[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
THE CONDITION OF FINANCIAL INSTITUTIONS:
EXAMINING THE FAILURE AND SEIZURE
OF AN AMERICAN BANK
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
SECOND SESSION
__________
JANUARY 21, 2010
__________
Printed for the use of the Committee on Financial Services
Serial No. 111-97
U.S. GOVERNMENT PRINTING OFFICE
56-240 WASHINGTON : 2010
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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 THADDEUS G. McCOTTER, Michigan
RON KLEIN, Florida KEVIN McCARTHY, California
CHARLES A. WILSON, Ohio BILL POSEY, Florida
ED PERLMUTTER, Colorado LYNN JENKINS, Kansas
JOE DONNELLY, Indiana
BILL FOSTER, Illinois
ANDRE CARSON, Indiana
JACKIE SPEIER, California
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 Financial Institutions and Consumer Credit
LUIS V. GUTIERREZ, Illinois, Chairman
CAROLYN B. MALONEY, New York JEB HENSARLING, Texas
MELVIN L. WATT, North Carolina J. GRESHAM BARRETT, South Carolina
GARY L. ACKERMAN, New York MICHAEL N. CASTLE, Delaware
BRAD SHERMAN, California PETER T. KING, New York
DENNIS MOORE, Kansas EDWARD R. ROYCE, California
PAUL E. KANJORSKI, Pennsylvania WALTER B. JONES, Jr., North
MAXINE WATERS, California Carolina
RUBEN HINOJOSA, Texas SHELLEY MOORE CAPITO, West
CAROLYN McCARTHY, New York Virginia
JOE BACA, California SCOTT GARRETT, New Jersey
AL GREEN, Texas JIM GERLACH, Pennsylvania
WM. LACY CLAY, Missouri RANDY NEUGEBAUER, Texas
BRAD MILLER, North Carolina TOM PRICE, Georgia
DAVID SCOTT, Georgia PATRICK T. McHENRY, North Carolina
EMANUEL CLEAVER, Missouri JOHN CAMPBELL, California
MELISSA L. BEAN, Illinois KEVIN McCARTHY, California
PAUL W. HODES, New Hampshire KENNY MARCHANT, Texas
KEITH ELLISON, Minnesota CHRISTOPHER LEE, New York
RON KLEIN, Florida ERIK PAULSEN, Minnesota
CHARLES A. WILSON, Ohio LEONARD LANCE, New Jersey
GREGORY W. MEEKS, New York
BILL FOSTER, Illinois
ED PERLMUTTER, Colorado
JACKIE SPEIER, California
TRAVIS CHILDERS, Mississippi
WALT MINNICK, Idaho
C O N T E N T S
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Page
Hearing held on:
January 21, 2010............................................. 1
Appendix:
January 21, 2010............................................. 59
WITNESSES
Thursday, January 21, 2010
Austin, Jeff III, Vice Chairman, Austin Bank..................... 13
Glassman, Mitchell L., Director, Division of Resolutions and
Receiverships, Federal Deposit Insurance Corporation (FDIC).... 41
Hartnack, Richard C., Vice Chairman, U.S. Bank................... 12
Kelly, Jennifer, Senior Deputy Comptroller for Midsize and
Community Bank Supervision, Office of the Comptroller of the
Currency (OCC)................................................. 39
Kelly, Michael E., Chairman and Chief Executive Officer. FBOP
Corporation.................................................... 10
McCullough, Steven, President and Chief Executive Officer, Bethel
New Life Inc................................................... 8
Miller, David N., Acting Chief Investment Officer, Office of
Financial Stability, U.S. Department of the Treasury........... 38
APPENDIX
Prepared statements:
Gutierrez, Hon. Luis......................................... 60
Austin, Jeff III............................................. 62
Glassman, Mitchell L......................................... 81
Hartnack, Richard C.......................................... 92
Kelly, Jennifer.............................................. 98
Kelly, Michael E............................................. 112
McCullough, Steven........................................... 131
Miller, David N.............................................. 147
Additional Material Submitted for the Record
Gutierrez, Hon. Luis:
Responses to questions submitted to Jeff Austin III.......... 151
Responses to questions submitted to Mitchell Glassman........ 152
Responses to questions submitted to Steven McCullough........ 155
Responses to questions submitted to David N. Miller.......... 158
Article from the Chicago Tribune entitled, ``Failed banker
called local hero,'' dated January 20, 2010................ 159
Written statement of David Pope, President, Village of Oak
Park....................................................... 163
Price, Hon. Tom:
Responses to questions submitted to Mitchell Glassman........ 166
Written statement of Steven D. Bridges, Executive Director of
Legislative & Regulatory Affairs, Community Bankers
Association of Georgia..................................... 168
Written statement of Richard R. Cheatham and James W.
Stevens, Kilpatrick Stockton LLP........................... 172
THE CONDITION OF FINANCIAL
INSTITUTIONS: EXAMINING
THE FAILURE AND SEIZURE
OF AN AMERICAN BANK
----------
Thursday, January 21, 2010
U.S. House of Representatives,
Subcommittee on Financial Institutions
and Consumer Credit,
Committee on Financial Services,
Washington, D.C.
The subcommittee met, pursuant to notice, at 10:02 a.m., in
room 2128, Rayburn House Office Building, Hon. Luis V.
Gutierrez [chairman of the subcommittee] presiding.
Members present: Representatives Gutierrez, Maloney, Moore
of Kansas, McCarthy of New York, Baca, Green, Clay, Miller of
North Carolina, Scott, Ellison, Klein, Foster, Perlmutter,
Speier, Minnick; Hensarling, Castle, Jones, Garrett,
Neugebauer, Price, Marchant, Lee, Paulsen, and Lance.
Ex officio present: Representative Bachus.
Also present: Representatives Biggert, Davis of Illinois,
and Rush.
Chairman Gutierrez. This hearing of the Subcommittee on
Financial Institutions and Consumer Credit will come to order.
Good morning, and thanks to all of the witnesses for
agreeing to appear before the subcommittee today. Today's
hearing will examine the current state of the U.S. lending
system, with a specific focus on a case study involving the
bank holding company FBOP and its affiliated banks, including
Park National Bank of Chicago.
The subcommittee has asked our witnesses to address not
only the specifics of the case study, but also the overall
picture of the health of the lending industry, as well as the
process of how insolvent financial institutions are resolved.
Because of the interest of members on this issue, I will be
increasing opening statements to 12 minutes per side, with the
ranking member's agreement. But, without objection, the record
will be held open for all members' opening statements to be
made part of the record.
In addition, I ask unanimous consent that Congressman
Davis, Congressman Rush, and Congresswoman Biggert and others
be empaneled for this hearing, and that they be allowed 5
minutes each to question the panelists after the members of the
committee. Hearing no objection, it is so ordered. I yield
myself 5 minutes.
Ever since the beginning of this financial crisis in 2008,
we have all heard about the big financial firms and the banks
that have failed: Bear Stearns; Lehman Brothers; and Merrill
Lynch.
But for every large bank that fails, there have been dozens
of smaller community banks that have also failed, banks with
names like People's First Community Bank and St. Steven's State
Bank. Even banks like Park National Bank, that was supported by
a largely successful holding company, fail every week.
While the focus of this hearing will be the failure of one
particular bank holding company, it is my intention to shed
light on lessons learned from recent bank failures and the
insolvent bank resolution process. Last year alone, 140 banks
failed across this Nation. And so far this year, four banks
have failed, including three just last Friday.
Through this hearing, I hope to provide our banks better
insight into the factors used by the regulators when they make
their decisions, and for the regulators to have a better
understanding of the impact that bank closures and
consolidations have on our local communities and on civic and
community organizations like our schools and faith-based
institutions.
We should also examine today the FDIC's flexibility in
accounting for factors such as the purchasing bank's knowledge
of the market that it's moving into, as well as a bank's record
of community investment and support beyond the standard CRA
rating. If the FDIC requires a change in the current law to be
able to account for our community's well-being, then by all
means, we should have that discussion now, before more and more
banks fail and consumers suffer even more than they already
have.
Finally, I want to stress the importance of banks that
focus on lending to our communities, and not simply on using
their money to make profits through trading on Wall Street.
Real economic growth in this country happens when we invest in
Main Street. It is based on old-fashioned lending, through a
loan to a bakery to buy a new commercial oven, by helping to
finance the expansion of a local school, by helping to put a
child through college, or simply by offering them a reasonable,
affordable loan to purchase a home.
The economic crisis that we face was created by trading in
confusing and all-too-crazy products like credit default swaps
and mortgage-backed securities, not by financing the expansion
of a hardware store down the street. This kind of trading is
still based too much on greed. Just take a look at the decrease
in lending last year, and compare that to the increase in
bonuses doled out by many of the largest and yet most
vulnerable institutions.
And, as our local lenders close all around us, these banks
continue to play financial roulette. It's fundamentally
backwards, and quite simply, counterintuitive. I believe that
in order to stabilize our financial system, we must re-examine
what it means to be a successful bank in this country, and
encourage a return to fundamentals of lending.
I am glad to hear that President Obama will be addressing
this very issue later today when he announces his plans for
limiting the ability of commercial banks to conduct proprietary
trading with their depository funds.
Finally, I want to thank all of you who came to this
hearing--in particular, those who made the long journey by bus.
I applaud your interest and your involvement in these important
issues, which are vital to the sustainability of our
communities. And I look forward to hearing the testimony of
those before us today.
I yield Mr. Hensarling 4 minutes.
Mr. Hensarling. Thank you, Mr. Chairman. And thank you for
calling what is really a very, very important hearing. I think,
although many would agree that the financial stability crisis
appears to have passed, clearly, economic recovery has yet to
take hold.
Unfortunately, since this Administration has taken office,
we continue to be mired in double-digit unemployment, and 3\1/
2\ million more of our fellow citizens have been put on the
unemployment rolls.
We know that we have the highest level of bank failures
that we have had, I believe, since the early 1990's: 140 last
year, costing the Deposit Insurance Fund $36.5 billion.
We know that for only the second time in history, the
Deposit Insurance Fund in September went into the red. The
taxpayers of this Nation are being oppressed.
We have now seen, in just the last 2 years, the Federal
deficit increase tenfold. Tenfold. We know that we are on a
pathway now, under this Administration and this Congress, to
triple the national debt in the next 10 years, and it's just a
matter of time before they are knocking on the door of the
taxpayer yet again to bail out the Deposit Insurance Fund.
We can afford no more bank failures. So I think it is
important that we examine what is the cause, and also examine
and try to understand why does there still appear to be a
relative dampening of lending activity that is out there.
It is interesting, as we look at the case that is before
us--and I read, I guess--I believe it was from yesterday's
Chicago Tribune; I look forward to Mr. Kelly's testimony, I
assume that they got it right--but reading from the 20th
edition of the Chicago Tribune, ``He,'' referring to Mr. Kelly,
``had stashed $890 million in the preferred stock of
government-sponsored mortgage lenders Fannie Mae and Freddie
Mac, partly to fund acquisitions. This would be the biggest
mistake of Kelly's career. At the time, regulators had created
numerous incentives encouraging banks to invest in the so-
called GSEs. They were deemed about as risky as government
bonds, and were treated favorably when it came to evaluating a
bank's capital.''
Again, another data point on how the GSEs have simply
wreaked havoc with this economy, and how the regulators were
actually pushing their paper, creating exemptions for them.
And, speaking of exemptions, as we continue to look at how
shocking a number of bonuses are, how about the bonuses for
those who run the GSEs? We are paying more money for them to
lose more money.
Why was it that the Administration waited until Christmas
Eve to simultaneously announce that they are lifting the cap on
taxpayer exposure to Fannie and Freddie--apparently $400
billion wasn't enough, apparently they hadn't wrecked enough
banks already--lifting taxpayer exposure at the same time they
were announcing $6 million bonus packages for their chief
executive officers, $42 million for other execs. Those are the
bonus structures that I want to be taking a look at. So, I'm
glad that we're having this hearing.
Another thing we need to look at is, why is there a
dampening of lending activity? Well, I talked to bankers in the
fifth congressional district of Texas that I have the honor and
pleasure of representing in Congress. I talked to them all over
east Texas.
For example, I speak to Milton McGee, president and CEO of
Henderson Citizens Bank Shares in Henderson, Texas. He said,
``I think the primary reason we are not seeing much commercial
lending is the uncertainty with what is coming out of
Washington. The small business owner doesn't know what health
care costs are going to do to him, plus any new taxes, as a
result of the ever-increasing deficit. Business owners are not
going to borrow and invest until they feel comfortable with the
economic and political conditions. Way too many mixed signals
are coming out of the Administration.''
I hear that all over my congressional district. I hear it
all over east Texas. I hear it all over America. If you want
there to be greater lending activity, there is going to have to
be less of a tax burden, and more certainty about the
regulatory burden on these businesses.
I thank you, Mr. Chairman, and I yield back the balance of
my time.
Chairman Gutierrez. Mr. Bachus is recognized for 3 minutes.
Mr. Bachus. Thank you, Chairman Gutierrez, and I thank you
for holding this hearing. I want to focus on the community
banks and the regional banks, because for some period of time,
I have felt like the rules were being applied more aggressively
towards our community banks and our regional banks.
In every part of the country, members are hearing from
community bankers, frustrated by new, inconsistent, and often
arbitrarily applied mandates from the regulators. This
zealousness--or I would call it overzealousness--is stifling
meaningful economic recovery. Healthy community banks across
the Nation are dealing with conflicting standards, and hearing
mixed messages from the regulators.
At the same time that the Administration is advocating for
more consumer and small business lending, the bank regulators
and the bank examiners are implementing regulatory standards in
ways that inhibit responsible bank lending.
Mr. Chairman, no one questions the need for strong safety
and soundness regulation of our Nation's banks, particularly
those too-big-to-fail institutions that nearly brought down our
economy during the recent financial crisis. But there is
mounting evidence that pendulum may have swung too far, and
that regulatory overreach is preventing our smaller financial
institutions and our regional banks from meeting the legitimate
credit needs of the communities.
In testimony before the Financial Crisis Inquiry Commission
last week, Rusty Kluvier, on behalf of the ICBA, referenced a
2008 interagency statement called, ``Meeting the Needs of
Credit-Worthy Borrowers,'' that established a national policy
for banks to extend credit. The statement said, ``The agencies
expect all banking organizations to fulfill their fundamental
role in the economy as intermediaries of credit to businesses,
consumers, and creditworthy borrowers.''
But if this standard is operative, why is every Member of
Congress hearing from bankers that regulators and their actions
are undermining their ability to lend? Why are 61 percent of
community bankers saying that their most recent safety and
soundness exams were significantly tougher than their last?
Actions speak louder than words. These actions stand in
sharp contrast to statements by the regulators and the intent
of the law. The mixed messages from regulators are impeding
economic recovery. However, the mixed message that is coming
from this Administration, and many Members of the Majority in
Congress are even more harmful.
The Administration and some Members of the Majority
chastised banks for not lending, but then pushed legislation
that discourages investment and creates uncertainty. Increases
in capital gains taxes, the cap and tax bill, government-run
health care, as well as the Administration's new bank fee
create regulatory uncertainty. When the rules of the game are
constantly changing, financial institutions are less willing to
invest the capital needed to sustain economic growth.
Thank you for holding this hearing. I look forward to
hearing our witnesses testify.
Chairman Gutierrez. Mr. Garrett is recognized for 2
minutes.
Mr. Garrett. Yes, I thank the chairman, and I thank the
chairman for holding this important hearing with regard to this
one particular bank. But, along with my colleagues, I do
believe the larger issue that we need to be looking at is the
GSEs, Fannie Mae and Freddie Mac.
Because, as the ranking member said, it was indeed on
Christmas Eve that the Obama Administration and the Treasury
Department expanded and extended the bailout to Fannie and
Freddie, and also approved those now-famous multi-million
dollar compensation packages with nary a word from the chairman
of this committee.
The CBO is currently projecting losses of over $400 billion
by these institutions. So, when you think about it, we will
probably end up spending more money on the bailouts for these
institutions than what Congress did with TARP.
Since Fannie and Freddie were bailed out, we have had
exactly one full committee hearing, and exactly one
subcommittee hearing on this issue, entirely. So a lot of
people think that this committee has been negligent in its
oversight responsibilities in this area.
After Christmas, on December 30th, Ranking Member Bachus
and I wrote a letter to the chairman, asking him to hold a
hearing on this issue. But here we are, almost a month later,
and no response to the hearing request.
I do understand that this topic may cause discomfort to
some Members of Congress, considering the role that they played
in basically shielding the GSEs from meaningful regulatory
scrutiny in the period leading up to their collapse.
Nonetheless, we shouldn't let past mistakes lead us from
carrying on an oversight responsibility that we have now, going
forward.
It was the chairman who did, in fact, announce a hearing on
executive compensation for this Friday, tomorrow. But again, he
has refused to agree with a request by Ranking Member Bachus to
have the heads of Fannie and Freddie here to testify as well,
as far as what their role is in all this.
The chairman even stated, ``The public, having provided
significant support for the purpose of restoring trust and
confidence in our country's financial system rightfully insists
that large bonuses, such as these awarded by institutions
receiving public funds at a time of a serious economic
downturn, cannot continue.'' Well, if that's the case, then
it's really unacceptable that this committee has not responded.
And we must respond in an appropriate manner.
So, once again, I do call on the chairman of the full
committee to hold a hearing on the Obama Administration's
expanded bailout of Fannie and Freddie--
Chairman Gutierrez. The time of the gentleman has expired.
Mr. Garrett. --and the approval of their $1 million
bonuses--
Chairman Gutierrez. Mr. Foster is recognized for 2 minutes.
Mr. Foster. I won't use my 2 minutes here. I just want to
make it clear once again to everyone that we are dealing with
the aftermath of the fact that, in the last year of the last
Administration, $17 trillion of money was removed from this
economy by the economic policies that were then in place. We
should never forget who ran the car into the ditch here. And if
you put those $17 trillion of money back into the local
communities, back into the local banks, we would not be
worrying about this today. I yield back.
[applause]
Chairman Gutierrez. I would remind you that you are all
guests, and you are not to applaud for the comments of the
members.
Dr. Price of Georgia is recognized for 2 minutes.
Mr. Price. Thank you, Mr. Chairman. I want to thank you and
Representative Hensarling, as well, for holding this important
hearing on the anatomy of a bank failure. This issue is of
paramount importance, not just to this Nation, but especially
to my home State of Georgia.
As you know, Georgia holds the distinction of having the
largest number of failed banks in 2009: 25 of the 140. Banks in
Georgia employ over 50,000 people, and hold $276 billion in
assets. Most of these banks are community banks, which were
mere bystanders to the financial and liquidity crisis of the
last 2 years.
Understanding how a bank fails is critical to determining
if all these failures are necessary, and if policies and
procedures are being applied fairly and uniformly by prudential
regulators, especially the FDIC. I have grave concerns that the
FDIC has taken its mission to protect depositors and used it to
promote a world in which there are fewer banks.
FDIC actions in the last 2 years have shuttered over 350
banks, and further concentrated assets in already large
depository institutions. As a matter of policy, this is a
judgement that should be left to Congress to debate and decide.
Congress must ask itself and the FDIC if the United States is
best served with deposits concentrated in relatively few banks.
FDIC's own reports show that only 112 institutions have assets
over $10 billion, which hold more than 75 percent of all assets
at all banks, combined.
So, while Congress is not qualified to resolve failed
institutions, and it's not my intention to tell regulators
which banks should be closed and which should remain open,
Congress must aggressively investigate the FDIC to ensure
transparency for the American people from this opaque
institution, which is literally destroying communities across
our State. In fact, one individual in our home State said,
``We're not losing an industry. We're losing communities.''
So, today's hearing is just the first step to answer these
questions. This committee must commit to doing its due
diligence to understand the FDIC's decision-making process in
closing financial institutions, and I urge the chairman to hold
more hearings on this, and I look forward to those, and this
hearing as well. Thank you, Mr. Chairman.
Chairman Gutierrez. Thank you. I yield myself 1 minute just
to enter into the record, since I was here--I arrived here in
the November 1992 election--and then in 1994, the Republicans
were in the Majority, in 1996, 1998, 2000, 2002, 2004, and
2006, when finally we were in the Majority.
So, to hear my colleagues say that we shielded everybody,
and that we were in charge, it's just not the historical
record. As a matter of fact, let me see, President Bush was
elected in 2001 and re-elected in 2004, and the calamity
happened the last year of his Administration. We weren't in
charge, again. So, I just wanted to put it in some perspective.
And lastly, bonuses for GSEs? We proposed freezing bonuses
for GSEs. That's our proposal. Every one of my colleagues on
the other side of the aisle voted against freezing the bonuses
of the GSE, but they want the GSE chairman to come before us.
So that's kind of the record that we have.
And now we will open to the opening statement of our
colleagues--
Mr. Bachus. Mr. Chairman?
Chairman Gutierrez. Yes, sir?
Mr. Bachus. Could I have a moment to respond?
Chairman Gutierrez. It's just that you--we have only used 7
minutes of our time--
Mr. Bachus. Oh, okay, I see.
Chairman Gutierrez. We gave you 12 minutes on your side.
Mr. Bachus. All right.
Chairman Gutierrez. So I am going to just--
Mr. Bachus. I just wasn't aware of a bill that restricted
GSE compensation. I would like a copy of it. Thank you.
Chairman Gutierrez. There is a hearing tomorrow on
executive compensation, and it will come up tomorrow at the
hearing.
Mr. Bachus. Now I do have legislation to limit the
compensation of GSEs--
Chairman Gutierrez. Really, really, you will have time.
Mr. Bachus. Okay, thank you.
Chairman Gutierrez. I assure you, when your time comes up,
either tomorrow or today, when 5 minutes--but the Majority used
7 minutes, we granted you 12 minutes. And you used your time,
and we used our time.
Mr. Bachus. Thank you very much.
Chairman Gutierrez. We are going to proceed. Before we get
to the first panel, I would like to enter into the record an
article entitled, ``Failed Banker Called Local Hero,'' from
yesterday's Chicago Tribune, which Mr. Hensarling quoted from
as well, and a letter from the Oak Park mayor, David Pope.
I ask unanimous consent that these two items be entered
into the record. Hearing no objection, it is so ordered.
And now, we will go to our witnesses today. Each of them
will be recognized for 5 minutes. There is a little clock
there, and it will get green, and then it will get yellow, and
red means stop. So when you see the yellow, know that you have
60 seconds to kind of wrap it up. We know that we're going to
be very gentle up here, in terms of giving you the time
necessary.
We are going to start with Steve McCullough. He is the
president and CEO of Bethel New Life in Chicago, and is here
representing both his organization and the Coalition to Save
Community Banking.
Next, we will hear from Michael Kelly, who is the chairman
and CEO of FBOP Corporation, and is here representing himself.
After him, we will hear from Richard Hartnack, who is the
vice chairman in charge of consumer and small business lending
at U.S. Bank.
And finally, Ranking Member Hensarling will introduce Mr.
Austin, a fellow Texan, a little bit later on.
Mr. McCullough?
STATEMENT OF STEVEN McCULLOUGH, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, BETHEL NEW LIFE INC.
Mr. McCullough. To the honorable members of the
Subcommittee on Financial Institutions and Consumer Credit,
thank you, Chairman Gutierrez, for inviting me to testify
today. Thank you to the staff of your office for their support.
One year ago, my wife and daughter, who was then 5-years-
old, drove to Washington to witness history. We would never
have thought that 1 year later, we would be here again, but
this time as an entire community, to reverse a bad decision by
our government.
I represent not only myself as a proud resident of the West
Side of Chicago, but also as a leader of a community-based
organization named Bethel New Life that employs over 250
individuals and serves thousands of residents, and as a humble
member of the coalition of citizens who have spontaneously, and
in an unscripted manner, come together as a result of the
seizure of Park National Bank, and First Bank of Oak Park
Corporation, FBOP, in October of 2009.
I am here to speak on behalf of that broad and diverse
coalition of community organizations, nonprofits, local
leaders, religious institutions, and concerned citizens named
``A Coalition to Save Community Banking.'' My testimony's
intent today is to make a case for the reversal of the seizure
of Park National Bank and FBOP Corporation by the FDIC, to
question the process by which Park National Bank was seized,
and to advocate for real reform that supports community banks
across rural and urban America.
Park National Bank was a model community-based bank. It was
both financially successful and mission-driven. It provided the
quality of service, access to capital, and community
reinvestment that all financial institutions should aspire to
deliver. PNB demonstrated its commitment to the community by
employing local residents and investing in new schools, small
businesses, and affordable housing. PNB supported the work of
local nonprofits and cultural organizations, and exemplified
innovation, fairness, and flexibility. All of this is detailed
in my written testimony.
Our experiences may be local in nature, but they are
national in significance. In 2009 alone, 140 of the Nation's
8,000 local banks failed. And at this moment, more and more are
struggling to stay afloat, as the FDIC issues demands for banks
to raise capital reserves above standard thresholds. In
Illinois, seven community-based banks are at serious risk, if
not more.
What is the wisdom of a program like TARP that allows model
financial institutions to die, while saving banks that have
ignored the call to increase lending and to bank the unbanked?
Why was TARP funding allocated to only the largest banks, while
smaller banks collectively received a much lesser amount?
If we seek greater economic stability, then how does
withholding crucial assistance from community-based banks
advance the FDIC's goal of avoiding a future in which banks
become too-big-to-fail?
Invoking the cross-guarantee authority, a mechanism used by
the FDIC only 6 times in 20 years, the FDIC seized Park
National Bank, along with its sister banks under FBOP Corp.
Despite the fact that PNB was profitable and well-capitalized,
it was unable to compensate for the heavy losses suffered by
its subsidiaries in the south and west, which were particularly
hard hit by the mortgage crisis. As a result, PNB was sold to
U.S. Bancorp, along with FBOP's 8 other banks at a cost to the
taxpayers of $2.5 billion. A pillar of our community and an
exemplary bank was lost.
The seizure occurred only hours after United States
Secretary of the Treasury Timothy Geithner personally awarded
$50 million in tax credits to Park National Bank, an indication
of confidence in the bank's stability and an acknowledgment of
its vital role in community reinvestment and economic recovery.
Furthermore, the FDIC inexplicably disregarded FBOP Corp.'s
request for a 1-week grace period following the seizure to
formalize the acquisition of $600 million in private equity,
which FBOP had secured to help stabilize the struggling banks.
We have come here today to ask why? To the residents of the
community served by PNB, this seizure and sale are
incomprehensible. Why was a financially successful, model
community-based bank not only allowed to die, but prevented
from saving itself? Why was the FDIC so inflexible that it
would not grant the 7 days it needed to save itself? Why were
TARP funds withheld from smaller financial institutions? And
why is there still no relief for community-based banks?
We presumed, we hoped, that the buck stops here with the
United States Congress and the White House. Imagine our
frustration when we learned that, in fact, the buck does not
stop here, that there was nothing that our congressional
representatives or the White House could do to alter the FDIC's
decision. If the FDIC cannot be held accountable by our
congressional representatives, then by whom? By what power? Who
is regulating the regulators?
We believe that it's not too late to save our bank. We ask
this subcommittee to urge the FDIC to reassess and reverse
their actions regarding FBOP. If this cannot be done, we expect
U.S. Bancorp, being the sixth largest bank in the United
States, to not only meet, but exceed the commitment to our
communities that Park made.
We ask that Congress exercise its full power to ensure that
other community banks across our Nation do not meet a similar
fate to that of PNB.
We rode for 14 hours on a bus to get here.
Chairman Gutierrez. Your time has expired.
Mr. McCullough. And tonight we will make a 14-hour trip
back home, because many of us cannot afford overnight
accommodations. That is how important this issue is to our
community.
We realize that this issue is bigger than us alone, bigger
than--
Chairman Gutierrez. Mr. McCullough, your time has expired.
Mr. McCullough. --Mike Kelly at Park National Bank and U.S.
Bank. These are questions that you can answer for us.
Chairman Gutierrez. Mr. McCullough--
Mr. McCullough. Our country is waiting for your response
and for your leadership. Thank you.
[The prepared statement of Mr. McCullough can be found on
page 131 of the appendix.]
Chairman Gutierrez. Thank you. I would ask the witnesses--
that was almost a minute over--and there is 5 minutes for
everyone.
Mr. McCullough. I apologize.
Chairman Gutierrez. So when you see the yellow light, start
summarizing. We are going to ask you questions. If you want to
answer a different question than the one we're asking you to
make a point--I think you all understand how we can get that
done.
Mr. Kelly, you are recognized for 5 minutes.
STATEMENT OF MICHAEL E. KELLY, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, FBOP CORPORATION
Mr. Kelly. Thank you. Good morning. My name is Mike Kelly,
and I am chairman of FBOP Corporation. Thank you, Mr. Chairman,
and members of the subcommittee for inviting me to testify
today.
I would like to give some brief remarks on the background
of FBOP Corporation, and the events that led up to the closure
of our nine community banks. I would also like to explore ways
in which TARP funds might be made available to smaller
community banks that are struggling in the current economic
environment.
First, a little background on FBOP Corporation. FBOP
Corporation was a $19 billion privately held multi-banking
holding company headquartered in Oak Park, Illinois. We
operated nine separate charter community banks in the States of
California, Texas, Arizona, and Illinois. We employed 2,400
people. We were the largest privately held holding company in
the United States, and the second-largest bank holding company
in Illinois. We posted record profits for 25 straight years, of
exceeding earnings and service to the community, and had never,
ever paid a common stock dividend. All earnings were retained
within the bank group.
Regulators considered FBOP to be a problem solver, and
approved us to acquire 29 institutions, primarily failed or
sub-performing banks. We were recognized for best practices in
credit administration by our regulators. We were rated as best
in class by the largest real estate valuation company in the
country as recently as only 6 months ago, and they referred to
us as an A underwriter.
One-third of FBOP's 150 branches were located in low- to
moderate-income census tracks. Our banks were consistently
rated outstanding for their community investment efforts, an
honor given to only 8 percent of banks in the United States.
In 2007 and 2008, FBOP Corporation banks made community
donations and investments totaling $55 million, which
represented 28 percent of our total earnings.
Fannie Mae and Freddie Mac are Government-Sponsored
Entities created by Congress, which carried the implied
guarantee of the government. Banks like FBOP invested in Fannie
Mae and Freddie Mac because it was considered to be a very safe
investment. At the time we acquired these investments, they
were all AA-rated investments.
Furthermore, the market--in fact, the regulators assigned
national banks like FBOP a 20 percent capital risk weighting
for Fannie and Freddie preferred stocks, the same risk
weighting as U.S. agencies or cash. The regulators considered
it so safe that the FDIC permitted banks to invest up to 100
percent of their tier 1 capital in Fannie and Freddie preferred
securities.
But on September 7, 2008, the Federal Government took over
Fannie Mae and Freddie Mac, and rendered these investments
worthless. This takeover created an $885 million impairment
loss for FBOP in an investment that it considered to be a safe
haven and a conservative investment. It left four of our banks
less than well-capitalized.
On the morning of the takeover, Secretary Paulson made a
statement to the press, and I want to quote here, if I may:
``The agencies encourage depository institutions to contact
their primary Federal regulator if they believe that losses on
their holdings of Fannie Mae and Freddie Mac common or
preferred shares, whether realized or unrealized, are likely to
reduce the regulatory capital below well-capitalized. The
banking agencies are prepared to work with the affected
institutions to develop capital restoration plans consistent
with capital regulations.'' In our case, this did not happen.
I am also here this morning in the hope that other well-
run, still-viable community banks are not closed unnecessarily.
While more than 100 community banks have failed to date,
estimates are that many more are still in danger of failing.
Few of these community banks have ever engaged in predatory
lending practices, or awarded exorbitant compensation packages
to their executives.
The first round of TARP provided a great deal of assistance
to the largest banks during the worst financial meltdown since
the Depression. Since then, Treasury has now imposed very
strict guidelines for access to TARP. These guidelines were not
in place for the larger community banks when they were fully
funded in the initial stages of the TARP program.
The small community banks are bearing the brunt of these
stricter guidelines. For example, regulators now require that,
for a bank to qualify for TARP, they have to be well-
capitalized and rated as either a one or a two institution--the
top ratings. There are few banks in the United States today
that meet that criteria.
The issue of these smaller community banks stem not from
poor management, but from their commitment to their communities
as an active lender.
Chairman Gutierrez. Take 30 seconds and wrap up, Mr. Kelly,
please.
Mr. Kelly. I have some other remarks. Hopefully, I will be
able to make those in the question stage.
Chairman Gutierrez. And your complete statement will be
entered into the record without objection.
Mr. Kelly. Thank you.
[The prepared statement of Mr. Kelly can be found on page
112 of the appendix.]
Chairman Gutierrez. Thank you, Mr. Kelly.
Mr. Hartnack?
STATEMENT OF RICHARD C. HARTNACK, VICE CHAIRMAN, U.S. BANK
Mr. Hartnack. Thank you very much, Mr. Chairman. And
members, I appreciate the time to speak with you today. In the
time allotted, I would like to just give a little bit of
background on a couple of points that I think are relevant to
the discussions here.
First, though, I would like to talk just a little bit about
our bank. U.S. Bank has been participating in resolving failed
banks because we have maintained a record of superior
performance: consistent profitability; strong capital position;
and far fewer loan problems than many banks in the country.
To understand U.S. Bank, you should think of us as the
largest community bank in America, not the smallest big bank,
and certainly not a Wall Street bank. We are headquartered in
Minnesota--go Vikings--and our business practices reflect our
Midwestern roots and values.
Second, in our view, the FDIC process, subsequent to the
decision by the prudential regulator to fail a bank, is a
sound, transparent, fair, and value-maximizing process. Our
experience has been entirely satisfactory, and we believe we
have met all of the obligations for the transactions in which
we have participated.
Third, we want you to know that we are in this process of
resolving failed banks as an opportunity to invest in
communities and expand our community franchise. We are not in
this for a quick trade. We are not in this for a fast buck.
And, as a result, we pay a lot of attention, in every case, to
employment, maintaining branch access in the communities,
community relations, and community support. We do everything we
can to retain clients, enhance our reputation, and maintain
support for the community.
Finally, we believe our track record of financial
performance, growth in our customer franchise, well-documented
community reinvestment, and community support, and community
development lending and investing all suggest that the FBOP
franchise has ended up in capable, caring hands. Thank you, Mr.
Chairman.
[The prepared statement of Mr. Hartnack can be found on
page 92 of the appendix.]
Chairman Gutierrez. Thank you. And Mr. Hensarling will
introduce Mr. Austin.
Mr. Hensarling. Thank you, Mr. Chairman, for the courtesy
of introducing our next panelist. Jeff Austin is a fourth-
generation banker, and vice chairman of the board of Austin
Bank Texas. He also happens to be chairman-elect of the Texas
Bankers Association.
He has, in the past, served as: the past chairman of the
Tyler Area Chamber of Commerce; a member of the Frankston/Lake
Palestine Chamber of Commerce; a member of the development
board and the audit committee of the UT Health Science Center
in Tyler; a board member of Lon Morris College; a board member
and past president of East Texas Area Council Boy Scouts; a
member of the Better Business Bureau of East Texas; and a
member of the Children's Advocacy Center of Smith County. If we
had more time, I could go through the rest of his biography.
But the point I would like to make is there is simply there
is very little good that goes on in charity or economic
development in east Texas that Mr. Austin is not involved in or
knows of. He is a very important voice in banking in east
Texas, and a very respected voice in banking in our State.
And, although he is technically not a constituent, I would
be proud if he was. I am happy that he has joined us here
today. Mr. Chairman, I introduce Mr. Austin.
Chairman Gutierrez. And Mr. Austin, you are recognized for
5 minutes.
STATEMENT OF JEFF AUSTIN III, VICE CHAIRMAN, AUSTIN BANK
Mr. Austin. Thank you, Congressman Hensarling, Mr.
Chairman, and committee members. I am proud to be here this
morning. Like many other bankers across the country, we are
involved in our communities, and we are on the front line when
boards and people call us for involvement.
My message is clear this morning, and I want to state it
simply: I am proud to be a banker, and please do not shoot the
survivors.
The theme is an underlying and frustrating tone among many
bankers across the country. This is also felt by the hundreds
of thousands of employees and many other bankers across the
country.
The investment banking activities of some of the Wall
Street giants that are sometimes loosely referred to as banks,
or ``the shadow banking system,'' have been inappropriately
blended with banks like ours. There seems to be a populace view
that banks are not lending. I just looked in the Washington
paper this morning, and it said, ``Slow Lending; Cautious
Banks.''
This is true for banks across the country, but I will say
that when the economy slows down and when some of the large
banks as stated here in the Washington paper this morning slow
down, if they sneeze, smaller banks catch pneumonia.
By saying banks do not want to lend, it's like telling
McDonald's they do not want to sell hamburgers. We do want to
loan money. That's our mission, that's our purpose. And we ask
for your help to help us get back to this without throwing on
unnecessary regulations, unnecessary taxes, unnecessary
intrusion into compensation, and a lot of distractions that
take us away from doing what we are supposed to do.
I would also suggest when you go back into your districts
over the next couple of weeks, create a conference call. Talk
to your bankers. You're going to hear a lot of other stories
like the ones that you have heard here, and the ones that I
will share.
Recent exams? They're not like they used to be. There is
probably an overkill, looking at recent valuations on real
estate that are being applied with distressed values. Banks are
having to put up reserves against loans that have not taken
losses. We're building them up.
And, in addition, the SEC's rules and proposal from FASB-5
do not work. The intent of that was banks that were building up
reserves in good times, they did not want that to happen, where
it could come back into earnings. We would like to be allowed
to build up reserves in the good times to prepare for the
turbulent times that we have right now.
There are a lot of things that are happening in the banking
industry. Traditional bankers, as we are--there is a
difference--we know our customers. We want to loan to them, we
want to be involved with them. We want to work with them
through the different and varying economic cycles.
I have submitted my written testimony. I would like to give
some time back and make myself available to answer some
questions.
But again, we are proud to be bankers. I am proud to be a
banker. And please, do not shoot the survivors.
[The prepared statement of Mr. Austin can be found on page
62 of the appendix.]
Chairman Gutierrez. Thank you, Mr. Austin. And I will yield
myself 5 minutes.
Welcome to everyone, especially those who did come on a
bus. I know you will be returning on a bus shortly after this
hearing, back to Chicago.
We have work to do. Because, as Mr. Kelly suggests, and I
agree with him, Fannie Mae and Freddie Mac, while not
guaranteed by the Federal Government, certainly were taken over
by the Federal Government, and certainly were institutions that
were created by Federal mandate. And I remember when the
Secretary said, ``Tell us about your losses,'' and the fact
that did not happen in your institution, with nearly $900
million worth of equity that you had in Fannie Mae and Freddie
Mac when it all disappeared overnight. So I think that's a very
serious issue that we should take a look at.
And I agree with Mr. Kelly when he says that the rules were
changed. That is, the bigger, larger institutions were able to
access, by signing, actually, just a document, a sheet of paper
no larger than--and with probably fewer words than many of the
sheets of paper that we have here before us, in terms of our
testimony, a simple signature and billions of dollars were
transferred to them.
And the rules changed in that smaller institutions that
were out in the community didn't have access to that capital at
the second place. So I think that's an important issue that we
should--so I understand the basic unfairness.
And Park National Bank, within the holding company,
obviously had a stellar reputation and condition, in terms of
its relationship with the community, the geographical community
that it represented. And I think it's fair--it might not be
the--in the regulations, you know, it might not be in the law,
it might not be what is stated--but it seems fair that if the
FDIC sells an institution to--in this case to U.S. Bank--that
U.S. Bank consider what that institution was doing within the
community when they acquired it.
So, it not only acquires the accounts that were there, and
the assets that were there, but it also acquires the history of
that institution, and the relationship that institution had
with that community. I think that is important.
Because what we're talking about, Mr. Austin, is not
affecting your bank. What we're talking about is what you
suggested earlier. Many of the larger banks are really
investment banking firms, and that's where they're making their
money. Because we see many of them, the larger--the ones that
got the TARP money, they are lending less money.
But what is curious to us, and what we want to get down to
is, if you are lending less money, but you're giving out
billions of dollars of bonuses at the same time you're lending
less money, then obviously you're profitable somewhere. But
you're not profitable to the people who need, that is, by
lending money to people. So you must be making your money
somewhere else, while you're FDIC-insured, and while the
Federal Government is standing behind you, and why, in many
cases, you receive TARP money.
So, that's the--it's really not the community bankers. I
think we need to explore how it is we do ease up. But it's the
large banks that got the TARP money, that survived, that
brought us into this crisis, that today are--you read about it,
billions of dollars in bonuses, handing out billions of dollars
less in loans.
So, it seems to me you got the money, you're just not
lending it. But you're keeping it in-house to give the billions
of dollars of bonuses to your top employees, while not creating
any economic activity, other than trading in equities, which I
imagine is economic activity of a few people on Wall Street, as
they trade.
But it doesn't create bakeries, it doesn't create homes. It
doesn't create a hardware store. It doesn't create economic
activity. It doesn't give somebody a truck that they might need
so that they can start a landscaping service, I mean the basic
fundamental kinds of things that people need and need access to
capital.
So, having said that, Mr. Hartnack, I don't come to U.S.
Bank--just so that we understand from the very beginning--in
terms of what happened, in terms of making any judgements. But
I would like to ask you, what has U.S. Bank done since it
acquired the institution to keep that kind of faith and that
kind of activity that was so well-known and cherished with Park
National Bank? If you could, just speak to that a moment.
Mr. Hartnack. Thank you, Mr. Chairman. I would like to make
sure that the record would reveal that U.S. Bank took TARP--
probably, in 20/20 hindsight, didn't need it--paid it back, and
doesn't pay billions of dollars in bonuses. So--
Chairman Gutierrez. That's why I tried to not be defensive
here.
Mr. Hartnack. Yes, okay. So I just want to be sure we--
Chairman Gutierrez. If you could just speak to that issue,
because--
Mr. Hartnack. Yes--
Chairman Gutierrez. --time is up.
Mr. Hartnack. Yes. With regard to the process of
integrating a new institution into our company, we have a
process that we follow both in open market transactions and in
these FDIC transactions. Fundamentally, we come to the bank,
sit down with the management that's there, and begin a process
of understanding the bank, in terms of customers on the loan
side, customers on the--
Chairman Gutierrez. I'm trying to--because the time has
expired, my time has expired, here is what I'm going to ask you
to do. I'm going to ask you to put in writing to this committee
what it is U.S. Bank, since acquiring these assets through the
FDIC, since bidding on these assets, what it has done to keep
its relationship. Is it keeping--what are your commitments,
given the past history of Park National Bank, to the community?
If you could, just roll those out. We will have a chance to
talk a little bit later.
Mr. Hensarling, you are recognized for 5 minutes.
Mr. Hensarling. Thank you, Mr. Chairman. Mr. Kelly, my
first couple of questions will be for you, as I read through
your testimony.
My first question is, had the FDIC not had their rule in
place, which you cite in your testimony, that allowed 100
percent of Fannie and Freddie preferred stock to count against
the tier one capital where other investments are generally
restricted to 10 percent, would you have concentrated as large
of an investment in Fannie and Freddie?
Mr. Kelly. Absolutely not.
Mr. Hensarling. Okay. So but for the FDIC rule, you would
not have had that concentration. But for--
Mr. Kelly. If I could elaborate on that just for a second?
Mr. Hensarling. Please.
Mr. Kelly. There were four special regulations put in place
by the FDIC and the OCC to specifically encourage banks to buy
these instruments. We were allowed to buy no other equity-type
instruments, other than this preferred stock. Preferred stock,
in this instance, was nothing more than a highly-refined debt
instrument. We had unlimited amounts--we were actually given
regulatory--lowest regulatory capital, the same as a government
issue. And there were a number of incentives for banks to buy
this.
We thought this was a safe haven, AA-rated instruments. We
were never criticized by our examiners for the investment, or
the large concentration in it. This was a terrible mistake on
my part, on our part. But there were so many incentives in
there to do this.
Mr. Hensarling. So, in some respect, your mistake was you
trusted your government, which told you to go out and invest in
Fannie and Freddie?
Mr. Kelly. We did believe that the government backed these
instruments. They created the organizations. There was no SEC
reporting on these--we could not define and analyze this, as we
could with any other investment.
Mr. Hensarling. So, Mr. Kelly, you said but for the
regulators, you would have not had the concentration of Fannie
and Freddie. Once you had the concentration of Fannie and
Freddie--but for that, would you still own the bank today, had
you not concentrated in Fannie and Freddie preferred stock?
Mr. Kelly. Unquestionably. We took a $900 million hit that
wiped out over half of our capital on September 7th. We were
never able to recover. TARP funding would have been adequate
for us to recover and go forward. That was not available to us.
I still don't understand why that wasn't available. We were
approved for TARP in October. We were called and told we had
received TARP. The next day we were told that, ``I'm sorry,
there is nothing in place for a privately held bank, only
publicly traded banks are eligible for TARP at this time. You
will have to apply next month.'' We did after already being
approved, and our request was deferred into January, there was
a change in administration, and we never got a yes or a no on
TARP.
Mr. Hensarling. Do you have a personal or professional
opinion about the Administration announcing $6 million bonuses
for the execs of Fannie and Freddie?
Mr. Kelly. That's a little beyond my scope of expertise. I
am going to defer on that.
Mr. Hensarling. Thank you. Mr. Austin, I would like to turn
to you. I believe--hopefully you--I certainly listened to your
statement, I hope you listened to mine, as I quoted one of your
fellow east Texas bankers, Milton McGee of Henderson Citizens
Bank Shares.
I would like to quote another Texas banker from Royse City,
president and CEO of Texas Leadership Bank, talking about what
he sees as a relative dearth of lending activity. He said, ``I
would say it's twofold with lenders and borrowers. Borrowers
are reluctant to take on additional debt during an uncertain
economic period. They are reluctant to invest their liquidity
as equity. They are unsure how much additional tax and
regulatory burden that the President and the leadership in
Congress may place on their business. Lenders are reluctant to
take on additional risk during an uncertain economic period.
Lenders are focusing their efforts on improving existing asset
quality, rather than on new business opportunities, and are
reluctant to take on any moderate levels of risk that are under
the current intense regulatory scrutiny that may subject the
institution to potential criticism.''
So, these are just two of the bankers in Texas. Are these
fair characterizations, as far as what many of us in Washington
perceive to be an inadequacy of lending activity to help get
this economy going? Could you elaborate on your views?
Mr. Austin. Sure. Congressman, those statements would be
echoed by bankers across the country in every community. We are
facing a glut in lending, because our focus has shifted from--
we want to continue working with our customers, but we have
shifted our focus to focus on the unnecessary regulation, the
proposed regulations that are coming down, and really trying to
build up capital reserves. Capital is king.
And taking on unnecessary risk is something that bankers
are not going to do. We're cautious by nature. We do want to
lend money, but we need to be able to get back in. And looking
at some of the exams that are coming from our regulators, we
know they have a job to do, and this has nothing to do with the
personalities, but the examinations are extremely tedious,
looking at the alphabet soup of regulations, and that's taking
us away from being able to loan money, which is what we're here
to do.
Mr. Hensarling. Thank you.
Chairman Gutierrez. Thank you, Mr. Austin. Congressman
Moore, you are recognized for 5 minutes.
Mr. Moore of Kansas. Thank you, Mr. Chairman. Mr. Austin,
on page four of your testimony, you say that ``no examiner or
agency wants to be caught not enforcing consumer protections or
stated regulations because of the real fear of criticism from
the inspector general's office.''
Are you saying examiners are only being tough on banks now
because an IG might double-check their work to see if they're
fully enforcing the law?
Before you respond, I would point out that taxpayers have
learned a lot from recent IG audit material loss review
reports. For example, the Treasury IG found six examples where
OTS was complicit--or even worse, directed banks to back-date
capital infusion so they would appear healthier than they
really were. One OTS official involved resigned a few weeks
after I wrote a letter to the acting director, inquiring why he
had not been fired.
So, should Congress eliminate these inspectors general with
the hope that the bank examiners will look the other way if
there are fewer consumer protection violations?
Mr. Austin. Congressman, thank you for your question. I
will say I'm a fourth generation banker.
Mr. Moore of Kansas. Yes, sir.
Mr. Austin. I have read the minutes of a couple of our
banks going back to the 1920's and 1930's. Trust me, examiners
were tough then, too. That is something that has not changed.
And they have a job to do.
We have one of the most sound banking systems in the world,
and I think all of us can be proud of that. It's like going to
the doctor. They're going to ask you to do some things, and
maybe it's going to improve your health, which we need to
continue to do. But some of the unnecessary results of swinging
the pendulum too far, that's what we are concerned about.
With the proposed creation of a consumer protection agency,
I think that's also adding another unnecessary agency that
would impose duplication and cause someone else to take a look
at the examinations or the regulations, when we already have
qualified experts with our regulatory agencies doing that right
now.
Mr. Moore of Kansas. How do we protect and assure the
public that we're going to make sure what happened in this
incident doesn't happen again in the future, then, if we don't
put some further regulations in place to make sure that this
doesn't happen again?
Mr. Austin. Regulations are good. Unfortunately, some
people look at them as suggestions. We do not. And how we
interpret these, our banks are profitable. We are staying
focused to our core mission, and that's lending back in our
communities, working with borrowers that we have known for a
long time, and been able to work with them through various
cycles. That's what traditional bankers do.
Mr. Moore of Kansas. But what about other bankers you're
calling, I suppose, non-traditional? I understand the community
banks, and I have talked to my people back home.
What should Congress do? What should this committee do to
try to ensure that what happened before doesn't happen again?
Mr. Austin. There are some of the activities that we did
not engage in that I can come back with some other responses
from other--I think some of the other entities are better
qualified to answer that than I am, because we did not engage
in those activities for a reason. Some banks do not have the
expertise to do it; we did not have the expertise to do that.
What can Congress do? One thing is to take a look at some
of the other GSEs. Keep the respective agencies focused with
their core mission, and do not allow mission creep. Keep the
banking focused on banking. I have been involved in listening
to different discussions of, let's put the firewalls back up
between traditional banking activities and the other
activities. That's something that I think we could take a look
at.
Mr. Moore of Kansas. Thank you. Mr. Kelly, I would like you
to talk about how the culture of excessive lending and abusive
leverage contributed to the financial crisis. Will we ever know
what the appropriate level of leverage and use of debt is that
would maintain financial stability?
I have heard from many bankers back in Kansas that bank
examiners seem to be overcompensating, and not allowing them to
loan as much as they prudently could. But how do we, as
lawmakers, help strike the right balance of responsible lending
that's safe and sustainable, while also giving affordable
credit to the small businesses which can help create jobs, get
people back to work, and promote economic growth?
Mr. Kelly. That's a lot to answer. My response is that one
of the basic things that can be done is allowances for banks to
maintain larger loan loss reserves, generally. That's basically
prohibited under FASB right now.
Everyone knows that banking is a cyclical industry. There
are going to be downturns. There is no cushion allowed right
now for loan loss reserves. That has to be changed, so when the
bad times come, there are reserves there.
As far as--I am sorry, the other part of your question?
Mr. Moore of Kansas. Well, that was it. And I would just
ask you if you have--
Mr. Kelly. That would be my one recommendation.
Mr. Moore of Kansas. If you have any further comments you
would like to make, I would appreciate those in writing after
this. My time is just about up.
Mr. Kelly. Thank you.
Mr. Moore of Kansas. Thank you. Would anybody like to
address that in the few minutes we have left here?
[no response]
Chairman Gutierrez. The gentleman's time has expired.
Mr. Moore of Kansas. Thank you.
Chairman Gutierrez. Mr. Bachus, you are recognized for 5
minutes.
Mr. Bachus. Thank you, Mr. Chairman. Mr. Austin, we hear
from local bankers that they're being told by examiners in
certain cases to require what they consider excessive principal
payments that the bankers believe will cause borrowers to
default. In other words, they're told, ``You need to have a
payment on principal,'' and the bank is actually just
collecting interest.
And the banks, you know, a lot of them feel like if they
had exercised forbearance until the economy improved, that the
borrower could have been able to meet those things. But we hear
that examiners are sometimes requiring collateral write-downs,
and that both of these things are causing unnecessary loan
defaults. Would you like to comment on that?
Mr. Austin. Yes, sir. Thank you for asking that. What
you're hearing is reality. I can cite several examples of where
we have had good paying customers, we have known them for a
long time, they're paying as agreed and on time. But we may--
for example, we may have a loan that may be based on a 20-year
amortization with a 5-year balloon payment. When it comes time
to renew that payment, that amount, examiners are asking us now
for a new appraisal.
Let me use an example. Say you purchased a farm for
$120,000; we financed $100,000. Maybe you have paid down to
$95,000. But when that 5 years comes up, we obtain a new
appraisal, as required, but it comes back at $70,000. We're
going to have to write that down by creating a reserve of an
additional $25,000.
The real heartbreak in this situation comes when we come
back to you, as a customer, and we say, ``Mr. Customer, would
you bring us another $25,000 or $30,000 to pay down, so we can
be within the loan limit, or will you bring us additional
collateral?'' And this comes at a time when many customers are
strapped for cash, they're trying to expand, they're trying to
keep their own households afloat.
May I add? A lot of these valuations in real estate are
also caused by the forensic exams after banks are closed,
where, in many parts of the country, even in east Texas,
bankers are being asked by the regulators to include--and by
the FDIC--to include a liquidation value on real estate. That
is depressing the local real estate markets. It is dumping real
estate that is really--it's not helping the communities, and
it's not helping the banks, and we're creating reserves against
unrealized losses.
Mr. Bachus. Thank you. Yes. I think, in many cases, the
regulators or examiners are making underwriting decisions that
I think the bank ought to make. And--
Mr. Austin. Yes, sir.
Mr. Bachus. --as you say, I think it is causing all kinds
of problems.
Mr. Kelly, I noticed that a week after your bank was taken
over, President Obama signed into law a bill easing the rules
on how Fannie and Freddie losses can be realized.
Mr. Kelly. Right.
Mr. Bachus. Would that--and I know the Chicago Tribune
article says that would have dramatically reduced the amount of
money that you would have had to have raised.
Mr. Kelly. That's correct. That was worth as much as $200
million in capital to us. It would have raised our capital
levels, and it also would have vastly improved our chances to
raise outside capital.
Mr. Bachus. Did--
Mr. Kelly. We knew that was pending, the regulators knew it
was pending. We asked for an additional week. It was not
granted. We had always been a top-rated bank, one and two in
all categories in banking. We had excellent rapport with our
regulators prior to the GSE issue. And why we got no
accommodation, I still have no answer.
Mr. Bachus. Yes, that was going to be my next question, you
know. You knew it was coming, they knew it was coming. It would
have reduced our cost, and yet they didn't extend you a one-
week extension.
Mr. Kelly. No, that's a good question. I do not have the
answer to that question.
Mr. Bachus. Yes, I don't, either. I can't imagine.
Mr. Hartnack, when U.S. Bank took over--and I notice you
all have taken over several failed institutions--the FDIC took
a $2.5 billion write-down. Is that correct?
Mr. Hartnack. I think those are the numbers that they
estimated at the time, yes, sir.
Mr. Bachus. Yes, and I don't know that you can answer this,
but Mr. Kelly was offering a plan that would have cost $600
million. And maybe less, had they waited another week. But it
cost $2.5 billion, the deal they made. Is that--
Chairman Gutierrez. The ranking member--
Mr. Bachus. Is that kind of--
Mr. Hartnack. Yes, I really wouldn't be in a position to
address that. I think, you know, we came in after the fact,
and--
Chairman Gutierrez. The time of the gentleman has expired.
The FDIC witness will be here, and I am sure we will ask him
those questions.
Mr. Bachus. Thank you.
Chairman Gutierrez. Mrs. McCarthy from New York is
recognized for 5 minutes.
Mrs. McCarthy of New York. Thank you, Mr. Chairman. I
appreciate you holding this hearing. I apologize for not being
here for the first part of your testimony, though we did go
through all the testimony last night.
One of the things, Mr. Austin, that I want to ask you is,
in your testimony, you discuss the many hurdles facing the
survivors of the recession, and one of them is dramatically
higher capital requirements. What are the capital requirements
imposed on community banks versus the larger financial
institutions? What would you constitute as a fair capital
requirement for community banks versus the large banks?
Mr. Austin. Congresswoman, thank you for the question. The
capital requirements for FDIC-insured institutions are really
basically the same.
Some of the differences are going to be based on the risk
weighting of our assets. And I think that is what we need to
turn around and look at--for example, some banks maybe are more
highly concentrated in commercial real estate versus one-to-
four family real estate. One-to-four family real estate has a
lower risk weighting than an investment property. And I think
that's something--when we look at the--this is one thing that
the regulators do come in and review with great intensity, our
balance sheets.
In regards to capital standards, one concern that we are
seeing is listening to some investors and some others that may
want to charter new banks. The FDIC is--we have heard--I have
not tried directly, but from some of our members and
colleagues--are not allowing new banks to be chartered until
they can recapitalize and increase the FDIC Fund.
One consequence from this is that with the new banks that
have recently been chartered, they are requiring substantially
higher capital ratios.
Mrs. McCarthy of New York. Thank you. Mr. Austin, the
ranking member had actually asked the kind of questions that I
was going to be--I'm sorry, Mr. Kelly--what I was going to be
asking.
But one of the things--we will have the opportunity this
afternoon--is going to be with the regulators, and I think that
we can follow up. I think that was one of the reasons we
reversed it. We wanted to hear from all of you before we
started talking to the regulators because, obviously, the
regulators are the ones who are putting you through the hoops,
as we say, so that we can take your testimony and then ask the
questions.
But on one of the parts that we were looking at, were you
given any guidance on how to modify your application, or any
changes that were necessary, given the new Administration--
going with your testimony to Mr. Bachus earlier?
Mr. Kelly. I would have to say that the Office of the
Comptroller of the Currency, our primary regulator, was very
supportive, they were very helpful, they were very sympathetic.
Right from the beginning, they acknowledged that our issue was
GSE only. They referred to us as a well-managed bank with
strong asset quality and a good track record.
And they strongly recommended us for TARP approval in
October. We were approved for TARP approval by the regulatory
committee. But because we were not a publicly traded bank, they
had no rules in place to deal with private banks that did not
have a stock price.
Therefore, we were deferred, and that deferral took us into
January and February. The rules totally changed. The rules
became so restrictive that the only way you could get TARP is
you had to be well-capitalized. We, by virtue of the GSE
losses, were not well-capitalized. Therefore, we didn't
qualify. The rules were vastly different for the larger,
publicly traded banks than they were subsequently for the
smaller banks and privately-traded. And also, the guidelines
were done at a period well into the economic downturn, when
everyone's numbers looked much more difficult, as far as loan
loss provisions and delinquencies.
Mrs. McCarthy of New York. And I'm sorry if I missed this
part. Could you tell me what happened to your customers? What
was the results to your customers?
Mr. Kelly. I think that has yet to be seen. I think we're
concerned. We hope that U.S. Bank will step forward and meet
the commitments that we had in place, both the donations, the
financial institutions--many of our institutions, many of our
not-for-profit companies, are totally dependent on the
commitments we made to support them. And I am hopeful, and I
believe that U.S. Bank will step forward and do that.
But the effect on our customer base, U.S. Bank has a vastly
different model than our model. They're a very efficient bank;
they run with fewer people. We had 2,400 people, and I am very
concerned about how many people will be employed by U.S. Bank a
year from now.
Mrs. McCarthy of New York. Mr. Hartnack, could you follow
up on that, on what was just said?
Mr. Hartnack. I'm sorry. Say it again.
Mrs. McCarthy of New York. Could you follow up? I was
asking what happened to the customers of the banks. It was
mentioned that U.S. Bank was now taking over. Could you tell me
what's going to affect--
Mr. Hartnack. Sure. I think we would look at the depositors
first, and assure you that we continue to offer the same
products. In fact, the products are unchanged at this point.
They will be modified during computer conversion, but will be
substantially the same.
Interest rates have come down, so depositors are seeing
lower rates, but they would have seen those lower rates, even
if--
Chairman Gutierrez. The time of the gentlelady has expired.
Thank you very much.
Mrs. McCarthy of New York. Thank you, Mr. Chairman.
Chairman Gutierrez. Mr. Neugebauer for 5 minutes.
Mr. Neugebauer. Thank you, Mr. Chairman. I thank our
witnesses.
Mr. Austin, I want to go back to something you said,
because it's something I have heard from my community bankers
not just during this period, but for a number of years, which
is that during good times, when earnings were good, and the
economy was stable, growing, that attempts to increase, you
know, kind of beef up the balance sheet were resisted by the
examiners.
But yet they were very quick to come in, when the economy
turned down and the asset quality diminished some because the
economy, to tell you you needed to build your capital back up.
Am I repeating that correctly?
Mr. Austin. Yes, sir. It's capital in reserves, as well.
And if I may answer part of that based on our loan loss
reserve, I think back many years ago when we, after an exam, we
would ask our examiners for what is called a certification
letter. That certification letter, on their letterhead--FDIC,
State Department of Banking, or OCC--would really state that,
``We're declaring your reserve adequate.''
We would, in return, take that to our CPAs to defend, in
case of an IRS audit. Because, under the current rules, we're
only able to deduct from income taxes the amount that--to the
extent of our losses, based on the reserve. That would not
allow us to build up--and it was a disincentive to build back
up our reserves.
Today, when we are trying to build them back up, it's at
the worst time, with depressed earnings. When anything takes a
hit to earnings, that takes away from money that we can loan
back into our communities, which is what we are geared to do.
Mr. Neugebauer. And, in fact, banks are--like most small
businesses--is that the best source and most ready source of
capital is earnings, and retaining those earnings. Is that
correct?
Mr. Austin. Capital is king, yes, sir.
Mr. Neugebauer. And so, what would be some of your
suggestions that we take, moving forward here, to take care of
both sides of the ledger there, one, the regulatory side, and
the tax side, to allow financial institutions to, in fact,
build up those loan loss reserves so that in the event the
storm comes again, that they are able to weather those better?
Mr. Austin. There is more than one solution, and this is
the beauty of this, but it is going to take working with the
SEC, the IRS, and FASB to allow us to do this. By us being able
to increase these reserves within a prudent amount by using the
banker's judgement, based on their characteristics, their level
of risk tolerance, we would like to put that back in the hands
of the banks and the bank management, regardless if you're
publicly traded or not.
I know of one recent exam from a colleague. One of the
examiners asked them, ``Well, is your excess or unallocated
reserve going to be greater than $15,000? And the reply was,
``No, we will get it down to $12,000,'' because either they
were going to find something else to charge off, or they have
to back it back into earnings.
Mr. Neugebauer. Thank you. Mr. Kelly, I want to go back to
something you said, that except for the portfolio of the
preferred stock that you had in Fannie, the rest of your asset
quality was found to be acceptable to the examiners. Is that
correct?
Mr. Kelly. That's correct. In fact, in August of 2008, one
month before the Fannie and Freddie Mac investments were
rendered worthless, we were approved by all three regulatory
agencies to acquire a $3 billion problem institution in
California. They only give that approval to well-managed, well-
run banks with good numbers. We received that within 48 hours
expedited time. They knew we were a bank that was capable of
dealing with problems.
But when we had the $900 million--almost $900 million--
impact of the Freddie and Fannie losses, it wiped out more than
half of our capital, we had to cancel that acquisition, and we
were in a tailspin.
Mr. Neugebauer. If you would have gotten the same deal that
some of the people who were holding some of that AIG
instrument--you might have come out a little better, mightn't
you?
Mr. Kelly. We would have been quite happy just to get our
allocation of TARP money, as most of the other banks our size
or larger received. That's all we wanted. We were initially
approved. Why we didn't qualify, I have no idea why that was
deferred. That will be my question--
Mr. Neugebauer. But if the government had made you whole on
those Fannie Mae preferred stock, it would be a different day
for you, right?
Mr. Kelly. That would have been nice, yes. Our issues were
related to the Fannie and Freddie investments.
Mr. Neugebauer. Yes, and that's the reason that many of us
on this side of the aisle are very concerned about the
government picking winners and losers. And, unfortunately, this
bank was chosen to be a loser, where other financial
institutions were chosen to be winners, instead of letting the
marketplace do that. And we cannot allow that to continue in
the future. It does not promote good behavior, market behavior.
And, quite honestly, it's not the right thing to do. And so I
hope that--
Chairman Gutierrez. The time of the gentleman is expired.
Mr. Neugebauer. --we will do things to prevent that from
happening in the future.
Chairman Gutierrez. Mr. Clay, you are recognized for 5
minutes.
Mr. Clay. Thank you, Mr. Chairman, and thank you for
conducting this hearing. And let me start with Mr. McCullough.
Mr. McCullough, can you share with this committee your take on
the accelerated home foreclosures in and around the Chicago
area? Was it attributable to certain financial institutions
steering certain customers to subprime loans instead of
conventional mortgages? I would like to hear what you think
about that.
Mr. McCullough. It's no surprise in our community, like
many other communities across the country, that many residents
are in distress. Either they have been foreclosed on, or are in
the process. In our community, on the west side of Chicago,
there are thousands of families who are either in multi-family
housing or single-family who have either been foreclosed on or
are in process.
In terms of banking--banks and other financial
institutions, you know, doing subprime lending, there is a long
list. I am just here to say that Park National Bank was not one
of them. In fact, Park and Bethel, the organization that I run,
have specifically designed banking products to meet the needs
of very low-income residents in the community, as well as
homeowners. And we were active partners to really address the
issues that face the residents in our community.
Mr. Clay. And in your testimony, you also point out that
U.S. Bank--you compare the charitable giving of U.S. Bank
versus Park National Bank and FBOP, where you take a number
like 27 percent of your profits went back into charitable
giving, and then you compared U.S. Bank with a 0.7 percent. And
I think that speaks volumes about the service that Park
National Bank gave, compared to a company like U.S. Bank.
Mr. McCullough. Well, just like all politics is local, all
banking--really good banking--is local. And I think to Park
National Bank's credit, you know, Mr. Kelly and his staff knew
our community, and knows our community, and knows what the
challenges and the needs are, and was able to be very targeted,
in terms of not only loans and business transactions, but also
charitable giving.
It is yet to be seen what U.S. Bank's commitment is to our
community. They do have an existing branch and footprint on the
west side of Chicago, but obviously not to the same caliber as
Park has been.
Mr. Clay. Does that charitable giving--does that also
include loan modification?
Mr. McCullough. It does.
Mr. Clay. It does?
Mr. McCullough. Yes.
Mr. Clay. In other words, you work with the borrower to
make the modification reasonable and something that they can
accomplish?
Mr. McCullough. Yes. I mean Bethel itself is a HUD-
certified counseling agency. We work with homeowners across the
area. And Park was, you know, definitely a partner. And some of
the members of the coalition who also do homeowner counseling,
as well, share the same experience.
Mr. Clay. Thank you for your response. Mr. Hartnack, tell
me, did FBOP have a large number of subprime loans, and was
that one of the reasons for its failure?
Mr. Hartnack. Certainly not in the first mortgage arena,
no, sir.
Mr. Clay. No?
Mr. Hartnack. Nor did U.S. Bank, for that matter.
Mr. Clay. Okay, okay. You didn't have anything to comment
about the charitable giving, did you?
Mr. Hartnack. If you looked at it on an apples-to-apples
basis, and included our extensive community development--
lending, tax credit lending and new market tax credit
investing--then the percentages would be a great deal larger
than the .7 that was discussed. But we certainly would never
have given away 27 percent of our profits.
Mr. Clay. Okay. Let me move on to Mr. Austin. Mr. Austin,
can you share with us your opinion on the treatment by the FDIC
with smaller community banks versus banks that are considered
too-big-to-fail?
Mr. Austin. We are all governed by a lot of the same rules
and regulations. If we were to show you everything that we had,
it would fill up this table and probably four or five more.
In regards to too-big-to-fail, I really do not feel any
institution is too-large-to-fail, especially in a capitalistic,
free market enterprise system like the United States was
founded. We need to look at the risk weighting of the different
types of these activities that the banks are engaged in.
You know, I appreciate the question to the previous witness
regarding communities and contributions. I think if we start
looking at those types of measurements, compared to looking at
what banks are really doing to lending, that's where we are
getting away from our focus.
You know, we are governed by the Community Reinvestment
Act, which I think goes too far--
Chairman Gutierrez. The gentleman's time has expired. Mr.
Paulsen, you are recognized for 5 minutes.
Mr. Paulsen. Thank you, Mr. Chairman. Mr. Hartnack, I was
just curious. It seems like banks are getting a mixed message.
Mr. Austin has related this already in some of his comments,
too. But, you know, obviously there is encouragement to lend,
to provide capital in the marketplace for the business
community that wants to expand and grow jobs right now.
But there is also the message out there, at least from the
regulators and the anecdotal stories I have had, in terms of
communicating with some of my bankers locally--I know you're
based in Minnesota, too--but the mixed message is that they're
being encouraged to hang on to capital, actually. And that has
been discussed a little bit.
I talked to one individual, a small business owner
actually, who was going out to get a loan with a bank he had a
long-time relationship with. And the bank actually came back
and said, ``We would like to provide the loan for you. But in
order to do that, you're going to have to have 50 percent
capital, or 50 percent of your money down.''
Well, of course, we commented to each other, ``Then you
might as well be a bank on your own,'' when you're in that type
of a situation. And I think that expresses some of the
frustration people have. But I'm just sort of curious.
You know, one other anecdote too, real quick, is that the
regulators then come in and they're putting the squeeze on the
banks with some really tough requirements, in terms of new
standards. And one community bank I talked to not long ago
mentioned that he had some examiners in. I asked, ``Was that
just three people? Were they in for a week?''
And he said, ``No, it's like 14 people, and they were in
there for a month-and-a-half.'' And it seems very
overburdensome and a high threshold to cross. So, I'm just
curious.
Right now, in general, given the current economic climate,
what can banks do to try and be effective partners in their
local communities with these challenges that are truly out
there?
Mr. Hartnack. It clearly is a different circumstance in
every bank. There are 8,000 community banks in America. And,
frankly, many of them are still very strong, financially. But
if a bank is in a circumstance where they don't have enough
capital, clearly, lending is a very difficult deal for them. If
they lend, every dollar they put out requires roughly 10
percent of capital. If you don't have the capital, you're
simply digging a deeper hole for yourself.
What we do--and we're in a lucky position of having
adequate capital, good earnings to keep replenishing our
capital, we just announced quarterly profits yesterday, and
we're able to embellish our capital--is we tell our story in
every possible place, and try to let the communities that we
serve know that we're open for business for good loans. And the
terms are, in many cases, not very different from a while back.
In some cases, it is not different at all. It depends on,
obviously, the purpose of the loan. And the economy is not as
strong, so sometimes additional protection is required. But,
you know, what banks in America can do to help their
communities is make loans. And as Mr. Austin said, telling a
bank to make loans is like telling a McDonald's guy to cook
hamburgers. This is what we do for a living. Our CO constantly
talks to us about the fact that we make dreams come true in
America, and we do that by lending people the money to build
their business, grow their business, start their business, to
educate a kid, to buy a house, all the things that Americans do
and want to do. And I think our industry's role is to make that
happen to the extent our capital allows us to do it.
Mr. Paulsen. Mr. Austin, maybe you could provide some
additional comments, as well?
Mr. Austin. Absolutely, and thank you. We want to make
loans. A joke among bankers is that when we make loans, they're
all good. But some bad things happen to good borrowers.
I know, just thinking back to the subprime debacle--and we
should note--the overwhelming majority of the subprime loans
were made outside the traditional banking industry. And I want
to equate this back to after 9/11. One thing the automobile
companies did was create special financing units to push and
sell their excess inventory, also known as zero percent
financing. They took on excessive risk, and they also took on
borrowers who normally would not be able to repay.
Today, if you're looking at some of the subprime loans,
some in the housing industry also created special financing
units, and they packaged those loans and sold them as
securitized investments--again, outside the traditional banking
system.
We still have--I will quote my grandfather. He told me,
``Son, there is a preamble to every promissory note, `And I do
hereby promise to pay.''' We have to keep that in mind to make
prudent decisions when we make loans, because our regulators
are looking at them, and we also don't want to do something
wrong for our customers in extending too much credit.
Mr. Paulsen. Well, I will just comment, Mr. Chairman, but
we need a strong traditional banking system, so I appreciate
it.
Chairman Gutierrez. Mr. Scott, you are recognized for 5
minutes.
Mr. Scott. Thank you, Mr. Chairman. And thank you for this
hearing. It's a very timely hearing. I represent a State where
we all--I think it's really the epicenter of this entire
situation, regarding the bank closings. And I would like to
focus on that for a moment, as we move forward to find
solutions. And my State is Georgia.
Over the past year, we have had 25 bank closings.
Nationwide, we have had 140. That means that, in my State, 20
percent of the banks that closed--clearly, one-fifth of all the
banks--happened in my State. So it might be good for us to look
at Georgia to try to figure out what went wrong, and how we
correct this.
I guess it focuses on my first question, which is this: We
have 300 banks in Georgia. About 100--I think 103--of them were
established in the last 10 years. Ninety percent of the banks
are small, State-chartered banks, which are overseen by both
the FDIC and the State regulators. Seventy percent of their
portfolios are all devoted to real estate loans. And they went
into this overexuberance, and I think that's what caught them.
But I wonder if you would tell me if it's possible that
there were just too many banks to begin with. And did the rise
in subprime lending lead to a banking bubble in which banks
were established that lacked the stability and the experience
to sustain through the natural cycles of boom and bust,
expansion and contradiction?
Should we put some sort of regulation on how much of the
portfolio could go into real estate, or could go into one area?
Is that risky behavior? And where you have the mixture of State
and Federal regulations, what falls where? Should Congress act
first, or should States act first?
These are a series of questions I would like to get some
answers on. Should we not put some kind of standards on too
much going into one area, 70 percent of your portfolio going
into one area, putting some kind of criteria on too many banks,
and looking at our Georgia case to see how we could use this as
some examples of what went wrong to correct?
Right now, in my State of Georgia, there is contemplation
of whether or not our State legislature should do anything at
all. And many are saying, ``Well, let's wait on the Feds to do
this.''
So, I think this brings us right dead center to answering
some of these certain questions, and that's what I would like
to put before you today. If you could, respond to my questions.
Mr. Hartnack. Was that directed to any one of us?
Mr. Scott. Yes, either one. I would like to get both of
your comments on this. I mean--
Mr. Hartnack. Real quickly, so I don't take everybody
else's time, I would say that the principle of diversification
of assets, so there is as little correlation between the
behavior of assets on the balance sheet as is practical, is a
rock-solid part of prudent banking, and certainly one of the
reasons our bank is in good shape today. And I think the
regulators understand that.
Whether it was enforced among small new banks or not
effectively, I will let you find that out from the regulators.
But clearly, the principle of diversification is absolutely
rock foundation of good banking.
Mr. Austin. I would like to also share that competition is
healthy, I think for everyone, not just in the banking
industry, but every industry in our communities.
In regards to your question about what should be done, and
what are the regulators doing, one, we appreciate and support a
dual banking system, where we have charter choice.
A few years ago, we were up here with the Texas Bankers
Association, visiting with the FDIC. And I want to defend them,
because they made a very pointed comment to the banking
industry: ``We see some trends that are beginning to emerge in
some sectors of the country. Beware. Let's fix the roof while
the sun is shining.'' They did send us the warnings. Some chose
to listen, some chose not to.
In their defense, there are ample regulations and guidance
that have been sent out that we look at for commercial real
estate limits and construction limits. So we are managing, and
they are managing us when they examine us, based on the risk
weighting.
Mr. Ellison. [presiding] Mr. Marchant from Texas is
recognized.
Mr. Marchant. Thank you, Mr. Chairman. It's good to see you
here, Mr. Austin. And it seems to me that when regulators leave
your banks these days, the greatest concern is not whether you
are equipped and motivated to loan money into the community,
but that the FDIC Insurance Fund will have little or no
exposure to loss.
In the old days, they were there to help guide you on how
to stay healthy and profitable. It's my contention that until
that approach is moderated, adjusted, changed, and we get more
back to the original purpose, that we will not have a recovery,
we will not have new jobs, and we will--and our banks will
remain on the sidelines, investing in treasuries and offering
.65 percent on a 5-year CD, and making their spreads the safest
way possible that presents the absolute least risk to the FDIC
Insurance Fund.
Now, it seems to me like that is the issue that we are
dealing with.
Mr. Austin. Wow, there is a lot there. I could speak for
hours on that. Let me say, when the examiners come in, the
primary focus is safety and soundness to protect the Fund. And
we don't disagree with a lot of that.
But I will say our bank is fortunate. We have extremely
good relations with our examiners because, one, we have reached
out and they have reached out to listen, help give us guidance.
We meet with them. We have taken a proactive approach to visit
with them on a quarterly basis. We would encourage many banks
to do that. But not everybody can say that.
If you talk about competition and .65, the treasuries--in
some cases lower--one area that we're competing against is you,
the government. Specifically, I call it a ward of the
government, which is GMAC's new bank, also known as Allied
Bank, which advertised at all the football games. They're
paying exorbitantly high rates because of their backing from
the government. That's hard for us to compete against.
Mr. Marchant. Let me ask you for my second question--both
you and U.S. Bank--about the policy that the FDIC is using now,
as far as acquisition of banks that they are closing.
I know that in this--I believe it was in this recent
transaction--there were three small banks in Texas that didn't
have anything--that really weren't in the geographical areas--I
think they were your banks, weren't they, Mr. Kelly? Yet the
FDIC, instead of saying, ``Let's keep U.S. Bank in this area,
and let's let these three banks in Texas--let's find a
legitimate buyer there,'' instead they just take the position,
``You have to take everything.'' And then I think, in this
case, U.S. Bank turned around and sold those three banks off.
It seems to me that the FDIC needs to take a little bit
more flexible position on that. And I believe that they try to
match up the sales of the banks with entities that are healthy
and have some proximity to the market. And I would encourage
them--and I will, the next panel--to give some consideration to
not having that be a two or three-step process, where local
banks end up having the opportunity to take over local banks.
Mr. Austin. I would like to comment. I know we--one of our
affiliate banks was within 60 or 70 miles of one of those
institutions that was well-capitalized. We did contact the FDIC
and ask if that particular bank could be sold separately. The
response was, ``No, we prefer to sell them as one group.''
The advantage, by allowing someone to purchase that
locally, or with closer proximity to that community, would be
the great advantage, one, to the customers in that community,
because they know who they are. In Texas, that means we have
lost three charters. And I think we look at a lot of--we hear a
lot of bankers who are discouraged by what's going on, and
probably want to exit out of banking. And that's not good for
the local communities--
Mr. Marchant. It seems like a local bank might give a
higher bid to the FDIC for that, and actually benefit the Fund.
Mr. Ellison. The gentleman from Texas, Mr. Green, is
recognized.
Mr. Green. Thank you, Mr. Chairman. And I thank the
witnesses for appearing today. I would like to take just a
moment to see if I can provide a limited amount of ocularity to
this obviously difficult problem.
The community banks are of the opinion--and there seems to
be some body of empirical evidence to support their
contention--that they were not the cause of the crisis. That
seems to be the prevailing opinion among community bankers.
They also seem to be of the opinion that, because they didn't
cause the crisis, they should not have to account for the sins
of those who did cause the crisis. Community banks did not
engage in 3/27s, 2/28s, teaser rates that coincided with pre-
payment penalties.
Generally speaking, community banks make the argument that
they knew who they were dealing with. They were dealing with
people who were regular customers, to a great extent, people
that they knew in the community, people that they have to meet
in the shopping center, and so they had a better understanding
of who they were working with. And, as a result, they made
better loans. Many of their loans, they contend, were
maintained on their portfolio. They didn't engage in a
wholesale pushing of loans to someone else, such that they
would qualify persons for teaser rates but would not qualify
them for adjusted rates.
And, generally speaking, they maintained a good capital
ratio. The capital ratio is important, because you don't lend
money from the capital. The money that you lend comes from the
money that you take in by way of deposits. So you have to be
well-capitalized to lend money.
So, the community banks find themselves in the position of
saying, ``Someone ought to look at our circumstance and
understand that there should be a greater degree of flexibility
as it relates to what we do.''
The example that I encounter most regularly is that of a
good loan that was made in good times, but now the borrower
finds himself with an inability to make a payment or two. And
the contention is that when the examiners come in, they don't
accept the notion from the community banker that, ``I know this
person. This person is going to catch up. This person is going
to maintain this loan, such that this is not really a bad loan,
it's just that these are bad times.''
And somehow, this ought to be considered, so that we don't
find the bank having to increase its capital, and if it does
not, then it can't do as much lending. And apparently, this
concern is something that a number of my colleagues have heard,
because I hear colleagues on both sides talking about it.
So, my question is this, with reference to the community
banks. When you differ with the examiner, tell me about the
process that allows you to appeal to an ombudsman or someone
such that you may--your opinion that is different, for reasons
that you contend are legitimate--how does that process serve
you?
And I will start with, if I may, Mr. Austin. Do you have an
opinion on the appeal process, please?
Mr. Austin. Yes, sir. And, Congressman Green, thank you. I
know you have always been a leader in listening. And I want to
say thank you for your efforts in financial literacy and
working with banks.
There is a difference--we have not really gone through the
appeal process, because we try to work it out locally with the
examiners. And I think that's usually the best practice. We do
ask for them to rely on our judgement, because we know the
customers, and are familiar with them, and we are sitting on
the desk, looking at them eyeball-to-eyeball. We are also
visiting their businesses, looking at their trends, and knowing
what's going on.
Where we have some issues are the conflicting types of
accounting policies and practices, from regulatory accounting--
I call it RAP. You have GAAP, and there is probably another one
that applies that rhymes with it pretty well.
Mr. Green. Would someone else care to give a comment?
[No response.]
Mr. Green. I will conclude by thanking you, Mr. Chairman,
for the time. Thank you.
Mr. Ellison. The gentleman from Colorado.
Mr. Perlmutter. Thanks, Mr. Chairman. And I thank the panel
for being here today. Mr. Kelly, I am sorry for the plight. We
are--I am working on some pieces of legislation to take a look
at capital, to take a look at TARP being available to community
banks, smaller banks, to take--you know, to look at the
regulations that really now say you have too much concentration
in real estate or too many restaurant loans, or you're working
with too many auto dealers, because this financial crisis--
which was because of a lot of gambling on Wall Street, in my
opinion--caught everybody short, you know, whether you're the
restaurant owner or you're the auto dealer, or you're the
banker--unless you were the guys on Wall Street, and I don't
think any of you were.
And I don't know what we can do to unring the bell in your
situation, but I'm trying, and we are going to work on ways to
provide some cushion to local banks and smaller banks, so that
they can give a little cushion to their borrowers, as we work
our way through this mess.
Do you feel--and I would say that I don't think you were
the only one caught short with Fannie Mae and Freddie Mac
pieces of paper. A lot of credit unions, central credit unions,
particularly in California, Nevada, and the southwest had a lot
of that paper and they went down.
What--let me ask you a question, then I want to talk to my
friend from U.S. Bank, Mr. Hartnack--and I do want to say to
some of my friends on this side of the aisle that U.S. Bank and
its predecessor, Colorado National Banks, have a long history
in Colorado of community service and community involvement. And
so I just want to have that on the record and make it clear
that they are considered to be a good neighbor in our area.
So, what would you have us do, Mr. Kelly? Today, as
legislators trying to get, you know--your situation is what it
is. What would you have us do to correct things?
Mr. Kelly. This could be corrected very easily. Treasury
has the ability, under TARP, they have total latitude as to
what type of program they want to create.
If the Treasury Department would take a small percentage of
the dollar amount that was advanced in the first few weeks to
the largest banks--over $125 billion--if they would reserve
only 20 percent of those funds for viable community banks that
have a shortage of capital, and change the rules that exist
right now--right now, there was a tremendous reaction,
community reaction, public reaction, negative, to the large
dollars being given to the larger banks. As a result of that,
all of the rules were tightened up very tightly.
The problem was, all the big banks--
Mr. Perlmutter. Before it got to the community banks?
Mr. Kelly. All the money had already gone out. Now the
community banks are there. Now there is a whole different set
of regulations.
Mr. Perlmutter. Okay.
Mr. Kelly. That has to be changed. And that can be done.
The regulators--the test should be: if they receive TARP, will
they be a viable institution?
Nobody wants to give money to a bank that is ultimately
going to fail. But right now, you have to prove that you're
viable before you qualify for TARP, which basically means you
have to show that you don't need the money at the outset. What
bankers have always been accused of, ``You prove that you don't
need the loan, and then I will make it,'' this is basically
what is happening.
Mr. Perlmutter. Okay. Mr. Hartnack?
Mr. Hartnack. I think that the situation is so complex. But
if I was a legislator, what I would be looking for is to make
sure the prudential regulation keeps an eye on the ball all the
way along.
Where things went wrong was organizations were inventing
products, selling the products to people who couldn't repay it,
and packaging the resulting loan and selling it to people who
shouldn't have been investing in it. And that just should never
happen again. And, you know, for the record, U.S. Bank wasn't
involved in that.
Mr. Perlmutter. Mr. Austin?
Mr. Austin. None of our banks actually applied, the banks
that we're involved with, and we did not want to. I will be
honest with you. We didn't want the government intervention,
additional regulation and oversight. We wanted to try to raise
capital privately, if we needed to.
Mr. Perlmutter. Okay.
Mr. Austin. And I agree--I concur with the previous
comments.
Mr. Perlmutter. What about just some of the regulatory--not
just the TARP piece, but capital requirements. Do you see, in
your area, capital going from 10 percent--in the old days,
capital, statutory capital, was 5 percent. Now, regulatory
capital is 10 percent, and then you have risk-based capital,
which I still don't understand, at 13 percent.
Are you seeing capital moving? And what would you have me
do about it?
Mr. Austin. This is a complex question with multiple
answers. I think, one, you look at the different capital
components that you just mentioned. That also dictates how we
are assessed on our FDIC premiums. Let me give you an example--
Mr. Ellison. The gentleman from Illinois, Mr. Davis, is
recognized.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman.
And let me, first of all, thank Chairman Gutierrez and Ranking
Member Hensarling for giving me the opportunity to be here,
although I am not a member of this subcommittee.
I also would like to note that Congressman Bobby Rush, whom
I left at something else, expects to join us in a few minutes,
and I know that he is on his way.
Let me also thank all of the witnesses for coming, and all
of the people who have traveled all the way from Chicago, most
of whom live in my congressional district, where Park National
Bank is located, which sort of spearheaded the interest and the
concern, and the whole business of trying to take a look at
what has happened in this situation.
As we interacted and interfaced with the problem, we were a
bit concerned, basically because Mr. Kelly, who is a member of
the panel, is recognized by our community as simply an
outstanding banker, a tremendous civic leader, a man of great
astuteness, from a business vantage point, and of tremendous
community interest. And while we knew that there were problems
existing and troubles brewing, we also were hopeful that we
would be able to experience I guess what one calls a ``work-
out.''
Mr. Kelly, could I ask you, from your vantage point, what
do you think perhaps could have happened, or could have
happened differently, that would have generated the ability of
you and your associates to retain control and ownership of Park
National?
Mr. Kelly. Thank you. We were approved for TARP funds in
October. TARP funds would have been adequate for us to put back
capital, and also would have enabled us to have access to other
outside capital.
Although we were approved, we were not a publicly traded
bank. The rules did not exist at that time for a non-publicly
traded bank. We were deferred, we were deferred, and we were
deferred, to the point where new rules were put in place, and
we no longer qualified.
All of the other, larger institutions were funded without
the requirements in place that we were later held to. The fact
that TARP--before TARP came out, we were in the public markets
in New York. We were out soliciting private capital. We had a
preliminary $600 million capital injection available to us. But
when TARP was announced, that was all obsolete.
Once you had--once the TARP fund was there, everybody would
say, ``Well, why wouldn't you get the TARP money?'' And so that
was our sole goal. For 5 months, our only capital plan was the
receipt of TARP, and that was with the full approval of our
primary regulator, the OCC. And then, in February, we were told
we didn't qualify for TARP. At that point, we were dead. We had
no other option. We had to go out and find private equity in
the worst capital markets available, and with the stigma that
we had not been eligible for TARP. That was the kiss of death.
After that, we tried a number of things, but we came up
short at the end.
Mr. Davis of Illinois. Are you of the opinion that, should
the regulations be changed that would encompass institutions
like yours, that it would be very helpful to them, perhaps in
the future, even if it's not helpful to Park National?
Mr. Kelly. Absolutely. I think the Treasury has the ability
to change the rules with no further legislation, or legislation
can be passed to encourage that, that funds can be available to
banks that, after the receipt of TARP, with their qualifying
TARP amount, would be viable institutions. If they meet that
test--and that should be a test that the regulators primarily
make--that then they should be eligible for TARP.
There is basically a bar right now. You have to be a top-
rated institution and well-capitalized to qualify for TARP. Any
bank that meets that requirement doesn't want TARP.
Mr. Davis of Illinois. Thank you very much. Mr. Hartnack,
as you can see, the primary location of Park National sits in a
hotbed of community activism. That is, I often say that the
people in my congressional distract are more proactive than
what you will find in many places throughout the country, which
healthy, good, and creates tremendous movement.
Based upon your interactions already--and I am sure that
there have been many recommendations that they have provided, I
am sure they have tried to understand--
Chairman Gutierrez. The time of the gentleman--
Mr. Davis of Illinois. My time has expired? Thank you very
much, Mr. Chairman.
Chairman Gutierrez. We recognize the gentlelady from
Illinois, Mrs. Biggert.
Mrs. Biggert. Thank you, Mr. Chairman. You know, it seems--
it's nice to see you, Mr. Kelly. I had three of your banks that
were in my district, so I--regulators are adding to the problem
by insisting on tighter credit standards, mark-to-market in
what is not a normal market, by any acceptable standard,
increased reserves for loan losses, and capital increases.
And all the while, the banks' earnings are dramatically
down, and the cost of obtaining additional capital is upwards
of 10, 12 to 14 percent, with a prime rate of 3.25 percent, and
Federal funds are at a rate of 0 to 0.25 percent. Qualified
buyers are scared off, and not borrowing.
What are we going to do with these issues, like mark-to-
market and just the increased regulations? And this is
something that a community banker in my district wrote in a
letter. Have the regulators overreacted? Whomever would like to
talk about that?
[No response.]
Mrs. Biggert. It's not a problem?
Mr. Austin. I will take it.
Mrs. Biggert. Yes, Mr. Austin.
Mr. Austin. Some of these issues are beyond our control.
When FDIC/OCC comes into our bank, they are actually reviewing,
based on FASB policies. And I think that's where we need to
really work with them to try to come up with some reasonable
policies.
You know, just like with overregulation, we're marketing to
market loans based on a perceived value that has not actually
been realized, or liquidation values for loans. We are setting
up additional reserves. That is a problem.
Mrs. Biggert. But, as you do that, then it cuts out credit.
And how are we going to jump-start this economy? We have been
trying to do it. Is it us who should be saying--you know,
changing the law? Is it--one reason maybe that cash flow isn't
being counted, or does mark-to-market need an overhaul?
Mr. Austin. I think we need to look at a multitude of
issues, and that's something that we would be happy to work
with your office and the committee, to come back and bring some
viable recommendations.
Mrs. Biggert. Okay, thank you. I yield back.
Chairman Gutierrez. The gentlelady yields back. Mr. Bobby
Rush.
Mr. Rush. Thank you, Mr. Chairman. I want to say to you how
delighted I am that you have convened this hearing. I used to
be on this committee, and I haven't been here in this room for
quite a while, but it's certainly good to be back.
I want to associate my remarks with--most of my remarks--
with my colleague from the seventh congressional district,
although I want to make sure that he understands that I am not
in agreement with him when he talks about his district. I don't
want him to leave my district out. We are vying for where the
hotbed of activism really lies, in the first or the seventh
district. But that is a good competition, and I think all the
people benefit from that.
I only have limited time, so I want to, first of all--Mr.
Kelly, good to see you. And, as you know, in the final hours,
we worked together quite vigorously to try to get the
governmental institution--at the Federal level--to respond. I
think the request was a simple request, and to me it was a
doable request. All you needed was another week to present your
case to the Federal regulators. And they would not even grant
you that week. And they had the authority to grant you that
week extension before they made a final decision.
I have learned--and others have indicated--that your
investment in Fannie Mae and Freddie Mac was mainly at the
behest of the Federal Government, that they encouraged you, and
highly encouraged you to make that type of investment.
And I am also confused--not confused, but astounded at the
fact that, at 10 a.m., the Federal Government and the Secretary
of the Treasury was in town, giving you a check for $50 million
at 10 a.m., and at 10 p.m., he was putting padlocks on your
door. So that was sending some kind of a mixed message of the
worst sort, in my estimation.
As you reflected on that, is there anything that this
Congress can do that could--that you would recommend, so that
we would have more consistency at the level of Treasury,
especially as it relates to community banks?
And before you answer that question, I want to just take a
moment just to say how much your bank has meant to the people
of the south side of the City of Chicago. You know I--
Inglewood, which is a fine organization here, friends of mine,
they do a great job. And you have been there, you know, the
heart and soul of that effort.
And I have been assured--I'm going to ask this question as
a follow-up--that we don't want to leave a gaping hole in our
communities, especially those communities that are struggling.
We don't want to leave a gaping hole. And I am not in any way
casting any kind of predictions on U.S. Bank or anything like
that. But we know what you--what Park National has done, and
you set a standard very, very high for banks. And we want to
make sure that whoever, be it U.S. Bank or anybody else, that
they meet that particular standard, because these are hurting
communities.
Again, my question is, as you reflected on this over a
period of weeks now, what do you think could have been done by
the Federal regulators that would have--that would guarantee
that, going into the future, no other good community-based,
community-related bank with the community at the heart of its
interests, that they have to undergo the same kind of
experiences?
Mr. Kelly. I have thought about that quite a bit,
obviously. We had asked for a one-week extension from the FDIC.
It was not granted. We had asked for a meeting with the FDIC in
Washington with the investors that we had lined up in the last
weeks before the closure. That meeting was not granted.
I believe--and this is strictly my perception--that the
regulators already had U.S. Bank lined up. They had marshaled
the forces, they were ready to close the bank. They have a big
job to do, there are lots of banks out there, and they
basically just did not want to extend more time.
I don't understand, with one week later, knowing that there
was a change that would make up to $200 million difference in
our capital structure, why we couldn't have been granted one
more week extension. I don't have the answer to that.
Mr. Rush. I want to ask--okay. I yield back the balance of
my time.
Chairman Gutierrez. We have votes going on, on the House
Floor. I wanted to say thank you to the first panel, to all of
the members of the first panel. I want to thank Congressman
Danny Davis and Congressman Bobby Rush and Congresswoman
Biggert--she's a member of the Financial Services Committee--
for coming, and for speaking to me and bringing the issue of
Park National Bank to my attention.
We are going to recess until after the votes--that could
take probably a good 45 minutes to 60 minutes before we vote--
and come back. When we do reconvene, we are going to have the
regulators come before the committee. And I assure you, I have
some interesting questions to ask them about Park National
Bank, especially the FDIC.
Thank you so much. We will be back. We are at recess until
immediately after the votes.
[recess]
Chairman Gutierrez. We will reconvene at this point. And we
will have the second panel.
First, we have David Miller, who is the Director of
Investments for the Department of the Treasury. Jennifer Kelly
is the Senior Deputy Comptroller for Midsize and Community Bank
Supervision at the Office of the Comptroller of the Currency.
And last, but certainly not least, Mitchell Glassman is the
Director of the Division of Resolutions and Receiverships at
the Federal Deposit Insurance Corporation.
Mr. Miller, you are recognized for 5 minutes. Please
proceed.
STATEMENT OF DAVID N. MILLER, ACTING CHIEF INVESTMENT OFFICER,
OFFICE OF FINANCIAL STABILITY, U.S. DEPARTMENT OF THE TREASURY
Mr. Miller. Chairman Gutierrez, Ranking Member Hensarling,
and members of the subcommittee, thank you for the opportunity
to testify today regarding participation of small banks in the
trouble asset relief program.
Small and medium-sized banks play a vital role in the
economic fabric of our society, and will be essential to the
long-term success of the economy as a whole. As such, the
Administration has strived to recognize the importance of, and
protect the health of smaller institutions throughout the
implementation of TARP.
Treasury designed the Capital Purchase Program, the first
and largest program implemented under TARP, to provide capital
to financial institutions of all sizes with equal treatment on
economic terms. Smaller financial institutions make up the vast
majority of participants in CPP, which is consistent with
smaller financial institutions constituting the majority of
financial institutions in the country.
Of the 707 CPP applications that were approved and funded,
473, or 67 percent, were institutions with less than $1 billion
in total assets. In May 2009, the Administration reopened the
application window for CPP only to institutions with less than
$500 million in assets. And to ensure adequate funding levels,
Treasury also increased the amount of capital these
institutions could receive to 5 percent of risk-weighted
assets, up from 3 percent.
Let me now turn briefly to CPP eligibility and the
application process. CPP was designed to promote financial
stability, while also protecting the taxpayer, by injecting
capital into viable financial institutions. An institution
wishing to participate in the program applied to its primary
banking regulator, which then made a viability assessment for
the financial institution.
If a financial institution is deemed viable by its primary
regulator, the regulator forwarded the application it
recommends for funding to Treasury's office of financial
stability for further review. In certain cases, applications
were first forwarded to a council of Federal banking regulators
for review, prior to submission to Treasury.
Once an application was received by Treasury, experienced
examiners from the various Federal banking regulators onsite at
Treasury assisted in reviewing the application. Applications
were then presented to an internal Treasury investment
committee, consisting of high-level officials who reviewed the
application in its entirety, and recommended an action to the
Assistant Secretary for Financial Stability.
Treasury has not approved any application for funding
without a determination of viability from the primary
regulator. This approach ensures program consistency and
fairness to institutions, regardless of size. Treasury has
invested in 650 small and medium-size financial institutions
through the CPP.
The Administration believes that more can be done to build
upon these important efforts. On October 21, 2009, the
President outlined a new program designed to provide lower-cost
funds to viable small banks, with the goal of increasing
lending to small businesses. As President Obama explained, to
spur lending to small businesses, it is essential that we make
more credit available to the smaller banks and community
financial institutions that these businesses depend on.
Administration officials have been working diligently to
design a program that will provide the maximum benefit to small
businesses, while simultaneously providing taxpayer protection
and encouraging credit markets. We plan to release the full
details of the program soon.
In addition to the small business lending initiative,
Treasury is also developing a program that will make low-cost
capital available to community development financial
institutions, which provide more than 60 percent of their
lending in economic development services to low-income and
underserved communities.
We look forward to finalizing these programs in the near
future, and working with you to meet the challenge of helping
our businesses and communities flourish. Thank you.
[The prepared statement of Mr. Miller can be found on page
147 of the appendix.]
Chairman Gutierrez. Thank you.
Ms. Kelly, you are recognized for 5 minutes.
STATEMENT OF JENNIFER KELLY, SENIOR DEPUTY COMPTROLLER FOR
MIDSIZE AND COMMUNITY BANK SUPERVISION, OFFICE OF THE
COMPTROLLER OF THE CURRENCY (OCC)
Ms. Kelly. Chairman Gutierrez, Ranking Member Hensarling,
and members of the subcommittee, my name is Jennifer Kelly, and
I am the Senior Deputy Comptroller for Midsize and Community
Bank Supervision at the Office of the Comptroller of the
Currency. I appreciate the opportunity to describe the OCC's
role in the supervision of national banks, and in the
resolution of severely troubled banks.
The primary mission of the OCC is to ensure that national
banks remain safe and sound, comply with applicable laws, and
support the needs of their customers through fair access to
credit and financial products. We recognize the important role
that credit availability and prudent lending play in our
Nation's economy, particularly in the current environment.
However, banks cannot support their communities unless they
operate in a safe and sound manner, and have sufficient capital
to support lending to creditworthy borrowers. Even in today's
strained economy, most national banks are in sound condition,
and have the capacity to weather the current economic
environment. Some, however, are experiencing significant
difficulties. While most banks that develop problems are
restored to a safe and sound condition, some are not.
When a bank cannot be rehabilitated, the OCC has a
statutory responsibility, as do the other Federal banking
agencies, to work with the FDIC to minimize both the cost to
the Deposit Insurance Fund, and disruption to the bank's
customers.
With regard to the FBOP banks, the circumstances and events
surrounding their failure were unique and extremely complex. My
written testimony provides a detailed account of OCC's actions
and decisions that I will briefly summarize for you.
FBOP was a financial holding company that owned 6 national
banks and 3 State banks, with combined assets of approximately
$19 billion and operations in California, Illinois, Arizona,
and Texas. The FBOP banks were an interrelated enterprise with
business strategies largely determined on a corporate-wide
basis.
Beginning in late 2007, FBOP made several strategic
decisions that exposed its banks to elevated risk, and
ultimately led to their failure. Specifically, the company
invested heavily in the stock of Fannie Mae and Freddie Mac, as
well as the securities of Washington Mutual Bank and other
financial sector firms. At the same time, as the credit and
real estate markets began to deteriorate, FBOP embarked on a
strategy of aggressive loan growth. This was a business model
that had proven very successful for the organization during
previous market downturns.
In the third quarter of 2008, the GSEs were placed into
conservatorship. And shortly thereafter, WaMu failed. The loss
to FBOP as a result of these 2 events represented 63 percent of
the consolidated bank's tier one capital.
Over the course of the following 14 months, the OCC worked
closely with FBOP, as it pursued a variety of plans for
obtaining the capital it desperately needed. These options
included attracting new outside investors, applying for TARP
capital, and selling one or more of the banks in the group.
Despite intensive efforts, FBOP was not able to reach any
definitive agreement to recapitalize the banks.
FBOP's inability to raise new capital, coupled with the
rapidly deteriorating condition of all six national banks,
triggered regulatory requirements under prompt corrective
action. Two of the FBOP banks became critically
undercapitalized on July 30, 2009, requiring that they be
placed into receivership within 90 days. We also determined
that deterioration of two of the other national banks had
reached the point where it was necessary to close them, as
well.
Park National Bank and Citizens National Bank were in a
somewhat different status. Their condition was seriously
deteriorating. But at that time, it was not clear that there
were grounds to close them. On October 30, 2009, the OCC and
the States of Illinois and Texas placed 7 of the 9 FBOP banks
into receivership.
Then, under its cross-guarantee authority, the FDIC
presented the two remaining national banks with orders to
immediately pay assessments equal to the anticipated losses to
the Deposit Insurance Fund. Since this cross-guarantee
liability greatly exceeded their capital, Park and Citizens
became overwhelmingly insolvent. On that basis, the OCC
appointed the FDIC as a receiver for both banks.
The OCC's decisions to place FBOP's national banks into
receivership were made only after thorough internal
deliberation, extensive efforts to work toward a solution with
FBOP management, and close consultation with the FDIC. Our
actions were consistent with not only the requirements of
prompt, corrective action, but also with the statutory
framework Congress put in place to resolve the failure of banks
at the least cost to the Deposit Insurance Fund.
Again, I appreciate the opportunity to appear before the
subcommittee today, and look forward to your questions.
[The prepared statement of Ms. Kelly can be found on page
98 of the appendix.]
Chairman Gutierrez. Mr. Glassman?
STATEMENT OF MITCHELL L. GLASSMAN, DIRECTOR, DIVISION OF
RESOLUTIONS AND RECEIVERSHIPS, FEDERAL DEPOSIT INSURANCE
CORPORATION (FDIC)
Mr. Glassman. Thank you. Good afternoon, Chairman
Gutierrez, and Ranking Member Hensarling. I appreciate the
opportunity to testify on behalf of the FDIC on our bank
resolution process and related matters.
My first experience with a closed depository institution
was in 1975. I was working at Swope Parkway National Bank in
Kansas City, Missouri, when that bank failed and the FDIC was
named receiver. Because I worked for this bank, like many of
the people in this hearing room today, I know firsthand the
importance of a community bank.
The FDIC normally uses two basic resolution techniques: a
purchase and assumption transaction, known as a P&A; and a
deposit payoff. A P&A occurs when a healthy institution
purchases some or all of the assets of a failed bank or thrift,
and assumes some or all of the liabilities, including insured
deposits. In a P&A transaction, the acquirer usually reopens
the institution the next business day, and the customers of the
failed institution automatically become customers of the
acquiring institution, with full access to their insured
deposits. Almost all of our resolutions are structured as P&A.
A deposit payoff occurs when there are no potential acquirers
for the failing institution.
When an institution gets into trouble, and is at risk of
becoming insolvent, the FDIC works closely with the primary
Federal regulator or State regulator, and often participates
with that regulator in an onsite examination.
Once the FDIC receives notice that the chartering authority
is closing the institution, the FDIC contacts the CEO of the
failing institution, gathers necessary data and information to
value the assets, determines the resolution options to be
offered, and prepares an information package for potential
bidders. Based on recommendations by the FDIC staff, the FDIC
Board approves the least costly resolution options to be used
for the failing institution.
In 1989, Congress adopted amendments to allow the FDIC to
recoup losses to the Insurance Fund by assessing a claim
against the insured institutions under common control for
losses caused by the failure of an affiliated insured
depository institution. The cross-guarantee authority allows
the FDIC to recover losses on a failed, commonly-controlled
financial institution by assessing any of the commonly-
controlled depository institutions that remain open. The FDIC's
cross-guarantee authority is designed to result in a least-cost
to the DIF for resolving the problems of a commonly controlled
group.
On October 30, 2009, the FDIC entered into a P&A agreement
with U.S. Bank of Minneapolis, Minnesota, to assume all the
deposits, and purchase essentially all of the assets of the
nine failed banks owned by FBOP. The FDIC received notification
of intent to close seven of the nine subsidiary banks from the
chartering authorities.
The resolution transaction was a culmination of a marketing
process where the banks were offered on a stand-alone basis, or
linked with any combination of the seven. The FDIC later
offered Park National Bank and Citizens National Bank on a
stand-alone basis without loss share, or as a linked bid for
all nine institutions with loss share.
Neither Park nor Citizens National Bank would have
qualified for a waiver or any delay in the assessment of a
cross-guarantee liability, because this would have resulted in
a higher cost to the DIF, since both banks had serious
problems, and were in deteriorating condition, and were very
likely to fail. As a result, the cross-guarantee assessment was
made, and the OCC closed the institution and appointed the FDIC
as receiver. The overall least costly bid was received from a
single bank to acquire all nine institutions.
We expect a continued high level of failures during 2010.
Over the past several years, the Division of Resolutions and
Receiverships of the FDIC has enhanced in staffing levels, in
response to the increased workload. I know that our staff has
the full backing of our Board of Directors to provide us with
the resources to do the job.
Fortunately, the FDIC is well-positioned to carry out its
responsibilities to protect and insure depositors, and maintain
stability and public confidence in our banking system.
Thank you. I would be pleased to answer any questions.
[The prepared statement of Mr. Glassman can be found on
page 81 of the appendix.]
Chairman Gutierrez. Thank you. We will now open up for a
round of questions from the members.
First of all, I would like to welcome you all here. Mr.
Glassman, do you ever talk to Mr. Miller?
Mr. Glassman. This is the first time I have met Mr. Miller.
Chairman Gutierrez. Okay. Do you talk to anybody at
Treasury before the FDIC closes down a bank?
Mr. Glassman. No, I do not talk with anybody at Treasury.
Chairman Gutierrez. You don't? Do you talk to Ms. Kelly?
Mr. Glassman. I do have conversations with Ms. Kelly.
Chairman Gutierrez. Did you talk to Ms. Kelly about Park
National Bank and the other affiliated banks?
Mr. Glassman. Not directly, but staff would have had a lot
of conversations with the OCC.
Chairman Gutierrez. So, in other words, we ask for a
hearing to talk about this, and we have two other people who
have come here that you haven't spoken to about this
transaction.
And, Mr. Miller, you didn't say a darn word about the whole
thing in your testimony. That surprises me. Do you usually come
to hearings, Mr. Miller, in which you're asked questions about
a specific transaction, such as Park National, and then not
speak to the issue?
Mr. Miller. The--
Chairman Gutierrez. Or did I miss something? Because I
listened to you attentively, and at least--
Mr. Miller. Yes, I think it's--
Chairman Gutierrez. --Ms. Kelly and Mr. Glassman, at least
they attempted to try to talk about what they did vis a vis
Park National Bank. But you didn't say a single word.
Mr. Miller. The issue of Park National--the Troubled Asset
Relief Program is obviously not a banking regulator. And so
their application to TARP, as I tried to describe in our
process--
Chairman Gutierrez. How long have you been at Treasury, Mr.
Miller?
Mr. Miller. Since December 2008.
Chairman Gutierrez. Since December of 2008. So you were
there when the former Treasury Secretary was there.
Mr. Miller. Correct.
Chairman Gutierrez. All right. And he said--I remember--
that, ``If you have Fannie Mae and Freddie Mac, and you have
just lost, I, the Treasury Secretary, am going to make sure
that you don't suffer any undue hardship, in terms of what that
money does to the viability of your financial institution.'' Do
you remember that?
Mr. Miller. Yes, I believe it's in section 103.6.
Chairman Gutierrez. Okay, so it wasn't something that Mr.
Kelly and the rest of us just kind of remembered, but maybe
didn't happen. It actually did happen?
But it didn't seem to happen here in this case. And I think
that's part of the problem, as I see it. I listened to the
three of you, and there is this large institution that was sold
to U.S. Bank, and different people aren't speaking to different
people.
So, once you decided, Mr. Glassman of the FDIC, you decided
that--just so that we have this clear, how many of them? There
were seven different banks all involved in this thing, seven?
Mr. Glassman. In the FBOP family, there were nine
institutions.
Chairman Gutierrez. There were nine.
Mr. Glassman. We were notified--
Chairman Gutierrez. And there were two in Illinois,
Citizens and Park National, that were still operating, that you
couldn't find a reason to shut down. But then you said, ``Oh,
we want those two that are still alive to pay,'' right, ``the
assessments for the other seven that we have declared dead,''
is that correct?
Mr. Glassman. Under the statute, we are required to conduct
a least-cost resolution.
Chairman Gutierrez. You applied that statute--
Mr. Glassman. --to protect the Deposit Insurance Fund.
Chairman Gutierrez. Okay. You applied that statute. You are
not required to apply that statute. That's a statute that you
decided to apply to this case.
Mr. Glassman. The statute asks us to protect the Deposit
Insurance Fund.
Chairman Gutierrez. I understand that. But you see, you
didn't have to apply that statute. Is that correct?
Mr. Glassman. In order to protect the Fund--
Chairman Gutierrez. I understand. You made a decision that,
in order to protect the taxpayers--your way of looking at it--
that you would apply that statute. Is that correct? You made
that determination.
Mr. Glassman. We made a determination--
Chairman Gutierrez. But that's a subjective determination
that you made. There isn't a law that said, ``Voila, there are
these nine institutions. We must apply this statute to them.''
There isn't. You made that subjective decision. I'm not saying
you're right or wrong, but you made that decision.
Mr. Glassman. We made a decision to apply the assessment--
Chairman Gutierrez. Very good.
Mr. Glassman. --against these two banks--
Chairman Gutierrez. You made the decision to apply it in a
subjective manner. The law did not require you in this instance
to do that. What you said was, ``There are these seven
institutions, they are not doing well, so we are going to make
the two institutions that are already wobbling on the brink of
disaster pay for the assessments of the other seven.''
Okay. So you are asking two people--it's like asking two
people who are almost drowned to come and help the other seven
who have already drowned. That's what you, in essence, did,
killing any opportunity.
The reason I raise that is because when you did that, it's
like this chain of events that just destroyed an institution
that maybe didn't--because in your determination, it was the
most effective. How much did we lose? How much money did we
lose?
Mr. Glassman. Well, when the 7 banks did fail, $1.8 billion
was lost.
Chairman Gutierrez. How much?
Mr. Glassman. $1.8 billion.
Chairman Gutierrez. $1.8 billion was lost--
Mr. Glassman. --lost to the Insurance Fund for this
transaction.
Chairman Gutierrez. --in this transaction. So, $900
million--
Mr. Glassman. For the seven banks.
Chairman Gutierrez. I'm sorry?
Mr. Glassman. I'm sorry, for the seven banks that failed.
Chairman Gutierrez. The seven banks that did fail. And Park
National and the other, what was the total amount?
Mr. Glassman. We went out for individual bids for Park, and
the inherent loss in Park and Citizens was close--approximately
$1 billion.
Chairman Gutierrez. So, $2.8 billion, total? That's what it
cost?
Mr. Glassman. Approximately $2.5 billion, thereabouts.
Chairman Gutierrez. Okay, $2.5 billion. And you see, here
is my problem. And here is why, in the future, I am not going
to delay in calling the FDIC. I am not going to delay in
calling the OCC and Treasury. Because you guys don't like it
when Members of the House, particularly Members who have
jurisdiction over you, call you and ask you. But it is clear
that somebody has to watch the people who are watching.
Somebody has to watch the regulators.
Somebody has to call you, because, oh, we're going to talk
about the Chicago Tribune article--and, Mr. Kelly, what a nice
article--I know what the Chicago Tribune does if Congressman
Bobby Rush and I call you. All the sudden there is an article,
``Oh, Gutierrez and Bobby, they're meddling in the affairs, the
internal affairs.''
Well, maybe we need to meddle a little more in the internal
affairs of the executive part of government, because I really
think what you did was really unfair, unfair to an institution
that was handing out tens of millions of dollars every year,
doing their job. And you know something? Almost $900 million
they lost, because, between the 3 of you, you told them it was
okay to have 25 percent of their money. And we voted to give
big banks lots of money, and they couldn't get the TARP money.
There were a lot of instances, but in the very instance
when you could put that dagger right through their heart, you
decided to do the cross-thing on them with the other seven
institutions and say, ``Pay for the other seven institutions.''
So that's it, because I am over my time.
Mr. Hensarling, you are recognized for 5 minutes.
Mr. Hensarling. Thank you, Mr. Chairman. I would like to
ask the panelists all one question. Did you hear the witnesses
from the earlier panel? Mr. Miller, were you here?
Mr. Miller. Yes.
Mr. Hensarling. So you heard it. Ms. Kelly?
Ms. Kelly. Yes.
Mr. Hensarling. Mr. Glassman? Okay. So, then, you are well
acquainted with the subject matter of today's hearing.
Mr. Miller, my first question is for you. Mr. Kelly had
testified--well, actually, about the concentration of his bank
holding company in Fannie and Freddie preferred stock. That,
number one, he was incented to do so by the FDIC, so I have a
question for the FDIC.
But my question to you, Mr. Miller, is this is not the only
bank in America that has either become insolvent, had troubles
because of their concentration in Fannie and Freddie preferred
stock. Already, as you are well aware, the taxpayer has been
called upon to bail out Fannie and Freddie with $110 billion.
They were, according to the testimony of the gentleman who
headed up the bank holding company, they were the reason that
this bank failed, and all the good things they had done
throughout the community.
Why, Mr. Miller, on Christmas Eve, did the Treasury
Department of this Administration lift the limit on taxpayer
exposure to Fannie and Freddie, and simultaneously announce
bonus packages of $6 million apiece for the CEOs, $42 million
of bonuses--oh, by the way, to be paid in cash, not stock, as
everybody else is supposed to be incented, but in cash? Why did
they announce that on Christmas Eve, to reward an institution
that is costing the taxpayer billions and billions of dollars,
and caused the failure of this bank?
Mr. Miller. Thank you for the question.
Mr. Hensarling. I'm not sure you really mean that, but
please, I'm interested in the answer.
Mr. Miller. I think you are raising some important issues.
I do have to remind you that the Office of Financial Stability
is not responsible for the GSEs, does not have an investment in
them, and so we play no role in those decisions.
Mr. Hensarling. Well, I guess, unfortunately, you just have
Treasury on your business card. We will certainly ask this
question, then, of other representatives of the Treasury. I
would like to get to the bottom of this, and understand why
this is happening.
Mr. Miller, you spoke about protecting smaller banks under
the TARP program. I have the testimony before me of Jeff
Austin, who is the chairman-elect of the Texas Bankers
Association. I represent a district in Texas. One of the
aspects of his testimony--I know you don't have it in front of
you, and I do--he talks about the concern, specifically, that
GMAC ``took away some of the bread-and-butter consumer loans
from traditional banks.'' I might point out that in recent
months, TARP money has been channeled to automotive financing,
to keep this unfair practice going.''
So, I have at least one community banker who has been
elected to represent all community banks in my home State
saying that, at least with respect to your bailouts of GMAC,
you're not helping the community banks, you're hurting the
community banks. What is your response?
Mr. Miller. We do not get involved in the day-to-day
operations of the companies with which we have an investment--
that goes for TARP banks, or--as well as GMAC. I think the
issue you're referring to is they were paying slightly higher
levels of interest on their deposits to their customers. I
believe the FDIC looked into this, discussed it with them. But
again, we do not manage, as an active shareholder, we're not
managing their day-to-day decisions on what they set interest
rates at.
Mr. Hensarling. Okay. Finally--I see my time is starting to
wind down--I know that recently the President has announced a
new bank tax.
Now, let me read further from the testimony of Mr. Austin:
``I want to point out that while the proposed bank tax is
initially aimed at penalizing larger banks, it will also have
an impact on smaller ones. When the big banks sneeze, we run
the risk of catching pneumonia. We rely on them for
correspondence services, check clearing, wire transfers,
letters of credit, and many other services. And this will only
increase the prices for these services, which will be passed on
to consumers and small business.'' Again, a gentleman who has
been in banking for four generations, now has been elected to
represent all the community banks in Texas.
Did the Treasury, in announcing this particular new
proposed tax, consider its impact on smaller community banks
and small businesses?
Mr. Miller. The issue of the responsibility fee, I would
like to point out, under section 134 of the Emergency Economic
Stabilization Act, there is specifically a section that
instructs the President to put a fee on the financial industry
in place to recoup TARP funds. I think that's the purpose of
this fee.
The structure of it is specifically on institutions that
are large institutions, greater than $50 billion in assets. I
think the purpose here is to target those that have the highest
leverage, that were taking the excessive risks, and therefore--
Mr. Hensarling. Mr. Miller, I see I'm out of time. But if
you quit bailing them out, you don't have to recoup the cost. I
yield back.
Chairman Gutierrez. The gentleman yields back. Mr.
Perlmutter is recognized for 5 minutes.
Mr. Perlmutter. Thanks, Mr. Chairman. And I would like to
ask the panel--I just want to go back a year-and-a-half to July
of 2008, when the Bush Administration and Secretary Paulson,
sitting where you are sitting, asked for some additional powers
with respect to Fannie Mae and Freddie Mac, even though they
had sort of coddled Fannie Mae and Freddie Mac for years,
according to the prior chairman of this committee, Mr. Oxley--
and we can get into that.
But they came and said, ``We would like to be able to put
Fannie Mae or Freddie Mac into either conservatorship or
receivership, but we're not going to use those powers.'' One
month later, Secretary Paulson places Fannie Mae and Freddie
Mac into conservatorship. And Mr. Kelly, who testified earlier,
he and his bank, as well as other financial institutions across
the country, had worthless paper. At that point, that caused
them to immediately become undercapitalized.
So, Secretary Paulson and President Bush felt that was an
appropriate step. Fine. We went forward, and we did TARP, to be
made available to banks to help them stabilize themselves, and
keep the banking system in place.
Now, Mr. Kelly's testimony--and I think you all heard it--
was that originally his bank was approved for TARP in October
of 2008. I want to ask just a very straightforward question.
Why, in October of 2008, after he had been approved for TARP,
was he then denied TARP? Mr. Miller?
Mr. Miller. I think it is important to clarify the sequence
of events. I think the term ``approved'' that he was using was
being used incorrectly. He was originally recommended by his
primary regulator. At the time, there was no program for
private institutions. Several weeks later, there was a term
sheet put out. At that time, the regulator who was recommending
it brought it to what's called the council of regulators for
more due diligence and review.
At that point, they went and did other work, but we did not
get their recommendation where we would then go forward and
fund the institution. Their recommendation--
Mr. Perlmutter. The council--OCC recommended that the bank
receive TARP, but the council--
Mr. Miller. Yes, there is a council--
Mr. Perlmutter. --declined?
Mr. Miller. There is a council of the other regulators--
Mr. Perlmutter. Who makes up the council?
Mr. Miller. There is a council of the OCC, the Fed, the
OTS, and the FDIC.
Mr. Perlmutter. Okay. And do you know what the reason was
that the OCC, which--you know, when they have been in front of
this committee, they have been pretty hard-nosed about the
banks under their jurisdiction. So I'm surprised that if the
OCC is making the recommendation that this bank get TARP money,
that under the Bush Administration, they would be denied TARP
money. What caused that?
Mr. Miller. We followed a very consistent process over
1,000 applications. And a recommendation from either the
primary regulator or the council forwarding the application up
was a requirement for us to move forward.
Again, as I said, if you did not get a recommendation and a
statement that said, ``This institution is viable without TARP
funds,'' we did not review the application and fund. And that
was consistently--
Mr. Perlmutter. Do you know whether that statement was made
as to Mr. Kelly's bank?
Mr. Miller. My understanding is the council could never
make that statement, and so we did not have any further
involvement in the institution, going forward.
Mr. Perlmutter. All right. Let's now move forward in time.
So, over time, they're trying to get capital, because they have
$900 million of worthless Fannie Mae and Freddie Mac paper.
They're trying to do that. They were working with the FDIC, as
I understood the testimony.
When did the FDIC start this, you know, deciding that this
is a deteriorating--I think your term, it was deteriorating
condition, and then, bang, close them and sell it to U.S. Bank?
When did that all occur, Mr. Glassman?
Mr. Glassman. Conversations with the primary regulator, the
OCC, were ongoing. But when the seven banks--seven out of the
nine banks were told that they were going to become insolvent,
and that they would be placed under receivership, we then had
to take a look at the total family. But the conversations were
ongoing.
Mr. Perlmutter. Why?
Mr. Glassman. --with the OCC--
Mr. Perlmutter. Why? Why do you have to take a look at the
total family? Why can't you save one or two banks out of nine
banks?
Mr. Glassman. Well, our intent was never to try to look for
any type of institution to fail. But the statute is very clear
about protecting the Deposit Insurance Fund.
Mr. Perlmutter. Right.
Mr. Glassman. With the two other banks that were part of
the family--according to the statute--we have a right to assess
liability for the losses.
Chairman Gutierrez. Time has expired. Mr. Bachus, you are
recognized for 5 minutes.
Mr. Bachus. The Chicago Tribune article says that when the
government took over Fannie and Freddie in September 2008, it
wiped out the value of the company's equity overnight. FBOP
suffered an $885 million loss, blowing a gaping hole in its
reserves. That's pretty--that's true, is it not? Ms. Kelly?
Ms. Kelly. Yes, that is.
Mr. Bachus. Okay. That's true? Okay. Ms. Kelly, you all had
a full-time examiner at FBOP?
Ms. Kelly. Yes, we had one examiner who was overseeing all
six of the national banks that were part of that group.
Mr. Bachus. Right. At any time did that examiner, or did
the OCC become concerned about Fannie and Freddie and their
solvency?
Ms. Kelly. We were well aware of the size of the
concentration of the investment that they had in the Fannie and
Freddie stock, and our examiner was having conversations with
them. As the value of that stock was dropping before the
conservatorship, we were obviously watching that closely. And
the examiner had conversations with bank management about the
need to develop capital contingency plans in the event the
value fell even further.
Mr. Bachus. At any point did the Federal regulators--you
had a regulation which allowed these banks to--really, a
regulatory bias towards holding Fannie and Freddie preferred
stock. You acknowledge that?
Ms. Kelly. I'm not sure what you mean by a ``regulatory
bias.''
Mr. Bachus. Well, you allowed them to count the preferred
stock in Fannie and Freddie as if it were Treasury.
Ms. Kelly. It had a 20 percent risk weight.
Mr. Bachus. That's true?
Ms. Kelly. Yes, that's true.
Mr. Bachus. Yes, which--now you would agree, in hindsight,
that was almost a foolish assessment of their risk, would you
not?
Ms. Kelly. Well, we certainly have a different view now,
given events that have transpired, yes.
Mr. Bachus. Right. At any time did you all change your
regulations and tell the banks that was no longer going to be
the case, or try to back out of that--what I call, you know, a
terrible regulation?
Ms. Kelly. The 20 percent risk weight?
Mr. Bachus. Yes.
Mr. Kelly. No.
Mr. Bachus. Okay. Well, you saw the value of the stock, and
you know, Treasury was seeing it, and the FDIC. I'm sure you
all were at some point all aware, prior to becoming--September
2008--into the perilous condition of Fannie and Freddie. In
fact, you know, by that time Secretary Paulson had come before
the Congress and asked for as much as $300 billion to inject
into Fannie and Freddie.
Well, you know, you didn't--there was no advance warning by
the regulators. You all were here in Washington. You
acknowledge that? No change in regulation? And I'm not just
talking about Ms. Kelly. Mr. Glassman?
Ms. Kelly. No, we didn't make any change in our risk
weighting.
Mr. Bachus. All right. And that caused a tremendous problem
for them.
They also--you know, the Tribune points out that just the
week--you took them over, and in that same week legislation was
going to the President's desk that would have allowed them to
realize the Fannie and Freddie losses immediately, which would
have greatly helped them, would it not, Mr. Glassman or Ms.
Kelly?
Ms. Kelly. I think you're speaking about the loss carry-
back--
Mr. Bachus. That's right.
Ms. Kelly. Yes, this could have generated some additional
capital. However, the way that would have worked is the
benefits would have had to have been spread across the nine
charters and--
Mr. Bachus. Right.
Ms. Kelly. --the two banks that were critically
undercapitalized, they needed $178 million--
Mr. Bachus. Oh, I know. But it would have helped the group
substantially. Right?
Ms. Kelly. I know $200 million seems like a lot of money,
but--
Mr. Bachus. Yes, it does.
Ms. Kelly. --given the situation that those charters were
in, it was insignificant to helping them fix the problem.
Mr. Bachus. Well, yes. Now, Mr. Kelly apparently offered
you all a deal which would have cost about $600 million. Is
that correct, Mr. Glassman?
Mr. Glassman. Go ahead.
Ms. Kelly. He didn't offer--he was trying to raise capital.
Mr. Bachus. This article says that he actually made a
proposal that a private equity group would inject $600 million,
and the FDIC would either contribute a similar amount or share
losses up to $600 million. Is that accurate or not accurate?
Ms. Kelly. That was not something the OCC was involved in.
Mr. Glassman. And I am not familiar with it.
Mr. Bachus. So, would--did you read that article? Was that
the first time you were aware of this proposal?
Chairman Gutierrez. The time of the gentleman has expired.
Mr. Bachus. Thank you.
Chairman Gutierrez. Mr. Minnick, you are recognized for 5
minutes.
Mr. Minnick. My concern is procyclical regulation. I have a
number of financial institutions that do business or are
headquartered in my district that have been through a scenario
where they will have an examination by the FDIC or the OCC. The
asset values supporting commercial lending are in the
examinations based upon the latest distress sale, which may be
at $.20 or $.30 on the replacement cost because they are
valued--assets are valued so low.
The loan is then classified, and they have to take
additional reserves, which eats into their tier one capital.
They are then required to go out and raise substantial
additional capital, and the request is usually not just the
capital required to get them up to the regulatory minimum, but,
in light of the bad experience they have just had with
commercial lending, let's raise another 2 or 3 percent above
that lending.
My question to Mr. Glassman and Ms. Kelly is, do you think
it is reasonable for your fair market value bank examinations,
evaluations of collateral values in this market, to be based
only at the last distressed sale price for comparable property
when that bears no relationship, either to a normal functioning
fair market valuation or to replacement value?
Ms. Kelly. That's a very complicated issue that you are
raising. We previously sent a letter to you explaining our
position on this. We are trying to take a very balanced
approach in our supervision. However, we have to be cognizant
of the environment that we're in now, and the problems that the
banks are having. And it's important for us to ensure that
banks are--
Mr. Minnick. But the problems are largely of your creation,
because of this valuation. You are driving banks that would
otherwise be perfectly sound and functioning and lending in our
community into bankruptcy. You are the cause of the problem, to
a substantial extent.
Ms. Kelly. Well, we--
Mr. Minnick. In my opinion.
Ms. Kelly. Do you want me to respond to that?
Mr. Minnick. Yes, please.
Ms. Kelly. Okay. We need to look at the quality of the
assets that the bank has. And if borrowers are having trouble
repaying their loan, then bankers need to recognize that, and
they need to work with the borrowers to try to have the loans
repaid. But just ignoring the problems doesn't make them go
away.
Mr. Minnick. Many of these loans are fully performing. And
the problem is your valuations being so far below any
reasonable market value or replacement value or likely value,
if they are allowed to be sold over a meaningful period of
time, that you are forcing banks to set up reserves that bear
no relationship to what they really need against fully
performing loans.
Ms. Kelly. I would say that's an oversimplification of the
way that our OCC examiners look at loans.
If there is a specific situation that we could discuss
further, we would be happy to get into the details. Every
situation is different, and we need to look at it.
But if a borrower has full ability to repay the loan, just
the fact that the value of the collateral declined is not going
to force us to take action on that loan. We're looking at the
ability of the bank to collect that loan. And if the borrower
can repay it, regardless of what has happened to the value of
the collateral, then that's what we are focusing--
Mr. Minnick. So, whether or not the lender can repay the
loan is relevant to the issue of fair market value?
Ms. Kelly. A--
Mr. Minnick. Because I don't think that, in fact, is what
is happening. But I am delighted if that is the case, because
that is a way of dealing with this issue and keeping some banks
from being--going insolvent that are teetering on the very edge
right now, because of your regulatory focus.
Ms. Kelly. If the loan can be repaid on reasonable terms,
that's what we are looking for. But again, there are a lot of
nuances to these situations. We would really have to talk in
more specifics to get at some of the cases that you may be
hearing about. And we would be happy to provide more
information, and have that conversation.
Mr. Minnick. Mr. Glassman?
Mr. Glassman. I am not on the examination side, but I would
like to have a response provided to you by our examiners and
the folks who deal with the safety and soundness issues
regarding your question. So if you would allow us to give you a
written answer back, I will make sure it gets done.
Mr. Minnick. Well, it's a complaint. And it may be an
oversimplification, but we have limited time. But it's a
complaint that has been brought to me by the CEOs of a whole
host of banks in my district. And what we hear from you, at
your level, is quite different from the experience they are
having on the ground with your field personnel.
Your field personnel never get criticized for being overly
conservative. They only get criticized if they are not--
Chairman Gutierrez. The time of the gentleman has expired.
The gentleman from Georgia, Mr. Price.
Mr. Price. Thank you, Mr. Chairman. I want to follow up on
the comments that were just being made.
The American people are angry, and they are fearful, and
they are concerned about what's going on, because they don't
believe their government gives a hoot about them any more. I
mentioned in my opening statement the FDIC is destroying
communities, and that is what you are doing. You are destroying
communities. And it's wrong. It's wrong.
All the failures in our State, the State of Georgia now,
with 25 bank failures last year, all those failures were
community banks. Now, some of them were young,
undercapitalized, and appropriately, in this environment,
probably should have been closed. But now you all are moving
into more and more of the older, established banks, some banks
that are very well-capitalized with performing loans that would
be an envy to some other banks that are allowed to stay open
right now. Private capital is sitting on the sidelines, because
you all are changing the rules day in and day out, and it's
wrong.
I have read statements, Mr. Glassman, from you, and you
have testified before our committee that you believe there are
too many banks, too many banks. I also read your 53-page
statement last week to the Financial Crisis Inquiry Commission
where you made not one single reference to community banks.
So, what I would like you to do for us, please, is to
clarify whether it is the FDIC's position, on why you feel that
we have too many banks, and what obstacles, either
legislatively or by rule, tie your hands to keep you from
providing more flexibility to these struggling, established
community banks. Does the FDIC believe we have too many banks?
Mr. Glassman. Congressman, this is the first time I have
been on the Hill in some time, so I'm not certain who has
testified or whether that was our Chairman. But, again, I would
like to get back with you on that, on the particulars of your
question. The staff behind me will do that.
Mr. Price. Does the FDIC believe there are too many banks?
Mr. Glassman. I do not believe there are too many banks.
Mr. Price. From banker after banker after banker, as Mr.
Minnick has said, they are being required to come up with real
capital to cover theoretical losses in communities all across
this Nation. And when they are unable to come up with that real
capital because private capital is sitting on the sidelines
because of what you all are doing, then you sell them to one of
the big boys.
And that may be a good solution for the government, but
it's not a good solution for that community, because the people
in that community will no longer have access to local
resources, local money. And those communities will die. These
are real people out there that you are harming with the
decisions that you are making.
I understand that the reserve over losses timeline that is
being used currently for community banks is now down to 6
months, and that is something that apparently you all have
control over. Is that correct?
Ms. Kelly. Are you referring to the reserve for loan
losses?
Mr. Price. Yes.
Ms. Kelly. Those are accounting standards. That was what
was talked about on the previous panel quite a bit, and that's
something that the Comptroller has been outspoken about, that
we would like to see some changes in how that's done.
Mr. Price. Is the OCC unable to change that right now of
your own accord?
Ms. Kelly. Banks have to operate in compliance with
accounting standards, and we have to honor those accounting
standards. We are working closely with the standard setters.
Mr. Price. Do you have any flexibility with those standards
right now?
Ms. Kelly. We certainly work with the banks to ensure that
they have a good calculation for their loan loss reserve. But
they still have to be in compliance with the accounting
standards.
Mr. Price. And is there any accounting standard that says
that the timeframe for which properties need to be evaluated in
this instance for these, for the reserves, is a 6-month period
of time for the valuation of the property?
Ms. Kelly. No, it's not stated that way.
Mr. Price. Is that what you're using?
Ms. Kelly. No.
Mr. Price. You're not using 6 months?
Ms. Kelly. I'm not entirely sure what you are referring to.
Six months' anticipated losses, or what?
Mr. Price. The timeframe under which a property is valued,
to determine whether or not there is appropriate capitalization
within the bank itself.
Ms. Kelly. A property that the bank has lent money on?
Mr. Price. Yes.
Ms. Kelly. So the collateral underlying--
Mr. Price. Yes.
Ms. Kelly. Oh, the value of the underlying collateral.
Mr. Price. Yes.
Ms. Kelly. That's what we're talking about.
Mr. Price. Yes.
Ms. Kelly. Okay. I'm sorry. I misunderstood your question.
Mr. Price. I'm sorry I wasn't clear.
Ms. Kelly. In Georgia, as you know, there are areas of the
country where the real estate markets have--
Chairman Gutierrez. The time of the gentleman has expired.
Mr. Bobby Rush is recognized for 5 minutes.
Mr. Rush. Thank you, Mr. Chairman. And, again, I want to
thank you for your courtesy in allowing me to, as a non-
committee member, to be a part of this hearing.
I think this question should be directed to Ms. Kelly. Ms.
Kelly, there are severely and moderately unbanked communities
throughout this Nation. And, has been indicated by various
testimony earlier today and on--by my colleagues who are on the
committee here, communities are hurting.
Is there a policy that the OCC has that would take into
consideration the lives and interests of those residents of
communities where there is meager and non-existent banking
services? What kind of proactive policies do you all have to
address the concerns of citizens in minority--mostly minority,
low income, and moderately or severely unbanked communities?
Ms. Kelly. We examine banks' compliance with the Community
Reinvestment Act in a variety of our offices around the
country. We have community affairs officers who work with both
the community groups and national banks to try and help banks--
Mr. Rush. Did the Community Reinvestment Act play any role
in the decision in Park National?
Ms. Kelly. Our decision to place Park into receivership?
Mr. Rush. Right.
Ms. Kelly. No.
Mr. Rush. It didn't?
Ms. Kelly. No, it didn't.
Mr. Rush. So--
Ms. Kelly. The bank was insolvent.
Mr. Rush. So the Community Reinvestment Act becomes silent
when you close banks, community banks, is that correct?
Ms. Kelly. Our objective is to ensure banks operate in safe
and sound conditions so they can service their communities. The
Community Reinvestment Act is how well they service their
communities--
Mr. Rush. So, sometimes you find yourself at cross purposes
with the Community Reinvestment Act, is that correct?
Ms. Kelly. But if a bank is not in a safe and sound
condition, it impairs its ability to service.
Mr. Rush. Okay. If there are any ancillary conditions or
responsibilities, shared responsibilities other than the
decisions of the local banker--if the--if you, as the Federal
agency, or any other Federal agency, is culpable, in terms of
the decisions of that bank, do you assume any responsibility
for that bank not being safe and sound, or is it strictly up to
the bank?
Ms. Kelly. We work with the bank to ensure they are
operating in a safe and sound manner. If the bank's condition
deteriorates, then we have various tools we can use,
enforcement acts and such--
Mr. Rush. Okay. Let me ask you this question, speaking
specifically to Park National. When did the FDIC make their
decision about the closure of Park National? What date?
Ms. Kelly. To--
Mr. Rush. To close--
Ms. Kelly. To assess them for the liability? Or when did
they make the decision--
Mr. Rush. To close it.
Ms. Kelly. You would really have to ask the FDIC when that
decision was made.
Mr. Rush. Okay. Mr. Glassman, when did you all make that
decision?
Mr. Glassman. That decision was not made until late
October, before its failure. And it was only made after we had
put both Park--and there was another bank called Citizens--out
for bid to see if there was value. But the bids came back, the
market came back and said that there was not any value.
We were already looking at a $1.8 billion loss to the
Insurance Fund.
Mr. Rush. So do you know specifically what date in October?
Mr. Glassman. I don't have it on my notes, but it was
shortly before the closure.
Mr. Rush. Okay, when did you begin--
Mr. Glassman. I'm--
Mr. Rush. When did you begin discussions with U.S. Bank of
the possibility of the close of PNB's seizure? When did you
begin those discussions with U.S. Bank? What date?
Mr. Glassman. Well, that would have been October 30th, when
the banks were declared insolvent.
Mr. Rush. Was that prior to your making the decision to
seize Park National?
Mr. Glassman. October 30th was the day that the banks'
charters were going to be pulled. But the seven banks that were
part of the family had failed.
Mr. Minnick. [presiding] The Chair grants the gentleman one
additional minute.
Mr. Rush. Thank you.
Mr. Glassman. The seven banks had failed first, and we then
applied the guarantee to both Park and Citizens, asking for
reimbursement for those losses. And on that basis, the OCC then
had to pull the charter for those two national banks on October
30, 2009.
Mr. Rush. Thank you, Mr. Chairman. I yield back.
Mr. Minnick. The Chair grants the gentleman from New
Jersey, Mr. Lance, 5 minutes.
Mr. Lance. Thank you, Mr. Chairman. I yield my time to Dr.
Price.
Mr. Price. I thank the gentleman. And I want to follow up
on the line of questioning that we were on before in a little
different light.
It's my understanding that community banks now are required
to determine the appraised value of a property within the last
year, the worst year of performance. And that results in the
need for higher capitalization, for them to not get in the
cross-hairs of OCC and FDIC.
It's also my understanding that you all have the ability to
decouple the accounting of those assets from the capitalization
requirements for the bank. Is that true?
Ms. Kelly. I'm sorry, I'm not clear on what the question
is.
Mr. Price. Because the OCC and the FDIC are requiring
greater capitalization, more--the raising of greater capital
because the assets on a bank sheet are decreasing in their
value--
Ms. Kelly. Okay.
Mr. Price. --banks that are--the loans that are performing
normally--the only thing that's different is the value of the
property that you all are requiring the banks to assign to it--
bring the bank into jeopardy of being foreclosed.
It's my understanding that you all have the ability to
divorce, to decouple, the determination of the value of an
asset from the capitalization requirements. Is that true?
Ms. Kelly. Well, we do have the ability to set individual
capital requirements for banks, based on our assessment of
their risk profile. And, obviously, the volume of problem
assets they have, meaning loans that are in danger of not being
collected, that maybe have to be charged off--
Mr. Price. And on loans that are performing--
Ms. Kelly. Yes.
Mr. Price. --how do you determine, on loans that are
performing, that they will not perform in the future, and
therefore use them as your justification for saying that the
bank is in danger?
Ms. Kelly. Well, that determination about the likelihood of
a loan performing in the future is based on an analysis of the
available financial information on the borrower--
Mr. Price. And--
Ms. Kelly. --the value of the collateral, if that is a
repayment source. It is a complex process. The banks do it
themselves, and then the regulators come in and check the
bank's assessment of the quality of its assets.
Mr. Price. And that's where the rub is coming, because what
you all are deciding in bank after bank after bank--this isn't
an isolated incident.
We have one billion plus banks--banks with one billion plus
capitalization--that are in your cross-hairs right now, and
with performing loans. And then you all close it down, you sell
it to somebody else, and you expose the taxpayer to $200
million to $300 million in liability, when if you just worked
with the bank they would work it through. They have done it
before.
Ms. Kelly. And we do encourage banks to work with their
borrowers who are troubled, and try to find a way to work it
out. But--
Mr. Price. That's not what is happening. Ms. Kelly, in your
testimony you stated, ``Where rehabilitation is not achievable,
it's the OCC's goal to affect early and least cost
resolution,'' etc. How do you determine whether resolution is
achievable or not?
Ms. Kelly. We have to make a determination about the
likelihood that the bank can be rehabilitated, that it's going
to be able to get more capital, it's going to be able to
overcome the problems it has.
Some banks have been purchased by other banks and merged
together. There are a variety of ways that problems can be
worked out.
Mr. Price. You understand that the consequences of closing
a community bank that is functioning well, that is well-
capitalized, the consequences of that destroy communities.
Ms. Kelly. We do not close banks that are well-capitalized.
Mr. Price. Ms. Kelly, that is not true. That is simply not
true. And when we raised that issue with the FDIC, and asked
for a specific meeting of a bank with the FDIC, we were told by
the FDIC--Mr. Glassman, I would be interested in your comment
on this--told by the FDIC that it was inappropriate for a
Member of Congress to ask for a meeting between the bank and
the FDIC. Do you believe that?
Mr. Glassman. I'm not familiar with that, but the FDIC is
the insurer of the banks. I just can't imagine why we would not
speak to any bank that has our deposit insurance.
Mr. Price. Well, we will get back with you on that. But
this is a very troubling situation, and you all are affecting
real lives and real people in an adverse way. And it's wrong.
Ms. Kelly. I would just like to say if you feel that we are
closing banks that are well-capitalized--
Chairman Gutierrez. The time has expired. Mr. Danny Davis,
you are recognized for 5 minutes.
Mr. Davis of Illinois. Thank you very much, Mr. Chairman,
and I certainly want to thank you again for the opportunity to
participate in this hearing.
Mr. Glassman, let me ask you, do you feel that Park
National was given ample time to correct its deficiency before
engagement took place with the U.S. Bank?
Mr. Glassman. My colleague from the OCC may be in a better
position to respond, but the history of this institution showed
that there was a lot of involvement by the primary regulator
for over 14 months to try to raise capital, and to try to put
the bank in a healthy posture. By the time it got to where the
FDIC had to be involved, it was inevitable that it was a
potential near failure where insured depositors were being
placed at risk.
Mr. Davis of Illinois. Ms. Kelly, let me ask you, based
upon information that was going back and forth, and information
that I had received, and I guess others had received, and--the
feeling that we had gotten was that Park National was on the
verge of being able to rectify its financial situation with a
new private investment. And the investment was basically agreed
to, except the T's had to be crossed and the I's dotted. All of
the nuances of the agreement had to be worked out, but the
basic agreement and the basic ability had occurred for a new
investor to come in with the resources that they needed.
Was that inaccurate information that was coming out, or was
there any accuracy to that, or--
Ms. Kelly. Our assessment of the situation was that it was
not, at that point, close to just dotting I's and crossing T's.
There certainly were discussions under way, but it had not
reached the point of a definitive agreement that the new
capital was coming in, which is what we had made clear we
needed.
Mr. Davis of Illinois. Oh, so there was--the question of
flexibility also was a question under discussion by interested
entities and interested parties at that time, relative to--what
kind of flexibility did the OCC, did the FDIC--what kind of
flexibility existed, if any, that this one week of time that
was being asked for by Park National--or had it reached the
point where the decision had really already been made, that
U.S. Bank was going to be the receiver, and that they were just
kind of blowing in the wind at that point?
Ms. Kelly. I'll start with that, and then perhaps Mr.
Glassman would like to follow up. But from the OCC perspective,
it's important to understand we had been working with the bank
for almost 14 months, since the time the GSEs were placed into
conservatorship and they had that immediate need for capital.
And I feel, in terms of flexibility, we had been working
closely with the FBOP management. We had been looking at
numerous proposals, providing feedback on those proposals. We
did support their TARP application. We did everything we could
to try and find a solution for this group of banks.
When we got to the point where two of the banks went under
the critical undercapitalized level, that triggers the 90-day
clock that we have to put the banks in receivership. And so, we
were operating under that 90-day clock at that point in time,
and we made it clear that the only thing that would allow us to
stop that was a signed, definitive agreement, and we did not
have that.
Do you have anything you want to add to that?
Mr. Glassman. You know, the other point, as far as
flexibility, is also the fact that we are the deposit insurer.
This family of banks had close to a half-a-million accounts. A
lot of them needed to have the deposit insurance applied so
they would be able to continue their banking needs.
So, for us, the fact is that--
Chairman Gutierrez. The time of the gentleman has expired.
I would encourage the witnesses to answer in writing any
questions that they might not have had the time or opportunity
to answer.
I want to thank the witnesses and the members for their
participation. The Chair notes that some members may have
additional questions for the witnesses, which they may wish to
submit in writing. Therefore, without objection, the hearing
record will remain open for 30 days for members to submit
written questions to the witnesses, and to place their
responses in the record.
This subcommittee hearing is now adjourned.
[Whereupon, at 2:07 p.m., the hearing was adjourned.]
A P P E N D I X
January 21, 2010
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