[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]




                               BEFORE THE

                            SUBCOMMITTEE ON

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                            OCTOBER 30, 2007


       Printed for the use of the Committee on Financial Services

                           Serial No. 110-78


39-916                      WASHINGTON : 2008
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                               BEFORE THE

                            SUBCOMMITTEE ON

                                 OF THE


                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                            OCTOBER 30, 2007


       Printed for the use of the Committee on Financial Services

                           Serial No. 110-78


                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            RICHARD H. BAKER, Louisiana
LUIS V. GUTIERREZ, Illinois          MICHAEL N. CASTLE, Delaware
NYDIA M. VELAZQUEZ, New York         PETER T. KING, New York
MELVIN L. WATT, North Carolina       EDWARD R. ROYCE, California
GARY L. ACKERMAN, New York           FRANK D. LUCAS, Oklahoma
JULIA CARSON, Indiana                RON PAUL, Texas
BRAD SHERMAN, California             STEVEN C. LaTOURETTE, Ohio
GREGORY W. MEEKS, New York           DONALD A. MANZULLO, Illinois
DENNIS MOORE, Kansas                 WALTER B. JONES, Jr., North 
MICHAEL E. CAPUANO, Massachusetts        Carolina
RUBEN HINOJOSA, Texas                JUDY BIGGERT, Illinois
WM. LACY CLAY, Missouri              CHRISTOPHER SHAYS, Connecticut
CAROLYN McCARTHY, New York           GARY G. MILLER, California
JOE BACA, California                 SHELLEY MOORE CAPITO, West 
STEPHEN F. LYNCH, Massachusetts          Virginia
BRAD MILLER, North Carolina          TOM FEENEY, Florida
DAVID SCOTT, Georgia                 JEB HENSARLING, Texas
AL GREEN, Texas                      SCOTT GARRETT, New Jersey
EMANUEL CLEAVER, Missouri            GINNY BROWN-WAITE, Florida
MELISSA L. BEAN, Illinois            J. GRESHAM BARRETT, South Carolina
GWEN MOORE, Wisconsin,               JIM GERLACH, Pennsylvania
LINCOLN DAVIS, Tennessee             STEVAN PEARCE, New Mexico
ALBIO SIRES, New Jersey              RANDY NEUGEBAUER, Texas
PAUL W. HODES, New Hampshire         TOM PRICE, Georgia
KEITH ELLISON, Minnesota             GEOFF DAVIS, Kentucky
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
TIM MAHONEY, Florida                 JOHN CAMPBELL, California
CHARLES A. WILSON, Ohio              ADAM PUTNAM, Florida
ED PERLMUTTER, Colorado              MICHELE BACHMANN, Minnesota
JOE DONNELLY, Indiana                KENNY MARCHANT, Texas
ROBERT WEXLER, Florida               THADDEUS G. McCOTTER, Michigan
JIM MARSHALL, Georgia                KEVIN McCARTHY, California
DAN BOREN, Oklahoma

        Jeanne M. Roslanowick, Staff Director and Chief Counsel
              Subcommittee on Oversight and Investigations

                MELVIN L. WATT, North Carolina, Chairman

LUIS V. GUTIERREZ, Illinois          GARY G. MILLER, California
MAXINE WATERS, California            PATRICK T. McHENRY, North Carolina
STEPHEN F. LYNCH, Massachusetts      EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         RON PAUL, Texas
CAROLYN McCARTHY, New York           J. GRESHAM BARRETT, South Carolina
RON KLEIN, Florida                   TOM PRICE, Georgia
TIM MAHONEY, Florida                 MICHELE BACHMANN, Minnesota
ROBERT WEXLER, Florida               PETER J. ROSKAM, Illinois
                                     KEVIN McCARTHY, California
                            C O N T E N T S

Hearing held on:
    October 30, 2007.............................................     1
    October 30, 2007.............................................    47

                       Tuesday, October 30, 2007

Braunstein, Sandra F., Director, Division of Consumer and 
  Community Affairs, Board of Governors of the Federal Reserve 
  System.........................................................    12
Cooper, Robert P., Senior Counsel, OneUnited Bank, on behalf of 
  the National Bankers Association...............................    16
Saunders, Kim D., President and CEO, Mechanics & Farmers Bank....    19
Scott, George A., Director, Financial Markets and Community 
  Investment, U.S. Government Accountability Office (GAO)........     7
Thompson, Sandra L., Director, Division of Supervision and 
  Consumer Protection, Federal Deposit Insurance Corporation 
  (FDIC).........................................................     9
Walsh, John G., Chief of Staff and Public Affairs, Office of the 
  Comptroller of the Currency (OCC)..............................    14
Yakimov, Montrice Godard, Managing Director, Compliance and 
  Consumer Protection, Office of Thrift Supervision (OTS)........    10


Prepared statements:
    Watt, Hon. Melvin L..........................................    48
    Braunstein, Sandra F.........................................    53
    Cooper, Robert P.............................................    62
    Saunders, Kim D..............................................    74
    Scott, George A..............................................    85
    Thompson, Sandra L...........................................   113
    Walsh, John G................................................   136
    Yakimov, Montrice Godard.....................................   153

              Additional Material Submitted for the Record

Watt, Hon. Melvin L.:
    GAO Report to Congressional Requesters, dated October 2006, 
      ``Minority Banks, Regulators Need to Better Assess 
      Effectiveness of Support Efforts''.........................   210
    GAO Report to the Chairman, Committee on Government 
      Operations, House of Representatives, dated November 1993, 
      ``Minority-Owned Financial Institutions, Status of Federal 
      Efforts to Preserve Minority Ownership''...................   259
    Responses to questions submitted to Sandra F. Braunstein.....   303
    Response to question submitted to George A. Scott............   319
Waters, Hon. Maxine:
    Disclosure submitted for the record..........................   320

                        PRESERVING AND EXPANDING
                             MINORITY BANKS


                       Tuesday, October 30, 2007

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2128, Rayburn House Office Building, Hon. Melvin L. Watt 
[chairman of the subcommittee] presiding.
    Members present: Representatives Watt, Waters, Lynch, 
McCarthy, Klein; and Miller.
    Also present: Representative Meeks.
    Chairman Watt. The Subcommittee on Oversight and 
Investigations will come to order.
    Without objection, all members' opening statements will be 
made a part of the record. I will now recognize myself for an 
opening statement.
    Minority and women-owned banks serve an important but often 
overlooked role in the U.S. economy. For too long in the 
Nation's history, women and racial and ethnic minorities were 
shut out of this Nation's banking systems. Minority and women-
owned banks stepped into the breach and today provide critical 
banking services and financial products to distressed or 
traditionally underserved communities throughout the United 
    Today's hearing is designed to highlight the role of 
minority- and women-owned banks in the economy and to examine 
how Federal regulators and Congress can work together to 
support these important financial institutions.
    The Federal Deposit Insurance Corporation (FDIC) and the 
Office of Thrift Supervision (OTS) are charged under Section 
308 of the Financial Institutions Reform, Recovery, and 
Enforcement Act of 1989 to ``preserve and promote'' minority 
banks. This includes preserving the number of minority banks, 
preserving these institutions' minority character in mergers 
and acquisitions, and providing technical assistance to the 
    In 1993, the GAO issued a report entitled, ``Minority-Owned 
Financial Instructions: Status of Federal Efforts to Preserve 
Minority Ownership.'' The report found that while the Federal 
banking regulators had taken some steps to preserve minority 
ownership, they had not assessed whether these steps were 
effective. The GAO therefore recommended that the Secretary of 
the Treasury consult with the FDIC and the OTS to 
systematically assess the effectiveness of their minority bank 
support efforts, including surveying minority institutions to 
gain their insight.
    Thirteen years later, unfortunately, the regulators still 
have not implemented the major recommendations from the 1993 
GAO report. The October 2006 GAO report entitled, ``Minority 
Banks: Regulators Need to Better Assess Effectiveness of 
Support Efforts,'' might just as well have been a reprint of 
the 1993 report. The report again examined Federal regulators' 
efforts to comply with Section 308 of FIRREA to preserve and 
promote minority banks, and raised many of the same issues 
raised in 1993.
    This hearing will expose and shed light on the key 
findings, ask why regulators still have not implemented the 
1993 GAO recommendations, and focus attention on what more can 
and must be done to preserve, support, and expand these banks.
    I ask unanimous consent to insert into the record both the 
1993 and the 2006 GAO reports. Without objection, it is so 
    The 2006 GAO report suggests mixed results by the Federal 
Government in supporting minority banks. On one hand, some 
Federal banking regulators have developed initiatives training 
and outreach events for minority banks. For example, the FDIC 
and the OTS apparently have national and regional coordinators 
to interface with minority banks and to provide technical 
    On the other hand, the GAO report indicated that neither 
the OCC nor the Federal Reserve have developed specific 
minority banking initiatives. While neither of these regulators 
is covered under Section 308 of FIRREA, both the OCC and the 
Federal Reserve have issued policy statements in the last 
several years expressing support for minority banks, and both 
have indicated that they plan to develop programs and 
initiatives to support and advance these policy statements.
    We would like to hear about the OCC and the Federal 
Reserve's progress in fulfilling the rhetorical objectives set 
out in their policy statements. Apparently the Federal Reserve 
has stated that they will merely consider implementing the 
GAO's recommendation. We would like to find out whether the 
Federal Reserve will indeed implement the GAO regulations or, 
alternatively, whether the Fed might prefer to be directed to 
do so by being included under Section 308 of FIRREA.
    The GAO report suggests that many minority banks operate in 
unique environments, often serving distressed and underserved 
areas, and consequently must retain higher reserves for loan 
losses and have higher overhead costs because they spend more 
time training their staff and provide extensive customer 
service. Yet the GAO report also reveals that less than 30 
percent of minority banks actually utilize the technical 
assistance offered by the Federal regulators.
    We want to explore why that is so. The GAO reported that 
several minority bank officials suggested that Federal 
regulators should consider undergoing additional training to 
gain sensitivity to the unique challenged faced by minority 
banks. I would like to hear more about those challenges and 
what would be appropriate to respond to them.
    We must remain vigilant in fulfilling Section 308's mandate 
to preserve and promote minority banks. I look forward to 
hearing from these regulators and minority-owned banks about 
best practices for preserving and expanding this important 
segment of the financial services industry.
    I will now recognize Ranking Member Gary Miller, from 
    Mr. Miller. Thank you, Mr. Chairman. Well, I want to 
welcome our distinguished panel. It is good to have you here 
this early morning. And I thank Chairman Watt for holding this 
hearing. It is rather informative when we discuss issues like 
    It is important to examine the important role banks have in 
serving the financial needs of underserved communities and 
minorities. Like most community banks, minority banks may also 
confront challenges because of their smaller size. Recognizing 
the important role of minority banks, in 1989 Congress called 
on the banking regulators to establish goals to help promote 
and preserve minority banks. In response to these objectives, 
the OTS and the FDIC created staffing structures, resources, 
events, technical assistance, and outreach programs to assist 
minority banks.
    While ensuring the safety and soundness of financial 
institutions is their first responsibility, the regulators have 
also hosted and continue to host a variety of educational 
events such as conferences, roundtables, and workshops which 
bring minority banks and their regulators together to give the 
banks a chance to share their concerns regarding compliance 
examinations, community development, deposit insurance, and 
other issues facing the banks.
    Last year the Government Accountability Office, GAO, found 
that the profitability of most large minority banks--that is, 
with assets greater then $100 million--was nearly equal to that 
of similar size banks. However, small minority banks and 
African American banks of all sizes tend to be less profitable 
than they appear despite the efforts of the regulators.
    The study shows that these differences were due to 
relatively higher loan loss reserves and operating expenses, 
and from competition from larger banks. The GAO also reported 
that while banking regulators have adopted many different 
approaches to support minority banks, they have not regularly 
assessed the effectiveness of these efforts.
    While the banking regulators have been criticized for not 
assessing their efforts to promote minority banks, the GAO 
found that not even half of the minority banks attended the 
FDIC roundtables and conferences designed to assist them. The 
bank officials that did attend these events found the events 
extremely useful. Furthermore, only half of the banks actively 
participate in their regulators' training and educational 
activities. The GAO found that most banks that participated in 
these activities reported favorably on these events.
    The FDIC and the OTS emphasize technical assistance 
services as key components of their efforts to assist minority 
banks, but less than 30 percent of the minority banks utilized 
such assistance. The GAO found that the banks that do use 
technical assistance offered by the regulators rated the 
assistance as extremely or very useful.
    In 2004, in response to the FDIC corporate performance 
objectives, the FDIC completed review of its minority bank 
outreach efforts; only 7 of the 20 banks that were surveyed 
responded. Additionally, in 2005 the FDIC requested feedback on 
several proposals to better serve their institutions, and 25 
minority banks responded.
    The GAO reported that only about one-third of the survey 
respondents rated regulators' efforts as very good or good. 
Since so few minority banks are participating in the 
regulators' efforts, perhaps the one-third figure represents 
the banks that are participating in the events, while the banks 
that rated their agencies' efforts as poor have not 
participated in programs at all.
    The GAO reports that the banks not participating in such 
efforts may be missing opportunities to address the problems 
that limited their opportunities or financial performances, 
assistance and availability. But it is the bank officials' 
responsibility to take advantage of these programs to ensure 
that their banks succeeded. The regulators cannot force banks 
to participate in these programs.
    Regardless of these findings, positive news regarding the 
minority banks has been more recently documented. Last month, 
Creative Investment Research, Inc., a Washington consulting 
firm that focuses on minority banks, reported that assets of 
minority-owned banks are on the pace to increase by an average 
of about 18 percent this year, compared to the overall industry 
average of only 6 percent.
    The report stated that a dozen banks have opened since the 
end of 2005 targeting Hispanics. The report also showed that 
while the return on assets of these banks has dropped off 
dramatically in the last 18 months, this was attributed to an 
increase in the startup targeting minorities. Mr. Cunningham, 
president of Creative Investment Research, Inc., said that he 
expects when minority startups mature, the returns will move 
closer to the industry rate.
    Additionally, Evelyn Smalls, president and CEO of the $72.3 
million asset United Bank of Philadelphia, an African-American-
owned bank, has stated that interest in economic development 
has increased. Evelyn stated that the bank has been contacted 
by numerous people expressing interest in working with the bank 
and bringing business to the bank. She expects her bank will 
increase in assets to about $100 million over the next few 
    While I believe that the success of these banks is 
obviously important, as it is in the success of any bank, it 
seems to me that the most important part of the discussion is 
missing here, to consumers, that we need to focus on them. If 
the intent of Section 308 of FIRREA was to promote the economic 
viability of minorities in underserved communities, instead of 
focusing on who owns a bank, we should be discussing whether 
banks are successfully serving minorities in underserved 
communities. That is the overarching goal of the law.
    Additionally, we must consider the value of the opportunity 
that the thousands of banks, big and small, in this country 
have offered traditionally underserved communities, which has 
ultimately increased competition and consumers' choice.
    I look forward to hearing from our panel today. Thank you.
    Chairman Watt. I thank the gentleman for his opening 
statement, and we certainly want to focus on the part of his 
statement regarding service to the community and customers in 
underserved areas. That is an important focus. And we are 
likely to be having some hearings on that aspect of this issue, 
    Mr. Lynch, would you care to be recognized for an opening 
    Mr. Lynch. Thank you.
    Chairman Watt. The gentleman from Massachusetts is 
    Mr. Lynch. Thank you, Mr. Chairman. As is the custom here 
in Washington, I am required this morning to be in three 
separate hearings all occurring at the same time, so I must beg 
the Chair's indulgence. I am going to have to jump over to 
those other two committees during the course of the morning.
    But I would like to thank you and Ranking Member Miller for 
convening this hearing on the importance in the future of 
minority banks. We have a copy of the GAO report this morning 
on the effort to promote and preserve minority-owned community 
financial institutions, which report confirms the critical 
nature of minority banks in historically underserved areas.
    But it also points out that it was difficult for regulators 
to best assess the effectiveness of support efforts to these 
institutions, in the report which is entitled, ``Minority 
Banks: Regulators Need to Better Assess Effectiveness of 
Support Efforts.'' As a result of this 72-page report, I 
believe it is vital that we are here today to use our oversight 
capacity on this committee to ensure that these critical 
minority institutions' needs are best met.
    On a Federal policy level, especially in regards to Federal 
bank examination, competitive advantages or disadvantages that 
might exist in particular areas, I am particularly pleased to 
see that a friend and constituent of mine, Bob Cooper, is here 
this morning. He is the chief legal strategist and architect 
for OneUnited, which just happens to be the largest African-
American-owned bank in the country.
    And I know that since he joined OneUnited's management 
team, it has acquired and turned around at least three troubled 
banks that I know of, and it has grown from $56 million to 
about $650 million in assets, making it the fastest-growing 
African-American-owned bank in the Nation. Mr. Cooper has also 
been instrumental in the bank received CDFI bank expertise 
awards over the past 4 years for its lending in distressed 
communities, particularly in my district.
    Mr. Cooper is testifying today in his capacity as the 
chairman of the National Bankers Association, and his expertise 
is particularly valuable, I believe today, as we address the 
issues faced by minority depository institutions around the 
country. I am particularly interested in his testimony 
regarding CRA. As we all know, over the years, the 
responsibility of the volume of mortgages underwritten by the 
banks has reduced, banks covered by CRA has been reduced, and 
yet mortgage companies and mortgage brokers not covered by the 
CRA have seen a dramatic increase.
    And so I am eager to receive Mr. Cooper's testimony, just 
as I am all the panelists who have been willing to come forward 
this morning to help this committee with its work.
    With that, Mr. Chairman, I yield back.
    Chairman Watt. I thank the gentleman for his opening 
statement. And I would just say to Mr. Cooper that 
Representative Waters and Representative Lynch were lobbying to 
introduce you. So--
    Mr. Lynch. And Mr. Capuano, I might add.
    Chairman Watt. That must mean you are doing something 
right. I will make my own personal statement about my banker a 
little bit later.
    Other members obviously will be in and out. There are a lot 
of hearings going on this morning. In fact, I am supposed to be 
in three right now in various committees, so you can anticipate 
that members will be in and out.
    I just spoke of Ms. Waters. I am getting ready to introduce 
the witnesses, but if you would care to make an opening 
statement, I would be delighted to recognize you before I do 
    Ms. Waters. Thank you very much, Mr. Chairman. It is very 
kind of you. And I do appreciate this hearing that you are 
holding today. This is a very, very important subject, and one 
of those areas that has not gotten much attention in the 
Congress in the years that I have been here.
    But as we know, there has always been an effort to truly be 
a part of the American business and economic community in this 
country. It has been very difficult, and we have talked a lot 
about access to capital. We have talked a lot about 
entrepreneurship, a lot about involvement of minority 
communities in financial institutions, and the desire for 
ownership by minorities. We talk about it a lot, but there has 
not been a lot of support for minority institutions, many of 
whom have struggled in order to stay in business and provide 
services, services for the minority communities that oftentimes 
are not being provided by anybody else.
    I am reminded of the disaster in the Gulf Coast with 
Hurricanes Katrina and Rita and the impact that they had on 
some of our minority banks. While I know there was some 
assistance, it was not enough. We do very little to preserve 
and/or expand minority banks. And even though I think we can 
find somewhere in our laws that it is intended that we should 
try and preserve and expand minority banks, when we have 
attempted to use that instruction and law, we have not been 
able to execute anything in a real way.
    This hearing today will help us to understand better what 
is going on out there and how perhaps we can be of assistance 
and get this Congress on record for our desire to preserve and 
expand minority banks. So I thank you Mr. Chairman.
    And while I am doing that, I would like to make a 
disclosure--because I think it is absolutely necessary--that my 
husband is a director of a minority bank. So I want that on the 
record, and I will submit my disclosure in writing.
    Chairman Watt. All right. For a change, we have to make 
disclosures. So that is a good thing.
    Without objection, other members' opening statements will 
be made a part of the record, and they will have some 
additional time to submit them for the record.
    I am now going to introduce the panelists briefly. Without 
objection, each of your written statements in their entirety 
will be made a part of the record. And each witness will be 
recognized for 5 minutes, although--we try to stay close to 
that, but I am a little bit more lenient on that than most 
Chairs are.
    We will start with Mr. George Scott, who is the Director of 
the Financial Markets and Community Investment team of the GAO, 
where he helps lead the GAO's work assessing the ability of the 
financial services industry and its regulators to help maintain 
a stable, well-functioning financial system. He is responsible 
for leading the GAO's work related to higher education issues, 
including Federal student loan and grant programs also.
    Mr. Scott, you are recognized for 5 minutes.


    Mr. Scott. Thank you, Chairman Watt, Ranking Member Miller, 
and members of the subcommittee. I am pleased to be here today 
to discuss the efforts of Federal bank regulators to support 
minority banks.
    Minority banks are a small community within the banking 
industry, accounting for 2 percent of all financial 
institutions and total industry assets. Despite their small 
numbers, these banks can play an important role in serving the 
financial needs of historically underserved communities such as 
African Americans, and growing populations of minorities such 
as Hispanic and Asian Americans.
    Federal regulators are to work to preserve and promote 
minority banks. For example, the Federal Deposit Insurance 
Corporation and the Office of Thrift Supervision are required 
to provide minority banks with technical assistance, training, 
and educational programs. They must also work to preserve the 
character of minority banks in cases involving mergers or 
acquisitions or these institutions.
    My testimony today summarizes the key findings of our 2006 
report, which discussed the profitability of minority banks, 
regulators' efforts to support such banks, and the view of 
minority banks on these efforts.
    In summary, our analysis showed that the profitability of 
most minority banks with assets greater than $100 million 
nearly equaled that of their peers. However, the profitability 
of smaller minority banks and African American banks of all 
sizes did not meet their peers' size and profitability.
    Many small minority banks had return on assets that were 
substantially lower than those peer groups. Moreover, African 
American banks of all sizes had return on assets that were 
significantly lower than those of their peers.
    Our analysis identified some possible explanations for the 
low profitability of some minority banks, such as higher 
reserves for potential loan losses, higher administrative 
expenses, and competition from larger banks. Nevertheless, the 
majority of officials from minority banks were positive about 
their bank's rational outlook, and many saw their minority 
status as an advantage in serving their communities.
    In terms of fellow efforts to support these banks, we found 
that bank regulators have adopted different approaches. The 
FDIC, which supervises more than half of all minority banks, 
had the most comprehensive program to support minority banks 
and led an inter-agency group that coordinates such efforts. 
Among other things, the FDIC designated officials to be 
responsible for minority bank efforts, held periodic 
conferences for banks, and established formal policies for 
annual outreach.
    The OTS also designated staff to be responsible for the 
agency's efforts to support minority banks, developed outreach 
procedures, and focused on providing technical assistance.
    The OCC and the Federal Reserve, while not required to do 
so, also undertook some efforts to support minority banks. 
Despite these initiatives, at the time of our review, no agency 
had regularly assessed the effectiveness of its efforts or 
established outcome-oriented performance measures for their 
programs. Consequently, regulators were not well-positioned to 
assess the results of their efforts or identify areas for 
    Some minority banks identify potential limitations in the 
regulators' support efforts. About one-third of survey 
respondents rated their regulators' efforts for minority banks 
as very good or good, while 26 percent rated the efforts as 
fair, and 13 percent as poor or very poor.
    FDIC-regulated banks were more positive about their 
agency's efforts than banks regulated by other agencies. 
However, only about half of the FDIC-regulated banks and about 
quarter of the banks regulated by other agencies rated their 
agency's efforts as very good or good. Furthermore, although 
regulators emphasize providing technical assistance to minority 
banks, less than 30 percent of such institutions said they had 
used this assistance within the last 3 years.
    Some minority bank officials also said that regulators did 
not always understand the challenges minority banks face in 
providing services in their communities. They suggested that 
examiners needed to undergo more training to improve their 
understanding of minority banks and the customers they serve.
    In conclusion, regulators are now taking steps to better 
assess their support efforts. For example, all the regulators 
are in the process of consulting with minority banks to obtain 
feedback on their efforts. Some regulators also plan to provide 
additional training to their examiners on minority bank 
    While the regulators' recent efforts are encouraging, it is 
too soon to assess their effectiveness. As they undertake these 
initiatives, we encourage regulators to ensure that they 
collect and analyze relevant data and take steps to continue to 
enhance their minority bank support efforts.
    Mr. Chairman, this concludes my prepared statement, and I 
would be happy to answer any questions you or other members of 
the subcommittee may have at this time. Thank you.
    [The prepared statement of Mr. Scott can be found on page 
85 of the appendix.]
    Chairman Watt. I can certainly tell that this gentleman has 
testified here before. He hit 5 minutes on the head, and 
followed the purpose for our being here, which is to evaluate 
and talk about the GAO's report.
    Our second witness is Ms. Sandra L. Thompson from the FDIC. 
She is the Director of FDIC's Division of Supervision and 
Consumer Protection, where she directs risk management and 
consumer protection examination activities relating to 
approximately 5,200 FDIC-supervised institutions. She 
previously served as the FDIC's Deputy to the Vice Chairman and 
led the FDIC's Bank Secrecy Act and anti-money laundering and 
financial crimes supervisory activities.
    She holds a degree in finance from Howard University. And 
Ms. Thompson, we would love to hear from your for 5 minutes, 

                       CORPORATION (FDIC)

    Ms. Thompson. Thank you. Chairman Watt, Ranking Member 
Miller, and members of the subcommittee, I appreciate the 
opportunity to testify on behalf of the FDIC regarding our role 
in preserving and expanding opportunities for minority 
institutions. Historically, these institutions play a vital 
role in their communities. They serve as a key source of credit 
and other banking services that are essential to economic 
growth and business development in areas that are often 
underserved by traditional institutions.
    My written testimony details the FDIC's efforts to preserve 
and encourage minority ownership of depository institutions, as 
well as our actions to respond to the recommendations in the 
October 2006 GAO report.
    As for the overall health of the 205 minority institutions 
in the banking system, while most are profitable, their 
financial performance as a group lags behind non-minority 
institutions. The capital levels of minority institutions are 
roughly comparable to that of the industry. However, the 
average return on assets for these institutions in the first 
half of this year was .69 percent compared to an industry 
average of about 1.21 percent.
    The difference in profitability can result from many 
factors. Minority banks, like most community banks, often must 
compete with larger financial institutions for both business 
and staff. In addition, some minority institutions are 
challenged by operating in economically distressed areas. The 
disparities in profitability and other key measures between 
minority banks and other financial institutions demonstrate the 
continued importance of the FDIC's goals to encourage and 
preserve these institutions.
    In order to achieve these goals, the FDIC operates under a 
policy statement that was adopted by our Board of Directors. 
This statement provides the framework for the training and 
technical assistance we offer to banks under our minority bank 
program. The FDIC has staff dedicated to the minority bank 
program nationwide.
    At its core, the FDIC's minority bank program focuses on 
two key elements. First, our program is designed to provide 
technical assistance and training to minority banks. We use a 
number of methods. They range from assistance to individual 
banks to national and regional conferences and forums that 
focus specifically on minority bank issues.
    The second element of our minority bank program is to train 
our examiners. The FDIC has specific programs in place to 
educate bank examiners and sensitize them to the unique issues 
often found in minority institutions. Traditional measures of 
success for the industry as a whole may not apply to minority 
institutions, so examiners have been advised not to place undue 
emphasis on peer analysis when evaluating minority 
institutions. We also invite minority bankers to speak at all 
major FDIC examiner training conferences to share their 
experiences and perspectives.
    The FDIC's minority bank program receives attention at the 
highest level in the agency. The national minority bank 
coordinator submits a quarterly report of all minority bank 
activities to our Chairman, and we also highlight elements of 
the program in our annual report.
    In response to the GAO's recommendations, the FDIC has 
developed an annual survey that will be sent to all minority 
banks at the end of this year. The banks will be able to rate 
the effectiveness of FDIC assistance programs. We also 
implemented the recommendation to develop and track specific 
outcome-oriented performance measures for our minority bank 
    In summary, minority institutions face many challenges. The 
FDIC recognizes the vital role that these institutions play in 
the economic development of communities throughout the United 
States, and we are dedicated to the goals of preserving, 
promoting, and encouraging the creation of minority depository 
    This concludes my statement, and I will be happy to answer 
    [The prepared statement of Ms. Thompson can be found on 
page 113 of the appendix.]
    Chairman Watt. Thank you so much, Ms. Thompson.
    Our third witness is Ms. Montrice Yakimov of the Office of 
Thrift Supervision. Ms. Yakimov joined the Office of Thrift 
Supervision in June of 2006, and is responsible for the 
development, implementation, and evaluation of examination 
programs for compliance with Federal consumer protection laws, 
including fair lending, the Community Reinvestment Act, and the 
BSA anti-money laundering requirements. She also heads up 
compliance policy, and is responsible for the consumer 
complaint function and the agency's community affairs program.
    Ms. Yakimov received her undergraduate degree in broadcast 
management from Howard University, and received her MBA from 
George Washington University. Welcome, Ms. Yakimov, and you are 
now recognized.

                       SUPERVISION (OTS)

    Ms. Yakimov. Thank you. Good morning, Chairman Watt, 
Ranking Member Miller, and members of the subcommittee. Thank 
you for the opportunity to discuss the Office of Thrift 
Supervision's program on preserving and expanding minority 
ownership of savings associations, Federal savings 
    The OTS recognizes and supports the critical mission, the 
legacy, and the role that minority institutions have played in 
the United States. Since the 1970's, before there was a 
legislative requirement to do so, the OTS, through its 
predecessor, has provided technical assistance and other forms 
of support to the minority institutions we supervise.
    You have asked about our efforts to address GAO 
recommendations to improve our minority institutions program. 
These actions are detailed in my written statement, but I will 
highlight today some of the initiatives that the OTS has 
recently undertaken under the leadership of our Director, John 
    The OTS minority institution program provides technical 
assistance and various forms of support to 22 minority thrifts, 
many of which primarily serve minority and lower income 
communities. We have more than 30 staff members, including 
senior management and directors, who directly provide various 
forms of assistance such as providing regular input and 
guidance on strengthening various compliance risk management 
systems; conducting training for boards of directors on various 
issues such as corporate governance, capital credit, and 
accounting policy; and occasionally assisting institutions in 
identifing and hiring new senior management and directors.
    Although the coverage ratio of OTS staff to minority 
institutions enables frequent contact with the management and 
leadership of those institutions, the GAO report recommended 
that the banking agencies institute a survey to see how we 
could do more to ensure that our minority institution program 
is delivering the forms of assistance most valued and desired 
by the institutions we supervise. OTS agreed, and has 
implemented this recommendation. We will use the results of 
this survey to continue to enhance our program.
    Our survey supplements an annual questionnaire entitled, 
``The Thrift Satisfaction Survey,'' which we are also tailoring 
in order to solicit ongoing information from the minority 
institutions we regulate.
    In order to proactively seek input on our program, we have 
also increased our contact with executives from minority 
institutions. For example, OTS Director Reich recently hosted a 
meeting of thrift institution executives at the 2007 Inter-
Agency Minority Institution Conference in Miami. The Director 
also spoke at the National Bankers Association conference this 
fall, as he did last year, seeking advice and input on what the 
OTS could do to improve our minority institution program.
    We have received excellent suggestions at these meetings, 
and will be incorporating them into the 2008 strategic plan for 
our minority institutions program. Our strategic plan will be 
finalized by year end, and it is consistent with the GAO 
recommendation to develop outcome-oriented performance measures 
to assess the progress of our efforts in relationship to the 
minority institution program goals.
    Additionally, consistent with one of the principles 
contained in FIRREA regarding minority institution support 
programs, next month the OTS will pilot more training for our 
examiners on our minority institution program during an 
advanced examiner school here in Washington. Also with the 
objective to support the creation of new minority institutions, 
the OTS has proactively participated in conferences widely 
attended by minority bankers, entrepreneurs, and other 
interested parties across the country. Through our booth, we 
have participated in events such as the Congressional Black 
Caucus conference, the National Council of La Raza's annual 
conference, and the Multicultural Business Symposium sponsored 
by the Black Business Professionals and Entrepreneurs.
    The OTS, along with the other agencies, is considering how 
supervisory guidance can support minority institutions. For 
example, last year the OTS realigned our CRA regulations with 
that of the other agencies and joined the agencies in proposing 
guidance to permit non-minority-owned institutions to receive 
favorable CRA consideration for investing in minority-owned 
    Notwithstanding all these efforts, we believe we can do 
more. Development of a minority institution strategic plan is 
underway as we look to the future and additional steps we can 
take to further strengthen our program.
    Thank you, Mr. Chairman, for highlighting this important 
issue. We look forward to working with you, Ranking Member 
Miller, the members of the subcommittee, and our fellow banking 
regulators to help support a bright future for minority-owned 
financial institutions. Thank you.
    [The prepared statement of Ms. Yakimov can be found on page 
153 of the appendix.]
    Chairman Watt. Thank you, Ms. Yakimov. Our witnesses are 
doing great staying in the time limit, but that is not to put 
pressure on the last two witnesses. They don't have the 
experience at doing this that the regulators do, so don't feel 
intimidated by that.
    Our next witness is Ms. Sandra Braunstein. Ms. Braunstein 
is the Director of the Federal Reserve Board's Division of 
Consumer and Community Affairs. As Director, she is principally 
responsible for the development and administration of Federal 
Reserve policies related to consumer financial services and 
consumer protection. Ms. Braunstein also administers outreach 
efforts to the financial services industry, State, local, and 
Federal Government officials, and consumer and community 
    Ms. Braunstein, you are recognized for your statement.

                     FEDERAL RESERVE SYSTEM

    Ms. Braunstein. Thank you, Mr. Chairman. Chairman Watt, 
Ranking Member Miller, and members of the subcommittee, I 
appreciate this opportunity to discuss the Federal Reserve's 
longstanding commitment to, and work in support of, minority-
owned depository institutions.
    Nationally, there are about 200 minority-owned depository 
institutions serving a broad range of communities and 
populations. The Federal Reserve System supervises 19 minority-
owned State member banks that are geographically dispersed 
across 8 of the system's 12 districts. They are diverse in 
terms of their minority ownership, including African American, 
Native American, Asian, and Hispanic-owned institutions.
    Some of these banks are quite profitable and operate in 
higher income markets, while others serve lower income 
communities and in some cases are challenged to achieve 
earnings commensurate with their peers. Their issues are 
similar to those faced by many other banks--controlling 
overhead expenses, difficulty in retaining qualified 
management, and meeting competition from larger institutions in 
their markets.
    Through our regulatory, supervisory, and community 
development functions, we consistently provide assistance that 
addresses the unique challenges and needs of minority-owned 
banks while at the same time holding these institutions to the 
same supervisory standards that we apply to all insured banks.
    To enhance our support for minority-owned institutions, the 
Federal Reserve has developed an innovative and comprehensive 
training and technical assistance program. This program will be 
fully operational in 2008.
    In developing the program, Federal Reserve staff met with a 
number of minority-owned and new banking organizations across 
the country, as well as trade groups, bank consultants, the 
Conference of State Bank Supervisors, and other State and 
Federal banking agencies to learn about the challenges that 
institutions confront in raising capital, and in growing and 
attracting talent. These meetings provided valuable information 
about the special needs of minority-owned banks, and also 
enhanced our understanding of the various issues that new and 
smaller institutions face.
    The resulting training program consists of three modules 
that focus on issues that are most relevant at a particular 
point in a bank's life cycle. The modules have value for 
potential entrance to the industry as well as those that have 
been in the market for many years. They draw on data and 
experience from experts in the fields of economics, accounting, 
finance, compliance, and may focus on the particular challenges 
of establishing and sustaining robust and vibrant minority-
owned depository institutions.
    Given that our minority-owned institutions are 
geographically dispersed and serve different types of 
communities, a great deal of flexibility is being built into 
the curriculum so that modules can be tailored to address 
institution-specific concerns or issues. The program also 
includes a way to obtain continuous feedback on the usefulness 
of the course materials. The Federal Reserve is committed to 
respond to changes in the training needs of minority 
institutions by reviewing and adapting the curriculum as 
    Concurrently, efforts are underway to incorporate material 
from the new training modules into the Federal Reserve examiner 
training programs. Relevant training will be provided for both 
safety and soundness and consumer compliance examiners.
    In addition to this new program, the Federal Reserve has 
had other ongoing efforts that specifically provide support to 
minority-owned institutions. We joined the other banking 
agencies in 2006 and 2007 in hosting national conferences for 
federally insured minority-owned institutions.
    System staff have also participated in regional events. Our 
ongoing commitment is further demonstrated through coaching and 
mentoring minority-owned banks that have struggled to manage 
growth while remaining profitable. We have also assisted 
institutions through the acquisitions process, including branch 
    On the regulatory front, the banking agencies recently 
issued for comment some clarifications regarding the Community 
Reinvestment Act. One of the proposed questions and answers 
indicates that non-minority banks' investments in minority-
owned banks receive favorable consideration under the 
investment test even if the minority-owned institution is not 
located in and the activities do not benefit the assessment 
areas of the investing institution.
    I would like to reiterate the Federal Reserve's commitment 
to promoting vibrant, competitive, and diverse banking markets. 
We are dedicated to using our roles as supervisors, regulators, 
community development facilitators, and consumer educators to 
support minority-owned institutions and the consumers who 
contribute to our robust financial services system.
    Thank you.
    [The prepared statement of Ms. Braunstein can be found on 
page 53 of the appendix.]
    Chairman Watt. I thank you for your statement. Our next 
witness is Mr. John Walsh of the OCC. Mr. Walsh is the Chief of 
Staff and Public Affairs for the OCC, serving as the 
Comptroller's senior advisor on all matters. He represents the 
Comptroller in internal and external meetings and events, and 
provides expert policy advice. He also oversees the Agency's 
public affairs, congressional liaison, banking relations, 
program analysis and leadership learning, and workplace 
fairness functions.
    Mr. Walsh holds a masters in public policy from the Harvard 
Kennedy School of Government. Mr. Walsh, you are recognized for 
your statement.


    Mr. Walsh. Thank you, Chairman Watt, Ranking Member Miller, 
and members of the subcommittee. I am John Walsh, Chief of 
Staff and Public Affairs at the Office of the Comptroller of 
the Currency.
    I am pleased to appear before you today to discuss the 
GAO's October 2006 report, ``Minority Banks: Regulators Need to 
Better Assess Effectiveness of Support Efforts,'' and the 
actions that the OCC has taken to address the recommendations 
of that report.
    The OCC recognizes that minority-owned banks are important 
community and national assets. Minority banks have long 
performed a vital role in the American financial system by 
serving the market needs of their local communities, and the 
OCC is committed to encouraging their continued success. While 
the OCC is not subject to Section 308 of FIRREA, it has 
voluntarily taken the initiative to support minority banks in 
keeping with that legislation.
    The OCC issued a policy statement on minority-owned 
national banks in 2001 to further the ability of minority banks 
to prosper and meet the needs of their communities. Let me 
review a few of the actions we have taken to implement this 
    First, the OCC created a senior advisor position in 2004 to 
serve as the agency's focal point for minority banking issues. 
Second, the OCC formalized its longstanding practice of making 
experts available in each of the OCC's districts to provide 
guidance on a range of supervisory issues of importance to 
minority-owned institutions. Third, we have issued guidance, 
distributed publications, and conducted information sessions 
regarding the provision of capital and other resources to 
minority-owned banks, including majority bank investments in 
many institutions.
    As you know, the 2006 GAO report recommended that we 
consider serving minority institutions or undertaking other 
measures to determine how minority banks view our support 
efforts and related activities, and to assess the progress in 
meeting our goals. Building on our minority bank policy 
statement, we have undertaken additional efforts to increase 
the effectiveness of our supervisory services and outreach to 
our minority banks, as recommended in the GAO report.
    Our initial step, now completed, was to conduct an internal 
survey of the assistant deputy comptrollers and portfolio 
managers who directly supervise minority national banks.
    The second phase of our review began in August 2007, when 
we distributed a survey directly to our minority-owned national 
banks. The minority national banks survey is very focused on 
how we can make our education, outreach, and technical 
assistance efforts more useful and effective to these banks.
    The survey also provides minority bankers the opportunity 
to comment on the OCC's supervisory policies and guidance and 
to state whether they believe our examiners have the training 
and guidance necessary to effectively supervise their banks.
    I can report that the early returns from these surveys 
underscore the importance of specialized supervision for 
minority-owned banks. These results encourage us to place even 
greater emphasis on how to improve the effectiveness of our 
supervisory policies and guidance, and the ongoing training 
needs of both our examiners and our minority institutions.
    As I describe further in my written testimony, the OCC is 
also implementing several additional initiatives to further the 
ability of minority banks to prosper and meet the needs of 
their communities. These include improving communications with 
organizing groups interested in entering the national banking 
system, expanded participation in outreach meetings and 
conferences throughout the country to discuss supervisory and 
industry issues, and the expanded use of the internet to 
support minority institutions.
    The OCC created an external outreach and minority affairs 
page on the OCC's public Web site, and a special informational 
page for bankers on OCC's National BankNet site is under 
development. New BankNet features will include comparative bank 
performance metrics, discussion of legislative and regulatory 
issues, upcoming training opportunities, and other information 
of interest to minority bankers.
    In conclusion, let me restate the OCC's commitment to work 
with minority-owned national banks and to provide effective 
technical assistance and supervisory services. As I mentioned, 
the OCC has voluntarily taken the initiative to support and 
reach out to minority banks under FIRREA's Section 308 
provisions, and we would have no objection to that being made 
explicit by the Congress.
    Thank you, Mr. Chairman. I would be pleased to answer your 
    [The prepared statement of Mr. Walsh can be found on page 
136 of the appendix.]
    Chairman Watt. Thank you, Mr. Walsh.
    Sometimes when you are in the middle of these hearings, you 
have a flashback to an earlier time in your life. And I just 
had one because--and Ms. Waters is going to get me out of the 
problem. I had two guys in my high school class. One of them 
was named ``Cooper'' and one of them was named ``Cooper''--
spelled exactly the same way. So I have had this dilemma in my 
whole life, and I don't have to answer that today because I am 
going to recognize Ms. Waters to make the introduction of our 
next witness, whatever his name is.
    Ms. Waters. Thank you very much for putting me on the spot, 
Mr. Chairman.
    There may be two ways to pronounce this gentleman's name, 
but I have always referred to him as Mr. ``Cooper.'' Mr. Bob 
Cooper, the chief legal strategist for OneUnited, the largest 
African American-owned bank in the country. Mr. Cooper is 
typical of the young, brilliant minds that have been amassed at 
OneUnited Bank by Mr. Kevin Cohee.
    Since Mr. Cooper joined OneUnited, it has acquired and 
turned around three troubled banks, and grown from $56 million 
to $650 million in assets, making it the fastest-growing 
African American-owned bank in the Nation. Mr. Cooper is here 
today as the current chairman-elect of the National Bankers 
Association, the nation's oldest and largest trade association 
representing minority- and women-owned banks and thrifts.
    Thank you, Mr. Chairman.
    Chairman Watt. And I will recognize Mr. ``Cooper,'' or Mr. 
``Cooper,'' for his remarks.


    Mr. Cooper. Good morning, Chairman Watt, Ranking Member 
Miller, and members of the subcommittee. My name is Robert 
Patrick Cooper, and I am providing this testimony on behalf of 
the National Bankers Association, the NBA, and its national 
constituency of minority- and women-owned banking institutions.
    First of all, we would like to thank you for taking the 
time to hold this hearing regarding the concerns of minority 
banks. We are confident you recognize the importance of 
minority banks in this country, particularly to our inner 
cities, where they not only provide critical financial services 
but also, as importantly, serve as a beacon of hope to 
underserved minority residents. These remarks seek to initiate 
a dialogue with you and your congressional colleagues to 
rectify certain problems minority banks face, and thereby avoid 
further crises for these institutions.
    Regulators thus far have steadfastly refused to focus on 
the benefits and changes they are uniquely empowered to 
provide, instead emphasizing the straightforward FIRREA mandate 
regarding technical assistance. FIRREA was about more than 
technical assistance. It was a recognition of the unique 
challenges of minority banks and a promise to rectify them, a 
promise that thus far has been unfulfilled.
    Let me briefly provide some context. The assessment of the 
GAO report accurately can be described as no less than 
alarming. For example, African-American banks, which are at the 
very heart of many large U.S. cities, have ROAs that 
significantly lag that of their peers, in some cases by as much 
as 75 percent. Unfortunately, the regulatory response to this 
crisis has fallen far short of congressional mandates as 
outlined in FIRREA.
    As a result, we are well beyond the point where nebulous 
promises of future assistance are sufficient. Having failed to 
see expected benefits in the 18 years since FIRREA's passage, 
the NBA strongly believes that more forceful congressional 
action and oversight is now required.
    Accordingly, the NBA is requesting specific, prompt, 
forceful action at the legislative, regulatory, policy, and 
procedural level to change the environment in which minority 
banks operate. We would very much appreciate the committee 
leading this effort and forcing the banking agencies to appear 
before you in formal hearings in which we can also participate 
on no less than an annual basis to explain their performance on 
a ``outcome-oriented'' basis recommended by the GAO.
    Now, as a road map of certain objectives, we suggest the 
following. On the legislative front, we would ask respectfully 
that Congress amend FIRREA to expressly make it apply to all 
four Federal banking agencies, and to make it a mechanism of 
change. In my written remarks, I have prepared specific 
language for the committee's consideration.
    To emphasize, however, while we believe amending FIRREA is 
important unto itself, it is far from sufficient. Our 
fundamental dissatisfaction is not with Congress. As a result, 
we wanted to provide a non-exhaustive list that the banking 
agencies can target to begin to improve the standing of 
minority banks.
    First, the current capital rules are not designed to 
address the particular experience of minority banking 
institutions, and thereby to enable them to become prominent by 
asset size as well as role, and members of the financial 
services marketplace.
    The avenue of raising capital commonly used by majority 
banks, broad public offerings of common stock, is not 
practically available to minority banks. The general concern is 
that by raising such funds, the shareholder base of the bank 
will change in a way that is adverse to its status and role as 
a minority bank.
    We thus submit, and wish the banking agencies to recognize, 
that: one, nonvoting preferred stock held by institutional 
investors is a stable, safe, and sound form of capital; and 
two, it would not be an unsafe or unsound banking practice to 
amend the capital rules to permit minority banks to have a high 
percentage of capital consisting of such nonvoting preferred 
    As a second specific area for change, despite certain 
recent and appreciated regulatory initiatives, the current CRA 
rules still do not address the particular environment in which 
minority banks operate, for example, with respect to 
encouraging majority banks to support them through investments, 
loans, or deposits.
    Majority banks should receive CRA credit for funding 
minority- and women-owned banks, which are often community 
development financial institutions, or CDFIs. By modifying the 
CRA framework to make it expressly clear that such funding is 
wholly consistent with the purposes of CRA, minority banks can 
materially increase the funding they receive from bank 
institutional investors.
    We are aware of Q&As designed to address this issue. 
Nevertheless, we strongly believe that the banking agencies 
should amend the CRA regulations to more expressly grant CRA 
credit to majority banks for providing funding to minority- and 
women-owned banks in CDFIs.
    As a third specific area for change, banking agencies 
should consider the particular challenges faced by minority 
institutions when making broad policy statements. Such 
statements tend to address sweeping topics of current relevance 
to financial services, often in untailored terms. Consequently, 
minority banks face the prospect of examinations and criticisms 
not appropriate given their role in the industry.
    We would suggest each banking agency either create a 
blanket policy addressing minority banks or amend their 
existing policies to expressly provide that regulators and 
examiners thoughtfully consider the unique circumstances of 
minority institutions in applying such policies.
    Going forward, we would further suggest that each time 
regulators propose a policy statement, they strongly consider 
whether minority banks should be separately addressed in the 
statement, and specifically discuss their reasoning and 
conclusion in this regard in the preamble to the proposed 
    In conclusion, we look forward to working with you and the 
regulators to address the foregoing challenges facing our 
institutions. We appreciate your attention to this important 
matter, and I would be pleased to answer any questions you may 
have. Thank you.
    [The prepared statement of Mr. Cooper can be found on page 
62 of the appendix.]
    Chairman Watt. Thank you, Mr. Cooper, for your testimony.
    And I will now make my disclaimers so that I get them on 
the record. Most people recognize my congressional district as 
being the second largest financial center in the country in 
Charlotte, North Carolina. And they recognize Bank of America 
and Wachovia.
    But it should be clear that my bank account has always 
been, throughout my entire banking history, at Mechanics & 
Farmers Bank, a minority institution in our great State. And I 
should also disclose, although it is a matter of public record, 
that I am a shareholder in Mechanics & Farmers Bank--not on the 
board; I don't have any close connections like that.
    But I wanted to get that out of the way before I introduced 
our next witness, Kim D. Saunders, who has served as president 
and CEO of M&F Bancorp, Inc. and M&F Bank, Mechanics & Farmers 
Bank, since February of 2007, and before that held the same 
title at Consolidated Bank & Trust Company. She was the second 
female president and CEO in Consolidated Bank's history, a 
distinction she also holds at Mechanics & Farmers Bank.
    Ms. Saunders has a B.S. degree in economics from the 
Wharton School of Finance at the University of Pennsylvania, 
and an honorary Doctorate of Humane Letters from Shaw 
University in Raleigh, North Carolina. We welcome you today. To 
the extent that there is such a thing as a personal banker, Ms. 
Saunders might be it, although she is way--150 miles away from 
where I am in Charlotte.
    So we recognize you for your statement.

                          FARMERS BANK

    Ms. Saunders. Good morning, and thank you. Mr. Chairman, 
Ranking Member Miller, and other distinguished members of the 
subcommittee. Again, my name is Kim D. Saunders and I am 
president and CEO of M&F Bancorp, Inc., and Mechanics & Farmers 
Bank. On behalf of the boards of directors of M&F Bancorp, 
Inc., and Mechanics & Farmers Bank, I am honored to provide you 
with comments on this very important subject of preserving and 
expanding minority banks.
    M&F is a $223 million community bank that conducts business 
in four of North Carolina's largest markets. The bank is 
celebrating its 100th anniversary throughout 2007 and 2008, and 
our parent company currently is anticipating approval of a 
merger agreement that should elevate Mechanics & Farmers Bank 
into the top five largest African-American-owned banks in the 
United States.
    In deference to this committee's time, I would like to 
focus on the specific areas that I believe offer the potential 
of substantive assistance for minority banks. They are how 
regulators may increase utilization of technical assistance 
among minority banks, and specifically legislative steps that 
should be taken to assist minority banks to raise capital and 
to operate efficiently.
    In August 2006, the FDIC's Vice Chairman, Martin Gruenberg, 
identified some of the challenges to minority banks operating 
in a highly profitable manner: the relatively higher cost of 
doing business in communities with incomes below market 
average; high immigrant populations; smaller deposit base; and 
a preference for in-person service.
    To assist minority banks in addressing these unique 
challenges as well as facilitating capital investments in these 
institutions, I recommend the Committee on Financial Services 
consider legislation to ensure that bank regulators provide the 
necessary notification regarding the array of technical 
assistance services that are available, and to amend regulatory 
peer group benchmarking and examination evaluations to 
recognize the differences between minority banks and the UBPR-
designated peer groups.
    Finally, although I recognize that the Federal tax 
legislation is outside the purview of this committee, the 
ability of minority banks to raise capital would be enhanced if 
the CDFI fund guidelines were modified to allow tax credits for 
investments specifically in those institutions, more 
specifically with respect to increasing the use of technical 
assistance by minority banks.
    Banking regulators should correspond at least semi-annually 
with the CEOs of the minority banks they oversee to apprise 
them of the forms of technical assistance that may be available 
and to provide the appropriate contact information for future 
reference. They should also utilize this opportunity to 
determine what other pertinent forms of technical assistance 
could be provided.
    Regulators should be proactive in communicating with 
minority banks, especially those deemed to be low-performing. 
Our overall relationship with regulators has been positive, but 
there is room for improvement.
    In terms of specific legislative steps to assist minority 
banks to raise capital and operate efficiently, let me state 
clearly that my bank and the other minority banks share the 
regulators' goal of ensuring the safety and soundness of the 
banking system.
    The GAO report clearly highlights the traditional and 
universal difference in performance between minority and 
majority banks. However, regulatory benchmarks by which 
minority banks' performance is graded always compares these 
institutions with the UPBR-designated peer groups such that a 
truly equitable comparison of performance factors is not 
considered nor possible.
    The Financial Services Committee should consider 
legislation so that regulatory peer group benchmarking and 
examination evaluations are tailored to recognize these 
differences. Just as there exist today certain examination 
differences for money center banks versus smaller community 
banks, regulators should modify the grading process utilized in 
bank examinations by comparing minority banks to a peer group 
of other minority banks, and within the context of this peer 
group structure, apply the factors of safety and soundness.
    Finally, and as aforementioned, while the Financial 
Services Committee does not have jurisdiction over taxes, which 
is the purview of the Ways and Means Committee, there is a 
palpable role for incentives. The market places such a 
significant discount on the value of minority banks that we are 
at a significant disadvantage regardless of our stature of 
profitability in our abilities to raise capital. Therefore, the 
CDFI fund guidelines should be modified to include tax credits 
for investments specifically in minority banks.
    It is the sincere wish of the boards of directors of M&F 
Bancorp and Mechanics & Farmers Bank that this committee will 
consider the recommendations made today and take the necessary 
actions to truly preserve and expand minority banks.
    Again, I am honored and appreciative of this opportunity to 
testify, and I am available for questions and comments from 
this distinguished panel of committee members. Thank you.
    [The prepared statement of Ms. Saunders can be found on 
page 74 of the appendix.]
    Chairman Watt. Thank you so much for your testimony. She 
said she was a little nervous, but she did fine--wonderful. 
Thank you.
    We welcome Representative Greg Meeks, who is not a member 
of our subcommittee, but is a member of the full Financial 
Services Committee. I understand that he may wish to make an 
opening statement. If so, I would ask unanimous consent to 
allow him to do that.
    Mr. Miller. Who is wanting to speak? I want to know before 
I grant unanimous consent. Oh, Mr. Meeks. Okay.
    Chairman Watt. He is reserving the right to object. I think 
he is giving you a hard time this morning.
    Mr. Meeks. He always does. I will get him in the gym 
    Thank you, Mr. Chairman. I am very thankful to you, Mr. 
Chairman, for holding this hearing. Coming from the City of New 
York, and listening to you as you talked about Ms. Saunders, I 
want to say that in New York we have one bank, Carver Savings 
Bank, where we have an individual whom Ms. Saunders reminds me 
of, Debbie Wright, who is the president of that bank.
    I want the record to reflect that my account is at Carver 
Savings Bank, and that every--even my campaign's account, every 
dollar goes through Carver Savings Bank in New York. And we 
then try to advocate for all of the electeds that are in New 
York to try to put whatever--not only their personal money, but 
whatever political money they raise, if you are going to keep 
it at a bank, keep it at Carver Savings Bank because it is 
tremendously important to us and it is tremendously important 
to the development, the economic development, of our 
    And so it is tremendously important--this hearing is 
tremendously important for me and important for communities 
throughout America because the banks, they are responsible for 
and help revitalize our communities. And when we are talking 
about individuals needing loans, whether it is for a home, 
whether it is for a business, whether it is, you know, in 
having someone that you can go in to and trust and you are 
talking about truly a neighborhood type situation of 
understanding the community in a way that no one else can, it 
is the minority banks that we have.
    And there is a desperate need, I believe, all across this 
Nation to make sure those that we have, that we cherish, and 
that we make sure that that playing field is leveled and equal 
for them, and that they are evaluated in the appropriate way. 
And so I am thankful to be here at this hearing.
    I am also thankful to be sitting in the Financial Services 
hearing room, Mr. Chairman, and seeing so many people of color 
testifying. Too often, that is not the case here in this 
hearing room. And I look forward to the individuals who are 
testifying to be also testifying very shortly because I know 
that they are going to be the heads of many of their regulatory 
agencies in particular. And so I look forward to the government 
reflecting America, and having them as heads of some of the 
regulatory agencies, and testifying before the full committee 
representing their agency in that capacity.
    I yield back the balance of my time.
    Chairman Watt. I thank the gentleman for being here, and I 
am personally aware of his longstanding commitment in this area 
and his predecessor's longstanding commitment in this area. 
Representative Floyd Flake, who formally chaired this 
subcommittee, was in office before Representative Meeks, so we 
know that congressional district has a long, longstanding 
    Now, I have to chair this subcommittee, so I am going to be 
here, but I know some of the other members have commitments 
that may require them to leave. I have a bunch of questions, as 
you can probably imagine, but I am going to defer my right to 
go first and would recognize Ms. Waters for 5 minutes for 
    Ms. Waters. Thank you very much, Mr. Chairman. I would ask 
unanimous consent to submit for the record my disclosure 
statement, which includes my husband's service on the board as 
a director. He is also a shareholder in OneUnited Bank.
    Chairman Watt. Without objection.
    Is that required?
    Ms. Waters. I beg your pardon?
    Chairman Watt. Maybe I need to do that, too. Is that 
    Ms. Waters. Well, I think we should always--
    Chairman Watt. Okay. We will put it in the record.
    Ms. Waters. --put it in the record. And while we are doing 
that, let me just explain for those who are wondering about why 
so many of us have personal involvement with minority banks.
    In the African-American community, the test of your 
commitment to economic expansion and development and support 
for business is whether or not you put your money where your 
mouth is. And so for people who may be in the audience who 
don't understand all that you are hearing, you will find that 
most black professionals belong to, participate with, their 
minority banks in their community. It is expected of us. We 
should do it. And it is a true test of our commitment. So I 
want that on the record also for those people who don't 
understand our relationship to minority banks.
    Having said that, let me just say to our agencies that 
testified today that the report on minority banks, the 
regulators' assessments of the effectiveness of their support 
efforts, have been limited. The statement by Mr. Scott is 
really kind of an indictment on your ineffectiveness.
    We are not here to beat up on you this morning. But while I 
appreciate your testimony about the conferences you have 
attended, we really want to get to the core of what your 
assistance is really all about.
    Have any of you been involved in assisting minority banks 
with capital formation or access to capital so that they would 
be able to provide better services? I see Ms. Thompson is 
saying ``yes.'' Would you tell me in as short a period of time 
as you possibly can, what have you done to assist with capital 
formation? Is it Ms. Thompson or Ms.--Yarrow, is that it?
    Ms. Yakimov. Montrice Yakimov.
    Ms. Waters. Yes.
    Ms. Yakimov. Our agency at the regional level, at the 
highest levels in our regional offices, has worked with a 
number of our institutions, and is reaching out to potential 
investors and supporting their efforts to raise capital.
    Ms. Waters. Who have you been successful with?
    Ms. Yakimov. I think we have some positive stories to 
share. There is one effort that is difficult to talk about 
right now because we are early in the process.
    Ms. Waters. You don't have to name names. Just tell us, 
there has been a particular effort that you have made that 
helped to identify and assist in getting ``X'' number of 
dollars for capital for a minority bank.
    Ms. Yakimov. Yes.
    Ms. Waters. How much?
    Ms. Yakimov. You know, I would be happy to submit that for 
the record. I don't have the specific dollar amount. But I do 
know that there have been a number--
    Ms. Waters. All right. We will get back to you on that.
    Ms. Yakimov. Sure.
    Ms. Waters. Because this is what we are really interested 
in, not the conferences and the generic outreach. We want to 
really talk about, for example, who was involved in saving a 
minority bank that may have been taken over by a majority bank 
in a merger? Has anybody been involved in that kind of 
    Ms. Thompson. The FDIC regularly gets involved in--
    Ms. Waters. I am sorry. I didn't hear you, Ms. Thompson.
    Ms. Thompson. Sorry. The FDIC regularly gets involved in 
troubled institutions.
    Ms. Waters. Give me an example of a minority bank that you 
have helped to save.
    Ms. Thompson. I can't talk about open institutions. But I 
can tell you and assure you that there have been near-failures 
in minority institutions where we have put together bid lists 
that comprise specifically--
    Ms. Waters. Are you familiar with Independence Bank?
    Ms. Thompson. Yes, I am.
    Ms. Waters. Do you know that was a minority bank that was 
owned by a minority family for many years in this area that was 
taken over by one singularly dedicated white male, who has 
ended up with 51 percent ownership of the bank? Were you 
involved in that?
    Ms. Yakimov. That is--
    Ms. Waters. Oh, you were involved in that?
    Ms. Yakimov. I am sure Ms. Thompson is happy to pass that 
one on to me. Independence is supervised by the Office of 
Thrift Supervision. Representative Waters, I appreciate your 
point. I can share with you that the OTS did reach out to 
potential partners to retain the minority ownership of the 
institution. It is difficult to talk about all of that. Some of 
it has been publicized in the media.
    Ms. Waters. Okay. I am not going to let you go on. I just 
bring this up as a point of reference to let you know that we 
know about these things, and I am very much involved. I kept up 
with this effort with Ms. Carolyn Jordan, who was the first 
African American to serve in the Congress of the United States 
on the Banking Committee many years ago, a brilliant woman who 
worked very hard to try to save that bank.
    I just bring that to your attention to let you know that we 
are serious about what is supposed to be law and supposed to be 
your attempts to honor Section 308 of the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989 that 
established goals toward which Federal regulators must work to 
preserve and promote such institutions.
    And I want you to know that I was involved in reaching out 
to the FDIC in particular when there was another bank that was 
about to be acquired by a major white bank out of Illinois. And 
basically, I was told that there was nothing that could be 
    Now, let me be clear. We are all interested in making sure 
that our banks are sound, that they are operating properly, and 
that they are following the rules and the laws. So I don't want 
anybody to think that we are trying to get something for 
minority banks that they don't deserve.
    But let me just say to you that we do not believe that our 
agencies who are charged with this responsibility--and it is 
pretty much documented in this report--are doing enough. I 
appreciate some of the recent efforts to organize after this 
report was in process. This is very important to African 
American and minority communities, and we are going to do 
everything that we can to assist you.
    We like the recommendations that are coming forward today 
about what we can do. And I particularly want to know about the 
peer review more, and I want to know about the capital, the 
reserves that are required for so-called at-risk institutions, 
so that we can see what we can do legislatively to assist our 
minority banks.
    Having said that, let me wrap up because I am over my time. 
Do any of you have any suggestions for legislation that would 
help you, as we have coming from our minority institutions? 
What would you suggest we do that could be helpful to you?
    Chairman Watt. All of them are swallowing hard. So maybe we 
should ask them to think about that and come back with written 
recommendations, if they have any. And maybe you can do it in 
consultation with others in your regulatory structure.
    Ms. Waters. Thank you very much, Mr. Chairman. I yield 
    Chairman Watt. We unfortunately heard the bells and 
whistles going off, which means that we have a series of three 
votes. The first is a 15-minute vote, followed by two 5-minute 
    We have time to get in one additional question.
    Mr. Miller. Maybe two.
    Chairman Watt. If there is somebody who will not be able to 
come back--
    Mr. Miller. Well, now, the minority side has some rights 
over here.
    Chairman Watt. You have the right to go.
    Mr. Miller. Nobody wants me to buy bank stock, but, I mean, 
I want to speak.
    Chairman Watt. You have to come back.
    Mr. Miller. I am going to be back.
    Chairman Watt. No, that is fine. I was going to go to 
somebody who might not be able to come back.
    Mr. Miller. Well, for the record--
    Chairman Watt. In that case, I will recognize the gentleman 
for 5 minutes. I would have given him the right to do that 
    Mr. Miller. For the record, I bought quite a bit of bank 
stock yesterday from my perspective. But nobody is here that I 
bought--there are some great deals out there in the banking 
industry, I hate to say it, as you all know.
    This has been a very good panel. I am just amazed that 
everything stayed--probably the first time ever that many 
stayed within the 5-minute timeframe. And it is really good to 
    Mr. Scott, let's start with you on this side. Can you 
please describe the technical assistance that you are providing 
to minority banks that you think is of benefit to them, and how 
many banks utilize the assistance available?
    Mr. Scott. Mr. Miller, as GAO, we actually are not involved 
in providing technical assistance to the financial 
institutions. The work we did focused on the efforts by the 
    Mr. Miller. But you did a study on it? Yes.
    Mr. Scott. We just reviewed their efforts. Yes, sir. So I 
would defer to the regulators to describe their technical 
assistance effort.
    Mr. Miller. Okay. And the GAO study in 1993 on minority 
banks, has there been significant growth in minority banks 
since that study was done, from your perspective?
    Mr. Scott. Most recently, I believe the number we have in 
our report is around 195. I think the regulators are saying 
over 205 now. So there continues to be some growth in those 
numbers. Yes, sir.
    Mr. Miller. Mr. Cooper--Cooper, excuse me. I will get it 
right. I don't want to be wrong--I really enjoyed your 
testimony. Is there a reason that you couldn't sell common 
stock to maintain minority management in that same process? And 
wouldn't this balance both concerns, having adequate capital 
and accessing capital like other banks, but maintaining 
minority leadership roles within the bank?
    Mr. Cooper. The short answer to that is no. But first I 
would like to echo Congresswoman Waters, that in no way are we 
advocating compromising any of the standards of safety and 
soundness, nor are we requesting that this committee 
contemplate any measure--
    Mr. Miller. But to my question, why couldn't you sell 
common stock?
    Mr. Cooper. Well, we could sell common stock. The concern 
there is that you actually dilute your shareholder base, and 
that minority banks are at a competitive disadvantage in that, 
for the majority, if you go out and have a public offering, you 
are still a majority institution. As a minority bank, if you go 
out and engage in that same activity, then you risk losing your 
minority character either in the initial public offering or in 
sort of a secondary offering.
    Mr. Miller. But how do individuals who believe in minority 
banks--let's say I believed in minority banks and I wanted to 
invest in a minority bank to assist you in what you are doing 
in an area. That seems counterproductive that the bank couldn't 
allow that because it increases your assets and available funds 
to serve the community.
    Mr. Cooper. Well, as we know, there are individuals who can 
invest in institutions, but the resources of most individuals 
are relatively small. The access that or the advantage that 
minority banks actually have is their access to large 
institutional investors, such as large media conglomerates, 
insurance companies, oil companies, and the like, and that they 
are willing to invest money in preferred shareholdings which 
have no voting rights.
    Mr. Miller. So you are afraid that common stock sales would 
create a situation where a different group could take over the 
bank rather than the minorities?
    Mr. Cooper. Correct. And then by definition, you wouldn't 
have a minority bank.
    Mr. Miller. It is sad to say, but that is counterproductive 
to everything we are trying to do in society to integrate 
groups in and create opportunity in a fashion. I mean, it 
really is, but it is sad.
    Mr. Cooper. I would respectfully disagree with those 
remarks, that it is sad. Minority banks, particularly African 
    Mr. Miller. I mean, it is sad that the others can't be 
involved in the process.
    Mr. Cooper. No. Others certainly can be involved, and any 
of our banks welcome capital that is provided to our 
institutions. So we are actually not refusing capital from 
these different sources. I guess what I would suggest to you is 
that those amounts of capital can be found in limited amounts 
as opposed to the larger amounts of capital that banks need to 
survive and prosper and grow.
    Mr. Miller. Ms. Thompson, is there a limit with what 
regulators can do with respect to balancing safety and 
soundness concerns and helping minority institutions at the 
same time?
    Ms. Thompson. Well, that is a priority for our 
    Mr. Miller. Microphone?
    Ms. Thompson. I am sorry. Yes. Safety and soundness of 
financial institutions is a priority for our organizations. I 
would say that capital is important because capital really is 
used to absorb unexpected losses, and it promotes public 
confidence. And when people see that FDIC seal, it ought to 
stand for something.
    Capital is critical in terms of the institution. And we 
have taken a look at some of the suggestions that have been 
made by Mr. Cooper, with regard to preferred stock. These 
instruments are kind of a hybrid. They have some 
characteristics that look like equity, and they also have 
characteristics that look like debt.
    And when you are talking about capital, we want pure 
capital. We want to make sure that there is money available to 
absorb losses. Preferred stock represents a debt obligation for 
the institution because you have to pay dividends, which is 
effectively interest. So we want to make sure that when we are 
talking about capital, that it is there and it is available to 
absorb losses.
    Mr. Miller. Do minority institutions face different 
challenges in respect to sound management than other 
institutions would?
    Ms. Thompson. Well, I don't know that they face different 
challenges with regard to sound management. I would venture to 
say that I am familiar with many of the management of these 
organizations, and I think that they are as sound as any other 
in their peer groups.
    I would say that there are some challenges that are 
specific to minority institutions. They often operate in 
economically distressed areas. Many times they operate in urban 
areas. And they often have a high reserve for losses. They have 
high expenses. They have a high touch operation where they have 
to deal directly face-to-face with their customers. So there 
are some challenges that are unique to minority institutions.
    Mr. Miller. Well, I am in a situation, Mr. Watt, of too 
many questions and too little time. Thank you.
    Chairman Watt. Well, we will recognize you again on the 
next round of questioning, but right now we have about 5 
minutes to get to the Floor. So we will recess, and we should 
be back immediately following the series of votes. That should 
be probably 20, 25, or 30 minutes at the most, so you all be at 
ease, and we shall return.
    Chairman Watt. We will reconvene. Mrs. McCarthy, 
unfortunately, had another meeting she had to go to, but she 
said she would get back, hopefully, before we finished up. The 
ranking member, I think, is on the way back from the Floor. And 
it is my turn to ask questions, anyway.
    And since I have so many, maybe I should get on with it so 
as not to hold up either the panel or members who come in. 
There are a number of areas here that I would like to explore. 
Perhaps I should start with Mr. Scott, to ask a general 
    It seems to me that the regulators in most of the areas 
over which they have regulatory authority and which they 
consider important, either because they themselves understand 
that it is an imperative for them to deal in a certain way, or 
because the Congress has made it absolutely clear to them that 
we have an expectation.
    We will create a set of outcome-oriented performance 
measures. I am just thinking about some of those areas. There 
are some specific criteria that define whether you are safe and 
sound. There are some specific criteria, although the 
regulators didn't start out thinking that maybe this was all 
that important, there are some specific criteria that define 
success or failure to meet CRA.
    I don't see anything in this area where that has occurred. 
Mr. Scott, your agency--I guess you weren't there in 1993--
defined this as something that might have been desirable in 
1993. You identified again in the 2006 report that none of 
these agencies, none of these regulators, have established 
outcome-oriented performance measures, is the way you described 
    So I guess my first question, Mr. Scott, and then I would 
like to hear from the regulators in this general context, is 
many of the same recommendations you made, the GAO made, in 
1993, you made again in 2006. In your consultation with the 
regulators, have they provided reasons for not implementing the 
1993 recommendations, first of all?
    And can the GAO offer any suggestions for banking 
regulators in this whole context of establishing outcome-
oriented performance measures, or is that something that they 
should be taking the initiative on? What kinds of things might 
be considered an outcome-oriented performance measure?
    Let's start with Mr. Scott on that. And this is not 
designed to be unfair to the regulators or to beat up on you. 
That has never been my intent. My objective is to be 
constructive here. But I would like to hear from all of you in 
that context.
    Mr. Scott. Thank you, Mr. Chairman. In terms of the 
progress the agencies made or did not make between our 1993 
report and our 2006 report, I would respectfully defer to them 
to explain to you what was going on in the intervening years. 
In terms of--
    Chairman Watt. But did they say anything to you about--I 
mean, did you ask the question? You seem to be finding a lot of 
the same things.
    Mr. Scott. We had discussions with each of the regulators. 
I think some of what we saw was that they were taking some 
steps. But the point we made in our most recent report was that 
it should be a comprehensive approach--it should be on a more 
routine, regular basis, so you have ongoing feedback that can 
be provided to the regulators so that they will know realtime 
that the actions they are taking--the technical assistance, the 
outreach meetings, the conferences--are they really making a 
    So rather than doing things on an ad hoc basis, what we are 
really focusing in on is trying to encourage them to do these 
surveys and other outreach efforts on a more routine basis that 
allows them to gather feedback, analyze the data, and then 
where necessary, make changes to their outreach programs or 
activities. That is really the goal of our recommendations, to 
get more realtime data so that the agency is in a better 
position to be more responsive to the institutions.
    In terms of outcome-oriented performance measures, I mean, 
clearly there is a range of opportunities there for the 
agencies to implement those. The bottom line is that for any 
action the agencies take, we want to make sure that the actions 
make a difference. If you are going to do a conference, you 
want to know not only that people are attending, but the 
material they are receiving, the information being shared is 
making a difference in their operations and the financial 
stability of the institution.
    For example, your examinations, how are they impacting 
these institutions? One outcome-oriented performance measure 
could be--you know, if you examine a bank and find some 
deficiencies, what steps are the institution taking to correct 
those deficiencies? If you hold a conference, not only how many 
people attend the conference, but did it make a difference in 
terms of their knowledge base growing?
    So those are the sorts of things we are saying the agencies 
may want to consider in terms of outcome-oriented performance 
measures. Is what you are doing making a difference? And right 
now it is sort of tough to tell exactly what kind of difference 
some of the activities are having at the end of the day.
    Chairman Watt. Ms. Thompson, Ms. Yakimov, Ms. Braunstein, 
Mr. Walsh, I would love to hear from you about this whole 
concept of outcome-oriented performance measures. Failure to 
have outcome-oriented performance measures, as I said in my 
lead-up to the question, may suggest less of a feeling of 
importance to the outcomes.
    The banks, for example, complained for years that CRA was a 
process-oriented thing. We get graded on how many times we meet 
with a community group as opposed to whether anything comes out 
of that meeting, no performance-oriented, outcome-oriented 
result. And just about everything I have heard you all talk 
about is process--very little about outcome. I don't want to be 
    But talk to me about this whole concept of outcome-oriented 
performance measures.
    Ms. Braunstein. Congressman, yes, I just want it clear for 
the record that the 1993 GAO report that you are talking about 
only focused on the agencies that are covered by FIRREA. We 
were not included in that report, so I can't speak to us not 
doing something that we weren't part of.
    Chairman Watt. Well, maybe I should just hear from Ms. 
Thompson and Ms.--
    Ms. Braunstein. But I do want to address the outcome-
    Chairman Watt. All right.
    Ms. Braunstein. We have been doing a lot of activities with 
minority-owned institutions for many, many years, and I will 
admit that our outcome measures have been done on a very 
informal basis up till now. We have close relationships with 
all the banks we supervise, and we have held discussions with 
them about their needs and the effect of our exams and our 
technical assistance. But it had not been formalized up till 
    As part of the program, the new program that we have 
developed, the training and technical assistance program, we 
have built into that a feedback mechanism so that we can get 
information not just through surveys, but some of that feedback 
mechanism is actually face-to-face interactions with the 
institutions that undergo the training and go to the classroom 
training to find out, was it responsive to their needs? Was it 
helpful to the issues that they are facing in their 
institutions? And if not, what could we do to improve that?
    And we will continue--we built in this flexibility so we 
can continue to tweak the materials and the sessions to make 
them responsive and to make sure that they have good outcomes 
for the institutions.
    Chairman Watt. Let me go to Mr. Walsh next, and then we 
will get to the two people who were actually covered by the 
1993 report. Even before you say it, Ms. Braunstein has 
acknowledged that you all were not specifically directed or 
encouraged to do anything in the 1993 report. So I have that as 
a background. Do you want to respond on the outcome-oriented 
performance measures part of the question?
    Mr. Walsh. Yes, Mr. Chairman. With that as a given, I would 
echo some of the things that Ms. Braunstein said in that we 
have focused recently on a much more specific and intensive 
process of interaction with both our staff that supervise 
minority institutions and the institutions themselves to 
understand better what can be done better in the processes of 
supervision to support the institutions and to get feedback 
from the institutions themselves about how that is working.
    But even that is somewhat process-oriented in that it is 
reviewing the nature of these interactions. I would say that 
the supervisory process is in fundamental ways very 
performance-oriented in that we look at the performance of the 
banks as to capital assets management, etc., and then their 
actual financial performance.
    So that is the basis on which we are reviewing them, and we 
have made more of an effort to look at minority banks within 
their peer group to see how they are doing and how that 
performance compares to the wider range of institutions that we 
    Ms. Thompson. With the FDIC, we have been very intentional 
about our outreach and outcome performance measures. I will 
give you some specific examples.
    We talk regularly with minority institutions. We host 
conferences and forums around the country to find out what the 
issues are with the institutions we supervise and those that we 
insure. We have six regional offices, two area offices, and 
every year they are required to have outreach meetings.
    As a result, we try to find out the topics that are of 
interest to minority institutions. Specifically, at our 
national conference we heard throughout the regions and 
throughout the country that capital was important. So we made 
sure that we had people at the conference to address some of 
the capital issues, specifically for minority institutions.
    We heard from our institutions that they had concerns about 
the BSA examination process, so we held forums to talk and 
specifically go over the BSA examination process so that they 
would better understand some of the issues they were faced 
    We heard from our institutions that they were concerned 
about Information Technology (IT), so we brought IT examiners 
in to talk about the IT examination process, electronic 
banking, and some of the nuances that were associated with 
these matters. We also heard from them that they were having 
concerns about accounting, so we brought our chief accountant 
to address the minority banks so that they could find out what 
the new accounting rules were and how they would be applied to 
their specific institutions.
    In addition to the conferences and things that we do on a 
regular basis, one of the things that we require our examiners 
to do is 90 to 120 days after an examination of a minority 
institution, they are to contact that institution to review the 
exam report and to make sure that the institution understands 
any issues or concerns that we have highlighted in the report. 
And we can help them. We provide technical assistance through 
the pre-application process, through the branch application 
process, and we also take ad hoc calls.
    One of the other things that we have done that is pretty 
outcome-oriented is in response to many people who said they 
can't find their policies. So we redrafted our Web page and 
made our policies that were specific to minority institutions 
available on the FDIC's public Web site so that there wouldn't 
be any confusion about what our requirements were.
    Ms. Yakimov. In response to the 1994 GAO report, the OTS 
conducted a survey of its institutions to get a better sense of 
what more we could do, and the number one recommendation was to 
provide additional technical assistance, so we embarked upon a 
program to expand our efforts.
    In some sense, it is all about performance and outcome--
pardon me, I am fighting a cold--in the sense that we tailor 
our outreach and our one-on-one contact with minority 
institutions, specifically on issues that they have raised or 
issues that have come up during the course of examinations, 
where there may be operating challenges or struggles. So it is 
all about tailoring a program that meets the specific need of 
each minority institution.
    In addition to that, I think going forward, as part of our 
strategic plan, FIRREA requires--it calls for the agencies to 
promote the creation of new minority institutions. One of the 
reasons I mentioned our outreach to different conferences where 
there are people of color who may be interested in starting an 
institution is it is very easy to measure the success of your 
outreach on that count alone. Was our outreach to various 
groups successful that were interested in starting a financial 
institution? That is one that is clear, that is not subjective.
    But I think it is important to note that there is not a 
one-size-fits-all approach to the minority institutions in this 
country. There are different strategies, core competencies, 
strengths, and we have tailored our program to really be 
specific to what those individual needs and requests have been.
    Chairman Watt. All right. I may be missing something here, 
but I guess my outcome-oriented performance measures get a 
little bit more basic than that. But I will pursue that with 
    We are going to kind of go back and forth here for a little 
bit. I want to go to Mr. Miller, and then to Mr. Meeks for 
    Mr. Miller. Thank you very much. This end of the dais this 
time. We have started at that end. Ms. Saunders, I really 
enjoyed your testimony, and I am trying to figure out what we 
can do to help. I notice in your testimony, you said that you 
recommend the Committee on Financial Services consider 
legislation to assure that bank regulators provide the 
necessary notifications regarding the array of technical 
assistance services that are available. And I appreciate that.
    I had my staff go online to see what was available, and 
under the FDIC minority depository institution Web site, there 
was an array of information with eight regional coordinators, 
including phone numbers and Web sites. How better do you think 
we can get the information out there and encourage minority 
bankers to glean this information when we are putting it on 
site and the agencies have it?
    Ms. Saunders. As I indicated in my statement, my suggestion 
is that there be semiannual contact with each CEO. The 
population of minority banks is a discrete number that is--
    Mr. Miller. To discuss things other than what is on the Web 
    Ms. Saunders. Yes, sir. Because as was mentioned, the 
technical assistance that one institution may need may vary 
from another institution.
    Mr. Miller. Can you give us a list of what you think that 
information might be? Is that possible?
    Ms. Saunders. What the services might be?
    Mr. Miller. Yes. What information the institutions might 
need that isn't readily available today.
    Ms. Saunders. As I mentioned, it would actually be tailored 
specifically to that institution. To give you a specific 
example, we are in the midst of a merger and acquisition, as I 
mentioned. For us, it might be specific assistance relating to 
the filing of that application--the obtaining of capital to 
support that acquisition.
    Another institution I was formerly CEO of, Consolidated 
Bank, was a troubled institution. Its needs were different than 
ours. We are in a growth mode.
    So as I mentioned, just a semiannual contact from that 
regional coordinator directly with the CEO of each respective 
minority institution might facilitate the outcomes of that 
institution from a performance perspective.
    Mr. Miller. But within the industry, it seems like there 
needs to be more outreach on the part of the industry, too. It 
seems like--and I will go to Mr. Scott because I think you in 
your testimony found that only 30 percent of minority 
businesses, banks, are taking advantage of the training, 
education, technical assistance that is there.
    Is that a correct number?
    Mr. Scott. Yes. Of those we surveyed, yes.
    Mr. Miller. And you found that the nonparticipant banks may 
be missing very important opportunities. Is that also a factual 
    Mr. Scott. That is correct.
    Mr. Miller. Overall--and it was part of an opening 
statement--did you review whether the overall minority 
community and underserved community is being adequately served 
today by minority banks and non-minority banks? Is there any 
disparity, where larger banks aren't reaching out to provide 
assistance and opportunity? Is that a factor? Are they being 
served today?
    Mr. Scott. I would defer that to the regulators. That was 
not part of the scope of our review.
    Mr. Miller. Yes. Regulators, I will let you answer that 
    Ms. Thompson. We are hopeful that all communities are being 
served in a safe and sound manner by financial institutions 
that are supervised by the regulators on this panel.
    Mr. Miller. Yes. I know the bank I deal with, and I used to 
deal with them as a builder. And they were very proactive 
because of the mandates placed on them to make sure that they 
were reaching out to underserved communities. Because what used 
to be considered redlining, they were very, very cautious, and 
that can never be challenged with that argument because of the 
    Are banks still reaching out as they have in the past?
    Ms. Thompson. Banks are very covetous of their CRA rating. 
In fact, most of the institutions that are FDIC-insured are 
rated satisfactory or outstanding throughout the banking 
    Mr. Miller. Mr. Cooper, you are--I am sorry. Go ahead.
    Ms. Yakimov. Well, I was just going to mention of the 22 
minority institutions, savings associations, a little more than 
half are rated outstanding in terms of meeting the credit 
needs, the financial services needs of the communities they 
serve. Just under half are rated satisfactory.
    Mr. Miller. Mr. Cooper, is the National Banking 
Association--I know you are very involved with the National 
Banking Association--are they reaching out to minority banks 
and trying to educate them on the different information and 
opportunities available to them, and encouraging them to 
participate more than they have in the past?
    Mr. Cooper. Absolutely.
    Mr. Miller. What result are you getting? If we are only 
getting a response from about 30 percent, do you see it 
increasing in the future?
    Mr. Cooper. I do see it increasing in the future. But 
again, you actually have to ask the reasons why aren't these 
banks--why aren't our banks taking advantage of the technical 
assistance? And again, we have heard some remarks from the 
regulators. I can give you just some anecdotal evidence of what 
is going on.
    Mr. Miller. But you as an association are trying to 
proactively reach out to get them more involved?
    Mr. Cooper. Absolutely. Yes. As the oldest and largest 
trade association for minority- and women-owned banks, that is 
part of our mission.
    Mr. Miller. Ms. Yakimov, do you believe that currently 
FIRREA is basically--are they meeting the goals that have been 
set before you? Do you believe that is being accomplished today 
or not?
    Ms. Yakimov. Do I believe that we are living up to the 
goals and the standards that FIRREA sets out?
    Mr. Miller. Yes.
    Ms. Yakimov. I think we have a good track record in living 
up to those responsibilities. Could we do more? I think yes, we 
can. And part of the strategic plan that we are putting 
together will be to carry it forward.
    But I think dating back to the 1970's, we have tailored 
technical assistance programs to meet the needs of our 
institutions. We are going to do more with respect to 
education. We think that--we have done counseling, to the 
extent that is education and guidance, sending examiners onsite 
in some cases, working alongside our institutions. So we have 
done some training.
    But we are planning to expand on that and to do more with 
that. But yes, I think the OTS has worked very hard through our 
regional offices and in Washington to try to meet the needs of 
our minority institutions, and we are looking forward to doing 
    Mr. Miller. Well, I have more questions, but I will wait 
till the next round. Thank you very much.
    Chairman Watt. Mr. Meeks, you are recognized for 5 minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    I just have a few questions. Ms. Thompson, let me ask, I 
believe in your testimony you mentioned that minority 
depository institutions had much lower levels of non-interest 
income than the rest of the industry. I think you said 
something about 19\1/2\ percent as opposed to 42.7 percent, 
    I am just curious: What are the primary sources of non-
interest income? And then whether or not there was a 
correlation between that kind of income and the general 
population that MDIs represent.
    Ms. Thompson. Well, fee-based income would be a source. And 
the minority institutions don't charge the high fees like many 
other institutions because, again, they are dealing with 
demographics that can be in economically challenged areas.
    So some minority institutions have higher operating 
expenses. They have to spend more on training; they have to 
spend more on this high-touch operation--they are well above 
the expenses for other institutions that are non-minority 
because they really believe in this face-to-face contact, and 
it requires people. And there is just a lot of overhead expense 
that is associated with minority institutions.
    Mr. Meeks. So there is more of a personalized service, more 
hand to hand?
    Ms. Thompson. Yes, sir.
    Mr. Meeks. In that regard, maybe less? Well, does it have 
anything also to do with activities like, for example, fewer 
individuals within the community may be involved in certain 
trust funds or something of that nature, so therefore there is 
less business there, and therefore you are not getting any fees 
from those areas?
    Ms. Thompson. Well, many of the communities that minority 
institutions serve are underserved or unbanked. If you look at 
minority neighborhoods, there is a lot of financial services 
that are unregulated, so people in the communities have options 
that are outside of the financial institution that is insured.
    You will find in most--in many minority communities high-
cost financial service products and providers, whether it is a 
payday lender or a car title loan or just alternatives because 
many people in the communities are underserved. They may have 
banking accounts, but it is one of the things that the FDIC is 
working on, is trying to bring unbanked and underserved people 
into the financial sector so that they know their money is safe 
and it is covered through regulation and through FDIC 
    We are very intentional about this program that we have 
underway in eight areas--actually, nine areas around the 
country to bring unbanked and underserved people into the 
banking sector. And it is particularly focused in low/moderate 
income and minority communities.
    Mr. Meeks. Ms. Saunders, let me just ask you the same 
thing. Could you add anything? What is your experience as head 
of Mechanics & Farmers Bank, and is there anything that you 
could recommend that we look at as a committee that might try 
to help minority institutions so that they can be more 
efficient with reference to banking, and don't have to depend 
on payday loans and other--is there anything that you think 
that we can do in that aspect?
    Ms. Saunders. Thank you for your question. As was 
mentioned, our cost structure is higher because we do offer 
more personalized service. And as I mentioned in my testimony, 
understanding again that it is outside the purview of this 
committee, I do think there is an opportunity for tax credits 
and various incentives to be provided--when we bring the 
unbanked into the banking system, through the technical 
assistance that we provide. The institutions that we represent 
serve a critical role in terms of education and financial 
literacy in the communities that we serve. And certainly that 
benefits our country, and it could be recognized, I think, 
through certain financial incentives to these institutions such 
as Mechanics & Farmers Bank.
    Mr. Meeks. And I would assume that you, Mr. Cooper, would 
have the same response, or similar?
    Mr. Cooper. I have a similar response. In my written 
testimony, I actually did discuss two programs that have been 
very beneficial to minority banks that are administered by the 
CDFI fund. One of those programs, the BEA program, is a 
program--and there is a competitive application process--but it 
is a program that has allowed particularly minority banks to 
receive stable capital.
    There is another program called the New Markets Tax Credits 
program which last year provided $3.9 billion in tax credits. 
This was a program designed to provide income streams to banks 
that operate in these low- to moderate-income communities. 
Unfortunately, last year only one minority bank was the 
recipient of New Markets tax program. And therefore, it is our 
recommendation that there be some general preferences that are 
given to CDFIs and minority- and women-owned banks so that our 
banks can better impact and empower the communities they serve.
    Mr. Meeks. Let me ask both of you, Mr. Cooper and Ms. 
Saunders, again. Not too long after I got here, we had the 
passage of Gramm-Leach-Bliley. I was wondering, has there been 
any move or any benefit to your banks as a result of the 
association with insurance companies and security firms? Have 
you seen--has there been any connection with any of them that 
would enhance your business, thereby stabilizing your 
institutions and growing at all?
    Ms. Saunders. Not at this point.
    Mr. Meeks. Nothing?
    Mr. Cooper. By and large, you will find that the 
institutions in this sector are very small and haven't been 
able to avail themselves of the lowering of the--you know, the 
breakdown in the barriers. There are a couple of banks that 
have brokerage arms, insurance arms. But in terms of the fees 
that--the profit streams that have been received, they are 
pretty insignificant at this point.
    Mr. Meeks. Lastly, let me ask this question because I have 
been very concerned about the participation of minorities in 
the financial services industry. And I know that having 
competent staff is important, etc.
    Where or how do you generally recruit for individuals that 
you need in your banks? I have been an advocate--in fact, in 
one of the GSE bills, I had an amendment saying that the new 
regulator needed to make efforts towards diversity there 
because it has been my opinion that when you have a government 
agency, and some of the regulatory agencies in particular, if 
they hire minorities in there, then the experience that they 
get from there, they now can go out and be employed by 
individuals like yourselves and in other institutions.
    So I am just wondering, how do you find that, and the 
training, and would you say we need to--how could we improve 
the diversity within the financial services industry?
    Mr. Cooper. Let me take a stab at it. There is certainly 
cross-pollination as between regulatory agencies, regulators 
who will go to the private sector and become members of our 
institutions and vice versa. There are also numerous training 
programs, both private and those conducted by the regulators as 
    Ms. Saunders. We have been very successful in working with 
young people as early as high school through various nonprofits 
in employing them in internships. We also currently are working 
with local universities, of which there are a number in North 
Carolina, to employ part-time students to allow them to get 
exposure to the banking industry, many of whom have gone on to 
pursue careers in either the regulatory agencies or other 
    In terms of recruiting additional talent from other 
institutions, we have been successful, I think, in selling the 
opportunity to see the banking business in its entirety. When 
you are a small shop, you do provide, I think, a unique career 
opportunity for someone who has an entrepreneurial spirit but 
also wants to obtain a comprehensive understanding of our 
    So I would say to continue to support efforts by nonprofits 
and others, even for-profit corporations. My own career started 
with a minority internship program out of Chase of New York, 
which trained many minority bankers back in the 1980's. And I 
do think that those types of programs are necessary in order 
for us to continue to train now the Hispanic community and 
other minority groups to be successful in our career.
    Mr. Meeks. Thank you.
    Mr. Cooper. I might just quickly add that success breeds 
success, and that these institutions aren't just providers of 
financial products and services. They truly are beacons of hope 
for the community. So to the extent you have strong, vibrant 
for-profit institutions, then you will be able to attract 
individuals to our companies.
    But certainly we see many challenges that we face, so I 
would again hearken to the fact that to the extent we can 
strengthen these institutions, you will see more minorities 
coming to work for us.
    Mr. Meeks. Thank you. Thank you, Mr. Chairman.
    Chairman Watt. Thank you for your questions. I have been 
trying to kind of let this go on without interruption as much 
as possible, so let me recognize myself again for a couple of 
    They really follow up to one part of what Representative 
Meeks has raised here, the interplay between the Community 
Development Financial Institutions fund, CDFI, the Bank 
Enterprise awards, and the New Market tax credit. It was 
Representative Meeks' predecessor who was instrumental in at 
least two out of three of those, and Representative Rangel who 
was instrumental, probably, as much as anybody in the rest of 
    Mr. Cooper, Ms. Saunders, what is the process for minority 
banks to become certified under CDFI, and what benefits does 
that give you once you are certified? I want to deal only with 
CDFI now because I think there are three components here that I 
am not sure are playing themselves out in the way that they 
were perceived to play themselves out. But let's talk about the 
cost and process and the benefits.
    Mr. Cooper. Sure. In terms of the certification process, 
essentially the bank needs to prove that 60 percent of its 
activities are engaged in low- to moderate-income communities. 
So it needs to show that 60 percent of its lending activities, 
where it is housed, where it gathers its deposits, where it 
provides its banking products, are in not just low- to 
moderate-income areas, but specific areas down to the census 
track. So that is with respect to certification.
    In terms of the benefits, there is certainly a marketing 
benefit. It is a United States Department of Treasury 
certification, so to the extent the institution is out in the 
community and trying to raise capital or deposits, it actually 
has a certification by the U.S. Department of the Treasury that 
it engages in this do-good activity, if you will.
    In terms of other benefits, there are several programs 
administered by the fund. There is a core award program. There 
is an FA, financial assistance, program. There is a BEA 
program. The program that--as well as New Market tax credits. 
The two programs that have been most beneficial to minority 
banks have been the BEA program because they provide equity 
awards to banks based on their lending in the most distressed 
communities, to the census track level; as well as--and the 
other program is New Markets tax credits, and as you are 
probably aware, these tax credits are very highly sought after.
    And both of these programs were designed to put money in 
these low- to moderate-income communities, but also designed to 
provide capital, in the case of BEA, in minority banks that are 
primarily housed in these communities, and further income 
streams for these banks with respect to the New Markets tax 
credits program.
    Chairman Watt. How much money is there in the BEA program?
    Mr. Cooper. In the BEA program currently--well, at least 
last year--$11.6 million was allocated.
    Chairman Watt. Compared to the New Markets tax credits, 
which is about--
    Mr. Cooper. They are two different animals. But let me say 
with respect to BEA--
    Chairman Watt. I understand they are two different animals. 
I think that is exactly the point I am trying to make.
    Mr. Cooper. I am sorry.
    Chairman Watt. Does an institution have to be CDFI-
certified to be eligible for New Markets tax credits?
    Mr. Cooper. No. You have to actually be what is called a 
CDE. You don't have to be a CDFI. And it is our recommendation 
that CDFIs who are actually engaged in the activities in these 
communities be given a general preference so that they can take 
advantage of this $3.9 billion tax credit program.
    Chairman Watt. Ms. Thompson, you seem anxious to say 
something on this issue, so I want to give you that 
    Ms. Thompson. Yes. We had a conference this year in August, 
and it was all the Federal regulators. The issue that came up 
from the persons who participated--there were lots of questions 
about the CDFI. We had the CDFI representative come to the 
conference and conduct presentations. But even after she left, 
there were lots of questions.
    So I directed the FDIC's national coordinator to go to the 
Treasury Department and find out more about the process of 
having minority institutions being designated as CDFIs. And we 
have put together a program, working with the Treasury 
Department, where they will participate in our regional 
conferences, our outreach sessions, and our minority 
roundtables, so that they can walk through the process with 
applicants to achieve the CDFI designation.
    Chairman Watt. Okay. But CDFI is a gateway to the Bank 
Enterprise award. CDFI doesn't seem to lead in the same way to 
New Markets tax credits. Am I wrong or am I right on that?
    Ms. Thompson. Well, it is in both. The CDFI program is 
responsible for--they will get financial assistance, technical 
assistance. There are some other initiatives. The Bank 
Enterprise Award is also part of the community development 
entities and the New Markets tax credit. Once you get the 
designation, there are a lot of opportunities that relate to 
capital and other initiatives that are opened up to the 
    Chairman Watt. But it doesn't seem to be working. You have, 
what, $9.8 billion, something like that, in New Markets tax 
credits. Only one minority bank received a New Markets tax 
credit, and you are saying that it is working?
    Ms. Thompson. No. We are saying that there are questions 
with regard to the process. And we are willing to provide as 
much help as we can--
    Chairman Watt. On the process, but not on the result, which 
gets back to the--
    Ms. Thompson. To get the designation. And I think getting 
the designation will open the door. And to the extent we can 
provide any assistance to get these banks the designation, I 
think that is a huge step forward to getting to the next step.
    Chairman Watt. Ms. Saunders?
    Ms. Saunders. Many of the minority institutions already 
hold this designation. So I think it really speaks to what Mr. 
Cooper mentioned earlier, which is that out of the $16 million, 
only one institution received New Markets tax credit dollars.
    Mr. Cooper. In 2007. And that was a billion with a ``B'', 
    Ms. Saunders. Oh, billion.
    Chairman Watt. $16 billion?
    Ms. Saunders. $16 billion?
    Mr. Cooper. No. That is how much the New Markets tax credit 
have been awarded over the last 5 years. Last year's allocation 
was for $3.9 billion.
    Chairman Watt. $3.9 billion. Okay. But that is--see, there 
is a lot of difference between $3.9 billion in a New Markets 
tax credit that only one out of all of these institutions are 
getting access to, and what is the BEA? BEA is how much money?
    Mr. Cooper. $11.6 million.
    Chairman Watt. $11.6 million, as opposed to $3.9 billion. 
That is the point I am driving at here. And it seems to me that 
maybe the regulators might find that might be something that--I 
mean, that is concrete. That is a result. That isn't a process.
    And that was the point I was trying to get down to a little 
bit earlier. Representative Waters asked all of you if you had 
any suggestions to make to us, and those are the kinds of 
things that I am looking for because we are trying to make this 
    We can have as many meetings, we can go through as many 
processes as we can go through, if at the end of the day you 
are ending up 13 years later with fewer and less vibrant and 
less sound minority institutions than you were 13 years ago. Go 
figure. Nice to have a meeting. Had a good time. It is the 
results-oriented thing that I am looking for.
    My time is expired on this round. I recognize Ms. Waters 
for 5 minutes.
    Ms. Waters. Oh, thank you very much, Mr. Chairman.
    The New Markets initiative, tax initiative, is extremely 
important to discuss here. I was just in Houston yesterday 
holding a hearing and talking with some of the business people 
there, where I discovered that Wachovia and Capital One have 
designations, have had them, and they are doing very well with 
    I don't know what is going on, but minority institutions do 
not appear to be given a fair opportunity to participate in 
these initiatives that many of us helped to develop under the 
Clinton Administration. It seems to me there are still 
questions remaining about CDFI, and certainly big questions 
about the New Markets initiative.
    So I was hoping, and I would really hope, that those who 
are supposed to assist minority institutions maintain and 
expand, etc., would help us with some ideas on legislation that 
would get at these initiatives that have been developed that 
supposedly would be supportive, would help not only the 
minority banks, but we have to depend on these minority banks 
to provide opportunities for minorities where they operate. 
    Chairman Watt. Will the gentlelady yield just for a second?
    Ms. Waters. Yes.
    Chairman Watt. Not to let them off the hook on our 
expectation that they will do that, but just to point out to 
them that the New Markets tax credits are up for 
reauthorization in the Ways and Means Committee. And one of the 
things that Representative Meeks and I were talking about 
yesterday was that it might be advisable to try to see if we 
could have a joint hearing with the Ways and Means Committee, 
the subcommittee that has jurisdiction over that program--
    Ms. Waters. That would be a great idea.
    Chairman Watt. --to try to impact that program in a way 
that is doing more in this area. Wachovia is one of the 
institutions that is in my congressional district, so I support 
their efforts to get New Markets tax credits. But I think we 
need to do more to make sure that minority institutions get 
more New Markets tax credits, too. And there may be some things 
that we can do to help.
    I appreciate the gentlelady's yielding. But I am going to 
try to seek to have a joint hearing.
    Ms. Waters. That would be great. That is an opportunity 
that we really do need to try and take advantage of.
    On this how minority institutions are judged, and you have 
spoken about it in bank terms in terms of peer review, Mr. 
Scott, what did you discover? Are they judging minority 
institutions based on their overall review of other minority 
institutions--peer review, I guess that would be--or are they 
holding them to the same kind of standards of major 
institutions? How is that working?
    Mr. Scott. For the work we conducted, we weren't looking at 
how they were judging the institutions. We were looking at the 
return on assets in comparison to peer groups for broader 
context about how these minority banks were doing overall.
    And so we weren't really looking at whether the regulators 
were using different standards and how they were judging them. 
It was more just context to point out overall how these 
institutions are doing on one key measure, that being return on 
assets, one measure of profitability. That was the purpose of 
our citing those numbers.
    Ms. Waters. I see. And what were the regulators talking 
about when you said that was one of your charges, Ms. Thompson?
    Ms. Thompson. We have a regional director memorandum, which 
is in effect the policy that our examiners use to examine 
institutions. And in that memorandum, it specifically states 
that when examining minority institutions in particular, that 
examiners have the flexibility to define a custom peer group, 
not look at peer group just based on asset size. A custom peer 
group can be defined as a similarly situated institution, which 
could mean another minority institution.
    Ms. Waters. So have they been doing that?
    Ms. Thompson. I hope they have. That is what I have 
    Ms. Waters. No. We can't hope, now. We have to know.
    Ms. Braunstein. At the Federal Reserve, we do provide 
onsite to our minority-owned institutions customized peer 
statistics that are different than the uniform bank performance 
    Ms. Waters. Could you, Mr. Chairman, see that we get a copy 
of how that is working? I understand there is not a lot of 
follow-up; even though some of you may be attempting some 
things, you really don't know how it is working because you 
don't have built into your systems any real follow-up. And that 
is one of the things that we may have to legislate, Mr. 
Chairman, to take a look at.
    Now, one last thing, and that is reserve capital 
requirements. Tell me how that works, and tell me whether or 
not minority institutions for some reason are being asked to 
have higher reserves than maybe other institutions. Because 
there appears to be some risk factor that is above and beyond 
the norm. Would someone help me with that?
    Ms. Braunstein. The capital rules are mainly the Federal 
Reserve's in terms of holding companies. We have done a couple 
of things to address the concerns that have been raised by the 
other panelists over the last year, and we are still working at 
this, and it is not to say that we can't do more. But--
    Ms. Waters. How does it work now?
    Ms. Braunstein. Well, the way it works now is that for Tier 
1 capital, a significant amount of the Tier 1 capital needs to 
be voting stock. And so we do--we require at this point common 
stockholders' voting stock to be the dominant element within 
Tier 1.
    Ms. Waters. Well, I thought--I don't know if we are talking 
about the same thing or not.
    Ms. Braunstein. So one of the things that we have--
    Ms. Waters. I really want to understand reserves because to 
me, reserves means an amount that you hold aside to be there to 
pay for whatever--losses, lawsuits, what have you. That is what 
I am talking about. I am not talking about the--
    Ms. Braunstein. Control?
    Ms. Waters. Yes. I want to know about the reserve. Are 
minority banks required to hold in reserve a disproportionate 
amount of capital or money, compared to other institutions?
    Ms. Yakimov. Representative Waters, if you are referring to 
loan loss reserves, we would expect institutions to reserve in 
a manner that was consistent with their experience--not to 
overly--not to manipulate that, but to have in reserve for loan 
loss and leases an amount that has been consistent with their 
experience and what they can generally anticipate.
    Ms. Waters. I expect that, too. We have said over and over 
again that we believe in safety and soundness and all of that 
good stuff. We don't want anybody to think we are trying to--I 
want to know, is there something in the formulation of reserves 
of what is required that makes it seem as if minority 
institutions are asked to do more in holding these reserves 
than others? That is what I am trying to find out.
    Ms. Braunstein. The reserves would depend on the kinds of 
loans that are made, the risk assessments, and the bank 
performance. And so depending on those factors, there could be 
an appearance of that. But that is--but the same rule is 
applied to every--
    Ms. Waters. Mr. Scott--excuse me. Mr. Scott, did you take a 
look at this at all in the GAO's report in terms of reserves?
    Mr. Scott. No. We didn't take a look at it other than 
pointing out the fact that having those higher loan loss 
reserves may be necessary for safe and sound operation of 
    Ms. Waters. Well, you know, I don't know. But Mr. Chairman, 
and I am going to finish this, if experience is one of the 
criteria that is used to determine how much money you have to 
hold in reserve, that is going to put us at a great 
    Now, if there are a combination of things, we need to 
understand what that combination of things is and whether or 
not it adds up to minority institutions being disadvantaged 
because they haven't been in business as long. They are lending 
to poorer people. Yes, they have had maybe more losses or 
foreclosures; I don't know what the makeup is.
    And if I take a look at it, I can see. I can tell you right 
away. And I guess we will have to do that. But I was trying to 
understand what you understand about it because I wanted to ask 
you, do you think it is fair or do you think it should be 
    Ms. Thompson. The losses are typically based on the quality 
of the assets. And to the extent that an institution holds 
assets that are delinquent--and I will use a mortgage loan as 
example--if an institution has a high level of delinquencies 
and they are expected to go to foreclosure, we require the 
institution to hold loss reserves to offset any potential 
    So the more delinquent your mortgage portfolio is, or your 
commercial loan portfolio, the more reserves you will be 
required to hold to offset--
    Ms. Waters. Mr. Cooper, is that how it works?
    Mr. Cooper. Actually, Chairman Frank has spoken out on the 
subject. And I think you were referring to the recent policy 
statement on commercial and real estate that just--that 
actually came out maybe a little over a year ago. And it 
creates very specific thresholds for construction loans, 100 
percent of capital, and multi-family and other loans of 300 
percent of capital.
    But because of the nature of our operations, where we 
operate, we are disproportionately impacted. So this is again a 
one-size-fits-all policy statement. And because of the 
statement, the examiners will come in and scrutinize our banks 
and criticize our banks in a way they would not criticize other 
    So again, it is a one-size-fits-all policy that really--
there really was no consultation or thought given to what the 
specific impact would be on institutions that actually operate 
in the inner city.
    Ms. Waters. Thank you, Mr. Chairman. I yield back. I could 
ask 101 more questions, but you have been very generous. Thank 
    Chairman Watt. Mr. Miller.
    Mr. Miller. I have a question for the regulators.
    Safety and soundness has to be paramount in any lending 
institution. Don't all small and community banks have to meet 
the same basic capital standards, whether it is a minority-
owned bank or it is not? Aren't they applicable to everybody?
    Ms. Thompson. Yes.
    Mr. Miller. Is there any that are more stringent upon the 
minority-owned bank than there would be a small community bank?
    Ms. Thompson. No.
    Mr. Miller. Okay. So the problem I have is if we are 
dealing with basic safety and soundness issues, they have to be 
consistent and they have to be applied on a broad perspective 
to all individuals who place their money within a lender, a 
bank who is going to be lending them money. They have to be 
guaranteed that their money is being safeguarded and there is 
proper oversight.
    It seems to me, from the testimony that I heard, that we 
have to reach out to minority banks to get them to participate 
in programs that are available. If only 30 percent are 
participating, we can legislate and regulate anything in the 
world, but if we don't get participation, it is a problem.
    And Mr. Cooper, it is a long question, and I hate to ask 
this of you, but I have been listening to the testimony and 
reading everybody's testimony. You recommend that each banking 
agency amend their existing policies to provide that the 
regulators and examiners will thoughtfully apply any existing 
policies to the unique circumstances of a minority institution.
    Yet Mr. Walsh from the OCC discusses how a portfolio 
manager is assigned to each bank and has ongoing 
responsibilities for understanding the banks unique 
characteristics and circumstances.
    Ms. Thompson, of the FDIC, discusses how the FDIC has 
specific programs in place to educate bank examiners and 
sensitize them to the unique issues often found within MDIs.
    Ms. Braunstein, with the Fed, has described how through 
their regulatory, supervisory, and community development 
functions, they consistently provide assistance to address the 
unique challenges and needs of the minority-owned banks.
    Ms. Yakimov of the OTS discusses the development of 
training measures that the OTS has taken to ensure that 
examiners fully understand the operating environment and 
challenges that minority institutions face in serving their 
    Mr. Cooper, in addition to what the OCC, the FDIC, the Fed, 
and the OTS are currently doing, what do you suggest the 
regulators do?
    Mr. Cooper. I think we might be talking about two different 
    Mr. Miller. No. My question was on one thing.
    Mr. Cooper. I just answered a question in connection with a 
recent policy statement. And I guess we didn't hear the 
regulators talk about the impact of that policy statement, even 
today, on minority banks. There are other policy statements--
    Mr. Miller. I mean, it appears that all the agencies are 
doing everything in their power to reach out and to make sure 
that these minority institutions are successful, and that they 
have information provided to them, and that when regulators go 
out, they are trying to deal with the unique circumstances and 
situations that these institutions are in.
    And I am not trying to be a bad guy here. I am really not. 
Chairman Watt and I have talked about how we get more 
participation. We can mandate and mandate and mandate it, but 
if nobody is going to participate, it is not going to make a 
difference. But what can you see that we can do that they are 
not already trying to do?
    Mr. Cooper. Like I said, their technical assistance is just 
one action that can be taken. But we really have to think 
outside of technical assistance. FIRREA was about a lot more 
than just that. And we have actually provided some 
recommendations as to how these institutions can grow.
    So it is one thing to say, hey, we are facing some 
particular challenges, and here is how you may or may not want 
to deal with the issue. But let me frame it this way for you.
    Mr. Miller. Well, I think they have a unique situation as 
far as growth when you can't sell common stock. So that makes 
it very difficult. I understand that.
    Mr. Cooper. Okay. But let me frame it this way. What I 
believe we have it this way is more direct engagement, I think. 
Thirteen years ago we didn't have any engagement. We have more 
direct engagement. But what we need is really truly full 
engagement with the banking regulatory agencies.
    Mr. Miller. But don't you have to have participation to 
have full engagement?
    Mr. Cooper. You absolutely have to have--
    Mr. Miller. And if we are only getting 30 percent of the 
banks participating, we are going to have 30 percent of full 
participation at best if it--
    Mr. Cooper. But then you have to ask yourself, why isn't 
there the participation?
    Mr. Miller. And that is why I asked you--
    Mr. Cooper. And yes--
    Mr. Miller. --the National Bankers need to be reaching out 
to encourage these banks to participate.
    Mr. Cooper. Again, I think you need to have full 
engagement. And I think what you have, at least on the 
congressional level, is a mandate on the regulators. And 
certainly we are reaching out. And it is very nice, and we 
absolutely appreciate having the heads of the regulatory 
agencies visit us at our conventions, where we had Mr. Walsh 
and the directors of the other agencies. And that is a once-a-
year event.
    But again, coming to conferences, hosting an inter-agency 
conference where there are 500 people in the room is a very 
different situation than actually drilling down and having the 
type of dialogue that you need to have very substantive 
progress, and what I think we would all admit are very complex 
    Mr. Miller. All right. I have a limited amount of time, and 
I am going to run out. Ms. Braunstein, is there a limit to what 
regulators can do in respect of balancing safety and soundness 
and those concerns, and helping minority institutions? Are you 
somewhat hamstrung when there is only so far you can go? Is it 
not a fact?
    Ms. Braunstein. Well, I don't know that I would phrase it 
as a limit. I think that we try to work very diligently with 
our minority-owned institutions, the State member banks we 
supervise, to make sure that they are safe and sound because 
that is of paramount importance, but at the same time 
recognizing some of the unique characteristics and trying to 
exercise some flexibility in our standards and in our rules. 
And we will continue to do so.
    Mr. Miller. And in closing, Mr. Cooper and Ms. Saunders, 
could you both send me something in writing, some 
recommendations, something to enlighten me on the situation 
that we can--what you think we can do in the future to create a 
better situation than currently exists? Because I don't want 
you to think I am being argumentative. I am not. I just listen 
to the testimony and look at the numbers. I see, number one, a 
lack of participation. That has to be overcome somehow.
    I would like to have some input from you on what you think 
we can do to make a better situation. I really appreciate your 
testimony, and if any of my comments were perceived as 
negative, they weren't meant to be. I just read the documents, 
have gone through the paperwork, and I am a little--you know, 
safety and soundness has to be top priority, number one.
    I understand growth is a concern with the industry. I know 
you would like to grow it. And I know there are limitations 
based on some responses I have received to questions. But if 
you can help me with some information, I would appreciate that.
    I yield back.
    Chairman Watt. All right.
    Ms. Waters. Mr. Chairman, if I may?
    Chairman Watt. I am happy to--
    Ms. Waters. Please let the record show that we have 
insisted that we support safety and soundness on more than 
several occasions here today, that we all believe that safety 
and soundness must be first. And we have said that--
    Mr. Miller. And I never meant to imply that, if you thought 
I did. I didn't mean to imply that there was not a concern. I 
was speaking for myself.
    Ms. Waters. I know. But let me tell you why it is important 
to place it in the record. As we struggle with these issues as 
public policymakers, we have to always educate. Because when 
people speak about minority institutions, whether we are 
talking about affirmative action, whatever, people will say, 
``I support, except...'' I support qualified people doing this. 
I support safety and soundness.
    We do, too. It is extremely important to us. We have said 
it over and over again. And I want everybody to know that is 
the prevailing thought and thinking in the African-American 
community, particularly with minority institutions. They know 
that they have to comply with safety and soundness laws, and 
they do. And we support that.
    Chairman Watt. Now that we got that out of the way, we 
could go on and on here. But we have to close this out. I do 
want to make sure that I get on the record a specific response 
about the coverage of Section 308 of FIRREA. This applies 
currently to the FDIC and the OTS. It does not apply 
specifically, although you all say you seem to be supporting 
the spirit of it, to the OCC and the Fed.
    Mr. Walsh, I think, covered in his testimony that he has no 
objection to 308 being applied to FIRREA--of FIRREA being 
applied to your agency. What about the Fed?
    Ms. Braunstein. Yes. In my written testimony, I state that 
we would not object if we were covered.
    Chairman Watt. That is less than a ringing endorsement. But 
should I--
    Ms. Braunstein. Well, we feel that we are in compliance 
with the spirit of the law. And if Congress chooses to put us 
under the law, we would not object to that.
    Chairman Watt. And what about an annual reporting 
requirement of efforts to implement Section 308? There is no 
written requirement now that any of you report to Congress.
    Mr. Scott. Except for the OTS.
    Chairman Watt. Oh, is there? Okay. The OTS reports to 
Congress. What about applying that to all four of the 
regulators here?
    Ms. Thompson. Well, the FDIC has an annual report that we 
issue, and we do include our activities on minority 
institutions. But we would not object to a separate annual 
report to Congress.
    Chairman Watt. The Fed?
    Ms. Braunstein. We would not object.
    Mr. Walsh. Likewise. We include that information in our 
annual report at present.
    Chairman Watt. All right. Unless you all want to go another 
round--I mean, I will be right here. But in the absence of 
that, the Chair notes that some members may have additional 
questions for this panel which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 30 days for members to submit written questions to these 
witnesses and to place their responses in the record.
    So I want to thank the witnesses for being here. I think it 
has been a constructive and helpful hearing. We hope to hear 
back from you all on some of the things that have come up today 
in the verbal questions. And of course, we would love to hear 
back from you in response to any written questions that get 
    We thank you all so much for being here, and with that, the 
hearing is adjourned.
    [Whereupon, at 1:20 p.m., the hearing was adjourned.]

                            A P P E N D I X

                            October 30, 2007