rates, and the system 
that we currently have does not recognize the credit unions' 
more conservative approach.
    Mr. Sherman. I got that from your testimony. If, God 
forbid, there were not only insufficient capital in a 
particular credit union but insufficient capital in the 
insurance fund itself and there had to be more money to take 
care of depositors, would other credit unions around the 
country have to chip in from their capital or would this 
insufficiency be made up from the U.S. taxpayer?
    Ms. Johnson. The question, yes, it would be contributed by 
the credit unions. The government does stand back because they 
are federally insured, but it would come from credit unions.
    Mr. Sherman. Okay. So the first line of defense----
    Ms. Johnson. Is the credit union.
    Mr. Sherman.----is the credit union's own capital.
    Ms. Johnson. Insurance fund, yes.
    Mr. Sherman. And that first line is one thing you want to 
modify. The second line of defense is the assets in the 
insurance fund. The third line of defense is every nickel of 
net worth of every insured credit union in the country, and the 
federal government is the fourth line of defense. So those on 
the third line of defense have much more reason to make sure 
that your new system is a good one----
    Ms. Johnson. That is correct.
    Mr. Sherman.--than the federal government does. And the 
very fact that the credit union industry is willing to say that 
they are putting their net worth on the line as to the adequacy 
of your system is convincing and the chairman's indulgence is 
magnanimous.
    Ms. Johnson. Might I point out that the system that we are 
proposing is not an industry giveaway. In fact, some of the 
credit unions, most would remain at their capitalized level 
that they currently are. There would be some that would go up 
and also some that would go down. So it is not a static.
    Mr. Sherman. I realize that, but it is good for you to 
point that out.
    And I yield back.
    Chairman Bachus. Thank you, Mr. Sherman.
    Mr. Pearce?
    Mr. Pearce. Thank you, Mr. Chairman.
    Mr. Reich, you had mentioned that you are on some timetable 
receiving comments back, and you have received 12 so far. When 
do you think that work will be complete? And, secondly, can you 
regulatorily unspool the things where there is great consensus?
    Mr. Reich. We have published four requests for comments, we 
have two to go. One will come out shortly after the 1st of 
July, and the final one will come out early next year. We will 
finish this project, my expectation is, in the middle to the 
fall of next year, 2006.
    Mr. Pearce. And you can do that regulatorily, you do not 
need legislation on the items of great consensus?
    Mr. Reich. The items that we are dealing with today are 
going to require a legislative fix.
    Mr. Pearce. Okay. Fine.
    Ms. Williams, you indicated that you are ongoingly, in page 
6 of your testimony, streamlining your processes. If you were 
to estimate the percentage reduction in regulations that you 
have streamlined out, give me an estimate?
    Ms. Williams. Well, going back to our first major----
    Mr. Pearce. All the way back to 1990 when you----
    Ms. Williams.----would be in the mid-1990s. Gosh, it is 
hard to ballpark it, but in terms of things that we have 
eliminated or areas where we have had streamlining initiatives, 
I would say between half and----
    Mr. Pearce. So we have reduced about 50 percent the 
regulations, but if you were to guess the workload that you 
have actually reduced, would it be also 50 percent?
    Ms. Williams. I think probably not that high.
    Mr. Pearce. Yes. So we have taken a lot of the messy ones 
loose, but maybe the bulk of the work remains. And I am not 
being picky, I am just trying to get an idea. And I do 
appreciate that unraveling. As a small business owner, I can 
tell you that the burdensome paperwork is one that always lies 
heavy, and I appreciate your ongoing efforts.
    Mr. Riccobono, I noticed your testimony said you are doing 
the same thing. If you were to consider Representative Ryun's 
bill, 2061, as I look at those thresholds of $1 billion and $5 
billion, as I go back into my district of southern New Mexico 
and the largest town is maybe 70,000 to 80,000, that is going 
to be almost--it will include a lot of banks across my district 
that would then fall under the parameters of the new 
legislation.
    Mr. Reich and Mr. Kohn, would you all give observations 
about that $1 billion and $5 billion threshold in that 2061, if 
you have opinions?
    Mr. Reich. My own view is that the $1 billion threshold is 
a reasonable threshold.
    Mr. Pearce. Mr. Kohn?
    Mr. Kohn. I am not familiar with the details of the bill, 
but I would say I think a lot of our joint recommendations and 
a lot of what we are considering is raising various thresholds 
for small banks in order to reduce regulatory burden.
    Mr. Pearce. And you feel that we can get the transparency 
that we need and the oversight that we need, even in--because 
it is a measure that I would love to support but I also do not 
want to go home and sled through every single community with 
people saying, ``Why did you do that,'' too. And I am working 
with not enough knowledge and background in the banking 
business, and so we are learning our way along.
    But I appreciate your indulgence, Mr. Chairman. I 
appreciate the concise comments.
    Mr. McHenry. [Presiding.] Thank you, Congressman Pearce.
    Now I would like to recognize the chairman of the 
committee, our good friend from Alabama.
    Mr. Chairman, we have a 5-minute time limit.
    [Laughter.]
    But in terms of me actually holding the gavel for any more 
than 2 minutes, I would like to hear whatever you would like to 
ask for as long as you would like to ask.
    Chairman Bachus. Thank you. And I actually put Mr. McHenry 
in the chair because he kept holding up his watch over here.
    I am going to focus my questions on one area and one area 
alone, one limited focus, and that is the suspicious activity 
report. Now, when I have talked to staff, when I have talked to 
regulators, when I have talked to industry, the stock answer 
that we have so many SARs being filed that we all know it is 
clogging our efforts to our money laundering efforts. I mean, 
everyone will privately admit that. It is basically shutting 
down our money laundering efforts because just the volume of 
these reports.
    And everyone also agrees privately that a lot of the 
reports could be avoided if there is really no good reason for 
filing them. But everybody says because of 9/11, because of 
antiterrorism efforts, because no one wants to stand up and 
say, ``Do not file a certain report,'' because down the line if 
we raise the limit, there might be a report that was not filed 
and somebody could say that the regulators did not require it 
to be filed of thus and such.
    But having said that, and there is always that chance, but 
right now that is a chance. The reality is there are so many of 
these being filed they are not being reviewed, which is a far 
worse situation.
    So while hypothetically we might if we raise the limit or 
exempted certain filings it might result in missing something. 
We are doing that right now because FinCEN has complained there 
are too many being filed, and our law enforcement says they 
cannot get to them, they cannot look at them. We have all heard 
those stories.
    And with that in mind, and I would hope that we would all 
kind of come to an honest understanding and regulators, 
industry, law enforcement admit that the present system is not 
working because of the horrendous volume of SARs being filed, 
many of them unnecessary, to change the system.
    And I would just start by asking you about the ABA. They 
made some, I think, very good common sense recommendations on 
how we can eliminate some of these which law enforcement says 
we need to limit the number, regulators have recognized that, 
and industry has urged us to do that. But, you know, the banks 
are not going to do it, because they are afraid not to file 
these things.
    But, anyway, the first one, this is to me just good common 
sense: Eliminate CTR filings for seasoned customers. Now, when 
we talk about terrorists, we are not talking about American 
businessmen who have established businesses. That is not what 
we are talking about. I do not think there has been one example 
of an established business in the United States, particularly 
when they filed these all the time. They are not being reviewed 
anyway.
    A second one is eliminate the identify verification for 
monetary instruments conducted by customers. And what they say, 
``In view of the passage of the Patriot Act and the regulations 
implementing section 326 requiring a customer identification 
program, we recommend that the verification requirements be 
eliminated since bank customers purchasing these instruments 
have already been identified through the institution's CIP 
program.'' Now, that is common sense.
    A third one, eliminate notification to directors or 
designees of SARs. What good does that do? The regulators are 
instructing banks whenever it files a SAR, the management of 
the bank shall promptly notify its board of directors or a 
subcommittee of board of directors or executive officers 
designated by the board of directors to receive the notice. 
What good does that do?
    Another one is, I do not see it here but the serial filing, 
eliminate those. It is in here someplace.
    And then they also talk about, and I know that FinCEN is 
coming out with some more clear directions I think the end of 
this month, but two other recommendations are include FFIEC 
exam instructions to invoke FinCEN help line and include FFIEC 
exam instructions on conducting transaction analysis.
    I am not going to ask you to answer these now because I do 
not want to be gaveled out, but I do want to submit these 
recommendations to you. I want to submit them for the record, 
and I would like each of you as regulators to respond in 
writing as to whether or not some of these recommendations can 
be instituted or something like them.
    A recommendation of the ICBA, another organization, is to 
increase from 10,000 to 30,000 the threshold, and I would like 
you to look at that.
    And I ask you to look at in the spirit of knowing this: 
That FinCEN has actually said that defensive filings by banks 
are clogging their databases. Several law enforcement agencies 
have said the sheer number and volume of these SARs are making 
their anti-money laundering efforts almost impossible. So given 
that.
    And, finally, the third one would be that FinCEN has 
actually complained that the financial institutions are filing 
SARs in doubtful circumstances. They are doing it to avoid 
criticism and to avoid enforcement action by the Government and 
to enforce sanctions and to avoid fines, because I know of 
banks that have done it. They have not done it thinking they 
were meeting the guidelines and then some U.S. attorney 
someplace has brought action against them and fined them 
considerable amounts of money.
    And for the sake of defending our country from terrorists, 
this is something we need to address.
    And I will close by what FDR said, ``The only thing we have 
to fear is fear itself.'' And I think that is the only thing 
that is stopping us from moving against this. The terrorists 
have really achieved their purposes by scaring us into 
basically indulging in activity that wastes millions of dollars 
every year needlessly.
    So with that, I will close. Thank you.
    Mr. McHenry. Thank you, Mr. Chairman. Certainly appreciate 
it.
    And I would be very, very kind to you going forward, and I 
will never tap my watch again, because you are making me sit up 
here.
    Chairman Bachus. I was just kidding you.
    I know Mr. Green is----
    Mr. McHenry. Yes.
    Congressman Green, I do have a question to wrap up the 
panel, but I will let you go first, then I will ask the final 
set of questions.
    Mr. Green. Thank you, Mr. Acting Chairman.
    Friends, I will not have another question. I think I will 
simply make a comment. In these meetings, we tend to go head-
to-head. My comment hopefully is heart-to-heart.
    We have come a long way in this country in fighting 
discrimination, segregation. We really have come a long way. 
And we now have an opportunity to continue the path forward or 
to possibly do something that may turn us around. I am going to 
beg that you please keep us moving forward when it comes to 
integration in this country.
    You have a great opportunity before you. This is your 
watch. This is your opportunity to make a difference, and I am 
just going to beg that you do what you can to protect the one 
need that we have right now when it comes to banking: To keep 
us from making a gigantic step backwards.
    That CRA is very important to people who do not have power, 
who are trying to get their share of the American dream. 
Homeownership, borrowing money is a means by which we get this 
done. If you want people to pull themselves up by their 
bootstraps, provide them bootstraps, provide them the loans 
which can afford them the opportunity.
    I just thank you for giving me the chance to appeal to your 
hearts, not your heads. Do what you can. Thank you.
    I yield back the rest, remainder and residue of my time.
    Mr. McHenry. Thank you, Congressman Green.
    With that note of thinking of our hearts and our heads, the 
mind cannot bear what the feet cannot stand, and so with that, 
I will try to keep my question very quick, and I just used up 7 
seconds there, so I better get fast here.
    Chairman Johnson, I wanted to direct my question to you to 
follow up with what Congressman Hensarling questioned about the 
conversion process of the credit union in Texas. I am not from 
Texas, I do not wear big hats or big shoes, none of them are 
here to say that or to target me now that I have said that, but 
in terms of the conversion process, you have a lot of large 
credit unions that have taken on a lot of bank-like functions. 
And with the new PCA, capital regime, expanded business lending 
and a lot more access to secondary capital markets, a lot of 
these credit unions have taken on a lot of bank-like functions.
    And part of this discussion today is about regulatory 
relief. It certainly seems with your explanation of this 
interesting mailing, the front and the back, that it seems like 
excessive regulations on that process. That just seems like one 
example of excessive regulations, and Congressman Hensarling 
explained the front and back and all this stuff. I am not going 
to go through that again, and I really do not care to hear any 
more details about that in particular, but can we take it to 
the larger focus?
    Don't you think allowing a more reasonable regulatory 
process for conversion is a good thing? Don't you think that 
because we allow it, don't you think it should be a streamlined 
process so that these large credit unions can continue to 
provide the proper function for their communities? Do you think 
there is a lot to that or something to that?
    Ms. Johnson. Congressman, the providing of an adequate 
disclosure to the members is not a burdensome process, and to 
do anything less than full disclosure I think is very 
shortsighted. Consumer protection is very important.
    Mr. McHenry. So there is no regulatory relief that we 
should discuss with you about today in this process?
    Ms. Johnson. In the process of----
    Mr. McHenry. Conversion.
    Ms. Johnson. I would be more than happy to visit with you 
about our process and the steps that are required, but it is 
all centered on providing disclosure to the members and having 
the members understand--having the opportunity to understand, 
because there is no guarantee that a disclosure is ever read, 
we know that. But giving the member at least the opportunity to 
understand in order to make an informed decision about the 
future direction of their institution and should they convert 
or not.
    But I would be more than happy to visit with you about our 
process. I do not believe that it is a burdensome process, but 
it is absolutely necessary for the member to have full 
disclosure.
    They are making some major decisions. They are changing 
from a one member, one vote member-owned institution to an 
institution where it is not one member, one vote, it is on the 
amount of deposits held within the institution.
    Mr. McHenry. Well, not always. I mean, you are talking 
about each person having a vote.
    Ms. Johnson. In converting to a mutual. In moving to a 
mutual.
    Mr. McHenry. And they certainly would have a say-so in that 
process and would have a vote in that process. And it seems to 
me that just judging from this perspective that when you are 
talking about the front side versus the back side of a piece of 
paper, this goes to the heart of bureaucratic blundering and 
overregulation and excessive regulation.
    And my follow-up question to this, and, certainly, I would 
love to talk to you more about it, but just by your own 
testimony, it seems to me obsessive regulation and a little bit 
out of control when you are talking about how a piece of paper 
is folded. It seems to me to be ri-freakin'-diculous, as some 
would say.
    Ms. Johnson. Congressman, if I may respond, this is not 
about the way a piece of paper is folded. This is about an 
agreement that was made between the attorneys on how the 
disclosures would be presented. That was not upheld to.
    Mr. McHenry. Okay. Front and back pieces of paper.
    Ms. Johnson. The order of appearance was in the package to 
the members.
    Mr. McHenry. Okay. Which the order of appearance is based 
on whether or not it is on a front side of a piece of paper or 
a back side of a piece of paper.
    Ms. Johnson. Our disclosure requires prominent and 
conspicuous. The agreement, the agreement that was reached to 
was not adhered to.
    Mr. McHenry. Okay. And I am almost out of time, and so I 
did have a follow-up question because OTS has said that they 
would certify the votes of these two converting credit unions 
in Texas.
    And so I sort of have a follow-up question for Mr. 
Riccobono on this process. Is it because of the two separate 
regulatory and rulemaking regimes that we have problems here?
    Mr. Riccobono. Actually, our authority with respect to the 
actual process, the voting of the membership by the credit 
union, is given to us by the NCUA's own rules. The Credit Union 
Administration has said that once a vote is taken in favor of 
conversion, then OTS must certify the vote. And if we believe a 
new vote had to be taken, we could order that to be done.
    And at this point, it would be too premature to say that 
you would, but I can tell you if today that vote was taken with 
having given that disclosure three times already to the members 
and that vote was taken and it was in favor of converting that 
credit union, OTS would verify the vote and allow them to 
convert.
    This is a very expensive process. It is in excess of a half 
a million dollars to conduct the voting, and the thought that 
they would have to go out and spend another $500,000 to 
$600,000 simply because of what piece of paper the member saw 
first, I cannot disagree with the chairwoman that disclosure is 
extremely important, it must be clear and conspicuous, that was 
all met, I believe, by having that piece of paper in the 
envelope regardless of what order it was in, and it was given 
to the members three times. And to go back out and require at 
that expense another voting three times I just think is 
terrible and I have to say that I feel very strongly about 
this.
    I should disclose I am a member of the Treasury Department 
Federal Credit Union, I think there is very little in baking 
that is as close to apple pie and motherhood as the credit 
union movement, but better than that is the freedom of charter 
choice, and I think it is extremely important that we not have 
artificial rules and regulators not making good judgment calls 
balancing the benefits and costs involved in these processes.
    Mr. McHenry. Thank you. Thanks for your testimony and very 
happy that we were able to end on a note where we can actually 
look for ways to reduce regulation, the burden we are putting 
on institutions.
    Thank you all so much for your testimony.
    Let's see, the Chair notes that some members may have 
additional questions for this panel, which they may wish to 
submit in writing. Without objection, the hearing record will 
remain open for 30 days for members to submit written questions 
for these witnesses and to place the responses in the record.
    Thank you so much for your testimony. Thank you for being 
here today. I know it is always exciting and eventful to be 
before a congressional committee, even one as sleepy and nice 
as ours.
    Thanks so much. Have a wonderful day.
    And this meeting is adjourned.
    [Whereupon, at 12:15 p.m., the subcommittee was adjourned.]


                            A P P E N D I X



                              June 9, 2005


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