[Senate Hearing 109-993]
[From the U.S. Government Publishing Office]
S. Hrg. 109-993
CONSIDERATION OF
REGULATORY RELIEF PROPOSALS
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED NINTH CONGRESS
SECOND SESSION
ON
REGULATORY RELIEF PROPOSALS TO REMOVE REGULATORY BURDEN FROM THE
BANKING INDUSTRY
__________
MARCH 1, 2006
__________
Printed for the use of the Committee on Banking, Housing, and Urban
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senate05sh.html
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COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
RICHARD C. SHELBY, Alabama, Chairman
ROBERT F. BENNETT, Utah PAUL S. SARBANES, Maryland
WAYNE ALLARD, Colorado CHRISTOPHER J. DODD, Connecticut
MICHAEL B. ENZI, Wyoming TIM JOHNSON, South Dakota
CHUCK HAGEL, Nebraska JACK REED, Rhode Island
RICK SANTORUM, Pennsylvania CHARLES E. SCHUMER, New York
JIM BUNNING, Kentucky EVAN BAYH, Indiana
MIKE CRAPO, Idaho THOMAS R. CARPER, Delaware
JOHN E. SUNUNU, New Hampshire DEBBIE STABENOW, Michigan
ELIZABETH DOLE, North Carolina ROBERT MENENDEZ, New Jersey
MEL MARTINEZ, Florida
Kathleen L. Casey, Staff Director and Counsel
Steven B. Harris, Democratic Staff Director and Chief Counsel
Dean V. Shahinian, Democratic Counsel
Patience R. Singleton, Democratic Counsel
Joseph R. Kolinski, Chief Clerk and Computer Systems Administrator
George E. Whittle, Editor
(ii)
C O N T E N T S
----------
WEDNESDAY, MARCH 1, 2006
Page
Opening statement of Senator Crapo............................... 1
Prepared statement........................................... 50
Opening statements, comments, or prepared statements of:
Senator Enzi................................................. 1
Prepared statement....................................... 51
Senator Hagel................................................ 16
Prepared statement....................................... 52
Senator Carper............................................... 16
Senator Martinez............................................. 52
Senator Shelby............................................... 53
Senator Stabenow............................................. 53
WITNESSES
John M. Reich, Director, Office of Thrift Supervision............ 4
Prepared statement........................................... 54
Response to written questions of:
Senator Santorum......................................... 238
Senator Shelby........................................... 240
Gavin Gee, Director of Finance, Idaho Department of Finance on
behalf of the Conference of State Bank Supervisors............. 6
Prepared statement........................................... 107
Donald L. Kohn, Member, Board of Governors of the Federal Reserve
System......................................................... 8
Prepared statement........................................... 112
Response to written questions of Senator Shelby.............. 244
Douglas H. Jones, Acting General Counsel, Federal Deposit
Insurance Corporation.......................................... 10
Prepared statement........................................... 118
Response to written questions of Senator Shelby.............. 248
Julie L. Williams, First Senior Deputy Comptroller and Chief
Counsel, Office of the Comptroller of the Currency............. 11
Prepared statement........................................... 126
Response to written questions of Senator Shelby.............. 252
JoAnn M. Johnson, Chairman, National Credit Union Administration. 12
Prepared statement........................................... 134
Response to written questions of Senator Shelby.............. 255
Linda Jekel, Director of Credit Unions, Washington Department of
Financial Institutions, Division of Credit Unions and Chairman,
National Association of State Credit Union Supervisors......... 14
Prepared statement........................................... 143
Response to written questions of Senator Shelby.............. 257
Bradley E. Rock, President and CEO, Bank of Smithtown on behalf
of the American Bankers Association............................ 29
Prepared statement........................................... 150
Response to written questions of Senator Shelby.............. 259
Edmund Mierzwinski, Consumer Program Director, U.S. Public
Interest Research Group........................................ 31
Prepared statement........................................... 156
F. Weller Meyer, Chairman, President, and CEO, Acacia Federal
Savings Bank, Falls Church, VA and Chairman, Board of
Directors, America's Community Bankers, Washington, DC......... 32
Prepared statement........................................... 194
H. Greg McClellan, President and Chief Executive Officer, MAX
Federal Credit Union on behalf of the National Association of
Federal Credit Unions.......................................... 34
Prepared statement........................................... 202
Response to written questions of Senator Shelby.............. 265
Travis Plunkett, Legislative Director, Consumer Federation of
America........................................................ 36
Prepared statement........................................... 156
Steve Bartlett, President and Chief Executive Officer, Financial
Services Roundtable............................................ 37
Prepared statement........................................... 209
Response to written questions of Senator Shelby.............. 266
Joe McGee, President and CEO, Legacy Community Federal Credit
Union, Birmingham, AL on behalf of the Credit Union National
Association.................................................... 38
Prepared statement........................................... 216
Margot Saunders, Managing Attorney, National Consumer Law Center. 40
Prepared statement........................................... 156
Response to written questions of Senator Shelby.............. 267
Terry Jorde, President and CEO, CountryBank USA, Cando, ND and
Chairman-Elect, Independent Community Bankers of America,
Washington, DC................................................. 42
Prepared statement........................................... 230
Response to written questions of Senator Shelby.............. 268
Additional Material Supplied for the Record
Matrix of Financial Services Regulatory Relief Proposals......... 271
Statement of the North American Securities Administrators
Association dated March 1, 2006................................ 327
CONSIDERATION OF
REGULATORY RELIEF PROPOSALS
----------
WEDNESDAY, MARCH 1, 2006
U.S. Senate,
Committee on Banking, Housing, and Urban Affairs,
Washington, DC.
The Committee met at 10:19 a.m., in room SD-538, Dirksen
Senate Office Building, Senator Michael Crapo, presiding.
OPENING STATEMENT OF SENATOR MIKE CRAPO
Senator Crapo. This hearing will come to order. This is the
hearing of the Banking Committee on Consideration of Regulatory
Relief Proposals. We apologize to everyone that we got a late
start, but we had a vote down on the floor, and got tangled up
down there for a few minutes, but we are now under way there.
Before I make my opening statement or get it started, I want to
turn the time over to Senator Enzi from Wyoming, because he has
another urgent joint session of Congress to attend over in the
House side, and we need to get him on his way over there.
So, Senator Enzi, would you like to make any opening
statement that you would like to give?
STATEMENT OF SENATOR MICHAEL B. ENZI
Senator Enzi. Thank you, Mr. Chairman. Us Italians have to
help out the Prime Minister of Italy.
[Laughter.]
So, I appreciate this opportunity.
Senator Crapo. Give him my best regards.
Senator Enzi. Okay. I also want to thank you for your hard
work on this issue. I appreciate the way that you have waded
through all the stakeholders' interests and worked to get some
balance, and also to take care of over 200 different
suggestions for ways that we can improve the banking system for
banks and credit unions, and I really admire the work that you
have put in on it.
I would ask that my entire statement be a part of the
record.
Senator Crapo. Without objection.
Senator Enzi. A lot of fantastic comments in here about the
way that this will affect Wyoming that I want to be sure is
part of the record.
Senator Crapo. Then we will make sure that it is included.
Senator Enzi. But the part that I want to concentrate on
this morning is the part that is important for an industry that
is familiar to me, which is the accounting industry. When this
Committee considered the bill that became the Gramm-Leach-
Bliley bill of 1999, we knew it would drastically change the
way our financial industry operated. For example, Title V of
the Act enumerated the obligation of financial institutions to
protect their customers' private information, something that
had never been done on such a large scale before.
But for those in the accounting industry, this was old
news. Certified public accountants are bound by privacy laws
older and stricter than Gramm-Leach-Bliley. However, with the
passage of Gramm-Leach-Bliley, CPA's were required to disclose
privacy notices the same way as everyone else. So what
difference does that make? State-licensed CPA's in all of the
States are prohibited from disclosing personal information
unless specifically allowed by the customer. Now, under Gramm-
Leach-Bliley, institutions can share information unless
prohibited by a customer, a much looser standard. There is a
significant difference here, and one that makes annual privacy
disclosures for CPA's unnecessary.
I have been working closely with Congressman Mark Kennedy
from Minnesota on an exemption of this annual disclosure for
State-licensed CPA's who follow the stricter privacy laws.
While the cost of this annual disclosure can be annoying for
larger firms, it can be deadly for small firms or sole
proprietors. An exemption could save these firms valuable
resources, and their clients lots of dollars.
I look forward to working with my Banking Committee
colleagues on this issue, and the other meaningful reforms of
our Nation's small financial institutions.
I thank the Chairman for his tremendous work on this, and
also for the opportunity to make my statement early. Thank you.
Senator Crapo. Thank you very much, Senator, and we
appreciate your attention to these issues. I know that even
though you have to leave, you are very engaged on these
matters, and we appreciate that.
Senator Shelby will not be able to make the hearing today,
and frankly, this is a very busy time. There is a Joint Session
of Congress going on at this very moment, which probably will
impact our attendance here for at least a period of time, as
well as many other matters. I had three hearings myself
scheduled at 10 o'clock this morning. So he has asked me to
chair the hearing this morning, and I was very pleased to be
able to do so.
An effective regulatory system appropriately balances due
costs and benefits of public laws and regulations. All of us
want to protect consumers and ensure that the system's safety
and soundness are protected. However, excessive regulation
increases the cost of producing financial products. It stifles
productivity and innovation, and misallocates resources.
Responding to the steady stream of new regulations, while
complying with the existing ones, has been a challenge for all
financial institutions.
Rule changes, particularly for smaller institutions with
limited staff, can be costly, and these changes are inevitably
passed on to consumers. It is also important for us to
understand that the resources that are expended working to meet
governmental compliance and paperwork requirements are time and
effort that are not available to serve customers and
communities.
In Idaho, one of the specific issues that I have been told
that results in high cost for community banks and credit unions
with little benefit to consumers, is the mailing of annual
privacy notices when the institution does not share information
with third parties or make changes to its privacy policies. One
community banker in Idaho told me that his community bank
spends an estimated $15,000 a year per mailing, approximately
50,000 privacy notices. In 2004, his bank received one customer
call in response to his bank's privacy notice mailing, and
received no customer responses at all in 2005. Another
community banker in Idaho said that most customers do not read
the annual privacy notices. Most end up in the garbage. This is
one of the obvious provisions that we need to look at.
Compliance costs for the financial services industry costs
billions of dollars each year. For smaller institution, one out
of every four dollars in operating expenses goes to pay for the
cost of Government regulation. While much of this is necessary
to assure the soundness and the safety of our financial system,
it is obvious that there are many unnecessary and outdated
provisions that should be eliminated to reduce the costly
burdens imposed on our financial institutions. If this burden
were reduced by even 10 to 20 percent, and those funds were
made available, billions of additional lending would be made
available that would have a direct and positive impact on the
economic growth and on consumers.
The bottom line is that too much time and money is spent on
outdated and unnecessary compliance and paperwork, leaving less
time and less resources for actually providing financial
services.
The House Financial Services Committee has recognized this
problem, and in December 2005, it passed its own regulatory
relief legislation by a vote of 67 to 0. In 2004, the Banking
Committee held hearings on proposals regarding regulatory
relief for banks, thrifts, and credit unions. The hearing
covered all points of view and was made up of three panels of
witnesses, Members of Congress, regulators and trade
associations, and consumer groups.
The Office of Thrift Supervision, Director John Reich, as
leader of the Interagency Economic Growth and Regulatory
Paperwork Reduction Act--and we have an acronym for that,
EGRPRA--the task force was asked to review the testimony
presented at the hearing and prepare a matrix which listed all
the recommendations and positions presented to the Committee.
The results brought forward 136 burden reduction proposals. By
the second hearing held in June, the list of proposals had
grown to 187 items, many of which are in the House passed bill,
H.R. 3505.
This was a huge undertaking, and I appreciate the hard work
and cooperation of so many involved, especially the OTS
Director Reich, for his perseverance in leading this effort.
To ensure transparency in the process, the matrix of 187
items was then circulated among regulators, trade associations,
and consumer groups, and all the various viewpoints have been
recorded. We have hard witnesses' testimony in two previous
hearings, and numerous meetings have been held with all
interested parties throughout the process. Witnesses have
thoroughly detailed the ever-increasing number of requirements
and outdated restrictions placed on our financial institutions.
Each requirement, restriction, report, and examination imposed,
may individually have been justified when adopted, but as time
passes and markets and consumer demand changes, the necessity
for imposing some of these requirements and restrictions become
outdated or subsides.
I think that all of us want to try to turn this around, and
I know that the witnesses we are going to hear from today will
help us identify where we can trim the regulatory fat without
adversely impacting regulatory oversight.
I look forward to working with all of my colleagues as we
quickly move to a markup after this hearing, and I would
encourage them to identify which proposals they support or
oppose. Some Members have expressed interest in proposals that
have both defenders and detractors here today, and which we
will hopefully have an opportunity to explore with our
witnesses.
With that, let me go to the panel. As you can see from the
panel, we have a large panel, and we also have a second panel
following which is even larger, so we have our work cut out for
us here today. I would encourage everybody to remember the
instructions that you have received, and that is, we have asked
you to keep your presentation to 5 minutes. There is a clock in
front of you. It does not have a bell or anything, so you are
going to have to try to be sure to pay attention to it. If I
understand how this thing works, the sum-up button will come on
at one minute. So when you see the light go from green to
yellow that means you have one minute to start summing up. When
it hits red, which is stop, we ask you to finish your thoughts.
You will have an opportunity during questions and answers to
get further into your testimony, and your written testimony
will be presented and made part of the record, which all of us
will review very carefully.
Now let me go to our panel and introduce them. John Reich,
who is the Director of the Office of Thrift Supervision is our
first panelist, followed by Gavin Gee, Director of Finance of
the Idaho Department of Finance; Donald Kohn, who is a Member
of the Board of Governors of the Federal Reserve System;
Douglas Jones, Acting General Counsel for the FDIC; Julie
Williams who is the First Senior Deputy Comptroller and Chief
Counsel for the Office of the Comptroller of the Currency;
JoAnn Johnson, Chairman of the Board of Directors of the
National Credit Union Administration; and Linda Jekel, Chair
and Director of Credit Unions for the National Association of
State Credit Union Supervisors.
Ladies and gentlemen, we will go through the panel in that
order, and I do not know if I said this already, but if you do
start forgetting the clock, I will just lightly tap this. So
that means look at clock if you hear that sound.
[Laughter.]
Director Reich.
STATEMENT OF JOHN M. REICH
DIRECTOR, OFFICE OF THRIFT SUPERVISION
Mr. Reich. Thank you very much, Senator Crapo. I appreciate
the opportunity to be here, and I deeply appreciate your
leadership on regulatory burden relief in the Senate, and your
willingness to push this along.
As the nominal leader of the Interagency EGRPRA Project, I
am gratified that all of the agencies that are represented at
this table are supporting numerous regulatory relief provisions
for the institutions that they supervise, as well as for the
industry as a whole.
My written statement highlights several important
provisions for saving associations on behalf of the Office of
Thrift Supervision, where I now sit, and I ask that you
consider these, but in my remarks today I am going to address
the larger picture, and the importance of moving forward on
regulatory relief legislation.
I think we all recognize the substantial additional burdens
that have been placed on the industry in recent years with
increased responsibilities under the Bank Secrecy and the USA
PATRIOT Act, as well new accounting adjustments and changes to
privacy laws, to name just a few.
As I have said in previous testimony before this Committee,
the Federal Bank and Thrift Regulatory agencies have
promulgated more than 850 regulations or amendments to existing
regulations since FIRREA was enacted in 1989. In light of this
formidable number, I strongly believe that it is incumbent upon
us to carry out the purpose of the EGRPRA legislation to
eliminate any regulatory requirements that are outdated, unduly
burdensome, and no longer necessary.
Accumulated regulatory burden is suffocating the industry,
despite the fact that the industry is doing and has done so
well in recent years with successively record profits. However,
to characterize the entire banking industry as enjoying record
profits, in my opinion, is misleading, in that not readily
known is the fact that only 7 percent of the industry accounts
for 87.6 percent of the industry earnings. That is 670 banks
with over a billion dollars in assets account for 87 percent of
industry earnings. The remaining 8,200 institutions represent
93 percent of the number of institutions, and they share in the
remaining 12.4 percent of industry profits.
Furthermore, there are 3,863 community banks under $100
million in assets. They represent almost 44 percent of the
industry in terms of total number. They account for less than
1\1/2\ percent of industry earnings.
Record profits in the industry is a label not shared by
smaller institutions. Community bank return on assets are
generally declining over the past 10 years. Their efficiency
ratios are relatively flat during the same period of time,
while large bank return on assets are generally increasing with
their efficiency ratios declining.
Make no mistake, regulatory burden impacts all
institutions, large and small. I believe it has a potentially
greater competitive impact, however, on smaller institutions.
There is considerable anecdotal evidence around the country
that regulatory burden has risen to the top of the list of
reasons why banks sell out. Investment bankers at recent M&A
conferences confirm this fact.
To those who say let market forces determine the future of
community banking, my response is that our industry is not a
free market. It is a highly regulated market, and this fact is
having a great influence on market behavior of bank managements
and shareholders of smaller community institutions. Regulatory
forces that unduly impact industry competitiveness are not good
for institutions of any size when they skew market forces, and
that is what we are faced with today.
It is my fear that smaller institutions will continue to
disappear from our landscape, and local communities and
consumers across the country will be the losers, for they will
continue to lose their local independent banks with their local
directors, who are business owners with vested interests in
their banks and in their local communities.
The loss of these human resources not only impacts local
banking relationships with small businesses and individuals,
but it also reduces human resources available for leadership of
community service organizations on which senior bank officers
and directors frequently serve. There is definitely an
unquantified social cost to industry consolidation that is
attributable to the weight of accumulated regulatory burden. A
growing problem in communities across the country with
implications that I fear are largely ignored by many
policymakers.
Ten years ago, Congress passed the EGRPRA statute, the
Economic Growth and Regulatory Paperwork Reduction Act, which
required all Federal regulators to review all of our
regulations in an effort to reduce the regulatory burden on the
industry. We have taken this mandate seriously, and are
approaching the conclusion of this effort in the next few
months.
Over the past 3 years, the regulatory agencies have
published more than 125 regulations for comment, received more
than 1,000 comment letters with suggestions for change, and
held 16 banker and consumer group outreach sessions around the
country. Pursuant to Senator Sarbanes' suggestion the last time
I appeared before this Committee, we made a concerted effort to
engage community and consumer groups in the process. Based on
the suggestions received, we have made the changes that we
could to our own regulations, policies, and procedures to
reduce regulatory burden, and testified on a number of
occasions on things that can only be changed by legislation.
I believe we have a limited window of opportunity this year
to make the most significant progress ever made with regulatory
relief legislation. I am committed, as is OTS, to reducing
regulatory burden wherever we have the ability to do so,
consistent with safety and soundness and in compliance with
law, and without undue impact on existing consumer protections.
We strongly support proposed legislation that advances this
objective.
I want to thank you again, Senator Crapo, for your
leadership on this effort, and I look forward to continuing to
work with you.
Senator Crapo. Thank you very much, Director Reich.
Mr. Gee.
STATEMENT OF GAVIN GEE
DIRECTOR OF FINANCE, IDAHO DEPARTMENT OF FINANCE
ON BEHALF OF THE
CONFERENCE OF STATE BANK SUPERVISORS
Mr. Gee. Good morning, Senator Crapo, and thank you for the
opportunity to be here today. I am Gavin Gee, Director of the
Idaho Department of Finance. I am pleased to be here today as
past Chairman of the Conference of State Bank Supervisors, or
CSBS. Thank you for inviting us to discuss strategies for
reducing unnecessary regulatory burden on our Nation's
financial institutions.
CSBS is the professional association of State officials who
charter, regulate, and supervise the Nation's approximately
6,240 State-chartered commercial banks and savings
institutions, and nearly 400 State-licensed foreign banking
offices nationwide.
My colleagues and I are the chartering authorities and
primary regulators of the vast majority of our Nation's
community banks. Senator Crapo, we applaud your longstanding
commitment to ensuring that regulation serves the public
interest without imposing unnecessary regulatory burdens on
financial institutions.
At the State level, we are constantly balancing the need
for oversight and consumer protections with the need to
encourage competition and entrepreneurship. We believe that a
diverse, healthy financial services system serves the best
public interest.
A bank's most important tool against regulatory burden is
its ability to make meaningful choices about its regulatory and
operating structures. A bank's ability to choose its charter
encourages regulators to operate more efficiently and
effectively, and in a more measured fashion. A healthy State
banking system curbs potential Federal excesses and promotes a
wide diversity of financial institutions.
While our current regulatory structure and statutory
framework recognize some differences between financial
institutions, too often it demands a one-size-fits-all
approach. Overarching Federal requirements are often unduly
burdensome on smaller or community-based banks. We suggest that
Congress and the regulatory agencies seek creative ways to
tailor regulatory requirements for institutions that focus not
only on size, but also on a wider range of factors that affect
consumer needs and business practices. As the chartering
agencies for the vast majority of community banks, CSBS
believes that a State bank regulator should have a vote on the
Federal Financial Institutions Examination Council, or the
FFIEC. The FFIEC's State Liaison Committee includes State bank,
credit union, and savings bank regulators.
The chairman of this committee has input at FFIEC meetings,
but is not able to vote on policy or examination procedures
that affect the institutions we charter and supervise. Because
improving coordination and communication among regulators is
one of the most important regulatory burden initiatives, we ask
that Congress change the State position in FFIEC from one of
observer to that of full voting member.
The Conference of State Bank Supervisors also endorses
approaches such as in Senate Bill 1568, Communities First Act,
that recognize and encourage the benefits of diversity within
our banking system. The CFA includes several of the changes
CSBS recommends to help reduce regulatory burden without undue
risk to safety and soundness.
The first of these is extending the examination cycle for
well-managed banks with less than $1 billion in assets from 12
months to 18 months, as proposed in Section 107 of the CFA.
Advances in off-site monitoring, combined with the help of the
banking industry, make annual on-site examinations unnecessary
for the vast majority of health financial institutions.
Changing the safety and soundness examination cycle for these
banks would have no effect on the cycles for the Community
Reinvestment Act and compliance examinations, which are
scheduled separately.
We also see the benefits of Section 203, which would exempt
certain banks from provision of the Gramm-Leach-Bliley Act that
require banks to send annual privacy notices to all their
customers, the very point that you made about Idaho banks,
Senator, a very important regulatory burden relief issue.
In addition, we support CFA's provisions in Sections 102
and 204, to allow well-capitalized and well-rated banks with
assets of $1 billion or less to file a short-form call report
every other quarter. In addition to these provisions, my
colleagues and I ask that Congress grant the Federal Reserve
the necessary flexibility to allow State-chartered banks to
take advantage of State-authorized powers, codify the home
State, host State principles and protocols for the supervision
of multi-State, State-chartered institutions, allow for pass-
through tax treatment for State-chartered banks that organize,
as limited liability corporations, allow all banks to cross
State lines by opening new branches, and review the growing
disparity in the application of State laws to State and
nationally chartered banks and their subsidiaries.
Senator Crapo, the regulatory environment for our Nation's
banks has improved significantly over the past 10 years, in
large part because of your diligence and other Members of this
Committee and other Members of Congress. As you consider
additional measures to reduce burden on our financial
institutions, we urge you to remember that the strength of our
banking system is its diversity. This diversity is the product
of a consciously developed State-Federal system. Any initiative
to relieve regulatory burden must recognize this system's
values.
Again, we commend you, Senator Crapo, and the Members of
the Committee for their efforts in this area. Thank you again
for the opportunity to testify before you, and I look forward
to answering any questions that you might have.
Senator Crapo. Thank you very much, Gavin.
Governor Kohn.
STATEMENT OF DONALD L. KOHN, MEMBER,
BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM
Mr. Kohn. Thank you, Senator Crapo, for the opportunity to
discuss regulatory relief. As you noted so nicely, unnecessary
regulatory burdens hinder the ability of banks to meet the
needs of their customers, operate profitably, innovate, and
compete. That is why the Board periodically reviews its own
regulations and why it is so important for Congress to
periodically review the Federal banking laws to determine
whether there are any provisions that may be streamlined or
eliminated without compromising the safety and soundness of
banking organizations, consumer protections, or other important
objectives that Congress has established for the financial
system.
The Board, working with the other banking agencies, has
been and will continue to be a strong and active supporter of
Congress' regulatory relief efforts. In that process, the Board
has reviewed numerous proposals that may affect the Federal
Reserve or the organizations we supervise. We now support more
than 35 proposals that we believe would meaningfully reduce
regulatory burden, improve the supervision of banking
organizations, or otherwise enhance banking laws. A complete
listing of the proposals supported by the Board is included in
the appendix to my testimony. We believe these proposals
provide an excellent starting point for regulatory relief
legislation. The Board's three highest regulatory relief
priorities have remained constant over time. These items would
allow the Federal Reserve to pay interest on balances held at
Reserve Banks, provide the Board greater flexibility in setting
Reserve requirements, and permit depository institutions to pay
interest on demand deposits. Together these changes would allow
for a substantial reduction in regulatory burdens on banks and
small businesses and an increase in the efficiency of our
financial system.
My written testimony highlights some of the other
legislative proposals we believe would provide meaningful
relief to banking organizations, as well as some steps that the
Board has taken on its own to reduce regulatory burden for
community banks. Two of the more important amendments would:
Remove outdated barriers to interstate branching by banks; and
raise to $500 million the asset level at which an insured
depository institution may qualify for an extended 18-month
examination cycle.
Interstate branching is good for consumers and the economy,
as well as banks. The creation of new branches results in
better banking services for households and small businesses,
lower interest rates on loans, and higher interest rates on
deposits. The Board's proposed exam cycle amendment is
unanimously supported by the Federal banking agencies. It would
provide regulatory relief to small, financially strong
institutions without compromising safety and soundness.
Although the Board supports allowing depository
institutions to pay interest on demand deposits and freeing
banks to open interstate branches, the Board opposes amendments
that would grant these new powers to industrial loan companies
that operate outside the prudential and legislative framework
applicable to other insured banks.
Our position on these matters is longstanding and based on
the broad policy issues presented by the special exemption for
ILC's. This special exemption allows any type of company to
acquire an FDIC-insured bank and avoid the activity
restrictions that Congress has established to keep banking and
commerce separate. The exemption also allows a company or
foreign bank to acquire an insured bank and avoid the
consolidated, supervisory framework that applies to the
corporate owners of other insured banks. Consolidated
supervision provides a supervisor the tools needed to
understand, monitor, and when appropriate, restrain the risks
associated with an organization's group-wide activities.
ILC's have expanded rapidly in recent years outside the
prudential framework established by Congress, and beyond the
intent of the original exemption. We believe that the important
principles governing the Nation's banking system should be
decided by Congress after full debate and consideration, and
not in the context of proposals that would provide needed
regulatory relief to many institutions, but would also expand
the special status of only one type of institution chartered in
a handful of States. Once determined, Congress' judgment on
these matters should apply to all banking organizations in a
competitively equitable manner.
Thank you for this opportunity. We look forward to working
with the Committee in developing regulatory relief legislation
that is consistent with the Nation's public policy objectives.
Senator Crapo. Thank you, Governor Kohn.
Mr. Jones.
STATEMENT OF DOUGLAS H. JONES
ACTING GENERAL COUNSEL,
FEDERAL DEPOSIT INSURANCE CORPORATION
Mr. Jones. Thank you, Senator Crapo and Senator Hagel. I
appreciate the opportunity to present the views of the FDIC on
regulatory burden relief for the financial industry. The FDIC
shares the Committee's continuing commitment to eliminate
unnecessary burden, and to streamline and modernize laws and
regulations as the financial industry evolves.
We would like to thank you, Senator Crapo, and your staff,
as well as the Committee staff who have worked with us to
review the proposals. In addition, the inclusion of consumer
groups in reviewing and commenting on many burden relief
proposals has provided a wider range of perspectives and
beneficial analysis.
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 Economic Growth and Regulatory Paperwork
Reduction Act of 1996, EGRPRA. The agencies have identified
numerous proposals to reduce regulatory burden, and the FDIC
continues to work with the other agencies in an effort to
achieve further consensus and, as required by law, we will
submit a final report to Congress with legislative
recommendations later this year.
The FDIC and the other regulatory agencies are committed to
improving the quality and efficiency of financial institution
regulation and to reducing administratively unnecessary
regulatory burden where it is identified and where changes to
current practices do not diminish public protections. We also
are examining and revising our regulations, procedures, and
industry guidance to improve how we relate to the industry and
its customers. My written statement briefly describes a few
examples of recent FDIC and interagency initiatives which are
expected to relieve regulatory burden, clarify regulatory
requirements, or assist financial institutions to improve their
operations.
As a result of the interagency EGRPRA effort led by former
FDIC Vice Chairman John Reich, now Director of the OTS, a
consensus among the banking agencies has been reached on 12
regulatory burden relief proposals. One of these items, reform
of the Flood Insurance Program, has been overtaken by the
devastation and aftermath of Hurricane Katrina. So clearly, the
need for comprehensive flood insurance reform is apparent and
is being addressed through separate legislative efforts. We
withdraw our earlier proposal regarding flood insurance and
stand ready to assist the Committee in their review of the
program. Thus, as detailed in my written testimony, the FDIC is
pleased to join with the other banking agencies to support 11
specific proposals.
In addition, the FDIC respectfully recommends the
consideration of a number of additional regulatory relief items
that would help improve our supervisory efforts. These items
also are detailed in my written statement.
In conclusion, thank you for the opportunity to present the
FDIC's views on these issues. The FDIC supports the Committee's
continued efforts to reduce unnecessary burden on insured
depository institutions without compromising safety and
soundness or consumer protection. I will be happy to answer
your questions on these matters.
Senator Crapo. Thank you very much, Mr. Jones.
Ms. Williams.
STATEMENT OF JULIE L. WILLIAMS
FIRST SENIOR DEPUTY COMPTROLLER AND CHIEF COUNSEL,
OFFICE OF THE COMPTROLLER OF THE CURRENCY
Ms. Williams. Mr. Chairman, Senator Hagel, on behalf of the
OCC, I appreciate the opportunity to be here this morning to
discuss unnecessary regulatory burden and its debilitating
impact on our Nation's banking institutions. I also want to
express particular appreciation to you, personally, Senator
Crapo, for your commitment and your dedication to tackling this
very real problem.
Senator Crapo. Thank you.
Ms. Williams. Unnecessary burden exacts a heavy price on
banks, bank customers, and our economy. For our Nation's
community banks, unnecessary burden can actually imperil their
competitive viability.
My written testimony covers in detail some of the
initiatives being pursued by the Federal banking agencies to
identify and reduce burden on our Nation's banks. One major
initiative is the EGRPRA process that is being so ably led by
OTS Director John Reich. This 3-year effort is drawing to a
close and will result in a report to Congress later this year.
My written testimony also recognizes that, in certain
areas, burden relief cannot be achieved through the regulatory
process alone, but requires action by Congress. And my
testimony discusses in detail several of the OCC's priority
legislative items.
This morning, I would like to briefly highlight just three
areas. First, we all need to look for ways to reduce the cost
and improve the effectiveness of consumer disclosure
requirements. Today, our system imposes massive disclosure
requirements and costs on our Nation's financial institutions,
but little is known about whether these are necessary costs
that yield commensurate benefits for consumers.
We believe that it is possible to provide the information
that consumers need and want in a concise, streamlined, and
understandable form, but that requires us to change how we go
about establishing those disclosure requirements. The Federal
banking agencies have undertaken an important initiative by
employing consumer testing as an integral part of an
interagency project to simplify the Gramm-Leach-Bliley Act
privacy notices. Through consumer focus groups and testing,
consumers have been asked about what they most want to know
about the treatment of their personal information, and what
style of disclosure is most effective in communicating useful
information to them. This project has the potential to be a
win-win for consumers and financial institutions, and also to
lay a foundation for other similar initiatives in other areas.
Second, it is important to seek out ways to ease burden on
our community banks. Our proposed legislative amendments
include two provisions that I would like to note briefly here.
Both of these amendments may enhance the ability of community
national banks to take advantage of pass-through tax treatment
and eliminate double taxation--that is, where the same earnings
are taxed both at the corporate level as corporate income, and
at the shareholder level as dividends.
One amendment would expand the availability of Subchapter S
treatment for national banks by allowing directors of national
banks to purchase subordinated debt instead of capital stock to
satisfy the directors' qualifying shares requirements in
national banking law. This may allow more national banks to
meet the Subchapter S shareholder limits.
Another amendment would clarify the OCC's authority to
permit a national bank to organize in an alternative business
form, such as a limited liability company, which may be
eligible for pass-through tax treatment.
A third item that has the potential to provide relief for a
meaningful number of national banks is an increase in the asset
threshold from $250 million to $1 billion to permit more
national banks to qualify to be examined on an 18-month rather
than an annual exam cycle. Under current law, banks that have
$250 million or less in total assets and that satisfy other
strict standards, such as being well-capitalized, well-managed,
and having high supervisory ratings, may be examined on an 18-
month cycle rather than on a 12-month cycle. Increasing the
asset threshold to $1 billion, but not changing any of the
other qualifying criteria, would ease the examination burden
and associated examination costs for approximately 340
community national banks.
While we believe that increasing the threshold to $1
billion provides relief without endangering safety and
soundness, we note that an increase to $500 million, which has
also been suggested for the Committee's consideration, would
still be an important and valuable step.
In conclusion, Mr. Chairman, Senator Hagel, we very much
appreciate the opportunity to work with you, other Members of
the Committee, and staff, on the important initiatives under
consideration to reduce unnecessary regulatory burden. I would
be happy to try to answer any questions you may have.
Thank you.
Senator Crapo. Thank you very much, Ms. Williams.
Ms. Johnson.
STATEMENT OF JoANN M. JOHNSON
CHAIRMAN, NATIONAL CREDIT UNION ADMINISTRATION
Ms. Johnson. Senator Crapo, Senator Hagel, on behalf of the
National Credit Union Administration, I am pleased to be here
today to present our views on regulatory reform initiatives.
The reform proposals being considered by Congress will benefit
consumers and the economy by enabling financial institutions
and their regulators to better perform the role and functions
required of them.
In my oral statement I will briefly address some of the
proposals that are of greatest importance to NCUA.
Prompt corrective action capital requirements for credit
unions, enacted in 1998, as part of the Credit Union Membership
Access Act, are an important tool for both NCUA and credit
unions in managing the safety and soundness of the credit union
system and protecting the interests of the National Credit
Union Share Insurance Fund.
Our 7 years of experience with the current system, however,
have shown there are significant flaws and need for
improvement. PCA, in its current form, establishes a one-size-
fits-all approach for credit unions that relies primarily on a
high-leverage requirement. This system penalizes low-risk
credit unions and makes it difficult to use PCA, as intended,
as an incentive for credit unions to manage risk in their
balance sheets.
NCUA has developed a comprehensive proposal for PCA reform
that addresses these concerns. Our proposal establishes a more
reasonable leverage requirement to work in tandem with more
effective risk-based requirements. Our proposal accounts for
the 1 percent method of capitalizing the Share Insurance Fund
and its effect on the overall capital in the insurance fund and
the credit union system.
The result is a leverage requirement for credit unions that
averages 5.7 percent under our proposal, as compared to 5
percent in the banking system. As you know, we have submitted
our proposal for Congress' consideration, and it has been
included in the new CURIA proposed legislation in the House of
Representatives. I urge the Senate to include our proposal in
any financial reform legislation that is considered and acted
upon this year.
As I have previously testified, an important technical
amendment is needed to the statutory definition of net worth
for credit unions. FASB has indicated it supports a legislative
solution, and that such a solution will not impact their
standard-setting activities. Last year, the House unanimously
passed a legislative solution to this problem, H.R. 1042, and I
urge the Senate to give it prompt consideration.
Federal credit unions are authorized to provide check
cashing and money transfer services to members. To enable
credit unions to better reach the unbanked, they should be
authorized to provide these services to anyone eligible to
become a member. This is particularly important to furthering
efforts to serve those of limited means who are often forced to
pay excessive fees.
The current statutory limitation on member business lending
by federally insured credit unions is 12.25 percent of assets
for most credit unions, which is arbitrary and constraining.
Credit unions have an historic and effective record of meeting
the small business loan needs of their members, and this is of
great importance to many credit unions that are serving
consumers, including those in underserved and low-income
communities.
NCUA's strict regulation of member business lending ensures
that it is carried out in a safe and sound basis. NCUA strongly
supports proposals to increase the member business loan limit
to 20 percent of assets, and raise the threshold for covered
loans to a level set by the NCUA Board, not to exceed $100,000.
NCUA continues to support other provisions in the
previously considered regulatory relief bills, such as improved
voluntary merger authority, relief from SEC registration
requirements for the limited securities activities in which
credit unions are involved, lifting certain loan restrictions
regarding maturity limits, and increasing investments in
CUSO's.
Also we have reviewed the other credit union provisions
included in the previously mentioned bills and in Senator
Crapo's matrix, and NCUA has no safety and soundness concerns
with these provisions.
Thank you, Mr. Chairman, for the opportunity to appear
before you today on behalf of NCUA to discuss the public
benefits of regulatory efficiency for NCUA, credit unions, and
84 million credit union members. I am pleased to respond to any
questions the Committee may have, or to be a source of any
additional information you may require.
Thank you.
Senator Crapo. Thank you very much, Ms. Johnson.
Ms. Jekel.
STATEMENT OF LINDA JEKEL
DIRECTOR OF CREDIT UNIONS,
WASHINGTON DEPARTMENT OF FINANCIAL INSTITUTIONS,
DIVISION OF CREDIT UNIONS AND CHAIRMAN,
NATIONAL ASSOCIATION OF
STATE CREDIT UNION SUPERVISORS
Ms. Jekel. Good morning, Senator Crapo and Senator Hagel. I
am Linda Jekel, Director of the Credit Unions for the State of
Washington Department of Financial Institutions. I appear today
as the Chair of the National Association of State Credit Union
Supervisors, NASCUS.
NASCUS' priorities for regulatory relief focus on the
reforms that will strengthen and further enhance the safety and
soundness of our State credit union supervision.
State-chartered credit unions need capital reform. To
begin, credit unions need an amendment to the definition of net
worth, in the Federal Credit Union Act. Currently, net worth
for credit unions is limited to retained earnings.
Additionally, a change would address amendments to FASB
Standards 141, that require the acquisition method for business
combinations, and eliminates the pooling method. The FASB
method creates a potential dilution of statutory net worth, and
is an impediment to credit union mergers. Mergers are a safety
and soundness tool used by both Federal and State regulators.
The House passed H.R. 1042, legislation amending the
definition of ``net worth,'' to include the retained earnings
of a merging credit union with that of the surviving credit
union. We understand that H.R. 1042 has been forwarded to this
Committee for review. We ask for your support and passage of
this bill.
NASCUS supports risk-based capital. It is a system that
provides increased capital levels for financial institutions
with complex balance sheets, while reducing the burden for
institutions with less complex assets. We further believe that
credit unions should have access to alternative capital. NASCUS
created a white paper demonstrating that alternative capital
debt and equity models are viable methods for credit unions to
safely build net worth. The white paper is attached to our
NASCUS testimony.
From a regulatory perspective, it makes economic sense for
credit unions to access other forms of capital to improve
safety and soundness. We request your support for capital
reform.
NASCUS believe that the Federal Credit Union Act should be
amended to require that one National Credit Union
Administration, NCUA, Board member have State credit union
regulatory experience. We believe that this will result in a
stronger and safer credit union system. About 40 percent of
credit unions are State chartered. The majority have Federal
insurance provided by the National Credit Union Share Insurance
Fund, managed by the NCUA.
NASCUS believes experience regulating State-chartered
credit unions would provide a balanced regulatory perspective.
This is not a new idea. A similar provision requiring State
bank supervisor experience is included in the Federal Deposit
Insurance Act. We ask for your support to make that change to
the structure of the NCUA Board.
Federally insured credit unions have access to Federal Home
Loan Banks, while privately insured credit unions do not.
Membership in the system should not be predicated on an
institutions type of insurance. Permitting non-federally
insured institutions to join the Federal Home Loan Bank System
would not establish a new precedent.
Finally, we would like to highlight the ongoing debate
about State and Federal powers. I can imagine our Founding
Fathers debating how to protect the powers of State. The
question confronting our Founding Fathers back then was how to
limit the central government's power so it did not take away
the people's rights.
Today, preventing Federal preemption of State laws and
regulation continue to be a priority for State legislatures and
State regulators. NASCUS believes States are in the best
position to decide the laws and regulations for the consumers
in their States. Each time a Federal agency acts to preempt
State law, it is a chink in the armor of State protections that
our Founding Fathers sought to preserve. This threatens the
dual-chartering system.
There have been preemption conflicts in the past among
Federal regulators, State regulators, some legislators.
Congress should resolve conflicts rather than delegate these
fundamental issues to the Federal regulators to determine. One
preemption issue confronting the credit union system is credit
union conversions to mutual savings banks. NASCUS believes
State law should dictate the conversion process for State-
chartered credit unions. Chartering a State credit union is an
issue determined by State law. Approval authority for
conversion is determined likewise by State law. A conversion is
a function of a credit union's original charter, separate from
insurance oversight. NASCUS asks for this Committee's support
in placing the responsibility of conversion rules within
chartering authority.
In conclusion, NASCUS appreciates the opportunity to
testify here today. We present additional provision in the
regulatory relief matrix and in our written testimony that
protect and enhance the viability of the credit union dual-
chartering system. We welcome questions from the Committee
Members.
Thank you.
Senator Crapo. Thank you very much, Ms. Jekel.
We have been joined by Senator Hagel and Senator Carper,
and before we go to questions, I would like to ask if either of
the two of you have an opening statement you would like to
make.
Senator Hagel.
STATEMENT OF SENATOR CHUCK HAGEL
Senator Hagel. Mr. Chairman, thank you. I do have an
opening statement. I would ask that it be included in the
record. Thank you very much.
Senator Crapo. Without objection.
Senator Carper.
STATEMENT OF SENATOR THOMAS R. CARPER
Senator Carper. I also have an opening statement, and
rather than enter it in the record, I will just say it briefly.
Thank you all for coming today and for sharing your
perspectives with us, and for the second panel as well.
I want to say to our Chairman, to Senator Crapo----
Senator Crapo. I am sorry. I was talking.
Senator Carper. I know. I want to thank you for bringing us
together and I know investing a couple of years of your life
and your staff 's life in trying to identify the regulations.
Obviously, we have a heavily regulated financial services
industry, and we ought to, and we also know that it is
appropriate from time to time for us to come back and revisit
those regulations and see which ones make sense, which are
duplicative, and which, frankly, do not add much to safety and
soundness, or to the interest of consumers.
So with that in mind, welcome. We have, I think, 187 or so
ideas that have stepped forward, and looking at the size of
this room and the number of people here, I would say there are
about 187 people in the room, just a coincidence.
Senator Crapo. Each with a new idea too probably.
[Laughter.]
Senator Carper. Thank you, Mr. Chairman, and to all of our
witnesses.
Senator Crapo. Thank you very much, Senator Carper.
I will start out the questioning. There are literally 187
plus questions I could probably ask, and do not worry, I will
not go into all of those because we do have another big panel
we need to get to.
But one of the big issues that we have dealt with, and
which a number of you raised in your testimony--by the way, let
me stop and say I have reviewed the testimony of each of you,
the written testimony, and I just want to congratulate each of
you, that in addition to putting forward very well-prepared
oral statements, the written testimony that has been provided
by each of you is outstanding, and has an incredible amount of
additional insights, support, and information that you were not
able to go into in your presentations, but which will be of
great help to us. So, thank you very much for the work that has
gone into preparation for your testimony here at this hearing.
One of the issues that a number of you raised, and which is
important to me, is the filing of currency transaction reports
as the top--in fact, that has been identified by a number of
financial institutions as the top regulatory expense issue that
they face. U.S. Treasury regulations implemented in 1994 allow
certain exemptions for certain types of customers of currency
transactions, and I understand it, these exemptions allow banks
to exempt correspondent banks, Government agencies or
departments, public or listed companies and their subsidiaries,
and smaller businesses that meet specific criteria under
FinCEN's regulation.
And perhaps there need to be more exemptions or
clarifications here, but the question I have is, is there a
reason why these exemptions are not widely used by the banks,
and can these exemptions be better adjusted to enable banks to
economically take advantage of them? I toss this out to anybody
on the panel who is interested. Any takers?
Director Reich.
Mr. Reich. I will try to address the issue. I think that
many bankers feel that the exemption process is not effective,
it is labor intensive, it is cumbersome, and it is subject to
second guessing by bank examination personnel. Some people have
been burned by requesting exemptions, and later were admonished
for doing so. I think the exemption process can be improved.
Perhaps there is room for considering it in connection with the
seasoned customer rule that has been proposed, that is, finding
a process that is not so burdensome as the exemption process
currently is. But bankers do not feel that the exemption
process is effective.
Senator Crapo. Do they just feel the risk is too high?
Mr. Reich. I think that is part of it, yes.
Senator Crapo. Ms. Williams.
Ms. Williams. I guess I would just add complexity in the
exemptions, in some cases the need to reprogram software
systems in order to comply with the scope of the exemptions,
and a recertification-type process that needs to occur on a
periodic basis.
Senator Crapo. Anybody else want to jump in on this one?
Let me expand my question just a little bit, and Director Reich
addressed it a little, but what are your thoughts, if any,
about the proposed seasoned customer rule?
Mr. Reich. I am supportive of the seasoned customer rule so
long as FinCEN is supportive of it. It is my understanding that
they are. And we would be supportive of any proposal that would
improve the currency transaction reporting process that FinCEN
and law enforcement would support.
Mr. Kohn. The Federal Reserve Board agrees with the
sentiments of Director Reich. We are supportive of a process in
which FinCEN and law enforcement come to an agreement that both
relieves regulatory pressure on the banks and serves the needs
of law enforcement. We think it is important that this process
work through so that law enforcement is comfortable with the
results.
Senator Crapo. Anybody else want to jump in there?
Ms. Williams.
Ms. Williams. I would just echo what Governor Kohn has
said. It is very important that the law enforcement community
have a seat at the table in resolving how we approach this
issue.
Senator Crapo. All right, thank you.
Mr. Gee.
Mr. Gee. Senator Crapo, I would just weigh in that the
State Bank Supervisors also support that exemption. I think one
of the important things for any of these exemptions is that we
provide certainty. One of the big problems in this whole area
is when we create uncertainty, particularly for the smaller
institutions, that in and of itself is a huge regulatory
burden, and if the examiners play ``gotcha'' or write them up
for violations----
Senator Crapo. And the penalty for guessing wrong or making
the wrong decision is too high to risk.
Mr. Gee. Exactly. But we would support that effort.
Senator Crapo. I assume your comments, Mr. Gee, would apply
not just to the seasoned customer rule, but also to the
exemption issue, and in fact, that is probably more directly
what you are discussing?
Mr. Gee. Yes, that is true, Mr. Chairman.
Senator Crapo. Let me go on. Governor Kohn, I have one
question that is probably more specific to you, and so let me
get that one out of the way here before I turn the microphone
over to Senator Carper.
One of the matrix items, actually Item No. 105.1--sounds
pretty regulatory.
[Laughter.]
That matrix item increases the existing HMDA recordkeeping
and reporting exemption to $250 million in assets. While I
understand that this proposal is controversial, and there is
actually opposition to the proposed threshold of $250 million,
the footnotes in our matrix indicate that there is also support
for a lower increase in the exemption level. Since the Federal
Reserve collects the HMDA data and supports an increase in the
threshold, I was just going to give you a chance, if you would,
to discuss with us what threshold does the Federal Reserve
believe we really should adopt here?
Mr. Kohn. The Federal Reserve does not have a view as to
exactly what the right threshold is to relieve this burden.
Another portion of the matrix talks about relieving reporting
requirements for those institutions that make fewer than 100
mortgage loans. We agree that there is some relief that is
possible here. The HMDA data are very useful for tracking
developments in mortgage markets, for comparing one lender to
its competitors in the same market, for looking at disparities
in treatment among race, ethnicity, gender, by loan, by
institution, by geographic area that might be a flag for
further investigation. We would be very concerned about doing
something that would undermine the usefulness of the HMDA data
in this regard.
Our preference would be for the Congress to instruct the
Federal Reserve to go through a rulemaking process so that we
could weigh the issues, go out for public comment, find out
what the pros and cons are of either raising the exemption
amount from the current $34 million and/or exempting a minimum
number of loans that institutions making those loans would not
have to report. We do not know right now what the right balance
is, but we agree that the balance is not correct at this point.
We just do not know quite where to go.
Senator Crapo. All right, thank you.
Would any of the other regulators like to comment on this
issue? You do not have to, but if you want to, now is your
chance?
Mr. Reich. I have spoken in the past of recommending an
increase in the minimum from $35 million, where it is today, to
banks over $100 million in assets.
Senator Crapo. Okay. I have gone well over my time for our
first run at this.
Senator Carper, would you like to ask questions?
Senator Carper. Yes, I would. Thank you, Mr. Chairman.
The first question I am going to ask, I am going to
telegraph my pitch, and I am going to tell you what my second
question is, because it is going to be for you, and you can be
thinking about it while I ask my first question. But I want to
ask you to, in my second question, I am going to ask you just
to elaborate, if you will, on some of the steps that have been
taken recently to encourage credit card issuers to increase the
minimum payments on the credit cards. If you would be thinking
about that, I would appreciate it.
This could be really for any witness. Director Reich, you
may have heard something about this before. Some of you may
have, some of you may not, but I would be interested in your
thoughts. I recently learned about something that is called, I
think it is called a pretrial diversion for people who write
board checks, and this is not people who bounce checks, but
people who write bad checks, and when notified by the merchant
to whom they have written the bounced check, they simply refuse
to make good on the check, and they have a history of doing
this thing.
As I understand it, a for-profit group works with district
attorneys from around the country in order to collect on bad
checks that have been written to merchants when those checks
exceed a certain dollar amount. The group provides a class, I
think it is about $100 per person, to people who have written
bad checks, to teach them about financial and personal
responsibility. I think I spoke with Senator Crapo about this a
couple of weeks ago, and I do not know if it among the 187
ideas that are before the Committee, that will be before the
Committee, but if any of you have heard about this idea, have
any thoughts on it.
I think in order to do anything, provide for--waited to
address this issue across the board rather than on a piecemeal
basis, State-by-State, community-by-community, there may be a
need to go in to take a look at the Fair Debt Collection
Practices Act.
So if anybody has a thought on this, I would welcome your
thoughts. If you do not, I will go to my second question for
Ms. Williams. Anybody at all?
[No response.]
All right. Ms. Williams.
Ms. Williams. Senator, thank you for the heads-up.
Senator Carper. Sure.
Ms. Williams. As you know, the issue of minimum payments on
credit cards is one that all of the banking agencies, not just
the OCC, have been looking at for several years, and one which
led to the interagency account management guidance that was
issued several years ago. It dealt with a package of issues
ranging from minimum payment requirements on cards to work-out
programs and how losses needed to be written off or otherwise
dealt with.
In response to the guidance, we at the OCC found that a
number of our credit card issuing banks were in compliance with
many of the requirements very quickly, but were slow to move
ahead with implementation of the requirement to have a minimum
payment that, together with the payment of any fees and
charges, would have some element of reduction in the principal
so that the aggregate principal would be repaid within some
reasonable period of time. Over the course of the last 18
months, at least with the national banks that we supervise, we
have gotten banks on tracks to fully implement that account
management guidance. Some of it was done mid-year last year
while some of the adjustments were concluded at the end of this
past year. Because of some systems integration issues, there
are some adjustments that may have just been finished.
But the goal for us was to get all of the banks that we
supervise in full compliance with that credit card account
management guidance, including the minimum payment
requirements. What this does for consumers is to provide a
mechanism, in the aggregate minimum payment that the card
issuer requires, that will cause their principal balance to
amortize or pay down over some foreseeable period of time. It
is not necessarily quick, because we are not requiring a
gigantic minimum payment, but it does----
Senator Carper. What are we requiring?
Ms. Williams. It is 1 percent of the principal, plus fees
and charges.
Senator Carper. So far, how do you feel about how it is
going?
Ms. Williams. I think that it has been going fairly well.
What we found with different banks is that they have different
issues depending on the makeup of their credit card portfolios,
and some of them need to make more adjustments with their
customers. We also have said that banks certainly should work
with their customers if they need to reduce their fees or make
other adjustments in what they are charging in order to
implement this minimum payment requirement, and that they
should be flexible in working with customers to accomplish
that.
Senator Carper. Are you mindful of any institutions that
have done a particularly good job of reaching out to their
customers and trying to comply with this regulation in an
especially admirable way?
Ms. Williams. Well, I would not want to name names here,
but there are institutions that----
Senator Carper. Could you mention initials?
[Laughter.]
Ms. Williams. There are institutions that both did it
promptly, which is good, and those that used this as an
opportunity to provide better disclosure to their customers,
and that is good, and also institutions that used it as an
opportunity to actually change some of the terms in their
relationship with customers in a way that is more favorable to
customers, and that is good, as well.
Senator Carper. Good. Anybody else have a view on this
matter before I relinquish the microphone?
Ms. Johnson.
Ms. Johnson. Senator, the only thing that I would add is
that the credit unions, in their role of financial education,
have made a concerted effort to bring credit card usage and
management into part of their financial education program, and
our understanding the needs, in particular of young people, of
learning that management early on, and so it has become a part
of the financial education programs in many credit unions
across the country.
Senator Carper. Good, good. Thanks.
Thanks, Mr. Chairman.
Senator Crapo. Thank you, Senator.
I would like to ask a question that relates to the SEC
Regulation B. I suspect a few of you know a little bit about
that. As you know, in Section 201 and 202 of the Gramm-Leach-
Bliley Act, we amended the definition of ``broker'' and
``dealer'' under the Securities and Exchange Act of 1934. And
pursuant to these amendments, the SEC issued proposed
regulations that would force many traditional banking
activities out of the bank and into SEC, basically making them
registered brokers.
In March 2005, as I am sure you all know, 13 Senators from
this Committee, including myself and Senator Carper, and
frankly, Senator Enzi and Senator Hagel, who have been here
today, sent a letter to Chairman Donaldson objecting, and in
that letter restated that because we wanted to allow banks to
continue to perform certain traditional banking activities
involving the purchase and sale of securities, we replaced the
exclusion with a series of statutory exceptions to the
``broker'' and ``dealer'' definitions.
In doing so it was our intention, clearly expressed in the
legislative history of GLBA, that these bank products and
services continue to be available to bank customers, and that
banks continue to engage in these activities without having to
seek additional authorization from the Commission. Indeed, that
was the very purpose of adopting the statutory exceptions.
And I realize the SEC is not sitting at the table today but
we know that the SEC has not proceeded on the Regulation B, but
I guess the question I have is what is the status of this
proposal and what efforts have any of the financial regulators
made to work together to reach an accommodation on this issue?
Where are we?
Mr. Kohn. My understanding, Senator, is that there are
ongoing conversations between the financial regulators and the
SEC on this issue. As you know, the regulators shared the
Senator's concerns about how GLB was being implemented by the
SEC. There have been some changes at the SEC. Conversations are
taking place. I think from the Board's perspective, it would be
good to let this process work itself out, at least for now.
Ms. Williams. We agree completely with that.
Senator Crapo. Mr. Jones.
Mr. Jones. We do as well. We are hopeful that by working
together with SEC, we can come to a resolution that works for
everybody.
Senator Crapo. So we do not need legislation yet?
Mr. Kohn. That is correct.
Senator Crapo. All right. I appreciate that. And I just
have one more kind of general question that--I have a lot of
questions, but in the interest of time, I am not going to go
into them all. I just wanted to toss one question out that is a
softball, maybe that would let people say whatever else you
might not have gotten to say yet. Basically the context of this
question is that, as I said in my opening statement, for
smaller institutions, one out of every four dollars that they
spend in operating expenses goes into the cost of Government
regulation, and it is clear that we have a lot of unnecessary
and outdated provisions that need to be fixed.
I guess I am just going to toss it out there. Anybody have
something that you did not get to say that you really want to
toss in right now before we move on then and I go to Senator
Carper for his last round of questions?
Mr. Reich. I would like to take you up on your offer,
Senator, to say a few more words.
Senator Crapo. Sure.
Mr. Reich. When we kicked off this EGRPRA effort 3 years
ago, roughly, in June 2003, it was kicked off by regulators
actually talking about reducing regulatory burden. That was a
novel idea to the banking industry, that regulators might be
pushing this notion. We were pushing it, however, in response
to the Congressional Act which mandated that we review all
regulations.
Our effort initially was greeted by the industry, when we
began our outreach meetings, with a fair degree of skepticism,
cynicism, and certainly, apathy. But as time went by, and we
continued our outreach meetings, and I continued speaking about
how I felt that community banks were threatened because of
regulation, the industry began to get into the notion that
maybe this is a serious effort that will, in fact, result in a
serious product to reduce regulatory burden on the industry and
began to be more participative and hopeful, less skeptical and
more optimistic, and that maybe now something can in fact be
done.
I truly hope that this year something significant will be
done, because if it is not, it will only feed the skepticism
and cynicism that existed initially, and the next time that an
EGRPRA effort begins, presumably 7 years from now, bankers will
remember that we have been through this before, and there is no
point in it.
Senator Crapo. Good comments.
Ms. Jekel.
Ms. Jekel. Yes. I would like to just say that as regulatory
relief looks at small institutions, whether they are credit
unions or banks, the regulatory burden that they have can
create some problems for them and they may have to merge. For
example, in the State of Washington, 60 percent of my credit
unions are under $100 million. They have less than 50
employees. An extreme example is Latvian Credit Union, which
has one employee that still is in a house, in which the ethnic
community----
Senator Crapo. I have been in that kind of a credit union
before, so I know what you mean.
Ms. Jekel. So it is difficult. Oftentimes when credit
unions are getting ready to merge, we ask them for the reasons
why, and it is oftentimes the regulatory compliance burden.
Senator Crapo. All right. Thank you very much.
Mr. Gee.
Mr. Gee. If I could just add a footnote to that, Senator. I
really appreciate all that you are doing on this project and
have for so long. From my perspective, we come from a small
State, as you know, and all we have is smaller community
charters, and not only are we seeing consolidation among those,
but we also had a record of near record number of credit union
mergers, for example, last year.
What we are also seeing is that it is affecting start-ups,
that just the regulatory cost and the burden is affecting the
number of start-ups, at least in a small State like mine. We
have hardly any credit unions, even very few banks that are
willing to start up, and I think a large part because of the
regulatory burden. Certainly, the consolidation in the industry
is driven by regulatory burden and the lack of the ability to
compete.
Though I would echo everything that Director Reich has
said, I think there is a real urgency. We would certainly
support your Committee's markup on this effort as soon as
possible because every day we delay it costs consumers money,
it costs financial services industry in a very significant way,
and it hinders economic development in our communities, in our
States, and in our Nation.
Senator Crapo. Thank you very much.
Anybody else?
Mr. Kohn. Senator, we agree that the burden of regulation
falls disproportionately on smaller institutions who need to
gear up to some regulatory reporting and regulatory compliance,
and as a proportion of their total cost, that can be very high,
and discouraging.
We also think that this process that you and Director Reich
have led has unearthed a number of changes in which exemptions
can be raised, regulations can be simplified, without
sacrificing safety and soundness, consumer protections or other
important objectives that the Congress has. I would like to
identify with Ms. Williams and her discussion of simplifying
consumer reporting requirements. I think here is a win-win
situation in which both the institution issuing the report and
the information to the consumer, and the consumer, can be made
better off by taking a hard look at what works and what does
not work, and how can we simplify and make things as effective
for the consumer as possible, and as cost effective for the
institution as possible.
Senator Crapo. Thank you.
Ms. Johnson.
Ms. Johnson. Senator, throughout this process, over half of
our credit unions are less than $10 million in assets, and the
regulatory burden is great across the line, from the small and
to the larger institutions as well. We felt it very important
to listen to the institutions because they are the ones that
are on the front line serving their members and delivering the
products and services. So anytime the regulatory burden takes
away from that, being able to actually provide the services,
then that is burdensome.
We have not been able to take all of the suggestions that
we have heard from the industry, but we certainly have listened
to all of those suggestions, and we have--throughout our
process, we have used as many of those that we could without
undermining safety and soundness, to actually put those in
practice for those that actually deliver the services on the
front line.
Senator Crapo. Thank you.
Anybody else?
[No response.]
Before I turn the mic over to Senator Carper, let me just
respond to this by saying I very much agree with the comments
that have been made, and I appreciate the comments that have
been made, and I hope that all the other Members of the Banking
Committee hear the message, that we have a window of
opportunity here, and we must take it. So, I certainly will be
pushing for that.
It is also very true that as we have gone through this
process, the field was very fertile. There was a tremendous
amount of potential improvement that came up. In fact, 187, the
list is growing today while we are having this hearing.
Senator Carper. Let us stop it soon.
Senator Crapo. Yes.
[Laughter.]
There is going to be a cutoff point.
Senator Carper. Maybe we should not go to that second
panel, Mr. Chairman.
[Laughter.]
Senator Crapo. And we are going to have that markup, but I
am confident that as soon as we have the markup and get this
legislation through, that there will be probably an opportunity
to continue working and looking at efforts to improve. So it is
really a delight to have the regulating community, the
regulators as engaged in this process as you all are, and we
deeply appreciate that.
Senator Carper. Thanks. Before we do stop it, I have three
questions I want to ask. Again, I am going to mention the last
one first so you all can be thinking about it. We are going to
be asked to look at these 187 ideas or more or less, going to
be asked to look at them and decide which among them really do
enhance the safety and soundness, which of them really do make
sure that consumers get a better break, not the short end of
the stick. The last question I am going to as you to be
thinking about while I ask my first two questions, is just to
share your wisdom with us, some things that we may want to keep
in mind as we make those, not Solomon-like decisions, but as we
try to make those decisions which are worth keeping, which are
worth repealing or changing, and which we should keep.
The first question though I want to ask deals with the
implementation of bankruptcy reform legislation. We passed it
about a year ago. It was implemented roughly 6 months or so
ago. I would welcome hearing from you as to how you think it is
going, and I presume regulations have been issued. I am not
sure just what you all have been doing on this front, but I
know there is a real rush for a lot of people to file for
bankruptcy last year to beat the deadline, and we are not
hearing a whole lot, at least to date, on what effect the new
law is having. But I welcome any comments that you could share
with us on its implementation.
[Pause.]
And my second question----
[Laughter.]
Dr. Reich, go ahead.
Mr. Reich. I was just going to say that in my outreach
meetings with bankers, bankruptcy has not come up as an issue
of concern as a result of what was passed last year.
Senator Carper. Had it ever come up before?
Mr. Reich. Yes, it did.
Senator Carper. I am sure it did.
Others, please?
Mr. Kohn. I think in some sense, Senator, it is too soon to
tell what the continuing effects will be. There were a huge
volume of bankruptcies filed in anticipation of the change in
the law, so a lot of people who would have done it later,
pulled all that forward, and it will take some time to see what
a continuing process looks like and how it will affect both
lenders and borrowers.
Senator Carper. Thank you.
Anyone else?
Ms. Johnson.
Ms. Johnson. Senator, I would just mention that, of course,
we were supportive of the bankruptcy reform, and to a certain
degree it was anticipated of the stepped up number of filings
there would be. I believe that it is being handled
appropriately, and ongoing, the numbers will be reduced. But
you have to get to a stage to be able to get by the abuse, and
I think that is where we are at.
Senator Carper. All right, thank you.
Any other comments? Good, thanks.
I have another hearing going on, and I am sure so does the
Chairman. Secretary Chertoff from Department of Homeland
Security is two flights down, and I am going to go down and
rejoin him in just a minute. He has been saying grace over a
lot of issues of late, as we know, and one of those is
Hurricane Katrina. Several of us on this Committee
communicated, I believe, with the regulators of financial
institutions on the heels of Katrina, urging of the financial
institutions demonstrate some forbearance and willingness to
delay payments on a wide variety of things, including home
mortgages and car payments, and even credit card bills and that
kind of thing.
I do not know that much more of that forbearance is still
ongoing, but I would like to know if there is, what you could
tell us about it, and do you sense that people are starting to
pay their mortgages and their car payments down there a little
better, and what, if anything, should our Committee be doing in
this regard? Thank you.
Ms. Williams. Senator, it is a very timely question because
at least my principal is headed down to New Orleans maybe even
as we speak.
Senator Carper. For Mardi Gras, wear those beads?
[Laughter.]
Ms. Williams. No. There is a very important interagency
meeting, and I think that some people here may be headed in
that direction, to continue the process of getting input from
the citizens, banks, and community organizations down there on
the conditions, what they need, the things that banks can do,
and what messages would be helpful to come from the regulators.
We all have continued to urge the institutions that we
supervise to work with their customers and to try to take a
reasonable approach in terms of the repayment issues. There
still are lingering issues of institutions having trouble
locating their customers, and we have collaborated on public
service announcements to get the word out that you need to get
in touch with your lender so that your lender can work with
you. There are issues that pop up that we try to resolve. We
have Q&A's on an interagency Katrina website. So there is a lot
going on, and we are continuing to urge the institutions that
we supervise to work with their customers, and we are
continuing to try to identify other things that the banks can
do to try to help in the remediation of the situation.
Senator Carper. Thank you.
Anyone else?
Yes, sir. Director Reich.
Mr. Reich. Senator Carper, I had an outreach meeting with
CEO's of all of our thrifts in the New Orleans area 2 weeks
ago. And there continues to be a surprising disconnect between
the apparent health of the institutions and the health of the
New Orleans metropolitan area. Examinations are just beginning.
A number of our agencies had deferred scheduled examinations
until the institutions got back on their feet, and are more
fully staffed, although staffing continues to be a problem in
the institutions, as many of the evacuated population were
employees and have not returned.
But we do have an interagency forum taking place beginning
tomorrow that Ms. Williams referred to, that several principals
will be attending, and we hope to get more information about
what the needs are, what the conditions are, and I think that
as examinations begin to take place, that within the next 6
months we will have a pretty good idea, a much better idea than
we do today about how the institutions really are faring.
Senator Carper. Thanks.
Let me go to my last question now, the one you all had
several minutes to think about. And I wanted to ask you just to
share your wisdom and counsel with us as we try to decide what
to keep and what not in this package.
Ms. Jekel. One of the areas that I would encourage you to
continue to look at is capital reform for credit unions. I know
that it will not be a simple issue to work through, but it is
necessary that we do something for our credit unions to help
them stay viable and competitive in this very dynamic and
competitive environment.
Senator Carper. Thanks, Ms. Jekel.
Ms. Johnson. I would echo that. PCA reform, I think, is
probably our primary priority. I would like to make it number
188 on the matrix.
Senator Carper. All right. Thank you.
Ms. Williams.
Ms. Williams. Senator, there are proposals and suggestions
at all levels. Some have more impact than others. I think there
are literally dozens and dozens that we have indicated that we
are supportive of. I would say, do them all.
[Laughter.]
There are also important provisions that are not so much
targeted at relieving a particular regulatory burden, but have
safety and soundness enhancement goals, and I would urge you
not to leave those behind. There is a good package of safety
and soundness enhancement provisions included in the matrix.
Senator Carper. Thank you, ma'am.
Mr. Jones.
Mr. Jones. I agree with Ms. Williams. There is no one item
that we would identify as the most important. There are a
number of important initiatives. I think it goes back to what
Director Reich said. I think the most important thing is that
we actually produce something that is enacted, showing that
there is regulatory relief out there and that this process has
led to a positive result.
Senator Carper. That is good advice.
Governor.
Mr. Kohn. We have all highlighted our high-priority items--
--
Senator Carper. Again, I am not asking for you to
rehighlight your high priority items. I am looking for some
words of wisdom.
Mr. Kohn. I think in the process of going through this, we
have identified some very low-hanging fruit, situations in
which the regulations, when implemented first had very worthy
goals and maybe accomplished those goals, but technology
changes, the size of institutions changes, the pressure and the
competitive markets changes. In some cases, the regulations we
are talking about, in the case of the Federal Reserve, were
instituted in the 1930's, such as interest on demand deposits,
and they are no longer relevant today, and they no longer
accomplish their goals. You can accomplish a lot of regulatory
relief by picking off this low-hanging fruit that really will
not impair your ability to achieve your public policy goals at
all.
Senator Carper. Thank you, sir.
Mr. Gee.
Mr. Gee. Yes. Thanks for the question, Senator. I guess if
I had any advice, it would be there are a number--as you look
at that matrix, there are a number of provisions in there where
most groups agree to. Some of them, I would put in the ``no
brainer'' category. They provide immediate relief to financial
institutions and I would hope that the Committee could act on
those fairly quickly.
Those that are more controversial, that have people on both
sides, I would hope that that is not used as an excuse to delay
regulatory burden on those that can be agreed upon. If we
cannot strike a compromise on those, then I guess my suggestion
would be at least move forward on the ones that people can
agree on so we can get some form of regulatory relief out there
and send the right message to financial institutions and their
customers and this industry that we are serious about reducing
regulatory burden wherever we can.
Senator Carper. Mr. Chairman, the thought comes to me that
in putting this bill together, that like one section could be
like low-hanging fruit.
[Laughter.]
Another section could be no brainers.
[Laughter.]
I am not sure what the other sections would include. The
last word, Dr. Reich.
Mr. Reich. Mr. Chairman, I loved Ms. Williams' response, do
them all. It is like asking which of my four children do I like
the best. I like them all. But I would say that the Bank
Secrecy Act is at the top of the list, with modification to the
CTR process. Privacy notices would be at the top of my list.
And then in connection with my new responsibilities at the
Office of Thrift Supervision, in my testimony, there are a
number of items that are related to thrift institutions that I
would advocate.
Senator Carper. I do not know that in the end we will do
them all, but hopefully we will do a lot of the ones that
really need to be done and provide some sense of priority.
Mr. Chairman, this is a good hearing. I apologize to our
second panel of witnesses that are going to come forward now. I
have to slip out, but Hillary Joplin, who is sitting right
behind me, is going to stay and listen to every single word and
give me a full report. Thank you very much.
[Laughter.]
Senator Crapo. Thank you, Senator, and thank you to this
panel. I know we got a late start and we have taken a little
long with this panel, but it is a very critical issue, and
again, I want to thank you for the work that you have put into
your testimony. It is going to be very helpful. Thank you very
much.
We will excuse this panel and call up our second panel, and
while the second panel is coming forward, I will introduce them
to you. I would like to encourage everybody to move out quickly
so we can let the second panel get up to the front here. Second
panel, as you find your way up, please take your seats and let
me introduce who our second panel will be.
Mr. Bradley Rock, President and CEO of the Bank of
Smithtown; Mr. Edmund Mierzwinski, who is the Consumer Program
Director for the U.S. Public Interest Research Group; Mr. F.
Weller Meyer, Chairman, President, and CEO of the Acacia
Federal Savings Bank; Mr. Greg McClellan, President and CEO of
the MAX Federal Credit Union; Mr. Travis Plunkett, Legislative
Director for the Consumer Federation of America; Mr. Steve
Bartlett, President and CEO of the Financial Services
Roundtable; Mr. Joe McGee, President and CEO of the Legacy
Community Federal Credit Union; Ms. Margot Saunders, of Counsel
for the National Consumer Law Center; and Ms. Terry Jorde, who
is President and CEO of CountryBank USA.
Obviously, you can see there are a lot of you. We had to
fill up the whole table and some of you are almost falling off
the edges there. I apologize for that.
I would like to remind each of you to please watch the
time, and again, I apologize to you. It is always hard for us
to fit everything in and especially with an issue of this size
and magnitude and the number of people we wanted to have
testify. It just becomes increasingly important for you to pay
attention to the clock, and I think there is only one clock on
that table, so try to pay attention up here if you cannot see
the one on your table.
Without anything further, we will begin with you, Mr. Rock.
STATEMENT OF BRADLEY E. ROCK
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
BANK OF SMITHTOWN
ON BEHALF OF THE AMERICAN BANKERS ASSOCIATION
Mr. Rock. Thank you, Mr. Chairman. I am Chairman,
President, and CEO of Bank of Smithtown, a $900 million
community bank founded in 1910 and located in Smithtown, New
York. I am also Vice Chairman of the American Bankers
Association.
The cost of unnecessary regulation is a serious, long-term
problem that continues to erode the ability of banks to serve
our customers and support the economic growth of our
communities. I have included a list of recommended actions with
my written testimony, any one of which would provide needed
regulatory relief to banks. Today, I would like to emphasize
two in particular.
First, under the Bank Secrecy Act, banks fill out more than
13 million currency transaction reports, or CTR, every year. It
is undisputed that a vast majority of these reports are filed
by publicly traded companies that are well-known by the banks
and the government and have nothing to do with potentially
criminal activity. The time and resource commitment for CTR's
is huge. Even at FinCEN's conservative estimate of around 25
minutes per report for filing and recordkeeping, it means that
banks devoted 5.5 million staff hours to handling CTR's in
2005.
Based on our recent survey, the industry paid around $187
million in wages for staff time to comply with this single
regulatory requirement.
With three-quarters of the filings for business customers
who have been with the bank for over a year, our industry spent
around four million staff hours and over $140 million last year
filing notices on well-established customers. While the CTR
costs have risen, the usefulness of these 35-year-old rules has
substantially diminished due to several subsequent laws,
including suspicious activity reporting requirements adopted
during the 1990's, rigorous customer identification
obligations, mandates to match government lists to bank
accounts, and the 314(a) inquiry process implemented 3 years
ago as part of the USA PATRIOT Act.
The best approach today would be to establish a seasoned
customer exemption for business entities, as endorsed by FinCEN
in testimony before Congress last year and supported by all the
bank regulators.
It is important to remember that cash transaction data will
not be lost, but will still reside in the normal bank account
data for each seasoned customer and will be available to law
enforcement through a variety of the previously mentioned
means. Moreover, seasoned customers would continue to be
subject to suspicious activity monitoring and reporting. The
seasoned customer exemption would help channel resources toward
the true public interest, which is stopping the activities of
the real crooks and terrorists.
My second point is this. The 500 shareholder threshold to
register securities with the SEC should be updated to more
accurately reflect the current size and conditions of the
investment market. The periodic reporting required imposes
considerable costs on smaller public companies, costs that are
borne by the company shareholders. Importantly, even with
updated limits, shareholders would continue to have ready
access to large amounts of information about the company, much
of which is required under Federal banking law and regulation.
Annual reports and quarterly call reports are two examples.
The cost to small businesses have been staggering. Average
auditing fees for smaller public companies, those with less
than $1 billion in revenue, rose by 96 percent and exceeded
over $1 million per company in 2004, which is the most recent
year for which we have data.
Therefore, the 500 shareholder threshold should be updated.
Such action is not without precedent, as the asset size
parameter has been increased tenfold, from $1 million initially
set in 1964 to $10 million. In contrast, the shareholder
threshold has never been updated since it was initially adopted
in 1964.
We thank you, Mr. Chairman, and the Committee for seeking
ways to reduce the regulatory burden on banks.
Senator Crapo. Thank you very much, Mr. Rock.
Before I go to you, Mr. Mierzwinski, let me discuss with
the panel a little problem that is starting to brew up here. In
about 10 minutes, there are going to be four stacked votes
called on the floor of the Senate, and that is going to take
about an hour of time without really much opportunity to
conduct much business in between because the votes are stacked.
So, I am going to make a suggestion, although it might be an
inconvenience to some of you, and I do not want to do that.
We could get as far as we can before they call the votes in
taking testimony and then take a break for an hour and you
could all grab a bite to eat. I know that some of you probably
have schedules, though, that you were planning to meet this
afternoon, flights or whatever else that may be, and doing so
may be a significant interrupt to you, and so that could be a
problem.
The other thing we could do is go directly to questions and
just start getting into some questions and answers with the
panel for probably 10 or 20 minutes here, and then I would be
willing to come back at that point after the votes for any of
you who wanted to stick around and present your oral testimony
at that time.
I guess the question I have for the members of the panel
is, are there any of you who could not come back at, say, one
o'clock and spend an hour here, whose schedules would prohibit
you from doing that? And please, do not be hesitant to say that
you have some kind of another conflict. Everybody could come at
one?
Well, then what I propose we do is we will proceed now.
Once the vote is called, I can probably go for another 10
minutes before I have to run to the vote, and then I am going
to be gone for what will probably be about an hour. At that
time, we will adjourn, and I will say until one o'clock, and I
will try to be back here at one. If it is not at one, we will
have somebody here who can tell you how soon after one it will
be. I can probably be back maybe even a little bit before one,
so we will do that at this point, then, and we will proceed.
Mr. Mierzwinski.
STATEMENT OF EDMUND MIERZWINSKI
CONSUMER PROGRAM DIRECTOR,
U.S. PUBLIC INTEREST RESEARCH GROUP
Mr. Mierzwinski. Thank you, Senator Crapo. I am Ed
Mierzwinski, for the record, of the U.S. Public Interest
Research Group. Along with my colleagues Travis Plunkett of the
Consumer Federation of America and Margot Saunders of the
National Consumer Law Center, we are delivering joint shared
written testimony also on behalf of some of the other leading
consumer and community groups, including ACORN, the Center for
Responsible Lending, Consumers Union, publishers of Consumer
Reports magazine, and the National Community Reinvestment
Coalition. Each of us will talk about some of the highlighted
issues that we have great concerns about in the testimony and
our written testimony goes into greater detail on some of these
measures.
There are many measures that the Congress has proposed for
changes to the laws governing financial services. We do support
some of them. We have no positions on others. And we have grave
concerns regarding some others. In the testimony, we only focus
on some of the provisions that we believe are under significant
or serious consideration by the Committee, although we
certainly oppose others and we are happy to comment on any of
the others that we think may be moving later on.
As the Committee evaluates which of these proposals to
include in any bill labeled regulatory relief, we believe that
it is critical that the consumer interests be the focal point
of the process. A fair bill cannot be limited to provisions
supported, introduced, or proposed by either the financial
regulators or the financial interests who have 181 or 182 of
the 187. I believe four or five come from previous testimony by
any of the consumer groups.
We believe that a fair bill must also exclude any measures
that are unfair to consumers and that would harm consumers. So
in our testimony, we go into details of how the Committee
should measure the various provisions.
I want to talk about two of the provisions that are in the
bill that we believe are a high priority, unfortunately, and
then I want to talk about one that should be in the bill.
First, the rent-to-own industry continues to push something
called S. 603. There is nothing that could possibly be
construed as regulatory relief or eliminating regulatory burden
in this proposal. The rent-to-own industry promises consumers
dreams of ownership--furniture, televisions, and the like--and
then takes those dreams away, snatches those dreams away with
harsh, cruel, unconscionable contracts at 200 to 300 percent
interest and other unfair terms. Yet the industry has succeeded
in about 45 States in obtaining relief from strong consumer
protection regulation. It is the other five States that
continue to protect consumers that is the focus of the bill S.
603. The bill would preempt or override the strong consumer
lending protections in New Jersey and other States. That is the
reason we strongly oppose it. We see no reason that it could
possibly be construed as a mere regulatory relief provision.
The rent-to-own industry is part of a whole ecology of
predatory lenders that includes the payday lenders, that
includes predatory mortgage lenders, that includes auto title
pawn shops. We believe this industry is in need of stricter,
not lesser, regulation. It is preying on not only the 12
million unbanked Americans, but also on other Americans, as
well. So we would urge, keep that out of the proposed bill.
Second, on privacy notices, we oppose any proposal to
exempt any privacy notices or change Gramm-Leach-Bliley's Title
V in this legislation. We believe that the regulators have two
open dockets on privacy notices currently before them. There is
the one that Deputy Comptroller Williams mentioned, where they
are trying to come up with a layered or improved privacy
notice. There is also the new privacy notice that is required
by the FACT Act for certain sharing of information between and
among the affiliates of companies for marketing purposes. We
believe it is inappropriate to consider weakening our privacy
laws while there are two open dockets that are considering
these very same matters.
Finally, I said that the consumer groups have a number of
pro-consumer items that we believe could be characterized as
regulatory relief. I will mention one very briefly. When I use
my credit card, I have the strong protections of the Truth in
Lending Act, $50 liability limit and also the right to ask the
bank to step into my shoes and protect me if a merchant rips me
off. I do not have those same protections when I use my debit
card, even though it may be branded with a Visa or a MasterCard
logo. I do have some protections with some payroll cards under
the law that protects those with debit cards, but not with all
plastic cards. So we go in detail in our testimony into ways
that you should harmonize upward, so whether you are using a
stored value card, a debit card, or a credit card, you always
have the same rights.
Thank you.
Senator Crapo. Thank you very much, Mr. Mierzwinski.
Mr. Meyer.
STATEMENT OF F. WELLER MEYER
CHAIRMAN, PRESIDENT, AND CHIEF EXECUTIVE OFFICER,
ACACIA FEDERAL SAVINGS BANK, FALLS CHURCH, VA
AND CHAIRMAN, BOARD OF DIRECTORS,
AMERICA'S COMMUNITY BANKERS
Mr. Meyer. Senator Crapo, first, let me begin by thanking
you for your efforts. I am Weller Meyer. I am Chairman,
President, and CEO of Acacia Federal Savings Bank in Falls
Church, Virginia. Acacia Federal is a $1.25 billion community
bank with a Federal Savings Bank charter. I am also the
Chairman of the Board of Directors of America's Community
Bankers. I am pleased to represent ACB at today's hearings.
A strong and vibrant community banking system is good for
our country and our communities. The required complexity of the
regulations and the precision required to deliver products and
services according to the rules has grown to the point where
our employees and our customers are drowning in minutia. We
believe that the cumulative impact of the regulatory burden has
already taken its toll on community banks.
Over the past decade and a half, the assets under the
control of the 10 largest banks in the United States has more
than doubled and now stands at 53 percent of all U.S. banking
assets. Along that pathway, many communities lost their
community banks. In the face of the increasingly complex
regulatory requirements and the associated costs, many
community banks are seeking mergers with larger institutions.
Community banks stand at the heart of cities and towns
everywhere, and to lose that segment of the industry because of
over-regulation would be crippling to those communities.
On the top of every community banker's list of regulatory
burden concerns is the implementation of anti-money laundering
and corporate governance laws. Community bankers are resolute
participants in the fight against crime and terrorism and we
fully support the goals of the Sarbanes-Oxley Act and other
corporate governance laws. However, we believe that significant
changes in both anti-money laundering and corporate governance
requirements are urgently needed either through regulation or
legislation.
In our written statement, we have detailed several
suggestions in two areas. ACB supports many more amendments to
current laws that will reduce unnecessary regulation on
industry banks. Let me mention a few.
First, a modest increase in the business lending limit for
Federal Savings Associations is a high priority for ACB
members. Community banks operating under Federal Savings
Association charters are experiencing increased demand for
small business and agricultural loans. To meet this demand, ACB
wants to eliminate the lending limit restrictions on small
business loans and to increase the lending limit on other
commercial loans to 20 percent. Savings associations could then
make more loans to small businesses, farmers, and ranchers.
Second, ACB strongly urges the elimination of the required
annual privacy notices for banks that do not share information
with nonaffiliated third parties. Community banks should
provide customers with an initial notice and be allowed to
provide subsequent notices only when the terms are modified.
Redundancy under these circumstances does not enhance consumer
protection.
Third, ACB vigorously believes that the trust businesses of
savings associations should have parity with banks under the
Securities Exchange Act and the Investment Advisers Act. There
is no substantive reason to subject savings associations to
different requirements. Savings associations and banks should
operate under the same basic regulatory requirements when
engaged in identical trust, brokerage, and other activities.
Fourth, ACB supports giving banking regulators more
flexibility in scheduling safety and soundness and compliance
examinations for well-capitalized and well-managed depository
institutions. We also support raising from $250 million to $1
billion the threshold for the 18-month small institution
examination cycle. These proposals will reduce the regulatory
burden on low-risk institutions and permit the banking agencies
to focus their resources on higher-risk institutions. These
proposals would not alter the schedule for CRA examinations.
And fifth, now that the Supreme Court has settled the
question of diversity jurisdiction for national banks, Congress
needs to give Federal Savings Associations access to Federal
courts based on diversity jurisdiction. A written statement
includes many other important changes, including easing
restrictions on residential development for Federal Savings
Associations.
The work you do here is important. Meaningful regulatory
relief legislation will reduce costs for community banks and
ensure their survival and their continued support for the
communities they serve. We look forward to working with you and
your staff and I will be happy to answer any questions.
Senator Crapo. Thank you very much, Mr. Meyer.
We are about four minutes into the first vote, so Mr.
McClellan, you will be the last one before we break. Please
proceed.
STATEMENT OF H. GREG McCLELLAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
MAX FEDERAL CREDIT UNION ON BEHALF OF
THE NATIONAL ASSOCIATION OF FEDERAL CREDIT UNIONS
Mr. McClellan. Thank you, Senator Crapo. My name is Greg
McClellan and I am the President and CEO of MAX Federal Credit
Union, located in Montgomery, Alabama. I am here today on
behalf of the National Association of Federal Credit Unions to
express our views on the need for regulatory relief.
As with all Federal credit unions, MAX Federal Credit Union
is a not-for-profit financial cooperative governed by a
volunteer board of directors who are elected by our member
owners. MAX Federal Credit Union was founded in 1955 and has
106,000 members and just over $650 million in assets.
America's credit unions have always remained true to their
original mission of promoting thrift and providing a source of
credit for provident or productive purposes, yet credit unions
continue to be one of the most highly regulated financial
depository institutions.
I am pleased to report to you today that America's credit
unions are vibrant and healthy and that membership in credit
unions continues to grow, now serving over 87 million members.
Yet according to data obtained from the Federal Reserve Board,
credit unions have the same market share today as they did in
1980, 1.4 percent of household financial assets, and as a
consequence provide little competitive threat to other
financial institutions.
As the Committee prepares to move forward and craft a
regulatory relief bill, we hope that you will include the
credit union provisions outlined in my written testimony and
included in the Financial Services Regulatory Relief Act
currently pending in the House. We believe those provisions are
a positive step for Federal credit unions.
I want to highlight one provision in particular that would
address what could become a problem for merging credit unions
when FASB changes merger accounting rules from the pooling
method to the purchase method. Language to address this issue
is included in the House regulatory relief bill and has already
passed the House in the form of the Net Worth Amendment for
Credit Unions Act. We hope that the language from this bill
will also be included in any regulatory relief package
introduced in the Senate, as this is a timely issue that needs
action before the FASB rule changes go into effect.
To be clear, we are not asking you to legislate accounting
rules. Rather, we are asking you to change a definition so that
the acquired equity of merging credit unions is properly
included in total net worth for PCA purposes. FASB, in
testimony before the House last year, recognized that such a
change was necessary.
We hope that you will also consider including language from
the Credit Union Regulatory Improvement Act, or CURIA, which
has been introduced in the House, that would modify the prompt
corrective action system for federally insured credit unions to
include risk assets as proposed by the NCUA. This would result
in a more appropriate measurement to determine the relative
risk of a credit union's balance sheet and also ensure the
safety and soundness of credit unions and our shared insurance
fund. It simply does not make sense that the current capital
system treats a 1-year, unsecured $10,000 loan the same as a
30-year mortgage that is on its last year of repayment.
It is important to note that this proposal would not expand
the authority for NCUA to authorize secondary capital accounts.
Rather, we are moving from a model where one-size-fits-all to a
model that considers the specific risk posed by each individual
credit union. This proposal revises the standard net worth or
leverage ratio requirements for credit unions to a level more
comparable to, but still nearly 70 basis points greater than,
what is required of FDIC-insured institutions.
In conclusion, the cumulative safety and soundness of
credit unions is unquestionable. Nevertheless, there is a need
for change in today's financial services marketplace. NACU
urges the Committee to consider the provisions outlined in our
written testimony for inclusion in any regulatory relief bill.
Appropriately designed regulatory relief will ensure continued
safety and soundness and allow us to better serve America's 87
million credit union members.
We would like to thank you, Senator Crapo, for your
leadership and we are looking forward to working with the
Committee on this important matter and welcome any comments or
questions.
Senator Crapo. Thank you very much, Mr. McClellan.
Again, to all the members of the panel, I apologize for
this interruption and inconvenience. It is always hard to
predict how fast we will be able to go through four votes, but
I can pretty well tell you it is not likely to be finished
before one o'clock. So what I am going to do is to recess until
one o'clock, or as soon thereafter as I can get back here. I
would encourage you all to be here at one.
And again, I will say, if there are any of you who had
other arrangements made or have a flight to take or whatever it
may be that requires that you do that, I will be totally
understanding. Just feel free to do that. If that applies to
any of you who have not presented your testimony yet, I
apologize for that, although the written testimony is
incredibly helpful and we already have that from you.
With that, what I will do then is recess this and at least
maybe you will have a chance to get a bite to eat, although you
probably had other better lunch plans made. This Committee will
be recessed until one o'clock.
[Recess.]
Senator Crapo. This hearing will come to order.
Ladies and gentlemen, things never work out the way you
want. We are still voting, and so at some point in the next 10
to 20 minutes, I may get called away again. So what I want to
try to do is at least get through the testimony before that
happens and then we will just have to make a judgment at that
point as to how we proceed.
If I remember correctly, Mr. Plunkett, you were next in
line, so please go ahead.
STATEMENT OF TRAVIS PLUNKETT
LEGISLATIVE DIRECTOR,
CONSUMER FEDERATION OF AMERICA
Mr. Plunkett. Thank you, Mr. Chairman. My name is Travis
Plunkett. I am the Legislative Director with the Consumer
Federation of America. I applaud you and the Committee for
ensuring that a diverse array of interests, including
consumers, are represented here today.
As the Committee hears one entreaty after another from all
sectors of the financial services industry, it is also
absolutely essential that it closely examine whether major
regulatory gaps exist for consumers, gaps that in some cases
have been engineered by these same interests. I would like to
mention two of these regulatory gaps to start with and then
talk about why it is more important than ever that the
Committee reject proposals to allow industrial loan
corporations to expand.
First, we were extremely disappointed that final rules
issued last year by the Federal Reserve Board covering
overdraft extensions of credit left the abusive features of
these loans largely in place. These so-called ``courtesy
overdraft'' programs encourage consumers to overdraw their
accounts. They do not disclose triple-digit interest rates to
these consumers. They take payment in full directly out of
consumers' next deposit, and they do not ask for affirmative
consent from consumers to borrow from the bank. We urge
Congress to step in and require that these loans be treated
just like other extensions of credit under the Truth in Lending
Act. This would require that creditors inform consumers about
the true cost of this credit and receive affirmative consent to
loan money.
The second gap involves the growing threat to our Nation's
military readiness caused by predatory lenders that target
military families. High interest rates, unaffordable repayment
terms, and the risk of losing valuable assets characterize
lending to the military. We urge the Committee to look at and
enact legislation based on Senator Dole's original amendment to
the defense authorization bill to cap rates for loans made to
military personnel. We also support S. 418 by Senator Enzi and
others that would deal with abuses in the sales of periodic
payment plans to members of the military.
Finally, I would like to once again urge the Committee to
reject legislation that allows industrial loan corporations to
expand, either by offering business checking services or by
branching into States without their permission. In fact, I
strongly urge you to adopt proposals to shut down ILC's
completely. One of these proposals is listed on the Senate
matrix that has been referred to.
In a report issued last fall, the General Accounting Office
became the latest independent authority to raise questions
about this expansion and about the impact of the explosive
growth of ILC's on the safety and soundness of the deposit
insurance system. Since Congress granted an exception to the
Bank Holding Company Act in 1987 for small limited-purpose
ILC's in a few States, everything about ILC's has expanded.
According to the GAO, ILC assets grew by over 3,500 percent
between 1987 and 2004, from $3.8 billion to over $140 billion.
In 2004, six ILC's were among the 180 largest financial
institutions in the country. Moreover, some of the States
allowed to charter ILC's are aggressively encouraging new ILC's
to form, especially Utah. These States are promoting the lower
level of oversight they offer compared to those pesky
regulators at the Federal Reserve.
ILC's now constitute what is essentially a shadow banking
system that puts taxpayer-backed deposits at risk and siphons
commercial deposits from properly regulated bank holding
companies. The key problem with ILC regulation is that while
the Federal Reserve has the power to examine the parent of a
commercial bank and impose capital standards, in an industrial
loan company structure, only the bank can be examined and the
FDIC cannot impose capital requirements on the parent
companies. Holding company regulation is also essential to
ensuring that financial weaknesses, conflicts of interest,
malfeasance, or incompetent leadership at the parent company
will not endanger taxpayer-insured deposits at the bank.
Commercial firms such as GM, General Electric, Volkswagen,
and Volvo own ILC's, as do huge financial firms like Merrill
Lynch, American Express, and Morgan Stanley. We have
significant concerns with ILC ownership by both types of
companies. The involvement of investment banking and commercial
firms in recent corporate scandals has provided plenty of
evidence of the need for rigorous scrutiny of these companies
as they get more involved in the banking industry. These firms
were rife with conflicts of interest that caused them to take
actions that ultimately harmed their investors. As for ILC
ownership by commercial companies, imagine if companies like
Sunbeam, Enron, WorldCom, Tyco, and Adelphia had owned ILC's.
Not only would employees, investors, and the economy have
suffered, but also taxpayers, as well.
Finally, let me finish by mentioning the GAO's major
conclusion here. They concluded that proposals to expand ILC's,
``may make the ILC charter more attractive and encourage
further growth.'' This is the wrong way to go. We encourage the
Committee to examine shutting down the ILC loophole to the Bank
Holding Company Act.
Thank you.
Senator Crapo. Thank you very much, Mr. Plunkett.
Mr. Bartlett.
STATEMENT OF STEVE BARTLETT
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
FINANCIAL SERVICES ROUNDTABLE
Mr. Bartlett. Thank you, Mr. Chairman. I am Steve Bartlett,
President of the Financial Services Roundtable, which consists
of 100 of the large integrated interstate financial services
companies in America, which we hold virtually all the charters
that are under consideration by the Committee. Like Mr.
Plunkett, I also represent the consumers of America, those 200
million-and-some-odd consumers that we call customers. I am
here to ask for consumer relief and for relief of those
customers from the effects of the regulatory burden that has
been placed on them over the course of the last several
decades, and I believe it is the role of this Committee and
then the Senate and the Congress to relieve that burden.
I would like to add one additional item that I think has
not been considered by this Committee in the past and that is a
matter of significant regulatory relief that could be enacted
and should be enacted by the Congress of the United States, and
that is an optional Federal insurance charter. The State-by-
State insurance system of regulation is profoundly broken and
it is time, indeed, it is past time to modernize that system so
that consumers can choose to do their business on an interstate
basis if they choose.
Mr. Chairman, in my written testimony, I have cited about
70 provisions of regulatory burden that should be dealt with by
this Committee. The ones that I would cite in oral testimony
would include interstate branching; the relief of defensive
SAR's, the one million SAR's that we think will be filed this
year in anti-money laundering; simplified privacy notices;
diversity jurisdiction, SEC push-outs, and others.
My point in the oral testimony today is to say, Mr.
Chairman, that these items have not unanimous, perhaps, but by
and large universal support within the Members of this
Committee and by the Senate. Many of these items have been long
agreed to. They have been on the table, under discussion, and
generally agreed would help the American economy and the
American consumer for about 6 years. There are some 70
provisions.
It is my view that to continue these regulatory burdens
harms the American consumer, harms small business, and harms
the economy. The time to act on these provisions is now; if not
now, then next Tuesday; if not next Tuesday, then by June 30,
but not 2007 and not 2010 and not 2017. The time to act is now.
The American consumer needs relief.
Thank you, Mr. Chairman. I yield back the balance of my
time.
Senator Crapo. Thank you very much, Mr. Bartlett, and I
appreciate your yielding back that time.
Mr. McGee.
STATEMENT OF JOE McGEE
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
LEGACY COMMUNITY FEDERAL CREDIT UNION,
BIRMINGHAM, AL
ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION
Mr. McGee. Thank you, Senator Crapo, and on behalf of the
Credit Union National Association, I appreciate this
opportunity to express CUNA's views on legislation to help
alleviate the regulatory burden under which all insured
financial institutions operate today.
I am Joe McGee, President and CEO of Legacy Community
Federal Credit Union in Birmingham, Alabama. I am proud to
speak on behalf of America's credit unions today because we are
an industry that is good for America. Credit unions are the
only financial institutions that are run solely for the benefit
of their members, not stockholders. We exist not for charity,
not for profit, but for service.
Credit unions are devoted to providing affordable services
to all members, especially those of modest means. Now we are
asking for the Senate's help in continuing the not-for-profit,
people-oriented, cooperative work that we do.
One provision that Senator Sarbanes introduced would better
enable us to meet that goal, and I am referring to his
legislation S. 31, which seeks to permit credit unions to
provide broader check cashing and remittance services.
Perhaps the most critical issue on the horizon for credit
unions is the need to reform prompt corrective action.
Experience has proven this policy to be unnecessarily
inflexible. CUNA strongly supports a rigorous safety and
soundness PCA regime for credit unions and agrees that any
credit union with a net worth ratio below the adequately
capitalized level should be subject to firm corrective action.
CUNA has been in constant communication with the Treasury on
this very important issue. CUNA believes that the best way to
reform PCA would be to transform the system into one that is
explicitly based on risk measurement, as outlined by the NCUA
proposal and embodied in the House-introduced bill H.R. 2317,
the Credit Union Regulatory Improvement Act.
Temporary PCA relief has also been sought after in recent
legislation to assist credit unions affected by the hurricanes
in 2005. CUNA wholeheartedly supports these efforts so that
credit unions temporarily affected by the hurricane do not have
to deal with onerous PCA requirements.
Additionally, FASB is expected to adopt rules effective
next year that would cause significant problems for healthy
credit unions involved in mergers. CUNA believes it is
essential that Congress act on this net worth issue
immediately. Otherwise, credit unions will be subject to
harmful, unintended consequences.
The other issue I wish to address is the correct capital
and member business lending. There was really no safety and
soundness reason to impose these arbitrary limits on credit
unions in 1998. In fact, the Treasury deemed these loans were
even safer than other types of credit union loans. CUNA urges
the Committee to include an increase in the member business
loan cap from 12\1/4\ percent of assets to 20 percent of assets
in the regulatory relief measure.
Furthermore, the NCUA should be given the authority to
increase the current $50,000 threshold up to $100,000. This
would be especially helpful to smaller credit unions as they
would then be able to provide the smallest of these loans
without the expense of setting up a formal program.
Small business is the backbone of our economy and
responsible for the vast majority of new jobs in America, yet
the SBA and the Federal Reserve Bank of Atlanta studies reveal
that small businesses are having greater difficulty in getting
loans in areas where bank consolidation has taken hold. The
1998-passed law severely restricts small business access to
credit and impedes economic growth in America. Credit union
member business lending is especially important today as we all
try to help rebuild the devastated Gulf Coast, where many have
lost their jobs and need even more access to capital.
My written testimony includes an extensive list of
amendments to the Federal Credit Union Act, as well as other
laws included in your matrix that CUNA urges the Committee to
address this Congress.
In conclusion, Mr. Chairman, credit unions and their 87
million members are grateful to the Committee for holding this
important hearing. We strongly urge the Committee to act
swiftly to provide meaningful regulatory relief this year, and
I will be happy to address any questions you may have. Thank
you.
Senator Crapo. Thank you very much.
Ms. Saunders and Ms. Jorde, I am going to have to impose on
you again. They have called another vote and there is about
3\1/2\ minutes left in the vote, so I am going to recess, run
over there and vote, and this is the last vote, and then I will
be back. I think it will be about 10 minutes and I will be back
and then we can continue with the hearing.
So, I apologize once again, but I will be back. Thank you,
and we are recessed.
[Recess.]
Senator Crapo. The hearing will come to order, and I thank
you all for your patience. I do not think we will be voting
again for a while, so Ms. Saunders, would you please proceed?
STATEMENT OF MARGOT SAUNDERS
MANAGING ATTORNEY, NATIONAL CONSUMER LAW CENTER
Ms. Saunders. Thank you, Senator Crapo. I appreciate your
patience and perseverance in hearing my testimony. I am here
today on behalf of the National Consumer Law Center's low-
income clients as well as the other groups that my colleagues
Ed and Travis have explained.
I would like to emphasize that while you are considering
all of these regulatory relief items, you keep in mind that
this industry that is suffering from this ``terrible regulatory
burden'' is also experiencing record profits. At the same time
consumers are facing increased foreclosures and escalating
debts that are more and more difficult for them to bear. The
entire discussion here today has been about the impact on
institutions. Ed, Travis, and I are here to remind you that on
the other side of these regulatory issues lie individuals. Many
of the consumer protections that are on the table have
significant consumer impacts. Without these consumer
protections people would suffer.
It is often the removal of consumer protection regulations
that will most likely reduce competitive advantage for
responsible financial institutions because those consumer
protections are there to ensure that appropriate competition is
fostered. Institutions that choose to provide more balanced and
consumer-friendly products would find themselves at a
competitive disadvantage without adequate regulation.
I want to talk about one affirmative proposal and then
explain why a few proposals are particularly dangerous.
As you move forward, please keep in mind there are many
consumer protections that needs to be updated. One stands out
even more than the rest as a glaring low-hanging fruit for
updated consumer protection. The Truth in Lending Act needs to
be updated. It was passed in 1968 and it was meant to apply to
all consumer transactions. All it does is require uniform
disclosures that are made on every consumer transaction in the
country. However, at the moment, approximately half the car
loans and many other personal loans are not covered by Truth in
Lending or most State law. This is because there is a
jurisdictional limit of $25,000 for non-home-secured credit
under Truth in Lending. The statutory penalties suffer from a
similar lack of escalation along with inflation. We really
encourage you to consider strongly updating this essential
consumer protection as you move forward in this process.
There are many bad provisions that you have on the table
and I will try to very briefly address a few of them. First of
all, I know that there will be several suggestions or have been
suggestions that the Truth in Lending Act's right of rescission
be cut back or amended in some way. Let me be very clear. The
Truth in Lending Act's right of rescission is one of the most
significant consumer protections that lawyers representing low-
income consumers and victims of predatory lending use to stop
foreclosures. Any cutback on that right of rescission without
substantial new protections to stop predatory lending or
predatory servicing will substantially hurt consumers and
increase the number of foreclosures.
In addition, there are four amendments to the Fair Debt
Collection Practices Act that were included in the Manager's
Amendment in the House bill and two amendments to the Fair Debt
Collection Practices Act that are considered on your matrix. We
oppose all of them. The one that was mentioned by Senator
Carper would check diversion companies from the Fair Debt
Collection Practices Act. These are private, for-profit
companies that enter into contracts with district attorneys to
collect bounced checks for local merchants. You should please
keep in mind that the Fair Debt Collection Practice Act does
not prohibit these companies in any way from doing business.
All the Fair Debt Collection Practices Act does is require that
there be no deception, harassment, or unfairness in the
collection of the debt. It prohibits the collection of a debt
along with fees that are not authorized. And it requires a
right of verification.
In addition, there is a mortgage servicers' amendment that
would remove some important protections for consumers who are
the subject of collection efforts from mortgage servicers I see
I running out of time so I point you to our testimony, where we
have explained, I hope forcefully, why that would be a
dangerous proposal.
And finally, I know you are considering a proposal that
would preempt Arkansas' ability to set usury limits. This
provision would place Arkansas in a position unlike that of any
other State in the country. Only Arkansas would be unable to
pass any usury limits. Only Arkansas would have no control over
the interest rates that could be charged to its consumers. It
is a very dangerous provision and very unfair to that State.
Thank you.
Senator Crapo. Thank you very much, Ms. Saunders.
Ms. Jorde.
STATEMENT OF TERRY JORDE
PRESIDENT AND CHIEF EXECUTIVE OFFICER,
COUNTRYBANK USA, CANDO, ND AND
CHAIRMAN-ELECT,
INDEPENDENT COMMUNITY BANKERS OF AMERICA, WASHINGTON, DC
Ms. Jorde. Thank you, Mr. Chairman. My name is Terry Jorde.
I am President and CEO of CountryBank USA. I am also Chairman-
Elect of the Independent Community Bankers of America. My bank
is located in Cando, North Dakota, a town of 1,300 people where
the motto is, ``You can do better in Cando.'' CountryBank has
29 full-time employees and $39 million in assets. We are a
small but diversified organization.
Before discussing the topic of today's hearing, I want to
thank all of the Members of the Committee for including deposit
insurance reform in the recently enacted budget reconciliation
bill. I want to extend special thanks to Senators Johnson,
Allard, Enzi, and Hagel for their years of hard work, as well
as to Chairman Shelby and Ranking Member Sarbanes. This new law
is tremendously important in making FDIC insurance a more
stable and fair system for community banks and for consumers.
In previous testimony before this Committee and others, we
have pointed to a study by two economists at the Federal
Reserve Bank of Dallas that concluded that the competitive
position and future viability of small banks is questionable,
in large part due to the crushing regulatory burden we face.
Larger banks have hundreds or thousands of employees to throw
into the regulatory breach. If my bank is faced with a new
regulation, we must train one or more of our current employees.
Complying with a new regulation will take time away from
customer service.
My compliance officer not only has responsibility for
overseeing our compliance program, but she also originates
around 60 real estate loans per year for sale on the secondary
market. She sits on our audit and technology committee. She
regularly teaches homebuyer education courses at our community
college, and she babysits for my son at times like this when I
am out here begging for relief. Unlike larger institutions, we
cannot just add a person and pass the costs on to our
customers.
Senator Brownback's Communities First Act, S. 1568, grew
out of that realization. That bill is cosponsored by a Member
of this Committee, Senator Hagel, as well as Senators Roberts,
Inhofe, and Coburn. It has put into legislative language
proposals that ICBA made in our 2004 testimony before this
Committee. These proposals are also included in your own
comprehensive matrix of regulatory relief proposals. I can tell
you from my meetings with community bankers throughout the
country that they are very excited about the Communities First
Act. A total of 46 State bank trade associations have also
endorsed CFA.
We are pleased that six provisions from the Communities
First Act are included in the House's broad regulatory relief
bill, H.R. 3505. These provisions would streamline call
reports, allow banks to file a short form call report in two of
every four quarters, reduce the examination burden, simplify
reporting for small bank holding companies, eliminate annual
privacy notices for banks that do not share information or
change their policies, and make it easier for community banks
to retain qualified directors.
There is one thing I want to emphasize as strongly as I
can. The House bill is a modest slice of the Communities First
Act. Many of the regulations that are forcing consolidation of
our industry, especially the smaller banks, are those that
involve consumer disclosures. Even if you are able to enact the
proposals that are on the table now, the benefits will be quite
modest. Banks and consumers themselves are drowning in required
disclosures that no one reads and that benefit almost no one,
except maybe the printing industry. Congress, the agencies, the
industry, and consumer groups should begin work today on ways
to reduce this burden and actually improve consumers' ability
to shop for and understand financial products.
My written statement details provisions in the Communities
First Act that would provide substantial benefits while we
undertake this review. We strongly urge you to include them in
your regulatory relief bill, along with the proposals that are
already in the House version.
ICBA very strongly believes that regulatory relief
legislation must not become a vehicle to expand new activities
for industrial loan companies and credit unions. ILC's and
credit unions already have unfair regulatory and tax advantages
over community banks. Congress should promptly address these
imbalances in the Nation's financial system in the context of
regulatory burden relief legislation. We urge you to refrain
from making them worse.
In conclusion, ICBA appreciates this Committee's commitment
to moving legislation that would reduce the regulatory burden
of community banks. I believe the tremendous weight of over-
regulation is crushing the banking system and is rapidly
driving the consolidation of our industry. Most regulations
probably had a well thought out purpose when they were
originated, but it has been said that no single raindrop feels
it is responsible for the resulting flood. Community banks in
particular are awash in regulatory burden and we need
substantial relief before we are washed away with the flood
waters of regulation.
On behalf of my community bank and the nearly 5,000 members
of the Independent Community Bankers of America that I
represent today, I ask you to remember this as you consider
legislation and regulatory relief for our industry. Thank you.
Senator Crapo. Thank you very much, Ms. Jorde.
Now, we are going to have about 15 minutes or so because I
have to run to something else and close this meeting, so we
only have about 15 minutes for questions and answers, and
again, I apologize for that, but I want to also say to this
panel that the quality of the testimony, the written testimony
that has been provided, is outstanding. The points that you all
have made in your oral presentations are very well supplemented
by it. We will utilize that very well.
I just want to start going into some questions. You do not
all have to feel obligated to answer every question, but if you
have a point of view on the issue, please feel free to jump in.
Because we are limited in time and have so many people, I would
appreciate if you could be as succinct as possible so we can
get as far as we can into the questions.
The first one I have goes back to something that I brought
up in the first panel. In that first panel, Federal Reserve
Governor Kohn recommended that we have a rulemaking to
determine the appropriate HMDA exemption threshold. I was just
curious as to what members of this panel who have an interest
in that issue feel about that suggestion. Does anybody want to
jump in on that?
Mr. Plunkett. I would like to.
Senator Crapo. Sure. Mr. Plunkett.
Mr. Plunkett. Mr. Chairman, consumer and community groups
have opposed expanding the exception and here is why. Merely
going from approximately $34 million to $250 million may sound
like an insignificant exception, but it would cover
approximately 25 percent of all depository institutions and 25
percent of institutions that file under HMDA currently. In some
States, it would cover even more: Over 70 percent in Alabama,
Iowa, Kentucky, Louisiana, and West Virginia. It would
significant complicate ongoing regulatory oversight to ensure
that fair and nondiscriminatory lending occurs under statutes
like the Community Reinvestment Act, the Equal Opportunity
Credit Act, and the Fair Housing Act. That is our concern.
Senator Crapo. All right. Thank you.
Ms. Jorde.
Ms. Jorde. Mr. Chairman, I know those numbers sound big,
but when you consider moving the limit to $250 million, that
would only cover 6.7 percent of the industry's assets, and so
it is really a very small percentage of the banking industry.
My bank is not subject to HMDA because we are in a rural area.
However, we are very much subject to Fair Lending exams and we
go through a rigorous process every time we are examined for
Fair Lending. So increasing the exemptions to HMDA will not
necessarily take away concerns about Fair Lending.
Mr. Mierzwinski. Mr. Chairman, we do not have a specific
position on this issue, but I must admit I was struck by the
Governor's comment regarding the proposed rulemaking and the
idea that perhaps there were other measures that one could look
at. I guess just as an individual banker, I was struck by the
idea that numbers do tell you a story, and perhaps subjecting
institutions that are not making that many mortgage loans from
some level of scrutiny would be appropriate.
Senator Crapo. Any others who want to weigh in on that
issue?
Another issue I want to get to very quickly is also one
that I raised with the first panel and that is the question
about currency transaction reports. It is one of the items on
our proposal, or on our matrix, and the seasoned customer
currency transaction report exemption proposal. I do not think
I need to explain that. I think everybody here probably knows
what I mean by that. But I would be interested in the positions
of those on the panel on that issue.
Mr. Rock.
Mr. Rock. Mr. Chairman, in response to the question that
you asked Director Reich, you asked him, why don't banks use
the existing exemption process more.
Senator Crapo. Right.
Mr. Rock. Really, two reasons. First of all, it is more
costly, time consuming, and difficult to get the exemption than
it is to file the reports, and you heard that the reports
themselves took, by a conservative estimate by FinCEN, 5.5
million staff hours of time during 2005. And it is more
difficult to get the exemptions, so that is the first reason.
More costly, more time consuming.
The second reason is that banks that have sought exemptions
have sometimes encountered field examiners who criticize them
for seeking exemptions with the notion that those banks that
seek exemptions are not willing to do their share in
identifying money launderers and terrorists, and no banker
really wants to have himself in that position of being
criticized, because in fact, bankers want to do their fair
share. They just want to spend their time and money and effort
in the way that is most productive for identifying the real
crooks.
Senator Crapo. Thank you very much.
Mr. Bartlett.
Mr. Bartlett. Mr. Chairman, this is one of the major points
we made in our testimony. Here is an area that just cries out
for Senate action and for Congressional action because it is a
real problem for law enforcement. It is a real problem for
legitimate customers who are having their accounts closed
because of the proliferation of both CTR's and its companion
SAR's, and it is a problem that is created by the current
statutory framework.
So our proposal is to create an automatic seasoned customer
exemption. If the bank designates it and they last a year and
they are a seasoned customer, they should be treated like a
seasoned customer. Without that, law enforcement continues to
be hampered, customers will have their accounts closed, and the
costs skyrocket.
The number that we found on the whole CTR and SAR's, by the
way, is we believe it costs the industry a total of about $7
billion a year to comply with anti-money laundering, and that
is money that is not adding to law enforcement. We think, in
fact, it is hampering law enforcement. So make it automatic
after a year and then you will start to see seasoned customer
exemption used a lot more.
Senator Crapo. I think the Banking Committee is going to be
hearing from law enforcement to get their point of view on this
issue, but it does sound like there is potentially some room
there for us to help make an improvement.
Does anybody else want to take a stand on this?
Mr. McClellan. We are on a much smaller scale as a credit
union there, but I would echo and support what everybody else
has said here. Just on a small scale, we spend a lot of time
and effort sending reports back and forth, making sure we get
them right before we actually submit those, and it is very time
consuming and, as a result, very costly.
Senator Crapo. All right. Thank you very much.
Another one I wanted to get into is the exam cycle issue,
and I know Mr. Mierzwinski, Mr. Plunkett, and Ms. Saunders, I
know that you and your organizations are opposed to increasing,
if I understand it, increasing the small institution exemption.
But others have testified, and I cannot remember if it was this
hearing or not, but others have made the argument that that
proposed exemption will not actually have an impact on safety
and soundness. Are you aware of that counter-argument that has
been made to your position, any of you? I just wanted you to
discuss that issue with me. One of you might be more briefed in
it. Mr. Plunkett, it looks like they are going to give you the
ball there.
Mr. Plunkett. Yes. Well, Senator, I mean, as you know,
there are a number of proposals on the matrix. One would allow
banking agencies to forego or delay banking examinations that
are currently required for banks with less than $1 million in
assets. The concern there is that this will significantly
weaken the effectiveness of the Community Reinvestment Act for
communities in need of loans and investment.
Senator Crapo. Now, that is the point I wanted to get at,
and I cannot remember where I have seen this argument
specifically, but my understanding is that the regulators
contend that that proposal would not have an impact on the CRA.
Others can jump in.
Mr. Rock. The proposal was only for safety and soundness
exams. It would not change the cycle for compliance exams. It
would not change the cycle on compliance exams in CRA, on
compliance issues. It is only on the safety and soundness
portion of the exam.
Senator Crapo. So the compliance exam schedule would remain
the same?
Mr. Rock. Yes.
Mr. Plunkett. Our concern would mainly be with an effect on
the CRA compliance exams.
Senator Crapo. Okay. So then if we made that distinction
and the change was only on the safety and soundness exams, then
your concern would be alleviated?
Mr. Plunkett. Yes, Mr. Chairman, if we are talking about
the CSBS proposal, yes.
Senator Crapo. Okay. One other comment that I would like to
make to everybody on the panel is we have mentioned a dozen
times here today that we have got a matrix with 187 proposals,
and there are other proposals out there that could work their
way into it or that have already been pushed off the matrix. As
I would describe it, there are some proposals that it is really
clear everybody agrees with. They have been described as the
low-hanging fruit. There are some which are extremely
controversial, and there are some that we are not quite sure
whether they are controversial or whether there is a general
consensus about them or not because we have not been able to
get everybody to weigh in on every aspect of the proposal, and
I am including everybody. It has been like pulling teeth with
the regulators and the regulated and the consumer interest
groups and others just to find out what everybody's position is
on everything.
And the point is that there may be, out of the 187
proposals, there may be a whole bunch that you are just not
focused on, any particular group or industry. As we move
forward, we are trying to identify that level of support or
opposition that is there for different proposals, and like I
say, on the main ones, we know. It is really clear.
But I would just encourage you--and you do not have to do
it in this hearing--I would encourage you to let us know, and
by the way, your testimony, all of your testimony has done a
good job of a lot of this, but just to let us know of the areas
where you feel there is high concern about a particular
proposal or strong support, because we are going to be going
through and making the final determinations as to what is going
to be included in the bill, and I am not saying that
controversial items will be kicked out necessarily, because we
will look at them and make a determination as to whether they
should be included or not. But we need to know if there is
controversy and we need to know what the controversy is.
So, I would just encourage you all, to the extent you have
not already done it in your very well-prepared testimony and in
your other communications with our offices, to let us know,
particularly if there is something that you would strongly
oppose being in the bill, if you have not already let us know
that.
With that, like I said to the other panel, there are lots
of questions and areas that I could go into, but we are down to
about five or six minutes left. I think what I am going to do
is what Senator Carper and I did toward the end of the last
panel, and I may get myself in trouble here because I am going
to have to shut us all off in about six minutes, but is there a
point that any of you on a particular item have not been able
to make yet that you really would like to be sure you get a
chance to say? It is your chance to say something.
Mr. Bartlett, very succinctly, please.
Mr. Bartlett. Mr. Chairman, I have one particular item that
I have emphasized and that is the federally regulated--we have
a problem with SAR's, with almost--we believe there will be a
million SAR's filed this year, up from 76,000 less than 10
years ago--a million--and that is a problem. It is a huge
problem for the economy.
We think that part of the solution is take the guidance
that the regulatory agencies have already issued, they have
issued guidance, and make it into statute. It is informal
guidance that our members cannot rely on because of a well-
founded fear of prosecution. So if it is made into statute,
then we can rely on it.
Now, as you do that, we will have some comments about ways
to adjust the guidance and such, but I have to tell you that as
long as it is guidance, they may as well not have it at all.
Senator Crapo. Point well taken.
Mr. Plunkett.
Mr. Plunkett. Senator, you asked earlier about SEC
Regulation B and proposals to exempt banks there.
Senator Crapo. Yes.
Mr. Plunkett. I would just like to talk about that briefly
from the consumer point of view. It is one thing to exempt what
I would call traditional banking products. They are fully
insured. It is another thing to exempt those products and the
sales practices used to sell those products, products such as
jumbo CD's that banks are offering that are increasingly
looking like traditional securities products.
The golden rule here should be that it should not matter
which agency enforces. If the product has certain
characteristics and those characteristics resemble a securities
product more than a traditional banking product, then it should
be regulated in the same manner, no matter who sells it. That
means that the sales of the product, as the SEC contemplates in
Regulation B, should be regulated in the same manner.
Otherwise, we would provide an incentive to some banks to offer
riskier products because they can get around regulation of
similar products on the security side.
Senator Crapo. Thank you. Ms. Jorde, were you trying to get
in here?
Ms. Jorde. I have a general comment on the matrixes. When I
first read through all of them, I do not think it was until I
got to about 101 where I really found something that would make
a difference in my life in my community bank at home. As you
read through the 187 amendments in there, several of them are
technical in nature, and I know that the OCC's office put
forward a number of those and other regulatory agencies and
things that probably needed to be changed over the years
because the world has changed since the last time we have taken
a look at that. I know that I served on our State banking board
for a number of years, and every other year when our
legislature met, we would put forward some amendments that
needed to be made, and I think a number of these things are
just items that need to be changed.
There are also a number of them that the credit union
groups referred to them as regulatory reform, and then there
are probably a couple dozen of them that I look at as true
regulatory burden relief. I would encourage you, as you go
through and look at these, that you focus on the items that
will really bring regulatory relief to the banking industry and
to the community banking industry in particular because they do
carry disproportionate burdens for that.
Really, matrixes 101 to 120 are really the ones that, in my
bank, would make a difference and might be the difference on
whether my bank survives in the future.
Senator Crapo. All right. That is very helpful to note.
Ms. Saunders.
Ms. Saunders. Senator Crapo, I would ask that you first do
no harm and remind you all that until the early 1980's, the
practice of lending was a highly regulated industry. It is now
not very regulated. All we have to protect consumers are
disclosures. I agree with what Julie Williams said of the OCC,
that those disclosures are often not as clear as they could be
and there are far too many consumers to actually be as helpful
as they should be. Nevertheless, it is all the consumers have.
We would, if we had our preference, would much prefer
substantive regulation. But before you remove disclosures,
please recognize that there must be something.
Senator Crapo. Well taken.
Yes, Mr. McGee.
Mr. McGee. Senator, I would just like again to thank you
for your efforts and indicate to you, since you asked, that
credit unions are not opposed to any of the relief measures
that are in the matrix for any financial institutions, but I
think that there are some reform issues there that we feel
provide regulatory relief that would help us better serve our
members. If there were one particular that we would have an
interest in, it would probably be the prompt corrective action
reporting that is mentioned in my testimony.
Senator Crapo. All right. Thank you.
Mr. Meyer. Mr. Chairman.
Senator Crapo. Mr. Meyer.
Mr. Meyer. I think if you asked everybody at this table, do
they think community banks are important to the communities
they serve, they would all agree that they are. I do not think
we can continue with the world as it is today, so I want to
underscore what I think is the importance of your efforts and
the hearings.
In my statistics which I presented, I noted that over the
last 15 years, the assets held by the 10 largest banks in this
country have gone from 25 percent of assets to 53 percent. Part
of the reason behind that is the regulatory burden that small
community banks, which people have commented about today, can
no longer keep up with it. Unless something is done, we are
going to continue to watch that slow erosion, the slow loss of
community banks, and I happen to strongly believe communities
do need community banks.
Senator Crapo. All right. Thank you very much. I do not see
anybody else jumping in, but--Mr. Bartlett.
Mr. Bartlett. Mr. Chairman, 30 seconds for a second one. I
just want to remind the Committee that interstate branching is
a big deal for the American consumer. I understand that in and
of itself, it is not controversial. It is controversial only as
it relates to other things. I believe that the Committee can
resolve the other things, but interstate branching is a big
deal. It is long overdue and it is simply nonsense that we
would continue to have this prohibition against companies
opening stores where their customers want to do business.
Senator Crapo. I appreciate that input, and I hope you are
right, that we can resolve its relationship to other things,
but I think we can, too.
Let me again thank you all for your patience and your
understanding, and most importantly, for your outstanding
testimony, both what you have said here today as well as what
you have provided in writing, and to encourage you to continue
to feel very free to give us your input. I cannot tell you
exactly when we will have a mark-up, but I believe it will be
soon and the bill will be coming out shortly before that. We
want to be able to move forward as expeditiously as possible
and take advantage of the window of opportunity that we have
here. So the time is now and you are all doing this well and I
encourage you to keep doing it. Again, I appreciate your
patience and long suffering today.
This hearing is adjourned.
[Whereupon, at 2:04 p.m., the hearing was adjourned.]
[Prepared statements, response to written questions, and
additional material supplied for the record follow:]
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