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



 
                     H.R. 3505, FINANCIAL SERVICES
                     REGULATORY RELIEF ACT OF 2005

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

                                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

                               __________

                           SEPTEMBER 22, 2005

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 109-55



                     U.S. GOVERNMENT PRINTING OFFICE
                             WASHINGTON: 2006        
25-951 PDF

For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpo.gov  Phone: toll free (866) 512-1800; (202) 512-1800  
Fax: (202) 512-2250 Mail: Stop SSOP, Washington, DC 20402-0001



                 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:
    September 22, 2005...........................................     1
Appendix:
    September 22, 2005...........................................    39

                               WITNESSES
                      Thursday, September 22, 2005

Bowman, John E., Chief Counsel, Office of Thrift Supervision.....    20
Fenner, Robert M., General Counsel, National Credit Union 
  Administration.................................................    23
Fox, William J., Director, Financial Crimes Enforcement Network..    13
James, Randall S., Commissioner, Texas Department of Banking, on 
  behalf of Conference of State Bank Supervisors, Inc............    24
Kroener, William F., III, General Counsel, Federal Deposit 
  Insurance Corporation..........................................    19
Latham, George, Deputy Commissioner, Credit Unions, Bureau of 
  Financial Institutions, Virginia State Corporation Commission, 
  on behalf of National Association of State Credit Union 
  Supervisors....................................................    26
Olson, Hon. Mark W., Governor, Board of Governors of the Federal 
  Reserve System.................................................    16
Williams, Julie L., First Senior Deputy Comptroller and Chief 
  Counsel, Office of the Comptroller of the Currency.............    17

                                APPENDIX

Prepared statements:
    Oxley, Hon. Michael G........................................    40
    Bachus, Hon. Spencer.........................................    42
    Gillmor, Hon. Paul E.........................................    46
    Green, Hon. Al...............................................    47
    Hensarling, Hon. Jeb.........................................    48
    Kelly, Hon. Sue W............................................    51
    Maloney, Hon. Carolyn B......................................    53
    Moore, Hon. Dennis...........................................    54
    Sanders, Hon. Bernard........................................    56
    Bowman, John E...............................................    59
    Fenner, Robert M.............................................    92
    Fox, William J...............................................   100
    James, Randall S.............................................   104
    Kroener, William F., III.....................................   119
    Latham, George...............................................   145
    Olson, Hon. Mark W...........................................   166
    Williams, Julie L............................................   184

              Additional Material Submitted for the Record

North American Securities Administrators Association, prepared 
  statement......................................................   212


                     H.R. 3505, FINANCIAL SERVICES
                     REGULATORY RELIEF ACT OF 2005

                              ----------                              


                      Thursday, September 22, 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, Royce, Kelly, Ryun, Oxley, 
Biggert, Feeney, Hensarling, Neugebauer, McHenry, Sanders, 
Maloney, Watt, Sherman, Meeks, Moore of Kansas, Frank, Hooley, 
McCarthy, and Green.
    Chairman Bachus. [Presiding.] Good morning. The Financial 
Institutions Subcommittee of the Financial Services Committee 
will come to order.
    We have an esteemed group of panelists today.
    Our focus today is on H.R. 3505, the Financial Services 
Regulatory Relief Act of 2005, which alters or eliminates 
unduly burdensome or outdated regulatory requirements. It was 
introduced by Congressman Hensarling and Congressman Moore in 
July, with numerous bipartisan cosponsors. It seeks to reduce 
the regulatory burden on our insured depository institutions to 
benefit customers and the economy by lowering costs and 
improving productivity.
    Let me simply say that this legislation--I know that 
Congressman Hensarling, Congressman Ryun is here--there are 
several provisions that he has worked on. He had also 
introduced legislation, and many of those provisions are 
incorporated in this legislation. Plus, we will be considering 
proposals that you have made.
    We also have legislation by Mr. Royce and Mr. Kanjorski 
dealing in particular with the credit unions. I would like to 
compliment them on their participation.
    We have had tremendous cooperation from the ranking member 
of this committee, Mr. Sanders, in putting this package 
together. Also, it is my understanding, and I have some 
knowledge of this, that we have been consulting with not only 
industry and consumer groups, but also with the regulatory 
agencies. In one case, my personal staff as a result of both 
the regulatory agency and the industry expressing for some time 
that probably clearly one of the most onerous burdens on our 
financial institutions from a cost standpoint is the $35 
billion in regulations.
    The complaint that I have heard for years and years was 
about the currency transaction reports. I heard it time and 
time again. I have heard Members of the other body in speeches 
before the Senate and the House express the hope that we could 
come up with some proposal for seasoned business customers 
where banks could certify customers and banks would not have to 
be continually filing these currency transaction reports.
    As most of the regulatory agencies before us today have 
expressed to this committee and to the Senate and law 
enforcement has many times testified before us that they have 
not been able to review these. Sometimes these are gone through 
in 4 years. We have also heard from banking institutions where 
they would notify law enforcement agencies of a transaction and 
they simply say that they are so overburdened by the number of 
these things that they never got back and investigated them and 
testimony from law enforcement agencies that it is several 
years before they ever look at these things, if then.
    As a result of that, Mr. Fox and I met probably 3 months 
ago in my office. I expressed to him some of the concerns that 
I had. He I know talked to Members of the Senate that I was 
aware of. I talked to Members of the Senate, particularly Mr. 
Crapo who had expressed on many occasions that it was a 
priority for him. In working with the regulators over the past 
month or two and with the banking industry, Mr. Fox and I, and 
I know Mr. Hensarling has been involved in this on a day-to-day 
basis, and Mr. Frank also, and members on both sides. I know 
the Senate was aware of that because I had conversations with 
them.
    We came up with wording that I think advances this issue 
light years. It is absolutely, of all the provisions in this, I 
think it has the potential to make law enforcement much more 
efficient and effective, to take what has been a very 
burdensome and really outdated and outmoded practice of every 
time a citizen of this country, whether they are a businessman 
that deposits $10,000 every day or twice a day, where they have 
to file a report every day. These things are filed by the 
hundreds of thousands and never looked at.
    I would like to applaud Mr. Fox and FinCEN for their 
dedication in working with everyone to fashion what I consider 
a very good provision, which Mr. Hensarling has also worked on, 
and I know Senator Crapo in the Senate. I would assume that he 
has kept the other Members of the Senate informed on these 
actions. To me, it absolutely has no downside and will make law 
enforcement that much more effective.
    With that, I will yield to Mr. Sanders.
    [The prepared statement of Hon. Spencer Bachus can be found 
on page 42 in the appendix.]
    Mr. Sanders. Thank you very much, Mr. Chairman, for holding 
this important hearing.
    I would like to welcome our witnesses today as well.
    Today, we will be discussing H.R. 3505, the Financial 
Services Regulatory Relief Act of 2005, introduced by Mr. 
Hensarling and Mr. Moore. I am delighted that this legislation 
includes a provision which I authored to provide a Community 
Reinvestment Act credit to financial institutions to expand 
employee ownership.
    I want to thank Chairman Bachus very much for his strong 
support for this provision and his working with me for a rather 
long period of time. Thank you very much, Mr. Chairman.
    Providing a CRA credit for the expansion of employee 
ownership is, I believe, a win-win situation. It will be good 
for banks looking for new ways to fulfill their CRA 
requirements and it will be good for workers who would like to 
own their own businesses. In addition, workers who are also 
owners will not be shipping their jobs to China or abroad, so 
those of us who are concerned about the decline of 
manufacturing in the United States and the loss of good-paying 
jobs I think will see some improvement if working people in 
this country are actually able to own the places that they 
work.
    Broad-based employee ownership has been proven to increase 
employment, increase productivity, increase sales, and increase 
wages in the United States of America. It gives a lot of pride 
to people in the fact that they can make decisions in the 
places that they work. I think it is the essence of what 
democracy is about as well.
    H.R. 3505 also includes 15 important regulatory reforms 
that will allow credit unions to better serve their members, 
including a section to allow credit unions to cash checks and 
wire funds to anyone who is eligible to join their credit 
union. So long as the employee ownership in credit union 
provisions are kept in H.R. 3505, I will be strongly supporting 
this legislation.
    Mr. Chairman, as you know, during the 108th Congress I 
opposed a similar regulatory relief bill because of the absence 
of meaningful consumer protections, but this year's regulatory 
relief bill is a major improvement over last year's version and 
I would like to thank you, Ranking Member Barney Frank, and the 
authors of the legislation for their excellent work on this 
bill.
    Having said that, Mr. Chairman, I also believe that it is 
very important for this subcommittee to seriously examine the 
deceptive and misleading credit card scams perpetrated by some 
of the largest banks in America. I know you and I have 
discussed this. I think there is a growing outrage throughout 
our country when working people are now paying 25 percent or 28 
percent interest rates, when there are five billion proposals 
going out in the mail, many of them misleading. I think when we 
talk about relief, we also have to talk about relief from 
consumers who are paying usurious interest rates today.
    So, Mr. Chairman, I am supportive of this legislation. 
Thank you for your good work, but I hope that we can return to 
the issue of how we protect consumers from outrageously high 
interest rates on their credit cards.
    [The prepared statement of Hon. Bernard Sanders can be 
found on page 56 in the appendix.]
    Chairman Bachus. I appreciate the ranking member, and I can 
assure you that I, for one, am very committed to what is a 
practice. I think it is among a limited number of institutions 
of pretty blatant bait-and-switch in credit card practices. I 
hope that we can enlist other members of the committee in this 
effort.
    Chairman Oxley?
    Mr. Oxley. Thank you, Chairman Bachus. We appreciate your 
holding this hearing on H.R. 3505.
    We look forward to hearing today from the Federal and State 
regulatory authorities charged with ensuring the safety and 
soundness of our Nation's banking, thrift, and credit union 
industries.
    The financial services industry is operating under a heavy 
regulatory burden. While many of the regulations imposed on the 
industry are necessary to protect consumers, combat terrorist 
financing, or service other worthy public policy objectives, 
others are clearly outdated or needlessly burdensome.
    For this reason, shortly after I assumed the chairmanship 
of this committee, I asked the financial regulators and 
industry trade groups to give us their best advice on what this 
committee could do to ease regulatory requirements faced by 
depository institutions. The goal was to lessen the regulatory 
burden and improve productivity, as well as make needed 
technical corrections to current statutes.
    It was clear then, as it is today, that there also needs to 
be a counter-balance to the significant compliance 
responsibilities placed on insured depository institutions by 
the USA Patriot Act, as well as other Government efforts to 
counter terrorist financing.
    In the last Congress, the committee approved a 
comprehensive regulatory relief bill that passed the House by a 
vote of 392 to 25. H.R. 1375, which incorporates suggestions 
for financial regulators, as well as the financial services 
industry, contained a wide range of provisions that would have 
relieved unneeded or outdated regulatory restrictions on banks, 
thrifts, and credit unions.
    While the Senate failed to take up H.R. 1375, I am pleased 
that two respected members of this committee, Mr. Hensarling 
and Mr. Moore, introduced H.R. 3505, which includes virtually 
all of H.R. 1375 from last session, a new title that addresses 
Bank Secrecy Act concerns, and over 20 new provisions.
    The Bank Secrecy Act compliance burden reduction title 
addresses financial institutions' concerns that some of the 
work they are being asked to do in the fight against financial 
crimes is unnecessary and overly burdensome. I agree. This 
title focuses on reducing the number of currency transaction 
reports, CTRs, that must be filed by institutions involving 
large sums of cash, as well as eliminating inconsistencies or 
duplicative requirements in conjunction with the filings of 
SARs, suspicious activity reports.
    I would like to thank FinCEN Director Fox who is testifying 
today, Mr. Hensarling from Texas, Chairman Bachus, as well as 
Mr. Frank and Mr. Gutierrez for their efforts in creating Title 
VII, which balances law enforcement's needs with the industry's 
very real concern about excessive and unnecessary burdens. I 
thank the witnesses for appearing here and I look forward to 
their thoughts on how best to free depository institutions from 
unduly burdensome regulation so they can better serve their 
customers and communities.
    Mr. Chairman, we are very hopeful that we can move this 
bill with some alacrity and get it to the other body. Senator 
Crapo, among others, has expressed a sincere interest in moving 
this. We think we will get a large vote in the committee, as 
well as on the floor. We need to push this to its conclusion 
and get the President's signature. I know you are committed to 
that effort, along with other members of this committee. This 
is critically important legislation.
    I thank you for your leadership, and I yield back.
    [The prepared statement of Hon. Michael G. Oxley can be 
found on page 40 in the appendix.]
    Chairman Bachus. I thank the chairman.
    I recognize the ranking member of the full committee, Mr. 
Frank.
    Mr. Frank. Thank you, Mr. Chairman.
    Let me begin by saying I share Chairman Oxley's hope that 
we can get this bill quickly to the floor and passed. For that 
reason, I will be tepid in my endorsement of it because 
precedent suggests that if I sound enthusiastic about the bill, 
knees might jerk and then they would not want to pass it.
    [Laughter.]
    So I will reluctantly acquiesce in sending this bill to the 
floor, lest I be a poisoned pill.
    It does seem to me to hit the appropriate level of 
regulation. Those of us who believe there is an important role 
for regulation should be very clear that excessive regulation 
undoes that case. If you overburden things, you undermine your 
case. You put costs on society. I am very pleased, and I 
congratulate all concerned, the people at FinCEN and the people 
at the American Bankers Association, under the leadership of 
this committee in a bipartisan way.
    Obviously, the Bank Secrecy Act these days, with legitimate 
concerns about terrorism and the financing of terrorism, we 
want to make sure that works well. I congratulate those who 
were willing to say what is true, but could be demagogued 
against, namely that excessive reporting undercuts law 
enforcement. If you bury the law enforcement people with a lot 
of reporting and a lot of paper that really is fairly routine, 
you make it harder rather than easier to get at what should get 
it.
    So I am very pleased that we appear to be getting to the 
point where we are prepared to cut back some of the underbrush 
so we can focus on what should be the real subject. I very much 
agree with what the ranking minority member of the subcommittee 
said.
    Because I have some other things I will be going to later, 
I will not be able to be here for all this, but I did want to 
particularly comment on a couple of points.
    I am very pleased, Mr. Chairman, that you included in this 
panel of our very able Federal regulators a representative of 
the Conference of State Bank Supervisors. We should be very 
inclusive here.
    I was especially pleased to note a couple of the points 
that the State bank supervisors made. I was gratified to have 
them say what I think is a very important point, namely that 
what we did with the Fair Credit Reporting Act showed how you 
reach a proper balance between national regulation and States. 
That is, if we can achieve a reasonable national level of 
consumer protection, then you can make it a national standard. 
Yes, there is an argument for national uniformity. It should 
not be, however, a shield behind which you undercut legitimate 
protection of consumers.
    The Texas regulators said, we urge Congress to apply this 
approach to as wide a range of banking statutes as possible. I 
agree. I also very much agree with the point that the State 
regulator ought to be a voting member of the FFIEC. I think 
that is a perfectly reasonable thing. The interactivity of 
Federal and State regulation is one of the most challenging 
intellectual and economic and legal issues we have. I think 
that would be very useful. There is no danger that one voting 
member is doing to have disproportionate weight with all the 
other regulators.
    Finally, I appreciate also their pointing out what we need 
to do, namely, "to review the disparity in the application of 
State laws to State and nationally chartered banks and their 
subsidiaries." I think as the result of several decisions of 
the comptrollers and others, we have a situation now where we 
really have to step in. Technology has been a factor and the 
global economy.
    I think the time has come where this Congress, obviously 
not for the rest of this year, but next year, ought to take 
this up. I know there are others who believe that. The 
gentlewoman from New York, Ms. Kelly, has been very concerned 
about that as Chair of the Oversight Subcommittee and others. I 
think it is our responsibility now to frankly straighten out 
some tangles that only we can straighten out, that only by a 
statute can it be done. It is just not something that can be 
done within the existing regulatory framework.
    So I thank you, Mr. Chairman. This is a very constructive 
effort, and I look forward to our being able to complete it.
    Chairman Bachus. Thank you, Mr. Frank.
    At this time, I recognize Mr. Ryun, who has several 
provisions of the bill he has worked very hard on.
    Mr. Ryun. Mr. Chairman, thank you. Thank you for your kind 
comments toward my bill, the Communities First Act. I 
appreciate your doing this hearing.
    Our financial institutions are increasingly overburdened 
with regulations and reporting requirements. H.R. 3505 is a 
good bill that provides a comprehensive approach to addressing 
some of the more cumbersome regulations. I support H.R. 3505 
and will look forward to working with this committee to approve 
its passage.
    Specifically, I believe that our community banks face a 
disproportionate burden due to excessive regulations. These 
institutions serve our small towns and rural areas and often 
lack the manpower to readily fulfill all the reporting that is 
required of them. The result is less time and resources to do 
the work of serving the communities.
    It is with this in mind that I introduced the Communities 
First Act, which was aimed to provide much-needed regulatory 
relief to these institutions. To date, 72 of my colleagues on 
both sides of the aisle have cosponsored this bill. I want to 
thank Mr. Hensarling and Mr. Moore for including five of the 
provisions from the Communities First Act in the legislation 
that we are considering today.
    In summary, these provisions provide targeted relief to 
community banks in the form of adjusted reporting and 
examination intervals, as well as updated asset limits for 
certain regulatory requirements. I am pleased to see these 
provisions incorporated in the bill. As we move forward with 
this effort, I will work with the committee to make the bill 
even stronger and will advocate inclusion of additional 
measures from the Communities First Act.
    Specifically, for example I would like to see approved a 
regulation I believe that agencies should specifically consider 
the ramifications that it would have upon community banks if 
approved. Agencies are currently not required to consider this 
factor, although I am aware that the OCC does have a policy of 
doing so before its approval process. Section 109 of the 
Communities First Act would require all regulatory agencies to 
consider the impact on community banks as they approve new 
regulations. I hope the committee will consider including this 
common sense requirement in the final version of H.R. 3505.
    Mr. Chairman, thank you very much for holding this hearing. 
I want to thank our panel for coming today. I look forward to 
your comments, and I yield back my time.
    Chairman Bachus. Thank you, Mr. Ryun.
    Ms. Maloney?
    Mrs. Maloney. I thank Chairman Bachus and Ranking Member 
Sanders and Chairman Oxley and Ranking Member Frank and all of 
the authors of the bill, my colleague Mr. Moore and others.
    This is a tremendously important bill. The fact that it had 
so much support when it was introduced today, the fact that it 
passed, and that we are building support in the Senate I think 
is extremely important. As a representative of New York City, 
which is one of the financial centers in our country, I am 
really very concerned, as are my constituents, about the 
tremendous burdens and regulation and reporting requirements 
imposed on our financial institutions, and particularly those 
financial institutions that are not mega-institutions, but are 
mid-size and smaller.
    This bill is an improvement over the one that we passed 
overwhelmingly last year. It has new additions in consumer 
protection, expanding CRA to employee stock ownership. But of 
special concern to me is the extraordinary burdens of 
compliance with the new Bank Secrecy Act provisions. Many of 
them are a duplication. FinCEN supports these changes. The FBI 
and those that are responsible for tracking money-laundering 
and anti-terrorism efforts support it because it had become so 
burdensome that it was no longer effective.
    I can tell you that wherever I go in my district, 
particularly the smaller institutions tell me how very, very 
hard and how very costly it is to comply with the Bank Secrecy 
Act, the CTRs, the SARs, and the other new oversight provisions 
that were put in place after 9/11. Many of them say that the 
cost of complying is just so incredible that it almost runs 
them out of business. So this bill includes a new section that 
addresses these concerns. I feel that it is a very important 
one.
    I want to also note that the provisions from H.R. 2317, the 
Credit Union Regulatory Improvement Act, which I am a cosponsor 
and a supporter in several of its incarnations, and I hope that 
we will also move forward to pass the remaining portions of 
CURIA, and especially the reforms to the prompt corrective 
actions system.
    So I ask permission to revise and extend my remarks, and I 
congratulate all who have moved this to this hearing today. 
Thank you.
    [The prepared statement of Hon. Carolyn B. Maloney can be 
found on page 53 in the appendix.]
    Chairman Bachus. Thank you, Ms. Maloney. I would like to 
associate myself with your remarks, too. Thank you.
    At this time, I recognize the sponsor of the legislation, 
along with Mr. Moore. Mr. Hensarling?
    Mr. Hensarling. Thank you very much, Mr. Chairman. Thank 
you for holding this important hearing and thank you for your 
leadership in helping Congress reduce the regulatory burden on 
our Nation's financial institutions.
    A very special thank you to Chairman Oxley for his 
leadership and his dogged determination to move this 
legislation along and to put it on the fast track and 
especially for allowing me to participate in this process.
    As we have learned in our hearings over the past few 
months, financial institutions are in desperate need of 
regulatory relief. Most of the regulations we have imposed upon 
them have costs that are ultimately borne by the consumer in 
some form or fashion. Many have outlived their purposes. Many 
have significant unintended consequences.
    We do know that these often excessive and duplicative and 
costly regulations at the end of the day can make credit more 
expensive and less accessible for the people who need it the 
most. Outdated regulations can keep Americans from purchasing 
their first home, buying an automobile for work, financing a 
child's education, or starting a small business that creates 
new jobs in an economically disadvantaged area of our Nation.
    I believe the bill that Mr. Moore and I have introduced 
helps remedy a number of these problems and will help banks, 
credit unions, and thrifts free up more capital to inject into 
their communities. Action is necessary sooner rather than 
later. The competitive position and viability of our smaller 
financial institutions are in question. The regulatory 
environment has evolved to the point of placing smaller 
financial institutions at a competitive disadvantage. This, of 
course, is to the detriment of their primary customers: small 
businesses, consumers, and the agricultural community.
    Previously, we have heard testimony that the regulatory 
compliance burden averages 12 to 13 percent of a financial 
institution's non-interest expense. Added to that is a new 
study that was released Monday by the SBA showing that the 
smallest businesses in our country face the largest per-
employee burden as far as regulatory compliance costs are 
concerned. Firms with fewer than 20 employees are now spending 
almost $8,000 per employee to comply with Federal regulations. 
The study also noted that small businesses face a 45 percent 
greater burden than their larger business counterparts.
    This same report showed that the annual cost of Federal 
regulations in the U.S. totaled $1.1 trillion in 2004. If only 
1 percent of that could be returned to the marketplace, that 
would be enough money to provide startup capital for almost 
500,000 new businesses or pay the annual salaries for 250,000 
workers. Since 1989, bank regulators have promulgated over 850 
regulations. That is around 50 new regulations a year that 
banks must comply with.
    Can we really expect our small community-based financial 
institutions to keep up that pace? They are required to send 
out annual privacy notices to alert customers to information 
that oftentimes the institutions do not even share. Is that 
really necessary? We have heard that community financial 
institutions are often hiring two to three full-time employees 
to do nothing but Bank Secrecy Act compliance. Is that really 
necessary?
    I am pleased now that many of our regulators and law 
enforcement officials have recognized that a reduction in the 
number of CTRs and SARs that are sent to Washington can 
actually benefit anti-money-laundering and anti-terrorist 
financing efforts. I am especially pleased with FinCEN's 
leadership in this effort. Financial institutions should not 
have to continuously file paperwork and reports of suspicious 
activity on the customers they know the best.
    The time has come to clean the regulatory barnacles off 
this ship of commerce and allow our financial institutions to 
operate at full speed, safely, and soundly.
    Thank you, Mr. Chairman. I yield back.
    [The prepared statement of Hon. Jeb Hensarling can be found 
on page 48 in the appendix.]
    Chairman Bachus. Thank you, Mr. Hensarling.
    Mr. Moore?
    Mr. Moore of Kansas. Thank you.
    I would like to thank my good friend Chairman Bachus for 
scheduling today's hearing on the regulatory relief bill, H.R. 
3505, introduced by Congressman Hensarling and myself and 
cosponsored by approximately 30 members from both sides of the 
aisle.
    I also want to thank Chairman Oxley for his strong support 
and Ranking Member Barney Frank for his lukewarm support to 
avoid knee-jerk reactions.
    [Laughter.]
    The Financial Services Committee has a strong record of 
bipartisanship and I am glad that that has extended to this 
bill as well. Reg relief should not be about Republicans and 
Democrats. It should be about doing the right thing for the 
lenders in our communities who have played an important role in 
expanding homeownership and creating opportunities for 
businesses and consumers. Small lenders in our communities 
particularly feel the burden of unnecessary regulations.
    As the Federal banking regulators acknowledged in a notice 
published in the Federal Register, "When a new regulation is 
created or an old regulation is changed, small institutions 
must devote a large percentage of their staff's time to review 
the regulation to determine if and how it will affect them. 
Compliance with a regulation also can take large amounts of 
time that cannot be devoted to serving customers or business 
planning."
    Strong regulation of our country's financial system is 
absolutely essential, but Congress and the financial regulators 
have a responsibility to strike the right balance in this area. 
I believe H.R. 3505 is an important step in the right 
direction. Since coming to Congress, and particularly over the 
last few months, I have heard from depository institutions in 
my district and throughout the State of Kansas. We have tried 
to address in H.R. 3505 some of the concerns that I have heard 
on more than one occasion.
    While assets for State-chartered banks in Kansas have 
reached an all-time high of $27 billion, our community bankers 
are also struggling to comply with both old and new regulatory 
burdens, including some created under the Bank Secrecy Act. 
H.R. 3505 seeks to provide relief from some of these new 
burdens to our financial institutions in a way that preserves 
our ability to effectively track terrorist financing and build 
upon our success in freezing the funds of terrorists.
    Representative Hensarling and I and the bill's bipartisan 
cosponsors agree that waging a strong war on terror and 
providing some reg relief to our financial institutions are not 
incompatible goals. Additionally, H.R. 3505 provides two new 
sections of reg relief for our credit unions that were not 
included in the previous version of this measure. This 
subcommittee and the full committee both passed the reg relief 
bill by voice vote during the 108th Congress and the House 
passed it 1 year ago by a wide margin, 392 to 25.
    I look forward to continuing the broad bipartisan 
cooperation on this legislation that we have enjoyed in the 
past. I also look forward to hearing from our witnesses today 
on what steps the regulatory agencies have taken to ensure that 
depository institutions in the areas affected by Hurricane 
Katrina are able to continue operating both for their benefit 
and for the benefit of their customers who are going through 
some of the toughest times in their lives.
    Thank you again, Mr. Chairman. I look forward to hearing 
from our witnesses.
    [The prepared statement of Hon. Dennis Moore can be found 
on page 54 in the appendix.]
    Chairman Bachus. Thank you, Mr. Moore.
    Mr. Neugebauer?
    Mr. Neugebauer. Thank you, Chairman Bachus, for holding 
this important hearing.
    I also want to thank Congressman Hensarling and Congressman 
Moore for bringing this bill forward, H.R. 3505. When you speak 
in the order that I have, many of the folks I want to attribute 
myself to their remarks. I think I come from a district that 
relatively has a lot of small community banks and credit 
unions. One of the things that I keep hearing over and over and 
over again is that we are making it more and more difficult for 
the smaller financial institutions really to remain profitable.
    Some people up in Washington think that "profit" is a four-
letter word, but I will tell you that "loss" is a four-letter 
word. We need to make sure that our financial institutions are 
profitable, that they are healthy. I was thinking earlier, we 
have almost gotten to the point now where you go up to the 
teller cage and the sign there says "closed; we are filling out 
paperwork." We almost have gotten to the point now where the 
primary function of our financial institutions is to fill out 
paperwork for the Federal Government.
    We need to get community banks and credit unions back doing 
what they do best, and that is they know their customers. They 
take care of their customers; they invest into their 
communities. The more and more paperwork that we generate and 
the more and more regulation and the more and more capital that 
they have to attribute to filling out paperwork and complying 
with regulation is the less capital that they can invest in 
those communities.
    So I commend the chairman and the two gentlemen for 
bringing this important legislation. I look forward to 
supporting it. Hopefully, this is just the beginning. This is I 
think a really good start, but when you think about, as the 
gentleman said, 851 new regulations since 1989. I got out of 
banking in 1983 and I thought there was plenty of regulation on 
the books at that time, so it looks like they have added a 
little bit more.
    So I look forward to the witnesses bringing important 
testimony for us today.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you, Mr. Neugebauer, for those 
remarks.
    Ms. McCarthy?
    Mrs. McCarthy. Thank you, Mr. Chairman.
    I am waiting to listen to the witnesses. Thank you.
    Chairman Bachus. Ms. Kelly?
    Mrs. Kelly. Thank you, Mr. Chairman.
    This is an important hearing about regulatory relief for 
financial institutions and their customers. I look forward to 
hearing from our witnesses on the steps that this committee 
could be taking to lower the cost to consumers and to help 
create jobs in the industry.
    I want to thank my colleagues, Mr. Hensarling and Mr. 
Moore, for their work on the legislation. I note here the 
presence of the FDIC among the witnesses. I want to draw their 
attention to the GAO report on industrial loan corporations and 
urge them to keep that report in mind when they are reviewing 
requests for coverage by new depository institutions. There are 
obviously a number of important provisions in this bill. I am 
very interested in discussions about proposed changes to the 
Bank Secrecy Act. There are very good reasons for advocating 
reform for our BSA system.
    We have learned the hard way that the system needs work. 
Failures, such as the Riggs Bank and more recently Arab Bank, 
have clearly demonstrated that there are weaknesses in our 
anti-money-laundering protections. The resulting over-reaction 
and uncertainty about what is expected of financial 
institutions has led to unnecessary burdens and costs that 
really must be addressed.
    We know financial institutions and their customers want 
common sense. They want certainty. We in Congress know the 
system can be made better. We have to work toward solutions 
that will remove unnecessary burdens from customers and 
institutions without weakening an important tool for law 
enforcement and national security officials. Just as we are 
mindful of the serious, costly inconveniences that have saddled 
financial institutions and their customers, we are also keeping 
our eyes on the importance of an effective anti-money-
laundering system in our national security.
    As this action begins on this legislation, we have to be 
mindful of what the 9/11 Commission told this committee last 
year when they sat before the committee about the value of the 
BSA system in fighting terrorism. We must be mindful of what 
the FBI and FinCEN Director Fox told this committee earlier 
this year about the utility of the BSA information in tracking 
criminals and terrorists.
    I look forward to examining these proposals in detail. I 
look forward to hearing the views of those affected, including 
the relevant law enforcement and intelligence agencies.
    I thank you, Mr. Chairman, very much for holding this 
hearing. I look forward to this regulatory change and yield 
back the balance of my time.
    Chairman Bachus. Thank you, Ms. Kelly. Thank you for having 
your business interest provision, which is also in this bill. I 
thank you for that.
    Mr. Green?
    Mr. Green. Thank you, Mr. Chairman. I thank you, as well as 
the ranking member for hosting this hearing.
    I would like to thank the members of the panel for being 
here with us.
    I do have to confess that while I am here physically, 
mentally I am split because we have a monster of a hurricane 
that is headed toward my district, it seems, in Houston, Texas. 
We have an evacuation plan that is being implemented. I think 
it is going well, but just prior to arriving we had to give 
some assistance with 83 patients that were in a nursing home 
and they were needing some assistance. Fortunately, our mayor's 
office was able to render that assistance and they are going to 
be helped.
    I am honored that we will have the opportunity to hear from 
this august body. Given the things that we have been dealing 
with with reference to Katrina and now Rita, I will be 
concerned about what some of the financial institutions will be 
doing to assist some of the low-income people who are going to 
need a lot of help, who have been devastated, and what we need 
to do to help you to help them.
    Mr. Chairman, I thank you very much for the time, and I 
yield back.
    [The prepared statement of Hon. Al Green can be found on 
page 47 in the appendix.]
    Chairman Bachus. Thank you, Mr. Green.
    Mr. McHenry?
    Mr. McHenry. Thank you, Mr. Chairman. I certainly 
appreciate your holding these hearings. I certainly commend 
Representative Hensarling and Representative Moore for putting 
together a very good and balanced regulatory relief bill.
    It is important that we as a committee and as Members of 
Congress encourage economic growth and opportunity through 
reducing unnecessary and burdensome rules and regulations. We 
also want to ensure that there is a competitive marketplace 
that allows our Nation to keep moving forward.
    One of the issues that some of my local bankers have 
brought to my attention, and I have been following recently, is 
nonfinancial institutions getting into the banking industry. 
Namely, in my view, it would be inappropriate for the FDIC to 
act upon the Wal-Mart application until this committee and 
Congress has had an opportunity to review and consider the GAO 
report that Representative Leach is unveiling today. I know 
ILCs are covered in this bill and I think that is very helpful 
to this measure, but I have not had a chance to read the report 
yet, but I understand what is going to happen today when it is 
released.
    I think it will bring to attention that we should take a 
real look at ILC chartering, not only for the banking and 
commerce question, but whether it is appropriate for a 
commercial company to own a bank, but additionally the adequacy 
of regulatory oversight and supervision of owners of ILCs as 
well, which escape certain provisions by the Federal Reserve. 
So the Wal-Mart application, I think it highlights another big 
public policy banking question at the heart of Gramm-Leach-
Bliley.
    So I just wanted to take this opportunity to bring it to 
the chairman's attention and to our distinguished panel here as 
well.
    I look forward to the hearing and look forward to us moving 
this bill forward. Thank you.
    Chairman Bachus. Thank you, Mr. McHenry.
    Are there any other opening statements? Not seeing any 
members that wish to make so, I would like to introduce our 
distinguished panelists at this time.
    Our first panelist is Mr. William J. Fox, Director of the 
Financial Crimes Enforcement Network.
    Our second witness is the Honorable Mark W. Olson, 
Governor, Board of Governors of the Federal Reserve System. He 
is experienced with professional testimony before our 
committee. We welcome you back.
    As well as Ms. Julie Williams, the first senior deputy 
comptroller and chief counsel in the Office of the Comptroller 
of the Currency. We thank both of you for your fine work and 
your advice and counsel as we go forward on this bill.
    Our next witness is Mr. William Kroener, general counsel of 
the FDIC. We welcome you back.
    Mr. John Bowman, chief counsel of the Office of Thrift 
Supervision. Thank you, Mr. Bowman.
    Mr. Robert Fenner, general counsel of the National Credit 
Union Administration.
    Mr. Randall S. James, commissioner of the Texas Department 
of Banking, on behalf of the Conference of State Bank 
Supervisors. I know this is a very trying time for you. You 
will probably be glad when this hearing is over and you can get 
back on a plane and head for Texas.
    Mr. George Latham is deputy commissioner of the Credit 
Union Bureau of Financial Institutions, Virginia State 
Corporation Commission, on behalf of the National Association 
of State Credit Union Supervisors. You testified before this 
committee earlier this month; we welcome you back.
    At this time, Mr. Fox.

  STATEMENT OF MR. WILLIAM J. FOX, DIRECTOR, FINANCIAL CRIMES 
                      ENFORCEMENT NETWORK

    Mr. Fox. Thank you very much, Chairman Bachus, Ranking 
Member Sanders, and distinguished members of this subcommittee.
    It is truly an honor for me to appear here before you today 
to discuss your efforts to balance the burdens imposed on the 
financial industry by the requirements of the Bank Secrecy Act 
of 1970, specifically to provide the Government with highly 
relevant information that assists law enforcement in making our 
financial system more transparent and our country safer.
    As you know, the Financial Crimes Enforcement Network 
administers the Bank Secrecy Act and we bear responsibility for 
ensuring that the act is implemented in a way that achieves the 
policy aim intended by the Congress, which is, stated simply, 
to safeguard the United States financial system from the abuses 
of financial crime, to include money-laundering and terrorist 
and other illicit financing. This is a day-to-day challenge in 
a financial system where we generally promote the unfettered 
free flow of commerce and where criminals strive to manipulate 
the system with the same ingenuity and sophistication of the 
very best in the industry.
    Ensuring that we strike the right balance between the cost 
and benefit, in my view, is an essential responsibility for my 
agency. While I do not believe that this cost-benefit analysis 
can be reduced to a mathematic formula and the benefits of a 
regime like this are often very difficult, if not impossible, 
to quantify, I believe we must continually study how we can 
more effectively tailor this regime to minimize the costs and 
other burdens imposed on our financial institutions while at 
the same time ensuring that we receive information that we, 
both FinCEN and law enforcement, need to combat financial crime 
and terrorism.
    This effort is particularly important because I am more 
certain than ever that compliance with the Bank Secrecy Act's 
regulatory regime is a critical component to our country's 
ability to utilize financial information to combat terrorism, 
terrorist financing, money-laundering, and other serious 
financial crime. Achieving this correct balance is frankly an 
issue of national security.
    The focus this morning is on H.R. 3505, the Financial 
Services Regulatory Relief Act of 2005. I am here to address 
how that legislation could affect the Bank Secrecy Act. 
Specifically, I am here to address the provision to reduce the 
burden imposed on the financial industry of filing currency 
transaction reports.
    Before I discuss this provision, Mr. Chairman, let me 
reassure you of the value of these reports. Many of these 
reports are not only valuable, but are critical to law 
enforcement's and our efforts to deter, detect, and investigate 
financial crime and to identify, locate, and disrupt terrorist 
cells operating here in this country. Our colleagues in law 
enforcement have made significant strides recently in their 
ability to utilize these reports, marrying them and other data 
with law enforcement data to maximize their benefit.
    We have also enhanced our analytic capability to exploit 
this data source on both micro and macro levels. In fact, the 
FBI's terrorist financing operation section has testified 
before Chairwoman Kelly's Oversight and Investigations 
Subcommittee about the value of these reports and how they help 
in their efforts to detect terrorist financing and to disrupt 
terrorist operations. Such innovations enhance the utility of 
our analysis as a whole, and it is essential that we do not 
reduce the flow of useful information just as the technical 
capabilities to exploit this information is reaching new 
heights.
    That being said, Mr. Chairman, this reporting requirement, 
like any reporting requirement with objective criteria, results 
in reporting that has little relevance to the deterrence, 
detection, and investigation of financial crime. We also know 
that depository institutions, particularly our community banks, 
often identify the time and expense of filing these reports, 
currency transaction reports, as their number one regulatory 
expense and burden.
    So how do we separate the wheat from the chaff, the 
critical from the irrelevant? The Congress has previously 
recognized the need to reduce the number of currency 
transaction reports that may not have a high degree of 
usefulness to law enforcement, and you have directed us to find 
a way to do that. However, it is clear that our efforts to 
encourage the exemption of routine filings on certain customers 
have not brought about the reductions in filing that were 
originally sought. It is not surprising that when this 
committee undertook the effort to draft the bill providing 
regulatory relief for financial institutions that such a bill 
would contain a provision addressing currency transaction 
reporting.
    Mr. Chairman, you and members of this subcommittee from 
both sides of the aisle requested our assistance in reviewing 
what had been proposed. You asked us to work with law 
enforcement in the financial community to see if a solution can 
be found that would ensure that law enforcement keeps getting 
the information it needs, while at the same time relieves some 
of the burden that this reporting requirement places on the 
industry.
    Sir, this committee is now considering language that would 
amend current exemptions by allowing banks to qualify certain 
customers as exempt from routine currency transaction 
reporting. I believe this language addresses many of the issues 
that were causing the current exemption regime to not have its 
intended effect. This language seeks to streamline the 
exemption process by focusing on a one-time notice to FinCEN of 
an exemption and focusing on the customer's relationship with 
the bank as grounds for such an exemption.
    We believe that these changes will make the exemptions more 
effective while still ensuring that the currency transaction 
reporting information critical to identifying criminal 
financial activity is made available to law enforcement. We 
hope that our efforts were useful to this committee and we 
stand ready to continue to work with you and other interested 
parties to address these issues as the legislation is more 
fully developed and proceeds.
    Mr. Chairman, I would like to recognize the leadership of 
Congressman Hensarling and Congressman Moore on the work on 
these provisions. I would also like to recognize the work of 
their staffs, the work of your staff, and the committee staff 
on both sides of the aisle for their outstanding work. It has 
truly been a pleasure to work with all of these individuals.
    I would also like to recognize William Langford, who is 
behind me here, sir. He is FinCEN's associate director for 
regulatory policy and programs. Mr. Langford was the point man 
on this issue and did, in my view, terrific work. I am taking 
some of the credit for it and it was really his work.
    In conclusion, Mr. Chairman, Congressman Sanders, 
distinguished members of this subcommittee, I hope that my 
testimony today conveys the sense of commitment, energy, and 
balance with which all of us at the Financial Crimes 
Enforcement Network are using to address these challenging 
issues. The importance of your personal and direct support of 
our efforts cannot be overstated. Your oversight will help us 
ensure that we meet the challenges that we are facing. I know 
how critical it is that we do so, and we hope you know how 
committed we are to meeting those challenges.
    Thank you very much. Thank you for your very kind comments 
earlier, and I would be very pleased to answer any questions 
you may have.
    [The prepared statement of William J. Fox can be found on 
page 100 in the appendix.]
    Chairman Bachus. Thank you.
    Governor Olson?

 STATEMENT OF HON. MARK W. OLSON, GOVERNOR, BOARD OF GOVERNORS 
                 OF THE FEDERAL RESERVE SYSTEM

    Mr. Olson. Thank you very much, Mr. Chairman and members of 
the subcommittee, for inviting the Federal Reserve Board to 
participate in this very worthwhile hearing on H.R. 3505.
    As you and others have indicated, this has been a 
collaborative affair involving many members of the committee on 
both sides of the aisle. It has involved the participation of 
the organizations represented here and numerous others. 
Congressman Frank said earlier that there is a tipping point at 
which regulation becomes burdensome and ceases to be effective. 
There also is a tipping point where good ideas seem to 
translate into law at some point, and if this body is 
representative of the body as a whole, as I suspect it may be, 
it seems to me we may be reaching that tipping point toward 
passing legislation. I commend everybody here involved in this 
process.
    With the permission of the Chair, I would like first to 
make some comments with respect to Hurricane Katrina, as 
Congressman Green pointed out, that will suggest what might be 
effective with Hurricane Rita.
    First, our heartfelt sympathy goes to the people that were 
impacted by Katrina. It was a tragedy of enormous consequence 
and we have felt some of that as part of the Fed family. As of 
yesterday, there was still one employee missing from the New 
Orleans branch, out of 175. All the remainder are accounted for 
and, thankfully, lived. The Atlanta Fed and other Federal 
Reserve Districts responded in a significant and a very rapid 
way, providing the needed cash and the check-clearing servicess 
necessary to allow the economy to continue to work and provided 
individuals the opportunity to restore their lives and their 
possessions.
    There was a great deal of flexibility demonstrated in the 
manner in which the Federal Reserve responded, both by changing 
the check-clearing, allowing for availability that was 
consistent with what their anticipation had been. We made 
extraordinary efforts to get cash into the branches and the 
banks and made continual contact with the banks in order to 
assist them in maintaining their operations. The most 
significant part of how the banks responded, though, had to be 
done ahead of time. It had to be in terms of their ability to 
provide for a continuity of operations and, for the most part, 
the banking industry did that exceptionally well.
    We have also worked with other agencies in Washington to 
serve as a clearinghouse and allow the banks to answer 
questions or ask questions and to provide some information on 
the flexibility that already exists with respect, for example, 
to the BSA provisions with respect to things like cashing 
checks and opening checking accounts.
    Let me turn now to a couple of the provisions of the bill 
that we are particularly concerned about and particularly 
interested in, and I would be happy to answer questions on the 
others. With respect to the de novo interstate branching, we 
think that that is an important provision, particularly as it 
impacts banks, smaller banks in particular on State border 
areas. This is the final provision of the interstate banking, 
the Riegle-Neal bill that allowed for interstate branching only 
on a de novo basis. This would affect the remaining 29 States 
that have not opted in, but would allow for increasing numbers 
of branches, particularly in smaller areas and by small banks.
    So I would point out that just in 2004 alone, there were an 
additional 2,000 branches of banks that were brought into 
operation just in 2004 alone. However, we do not want to extend 
that to industrial loan companies for reasons that we have 
elaborated on. We applaud the small bank examination 
flexibility. We think that will relieve some of the burden that 
was talked about here earlier, and we think that that is an 
important provision.
    My time has expired, Mr. Chairman. I would be very happy to 
answer any questions on any of the other provisions.
    [The prepared statement of Hon. Mark W. Olson can be found 
on page 166 in the appendix.]
    Chairman Bachus. Thank you, Governor Olson.
    At this time, we will hear from Deputy Comptroller 
Williams.

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

    Ms. Williams. Chairman Bachus and members of the 
subcommittee, on behalf of the OCC, we welcome the opportunity 
to participate in the discussion of H.R. 3505, the Financial 
Services Regulatory Relief Act of 2005. I want to especially 
commend Representatives Hensarling and Moore for taking the 
lead in sponsoring this legislation.
    Regulatory burden is an issue that affects all our Nation's 
depository institutions, but it is a matter of special concern 
for our community banks. My written testimony covers this topic 
very broadly, and I will just summarize the basic components of 
it.
    First, it describes the OCC's actions to assist banks and 
their customers affected by Hurricane Katrina. Second, it 
discusses the work being done by the Federal banking agencies 
to further the goals of the Economic Growth and Regulatory 
Paperwork Reduction Act of 1996, fondly known as EGRPRA. Third, 
my testimony summarizes important initiatives that are being 
undertaken by the OCC outside the EGRPRA process to reduce 
needless regulatory burden. Fourth, it summarizes what the OCC 
sees as priority legislative items in H.R. 3505. Fifth, it 
offers suggestions for reducing burden and improving the 
quality of consumer disclosures. And finally, my testimony 
offers the OCC's suggestions for some additions to H.R. 3505.
    In the interests of time, let me touch on just a couple of 
those points this morning.
    All of us have been greatly moved by the devastation and 
suffering caused by Hurricane Katrina. The banking system is 
playing a crucial role in helping individuals and their 
communities get back on their feet, and the Federal and State 
bank regulatory authorities are working in close cooperation 
and have been making every effort to minimize customers' 
disruption and the burden on banks involved in the recovery and 
reconstruction effort.
    To that end, Comptroller Dugan, as Chairman of the Federal 
Financial Institutions Examination Council, established a 
special Katrina Working Group to facilitate this coordination 
and communication on the bank supervision issues that have 
arisen in Katrina's aftermath. We are very pleased that 
Commissioner John Allison of Mississippi will participate in 
this working group as the FFIEC's State representative.
    The OCC and the other agencies have issued guidance on a 
wide range of questions that bankers and their customers are 
raising, and we will continue to do our part to help those 
affected by these events.
    Even without the extraordinary events of Hurricane Katrina, 
which prompted focus on relief from particular regulatory 
requirements, we should be finding ways to provide relief from 
unnecessary regulatory burden more broadly. These burdens can 
arise from regulations, and here we as regulators have a 
responsibility to ensure that the rules that we adopt are no 
more burdensome than necessary and to correct rules on the 
books that do not meet that test.
    In this connection, I would mention the OCC's participation 
in the ongoing EGRPRA-mandated regulatory review that is being 
conducted under OTS Director Reich's able leadership. We have 
also undertaken another scrub of our regulations, the regs that 
are unique to OCC, and we have participated in several 
interagency initiatives outside of the EGRPRA process in order 
to identify opportunities to reduce regulatory burden. Recent 
amendments to the Community Reinvestment Act regulations and 
the currently ongoing project to develop clearer, shorter and 
more effective privacy notices are two examples of this.
    Some regulatory burden is derived from Federal legislation 
and, thus, change requires action by Congress. In past 
testimonies before this subcommittee, the OCC has provided 
detailed summaries of our recommended legislative changes. Most 
of those items are included in H.R. 3505, and they are 
discussed in detail in my written testimony. Several other 
items that are not part of H.R. 3505 are noted in my testimony 
as well with our recommendation that the subcommittee consider 
them as this legislation moves forward.
    We also support efforts being led by FinCEN to identify 
ways to reduce burdens arising from BSA-related requirements 
without compromising tools that are valuable to law 
enforcement.
    In conclusion, Mr. Chairman, on behalf of the OCC, let me 
express my appreciation to you and the subcommittee for these 
hearings. We strongly support responsible burden reduction 
initiatives. We are committed to assisting those whose lives 
and businesses were disrupted by Hurricane Katrina and those 
who may be similarly impacted by Hurricane Rita. We express our 
sincere sympathies to all the people affected in the disaster 
areas and the families who have lost loved ones.
    We look forward to working with you and your staff and our 
regulatory colleagues on all of these efforts. Thank you very 
much.
    [The prepared statement of Julie L. Williams can be found 
on page 184 in the appendix.]
    Chairman Bachus. Thank you, Comptroller.
    General Counsel Kroener?

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

    Mr. Kroener. Chairman Bachus and members of the 
subcommittee, I appreciate the opportunity to present the views 
of the FDIC on H.R. 3505, the proposed legislation to provide 
regulatory burden relief. The FDIC shares the subcommittee's 
continuing commitment to this important endeavor to eliminate 
unnecessary burden and streamline and modernize laws and 
regulations as the financial industry evolves.
    The Federal bank and thrift regulatory agencies have been 
working together over the last few years to identify regulatory 
requirements that are outdated, unnecessary, or unduly 
burdensome in accordance with the requirements of the Economic 
Growth and Regulatory Paperwork Reduction Act of 1996. The 
agencies have identified numerous proposals to reduce 
regulatory burden, and the FDIC is pleased that quite a few of 
them are included in H.R. 3505. The FDIC continues to work with 
the other agencies in an effort to achieve further consensus 
and, as required by law, we will be submitting a final report 
to Congress with legislative recommendations next year.
    Before discussing our general regulatory burden relief 
efforts, with the consent of the Chair I would like to take a 
moment to update the subcommittee on recent activities by the 
FDIC and other Federal agencies in response to Hurricane 
Katrina. As you know, all the Federal banking agencies 
recognize the challenges faced by financial institutions in the 
aftermath of Hurricane Katrina and the need for discretion and 
flexibility in enforcement of regulatory requirements and the 
exercise of supervisory responsibilities. We have provided 
timely information regarding the availability of banking 
services and posted information for consumers and bankers in 
the affected States on our Web site.
    The FDIC has asked insured financial institutions to 
consider all reasonable and prudent steps to meet the financial 
needs of their customers and communities. In cooperation with 
the other Federal agencies, we have also provided banks with 
written guidance on check-cashing and opening new accounts. The 
banking regulators have encouraged banks to meet the financial 
needs of the hurricane victims in a number of ways, including 
waiving ATM fees, easing restrictions on check-cashing, and 
being flexible in their approach to verifying the identity of 
displaced individuals. Examiners, like bankers, are fully aware 
that this is the right thing to do under the circumstances. 
With Hurricane Rita on its way, you can expect similar actions 
by the regulators.
    In previous natural disasters, Congress temporarily relaxed 
prompt corrective action requirements for affected institutions 
that had an influx of deposits from flood-related insurance 
proceeds and Government assistance. Due to the widespread 
nature and severity of the damage, as well as the dollar-volume 
of relief funds that will be flowing to the area, we believe 
many banks would avail themselves of similar relief if it were 
offered by the Congress in response to Katrina.
    Turning to general regulatory burden relief, the 
interagency EGRPRA effort led by our former vice chairman, John 
Reich, who is now Director of the OTS, has resulted in an 
interagency consensus on 12 regulatory burden relief proposals. 
As outlined in my written statement, five of these proposals 
currently are included in H.R. 3505, as well as a variation on 
the sixth. The FDIC joins with the other Federal banking 
agencies in supporting inclusion of the remaining six proposals 
in the current regulatory relief legislation. Those are 
identified and described in detail in my written statement.
    The last item among that enumeration, increased flexibility 
for flood insurance, was agreed upon among the agencies. In 
light of the Gulf Coast hurricane damage, we will continue to 
work to develop this and seek additional ideas to improve the 
flood insurance program. The FDIC has worked closely with the 
subcommittee in developing several of the provisions contained 
in the proposed legislation that will help the FDIC become more 
efficient and effective in the regulation of insured 
institutions. We appreciate the inclusion of these proposals in 
H.R. 3505.
    The FDIC respectfully recommends that the subcommittee 
consider certain additional regulatory relief items in the bill 
that would help us improve our supervisory efforts. The 
appendix to my written testimony contains the relevant 
language.
    In conclusion, I thank you for the opportunity to present 
the FDIC's views on these issues. The FDIC supports the 
subcommittee's continued efforts to reduce unnecessary burden 
on insured depository institutions, and I look forward to the 
subcommittee's questions.
    Thank you.
    [The prepared statement of William F. Kroener, III can be 
found on page 119 in the appendix.]
    Chairman Bachus. Thank you, General Counsel Kroener. Please 
convey to Chairman Powell--as well, Ms. Williams, if you will, 
to Comptroller Dugan--I know of their work in this regard, but 
convey to Chairman Powell the many compliments we have gotten 
from banks in the area of Alabama, Mississippi, and Louisiana.
    Mr. Kroener. Thank you, Mr. Chairman. I will do so, and we 
will continue our hard efforts in light of impending events.
    Chairman Bachus. Thank you.
    At this time, the chief counsel for the Office of Thrift 
Supervisions, Mr. John Bowman.

   STATEMENT OF MR. JOHN E. BOWMAN, CHIEF COUNSEL, OFFICE OF 
                       THRIFT SUPERVISION

    Mr. Bowman. Good morning, Chairman Bachus, Ranking Member 
Sanders, and members of the subcommittee, as well as Chairman 
Oxley and Ranking Member Frank of the full committee.
    I want to thank you, Mr. Chairman, for holding this 
hearing. I want to thank Congressmen Hensarling and Moore, the 
sponsors of H.R. 3505, for their leadership and focus in this 
area.
    Regulatory relief is an important issue for our director, 
John Reich, who has led the interagency EGRPRA project. 
Director Reich is continuing his work on this project and is 
committed to see it through to a successful completion. 
Director Reich has asked me to convey to you our full support 
and to make available our full resources to assist you in your 
efforts to enact legislation to address the issues we discuss 
today.
    It is always important to remove unnecessary regulatory 
obstacles in our financial services industry that hinder 
profitability, innovation, and competition and, in turn, job 
creation and economic growth. In the aftermath of Hurricane 
Katrina, these issues take on even greater significance with 
the need to make sure that we do what is necessary to carry out 
the laws and policies of Congress, while also providing maximum 
assistance and flexibility to institutions and customers in the 
areas affected by the hurricane.
    From a bank regulatory perspective, economic recovery 
requires patience, good communications with our institutions, a 
significant degree of regulatory common sense to do what is 
necessary and forego what is not, and lots of hard work. With 
your permission, I will forego the rest of my discussion 
regarding OTS's efforts on behalf of the Hurricane Katrina 
interagency task force, given the discussion by my colleagues.
    Today you will hear about numerous proposals to eliminate 
old laws that while originally well intended no longer serve a 
useful purpose. While many of these items are not directly 
relevant to hurricane relief efforts, even marginal measures of 
relief may be helpful in the long run and should not be 
overlooked.
    Before addressing these issues, it is important to note 
that there are two areas in particular that our institutions 
have identified as unduly burdensome: the Bank Secrecy Act 
requirements and the rules under Sarbanes-Oxley. Virtually all 
institutions raised these two issues as regulatory relief 
priorities. However, the impact of these statutory provisions 
is often most acute for smaller community-based institutions.
    One proposal discussed today provides BSA relief via a 
filing exception for certain currency transaction reports of 
so-called "seasoned" customers. OTS is fully supportive of 
efforts to provide meaningful BSA relief to the institutions we 
regulate that are consistent with the requirements of the BSA 
and the needs of law enforcement. We will strongly support any 
burden reduction proposal to streamline existing BSA 
requirements, provided it is supported by FinCEN, not objected 
to by law enforcement, and it provides meaningful relief that 
fully outweighs any diminished utility to the BSA.
    In my written statement, I describe a number of proposals 
that would significantly reduce regulatory burden on savings 
associations. Four things that we believe provide the most 
significant relief for savings associations are eliminating 
duplicative regulation of savings association under the Federal 
securities laws, eliminating the existing arbitrary limits on 
savings association consumer lending activities, updating 
commercial and small business lending limits for savings 
associations, and establishing a 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 adviser 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 or consumer benefit.
    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 sound 
public policy rationale is served by imposing additional and 
unwarranted administrative costs on a savings association to 
register as an investment adviser or as a broker-dealer under 
the Federal securities laws. OTS strongly supports Section 201 
of H.R. 3505 to exempt savings associations from these 
duplicative investment adviser and broker-dealer registration 
requirements.
    Another important proposal for OTS is eliminating a 
statutory anomaly that subjects the consumer lending authority 
of Federal savings associations to a 35 percent of assets 
limitation, 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 for regulatory burden reduction and 
for reasons of safety and soundness.
    Consistent with this, we support expanding the scope of 
Section 208 of H.R. 3505 to include all consumer loans, not 
just auto lending. We also support Section 212 of H.R. 3505 
updating statutory limits on the ability of Federal thrifts to 
make small business and other commercial loans. In the 
interests of time, legislation removing the current limit on 
small business lending 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 the statutory succession 
authority for the position of OTS Director. This issue is as 
important to the thrift industry as it is to OTS. We strongly 
urge consideration of provisions 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 also important to modernize the existing 
statutory appointment authority for the OTS Director by 
providing every appointee a full 5-year term.
    Finally, OTS is committed to reducing regulatory burden 
wherever it has the ability to do so, consistent with safety 
and soundness and consumer protections. We look forward to 
working with the subcommittee to address these and the other 
regulatory burden reduction items addressed in my written 
statement. I would be happy to answer your questions.
    Thank you.
    [The prepared statement of John E. Bowman can be found on 
page 59 in the appendix.]
    Chairman Bachus. Thank you very much.
    At this time, General Counsel Robert Fenner from the 
National Credit Union Administration.

 STATEMENT OF MR. ROBERT M. FENNER, GENERAL COUNSEL, NATIONAL 
                  CREDIT UNION ADMINISTRATION

    Mr. Fenner. Thank you, Mr. Chairman, Representative 
Hensarling, other members of the subcommittee. I appreciate the 
opportunity to be here today to present NCUA's views on H.R. 
3505.
    At the start, and without going into all of the details of 
our Hurricane Katrina relief and recovery efforts, let me just 
mention that in the immediate aftermath of the hurricane, we 
had 131 credit unions whose operations were at least partially 
disrupted, a number of single-office credit unions in the City 
of New Orleans where their office and their records were 
literally underwater. I am pleased to report that as of the end 
of last week, all of these credit unions were again at least 
partially operational, providing access to funds and other 
services to their members.
    I will focus in the remainder of my oral remarks on Title 
III of H.R. 3505, the credit union provisions. I want to start 
by saying NCUA does strongly support these provisions. We 
believe they will remove unnecessary regulatory restraints and 
enable credit unions to provide better, more efficient, and 
lower-cost service to their membership.
    As one example, Section 307 will allow Federal credit 
unions to provide check-cashing and wire transfer services to 
anyone in their field of membership. This provision is 
especially important to Federal credit unions in serving 
individuals of limited income or limited means. Individuals who 
do not have mainstream financial services available to them are 
often forced to pay excessive fees for services such as check-
cashing, money orders, and wire transfers. Allowing Federal 
credit unions to provide these services to anyone in their 
field of membership will provide lower-cost alternatives for 
the unbanked and foster familiarity with and trust in 
conventional financial institutions.
    Other important provisions include Section 305, which will 
allow Federal credit unions the flexibility to invest up to 3 
percent of their assets in credit union service organizations, 
providing financial-related services to both credit unions and 
their members; Section 303, which will allow Federal credit 
unions to diversify their assets and improve their earnings by 
making limited investments in corporate debt securities; and 
Section 314, which will clarify that when two credit unions 
decide to voluntarily merge, the statutory net worth of both 
credit unions is combined to form the net worth of the 
continuing credit union.
    Mr. Chairman, with respect to this issue, I would like to 
acknowledge and thank both you and Ranking Member Sanders for 
your support and for the separate introduction of H.R. 1042, 
which would specifically address and correct this inconsistency 
between the federal Credit Union Act and pending changes in 
accounting rules.
    Finally, while not included in H.R. 3505, we respectfully 
urge the subcommittee's consideration of reform of the prompt 
corrective action capital requirements for federally insured 
credit unions. The current statutory capital regime for credit 
unions establishes an unnecessarily high leverage ratio that 
penalizes low-risk credit unions, that deprives credit unions 
of the ability to use excess capital in the manner that best 
serves the interests of their members, and that makes it 
difficult for NCUA to use risk-based capital as an effective 
supervisory tool.
    Our proposed solution, which is set forth as Title I of the 
CURIA bill, H.R. 2317, addresses these concerns we believe in a 
manner that is consistent with the capital standards for FDIC-
insured institutions, that reflects the unique capitalization 
structure of the national credit union share insurance fund, 
and that ensures the continued safety and soundness of both 
insured credit unions and our fund.
    Again, thank you for the opportunity to be here today. I 
look forward to answering your questions.
    [The prepared statement of Robert M. Fenner can be found on 
page 92 in the appendix.]
    Chairman Bachus. Thank you.
    Now, we will hear from the commissioner of the Texas 
Department of Banking, Mr. Randall James.

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

    Mr. James. Good morning, Chairman Bachus, members of the 
committee. For the record, I am Randall James, Texas banking 
commissioner, and I am pleased to be here today on behalf of 
the Conference of State Bank Supervisors.
    Thank you for inviting CSBS here today to discuss 
strategies for reducing the unnecessary regulatory burden on 
banks, specifically H.R. 3505, as set forth by Congressman 
Hensarling and Congressman Moore. Our members are the 
chartering authorities and primary regulators of the majority 
of our Nation's financial institutions, including the vast 
majority of our community banks.
    Chairman Bachus, we do applaud your longstanding commitment 
to ensuring that regulations serve the public interest without 
imposing unnecessary compliance burdens on financial 
institutions. At the State level, we are constantly balancing 
the need for oversight and consumer protection with the need to 
encourage competition and entrepreneurship. We see continuing 
opportunities for Congress to streamline and rationalize 
regulatory burden, especially for community banks. This 
testimony will review and update several issues that we have 
previously discussed in this forum.
    Our current regulatory structure and statutory framework 
may recognize some differences between financial institutions, 
but too often mandates a one-size-fits-all requirement. CSBS 
endorses approaches that recognize and encourage the benefits 
of diversity within our banking system. New Federal 
requirements are often unduly burdensome on smaller or 
community-based institutions, as has been referenced here 
frequently this morning. Therefore, my colleagues and I are 
especially pleased to see provisions in the current bill that 
recognize the growing disparity in our financial services 
industry and the impact that this has on our economy.
    Targeted relief for community banks is an essential 
component of any regulatory reform bill, and we strongly 
endorse several new provisions of H.R. 3505 that provide this 
relief. These new provisions taken from Congressman Ryun's 
Communities First Act will reduce burden on these community-
based institutions without creating new risks to safety and 
soundness.
    We are also pleased to see that H.R. 3505 seeks to address 
the industry's concerns about the Bank Secrecy Act, also 
alluded to frequently this morning. Currency transaction 
reports and suspicious activity reporting requirements are 
reducing collection requirements and making them more 
consistent. We definitely want to acknowledge the efforts of 
FinCEN and the Federal banking agencies with whom we have 
worked to develop clear risk-based BSA examination procedures. 
We welcome the additional study on these issues that H.R. 3505 
calls for.
    We ask that the committee include several additional 
regulatory burden relief provisions in any legislation it 
approves. First, CSBS believes that a State banking regulator 
should have a vote on the Federal Financial Institutions 
Examination Council, the coordinating body of banking agencies. 
We recommend that Congress change the State position in FFIEC 
from one of observer to that of a full voting member.
    CSBS also favors a provision that would give the Federal 
Reserve the necessary flexibility 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-chartered Fed member banks to those activities allowed 
for national banks.
    In addition, CSBS strongly support FDIC's recent rule 
making Federal deposit insurance available to State-chartered 
banks that organize as limited liability corporations, or LLCs. 
Only a handful of States now allow banks to organize as LLCs, 
including Maine, Nevada, Vermont, Texas and most recently, 
Utah. More States may consider this option, however, because 
the structure offers the same tax advantages as Subchapter S 
corporations, but with greater flexibility. Unfortunately, an 
Internal Revenue Service regulation currently blocks pass-
through tax treatment for State-chartered banks. We ask this 
committee to encourage the IRS to reconsider its interpretation 
of the tax treatment of LLCs.
    In conclusion, as you consider additional ways to reduce 
burden on our financial institutions, we urge you to remember 
that the strength of our banking system is its diversity. While 
some Federal intervention may be necessary to reduce burden, 
relief measures should allow for further innovation and 
coordination at both the State and the Federal levels and among 
community-based institutions, as well as among the largest 
providers. A responsive and innovative State banking system 
that encourages community banking is essential to creating 
local economic opportunities.
    We commend you, Mr. Chairman and the members of the 
subcommittee, for your efforts in this area. We urge you to 
move this bill through the House of Representatives in this 
session of Congress. We thank you for the opportunity to 
testify, and I look forward to responding to any questions that 
you or members of the committee might have.
    Thank you.
    [The prepared statement of Randall S. James can be found on 
page 104 in the appendix.]
    Chairman Bachus. Thank you, Commissioner James.
    At this time, Deputy Commissioner George Latham from the 
Bureau of Financial Institutions of Virginia State Corporation 
Commission.

  STATEMENT OF MR. GEORGE LATHAM, DEPUTY COMMISSIONER, CREDIT 
   UNIONS, BUREAU OF FINANCIAL INSTITUTIONS, VIRGINIA STATE 
 CORPORATION COMMISSION, ON BEHALF OF THE NATIONAL ASSOCIATION 
               OF STATE CREDIT UNION SUPERVISORS

    Mr. Latham. Thank you, Chairman Bachus. I an deputy 
commissioner of financial institutions for the Commonwealth of 
Virginia. Thank you and the committee for the opportunity to be 
here. I do want to add that I am a past chairman of the Board 
of the National Association of State Credit Union Supervisors, 
or NASCUS, who I am here on behalf of today.
    NASCUS is pleased to have this opportunity to share our 
thoughts about H.R. 3505, the Financial Services Regulatory 
Relief Act of 2005. Capital reform continues to be a critical 
concern for the Nation's credit unions. The first important 
provision is the amendment to the definition of "net worth" in 
this bill. Such a change would cure the unintended consequences 
for credit unions of the Financial Accounting Standards Board's 
business combination accounting rules. This provision amends 
the definition of "net worth" to include the retained earnings 
of a merging credit union with that of a surviving credit 
union. NASCUS believes this provision is imperative to preserve 
the option of mergers for regulators who use this as a safety 
and soundness tool.
    NASCUS also appreciates that the bill includes a provision 
that allows privately insured credit unions to access the 
Federal Home Loan banks. Moreover, NASCUS supports a provision 
that amends FDICIA so that State supervisors have the 
examination and enforcement oversight of privately insured 
credit unions. This authority ensures that State regulators 
could enforce compliance with disclosure requirements for 
privately insured credit unions.
    NASCUS believes another important capital reform should be 
an amendment to prompt corrective action or PCA. Such an 
amendment should broaden the definition of "net worth" and also 
provide flexibility. The Federal Credit Union Act establishes 
mandatory PCA requirements for credit unions. However, it does 
not provide flexibility to temporarily waive these 
requirements. It also limits the net worth of a credit union to 
just its retained earnings.
    Hurricane Katrina provides an excellent example of the need 
for flexibility. Although State credit union regulators helped 
ensure that operations would continue in a safe and sound 
manner in those States that were affected, these regulators are 
soon going to be shifting their concerns to credit unions 
meeting PCA standards. Many credit unions affected by Hurricane 
Katrina will need retained earnings to rebuild.
    It is also predicted that many members will walk away from 
loan obligations because their car or home, which secured their 
loan, no longer exists. As retained earnings are depleted for 
relief efforts, regulators will be faced with downgrading 
credit unions for not meeting PCA requirements. This 
demonstrates how viciously this cycle hurts American consumers.
    I would like to add that NASCUS and its State regulatory 
members have done quite a bit to support the efforts to relieve 
the conditions brought about by Katrina. State credit union 
regulators have offered manpower and computers and other 
resources to their colleagues in the affected States. NASCUS 
has a reserve examination program which recruits former 
examiners who are retired or even examiners who are active at 
this time to go in and do examinations in affected areas.
    NASCUS has been working with NCUA in a number of ways, 
teleconferencing and briefings. We also have information on our 
Web site. So NASCUS stands ready to assist in the relief 
efforts for the victims of Hurricane Katrina.
    NASCUS also has a longstanding policy supporting risk-based 
capital for credit unions. A risk-based capital solution should 
be included in H.R. 3505. Risk-based net worth and alternative 
capital are complementary capital reforms. In July, a team of 
NASCUS regulators and credit union executives created a white 
paper presenting both equity and debt models for alternative 
capital. The instruments presented are designed to preserve the 
not-for-profit, mutual, member-owned and cooperative structure 
of credit unions. We shared the white paper with the credit 
union community for study and for feedback. Additionally, it is 
attached to our written testimony and we appreciate the 
subcommittee's consideration of it.
    We believe further regulatory relief is needed in H.R. 3505 
for member business lending. The statutory limit on credit 
union member business loans should be raised to 20 percent of 
total assets. We further support language that would amend the 
current definition of "member business loans" by granting NCUA 
the authority to exempt loans of $100,000 or less.
    NASCUS appreciates the importance of the Bank Secrecy Act, 
or BSA, and thus supports those provisions in the bill as well. 
State credit union regulators believe they have the safety and 
soundness responsibility to encourage State-chartered credit 
unions to comply with all applicable BSA laws and regulations. 
We are pleased that the bill provides further flexibility to 
the secretary of the treasury to grant currency transaction 
report exemptions.
    NASCUS believes the enforcement of the program section of 
H.R. 3505 should be modified to reference State regulators as 
contributing members of FFIEC. The partnership between State 
and Federal regulators is important to ensure enforcement and 
monitoring of BSA and anti-money-laundering compliance. The BSA 
provisions in the bill are a step in the right direction of 
balancing the reporting burden with information needed by 
enforcement agencies.
    In the interests of time, please refer to the last page of 
our written testimony for other issues of importance to NASCUS 
which I will not highlight at this time.
    NASCUS appreciates the opportunity to testify on the 
provisions of H.R. 3505. We welcome further participation in 
the discussion and deliberation of this legislation, and 
certainly I am open to answering any questions that you may 
have.
    [The prepared statement of George Latham can be found on 
page 145 in the appendix.]
    Chairman Bachus. Thank you. We appreciate that.
    At this time, I might say to members of the committee we 
have many Members of Congress, of course Galveston is in Gene 
Green's district, but the district of our fellow member, Mr. Al 
Green, is right to the left of that as you look at a map. And 
also, Mr. Hinojosa's and Mr. Paul's districts are impacted, as 
well as several other members.
    At this time, I am going to yield my 5 minutes to Mr. Green 
because obviously he needs to get back to the more pressing 
needs of his district, for questioning.
    Mr. Green. Thank you, Mr. Chairman. I greatly appreciate 
your consideration. On behalf of the many Members who will be 
traversing the distance back to our districts to attend to the 
needs of our constituents, I thank you on their behalf as well. 
While they are not members of the committee necessarily, they 
appreciate your kind words.
    I would like to indicate that I am most appreciative of 
some of the information that I received with reference to how 
lending institutions will work with people who have loans. My 
understanding is that some institutions will have a moratorium 
for approximately 3 months on foreclosures, late fees, and 
other aspects of loans that might involve some penalties. I 
compliment you for this.
    I have talked to a number of persons, persons who were in 
good-standing in their communities. In fact, one is a banker. 
They tell me that 3 months may not be enough, given that they 
cannot get to their homes. These are people who are victims of 
Katrina. They cannot get adjusters out to look at some of the 
concerns that have to be addressed, and they are just not sure 
what their fate is right now.
    Can someone give me an indication as to how you would 
recommend that we handle this? I know that a case-by-case basis 
is ultimately what will be said, but how can we encourage 
something a little bit more standardized, if you will, to 
address some of these concerns? I welcome anyone's comment.
    Ms. Williams. Congressman, let me just start by addressing 
one of the points that you just made: that individual 
circumstances may differ and that 3 months may not be enough. 
The guidance that the banking agencies issued very shortly 
after Katrina hit urging the institutions that we supervise to 
be flexible and to be responsive to their customers' needs is 
fully applicable to longer-term needs, and it will be fully 
applicable if, unfortunately, it is necessary to apply it in 
the circumstances of Hurricane Rita.
    Certain customers may be able to get back on their feet 
more quickly than others. We are strongly urging the 
institutions that we supervise to work with all their 
customers, to recognize the needs of those customers, and to be 
flexible, to forbear, to look for opportunities to restructure 
based on the needs presented by the particular customers.
    Mr. Green. Yes, sir?
    Mr. Olson. Congressman, I will associate with what Julie 
Williams said, but add one other part to that. The bankers that 
work in branches or in bank locations operate under a set of 
rules. Some of which are the institution's own internal 
guidelines, and some of which are laws and regulations. In some 
cases, we have found following Katrina there are some bankers 
that have had no reason in the past to try to sort those out as 
to which is which.
    The significance of it is that we have had questions from 
time to time regarding policies that that person has always 
been operating under that in fact is an internal policy as 
opposed to a regulation, but they have always thought of it as 
a regulation. What we have made an effort to do is try to help 
the bankers understand where there is flexibility. Many of the 
things that you have talked about which are important, there 
perhaps is flexibility within the institution's own standards 
under the regulations to comply with.
    Mr. Green. Thank you.
    Quickly, because I know time is of the essence, the CRA, 
the Federal Reserve Board, the Office of the Comptroller of the 
Currency and the FDIC recently promulgated a new CRA 
regulation. Pursuant to this regulation, certain institutions 
will receive CRA credit for making loans.
    While this is a good thing, the concern is if we have 
persons who are displaced and they receive loans, can these 
institutions get CRA credit for making loans to displaced 
individuals, as opposed to displaced businesses? Does anyone 
have a comment on that?
    Ms. Williams. Congressman, again, I think that we would 
look for ways to try to provide some flexibility in that 
respect. We have pending in draft form a series of interagency 
questions and answers that are designed to provide some 
elaboration on the recently revised CRA regulation. Your 
queston is an excellent one for us to see if we can provide 
some clarification on.
    Mr. Green. As you do so, I would encourage you to be as 
flexible as you can so that the banks can get the credit, which 
is an incentive to make the loans to the individuals who have 
been displaced. We are talking about people who really need 
these bootstraps. They will pull themselves up if they are 
given the bootstraps. This would provide that opportunity for 
them to have bootstraps.
    I thank you very much, Mr. Chairman, for the time.
    Chairman Bachus. Thank you, Mr. Green.
    At this time, we are going to recess. There are votes on 
the floor and we will reconvene at approximately 12:10 p.m., if 
that is okay. Mr. Hensarling will be in the chair when we 
reconvene. I think there are two other members who wish to 
answer questions. So we will recess until that time.
    Thank you. The committee is temporarily adjourned.
    [Recess.]
    Mr. Hensarling. [Presiding.] The subcommittee will come to 
order.
    I appreciate the indulgence of our panelists. However, if 
history is our guide, you will see the proceedings move rather 
rapidly, given that it is the lunch hour. So hopefully, we will 
not hold you too long.
    At this time, the Chair would recognize himself for 5 
minutes. Mr. Fox, I would like to give my first question to 
you. First, I want to thank you. In your testimony I cannot 
help but see the phrase "cost and benefit." As you say, we must 
strike the right balance between cost and benefit. I assure you 
that that is a phrase that is rarely heard within the halls of 
Congress. As a graduate with a degree in economics from Texas 
A&M University, it is certainly music to my ears. I appreciate 
the good work that you have done with industry and with law 
enforcement on the issue of BSA relief.
    Clearly, and in another part of your testimony, I think you 
indicate it is a question of balance, and indeed it is. I 
remember sometime after 9/11 a CEO of an airline came up to me 
and said that finally we had discovered the perfect security 
measure for passenger air travel, and that was that passengers 
will no longer be allowed on commercial airlines.
    [Laughter.]
    Indeed, there is a balance and clearly the terrorists win 
when we lose our essential freedoms, including the freedom of 
commerce. In looking at some of your earlier testimony, I think 
you indicated that just within the last year there was a 37 
percent increase in SARs and that a number of these reports I 
think you characterized as being in the nature of a defensive 
filing. I think you said, and let me quote from your earlier 
testimony of May before our oversight committee, "If these 
trends continue, consumers of the data, law enforcement, 
regulatory agencies, and intelligence agencies will suffer," 
and that "we are concerned as financial institutions spend time 
and resources on increased filing, the quality of reporting on 
truly suspicious activity will degrade."
    Can you go into a little bit of detail on how the language, 
the exemption dealing with seasoned customers, will address 
this issue?
    Mr. Fox. Congressman, I am not actually sure it will get to 
the suspicious activity report issue that you raised, which is 
an incredibly important issue. The seasoned customer language 
have really addresses currency transaction reporting, which is 
a more objective reporting requirement.
    I think the cause of defensive filing of suspicious 
activity reporting, in other words the reporting that is 
required when an institution comes across financial activity 
that it judges to be suspicious under our regulatory scheme and 
reports to the Government, was caused in large measure by 
institutions perceiving a very grave regulatory and 
reputational risk from running afoul of this regulatory regime.
    I think that we have, sir, worked incredibly well with my 
colleagues at the table, the five Federal banking agencies in 
particular, but also the Conference of State Bank Supervisors, 
to sort of tamp that concern down. What we are hearing, sir, 
and this is anecdotal right now and I do not have stats, is 
that institutions are getting that message. They are really not 
as nervous, I guess, as they might have been a year ago.
    Mr. Hensarling. If I could, though, over roughly 30 years, 
we have developed this regime and quite often in Congress we 
put new regulations on top of old regulations. Is there still 
some overlap between the SARs, the CTRs, the Patriot Act, 
customer identification programs? If you were designing this 
program from scratch, is this what you would end up with? Is 
there further work we can do?
    Mr. Fox. I think there is further work we can do, and the 
work that you, sir, have done on the currency transaction 
reports is an example of that. But I would say, sir, that these 
reporting requirements and the customer identification programs 
that were implemented by the Patriot Act, while clearly a 
burden, do fit well together to weave a very sound anti-money-
laundering program not only for the institution, but for our 
financial system. It makes it more clean, more transparent, 
frankly safer.
    Mr. Hensarling. Again, thank you for your help and your 
work in this area.
    Mr. Fox. My pleasure.
    Mr. Hensarling. Five minutes travels rapidly.
    Mr. James, you and I have a hurricane headed toward our 
home State. What have we learned in the last few weeks? What 
should this committee know and do?
    Mr. James. Mr. Hensarling, the first item on the agenda is 
always people, taking care of the people. The second item on 
the agenda that I think this committee needs to be aware of is 
the extensive communication efforts that have existed among the 
Federal and State regulators of the affected areas resulting 
from Katrina. That communication has assisted in numerous ways 
among the regulators in easing up in areas where we could ease 
up and in providing some comfort to the institutions.
    Following right on the heels of that, the communication has 
already begun with regard to Hurricane Rita. That communication 
has started with the regulators and then I would like to place 
on the record that yesterday afternoon the Independent Bankers 
of Texas and the Texas Bankers Association got together and 
hosted a call that included the area regulators, as well as 
some 300 financial institutions, to go over immediate issues. 
That call is going to be occurring again tomorrow morning at 9 
o'clock. That communication, I believe, is extremely important 
to discuss issues of cash availability, of cash letter 
direction, of liquidity issues, or branch openings issues, of 
where people are issues, of how to deal with situations, and 
how to proceed.
    I would suggest to this committee that the bankers in the 
State of Texas, along with the Federal and State regulators, 
are working everything we can to make sure everything gets back 
up and running, because this hurricane will come, but it will 
be also pass. And we are very interested in what comes next.
    Mr. Hensarling. Thank you. Please know that I am sure that 
on behalf of this committee and on behalf of the Texas 
delegation, we stand ready to help in any way that we can.
    My time has expired. The Chair would now recognize Ms. 
Maloney from New York.
    Mrs. Maloney. Thank you very much for your leadership on 
this.
    I would like to ask Mr. Bill Fox, you said in your 
testimony that technology is just catching up with the filing 
requirements. I would like to know how FinCEN is doing this in 
more detail. Last spring, the Treasury IG reported that FinCEN 
was not able to process the Bank Secrecy Act filings 
effectively. I understand that you are trying to address this. 
Can you explain where FinCEN is regarding this issue?
    Mr. Fox. Thank you, Congresswoman. We are working very hard 
to develop and implement a new cornerstone system, a system 
that we are calling BSA Direct. This system will have an 
electronic filing component, a very modern data warehouse, as 
well as a very modern Web-based secure way to disseminate the 
information that we collect to law enforcement.
    We are working on this very, very diligently right now. It 
is very close to deployment and testing. We are very excited 
about it. It will replace a system that was cutting-edge in 
1990. We are thrilled that law enforcement, and I think our 
colleagues in the reulationg agencies, are very supportive of 
this effort. I think it is going to make a great difference.
    Mrs. Maloney. Does FinCEN support this bill that we have 
before us?
    Mr. Fox. I would like to discuss the one Bank Secrecy Act 
issue, the currency transaction reporting provision. We will 
have some thoughts on the other Bank Secrecy Act provisions; 
however, we have not focused as much on them because we were 
working so diligently on the currency transaction reporting 
provision. We will continue to work with the staff from both 
sides of the aisle.
    Mrs. Maloney. On the idea of having seasoned customers, 
those that the bank knows, that they have conducted business 
with, that they trust, exempting them from all this paperwork, 
do you support that? This is an idea we are doing also with the 
airports. Those people who fly often--they know who they are--
can have certain cards so they can go through faster. Because 
we are so conscious about security, and as one who represents 
target number one, New York City, I am concerned about it.
    Do you support that philosophically? Do you support that 
direction?
    Mr. Fox. Yes, ma'am. I think the technical assistance that 
we have provided to the committee in developing the language 
will satisfy us, law enforcement, and the industry. It will 
eliminate some of the reports that are maybe not as relevant or 
as highly relevant to the detection of financial crime.
    From an intelligence perspective, ma'am, I will tell you 
that all information is valuable. I think law enforcement will 
also tell you all information is valuable. I think it is our 
job at FinCEN to try to balance the reporting requirements with 
the burdens that we are putting on the industry, and I think, 
frankly, this language is one way to reach that balance.
    Mrs. Maloney. I think that is important, also the testimony 
we have gotten in prior hearings where there is so much 
information that no one is even looking at it, which we saw in 
the 9/11 report. A lot of this information was in certain 
places, but no one was looking at it. So if you are so 
overburdened with information you cannot even process it, we 
are not helping combat the terrorism, the money laundering, and 
we certainly are overburdening particularly these smaller and 
mid-size firms to the point they say that the financial burden 
and time burden is almost unbearable.
    On the theme of balance, I would like to raise a challenge 
that we have in the district that I represent for financial 
service centers which serve a large number of unbanked workers, 
particularly in areas that are poverty-designated areas. There 
are many unbanked workers. They have expressed serious concern 
about banks discontinuing their accounts. Many of them, the 
banks say that OCC had guidelines that told them they had to 
discontinue these accounts.
    One of the things we do not want to do is cut off banking 
services for people. I know that you have taken this seriously. 
We have talked to your office about it and recognize that 
banks' disruption of services will force these check cashers 
underground or in other ways which we do not want. Can you tell 
us what has happened on this front since last summer when 
FinCEN held its conference on the issue and it appeared that 
positive steps were being taken? I have heard since that little 
improvement has actually happened, despite the right things 
being said.
    I will tell you some of the larger institutions that are 
trying to do absolutely everything right. They are hiring 
consultants and everyone else to help them make sure they are 
doing everything right. They have the best intentions. Everyone 
wants to do everything right. Some of these consultants will 
say, well, just get rid of any questionable area. You just do 
not need to deal with it. So they are closing down these 
services. They are not participating and it is causing now in 
New York City we only have one bank that will support unbanked 
workers.
    So could you comment please on this? It is an access to 
financial services issue. I think it is important because if we 
do not have access, then the Government has to come in and 
create another program to provide access.
    Mr. Fox. It is important, ma'am. It is actually one of the 
big issues we are wrestling with right now. The banking of 
money services businesses is critically important. The Treasury 
Department has historically and continues to take the position 
that these entities, or this part of the financial services 
sector, are critical to not only the Nation's economy, but to 
the world economy, particularly for folks who are unbanked or 
who are perhaps not as well off as other folks.
    We take this very seriously. I do not believe it is fair to 
say that the reason for this is by OCC guidance. That just 
simply is not there. I am sure Julie could address that as 
well. But I think it did result from a misperception, perhaps, 
by institutions about the level of risks associated with 
banking money services businesses, and couple that with 
concerns about what could happen if one of these services was 
found to be there. The banks actually thought they had to be 
perceived, that they had to be this sector's regulator. One of 
the things we did together was issue interagency guidance, 
which made it clear that we are not expecting that of 
depository institutions.
    I think they have to keep in mind as well that this sector 
is a regulated sector. They are part of the Bank Secrecy Act 
milieu, if you will. They are subject to the same requirements 
that depository institutions are under the Bank Secrecy Act, 
including reporting and program requirements. Frankly, they 
have a regulator, and that is FinCEN, the IRS, and the 
Department of the Treasury. So I think what we are trying to 
do, ma'am, is educate, I guess, and talk with the financial 
services sector to ensure that they understand that.
    Finally, I think that guidance has helped in parts of the 
country. Your area, ma'am, the Northeast in particular, is one 
part of the country that we are very concerned about because we 
are getting feedback that it has not helped. We are going to 
continue to work with folks on all sides of this issue to try 
to address it. It is critical that we get it right. We do not 
want them underground.
    Mr. Hensarling. The time of the gentlelady has expired.
    The Chair now recognizes Mr. Sherman from California.
    Mr. Sherman. Thank you, Mr. Chairman.
    Mr. Kroener, Gramm-Leach-Bliley enshrines the idea we have 
had in this country for a long time that commerce needs to be 
kept separate from business. If you read the books that were 
popular in the 1980s, this was the decade in which Japan was 
supposed to overtake the United States in world economic 
importance. That has not happened, perhaps because we have done 
a good job, but moreover because Japan has decided to mix 
banking and commerce.
    I am concerned that the industrial loan companies idea, 
which was always a small side-light in our overall financial 
world, is perhaps going to be exploited by those who wish to 
combine commerce and banking. Wal-Mart, of course, has an 
application to charter an ILC. I wonder if you at the FDIC are 
moving cautiously, whether we in Congress should be holding 
hearings. What do we do to avoid the mixing of commerce and 
business?
    Mr. Kroener. Congressman Sherman, the FDIC basically 
insures banks as an entity. Banks have a number of 
relationships with other companies in the same group. We have 
been insuring banks for the 80 years of our history, including 
ILCs. There are a number of sorts of banks, such as credit card 
banks and ILCs, that have been long operated independently and 
separately from their affiliated organizations. Our experience 
with those institutions suggests to us that they present no 
more safety and soundness problems to our insurance fund than 
do any other sort of institution.
    Mr. Sherman. But if we were to take the Japanese model 
where you had interlocking directorates, interlocking loans, 
one commercial group the banker for the other commercial group, 
the second the banker for the first, that Japanese model is I 
do not think one that would be conducive to a strong insurance 
system. Do you see a risk in Wal-Mart's application or in other 
developments that we are moving beyond the very small 
traditional role of the ILCs toward that being the backdoor to 
the Japanese model?
    Mr. Kroener. In terms of our function as insurer, we have a 
series of statutory criteria which we apply in making an 
insurance determination, that is, whether someone will be 
insured. Those seven criteria do not differ for ILCs or for any 
other sort of institution. We will be applying precisely the 
same criteria to the pending Wal-Mart application that we apply 
to all other institutions.
    Mr. Sherman. I thank you for your answer. It is probably 
more important that we hold hearings here about what could be a 
loophole in the whole Gramm-Leach-Bliley. Obviously, you have 
your regulations and you are going to apply them. I hope you 
apply them with an understanding of the purposes of Gramm-
Leach-Bliley, but I do need to move on to other questions.
    Perhaps Mr. Fenner could explain in greater detail why 
prompt corrective action reform is important.
    Mr. Fenner. Thank you, Congressman.
    Currently, the minimum statutory net-worth level, non-risk-
weighted leverage level that a credit union needs to achieve in 
order to be well capitalized is 7 percent, net worth equaling 7 
percent of assets or greater. That is a full 200 basis points 
higher than the standard that exists for the rest of our 
federally insured financial institutions. We see at least three 
problems with that at NCUA.
    One is that we think it is unfair to credit unions, 
especially under circumstances where credit unions operate with 
relatively less risky asset portfolios. We think it restricts 
the use of credit unions' earnings that could be better used 
for other purposes to serve the members. We think it creates a 
one-size-fits-all system that makes it difficult for us to use 
the risk-based net worth requirement side of the PCA scheme to 
effectively supervise risk.
    So we think the solution that we have proposed that we are 
happy is contained in Title I of CURIA is to lower that 
leverage requirement, and do it in a way that accounts for the 
unique capitalization of insurance fund and then allow that 
system to work in tandem more effectively with the risk-based 
system that is comparable to what is in place for other 
institutions.
    Mr. Sherman. But you have designed a risk-based system so 
that if a credit union had a particularly risky portfolio, it 
would have to have capital above the 7 percent required today.
    Mr. Fenner. That is correct.
    Mr. Sherman. So this is not just a lower capital standard. 
It is a more sophisticated one; higher for some, lower for 
others.
    Mr. Fenner. That is correct. The system that is spelled out 
in some detail in CURIA would do exactly that. It would 
establish a set of risk-based requirements that very closely 
parallel what are in place for other insured financial 
institutions.
    Mr. Hensarling. The time of the gentleman has expired.
    The Chair now recognizes Mr. Meeks of New York.
    Mr. Meeks. Thank you, Mr. Chairman.
    I will have just real brief questions, and I would like to 
direct the first one to all three, Mr. Olson, Mr. Bowman, and 
Ms. Williams. I am wondering what your opinion is on increasing 
the reporting requirements of HMDA data such as credit scores 
and loan-to-value ratio. Just give me your opinion on that, if 
you will.
    Mr. Olson. Congressman, we looked at that issue very 
carefully when we were looking to change the HMDA reporting 
requirements. We talked about balance earlier, and there is a 
balance required between the amount of information that comes 
on HMDA and the amount of additional or incremental information 
that could have privacy implications.
    For example, every additional bit of information you attach 
to the HMDA reporting comes that much closer to revealing the 
individual because you are doing it on a property-specific 
reporting basis, so that is part of the issue.
    On the other hand, where we have seen in predatory lending, 
the critical issue involves pricing. It has been clear for some 
time that it is not the approval-denial decision that results 
in the most egregious forms of predatory lending. It is in the 
pricing. So with the combination of the HOEPA and HMDA new 
requirements and identifying the loans where the mischief, if 
you will, in pricing could be identified, at that point we 
would have the ability to go after the institutions where there 
was the possibility for predatory lending or discriminatory 
lending.
    So that is where the cut-line was made.
    Also, in terms of if you were to truly evaluate whether an 
institution has a pattern of discrimination, you have to go 
into 50 and 60 and 70 data points. So you really have to look 
at the credit files themselves in order to ultimately make that 
evaluation. So we are very comfortable that where we are now 
can have us focus on the institutions that we would need to 
look at further.
    Mr. Meeks. Ms. Williams?
    Ms. Williams. I would basically second that. There is an 
important issue of balance here. You would have to require the 
collection of an enormous amount of information from lenders in 
order to begin to approach being able to have data that you 
could just run automatically to get close to being able to draw 
any conclusions. What we have now is data that we use to screen 
and to identify institutions that are high-risk institutions. 
Then we apply a variety of other risk factors to home in on 
those institutions where we go in and we do the types of file 
reviews that Governor Olson is talking about. So I would second 
his remarks.
    Mr. Meeks. Mr. Bowman?
    Mr. Bowman. I would third that as well. The information, 
the balance that has been struck by the regulations promulgated 
by the Fed do provide us as a regulator the necessary 
information or identification marks which would allow our 
examiners to go in and look at a particular institution and 
perhaps the particular files within that institution to dig 
further. To the extent that what we come up with is something 
that is of great concern, we would then proceed accordingly. So 
I think the Fed has found the balance.
    Mr. Meeks. Mr. Bowman, let me stay with you for a second. I 
just want to jump in, and I am just about done.
    I think in reading your testimony, you indicated that small 
banks are concerned about the cost of compliance with the Bank 
Secrecy Act and Sarbanes-Oxley. What I want to know is, does 
Sarbanes-Oxley become less expensive as better internal 
controls are put in place? Are the smaller banks still using 
tier one accounting firms instead of tier two, as was mentioned 
in the hearing of the PCAOB?
    Mr. Bowman. Our experience has been that given the loss of 
the larger accounting firms, and also given the nature of a lot 
of our institutions, they use smaller accounting firms, 
auditing firms to provide them with the support they need. 
Unfortunately, the experience of the smaller institutions has 
been that some of the costs that they incur as a result of that 
employment are not necessarily distinguishable from some of the 
costs that the larger institutions would be charged by the 
larger accounting firms and others.
    The difficulty with and I think one of the points we make 
in our testimony is that the size of the institution, given 
regulations that are out there and statutory obligations that 
are imposed upon them, does not seem to make a difference. The 
largest institutions in the country are subjected to the same 
regulatory requirements as are the smaller ones. The ability to 
make a profit the smaller you get becomes more difficult. The 
continuing costs that the smaller institutions are subjected to 
really causes, I think, in many cases the kinds of complaints 
that we do hear from our institutions.
    Mr. Meeks. Thank you.
    Mr. Hensarling. The gentleman yields back.
    Seeing no other members in the hearing room who have not 
been recognized, I want to thank the panel for coming today and 
providing us with your testimony.
    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 to the 
witnesses and to place their responses in the record.
    This hearing is adjourned.
    [Whereupon, at 12:40 p.m., the subcommittee was adjourned.]


                            A P P E N D I X

                           September 22, 2005

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

[GRAPHIC] [TIFF OMITTED] 

