[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]





                     IMPROVING RESPONSIBLE LENDING
                          TO SMALL BUSINESSES

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

                             FIELD HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                      OVERSIGHT AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED ELEVENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 30, 2009

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 111-90

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 BARNEY FRANK, Massachusetts, Chairman

PAUL E. KANJORSKI, Pennsylvania      SPENCER BACHUS, Alabama
MAXINE WATERS, California            MICHAEL N. CASTLE, Delaware
CAROLYN B. MALONEY, New York         PETER T. KING, New York
LUIS V. GUTIERREZ, Illinois          EDWARD R. ROYCE, California
NYDIA M. VELAZQUEZ, New York         FRANK D. LUCAS, Oklahoma
MELVIN L. WATT, North Carolina       RON PAUL, Texas
GARY L. ACKERMAN, New York           DONALD A. MANZULLO, Illinois
BRAD SHERMAN, California             WALTER B. JONES, Jr., North 
GREGORY W. MEEKS, New York               Carolina
DENNIS MOORE, Kansas                 JUDY BIGGERT, Illinois
MICHAEL E. CAPUANO, Massachusetts    GARY G. MILLER, California
RUBEN HINOJOSA, Texas                SHELLEY MOORE CAPITO, West 
WM. LACY CLAY, Missouri                  Virginia
CAROLYN McCARTHY, New York           JEB HENSARLING, Texas
JOE BACA, California                 SCOTT GARRETT, New Jersey
STEPHEN F. LYNCH, Massachusetts      J. GRESHAM BARRETT, South Carolina
BRAD MILLER, North Carolina          JIM GERLACH, Pennsylvania
DAVID SCOTT, Georgia                 RANDY NEUGEBAUER, Texas
AL GREEN, Texas                      TOM PRICE, Georgia
EMANUEL CLEAVER, Missouri            PATRICK T. McHENRY, North Carolina
MELISSA L. BEAN, Illinois            JOHN CAMPBELL, California
GWEN MOORE, Wisconsin                ADAM PUTNAM, Florida
PAUL W. HODES, New Hampshire         MICHELE BACHMANN, Minnesota
KEITH ELLISON, Minnesota             KENNY MARCHANT, Texas
RON KLEIN, Florida                   THADDEUS G. McCOTTER, Michigan
CHARLES WILSON, Ohio                 KEVIN McCARTHY, California
ED PERLMUTTER, Colorado              BILL POSEY, Florida
JOE DONNELLY, Indiana                LYNN JENKINS, Kansas
BILL FOSTER, Illinois                CHRISTOPHER LEE, New York
ANDRE CARSON, Indiana                ERIK PAULSEN, Minnesota
JACKIE SPEIER, California            LEONARD LANCE, New Jersey
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
JOHN ADLER, New Jersey
MARY JO KILROY, Ohio
STEVE DRIEHAUS, Ohio
SUZANNE KOSMAS, Florida
ALAN GRAYSON, Florida
JIM HIMES, Connecticut
GARY PETERS, Michigan
DAN MAFFEI, New York

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

                     DENNIS MOORE, Kansas, Chairman

STEPHEN F. LYNCH, Massachusetts      JUDY BIGGERT, Illinois
RON KLEIN, Florida                   PATRICK T. McHENRY, North Carolina
JACKIE SPEIER, California            RON PAUL, Texas
GWEN MOORE, Wisconsin                MICHELE BACHMANN, Minnesota
JOHN ADLER, New Jersey               CHRISTOPHER LEE, New York
MARY JO KILROY, Ohio                 ERIK PAULSEN, Minnesota
STEVE DRIEHAUS, Ohio
ALAN GRAYSON, Florida
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 30, 2009............................................     1
Appendix:
    November 30, 2009............................................    47

                               WITNESSES
                       Monday, November 30, 2009

Adams, Dave, Chief Executive Officer, Michigan Credit Union 
  League.........................................................    26
Anderson, Thomas E., Ph.D., MBA, Senior Director, Automation 
  Alley..........................................................    10
Andrea, Dave, Vice President, Industry Analysis & Economics, 
  Original Equipment Suppliers Association.......................     8
Carnrike, Tammy, Chief Operating Officer, Detroit Regional 
  Chamber........................................................     6
Chaffin, H. Douglas, President & Chief Executive Officer, Monroe 
  Bank & Trust; and Immediate Past President, Michigan Bankers 
  Association....................................................    24
Dingell, Hon. John D., a Representative in Congress from the 
  State of Michigan..............................................     4
Greenlee, Jon D., Associate Director, Division of Banking 
  Supervision and Regulation, Board of Governors of the Federal 
  Reserve System.................................................    35
Johnson, Arthur C., Chairman & CEO, United Bank of Michigan; and 
  Chairman, American Bankers Association (ABA)...................    22
Kus, Michael A., Kus, Ryan & Associates, PLLC; and Legal Counsel, 
  Michigan Association of Community Bankers......................    25
Lowe, M. Anthony, Director, Chicago Region Office, Federal 
  Deposit Insurance Corporation (FDIC)...........................    36
Otto, Bert A., District Deputy Comptroller, Office of the 
  Comptroller of the Currency (OCC)..............................    37
Peters, Hon. Gary C., a Representative in Congress from the State 
  of Michigan....................................................     3
Ross, Ken, Commissioner, Office of Financial and Insurance 
  Regulation, State of Michigan..................................    39
Schauer, Hon. Mark H., a Representative in Congress from the 
  State of Michigan..............................................     5
Staebler, Ned, Vice President, Capital Access and Business 
  Acceleration, Michigan Economic Development Corporation........    11
Trute, Herbert W., President & CEO, T & W Tool & Die Corporation; 
  and Chairman, Tooling, Manufacturing & Technologies Association 
  (TMTA).........................................................    13

                                APPENDIX

Prepared statements:
    Moore, Hon, Dennis...........................................    48
    Adams, Dave..................................................    49
    Anderson, Thomas E...........................................    62
    Andrea, Dave.................................................    68
    Carnrike, Tammy..............................................   191
    Chaffin, H. Douglas..........................................   195
    Greenlee, Jon D..............................................   201
    Johnson, Arthur C............................................   215
    Kus, Michael A...............................................   226
    Lowe, M. Anthony.............................................   231
    Otto, Bert A.................................................   244
    Ross, Ken....................................................   258
    Staebler, Ned................................................   276
    Trute, Herbert W.............................................   283

              Additional Material Submitted for the Record

Moore, Hon. Dennis:
    Letter from the National Association of Federal Credit Unions 
      (NAFCU), dated November 25, 2009...........................   290
Dingell, Hon. John D.:
    Written responses to questions submitted to Anthony Lowe.....   292
    Written responses to questions submitted to Bert Otto........   296

 
                     IMPROVING RESPONSIBLE LENDING
                          TO SMALL BUSINESSES

                              ----------                              


                       Monday, November 30, 2009

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 11 a.m., at 
Lawrence Technological University, 21000 West 10 Mile Road, 
Southfield, Michigan, Hon. Dennis Moore, [chairman of the 
subcommittee] presiding.
    Members present: Representative Moore.
    Also present: Representatives Peters, Dingell, and Schauer.
    Chairman Moore of Kansas. This hearing of the Subcommittee 
on Oversight and Investigations of the House Financial Services 
Committee will come to order.
    Our field hearing today is entitled, ``Improving 
Responsible Lending to Small Businesses,'' and I would 
encourage everybody, if you have a cell phone on you, please 
turn it off or a Blackberry or whatever you have, please turn 
it off so we can have this hearing.
    I want to--this is our 8th Oversight and Investigations 
Subcommittee hearing this year and our 2nd field hearing. Our 
field hearing today is entitled, ``Improving Responsible 
Lending to Small Businesses,'' which I think is of great 
concern to everybody in this room. Field hearings allow us to 
get out of Washington, D.C., and see and hear for ourselves the 
economic conditions that confront business owners in our 
country, the banks, and the credit unions.
    Before we get started, I want to thank Congressman Gary 
Peters for inviting our subcommittee to the Detroit area for 
today's hearing. I also want to thank his staff for their hard 
work, and President Lewis Walker, the president of the 
Technological University, for hosting us today. Thanks, also, 
to Congressman John Dingell, a wonderful, long-term serving 
Member of Congress, and to Mark Schauer, Congressman Schauer, 
for being here today, as well.
    We will begin with members' opening statements, and then we 
will hear testimony from our first panel of witnesses. Members 
will have up to 5 minutes to question our witnesses. We will 
repeat this for our other panels. The Chair advises members 
that I will be keeping everyone, including myself, to 5 
minutes, as we want to keep things moving so we can wrap up no 
later than 1:50 this afternoon.
    Keep in mind that unanswered or partially answered 
questions can also be followed up in writing for the record. We 
will get you information about that later. Also, if you don't 
have time to give all the information you want to, we would 
encourage you to make a written submission later. Without 
objection, all members' opening statements will be made a part 
of the record, and I now recognize myself for up to 5 minutes 
for an opening statement.
    Just last week, we learned from the FDIC that lending by 
U.S. banks plunged by 3 percent in the third quarter, the 
largest drop since at least 1984 when this kind of information 
was first collected. This represents the 5th consecutive 
quarter in which banks have reduced lending. According to the 
report, banks reduced the amount of money extended to their 
customers by $210 billion between July and September, cutting 
back in almost every category from mortgage lending to business 
lending.
    What is most frustrating, I think, to a lot of us about 
this report is that the largest banks, the ones that received 
tens of billions of taxpayer dollars, were responsible for a 
disproportionate amount, nearly 75 percent of the lending 
decline, and this is happening in a quarter when banks posted 
an aggregate profit of $2.8 billion. More than any other time, 
the banking industry needs to be reinvesting those profits in 
communities and local businesses in the Detroit area and 
throughout our country so we can turn around this economic 
decline.
    Economists say small businesses account for up to 60 
percent of new jobs. It's time to put people back to work and 
invest in the small businesses that can be an engine of 
economic growth. I look forward to hearing from the business 
community here in Michigan so we can have a better 
understanding of the obstacles small and mid-sized firms 
continue to face in finding credit.
    We will also hear testimony from banks and credit unions on 
the challenges they face, and I know they face challenges, as 
well, in increasing prudent lending while remaining safe and 
sound. Finally, we will hear from regulators responsible for 
supervising these firms as they work hard to curb the rise in 
bank failures.
    Improving responsible lending to small businesses, which is 
the title of today's hearing, is not an easy thing to do in the 
current economic environment, but I am hopeful this hearing 
will help Congress better appreciate the challenges and allow 
us to consider new ideas and solutions to address this problem.
    In a joint statement released over a year ago, bank 
regulators warned, ``If underwriting standards tighten 
excessively or banking organizations retreat from making sound 
credit decisions, it would lead to slower growth and potential 
damage to the economy.''
    FDIC Chairman Sheila Bair said recently, ``We need to see 
banks making more loans to their business customers.'' I 
completely agree, and I hope this hearing will drive home a 
clear message to all stakeholders, banks, credit unions, 
regulators, and the business community. We are all in this 
together, and until we see more responsible lending out the 
door, I fear the economic recovery that we all want and our 
country desperately needs will take too long to happen. I look 
forward to taking the lessons we learn from today's hearing 
back to Washington, D.C., this afternoon and working with 
Republicans and Democrats on thoughtful, bipartisan solutions 
to this significant challenge. I yield back my time.
    I now recognize, for an opening statement, Congressman Gary 
Peters for 5 minutes.

STATEMENT OF THE HONORABLE GARY C. PETERS, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Peters. Thank you, Chairman Moore, and thank you for 
traveling today to Michigan for this important hearing. I know 
all too well how little time you get to spend back home in 
Kansas with your family and with your constituents, and so I 
appreciate you traveling here this morning to hold the 
Oversight Subcommittee hearing here.
    I would also like to thank two of my colleagues from 
Michigan, Chairman Dingell, and Mr. Schauer--my colleague from 
the west side of the State--for coming over here to join us in 
this very important hearing talking about the challenges of 
businesses here in our State. We deal with these issues on a 
global basis in Washington. It's important for us to focus on 
the unique challenges for us here in Michigan.
    I would also like to thank our witnesses for taking time to 
testify to bring that first-person perspective to the 
challenges that we are facing, but I would also like to thank 
our host, Lawrence Technological University, for allowing us to 
use these facilities and for your hospitality.
    It has now been a year since we entered the greatest 
economic decline since the Great Depression. Last fall, as the 
stock market rapidly deteriorated and the health of our entire 
financial sector was called into question, some institutions 
were deemed ``too-big-to-fail,'' and the government acted very 
quickly to save them. Many of these large financial 
institutions have now returned to profitability and are 
repaying the TARP funds that have kept them solvent during this 
crisis; however, lending has continued to decline.
    In fact, as Chairman Moore indicated in his comments, the 
FDIC recently reported that lending by U.S. banks declined by 
$210 billion in the third quarter of this year. This represents 
the largest drop in lending since 1984 and the 5th consecutive 
quarter in which banks have reduced lending.
    While the largest banks are, again, posting profits and 
paying record bonuses, there have been 124 bank failures so far 
this year, and hundreds more banks around the country are at a 
high risk of insolvency. While there is no doubt that some of 
these institutions are paying the price for poor management and 
risky investments, many well-run banks are fighting to survive 
because of the economic environment. Nowhere is that more 
evident than right here in the State of Michigan.
    Many banks in our State are struggling due to declining 
property values caused by the huge numbers of job losses that 
we have suffered, and as the unemployment rate in the City of 
Pontiac, in my district, has gone from 6.4 percent in 2000 to a 
staggering 35 percent today, the median home price has dropped 
from $104,000 to just $10,000.
    For small banks operating under these economic conditions, 
new sources of capital are very hard to come by. While the 
worst of this economic crisis may now be behind us, American 
businesses across the country continue to struggle with 
unemployment, and businesses continue to suffer from a lack of 
lending. Real recovery will not come until job creation is back 
on track, and having a strong network of lenders in our 
communities is critical to achieving that.
    I believe this hearing represents an important opportunity 
for businesses, financial institutions, and regulators to begin 
a dialogue and hopefully come up with a new solution to this 
intractable problem. I look forward to hearing today from our 
witnesses about their ideas to help promote business lending 
and increase capital assistance to these financial 
institutions.
    Mr. Chairman, I yield back the balance of my time.
    Chairman Moore of Kansas. Thank you, sir, and the Chair now 
recognizes the Honorable John Dingell, Congressman John 
Dingell.

STATEMENT OF THE HONORABLE JOHN D. DINGELL, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Dingell. Mr. Chairman, I thank you for your courtesy, 
and I thank you very much for bringing the subcommittee here 
today. Your efforts in this regard are deeply appreciated by 
all of us here in Michigan, and I want to pay tribute to my 
colleague, Mr. Peters, for his leadership in arranging that 
this should occur today, and we're very proud of him and his 
service, and I want to thank my good friend, Mark Schauer, an 
outstanding Member, for being here today and to say how proud I 
am to have these two fine Members as my neighbors.
    I want to also thank Lawrence Tech for making this 
opportunity available to us by hosting us in their fine 
facilities. It's a great educational institution, Mr. Chairman, 
and we're very proud of them and their leadership in keeping 
Michigan a great and strong industrial State.
    Mr. Chairman, thanks again for convening this hearing. It's 
very, very important to our small businesses, particularly 
around Michigan. The present recession, which erupted last year 
nationwide and worldwide, has created enormously difficult 
conditions for Michigan, some of which were caused by 
irresponsible lending practices, irresponsible risk-taking by 
members of the financial industry.
    In 1999 and for decades before, I fought to keep the Glass-
Steagall Act in place and to prevent the kind of rascality that 
contributed so heavily to the misfortunes of the country today. 
Unfortunately, due to the repeal of that protection, we face 
now a situation where failed banks and other banks are creating 
a virtual credit market freeze.
    There now exists no mean degree of hesitation among banks 
to continue lending, especially due to tight credit markets and 
ever growing public scrutiny of their activities, but this 
hesitation must not be allowed to persist as a hindrance to 
broader national recovery, and particularly to our people here 
in Michigan. I hear regularly from small businesses in my 
district not far from here in Southfield, as I'm sure you do 
and my other two colleagues here do, that cannot get access to 
credit to keep their doors open and their employees on the 
payroll.
    Responsible lending is a vital component in our efforts to 
facilitate the economic recovery of the Nation and must be 
encouraged while, at the same time, Congress must impose 
adequate and fair oversight mechanisms to ensure that the 
rascality that caused us the current financial crisis never 
again occurs, and that's one of the reasons that your presence 
here, Mr. Chairman, is so important. I hope our discussion 
today will prompt the development and implementation of the 
policy initiatives, it will help deserving small businesses get 
the loans that they so desperately need to provide jobs and 
opportunities to our people, and I look forward to the 
witnesses who are here today and thank them for their presence. 
Your presence here, gentlemen and ladies, is extremely 
important to the recovery of our State and the Nation, and I 
thank you for your being here today.
    Chairman Moore of Kansas. Thank you, Congressman Dingell.
    And the Chair next recognizes Congressman Mark Schauer for 
5 minutes.

STATEMENT OF THE HONORABLE MARK H. SCHAUER, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF MICHIGAN

    Mr. Schauer. Thank you, Chairman Moore, Representative 
Peters, thank you for hosting us for all of you coming to 
testify today, and certainly to our host, Lawrence Tech. I 
serve as--well, first of all, I live in Battle Creek. I 
represent seven counties that extend as far east to the 
Washtenaw/Wayne County line.
    The story of businesses in my district is the story of 
businesses in Michigan and certainly in the industrial Midwest. 
I serve on the Transportation and Infrastructure Committee and 
the Agriculture Committee. It's an honor, Mr. Chairman, to be 
able to participate in this subcommittee hearing today. I'm 
here because we face in Michigan the deepest economic crisis of 
any State in our country, and I have counties in my district 
with unemployment rates close to 20 percent.
    Quite candidly, we have an intractable problem here in 
Michigan that needs to be solved. Whether we use terms like 
red-lining or not, we are seeing industries in this State that 
absolutely cannot get credit. Mr. Chairman, I actually told the 
President directly that our recovery in Michigan has one hand 
tied behind its back. We have industries throughout this State 
that have survived that are attempting to diversify from 
automotive to military to clean energy jobs to automotive, 
aviation, aerospace.
    These are stories I hear within my district from businesses 
every day, and the common theme is these businesses are being 
starved for credit, and it is unsatisfactory to me to hear 
anyone else suggest that we need to continue to winnow within 
this economy. In Michigan, we have winnowed enough. It is time 
to start rebuilding, not just our industrial sector but 
rebuilding small business.
    While I appreciate the opportunity to be here today, I will 
not be satisfied, Mr. Chairman, unless we collectively leave 
here today with answers and leave here with real solutions. 
This is a problem that we can solve, and it is a problem that 
we must solve. No State more than Michigan knows the hardship 
of this recession, but no State is better positioned to create 
jobs and grow jobs simply by solving this problem. Thank you 
for the opportunity, and I reserve the balance of my time.
    Chairman Moore of Kansas. Thank you, Congressman.
    And I am now pleased to introduce our first panel of 
witnesses. First, we will hear from Ms. Tammy Carnrike, chief 
operating officer for the Detroit Regional Chamber of Commerce. 
Next, will be Mr. Dave Andrea, vice president of industry 
analysis and economics for the Original Equipment Suppliers 
Association, testifying on behalf of the Motor and Equipment 
Manufacturers Association.
    Third, we will hear from testimony from Mr. Thomas 
Anderson, senior director for Automation Alley. After him, will 
be Mr. Ned Staebler, vice president of capital access and 
business acceleration for the Michigan Economic Development 
Corporation. Finally, we have Mr. Herbert Trute, president of T 
& W Tool & Die Corporation, who is also the chairman of the 
Tooling Manufacturing & Technologies Association. Without 
objection, your written statements will be made a part of the 
record.
    Ms. Carnrike, you are recognized for 5 minutes to provide a 
summary of your statement, and again, I thank all of our 
witnesses for coming today. Ms. Carnrike?

 STATEMENT OF TAMMY CARNRIKE, CHIEF OPERATING OFFICER, DETROIT 
                        REGIONAL CHAMBER

    Ms. Carnrike. Thank you very much, and I would like to take 
the opportunity, Chairman Moore, to say thank you--
    Chairman Moore of Kansas. Sure.
    Ms. Carnrike. --and welcome to Michigan on behalf of all of 
us in the room--
    Chairman Moore of Kansas. Thank you. I am glad to be here.
    Ms. Carnrike. --and to thank Congressman Peters for 
arranging this. This is a very critical and timely issue for 
discussion, and I'm also recognizing that Lawrence Tech is more 
than just a fine educational institution; it is a partner in 
entrepreneurship and small business development. So thank you 
very much, Mr. Chairman, members of the committee, and our 
honorable Members of the Michigan delegation for the 
opportunity to testify regarding the concerns of small business 
today and getting access to capital. I am Tammy Carnrike, the 
chief operating officer of the Detroit Regional Chamber.
    With over 20,000 members, the Detroit Regional Chamber is 
the largest Chamber of Commerce in the country. The Chamber's 
mission is to power the economy of southeast Michigan, and it's 
carried out through business attraction efforts, advocacy, 
strategic partnerships, and valuable benefits and services to 
our members.
    Our members range in size and scope and sector, and they 
contribute significantly to the vitality of our region. 
Approximately 75 percent of our member firms are small 
businesses with 50 employees or less. Recognizing the impact of 
staying connected with that small business sector and its 
needs, we maintain a small business advisory committee made up 
of members who volunteer their time to make sure we're kept 
abreast of the issues impacting small business.
    We have received a very clear message through focus groups, 
small business representatives who have shared their 
experiences that the credit crunch and cash flow challenges 
have placed increased stress on their daily operations. Access 
to capital has been a strategy on our small business agenda for 
over 5 years. This has been a long-standing issue, and it has 
been compounded by the financial crisis that struck the State 
of Michigan and the entire Nation over the past year.
    Without question, the economic crisis we are in is 
stunning. Increased availability of capital to small business 
can support retaining jobs and also provide opportunity for job 
growth, as well as expansion.
    Our country is in the midst of the largest entrepreneurial 
surge ever witnessed. Considering the Small Business 
Administration projections of more than 1.3 million new 
companies with employers started in just the last 2 years, this 
represents one of the largest growth rates in our history, even 
outpacing the height of the dot-com craze.
    When it comes to the vitality and economic prosperity of 
our country, there is nothing small about small business. The 
pace of change in the banking industry is being matched by the 
unprecedented growth of small business, and we find ourselves 
in a situation that requires attention.
    As of August, there were 80 bank closures nationally, and 
analysts are predicting more than 300 bank failures over the 
next couple of years. Yet, we believe that this crisis does 
present an opportunity.
    Today we're here to discuss southeast Michigan's small 
business community and their need for access to capital, but we 
also want to recognize that there are many supportive lending 
institutions that contribute regularly to small business 
success in this region. Besides their programs and services, 
these institutions also provide support and resources to our 
small business programs. They serve on committees, boards, 
they're engaged in economic and community development 
activities and focus on our region's needs for the appropriate 
diversification of the automotive supplier industry. We need 
both our small business sector, as well as our banking 
industry, to be successful in order to strengthen our economy 
and to create jobs, create an opportunity for solid working 
relationships between both sectors, and organizations like ours 
to commit to be there to provide similar end connection to 
resources.
    The Detroit region is more economically stressed than many 
other areas of the Nation. Just look at our high unemployment 
rates and the staggering loss of jobs. Regardless of where the 
job loss occurs, it ultimately impacts our small business 
community. Michigan lost more private sector jobs just since 
the year 2000 than any other State, nearly half of all private 
sector jobs lost in the United States during this time.
    The Detroit Regional Chamber, along with many other 
business organizations, are focused on a need for 
transformation of our economy, and this will happen through new 
targeted sectors for growth and for helping small businesses to 
diversify their business and support these new sectors. 
Additional resources for supplier diversification would have a 
significant impact and help expedite economic transformation 
efforts. Small businesses can and will create jobs with 
available resources.
    We recently reached out to a targeted segment of our 
leadership. Based on sur--
    Chairman Moore of Kansas. I'm sorry, but I'm going to have 
to ask you to wind up. We have kind of a set time here. If you 
would wind up--
    Ms. Carnrike. Sure.
    Chairman Moore of Kansas. --and I would remind each of the 
witnesses, as well, that your written statements will be made a 
part of the record. So if you would, please, Ms. Carnrike, 
thank you.
    Ms. Carnrike. Probably importantly from the survey is that 
over 70 percent of these small businesses will be accessing and 
will need capital and credit in the coming 12 months. It's very 
important, and so at this time, we must say that this is where 
it becomes very important for America and Detroit, and it has 
always been a time of crisis and challenge, this is one of 
them, but it offers us an opportunity for change, innovation, 
and to ultimately make a difference. Thank you.
    [The prepared statement of Ms. Carnrike can be found on 
page 191 of the appendix.]
    Chairman Moore of Kansas. Thank you very, very much for 
your testimony.
    Mr. Andrea, you are recognized, sir, for 5 minutes.
    Mr. Andrea. Good morning, Mr. Chairman.
    Chairman Moore of Kansas. Good morning, sir.

 STATEMENT OF DAVE ANDREA, VICE PRESIDENT, INDUSTRY ANALYSIS & 
      ECONOMICS, ORIGINAL EQUIPMENT SUPPLIERS ASSOCIATION

    Mr. Andrea. Thank you for the opportunity to testify in 
front of the subcommittee. My name is Dave Andrea, and I am the 
vice president of Industry Analysis and Economics for the 
Original Equipment Suppliers Association, an affiliate of the 
Motor and Equipment Manufacturers Association, and I'm 
testifying today on behalf of each association.
    Motor vehicle parts suppliers are the Nation's largest 
manufacturing sector, directly employing over 685,000 workers 
and contributing to over 3.2 million jobs across the country. 
Suppliers are responsible for over two-thirds of the value of 
the vehicle today and nearly 30 percent of the $16.6 billion in 
automotive research and development investment. Over the past 
year, unprecedented government and industry actions prevented a 
collapse of the U.S. auto industry, a collapse that would have 
affected all vehicle manufacturers and suppliers and all 
related capital equipment and service providers. Without a 
doubt, the actions taken in the General Motors, Chrysler and 
numerous supplier bankruptcies, the selective restoration of 
credit, and the improving economy have stabilized the industry.
    However, continued progress to restore credit availability 
and to incentivize technology and development throughout the 
entire supply chain is essential to ensure the financial 
viability and economic contribution the suppliers--of the 
supplier sector, as well as commercialization of advanced fuel 
economy and emission control technologies. To weather the 
production volume reductions of 40 to 60 percent this year, a 
majority of our members instituted mandatory shutdowns, 
furloughs, and reduction in work weeks, as well as reduced 
salaries and--and reduced employer matches of 401(k) 
contributions.
    In addition, OESA has identified 48 U.S. suppliers that 
have filed for bankruptcy in 2009; although, we know that there 
are hundreds of other suppliers who have filed but were not 
reported in the press, were simply liquidated saving the cost 
of going through bankruptcy. It appears that credit is 
selectively becoming available to suppliers. However, I want to 
emphasize it is selectively becoming available. Credit 
availability, terms, and costs remain a significant and serious 
issue, particularly for smaller suppliers.
    According to the OESA September Automotive Supplier 
Barometer Survey, smaller suppliers have actually experienced 
tighter lending terms, and conversations as current as last 
week with members indicate difficulty in securing capital to 
invest in new tooling for new vehicle programs. Simply put, the 
auto supply base continues to face significant headwinds as it 
ramps up for higher production levels and launches essential 
new products and technologies. The supply base needs collective 
action that will deepen the industry's human, financial, and 
intellectual capital base.
    Governmental efforts to date from the U.S. Treasury 
Supplier Support Program to the U.S. Department of Energy 
Advanced Technology Vehicle Manufacturing Loan Program have 
primarily focused on the vehicle manufacturers and the largest 
suppliers. We encourage Congress and the Administration to 
broaden their attention through the entire supply chain, 
particularly with the smaller suppliers who have shown greater 
uncertainty over their ability to finance plant and equipment 
investment, merger and acquisitions for industry 
rationalization, and program consolidation actions.
    Smaller suppliers--and given the scale that the industry 
operates on, we define small as being under $250 million in 
revenue--remain a critical source of new technology and cost 
competitive components for the industry, so MEMA and OESA 
recommends that the Congress and the Administration focus on 
two different issues.
    First, for smaller suppliers, given the industry's 
significant capital requirements and the general mismatch of 
funding, a steady access to lines of capital and asset-backed 
loans is essential for the survival of the supply base, and 
second--and MEMA and OESA fully support the recent 
announcements by the Administration to expand existing SBA 
programs, and second, in technology funding, the supplier 
industry is working with customers to develop a wide range of 
new technologies that promote increased safety and improved 
fuel economy.
    So here MEMA and OESA support additional programs such as 
S. 1617 and the IMPACT Act to help additional investment in the 
industry. Thank you.
    [The prepared statement of Mr. Andrea can be found on page 
68 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Andrea, and again, 
your remarks will be received in the record, your written 
remarks.
    Mr. Anderson, you are recognized for 5 minutes.

 STATEMENT OF THOMAS E. ANDERSON, Ph.D., MBA, SENIOR DIRECTOR, 
                        AUTOMATION ALLEY

    Mr. Anderson. Thank you, Mr. Chairman. My name is Tom 
Anderson, and I am senior director and director of 
entrepreneurism at Automation Alley.
    I want to express my sincere thanks to Congressman Peters 
for arranging this morning to talk about the severe issue of 
credit for small and emerging technology companies. Automation 
Alley acts as a catalyst to enhance the image and growth in 
southeast Michigan's technology driven economy, and since our 
founding in 1999, our membership has expanded to include over 
1,000 businesses, educational institutions, and government 
entities from the City of Detroit and the surrounding eight 
counties. We promote regional prosperity through 
entrepreneurial and exporting assistance, workforce 
development, and technology commercialization assistance.
    It's a pleasure to offer testimony this morning 
specifically focusing on our business accelerator and seed 
investment program. To date, we have made 25 investments from 
our 3 seed investment funds totaling just under $5 million. In 
addition, those companies have attracted venture capital and 
other private investment exceeding $38 million, and employment 
is just over 150 currently.
    We are an active investor. We stay in touch with our 
companies. I serve on the board of several of those companies 
and other members of our investment committee are on the board. 
We also have a small business technology development centers 
counselor at our facility who works with those companies, and 
occasionally, we engage with those companies with repurposing 
discussions on strategy and approach to market because things 
don't always go as you originally plan. I have profiled a 
number of those companies in the written testimony, and I want 
to highlight just a few that target today's question, access to 
capital.
    ElectroJet is a small company based in Brighton that has 
received funding from the MEDC's 21st Century Jobs Fund, as 
well as from our seed fund, and they have successfully taken a 
product to market and developed customers in China for an 
export product.
    The problem has been finding funds to fulfill those 
purchase orders, getting the working capital they need to build 
the product to deliver it in a timely fashion. As a result, 
they have had to go to the capital markets to raise those funds 
rather than the banks, selling a portion of the company in the 
process.
    Limo-Reid Technologies has developed a novel hydraulic 
hybrid technology for the drive train of medium-duty and heavy-
duty trucks. They have received funding from us and they have 
also received funding from the 21st Century Jobs Fund and from 
private venture capital. They are currently well-funded as they 
move through the development phase, but they are moving to a 
stage where they will need to begin to manufacture product and 
could anticipate difficulty in funding.
    Ventech is a third company that has developed a novel 
heating technology approach for school buses. They have in hand 
over 40,000-unit purchase orders and are having a difficult 
time finding funding for the working capital to buy the raw 
materials to manufacture the heaters to sell them to the 
industry.
    So there's a theme, and the theme is that it's particularly 
difficult for companies that are manufacturing a product to 
find the working capital for work in progress in order to 
fulfill purchase orders that they can achieve. Automation Alley 
supports the Obama Administration's proposal to support further 
economic recovery and job creation by ensuring that credit is 
available for small businesses, and of particular interest are 
the measures that would raise lending limits on the SBA 7(a) 
and 504 programs from $2 million to $5 million, raise the 
manufacturing company limit to $5.5 million, and raise the 
lending limits on the microloan program from $35,000 to 
$50,000.
    For companies that are looking to diversify, the value of 
the existing plant and equipment has fallen, and is often 
inadequate to support the credit lines needed to move into new 
markets. Supplier diversification funding from the Federal 
Government has enabled a way to guarantee that gap, and move 
funds to those companies. Many new economy companies also need 
some support of that gap, and I would suggest that perhaps an 
expansion of that loan guarantee to include startup technology 
companies might be helpful, as well. The capital needed to move 
from seed stage to venture capital or bootstrap capable funding 
is scarce, and perhaps a subordinated debt fund would also meet 
that gap.
    In conclusion, we find for our companies, the largest gap 
is in the funding continuum moving from seed stage to venture 
funds or to operating the business. The State has done an 
admirable job of expanding the pool of pre-seed capital and of 
venture capital, but it's that gap in between, the $500,000 to 
a $1.5 million that is really difficult to obtain. Companies 
that are beginning to generate revenue but are not yet 
profitable and who may never be a good candidate for venture 
capital because they're a good solid $500,000 to a $1.5 million 
business.
    In conclusion, we're very appreciative of the attention 
received by Congress and Federal agencies during this time and 
in our State and believe that a continuum of local funding and 
support for technology entrepreneurs is a vital piece in the 
economic development puzzle. Thank you.
    [The prepared statement of Mr. Anderson can be found on 
page 62 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Anderson.
    And the Chair next recognizes Mr. Staebler for 5 minutes, 
sir.

 STATEMENT OF NED STAEBLER, VICE PRESIDENT, CAPITAL ACCESS AND 
     BUSINESS ACCELERATION, MICHIGAN ECONOMIC DEVELOPMENT 
                          CORPORATION

    Mr. Staebler. Good morning, Mr. Chairman, and distinguished 
Members of Congress. My name is Ned Staebler, and I am the vice 
president of capital access and business acceleration at the 
Michigan Economic Development Corporation, the State's economic 
development agency. I sincerely appreciate the opportunity to 
testify today on this important subject. Thank you very much 
for coming here. This is really a critical juncture in our 
State and also in our Nation.
    Manufacturers in the United States face considerable 
uncertainty. While some firms are cautiously optimistic about 
the overall economic recovery, the persistent lag in credit 
markets continues to pose a serious and permanent threat to 
manufacturers and to our country's industrial capacity as a 
whole. While there was an uptick reported in manufacturing 
output over the summer months, recent data has shown that this 
has largely disappeared in September and October, and while 
conditions are somewhat improved from the lows seen in the 
first quarter of 2009, U.S. manufacturing output is still very 
weak compared to historical levels, and utilized capacity 
remains at or very near all-time lows. And the corollary, of 
course, is that excess capacity is at or very near all-time 
highs.
    In Michigan, and from our view at the MEDC, the State of 
the market is clear. Unemployment in the State is over 15 
percent. A recent University of Michigan report projected the 
State will have lost nearly a million jobs by the time we reach 
bottom. Over half of those losses are coming in the 
manufacturing sector alone. A.T. Kearney estimates that 50 
percent of tier 1 automotive suppliers are still at risk of 
bankruptcy. Perhaps most troubling is that the automotive 
industry has one of the largest economic multipliers of any 
sector in the U.S. economy, a reminder that other non-auto jobs 
are tightly linked to the success or failure in manufacturing.
    Even with the interventions of TARP, which was designed to 
improve the health of the banking sector and, thereby, increase 
available capital to businesses, commercial and industrial 
lending across the United States has fallen 15.4 percent year 
over year in the last 12 months. Clearly, the recovery plan has 
not done enough to increase the flow of credit from private 
lenders.
    This juncture is critical for three reasons: One, 
manufacturers need capital to reorganize and consolidate 
efficiently and in an orderly fashion; two, those manufacturers 
who have right-sized and are now seeking to fill new orders are 
finding that with their reduced borrowing bases, it is 
difficult to access capital to scale back up; and three, those 
manufacturers seeking to utilize their core competencies in 
other non-traditional verticals like wind, solar, medical 
device, or homeland defense are increasingly unable to finance 
this transition. We applaud many of the efforts of Congress and 
the Obama Administration to address these issues. Increasing 
access to, cost of, and timeliness for capital to manufacturers 
will be an essential part of our Nation's economic recovery.
    Increasing SBA guarantee levels, reducing fees, and 
reducing administrative hurdles and bureaucracy should continue 
to be congressional and Administration goals. We urge this 
committee to continue to support them. However, we feel that 
these measures overlook the deep interdependence between the 
health of banks and the health of borrowers.
    TARP and many of the SBA adjustments I have discussed fail 
to fully address the problem; they only focus on the health of 
banks. We agree that banks need to be healthier, and access to 
cheaper capital certainly helps, but to grow our deflated 
manufacturing sector, borrowers must be made healthier, as 
well. We're not suggesting that underwriting standards be 
lowered at all, quite the contrary.
    Rather, the best way to widen the scope of lenders to 
include manufacturers and other historically healthy firms in 
this difficult environment is to enhance borrowers' financial 
qualifications from a commercial loan underwriter's 
perspective. This requires mechanisms targeted specifically at 
borrowers' shortcomings, namely, cash flow and collateral.
    In recognition of this fact, the MEDC created the Michigan 
Supplier Diversification Fund, which has been very successful 
in inducing new loans that were otherwise unqualified from the 
bank's perspective, many of which provided funds for 
diversification into emerging green technologies. Crucial is 
that this program targets the support of both banks and the 
borrowers at the individual loan request level. This ensures 
that projects move forward at the time of the deployment of 
funds. In essence, the program self-regulates by ensuring that 
the lending activity happens right away in contrast with TARP, 
where following lending has severely lagged.
    MSDF, or the Michigan Supplier Diversification Fund 
leverages the market expertise, prudent risk management 
practices, and financial capacity of private lenders who 
source, underwrite, lead, and service the deals while injecting 
public--targeted public dollars at the level of individual loan 
requests. So far, every $1 in public funds has leveraged more 
than $3 in private funds and helped create more than 2,000 
jobs.
    As evidenced by the 15 percent unemployment rate in 
Michigan, the transition of the American manufacturing base 
from traditional sectors to new high-tech verticals is a 
challenging one. However, the speed of this transition is 
crucial to the retention of an advanced manufacturing cluster 
in the United States. We urge this committee to continue to 
seek new models like the proposed National Manufacturing 
Diversification Fund and act expeditiously to get this money 
into the hands of those who need it the most, American 
businesses.
    [The prepared statement of Mr. Staebler can be found on 
page 276 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Staebler.
    Mr. Trute, you are recognized for 5 minutes, sir.

 STATEMENT OF HERBERT W. TRUTE, PRESIDENT & CEO, T & W TOOL & 
    DIE CORPORATION; AND CHAIRMAN, TOOLING, MANUFACTURING & 
                TECHNOLOGIES ASSOCIATION (TMTA)

    Mr. Trute. Thank you, Chairman Moore, and thank you, 
Congressman Peters, for hosting this important hearing on an 
issue so vital to small and mid-sized manufacturing. My name is 
Herb Trute, and I am the president of T & W Tool & Die 
Corporation of Oak Park, Michigan. I am also the chairman of 
the board of directors of the Tooling & Manufacturing 
Technologies Association. I am a 32-year veteran of the auto 
supply business, and I am surviving today with absolutely no 
thanks to the banking industry.
    In my capacity as chairman of the TMTA, I have traveled to 
Washington, and I have had meetings with Senator Stabenow, 
Michigan Governor Granholm, and other Members of Congress 
during the automotive hearings. I was there for that. I was 
subsequently asked and also served as an adviser to the Obama 
transition team with respect to manufacturing, and I was very 
proud to do that.
    I know the focus of this hearing is primarily on the 
banking industry and the ability of manufacturing to receive 
financing, but a business or an industry, for that matter, that 
is in crisis does not arrive at that point in a vacuum. There 
are always reasons. And very briefly, the main reason is that 
the American auto industry has outsourced the supply base 
virtually to the point of oblivion. This past year, faced with 
a dramatic slowdown, I did what everyone suggested, I right-
sized, downsized, leaned, cut wages and benefits, and 
reorganized the business in such a way that we could survive. I 
was able to garner a fair amount of business, a sizable package 
on today's open market competing globally.
    I have a 15-year relationship with Comerica Bank where I 
went to obtain financing for this work in process. The package 
that they offered me was inadequate, did not rely on adequate 
work-in-process financing. The guarantees and collateral 
requirements were such that the amount of money they offered 
me, I would never have been able to borrow. Faced with the 
prospect of having to turn the work back and close my business, 
I approached my customer, one of the Big Three.
    They recognized the need that it was vital for American 
manufacturing to have a supply base locally. So in exchange for 
a discount, I received progressive payment terms from them. 
Another one of my customers chose to go the other route and 
continues to funnel American taxpayer money overseas for 
tooling. I would like to know where the outrage is in that. 
That should not be happening.
    The question should not be, ``Where was it purchased?'' but 
``Where was it built?'' The current bank crisis has provided a 
convenient reason for large multinationals to continue sourcing 
overseas. Now they're using it as a reason, as an excuse. These 
are American taxpayer dollars. My belief is that the 
outsourcing, coupled with other countries' predatory trading 
practices, have precipitated this. The unfair international 
playing field has exacerbated the situation making it almost 
impossible for small business to compete globally. Yes, credit 
is almost impossible to get, and yes, readily available credit 
will help, but if the Big Three and other large American 
corporations will not even try to buy American, there will be 
no recovery, and we will have lost our ability to manufacture 
anything.
    The banks are unwilling to assume any risk with respect to 
lending to small manufacturers. We were offered a loan package 
totally inadequate to finance the large amount of work we have 
been awarded. The interest rates were steep, collateral 
requirements outrageous, and the amount offered would not have 
been enough. There's definite need, but that is not part of the 
equation for the banks. They will assume no risk.
    My own belief is that the needs along with the benefits far 
outweigh the risks in lending to small businesses. Small 
business provides a shot in the arm to any local community. We 
found it possible to survive with little or no credit, but if 
financing were readily available, we would easily be able to 
double our employment. This would be even more dramatic for a 
business that has had to close due to lack of financing. Most 
small businesses create jobs in the local communities 
surrounding them.
    The direct result would be reduction in unemployment and 
injection of dollars into local economies and, thereby, helping 
other businesses. Thank you very much for your time.
    [The prepared statement of Mr. Trute can be found on page 
283 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Trute.
    I want to thank all of the witnesses for their testimony. I 
now recognize myself for 5 minutes for questions.
    I am interested in exploring the challenges we have seen in 
the automobile industry during the past year or two and how 
that relates to this lending crisis. I represent Kansas City, 
Kansas, in my district where we have a GM plant that produces 
the Chevy Malibu and employs about 3,000 of my constituents. We 
also have a number of auto suppliers in my district supporting 
the auto plant. I worry about suppliers and other small 
businesses having their access to affordable credit cut off.
    Mr. Andrea, is it more difficult to find credit if you own 
a business that's part of the auto industry? Do banks that 
might make a loan to any small business decide not to if the 
firm is related to the auto industry?
    Mr. Andrea. Currently, that's the case because--twofold. 
One is with production volumes so dramatically low and 
uncertain going into 2010, that adds systemic risk with the 
bankers. The other is just the low value of automotive assets 
to back up any of the loans. And we have a--and I can follow up 
with additional responses for you.
    Chairman Moore of Kansas. Thank you. Ms. Carnrike, what do 
you think?
    Ms. Carnrike. I can speak directly to an example of a small 
business who is diversifying from the automotive industry, 7 
years ago, 100 percent automotive reliant, now today, 10 
percent reliant. Access to capital is critical to this growth. 
It will create hundreds of jobs over the next 3 years, and 
their main source they're looking at right now is an SBA 504 
loan. It's very important to help companies diversify from the 
automotive industry to be successful in this region.
    Chairman Moore of Kansas. Thank you. Ms. Carnrike, what are 
you hearing from Detroit businesses that are having their lines 
of credit decreased or eliminated altogether? Do you have any 
sense whether banks are overly cautious on their own about 
making loans, particularly to any auto-related firm, or do you 
think these banks want to make the loans, but they're under 
pressure not to from the regulators?
    Ms. Carnrike. I don't have specific examples of it being 
related directly to the automotive industry. We do have 
feedback from small business customers about their barriers to 
accessing capital. I can tell you that over half of a surveyed 
pool tells us that banks not lending is the biggest barrier to 
assess to capital, 56 percent, and that 38 percent have trouble 
getting nontraditional business models approved for financing.
    Chairman Moore of Kansas. Mr. Trute, do you have any 
thoughts about this?
    Mr. Trute. Well, it would definitely help. We have been 
forced to turn business away due to inadequate financing. The 
business that we have kept is largely in part of our customer's 
recognition that we are vital to them.
    Chairman Moore of Kansas. Any other--thank you. Do any 
other witnesses care to comment on this question? Yes, sir, Mr. 
Andrea?
    Mr. Andrea. In the survey work that we have done of our 
members, approximately 20 percent of our members do say that 
you--describing their banking relationship with their banker 
that their banks are actively exiting the industry overall or 
particularly with their relationship.
    Chairman Moore of Kansas. Any other comments?
    Mr. Staebler, as we consider various solutions at the 
Federal level, including the proposal put forward by the Obama 
Administration last month, what are States like Michigan doing 
to turn the local economy around? Are there ways that the 
Federal Government can partner up with States like Michigan to 
seek solutions to an economic downturn, and is the key to an 
economic recovery increasing lending to small and mid-sized 
businesses?
    Mr. Staebler. I certainly think that's going to be a huge 
driver in our economic recovery, that is, small and mid-sized 
businesses have been the main engine for job growth in this 
country over the last 25 to 30 years, so I think that would be 
critical. In terms of ways that the Federal Government can 
partner with State government, we have put a proposal in place 
and in front of the Administration on a way to create a 
national version of our supplier diversification program, not 
just for auto suppliers, but for all manufacturers wishing to 
use their core competencies in new emerging technology sectors. 
We think it's one that maintains the fiduciary responsibility 
of banks but also provides access to credit for those small and 
mid-sized businesses that are so crucial.
    Chairman Moore of Kansas. Mr. Anderson, any comment?
    Mr. Anderson. As I mentioned before, I would urge that a 
national fund such as Ned suggested for supplier 
diversification could well be expanded to also include startup 
businesses and technology space who have similar challenges in 
gaining access to capital, and that slight risk reduction might 
enable them to be a viable investment candidate--or loan 
candidate for a bank.
    Chairman Moore of Kansas. Thank you, sir. The Chair's time 
has expired.
    Congressman Gary Peters, you are recognized for 5 minutes, 
sir.
    Mr. Peters. Thank you, Mr. Chairman.
    Thank you for all of your testimony here. As you know, the 
hearing is organized in three ways. We have businesses talking 
about the difficulties, and we're going to hear from the 
bankers as to how they're trying to achieve and bring that 
money to you, and then regulators, and I know the banks have 
some concerns about what the regulators are doing, so it's 
about a dialogue together. But one thing I thought was 
interesting, and I want to get your response to, is that I have 
looked at some of the testimony that's going to come later from 
the bankers, as well as from regulators, and in the testimony, 
both of them quote the National Federation of Independent 
Businesses that talk about the fact that although credit is 
tight, it's really not the leading reasons why a lot of 
businesses are experiencing some difficulties.
    Now I have heard something different from all of you 
through your discussions here and your testimony. Let me just 
read--this is, I think, from the FDIC or the bankers:
    ``The NFIB reports that in spite of the difficult economic 
environment, 33 percent of businesses reported regular 
borrowing in October, and that's compared to 9 percent of the 
reported problems that they had before. They noted that only 4 
percent of business owners reported financing as their number 
one business problem, and this is extremely low compared to 
other recessions.''
    So some of the folks in the banking community think this is 
different than other--actually better than other recessions or 
that the credit isn't that big of a problem. How would you 
respond? Because we're going to have these other panelists who 
may be saying that later. How would you respond with your 
experience in business, particularly here in Michigan? And 
that's why I wanted to bring this field hearing here is because 
I think we have a whole different situation than the NFIB may 
on a national basis.
    Would anybody like to start? Ms. Carnrike?
    Ms. Carnrike. I can respond from our survey data that half 
of our respondents had applied for financing in the last 12 
months. It goes from 41 percent, I'm saying about half, but 41 
percent, to 70 percent anticipating needing financing in the 
coming 12 months. So that indicates there will be a rise for an 
increase in need of capital, and we also were able to secure 
from them that in looking at the sources for the future, they 
actually will look to increase their interest in SBA loan 
programs from 29 percent--to 29 percent from 14 percent in the 
past.
    Mr. Peters. Mr. Andrea?
    Mr. Andrea. My only suggestion would be to cut the data by 
size of company and by sector and to see if at the national 
level those national numbers hold up when you look at large to 
small and by industry sector. I think you'll find a difference.
    Mr. Peters. Okay.
    Mr. Anderson. And in my experience, both with our startup 
companies and with some of our small businesses, it may well 
turn out because what I see is that their number one problem 
many times is getting purchase orders. So although funding and 
loans may still be an issue, if you're not getting purchase 
orders, that becomes your number one problem, so perhaps it's 
best to look at the top three issues of small businesses.
    Mr. Peters. They're all interrelated?
    Mr. Anderson. They are interrelated.
    Mr. Peters. Right, right.
    Mr. Staebler. Through the second quarter of 2009, the FDIC 
reported that commercial lending nationally was down 8.5 
percent. At the end of the third quarter, it's down 15.4 
percent. And it wasn't like the third quarter of 2008 was a 
banner time for commercial lending. So I think it's clear that 
things are not necessarily on the upswing, and I think Tom's 
right that they are interconnected, that demand certainly 
reduces the amount of borrowing, but certainly the availability 
of capital also reduces the amount of lending that's happening, 
so--
    Mr. Trute. I would agree with Mr. Anderson. The problems 
began in the manufacturing sector, not through lack of 
financing, but lack of financing is definitely hampering any 
type of recovery.
    Mr. Peters. Yes, as your businesses that you represent are 
going out and trying to get credit, and particularly small 
businesses, small businesses, as I think was mentioned, rely 
primarily on bank financing, or if they try to go to the 
capital markets, there are others, but it's bank financing, 
what differences have your members experienced by going to the 
large, multi--or the large money-centered banks that aren't 
headquartered here in Michigan versus community banks, or are 
there similar challenges, different challenges.
    How would you respond to where your businesses are going to 
get money? We can start with anybody. Mr. Anderson?
    Mr. Anderson. With my startup businesses, they have 
encountered, basically, the same problem at many institutions, 
and they have talked to pretty much anyone they can find, and 
the problem is providing sufficient mortgageable assets to 
support the loan.
    Take the case of ElectroJet. Kyle benefited substantially 
by the devaluation of assets. He was able to purchase equipment 
for his shop at 10 to 20 cents on the dollar. It worked great 
during the startup phase. Now as he needs to get financing for 
working capital to build product, those same assets are still 
valued at 10 cents on the dollar, so it's not going to support 
the kind of loan value that he needs in order to fulfill the 
orders.
    Chairman Moore of Kansas. Thank you, sir.
    Congressman Dingell, you're recognized, sir, for 5 minutes.
    Mr. Dingell. Mr. Chairman, with your permission, I would 
like to defer to Mr. Schauer.
    Chairman Moore of Kansas. Certainly.
    Mr. Schauer. Thank you, Mr. Dingell.
    Mr. Trute, thank you. I think you're providing us a reality 
check here today. I could have lined up this entire room with 
small businesses, particularly small manufacturers, that tell 
the exact same story. So you're representing Main Street here 
today. I appreciate that. And what I hope that we avoid today 
is--and this is sort of what I see, it's sort of like the 
scarecrow on the Wizard of Oz, everybody pointing different 
directions or pointing at each other, and we're not solving the 
problem. I look forward to hearing from the banks later today 
with a reduction in loan volume, that's--doesn't seem to me to 
be a sustainable trend for that industry, and we continue this 
downward spiral.
    I'm going to ask some quick questions, and since I have 
about 4 minutes, ask for relatively brief answers. Mr. 
Staebler, I'm very familiar with the Michigan Supplier 
Diversity Fund. Thank you for that and the influence you're 
having on a national program. How can we help make that happen?
    Mr. Staebler. We worked with some of my colleagues here on 
trying to figure out what demand there might be for this 
program, and in the State of Michigan alone, we anticipate that 
number over the next 2 to 3 years to be close to $2 billion. 
Nationally, we looked at it as close--at least $10 billion that 
would help small businesses transfer into new verticals. We 
managed to have about $13 million, with an ``m,'' available at 
the State level to help that transition along, so obviously, 
creating a national program to allow manufacturers all over the 
country to access--
    Mr. Schauer. How much money does that national fund need?
    Mr. Staebler. I would say at least $10 billion.
    Mr. Schauer. $10 billion? Has the focus been on TARP money 
to help capitalize that?
    Mr. Staebler. Certainly, repayments to TARP, non--portions 
of TARP that haven't been expended yet, any avenue, really--
    Mr. Schauer. And $10 billion will help create how many 
jobs?
    Mr. Staebler. That number is in the $200,000 to $300,000 
range. I have some data--
    Mr. Schauer. Okay.
    Mr. Staebler. --if you would like to see it later.
    Mr. Schauer. Thank you. I think, Mr. Anderson, you talked--
or maybe it was Mr. Andrea, about--at least my impression was 
you're talking about $5 billion from TARP that went to the Big 
Three autos, intended to go to tier 1 suppliers, and that was 
supposed to trickle down, and that really didn't happen, if I'm 
hearing you correctly, and only a portion of that was used. Is 
that part of a solution to use those dollars to get to smaller 
suppliers?
    Mr. Andrea. Without a doubt, the program served its purpose 
to stabilize the industry, but from the perspective of moving 
forward, an ongoing investment in plant and equipment from 
mergers and acquisitions to consolidate the industry, that's 
the capital that ran short, and it was not available through 
any public, private--
    Mr. Schauer. If we would figure out how to loosen that up, 
that would be part of the solution; is that correct?
    Mr. Andrea. Absolutely, and MEMA and OESA have been very 
strong supporters of the MEDC program.
    Mr. Schauer. My final question to the panel, I think it's 
my final one, is to talk a little bit more about SBA programs. 
We have, all of us here on this panel, have worked to increase 
limits on some of those, increase guarantees, including through 
the stimulus program and beyond that. Are lenders 
participating? My experience is no, not really. What will it 
take for lenders to participate in these enhanced SBA programs 
which I have heard a number of you suggest would be part of the 
solution? Any or all of you.
    Mr. Staebler. I would say that, as I mentioned before, 
that's certainly a part of it. And I think there are--I hate to 
overgeneralize it, but there certainly are some lenders that 
are doing more SBA lending now than they were a year ago. Of 
course, many of them were lending to companies that a year ago 
didn't need to take an SBA loan, and now they are. But I still 
think that even with expanded SBA guarantees and reduced fees, 
you're not addressing the core issue, which is that the 
collateral and cash flow of the borrowers, themselves, is so 
damaged. As Tom talked about, when you have your assets valued 
at 10 or 20 cents on the dollar, it's very difficult to 
collateralize a loan, even with the SBA programs. It's just--it 
won't be bankable.
    Mr. Anderson. I would agree and expand on that in many 
cases with our startup entrepreneurs, they have already 
mortgaged their house, mortgaged their 401(k) to put into the 
business to get started, so the ability to collateralize an SBA 
loan is severely impacted.
    Mr. Andrea. And then as we have surveyed our members, just 
the limits, the loan limits that hamper auto suppliers, even 
the smallest auto suppliers that you're talking about, a $100 
million or $125 million supplier--
    Mr. Schauer. The limits need to be--
    Mr. Andrea. --participating. When we did our survey work, 
it was $5 million would be a minimum limit, which is what has 
been proposed to move those up to in the 7(a) loan program to 
be of value.
    Mr. Schauer. Okay, thank you, Mr. Chairman.
    Chairman Moore of Kansas. Thank you, sir, and Congressman 
Dingell, you're recognized, sir, for 5 minutes.
    Mr. Dingell. Mr. Chairman, to follow up quickly on the 
question just raised by Mr. Schauer, Mr. Andrea, Mr. Anderson, 
Mr. Trute, we just saw that one of the major auto manufacturers 
turned back a significant amount of money that had been 
earmarked to go down to the suppliers. I'm curious. Is that a 
problem? Are those funds being flowed through to the suppliers 
in the proper fashion, particularly with regard to not only 
tier 1, but 2 and 3?
    Mr. Andrea. My understanding of the situation right now for 
distressed supplier funding is that amount within each of the 
vehicle manufacturers is going down. To answer your specific 
question, though, sir, in terms of is that money--by returning 
that money, is that going to harm the suppliers, I can't answer 
that specifically.
    Mr. Dingell. Well, it would be pretty clear it's not going 
to help them.
    Mr. Andrea. No.
    Mr. Dingell. Mr. Anderson?
    Mr. Anderson. To be perfectly honest, with 25 start-up 
businesses that I'm engaged with, I don't have enough specific 
experience with the suppliers you're referencing to be able to 
answer that.
    Mr. Dingell. Mr. Trute?
    Mr. Trute. Certainly, as you say, it can't be helping the 
suppliers. I only have personal evidence to the extent that one 
of the automakers is actively embracing keeping the local 
supply base alive, and one of them is not.
    Mr. Dingell. Ms. Carnrike, are depository institutions 
contributing or in a position to help turn around the local 
economy? And then why or why not, if you please.
    Ms. Carnrike. Depository institutions are a very important 
part of turning around our local economy, and they contribute 
to that every day. We're talking specifically today about 
lending practices, but we also have to remember that those 
institutions are very important to supporting other community 
and economic development programs. We need the strength of 
their continued contribution. They will be very strong partners 
in our economic turnaround and transformation.
    Mr. Dingell. Mr. Andrea, as you're aware, and we have 
discussed some of those things at an earlier meeting that you 
and I had, the Administration recently increased the capital in 
Small Business Administration 7(a) and 504 loans. Is this going 
to help suppliers? How many of them will take advantage of it? 
And further, is raising the capital on these loans sufficient 
to address the capital needs of the suppliers?
    Mr. Andrea. I think from our survey, we're looking at the 
minimum amount was $5 million would bring in significantly more 
suppliers. Now we have to work--so I don't know the specific 
number that would pull in. We also, though, have to work on the 
lending side to make that capital available. My only anecdote 
for you there is I know speaking with the Michigan Small 
Business Administration office, it's continually difficult for 
him to place loans through the--automotive loans through the 
SBA programs here.
    Mr. Dingell. Thank you. Now to all of our witnesses, Mr. 
Art Johnson of the American Banker's Association implies that 
the Department of the Treasury should increase the cap of banks 
participating in the Administration's small business lending 
initiatives from $1 billion to $5 billion. Do you agree with 
that assessment, and what would your comments be? Ms. Carnrike, 
starting with you.
    Ms. Carnrike. There is a need for increased capacity, 
whether it be the SBA existing loan programs, as well as many 
other programs. There's not enough capacity and enough 
available resources currently to help our small business 
community.
    Mr. Dingell. Mr. Andrea?
    Mr. Andrea. That would help the supply side, yes.
    Mr. Dingell. Mr. Anderson?
    Mr. Anderson. I would absolutely agree.
    Mr. Dingell. Mr. Staebler?
    Mr. Staebler. I couldn't agree more.
    Mr. Dingell. Whose family are old friends of mine. And you, 
Mr. Trute, please.
    Mr. Trute. Absolutely, as well.
    Mr. Dingell. Now, in August of this year, I met with the 
banks and auto suppliers, as many of you will recall, to 
discuss methods by which to increase lending to suppliers. One 
question discussed during that meeting was the national 
adoption of the supplier diversification program which it is 
currently operating successfully in Michigan. This program 
would decrease an individual bank's risk in lending to 
suppliers by ensuring up-front deposits of loan principal by 
the Federal Government or its designee, and the risks buoyed 
across financial institutions participating in the program.
    Do you believe that such a program would benefit banks and 
increase small business lending across the country? And how 
could we see to it that it's expanded here in Michigan? Ms. 
Carnrike?
    Ms. Carnrike. A national supplier diversification program 
would certainly be very helpful to our overall efforts for 
suppliers across the Nation, but I would like to talk 
specifically to this area and this State and suggest that we 
look at other opportunities to shore up our State program and 
would ask that, perhaps, you consider is there flexibility 
within the SBA? We have been talking about existing SBA 
programs. Is there an opportunity to be flexible to create new 
programs with SBA resources that respond to timely economic 
situations? Especially for economic disadvantaged areas like 
Detroit right now.
    Mr. Dingell. Thank you, Mr. Chairman.
    Chairman Moore of Kansas. Thank you, sir, and thanks to the 
witnesses for their testimony. I thank our first panel for your 
testimony. We are going to have to move along here. The first 
panel is excused, and I would like to invite the next panel to 
the witness table, please, and thanks to all the witnesses who 
have testified here today.
    And while the next panel is being seated, we're going to 
make one minor adjustment, too, instead of--
    [Discussion off the record.]
    Chairman Moore of Kansas. We will now hear from Mr. Art 
Johnson, chairman and CEO of the United Bank of Michigan and 
United Community Financial Corp, as well as the chairman of the 
American Bankers' Association.
    Next, will be Mr. Doug Chaffin, president and CEO of Monroe 
Bank & Trust and the immediate past president of the Michigan 
Bankers' Association. After him, we will hear from Mr. Michael 
Kus, who is with Kus, Ryan & Associates, and serves as legal 
counsel to the Michigan Association of Community Bankers, and 
concluding this panel will be Mr. Dave Adams, CEO for the 
Michigan Credit Union League.
    Without objection, your written statements will be made a 
part of the record. I say this to each of the witnesses.
    Mr. Johnson, sir, you are recognized. We are going to have 
to change this--I apologize for this, but we're kind of on a 
tight schedule here--to 3 minutes for witness statements, if 
you would, please, and your statements will be received into 
the record, though, and each member will then have 5 minutes to 
conduct and ask questions.
    Mr. Johnson. Very good. I will do my best.
    Chairman Moore of Kansas. Thank you, sir. And I will let 
you know when the time is up.
    Mr. Johnson. Good, thank you.

STATEMENT OF ARTHUR C. JOHNSON, CHAIRMAN & CEO, UNITED BANK OF 
   MICHIGAN; AND CHAIRMAN, AMERICAN BANKERS ASSOCIATION (ABA)

    Mr. Johnson. My bank has been serving the banking needs of 
west Michigan communities for more than 120 years. And for our 
bank to prosper and endure, we must create long-term value for 
our customers, our communities, our employees, and our 
investors. Each of these groups is very interdependent so that 
to fail with one group means failing them all.
    For this reason, our bank has clung to the core values of 
honesty and fairness in all of our dealings, mutual respect for 
others, and a thirst for excellence in our individual 
performance and professionalism. As chairman of the American 
Bankers' Association, I'm pleased to share the banking's 
industry's perspective on ways to promote capital assistance 
and improve business lending in this distressed economy.
    This recession is certainly one of the worst we have ever 
faced. While the statisticians will say that the recession has 
ended, that's little comfort to areas in Michigan and elsewhere 
in the United States that still suffer from very high levels of 
unemployment and business failures. The impact of the downturn 
is being felt by all businesses, banks included. The cumulative 
impact nationally of seven straight quarters of job losses and 
many more than that in Michigan is placing enormous financial 
stress on some individuals. With the jobs lost, work hours cut, 
it does not take long for the financial pressure to become 
overwhelming. This, in turn, has increased losses and reduced 
the capital of banks.
    This is not, of course, the first recession faced by banks, 
and certainly not the first in Michigan. Most banks like mine 
have served their communities for decades and expect to serve 
them for many more. In fact, one of every three banks in the 
United States has been in business for more than 100 years, and 
these numbers tell a dramatic story about the staying power of 
the banks and their commitment to the communities they serve.
    In the face of a still weak and struggling economy, bankers 
are working very hard every day to ensure that the credit needs 
of our communities are met. My bank, as most community banks, 
entered this recession with strong capital levels, and that is 
the foundation of bank lending. Without adequate capital, which 
our regulators are demanding, it becomes extremely difficult to 
make new loans.
    As this subcommittee is aware, in some areas of the 
country, including southeast Michigan, it's impossible for 
banks to raise new capital--new private capital. Without new 
sources of capital, banks will end up shrinking in order to 
keep regulatory capital asset ratios in acceptable ranges.
    We believe that there are some comparatively small steps 
the government can take now that would make a huge difference 
in keeping credit available to our customers and our 
communities. In a letter to Treasury Secretary Geithner this 
past September, I laid out specific recommendations to assist 
well-managed, viable community banks so that they would have 
the capital necessary to more easily meet the credit needs in 
their communities.
    We proposed the Treasury invest up to $5 billion in 
community banks with an expectation that this investment be 
matched dollar for dollar by private capital. However, in some 
areas of the country, Michigan included, capital markets have 
become completely dysfunctional. In these areas, either no 
private capital matching or a lesser requirement should be 
considered.
    On a related note, we believe the President's new small 
business lending initiative has the potential to improve access 
to credit for small businesses by providing lower-cost capital 
to community banks that submit a plan to increase small 
business lending. We have urged the Treasury to increase the 
cap size so that more community banks will be able to 
participate, which, in turn, increases the potential capital 
available for small businesses.
    Chairman Moore of Kansas. Mr. Johnson--
    Mr. Johnson. In conclusion--
    Chairman Moore of Kansas. Thank you.
    Mr. Johnson. --the success of many local economies, in 
Michigan and throughout the Nation, depends in large part on 
the success of the community banks. We must work together to 
get through these difficult times.
    Chairman Moore of Kansas. Thank you, sir.
    [The prepared statement of Mr. Johnson can be found on page 
215 of the appendix.]
    Chairman Moore of Kansas. Mr. Chaffin, you are recognized, 
sir, for 3 minutes.

 STATEMENT OF H. DOUGLAS CHAFFIN, PRESIDENT & CHIEF EXECUTIVE 
  OFFICER, MONROE BANK & TRUST; AND IMMEDIATE PAST PRESIDENT, 
                  MICHIGAN BANKERS ASSOCIATION

    Mr. Chaffin. Thank you, Chairman Moore. I would also like 
to thank Congressman Peters for arranging this today and to 
recognize Representative Schauer and my own Congressman, John 
Dingell. Thank you for attending, gentlemen.
    Thank you for the opportunity to discuss the critical issue 
of improving lending to small business in Michigan and the 
needs of traditional banks to do so. I'm Doug Chaffin, 
president and CEO of Monroe Bank & Trust. We are a $1.4 billion 
traditional community bank with locations in Monroe and Wayne 
Counties, obviously, in the epicenter of our current financial 
crisis. Our bank has been in existence for over 150 years. We 
did not engage in the type of irresponsible lending behavior 
that created this crisis, and our intent is to continue for the 
next 150 years and beyond.
    I'm also proud to represent at this hearing the 169 members 
of the Michigan Bankers' Association as its immediate past 
chairman. The MBA represents 93 percent of all commercial banks 
doing business in our great State. Our members employ 
approximately 40,000 Michigan residents and have provided more 
than $200 billion in loans to both consumers and businesses.
    Unemployment in Michigan is currently the highest in the 
Nation, exceeding 15 percent, and this has been well documented 
in some areas exceeding greater than 20 percent in the State of 
Michigan. During this recession, 75 percent of all auto-related 
jobs have been lost with 1 out of 5 in all jobs in Michigan 
lost since the year 2000.
    Banks in Michigan have continued to lend throughout this 
crisis, while at understandably lower levels compared to our 
national peers. In fact, loans to businesses and individuals by 
Michigan banks have grown throughout this decade with the first 
9 months of 2009 representing the only actual decline in loans 
outstanding within any current banker's memory. However, the 
high levels of unemployment has brought about increased 
delinquencies, loan defaults, and resulting losses for over 40 
percent of Michigan banks.
    This has had a direct effect on depleting capital. While 
the demand for loans has declined dramatically as few of our 
customers are willing to take risks in this environment, many 
of our banks in Michigan lack the capital to serve the needs of 
the few businesses that are managing to find growth 
opportunities.
    Further complicating this issue is the fact that 
traditional local sources for capital have been stressed by the 
economy, and outside investors lack the confidence to invest in 
Michigan due to our economic woes. Over the past 2 years, the 
Michigan Bankers' Association has explored a number of 
potential private and public solutions to provide capital for 
viable banks. This has included a collaborative effort with the 
Michigan Economic Development Corporation that resulted in the 
establishment of the Michigan Supplier Diversification Fund, 
which was mentioned previously. This fund was intended to 
provide both needed startup capital and cash flow support for 
manufacturers attempting to diversify in other industries.
    Sadly, the budgetary challenges within our fair State leave 
this initiative woefully underfunded. Efforts by State 
leadership to seek Federal funding for these programs have thus 
far proved unsuccessful. It's important to note that lending 
does not lead an economic recovery. In fact, increased lending 
traditionally follows increased employment and new business 
opportunities resulting from improvements in the economy.
    Michigan banks are anxious to do their part in any recovery 
effort, but many lack the capital that will allow them to do 
so. The only answer for many of our banks in Michigan is to 
look for governmental support to supply the capital necessary 
to allow them to lend to viable companies.
    Thank you for the opportunity to discuss this critical 
issue for our local businesses and communities. We are 
confident that capital support to Michigan banks will pay huge 
benefits and will provide the necessary boost to employment as 
Michigan recovers.
    [The prepared statement of Mr. Chaffin can be found on page 
195 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Chaffin.
    Mr. Kus, you're recognized for 3 minutes, sir.

STATEMENT OF MICHAEL A. KUS, KUS, RYAN & ASSOCIATES, PLLC; AND 
    LEGAL COUNSEL, MICHIGAN ASSOCIATION OF COMMUNITY BANKERS

    Mr. Kus. Thank you, Chairman Moore. Thank you, Congressman 
Peters, for arranging this meeting, and also thank you 
Congressman Schauer and Congressman Dingell for being here 
today. It's important that we understand that Michigan is in a 
very unique position.
    I represent the Michigan Association of Community Bankers. 
I am their spokesperson and their counsel. I am also a 
practicing attorney representing numerous community banks in 
the State of Michigan.
    Small business represents 99 percent of all employer firms 
and employs approximately 50 percent of all private sector 
workers in the United States. The majority of new job creation 
in the past 10 years has been the result of the 26 million 
small businesses in America. It is clear that for any 
meaningful recovery to occur in America, it's important that 
small businesses start hiring people again.
    And small businesses rely heavily on community banks for 
the credit they need to operate their businesses. Even though 
community banks represent only about 12 percent of all bank 
deposits in the United States, they make up 31 percent of the 
dollar amount of all small business loans that are less than $1 
million and 50 percent of all small business loans under 
$100,000.
    While the majority of community banks have money to lend, 
some Federal regulatory agencies have taken an aggressive 
stance towards community banks, forcing the banks to write down 
their assets which were largely secured by commercial real 
estate at an unprecedented pace, thereby destroying capital and 
severely curtailing community banks' ability to fulfill their 
vital role in making loans to small businesses.
    The recent joint policy statement on prudent commercial 
real estate loan workouts issued on October 30th by the Federal 
bank regulators is a step in the right direction. It is also in 
keeping with the type of suggestions that the MACB has made in 
the past to various Members of Congress and the State 
Legislature. More initiatives like this one are important, and 
we need to continue to look to Washington for such guidance. 
However, as community bankers in Michigan who have recently 
been examined can tell you, instead of working with community 
bankers to help both banks and their customers overcome current 
economic stress, some examiners have become extremely harsh in 
their assessment of the values of commercial real estate loans.
    The President recognizes the need to support economic 
recovery and job creation by improving access to credit for 
small businesses, and on October 21st, announced further 
initiative towards that goal. The MAC supports that effort and 
particularly looks to the support given to--or suggestions be 
provided to banks under a billion dollars in assets. However, 
we have serious concerns about the onerous conditions that may 
be placed on it, and it's important that these conditions 
placed on the lending of that money to small--to community 
banks be not as onerous as the cap program was.
    Another concept that Congress should be considering is the 
creation of programs where community banks could obtain long-
term stock loans from the Federal Reserve under a program for 
the Small Business Administration. Banks are comfortable 
borrowing from the Federal Reserve, and the Federal Reserve is 
familiar with the banks.
    Another consideration is allowing a larger portion that 
allows for loan loss reserves to be used towards capital. 
Currently, it's at 1.25 percent only. Allow banks to include as 
part of their capital the face amount rather than market price 
of government-sponsored enterprise securities that are held to 
maturity in their investment. We currently do support the Small 
Business Administration programs and its suggested increases. 
It's important, however, that the programs be allowed to be 
used at a higher level by small banks. Again, we appreciate the 
opportunity to speak today. Thank you.
    [The prepared statement of Mr. Kus can be found on page 226 
of the appendix.]
    Chairman Moore of Kansas. Thank you, and I will remind each 
of the witnesses that your testimony will be received into the 
record.
    Mr. Adams, you are recognized, sir, for 3 minutes.

  STATEMENT OF DAVE ADAMS, CHIEF EXECUTIVE OFFICER, MICHIGAN 
                      CREDIT UNION LEAGUE

    Mr. Adams. Thank you, Mr. Chairman, and a special thanks to 
Congressmen Peters, Dingell, and Schauer. I appreciate on 
behalf of credit unions the way that you demonstrate balance 
and the way that you approach legislation, and what I wanted to 
say at the beginning is what we're talking about with the SBA 
proposal and small business lending, it really can't be looked 
at in isolation, but rather, when you look at the financial 
services industry, a $60 trillion industry of which credit 
unions are a very small piece, I would urge you Congressmen 
present here today and your colleagues to help us, as I know 
that you're already doing, help us understand the importance of 
balance because we want to protect consumers' interests with 
regard to foreclosure, we want to protect small business' 
interests, but what credit unions and the banking sector are 
experiencing right now in terms of increased loan losses and 
loan charge-offs, whether it be small business loans or 
mortgage loans or consumer loans, it's unprecedented.
    So with that caveat--and I'm talking about overdraft fee 
legislation, interchange fee legislation, extending the 
Community Reinvestment Act to credit unions, whatever it might 
be, the CFPA proposal, we need to be able to make sure that 
small lenders are not faced with increased burden, because that 
plays into their willingness and their ability to lend to small 
businesses and to other sectors.
    Three points that I would like to make that are contained 
in my written comments: One, credit unions are lending in this 
environment. The credit union sector of the financial services 
industry saw small business loans increase by 17 percent from 
June 30, 2008, to June 30, 2009. Small business lending with 
not-for-profit credit unions increased by over 100 percent in 
Michigan during the past 3 years. So credit unions are lending. 
Our Invest in America program where we partnered with GM and 
Chrysler has resulted in over 200,000 car and truck sales for 
GM and Chrysler. I received a note from GM's V.P. of Marketing 
and Sales recently saying, ``Thank you, Mr. Adams, for 
believing in us when no one else would.'' I will never forget 
that. Credit unions are lending in all sectors, including small 
business lending.
    Point number two, we support the SBA proposals 
wholeheartedly. However, as the loan caps are raised, we 
encourage that the guarantees continue, as well, because the 90 
percent guarantee level is absolutely critical.
    The third and most important point, credit unions are 
lending in the area of small business loans, but we are 
restricted with an arbitrary and, really, ridiculous cap on our 
small business lending that is restricted at 12 percent of 
assets. Representative Paul Kanjorski has sponsored H.R. 3380, 
it has 30 cosponsors, and quite simply, it would raise the 
small business loan cap on credit unions from the 12 percent 
level to 25 percent, and provides some other provisions that 
will simply allow credit unions to make more small business 
loans. We encourage your support for that legislation. That is 
the single piece of input I could give you. Our national 
association has estimated that it would immediately infuse $10 
billion of capital for small business loans, and would create 
over 100,000 jobs.
    So I appreciate your allowing me to testify, and we share 
the real interest in addressing this very serious problem. 
Thank you very much.
    Chairman Moore of Kansas. Thank you, sir.
    [The prepared statement of Mr. Adams can be found on page 
49 of the appendix.]
    Chairman Moore of Kansas. I now recognize myself for 5 
minutes for questions, and I would like to ask all four of you 
the first question: Is the decline we saw in lending in the 
last quarter due to banks and credit unions being more cautious 
about making loans on their own initiative, or is it pressure 
from regulators and examiners to stop making business loans? 
Mr. Johnson, if you would like to start, sir.
    Mr. Johnson. I'm inclined to think that it's a combination 
of those two and some other factors. It's not surprising that 
credit standards at banks have become a little more harsh today 
than they were 3 years ago, which most people would recognize 
that maybe it was a little looser than it should have been 
then. So that's not surprising.
    It is also not particularly surprising that in this kind of 
an environment, regulators are being harsh during examinations. 
We can argue about whether the degree is appropriate, but that 
shouldn't be surprising.
    Chairman Moore of Kansas. Thank you, sir. Mr. Chaffin?
    Mr. Chaffin. I would agree with that. I would also like to 
add that we're also finding, frankly, decreased demand, 
particularly in southeast Michigan, for small business lending 
and medium-sized business lending. In our own case, we have 
seen the backlog of loan applications for business lending to 
go down to less than 10 percent of what it was a year ago, and 
I think banks across the State and, in fact, across the country 
are experiencing something similar, so in addition to Art's 
comments, it is partly a demand issue.
    Chairman Moore of Kansas. Thank you. Mr. Kus?
    Mr. Kus. I would agree. I think one of the things that 
we're finding with banks in southeast Michigan, they're in 
capital preservation mode. They're afraid to make additional 
new loans, concerned with whether or not they're going to get 
additional criticism from the regulators, at the same time, 
they're unable to find often sufficient collateral, bankable 
collateral to be used as collateral for those loans.
    Chairman Moore of Kansas. Thank you, sir. Mr. Adams?
    Mr. Adams. Yes, I would like to see more public focus or 
more congressional focus on the plight of financial 
institutions as opposed to consumer interests. We represent the 
consumer sector of the financial services industry. We are 
consumer cooperatives, but there's a very delicate balance that 
needs to be maintained here, as I mentioned in my comments. I 
think it is a combination. Regulators are really clamping down 
on lenders of all types, they should do that, they have to do 
that in a tough economy, but as I mentioned earlier, despite 
that, credit unions have been able to increase their loan 
volumes in all sectors during this period that we're talking 
about.
    So the lending can be done, but it has to be done very 
carefully in a tough economic environment like we're in right 
now.
    Chairman Moore of Kansas. Thank you. Mr. Johnson, what 
unique challenges do Michigan banks face in lending to local 
small and mid-sized businesses in addition to regular business 
loans? I worry about the state of the commercial real estate 
market and the reluctance or inability for banks to make those 
kinds of loans to small or mid-sized businesses. How does the 
status of the auto industry fit into calculating how risky a 
loan may be if there's an auto supplier at the other end of the 
loan?
    Mr. Johnson. Let me give as brief an answer as I can.
    Chairman Moore of Kansas. Thank you.
    Mr. Johnson. One of the biggest factors is simply the value 
of collateral. Virtually every asset on the books of every 
small business and certainly of most banks is worth less today 
than it has been in the past, and in many instances, 
considerably less, and at the same that banks are requiring 
lower loan-to-value ratios in their loan approvals, the value 
has gone down, and frankly, it's kind of a double whammy.
    Chairman Moore of Kansas. Thank you, sir. Do any other 
witnesses care to comment on that?
    Mr. Chaffin. Maybe I could just add some anecdotal support 
to the property value issue. In Monroe County, Michigan, and 
Wayne County, Michigan, we have seen residential property 
values decline over the last 3 years at the rate of 1 percent 
per month, which means today, those properties are worth, 
roughly, a third of what they were 2 or 3 years ago. That 
extends to commercial property values, as well. It's a very 
similar statistic, and as Art commented earlier, it is partly a 
fact of the availability of the collateral.
    Chairman Moore of Kansas. Thank you. My time is about to 
expire, and go ahead and start, and if it does expire, I would 
ask the other witnesses if you have comments to please submit 
those in writing for the record. Okay, Mr. Kus?
    Mr. Kus. The only comment that I would make is that not 
only have real estate values fallen, but concentration levels 
that the regulators are demanding, they want them to decrease, 
so unfortunately in some segments, they're unable to lend into 
those segments because they have reached their concentration 
level.
    Chairman Moore of Kansas. Thank you. The Chair next 
recognizes Mr. Peters for 5 minutes for questions, sir.
    Mr. Peters. Thank you, Mr. Chairman. Thank you again for 
all of our testimony. Let me get back to a question that I 
asked of the other panelists, the difference between the large, 
money-center banks, the community banks, and our credit unions 
that are here in Michigan, and what we have noticed, 
particularly with the new information with the decline in 
loans, it was interesting that the largest decline of loans to 
small businesses and loans generally were from the very large 
banks, the big, money-center banks, which are also the prime 
beneficiaries of significant TARP money and significant 
assistance from the Federal Government, and we have seen those 
banks turn--it looks like they have turned course, are 
profitable now, and yet, they're not loaning out to Main Street 
and to our small businesses.
    Mr. Johnson, you represent the American Bankers' 
Association, you have banks from every size available, and I 
just wanted your reaction to that, as well as the other 
panelists to that. And when I was before a Financial Services 
Committee hearing and I had the executives from the leading 
five banks in the country, they, more or less, mentioned to me 
that Michigan is being red-lined, in a sense. They didn't use 
that term, obviously, but they could not find loans in 
Michigan, and they did all acknowledge that they're loaning 
less in Michigan than they are in other States.
    What do we have to do to get these money-center banks 
loaning? Where is the problem? What's your reaction to the fact 
that the folks who have most of the deposits and the money are 
simply pulling back?
    Mr. Johnson. Well, I'm inclined to think that the solution 
for money-center banks and community banks is not terrifically 
different. If we can get regulatory agencies to look at capital 
ratios a little more creatively, if they can look at not 
requiring write-down of assets quite as rapidly as we have, the 
problem is essentially the same for everybody. It's capital 
ratios, and in banks, that capital means something a little bit 
different than it does more generally. It's the actual amount 
of equity in the business, and we are--banks of every size are 
really being required to move toward higher equity capital 
levels in their bank, and there's really only two ways to do 
that. One is to raise more capital from some source, and the 
other is to shrink the balance sheet, and in the largest 
companies, they are shrinking the balance sheet, and I think 
that has a huge impact.
    Mr. Peters. Mr. Chaffin mentioned the TARP funds to some 
community banks. One way to help that balance sheet is the TARP 
funds bringing in some Federal resources, and, yet, community 
banks are reluctant to accept TARP funds. Do you want to 
elaborate on that, what we need to do, maybe, to make it so 
community banks are willing to accept it?
    Mr. Chaffin. First of all, the application process for the 
capital purchase program for the TARP program has expired for 
community banks, I believe it expired at the end of November, 
and there may be some today that if that was available, they 
certainly would reconsider that. At the time the applications 
were taking place, our economic woes were not as severe as they 
are today.
    In our own case, our own bank declined to participate in 
that, and that application process was over a year ago. At the 
time, we were concerned about some of the what we'll call 
onerous requirements that were part of that program. We were 
concerned about some of the unknown requirements that might 
become a part of that program at a later date, and I think if 
those type of restrictions are lifted from some future program, 
you would see more community banks taking part in it.
    Mr. Peters. Community banks would take--so we can have 
outlined at a future time exactly what needs to be done if we 
open that up. Mr. Kus, I just also want it mentioned the 
forbearance that you talked about in your testimony, at least 
the written testimony, with the pressure that the regulators 
have, you made the comparison of Michigan being very similar to 
what happened in the farm crisis with banks there and the 
forbearance. Now we have approached the regulators, we'll ask 
them again when they're here before us, they have said that's 
not something they're willing to pursue, and they think that 
only postpones the problems for the banks. How would you 
respond? You understand the reluctance from the regulators. How 
should I respond to them when they give me those responses?
    Mr. Kus. I understand their reluctance, but we need to do 
something to assist. We have what I call almost a systemic risk 
problem of the banking industry in the State of Michigan. If we 
don't do something to help shore up the banks of southeast 
Michigan, we're going to have more fail, and the question is 
what can we do to help shore it up.
    The proposed cap program is not a bad idea that's coming 
out to support banks under $1 billion, but many of the banks 
that need the TARP money aren't able to get it because of the 
restriction that if you're at low CAMEL 3 composite rated or 4 
or 5, you're not going to get the money. So are there other 
programs that could be made available? And some of the ideas 
are to somehow limit the amount of charge-off that has to occur 
over a longer period of time as opposed to in that quarter, so 
again, some of those suggestions are in that paper.
    Chairman Moore of Kansas. Thank you, and the Chair next 
recognizes Congressman Dingell for 5 minutes, sir.
    Mr. Dingell. Mr. Chairman, with your permission, I would 
like to yield to Mr. Schauer.
    Chairman Moore of Kansas. Absolutely.
    Mr. Schauer. Thank you, Mr. Dingell.
    Thank you all for being here. I think I will ask Mr. 
Johnson, you represent banks of all sizes. I think Mr. Trute 
alluded to this earlier, of businesses that have had 20-plus-
year relationships with their large bank--I will use the term 
that has been used here, money-centered banks, and those banks 
literally are calling those loans. These are customers that 
have the demonstrated cash flow, they are still in business, 
they have not been winnowed out, and they're diversifying.
    Why is that happening? How can that be good for that bank's 
balance sheet or for their future balance sheet if they have a 
customer that's demonstrated that it's risk worthy, that it's 
viable? That's an example that I can give you of how our 
recovery is being hindered, and it's a story that probably 
every community can tell you.
    Mr. Johnson. Well, excuse me, first of all, while I do 
represent all the members of the American Bankers' Association, 
I am a community banker.
    Mr. Schauer. And I appreciate that.
    Mr. Johnson. And have never worked at--
    Mr. Schauer. You have a tough job.
    Mr. Johnson. I work at the largest bank I have ever worked 
at right now, it's the only bank I have ever worked at, and 
it's only $435 million, with an ``m,'' and so I think, as I 
mentioned before, and some of the other panelists have 
mentioned, there are a number of factors. Exposure to certain 
industries with what economists are saying about the 
restructuring of the auto industry. It's--if you have the 
ability to be diversified across many States, many communities, 
you are able to pick and choose what industries you want to 
have your assets invested in.
    If, however, you were located in one community, and you can 
only do, as community banks are, you can only do what's going 
on in that community, that's what you have to do. You don't 
really have that diversification ability. And so it's not 
surprising that they're making the very tough but, perhaps, 
rational decision that they don't want quite as much exposure 
to particular industries as they have.
    Mr. Schauer. And I appreciate that is probably the best 
answer you can give. The frustration is that these are 
businesses that have demonstrated that history of cash flow and 
demonstrated that relationship for a generation. So is the 
answer that you--community banks and credit unions, up to the 
ability that you can, refinance these loans? And will the 
President's 3 percent interest rate help you do that, your $5 
billion proposal give you the ability to do that? Because 
candidly, in my community, that's what we're sort of left with, 
we're going to you, including credit unions, to say, how can 
you take out this other lender to help this business stay in 
business or help this business diversify and grow.
    Mr. Johnson. I think those are all great ideas. If I might, 
I had a thought while I was sitting back listening to the 
previous panelists about an observation that I have. Between 
the mid-1980's and mid-1990's, our bank in Grand Rapids was the 
largest originator of SBA 7(a) loans in the State of Michigan 
for 9 years in a row, and so we are very familiar with SBA 
programs.
    During that period of time, the SBA was relatively 
decentralized, and we made semiannual trips down to the Detroit 
office and the McNamara Building to meet with SBA officials, 
talk to them about what was going on, and talk about what was 
going on in our loan portfolio. That's not the case anymore. 
The SBA has been very centralized, and we're now dealing with 
offices in California and Virginia, and from an organizational 
perspective, I would say that if district offices of the SBA 
had a lot more authority to deal with their lenders on local 
issues, there could be some on-the-street improvement.
    Mr. Schauer. I appreciate that recommendation. Mr. Adams, 
you wanted to comment?
    Mr. Adams. Congressman, in your district, one credit union, 
Consumers' Credit Union's CEO Kit Snyder, you may know him--
    Mr. Schauer. Yes.
    Mr. Adams. --is an example of many credit unions in 
Michigan that have reached this arbitrary statutory 12 percent 
cap that I talked about. The single thing that can be done 
without a single taxpayer dollar to help infuse more money for 
small businesses would be to raise that cap that is currently 
placed on credit unions for small business lending. The only 
reason it's in place is that the banking industry lobbied for 
that back in 1998. They're the only ones who benefit from it, 
and yet, it's a clear example of how small businesses could 
benefit from additional capital.
    Mr. Schauer. My time is up. Mr. Chairman, if I could ask 
for written follow-up from you, Mr. Adams, on that point in 
terms of, I know the bill that has been introduced would allow 
you to take that cap up to 25 percent--
    Mr. Adams. Right.
    Mr. Schauer. --but if you could give me some evaluation 
on--of how many jobs could be created, how many loans could be 
made for different increments, if you could go to 15 percent, 
20 percent, 25 percent--
    Mr. Adams. I would be happy to do that.
    Mr. Schauer. --I think that would be very helpful.
    Chairman Moore of Kansas. Thank you.
    Congressman Dingell, you're recognized, sir, for 5 minutes.
    Mr. Dingell. Thank you, Mr. Chairman. In his testimony, 
gentlemen, which you heard, Mr. Andrea observed that about 60 
percent of the supply base may be indiscriminately cut off from 
necessary access to capital. He further stated the group of 
OESA's chief purchasing officer concluded that predicting the 
failure of a supplier has more to do with their banking 
relationships than it does with their operational efficiency or 
revenue outlook.
    Do you agree that the banks are indiscriminately denying 
automotive suppliers to credit they desperately need to remain 
in business? Mr. Johnson? Mr. Chaffin? Mr. Kus?
    Mr. Johnson. I can only speak firsthand from what's going 
on in my own bank, and that's certainly not the case there. I 
would think that if that phenomenon is occurring, it is very 
isolated, it--I doubt that it's widespread.
    Mr. Dingell. Mr. Chaffin?
    Mr. Chaffin. I could relay some comments, I think, and also 
following up on Congressman Shauer's question. There is, in 
fact, a challenge with a lot of auto manufacturers, simply 
because they do not demonstrate the ability to service debt, 
whether it's recent history or whether it's collateral. The 
supplemental programs that we have talked about in the past 
that the State has tried to initiate would counteract that.
    What we find in our own case when a larger institution has 
denied credit or actually denied renewing the credit and we 
receive an application, probably 9 times out of 10, it's with 
merit, it's with the fact that there is insufficient collateral 
or insufficient cash flow, so these--
    Mr. Dingell. I want to make it clear I know nothing about 
that with regard to the community banks, and you, Mr. Chaffin, 
run a very fine institution.
    Mr. Chaffin. Thank you.
    Mr. Dingell. I do observe with some distress I have had 
small business people, particularly suppliers, come into my 
office and observe that they have been informed that their bank 
was not going to loan anymore in the auto industry, and this is 
a matter of no small concern to me, as you might well know. Mr. 
Kus?
    Mr. Kus. I don't think it's indiscriminate, but I think 
Doug hit the nail on the head in that. The problem is when 
these people come back for loans today, when these companies 
come in, the value of their equipment has gone down 
significantly, the value of their commercial real estate has 
gone down, they have absolutely no assets, per se, they become 
very hard to bank.
    And so unfortunately, if the bank was to make this loan, 
they would be under severe criticism from the regulators who 
would likely have to classify the asset almost immediately, so 
unfortunately, we're kind of in a Catch-22.
    Mr. Dingell. Now one of the suggestions made during that 
meeting was the national adoption of the supplier 
diversification program, one which is successfully working in 
Michigan. This program would decrease individual banks' risks 
in lending to suppliers' banks by ensuring follow-up deposit--
by ensuring upfront deposits of principal by the suppliers by 
ensuring upfront deposits by the Federal Government or its 
designee in risk pooling. Would that be of assistance in the 
problem we're discussing?
    Mr. Chaffin. Absolutely.
    Mr. Dingell. Mr. Johnson?
    Mr. Johnson. I'm not a great believer in a single, silver-
bullet approach here.
    Mr. Dingell. Oh.
    Mr. Johnson. I think a lot of programs should be thrown out 
there and tried.
    Mr. Dingell. I thoroughly agree. Mr. Kus?
    Mr. Kus. I would agree with that, and I--
    Mr. Dingell. Gentlemen, there's one issue--my time's about 
out--but there's one issue that we have heard everywhere this 
morning amongst all of our panelists, and that is the way 
assets are being rated down because of the loss of value. 
That's causing, as you have observed, a severe constriction on 
banks' ability to loan money and upon the requirements that are 
imposed on them to maintain a hard capital structure.
    We have two problems that this relates to, the first of 
which is the problem that you have in making loans, but the 
other is the fact that we have some folks who are ``too-big-to-
fail,'' and we have to watch to see that--that we terminate 
that risk to our society. What do we do about this, gentlemen? 
And if my time runs out, submit that to us in writing so that 
we can get that in the record, please.
    Mr. Johnson. Well, I think there are really two related 
issues there, and the ABA has a position on creating a systemic 
regulator, which we think is important, and importantly, the 
resolution--the difficult part of that is what is the proposed 
resolution process for a bank, or an institution? Not just 
banks but a systemically important financial institution, what 
do we do once we have determined that they should fail, and how 
do we--without inducing chaos, how do we run that business 
down? How do we solve that problem?
    Mr. Dingell. It's probably too long for us to address this 
morning.
    Mr. Johnson. Well, it's another whole hearing, I'm sure.
    Mr. Dingell. Thank you, Mr. Chairman.
    Chairman Moore of Kansas. Thank you, and Mr. Chairman here 
to my left has been a chairman for many, many years in 
Congress, so I appreciate his understanding, as well.
    We are at this time going to take--I want to thank the 
second panel for your testimony. You are excused, and before we 
hear from the third panel, we're going to take a short break 
for a little lunch break, I guess, and resume here at 1:15. If 
everybody would be back then and be seated and ready to go. We 
all have to get back to D.C.--I think, we have planes to catch 
later, so we do want to start at 1:15, and I do appreciate the 
understanding of our members. We will see you back here in just 
a few minutes.
    [luncheon recess]
    Chairman Moore of Kansas. The hearing will come to order. 
We're going to convene your final group of panelists and have a 
chance to hear their testimony and ask questions.
    I ask unanimous consent to enter into the hearing record 
several statements from Members of Congress, Congressman Sandy 
Levin, he was unable to attend, but has a written statement, 
and also a statement from the National Association of Federal 
Credit Unions, and a letter from the Building Industry 
Association of Southeastern Michigan.
    Is there any objection?
    Mr. Dingell. No.
    Chairman Moore of Kansas. Without objection, it is so 
ordered. These will be received in the record.
    I also welcome our final group, Panel Three.
    First, we will hear from Mr. Jon Greenlee, Associate 
Director of the Division of Banking Supervision and Regulation 
for the Board of Governors of the Federal Reserve system. Next, 
will be Mr. Anthony Lowe, Director of the Chicago Region Office 
for the FDIC. Third, will be Mr. Bert Otto, District Deputy 
Comptroller for the OCC, and finally, we will hear from Mr. Ken 
Ross, Commissioner for the Office of Financial and Insurance 
Regulation for the State of Michigan.
    Without objection, your written statements will be received 
and made a part of the record.
    Mr. Greenlee, you are recognized, sir, for 5 minutes--
excuse me, for 3 minutes. We have cut down here. We are trying 
to get out of here by about 2:00--some of us are heading on to 
a place called Washington, D.C. So please understand, and we 
are not trying to cut you short. All of your statements will be 
received into the record.
    Mr. Greenlee, sir?

 STATEMENT OF JON D. GREENLEE, ASSOCIATE DIRECTOR, DIVISION OF 
 BANKING SUPERVISION AND REGULATION, BOARD OF GOVERNORS OF THE 
                     FEDERAL RESERVE SYSTEM

    Mr. Greenlee. Thank you. Chairman Moore, Congressman 
Peters, Congressman Dingell, I appreciate the opportunity to 
appear here before you today to examine several issues related 
to the condition of the banking industry.
    Although conditions and sentiment in financial markets have 
improved, the overall business environment is very challenging 
for both large and small businesses as unemployment has 
continued to rise. Borrowing from businesses and households 
remains weak, and overall, the banking system continues to face 
significant challenges as the economic downturn and weaknesses 
in real estate markets has resulted in significant loan quality 
problems and losses at a number of banking organizations, many 
of which are also facing questions about capital adequacy.
    In Michigan, Indiana, and Ohio, the performance of banking 
organizations has also deteriorated because of weaknesses in 
the overall economic environment. In particular, banks in 
Michigan have seen asset quality indicators continue to 
deteriorate, further pressuring the institutions' profitability 
and capital adequacy.
    Against this backdrop, four banks have failed in Michigan 
in recent months. The Federal Reserve has been focused on the 
important role banks play in meeting the needs of their 
community, and along with the other Federal Bank regulatory 
agencies, issued a press release in November of 2008 
encouraging banks to make sound loans to creditworthy 
borrowers, including small businesses.
    More recently, on October 30, 2009, the Federal and State 
bank regulatory agencies issued additional interagency guidance 
on CRE loan restructurings and workouts. This guidance, the 
development of which was led by the Federal Reserve, is 
designed to address concerns that examiners may not always take 
a balanced approach to the assessment of CRE credits.
    This statement is especially relevant to small businesses 
because owner-occupied CRE often serves as collateral for many 
small business loans. Given the importance of this issue, the 
Federal Reserve has already held initial training for its 
examiners, and on November 20th, participated with the other 
Federal banking agencies in a teleconference with the industry 
to discuss this guidance.
    Finally, the TALF program, which the Federal Reserve 
established in November of 2008 to facilitate the extension of 
credit to households and small businesses, has been successful 
in helping restart securitization markets. To date, the TALF 
program has helped finance 2\1/2\ million auto loans, 750,000 
student loans, more than 100 million credit card accounts, 
480,000 loans to small businesses, and 100,000 loans to larger 
businesses. Included among those business loans are 4,700 loans 
to auto dealers to help finance their inventories.
    Perhaps even more encouraging, a substantial fraction of 
asset-backed securities is now being purchased by investors 
that do not seek TALF financing, and ABS issuers have begun to 
bring non-TALF eligible deals to market. Further, on November 
16th, the availability of TALF financing also facilitated the 
first issuance of CMBS's backed by newly originated mortgages 
in almost 18 months.
    In summary, it will take some time for the financial 
markets to fully recover. The Federal Reserve is committed to 
working with the other banking agencies and the Congress on 
these important matters that will promote the concurrent goals 
of fostering credit availability in local communities across 
the country and promoting a safe and sound banking system. 
Accordingly, we thank you for holding this hearing. I look 
forward your questions.
    [The prepared statement of Mr. Greenlee can be found on 
page 201 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Greenlee.
    Mr. Lowe, you are recognized, and your statement will be 
received into the record, as well.

STATEMENT OF M. ANTHONY LOWE, DIRECTOR, CHICAGO REGION OFFICE, 
          FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Mr. Lowe. Thank you. Chairman Moore, Congressmen Peters and 
Dingell, I appreciate the opportunity to testify on behalf of 
the FDIC regarding the availability of credit to small and 
medium-sized businesses. FDIC-insured institutions are a major 
source of financing for small businesses, supplying over 60 
percent of the credit used by small businesses to run and grow 
their businesses. Most of these institutions are community 
banks. We share your concerns about ensuring the availability 
of credit to Main Street businesses in Michigan and across the 
country.
    The number of problem institutions and bank failures has 
risen steadily as the effects of this recession, which began in 
the financial markets, have taken hold in many parts of the 
country. As a result, credit availability has suffered, and 
this is due not only to more conservative credit standards by 
lenders but also due to erosion of collateral values and the 
financial condition of borrowers. At the same time, bank 
supervisors are encouraging FDIC-insured lenders to deal with 
problem loans and recognize losses where necessary, while also 
encouraging loan workouts where they're appropriate.
    Financial data from Michigan and the industrial Midwest in 
general reflect the ongoing struggle of the U.S. manufacturing 
sector which contracted during this decade, and like employment 
growth among other sectors, job growth in the manufacturing 
sector did not rebound after the 2001 recession even while 
overall U.S. economic growth was strong. This led Michigan to 
experience a sharp increase in joblessness since the start of 
the national recession in 2007, and the State's unemployment 
rate has more than doubled from 7.3 percent to 15.1 percent.
    With respect to small business lending, available data do 
not clearly distinguish recent trends in availability of small 
business credit in Michigan. However, recent surveys by the 
NFIB show that while small business loans have clearly become 
more difficult to obtain, deteriorating business conditions 
appear to represent an even larger problem.
    We understand the critical role that credit availability 
plays as the lifeblood of the national economy, especially for 
small businesses, and we also recognize the tight credit 
conditions in the market and continue to identify strategies 
for improving the current situation. Last year, along with the 
other regulators, we issued a statement reinforcing our view 
that continued origination and refinancing of loans to 
creditworthy borrowers is essential to the vitality of our 
domestic economy. We all have a mutual interest in seeing 
community banks thrive and continue to support their local 
communities. Community-based lenders can be a stabilizing force 
by providing credit for consumers and small businesses.
    Thank you for the opportunity to testify, and I'll be happy 
to take questions.
    [The prepared statement of Mr. Lowe can be found on page 
231 of the appendix.]
    Chairman Moore of Kansas. Thank you, sir.
    Mr. Otto, sir, you are recognized for 3 minutes.
    Mr. Otto. Thank you.

STATEMENT OF BERT A. OTTO, DISTRICT DEPUTY COMPTROLLER, OFFICE 
            OF THE COMPTROLLER OF THE CURRENCY (OCC)

    Mr. Otto. Chairman Moore and members of the subcommittee, I 
appreciate the opportunity to discuss ways to improve 
responsible lending to small businesses in Michigan and other 
parts of the country. The OCC recognizes the important roles 
that credit availability and prudent lending play in our 
Nation's economy. Our goal is to ensure that national banks 
meet the credit needs of their communities and customers while 
remaining safe and sound.
    During this economic cycle, we are extremely mindful of the 
need to maintain a balanced approach to our supervision of 
national banks. Our message to bankers has been 
straightforward: bankers should continue to make loans to 
creditworthy borrowers; they should not make loans that they 
believe are unlikely to be repaid in full; and they should 
continue to work constructively with troubled borrowers but 
recognize repayment problems in loans when they see them.
    Just as critical, we strive to ensure that our examiners 
maintain that balance in their bank examinations and oversight. 
Examiners should not dictate loan terms, but will ensure that 
bank management realistically identifies and addresses problems 
as they emerge, even as they work with struggling borrowers.
    As bank regulators, we share the goal of ensuring banks 
meet the credit needs of their small and mid-sized business 
customers and have taken steps to see that this happens. The 
OCC is also helping to educate examiners and bankers about 
programs that can reduce credit risk in loans to small and mid-
sized businesses. Federal and State programs designed to make 
credit more accessible while reducing lenders' credit exposure 
can be effective in promoting lending to creditworthy borrowers 
while limiting the risks lenders face in the economic cycle.
    National banks actively participate in government guarantee 
programs for small business lending: 5 of the 18 nationally 
chartered banks in Michigan are SBA preferred or express 
lenders offering SBA guaranteed loans, and the 10 large 
national banks doing business in Michigan are also designated 
as SBA-preferred or express lenders. The OCC fully supports the 
Administration's initiatives to expand credit availability and 
begin the process of financial recovery.
    Beyond our safety and soundness examination activities, OCC 
encourages lending to small and mid-sized businesses in a 
variety of other ways. Among these are our evaluation of the 
national banks' performance under the Community Reinvestment 
Act, our extensive community affairs activities, and our formal 
outreach programs. The OCC's community affairs activities and 
publications are specifically developed to increase examiner, 
banker, and community group awareness of programs that promote 
lending to small businesses that support communities throughout 
the country. Recent banker roundtables, newsletters, 
information, and informational publications have highlighted 
various aspects of small business lending opportunities and 
incentives.
    In conclusion, credit availability and prudent lending to 
small businesses play an important role in our Nation's 
economy. The OCC shares the committee's goal of ensuring banks 
continue to meet the credit needs of their customers in a safe 
and sound manner. We also recognize that banks are operating in 
an economic environment that continues to pose challenges to 
them and their customers.
    We have and will continue to support and encourage prudent 
lending to small and mid-sized businesses in Michigan and 
across the country through our supervisory activities, guidance 
to bankers, and CRA process, small business related programs, 
publications, and ongoing outreach efforts. Thank you for this 
opportunity to testify and present our views.
    [The prepared statement of Mr. Otto can be found on page 
244 of the appendix.]
    Chairman Moore of Kansas. Thank you, Mr. Otto.
    Mr. Ross, you are recognized, sir, for 3 minutes.

 STATEMENT OF KEN ROSS, COMMISSIONER, OFFICE OF FINANCIAL AND 
            INSURANCE REGULATION, STATE OF MICHIGAN

    Mr. Ross. Thank you, Mr. Chairman, and Representatives 
Peters and Dingell. My name is Ken Ross and I am commissioner 
of the Michigan Office of Financial and Insurance Regulation. I 
thank you for the opportunity to testify today. I have taken a 
red pen aggressively to my oral testimony and I will try to 
talk fast.
    My agency supervises 118 of Michigan's 147 federally 
insured commercial and savings institutions which collectively 
hold approximately $50 billion in combined assets. I also 
regulate over 200 credit unions which have just over $20 
billion in assets. Historically, Michigan has averaged 1 bank 
closure roughly every 5 years over the last several decades. In 
the last 13 months, 4 Michigan banks and 1 credit union have 
been closed.
    Given time, I believe that many Michigan banks would be 
able to work their way through the challenges associated with 
historic job losses in the auto industry, but unfortunately, 
some will not be able to weather the additional stress 
associated with the huge devaluation of real property that we 
have seen across the State. Michigan is not alone in that, but 
we have seen somewhere between 30 and 40 percent on average 
across the State in real estate devaluation.
    Community bankers who weren't, by and large, involved in 
subprime lending and weren't reaping fortunes from the national 
securitization machine, however, are paying the ultimate price 
for those who benefited from the fundamental causes of the 
underlying financial crisis that we have been going through, 
and while much of the national focus has been on buttressing 
systemically important information, our attention in Michigan 
has been working with community banks struggling with the 
myriad of challenges facing them in this environment.
    Federal policy hasn't treated the challenges faced by 
community banks with the same expediency or creativity that 
they have accorded to their systemically important brethren. 
Over the last year, nearly 300 community banks nationwide have 
failed or merged out of existence, while their large 
counterparts have only gotten bigger. Additional capital, both 
public and private, must be the building block for success 
ultimately for community and regional banks.
    While TARP has provided a source of capital for some of 
these institutions, I have--as I'm sure you have heard--been 
told many times that the process is both cumbersome and 
expensive for community banks, and is an opaque process, as 
well. While there have been some positive signs in the outlook 
nationally where capital flows have been coming into the 
system, unfortunately, Michigan banks have been largely shut 
out of capital markets.
    We have heard, as you have heard many times, that Michigan 
is being red-lined. With that, I will just stop because I know 
the time has run out, and I will be glad to answer any 
questions.
    [The prepared statement of Mr. Ross can be found on page 
258 of the appendix.]
    Chairman Moore of Kansas. Thank you to our panelists for 
their testimony, and again, your statements are part of the 
record.
    I would like to direct my first question to Mr. Greenlee. I 
know one of the areas of the economy the Fed has been 
particularly focused on is commercial real estate. How does 
that particular type of lending play into the larger challenge 
to make credit available to small and mid-sized businesses? Do 
you have a comment on that, sir?
    Mr. Greenlee. Yes, as I mentioned in my oral statement, we 
have focused a lot on commercial real estate lending for two 
reasons. There are a lot of banks with commercial real estate 
concentrations. The second piece of this is really the owner-
occupied commercial real estate portfolio where small 
businesses will pledge their building or property to secure a 
loan, and so we have tried to fix on that as a key priority to 
make sure that our examiners are taking a balanced approach to 
that, particularly on the owner-occupied commercial real estate 
properties, so we look at a borrower's ability to repay, not 
necessarily just the value of the property.
    Chairman Moore of Kansas. Thank you. Do any other witnesses 
care to comment on this question?
    Okay, next question. If there is one message that you as 
examiners and regulators of depository institutions would like 
to send to banks here in Michigan that are unsure if they 
should make small business loans to small businesses desperate 
for that credit, what would that message be? What message would 
you like to send to small businesses here in this area? Mr. 
Greenlee, again, I will start with you, sir.
    Mr. Greenlee. I think the Federal Reserve's view on credit 
availability, again, is that we want banks to make prudent 
loans to creditworthy borrowers. I think our main message to 
the banks is that it is in everybody's best interests to do 
that. That was consistent with what we put out in the November 
2008 statement and that we want banks to look at the borrower's 
ability to repay the loan under reasonable terms, and that 
really should be the driving force here.
    Chairman Moore of Kansas. Do any other witnesses care to 
comment? Yes, sir, Mr. Lowe?
    Mr. Lowe. Yes, dovetailing on that exact same comment, from 
the FDIC standpoint, we look at collateral as a secondary 
source of repayment. So as long as we see that a loan is 
performing--there is sustainment for repayment over the loan 
term--that type of credit generally will not be criticized. The 
collateral is only one aspect that we're looking at when we're 
analyzing credits.
    Chairman Moore of Kansas. Mr. Otto?
    Mr. Otto. Yes. We have talked to banks about this, and if a 
business has a sound plan, I think we definitely encourage them 
to make those loans. We have some community affairs officers--
one of whom is here today listening to this hearing--in 
Michigan who meet with bankers and community organizations and 
others to try to put people together in supporting small 
business loans and all lending.
    Chairman Moore of Kansas. Thank you. Mr. Ross?
    Mr. Ross. Yes, only insofar as earlier on in the crisis, I 
think we had some bankers who were overly optimistic and 
weren't--in my estimation, they had some rose-colored glasses 
on in terms of the overall ability of the local economy to 
bounce back.
    I think today we're in a much different place, and I think 
bankers are much more aggressively looking at credits and doing 
extensive evaluations looking at the entire picture, all 
sources of possible support for the loans, so I think we're in 
a much different place today than we were a year-and-a-half 
ago.
    Chairman Moore of Kansas. Thank you. Congressman Peters, if 
you would like to ask your questions now, sir.
    Mr. Peters. Thank you, Mr. Chairman. Generally, to kind of 
distill what I have been hearing here today is we have two 
problems here in Michigan: First, we have to get the big banks, 
the big-money-center banks who have already been the 
beneficiaries of significant amount of taxpayer and Federal 
Reserve intervention from the Treasury, from the Federal 
Reserve, to get them to loan in Michigan, which they aren't 
doing, and the statistics certainly bear that out.
    The second is to give our community banks who are here, 
community banks and credit unions who are in our communities 
the tools that they need in order to continue to make those 
loans in the communities in which they operate and which they 
continue to express their frustration with regulators as 
putting on the squeeze on them, asking them to take fire sale 
markdowns on assets, putting them in a real untenable position, 
so let me just put out one of the--seem to make some sense in 
the community bankers, put out three conditions or three 
changes that they thought would make sense, particularly in a 
place like Michigan, which I think does have a lot of 
similarities to the farm crisis in the 1980's, which we talked 
about earlier, and some forbearance may make some sense in 
order to keep these banks functioning. They suggest that we 
allow banks to include in their capital all or a significantly 
higher portion of the 1.25 percent that's currently allowed to 
be carried in their allowances for loan and lease losses. They 
also believe we should allow banks to include as part of their 
capital the face amount rather than the market price, so GSEs, 
Government-Sponsored Enterprises, that they intend to hold to 
maturity, and three, allow banks to amortize losses over a 7-
to-10-year period instead of the loss in the quarter in which 
it is experienced.
    Give me your reaction to those. Do those conditions seem to 
make some common sense, particularly in the situation here in 
Michigan? Mr. Lowe, maybe from the FDIC's perspective first?
    Mr. Lowe. I will definitely address the part about 
amortizing loans over 7 to 10 years and the forbearance. We did 
have the forbearance program back in the 1980's for the 
agriculture crisis. We had 200 to 300 banks that participated. 
FDIC has always been an advocate for open and honest 
transparency with regard to financial reportings, so at this 
point in time, we would not be supporting a forbearance 
program. But I would say again with the guidance on meeting the 
needs of creditworthy borrowers that we issued in 2008, and the 
guidance on workouts issued just last month, we are continuing 
to encourage all of our institutions to lend, continue lending, 
and continue refinancing credits as long as it is done in a 
prudent and reasonable manner. We are not going to be looking 
to criticize credits just because the collateral value has 
declined. We will continue to stress that bankers analysis of 
the repayment capacity of the borrower.
    Mr. Peters. My understanding is, in the 1980's, the 
forbearance program was successful, was reasonably successful, 
that it prevented banks from going under; is that an accurate 
assessment or not?
    Mr. Lowe. Of the 200 to 300 banks that participated, the 
majority of them did survive. There were a very small number 
that did end up failing, so you could couch that as a success, 
but again, a difference at that point in time was that there 
were some very stringent guidelines for banks to be able to 
participate. One of those criterion was that the institution 
had to have been well-managed and well-run throughout all its 
history. That is not saying institutions here in Michigan or 
across the country are not, but there were some very stringent 
guidelines for banks to be participants.
    Mr. Peters. If we reinstituted some of those guidelines and 
did something similar to what we did in the 1980's, would that 
be something--maybe Mr. Otto and Mr. Greenlee could get 
involved, as well--Mr. Lowe, is that something that you would 
be open to if we moved in that direction similar to what we did 
in the 1980's, which was--it seems to me it's cheaper, 
especially from the FDIC's perspective, as well, to keep these 
banks operating as opposed to coming in and having to finance 
that?
    Mr. Lowe. We would have to take a close look at forbearance 
because, again, we do advocate for transparency with regard to 
the financial statements.
    Mr. Otto. I agree with Anthony. I think that it's something 
that you could look at, but I was in central Illinois in the 
Peoria office, and most of my banks that I supervised there 
were agriculture banks, and while they did participate in the 
forbearance program, there was a lot of pain involved in that, 
and I think we would have to be very specific as to people 
getting in and how they come out of the forbearance program 
because a lot of the banks that I had were bought by another 
bank rather than fail.
    So I think that we have to be careful about how that is 
structured. And I agree on the amortization of loss, that was 
one other point that you had made, I think that's a slippery 
slope if you amortize losses over, what did you say, a 1- to 7-
year period?
    Mr. Peters. A 7- to 10-year period.
    Mr. Otto. Yes, 7, that would be just forgoing or pushing 
out the problems as opposed to dealing with them right away.
    Mr. Peters. I get a little disconcerted--one more question.
    Chairman Moore of Kansas. One more question, certainly.
    Mr. Peters. Okay, the question regarding that--the other is 
the capital, and it was brought up with the American Bankers' 
Association that the FDIC's failure resolution policies, it's 
difficult to raise capital here in Michigan given the--where 
the economy is and the auto industry, but your resolution 
policies actually create incentives for investors to wait until 
the bank has failed as opposed to investing earlier.
    Why is that the case? Why can't we change that? We want to 
keep these banks before they fail, before it starts costing 
money. Why is that policy in place, and can we change it?
    Mr. Lowe. We don't have a policy where we're trying to have 
that disincentive--of forcing banks to fail.
    Mr. Peters. Well, it's FDIC-guaranteed financing for 
winning bidders of failed banks or loss-sharing agreements. So 
you have that guaranteed financing where, obviously, that 
doesn't exist before a bank fails.
    Mr. Lowe. Before a bank fails, when we do have a problem 
institution, we're working with the institution and advocating 
that they go out into the market and try to look at finding a 
merger partner or someone that can buy them. We definitely 
would rather have the assets of the bank stay in private hands 
versus coming onto the FDIC's balance sheet. That is something 
that we do advocate before an institution fails, something that 
may not be public, but we are all the time working with 
institutions, working with the regulatory agencies, working 
with the commissioners for the State-chartered banks trying to 
arrange and to act to some degree as a broker to find means for 
an institution to be taken over while it is still open and 
operating.
    Mr. Peters. Thank you. Thank you for your indulgence, Mr. 
Chairman.
    Chairman Moore of Kansas. Certainly. The Chair next 
recognizes the Honorable John Dingell. Congressman Dingell?
    Mr. Dingell. Mr. Chairman, I hope this won't be charged 
against my time, but I want to say thank you for being here, 
tell you how much we appreciate your assistance and kindness to 
listen to our constituents, and tell you how much, Mr. 
Chairman, we're going to miss you when you leave Congress.
    Chairman Moore of Kansas. Thank you.
    Mr. Dingell. Mr. Moore is leaving the Congress, and I think 
it's a prodigious loss to the body and, frankly, to our 
country.
    Chairman Moore of Kansas. Thank you.
    Mr. Dingell. Now, if I could begin my time?
    Chairman Moore of Kansas. Yes, sir. Now his time starts.
    Mr. Dingell. I have had on two separate occasions 
constituents in the supplier business come in and talk to me, 
and they told me that they have been told clearly that loans 
were not going to be made in Michigan or loans were not going 
to be made into the auto industry or to suppliers. Does that, 
as a matter of policy, does that kind of red-lining have the 
approval of your respective agencies, Mr. Greenlee, Mr. Lowe, 
and Mr. Otto?
    Mr. Lowe. I can tell you from an FDIC standpoint, we have 
not indicated to our examiners or anyone on our staff that any 
specific type of lending should not be done. Again, we're 
encouraging lending as long as it is prudent and reasonable.
    Mr. Dingell. Apparently, these banks were not hearing it. 
Do you approve of this, Mr. Greenlee?
    Mr. Greenlee. Absolutely not, sir.
    Mr. Dingell. How about you, Mr. Otto?
    Mr. Otto. No, absolutely not.
    Mr. Dingell. What should we do about it?
    Mr. Otto. I think--
    Mr. Dingell. If one of my constituents comes in, can I call 
you up and say, Mr. Greenlee, Mr. Lowe, Mr. Otto, these 
scoundrels are not giving my people money because they're in 
the auto business? And if I did, what would you do about it?
    Mr. Greenlee. Sir, I have heard these concerns voiced in 
Washington from Members--
    Mr. Dingell. As my old daddy used to say, ``A few good 
public hangings would help the situation considerably,'' but 
I'm going to ask that you give us a response for the record, 
each of you, if you would, please.
    Now, gentlemen, I have--the question has been raised here 
about focusing on small automobile suppliers, and to do so by 
creating a public/private capital partnership to lower the risk 
of lending to the industry. Such proposals have been discussed 
by me and by bankers and others, it's known as the National 
Manufacturing Diversification Fund, NMDF. Do you and your 
agencies favor this legislation or not? Mr. Greenlee? Mr. Lowe? 
Mr. Otto?
    Mr. Greenlee. Congressman, I will have to look into that 
and get back to you with a written response.
    Mr. Dingell. Would you respond for the record, please.
    Mr. Greenlee. Yes.
    Mr. Dingell. Mr. Lowe?
    Mr. Lowe. I will do the same.
    Mr. Dingell. And you, Mr. Otto?
    Mr. Otto. I will do the same.
    Mr. Ross. I will do the same.
    Mr. Dingell. If I could count on you to deliver that to us, 
because this is important information.
    Now, gentlemen, if--in 25 words or less--if you had the 
opportunity to tell the Congress what it is we ought to do to 
increase lending, and whether you have enough authority or 
appropriations to see to it that we could have an enforceable, 
workable policy to get money to the community banks, which are 
really hurting, so that they can get it to the suppliers and 
small businesses, what would your advice be? Mr. Greenlee?
    Mr. Greenlee. I can speak to what we have done broadly at 
the Fed along these lines--
    Mr. Dingell. I want to hear what we're going to do in the 
future, though, since, ``What's past is prologue''--
    Mr. Greenlee. And we are continuing to work hard and look 
closely at--
    Mr. Dingell. But what would you suggest to us that we do?
    Mr. Greenlee. I think alternatives to look at capital for 
small businesses, different programs are options, and we--
    Mr. Dingell. Could you give us--could you submit for the 
record, make a clear statement of what you and your agency 
would suggest to us? That would be immensely helpful, because 
I'm not satisfied what's happening is doing us enough good.
    Mr. Lowe, would you tell us, do you have enough statutory 
authority, and do you have enough funds, and what should the 
Congress do about these matters?
    Mr. Lowe. Something to consider if we go forward with 
additional TARP or capital purchase programs--I know that is 
being proposed by the Administration--is to include some 
additional incentives for the CDFI's for minority institutions 
and for institutions that have purchased other failing banks if 
perhaps there would be some way to build in some incentives in 
that regard for those institutions to get some lower-cost 
capital.
    Mr. Dingell. Thank you. Mr. Otto?
    Mr. Otto. I can give you something later for the record, 
but I do think it does follow in on the capital piece. I think 
if there are ways we can get capital and make it an incentive 
for banks to lend, as you're saying, that would be positive. 
But I can get something more specific for you if that's all 
right.
    Mr. Dingell. It would be appreciated.
    Mr. Ross, do you have any comments?
    Mr. Ross. Yes, just following up on what Tony indicated, I 
think reopening the TARP program but tweaking it a bit would 
help by instead of doing a pre-viability, a post-viability 
standard. So if the bank, with the injection, provided they can 
come up with some coupling capital, be viable, and they have 
strong management, I think it has been the hurdle here in 
Michigan--in many cases because we were at the front end of the 
recession--many of our banks were in a worse off position to 
begin with so they couldn't even get into--
    Mr. Dingell. You also are in good part dependent on what is 
done at the Federal level.
    Mr. Ross. We are.
    Mr. Dingell. And what do you suggest we should do about 
that?
    Mr. Ross. Well, I think we have a pretty good working 
relationship, quite frankly, but we at the State level at our 
agency, try to stake out a very independent position in the 
sense that if we don't agree with a finding on a joint 
examination, we won't put our name to it. So we try to maintain 
our independence, although, we work very closely with our 
Federal counterparts.
    Mr. Dingell. Gentlemen of the panel, I thank you for your 
courtesy. I hope I have not offended any of you.
    Chairman Moore of Kansas. I think that brings us to the end 
of our hearing today, and I certainly appreciate the panelists 
being with us. I want to thank, again, Congressman Gary Peters 
for inviting our subcommittee to Michigan for this field 
hearing; and I certainly want to thank my good friend, 
Congressman Dingell, for participating in this hearing, as well 
as Mr. Schauer, for being here. He had to leave for another 
engagement, but he did really contribute a lot to our hearing 
here today.
    I want to thank our witnesses, this panel, and the other 
panels, for their testimony today. I believe today's hearing 
gives us a better understanding of the challenges facing small 
and mid-sized businesses, the urgent need for increased, 
prudent lending while keeping depository institutions safe and 
sound. I look forward to working with Congressman Peters, 
Congressman Dingell, and Congressman Schauer and other Members 
of Congress to address these difficult challenges.
    The Chair notes that some members may have additional 
questions for our witnesses which they may wish to submit in 
writing, and if they do, I would ask that the witnesses 
respond. 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.
    I think this has been a very productive, educational 
experience, this hearing today, a chance to ask some questions 
of people who are in a position to give us really good answers, 
and I think all of us will think about these things when we go 
back to Congress and relate some of what has happened today and 
the testimony we have heard from our witnesses today to our 
colleagues in Congress.
    And I hope that our country moves forward and moves out of 
this horrible fiscal economic situation which has hurt not only 
our country but our people.
    But we are on the mend. I just hope it happens sooner 
rather than later because a lot of people are still hurting out 
there right now.
    Thanks to everybody here today, and we will at this time 
adjourn the hearing.
    [Whereupon, at 1:50 p.m., the hearing was adjourned.]

                            A P P E N D I X



                           November 30, 2009

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