[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 
                                Affairs


      Available at: http: //www.access.gpo.gov /congress /senate/
                            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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