[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]






          THE DODD-FRANK ACT: IMPACT ON SMALL BUSINESS LENDING

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

                                HEARING

                               before the

        SUBCOMMITTEE ON ECONOMIC GROWTH, CAPITAL ACCESS AND TAX

                                 of the

                      COMMITTEE ON SMALL BUSINESS
                             UNITED STATES
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                              HEARING HELD
                             JUNE 16, 2011

                               __________




            Small Business Committee Document Number 112-022
              Available via the GPO Website: www.fdsys.gov




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                   HOUSE COMMITTEE ON SMALL BUSINESS

                     SAM GRAVES, Missouri, Chairman
                       ROSCOE BARTLETT, Maryland
                           STEVE CHABOT, Ohio
                            STEVE KING, Iowa
                         MIKE COFFMAN, Colorado
                     MICK MULVANEY, South Carolina
                         SCOTT TIPTON, Colorado
                         JEFF LANDRY, Louisiana
                   JAIME HERRERA BEUTLER, Washington
                          ALLEN WEST, Florida
                     RENEE ELLMERS, North Carolina
                          JOE WALSH, Illinois
                       LOU BARLETTA, Pennsylvania
                        RICHARD HANNA, New York

               NYDIA VELAZQUEZ, New York, Ranking Member
                         KURT SCHRADER, Oregon
                        MARK CRITZ, Pennsylvania
                      JASON ALTMIRE, Pennsylvania
                        YVETTE CLARKE, New York
                          JUDY CHU, California
                     DAVID CICILLINE, Rhode Island
                       CEDRIC RICHMOND, Louisiana
                         GARY PETERS, Michigan
                          BILL OWENS, New York
                      BILL KEATING, Massachusetts

                      Lori Salley, Staff Director
                    Paul Sass, Deputy Staff Director
                      Barry Pineles, Chief Counsel
                  Michael Day, Minority Staff Director













                            C O N T E N T S

                              ----------                              
                                                                   Page

                           OPENING STATEMENTS

Walsh, Hon. Joe..................................................     1
Schrader, Hon. Kurt..............................................     2

                               WITNESSES

Mr. Thomas Boyle, Vice Chairman, State Bank of Countryside, 
  LaGrange, IL...................................................     4
Mr. Mark Sekula, Executive Vice President, Chief Lending Officer, 
  Randolph-Brooks Federal Credit Union, San Antonio, TX..........     6
Mr. William Daley, Legislative and Policy Director, Main Street 
  Alliance, Washington, DC.......................................     8
Mr. Greg Ohlendorf, President and CEO, First Community Bank and 
  Trust, Beecher, IL.............................................     9

                                APPENDIX

Prepared Statements:
    Mr. Thomas Boyle, Vice Chairman, State Bank of Countryside, 
      LaGrange, IL...............................................    25
    Mr. Mark Sekula, Executive Vice President, Chief Lending 
      Officer, Randolph-Brooks Federal Credit Union, San Antonio, 
      TX.........................................................    35
    Mr. William Daley, Legislative and Policy Director, Main 
      Street Alliance, Washington, DC............................    48
    Mr. Greg Ohlendorf, President and CEO, First Community Bank 
      and Trust, Beecher, IL.....................................    52
Statements for the Record:
    Mr. Peter J. Haleas, Chairman, Bridgeview Bank Group.........    60
    National Association of Small Business Investment Companies..    62

 
          THE DODD-FRANK ACT: IMPACT ON SMALL BUSINESS LENDING



                        THURSDAY, JUNE 16, 2011

              House of Representatives,    
               Committee on Small Business,
                   Subcommittee on Economic Growth,
                                    Tax and Capital Access,
                                                    Washington, DC.
    The Subcommittee met, pursuant to call, at 10:00 a.m., in 
Room 2360, Rayburn House Office Building. Hon. Joe Walsh 
(chairman of the subcommittee) presiding.
    Present: Representatives Walsh, Chabot, Coffman, Mulvaney, 
Schrader, Clarke, Cicilline, and Peters.
    Chairman Walsh. Good morning. I call this hearing to order. 
Welcome.
    I would like to start today's hearing by thanking everyone 
for attending. Specifically, I would like to thank our 
distinguished panel of witnesses for taking time out of their 
busy schedules to participate in what I believe to be a 
critical issue facing lenders as they work towards providing 
capital for our nation's small businesses.
    On Wednesday, June 8, in response to a question from JP 
Morgan Chase CEO Jamie Diamond at the Bankers Conference in 
Atlanta, Federal Reserve Chairman Ben Bernanke stated that 
there has never been a study that examined the impact of the 
new financial regulatory structure on economic growth. For many 
of us in the room today and on this Subcommittee, this 
statement is very troubling. As we work to grow our economy and 
create jobs, it is critical that in everything we do we 
consider how policies made in Washington will impact small 
business owners that are struggling to make their businesses 
successful.
    Regulations always require a careful balancing act, and 
here we have two very important concerns to worry about. First, 
we must make sure that the users of financial products are 
protected. Small business owners and consumers take advantage 
of a wide variety of financial products to fund their business. 
For business owners to succeed, they need to have faith that 
their financing options will continue to be available when they 
need them and that their money is secure. Customers also need 
financial products to purchase the goods and services that 
sustain small business.
    On the other hand is the burden of regulation and 
compliance costs associated with oversight. A regulation that 
chokes off all economic activity is not meeting its purpose. If 
banks stop lending or cut back dramatically in response to 
regulators, the regulation itself must be reconsidered. While 
there is always going to be risk in the financial sector, we 
need to make sure to manage that risk responsibly so that banks 
are secure and small businesses have confidence that they can 
obtain the credit necessary to sustain or grow their business. 
We cannot afford a system where banks are afraid to take risks 
on small businesses for fear of regulatory reprisal.
    Today we will discuss the new financial regulatory 
structure that was created by the Dodd-Frank Act. This new law 
responded to the perceived weakness in the former regulatory 
regime that left many lines of business without supervision, 
allowing systemic risk to develop. We know that the Dodd-Frank 
Act is over 2,300 pages. Within these pages are requirements 
for 243 new rulemaking actions and 60 studies. According to 
GAO, it will cost a billion dollars just to implement this new 
law. It will drain 27 billion job-creating funds from the 
economy over 10 years and require hiring more than 2,600 new, 
full-time government employees.
    What we do not know, however, is the overall economic 
impact of this law and what it will do to small business job 
creation in this country. To help us grasp the impact of the 
new law we have a distinguished panel of witnesses who are on 
the ground dealing with the impact of this new law every day 
and working to prepare for the new rules coming down the pike. 
I am extremely interested to hear what these witnesses have to 
say about how they are dealing with this law and how it is 
impacting their small business lending.
    With that, I happily yield to Ranking Member Schrader for 
his opening statement.
    Mr. Schrader. Thank you, Mr. Chairman.
    Less than three years ago our financial system was thrown 
into disarray with Lehman Brothers filing the largest 
bankruptcy in American history. In years since, our private and 
public sectors have taken unprecedented steps to pull us back 
from the brink and return our economy to a stable path. In the 
process we have learned a great deal about what caused the 
crisis and it appears that for decades I think, as we all know, 
regulators allowed an overabundance of high risk credit to grow 
unchecked. And in short, our entire financial system was flawed 
and the reprised regulatory framework definitely being called 
for and enacted in the Dodd-Frank bill.
    While the legislation itself was directed primarily at the 
financial services industry, we are concerned about its impact 
and ramifications for all small businesses. It is imperative 
that as the statute is translated into meaningful regulations 
that we carefully consider how these changes might affect our 
small banks, our small credit unions, and the small business 
community in general. Community banks and credit unions 
comprise over 90 percent of our banking industry and 
significant efforts were made in the Dodd-Frank bill to 
mitigate the adverse effects this new regulation might have on 
them.
    Indeed, I hope that in many respects small banks will 
benefit from the new law, with lower premiums for FDIC 
insurance, revised capital requirements, more freedom to open 
branches across state lines, community banks should see 
hopefully some reduced operating costs. You will correct me, of 
course, if that is not being achieved at this stage.
    Nonetheless, small financial institutions will have their 
business models, I think, profoundly changed as a result of 
these regulations. We are hearing pushback already. We hear the 
higher compliance costs that are imposed on small firms that do 
not have the large capacity that bigger firms do to deal with 
those compliance costs. It is also undeniable that small 
lenders bear less responsibility, I think, for this financial 
crisis and should not bear the brunt of all these new 
regulations, so we want to make sure we get it right.
    The new regulations created by the Consumer Financial 
Protection Bureau will be subject to the Regulatory Flexibility 
Act. This new regulator also becomes just the third agency to 
be subject to the Small Business Regulatory Enforcement 
Fairness Act. We are concerned about how it views its mission 
and how it will impact small businesses and small banks and 
small credit unions.
    Businesses on Main Street also rely on the healthy 
functioning of our financial system. Perhaps no other group has 
been more affected by the collapse of Wall Street and the big 
investments banks and its trickledown effect to the smaller 
banks than small businesses on Main Street. We still find small 
firms at previous hearings struggling to find credit. Medium 
and larger firms are now able to access credit. We have to be 
careful that these new regulations do not exacerbate the 
current capital shortage that we already have out there.
    Changes to our laws, I think, are overdue. There is this 
tendency, however, to overregulate and overrespond to the 
crisis. I need to hear feedback from our distinguished panel to 
make sure we do not go down an overcorrection path.
    Both lenders and borrowers and small businesses have a lot 
at stake with this financial reform. The Dodd-Frank Act is 
going to affect every sector of American economy and I hope 
that if done properly as a result of your feedback and the work 
we will do to continue to improve the Dodd-Frank Act, that it 
will create more jobs and more credit will flow.
    So I also want to thank the witnesses for being here and 
sharing their wisdom with us. I look forward to the hearing, 
Mr. Chairman.
    Chairman Walsh. Thank you, Mr. Schrader.
    A couple rules. If Committee members have an opening 
statement prepared, I ask that they be submitted for the 
record. I would like to take a moment to explain the timing 
lights for you. You will each have five minutes to deliver your 
testimony. The light will start out as green. When you have one 
minute remaining, the light will turn yellow. Finally, it will 
turn red at the end of your five minutes. If you go over your 
five minutes, someone will come in and escort you out of the 
room. I am just kidding.
    I ask that you try to keep it to that time limit but will 
be as lenient as possible.

   STATEMENTS OF THOMAS BOYLE, VICE CHAIRMAN, STATE BANK OF 
   COUNTRYSIDE; MARK SEKULA, EXECUTIVE VICE PRESIDENT, CHIEF 
LENDING OFFICER, RANDOLPH-BROOKS FEDERAL CREDIT UNION; WILLIAM 
 DALEY, LEGISLATION AND POLICY DIRECTOR, MAIN STREET ALLIANCE; 
  GREG OHLENDORF, PRESIDENT AND CEO, FIRST COMMUNITY BANK AND 
                             TRUST

    Chairman Walsh. Before we get to the witness introductions 
this morning I would like to first mention that there has been 
a great deal of interest in today's hearing from people who 
could not join us today as witnesses. So I would like to make 
sure that the hearing record reflects their views.
    I received a letter from Peter Haleas as chairman of 
Bridgeview Bank Group. Peter is a constituent of mine from 
Illinois, so I am pleased that he wrote to share his view on 
this important issue. So I ask unanimous consent that this 
letter be made part of the record for this hearing.
    Without objection, so ordered.
    [The statement of Mr. Haleas follows on page 60.]
    Chairman Walsh. Our first witness today is Thomas Boyle, 
vice chairman of State Bank of Countryside in Countryside, 
Illinois. I am very pleased to have someone from my home state 
of Illinois here today. Prior to Mr. Boyle's current role as 
vice chairman, he was the president/CEO of the bank from 1997 
to 2009. State Bank of Countryside opened in 1975 and operates 
from six locations, including its main headquarters in 
Countryside, plus branches in Burbank, Darien, Orland Park, 
Chicago, and Homer Glen, Illinois. Mr. Boyle is testifying on 
behalf of the American Bankers Association where he has served 
a variety of leadership roles. Tom has also served as a 
director of the Illinois Bankers Association. Mr. Boyle, we 
look forward to your testimony.

                   STATEMENT OF THOMAS BOYLE

    Mr. Boyle. Thank you. Chairman Walsh, Ranking Member 
Schrader, and members of the Subcommittee. My name is Thomas 
Boyle. I am the vice chairman of the State Bank of Countryside 
in Countryside, Illinois, and I thank you for the opportunity 
to testify on behalf of the ABA.
    These are very important issues for thousands of community 
banks that work hard every day to serve small businesses and 
our communities. The health of the banks and the economic 
strength of our communities are closely interwoven. A bank's 
presence is a symbol of hope and a vote of confidence in the 
town's future. As a family business, State Bank of Countryside 
understands the concerns faced by our customers' personal and 
business lives, and we believe our success is tightly linked to 
their success. Our motto even reflects this, the family-owned 
bank for families and their businesses.
    Banks are working very hard to make credit available in 
their communities. Efforts are made more difficult by hundreds 
of new regulations expected from the Dodd-Frank Act. Although 
these new regulations are inevitable, the sheer quantity will 
overwhelm many community banks who are already facing difficult 
times due to the economic conditions in many parts of the 
country. Second guessing by bank examiners makes this situation 
worse yet.
    Let me give you a few examples of how Dodd-Frank will 
negatively impact small business lending. First, new 
regulations limit access to capital. Capital is the foundation 
upon which all lending is built. Having sufficient capital is 
crucial to lending and to absorb losses when loans are not 
repaid. In fact, $1 worth of capital supports $10 in loans.
    In the past two years, bank regulators have requested 
greater levels of capital, taking away precious resources that 
could be used for lending. In conversations with fellow 
community bankers, I often hear how regulators are pressing 
banks to increase capital-to-asset ratios by as much as four to 
six percentage points above the minimum standard. Dodd-Frank 
limitations on capital sources have made access to capital even 
more difficult. The lack of access to capital has caused many 
banks to become smaller in order to maintain specific capital 
ratios. The result, loans become more expensive and harder to 
get, relieving the increased regulatory demands for more 
capital will help banks make loans needed for our nation's 
recovery.
    Second, Dodd-Frank increases uncertainty for banks in the 
turn, raising credit risk, litigation risks and costs, and 
leading through less hiring or even a reduction in staff. The 
uncertainty makes hedging risks more costly and restricts new 
business outreach. All of this translates into a less 
willingness to make loans and worse, increases the likelihood 
of a massive consolidation.
    Of particular concern is the additional compliance burden 
expected from the Bureau of Consumer Financial Protection. This 
bureaucracy will impose new obligations on community banks that 
have a long history of serving consumers fairly in a very 
competitive market. The Bureau should focus its energies on 
supervision and examination of nonbank financial providers. 
This lack of supervision of nonbanks contributed mightily to 
the financial crisis. We urge Congress to ensure that this 
focus on nonbanks is a priority of the Bureau.
    Third, consequences for small businesses and the entire 
economy are severe. Costs are rising, access to capital is 
limited, and revenue sources have been severely cut. It is 
difficult to meet the needs of local businesses when we are 
dealing with regulatory overreaction, piles of new laws, and 
uncertainty about the government's role in the day-to-day 
business of banking. This will undoubtedly lead to a 
contraction of the banking industry. We must work together to 
ensure that banks meet the needs of small businesses and their 
communities.
    Thank you for the opportunity to present the views of the 
ABA. And I am happy to answer any questions.
    [The statement of Mr. Boyle follows on page 25.]
    Chairman Walsh. Thank you, Mr. Boyle.
    I would now like to introduce our next witness, Mark 
Sekula, executive vice president and chief lending officer at 
Randolph-Brooks Federal Credit Union. Mr. Sekula has 25 years 
of lending experience covering credit cards, mortgage, 
commercial, indirect lending, and collections. Mark and his 
team currently manage a $200 million commercial portfolio that 
includes SBA lending. In 2009, Randolph-Brooks was recognized 
as the SBA Credit Union Lender of the Year. Mr. Sekula is 
testifying on behalf of the National Association of Federal 
Credit Unions. Welcome. You have five minutes to present your 
testimony.

                    STATEMENT OF MARK SEKULA

    Mr. Sekula. Good morning, Chairman Walsh, Ranking Member 
Schrader, and members of the Subcommittee. My name is Mark 
Sekula, and I am testifying today on behalf of NAFCU. I serve 
as the executive vice president and chief lending officer for 
Randolph-Brooks Federal Credit Union headquartered in Live Oak, 
Texas.
    NAFCU and the entire credit union community appreciate the 
opportunity to participate in this discussion regarding the 
Dodd-Frank's impact on small business lending. Despite the fact 
that credit unions are already heavily regulated and were not 
the cause of the financial crisis, they are still within the 
regulatory reach of a number of provisions in the Dodd-Frank 
Act, including all credit unions being subject to the 
regulations and rulemaking of the Consumer Financial Protection 
Bureau (CFPB). This means that credit unions, like mine, are 
facing a host of new compliance burdens and costs.
    As it relates to our business lending, the creation of the 
CFPB, the breadth of its power and the costly regulations it 
will undoubtedly prescribe will impact how we allocate our 
resources for our membership. For example, Section 1071, which 
has not received much attention, creates a data collection 
system for small business lending, similar to the Home Mortgage 
Disclosure Act for financial institutions. Under Section 1071, 
every financial institution will need to inquire whether the 
applicant is a small business or women- or minority-owned. 
While well intentioned in its own right, it is yet another 
compliance burden emerging from the Dodd-Frank.
    Furthermore, given that credit unions serve a defined field 
of membership, individual credit unions' information in 
comparison to other lenders could be skewed.
    Credit unions are chartered to serve their members. Thus, 
regulatory data collection that is intended for institutions 
that can serve anyone, should not be imposed on credit unions.
    The financial institution must also maintain a record and 
report it to the CFPB. The information must be made public in 
accordance with the CFPB regulations. These provisions are 
effective on July 21, yet implementing regulations will not be 
issued until after that date, leaving financial institutions 
with no compliance guidance on the effective date. While the 
CFPB has indicated that compliance will not be mandatory on 
July 21, Congress should consider delaying the effective date 
of this provision until such time as implementing regulations 
take effect.
    The Dodd-Frank Act also includes a section, Section 1100(G) 
that says the CFPB must evaluate the impact that its actions 
have on small entities. We believe that credit unions meet the 
definition of a small entity. We would urge Congress to ensure 
that the CFPB abides by this congressionally mandated standard 
and does not try to narrow the definition of small entity in 
the future. The environment around regulatory reform has led 
regulators to make changes that impact credit unions and may 
cause them to tighten their lending to small business.
    At Randolph-Brooks, our SBA loan volume has diminished in 
recent years, partly due to the economic downturn but also 
because of the inconsistent nature of SBA examinations. On one 
hand the SBA encourages granting small loans to qualifying 
businesses, yet on the other, the agency states that a lender's 
status with the SBA can be rescinded if these higher risk loans 
default. The SBA provides a lender portal and a lender score 
from the SBA's credit risk assessment model. Our score is 
derived by averaging other lenders, mostly large 7A loans with 
our small SBA express loans.
    The blending of all lenders with varying portfolios to 
arrive at a score dilutes the true picture as one cannot 
compare a small SBA, unsecured working capital line of credit 
with a large SBA loan secured with commercial real estate. The 
two loans should not have the same evaluation process. If this 
does not change, it may eventually drive all small loans from 
the lenders' portfolios.
    In addition to the SBA's scoring problem, practices by 
other regulators have had an impact as well. Last year the 
National Credit Union Administration (NCUA), issued a rule to 
amend the agency's Regulatory Flexibility program known as 
RegFlex as it relates to business lending. The new rule 
requires a personal guarantee for all credit union member 
business loans (MBLs). Unfortunately, this proposal will make 
credit union MBLs significantly less attractive to members.
    NAFCU believes and has told the NCUA that requiring a 
personal guarantee for all MBLs is unnecessary given the 
underwriting policies that RegFlex credit unions already have 
in place. Currently, there is a divide between Congress, the 
administration, and other policymakers that wish to spur 
lending and the regulators that oversee financial institutions. 
On the one hand, we sit in this hearing today discussing ways 
to encourage small business lending. On the other hand, 
regulators explicitly create barriers to new lending by 
regulation, the exam process, and implicitly warn credit unions 
against making any loans that may be deemed risky. Forced to 
choose between these two conflicting objectives, Randolph-
Brooks must, of course, follow the directive of our regulators. 
In short, any congressional goal to promote lending will never 
be successful when the regulators are not on the same page.
    I thank you for the opportunity to appear before you today 
on behalf of NAFCU and would welcome any questions that you may 
have.
    [The statement of Mr. Sekula followson page 35.]
    Chairman Walsh. Thank you. I would again like to recognize 
Ranking Member Schrader, who is going to introduce our next 
witness.
    Mr. Schrader. Very good. Thank you, Mr. Chairman.
    Bill Daley is a legislative and policy director for Main 
Street Alliance, a national network of state small business 
coalitions that give, hopefully, small business owners a voice 
in all this discussion, particularly those small businesses 
that are busy trying to put food on the table and create jobs 
and unable to come to Washington, D.C. to testify.
    Prior to joining Alliance, Mr. Daley worked on the staff of 
the Washington State legislature, numerous state agencies and 
served two years as mayor of Olympia. So you have been in the 
trenches, sir. Thanks for coming, Mr. Daley. I look forward to 
your testimony.

                   STATEMENT OF WILLIAM DALEY

    Chairman Walsh. Congressman Schrader, members of the 
Committee, thank you very much for the opportunity to testify 
on behalf of our small business owners. We represent 
organizations in 14 states.
    Our members supported the passing of Dodd-Frank, 
particularly some provisions of it were very important to us. 
Our interest is essentially economic. When the Great Recession 
hit, small businesses were among its major victims. As of late 
2009, small business job losses are responsible for about two-
thirds of the employment decline that occurred as the recession 
came, and small business bankruptcies nearly doubled in March 
to March 2008-2009. We are still suffering from a significant 
loss of our customer base held down by high unemployment rates 
and the foreclosure crisis. We do not want to go through this 
again. It is important that this law be implemented and we do 
not want to see it undermined as the effort to make it work 
goes forward.
    We commented on a couple of specific issues about Dodd-
Frank. First, whether or not the Act causes a credit crisis. 
Our small businesses hear a statement like that and they kind 
of bristle. We do have a credit crunch in small businesses. 
Credit dried up well before Dodd-Frank, and credit dried up 
because Dodd-Frank was not in place. We had a meltdown that 
could have been mitigated or prevented.
    Blaming the act for a crisis-induced credit crunch confuses 
cause and effect. We lost our customer base, and until those 
customers begin to return, there will be a credit crisis for 
small businesses.
    Second, Dodd-Frank is a source of uncertainty in the 
economy. Surely the implementation of any act of Congress 
causes some uncertainty and something this big and complex will 
cause uncertainty. But we think that a period of uncertainty is 
important to go through in order to have certainty in the 
future about the credit that we can obtain. And Dodd-Frank 
provides protections for that. So we are tolerant of a little 
uncertainty in the short-term to get certainty in the long-
term.
    Will the Act's new reserving requirements limit small 
business capital? I think it remains to be seen whether that 
will be the case, although you have heard some concern about 
that from the testimony so far. The improvements in the 
requirements to protect against risk that are associated, 
however, with these new reserving limits are important.
    Let me parenthetically comment about the availability of 
capital. The financial institutions' reserves now are at levels 
even the Wall Street Journal calls eye-popping. There was last 
year 1.2 trillion in excess reserves beyond amounts required by 
law. That increased in the first quarter of this year by $225 
billion. And the money is sitting in the Fed gaining interest 
at a .25 interest rate. Putting that investment back into the 
economy would help us tremendously.
    And then, are new data requirements a benefit to small 
businesses? Again, I think I have to be real clear about it. 
Our folks do not like paperwork. Thank you for getting rid of 
the 1099 provision. There is a considerable flexibility in the 
Act about how the rules are imposed with regard to this 
requirement and we think it remains to be seen just how much of 
the burden will fall on the small business, how much will fall 
on the lending institution.
    And then I want to close by noting some features of the 
Dodd-Frank that our members find especially attractive. Swipe 
fever forms are a benefit to our small businesses. They will 
help save us some money. We like the Consumer Protection 
Bureau. We are all financial customers ourselves and our 
members have been harmed by attractive but risky products.
    Dodd-Frank helps restore focus on traditional lending 
through limits on proprietary trading. In short, Dodd-Frank is 
a good thing for small businesses, and we hope that its 
progress will not be hindered.
    [The statement of Mr. Daley follows on page 48.]
    Chairman Walsh. Thank you, Mr. Daley.
    The final witness that I have the pleasure of introducing 
is also from Illinois, Mr. Greg Ohlendorf. Greg is president 
and CEO of First Community Bank and Trust in Beecher, Illinois. 
First Community Bank and Trust specializes in small business 
lending, including commercial real estate. Mr. Ohlendorf is 
testifying on behalf of the Independent Community Bankers of 
America where he serves as chairman of their Policy Development 
Committee.
    Mr. Ohlendorf, you have five minutes to present your 
testimony.

                  STATEMENT OF GREG OHLENDORF

    Mr. Ohlendorf. Chairman Walsh, Ranking Member Schrader, and 
members of the Subcommittee. I am Greg Ohlendorf, president and 
CEO of First Community Bank and Trust, a $147 million asset 
community bank in Beecher, Illinois.
    I am pleased to be here today to represent the nearly 5,000 
members of the Independent Community Bankers of America. Thank 
you for convening this hearing on the Dodd-Frank Act and its 
impact on small business lending.
    Community banks are prodigious small business lenders. In 
his recent speech before the ICBA Annual Convention, Federal 
Reserve Chairman Ben Bernanke shared new research that shows 
while overall small business lending contracted during the 
recent recession, lending by a majority of small community 
banks, those of less than $250 million in assets, actually 
increased. By contrast, small business lending by the largest 
banks dropped off sharply. The viability of community banks is 
linked to the success of our small business customers and we do 
not walk away from them when the economy tightens.
    Community banks have little in common with Wall Street 
firms, mega banks, or shadow banks. We have a much different 
risk profile because our business model is built on long-term 
customer relationships. We cannot succeed without a reputation 
for fair treatment. We make quality small business loans often 
passed over by the large banks with their statistical models 
because our personal knowledge of the borrower gives us first-
hand insight into the true credit quality of a loan. These 
localized credit decisions made one by one by thousands of 
community bankers will restore our economic strength.
    The Dodd-Frank Act is a generational law and will 
permanently alter the landscape for financial services. It has 
proven to be a mixed outcome for community banks, combining 
both punitive and helpful provisions. Every provider of 
financial services, including every single community bank, will 
feel the effects of this new law to some extent.
    While there are many provisions of the law I could discuss 
at length, I will focus my comments on the new CFPB. Community 
banks are already required to spend significant resources 
complying with consumer protection rules. This compliance 
burden is a distraction from our small business lending. Every 
hour I spend on compliance is an hour that could be spent with 
a small business customer. CFPB rules should not contribute to 
this distraction. The CFPB should use its authority to grant 
broad relief to community banks where appropriate. ICBA also 
supports legislation recently passed by the Financial Services 
Committee to reform the CFPB to make it more balanced and 
accountable in its governance and rule writing.
    Probably the most frustrating aspect of the current 
regulatory environment is the trend toward oppressive exams. 
The misplaced zeal and arbitrary demands of examiners are 
having a chilling effect on small business lending. Good loan 
opportunities are passed over for fear of examiner write-downs. 
I am fortunate in my bank to enjoy a cooperative and 
constructive working relationship with my regulator, the 
Federal Reserve Bank of Chicago. Examiners perform a difficult 
job and the stakes were raised sharply after the financial 
crisis, but I believe many examiners have overreacted to the 
crisis. I have met with hundreds of community bankers from 
every part of the country in recent years and I can tell you 
there is an unmistakable trend toward arbitrary, micromanaged, 
unreasonably harsh examinations that have the effect of 
suffocating small business lending.
    ICBA supports legislation to bring more consistency to the 
examination process. Arbitrary loan classifications are a 
particular source of frustration for community bankers. 
Representative Bill Posey's commonsense Economic Recovery Act, 
H.R. 1723, would establish conservative, commonsense criteria 
for determining when a loan is performing and provide more 
consistent classification guidance. This bill would give 
bankers flexibility to work with struggling but viable small 
business borrowers and help them maintain the capital they need 
to support their communities.
    The ICBA-backed Communities First Act or CFA, H.R. 1697, 
introduced by Representative Blaine Luetkemeyer contains many 
reforms that would improve the regulatory environment and 
community bank viability to the benefit of our customers and 
our communities. To cite just a few examples, CFA would raise 
the threshold number of bank shareholders that triggers SEC 
regulation from 500 to 2,000. SEC compliance costs are a 
significant expense for listed banks. Another provision would 
extend the five-year net operating loss carryback provision to 
free up community bank capital now when it is needed most. We 
are very pleased that CFA has bipartisan co-sponsorship and 
look forward to its advancement in the House.
    Given the state of the private capital markets for small- 
and mid-sized banks which are largely still frozen since the 
financial crisis, ICBA supports the Small Business Lending Fund 
as an alternative source of capital for interested healthy 
banks structured to incentivize increased lending. We hope that 
the first round of capital will be disbursed soon.
    Thank you again for your commitment to small businesses and 
your interest in the institutions that partner with them. I 
have outlined some of the more significant regulatory 
challenges we face in the months ahead.
    Thank you for hearing our concerns. We look forward to 
working with you.
    [The statement of Mr. Ohlendorf follows on page 52.]
    Chairman Walsh. Thank you. And thank you all for your 
testimony.
    Let me begin my series of just a couple of brief questions. 
And this first one will directed toward each member of the 
panel. Try to be brief and specific with your answer.
    Dodd-Frank. An appropriate reaction to the financial 
crisis? An overreaction? Or a reaction that was not strong 
enough to the financial crisis? How would you answer that? 
Brief and specific. An appropriate reaction, an overreaction, 
or not a strong enough reaction. Let us start our way here and 
we will work our way down.
    Mr. Ohlendorf. Dodd-Frank is a mixed bag. There are many 
provisions that are, I think, an overreach and there are some 
provisions that I think are very helpful, including deposit 
assessment reform and the assessment base that community banks 
and other banks are able to take advantage of which are going 
to save us a whole lot of money and put the burden more 
appropriately where it needs to be. There are other provisions 
of Dodd-Frank that frankly scare us tremendously.
    The CFPB, while we have a bit of an exemption or a carve 
out in community banks, we are still subject to their rule 
writing. Today what we have to understand is we are already 
overburdened with regulation. We have a significant number of 
regs that we need to comply with today and it seems like just 
one more is not going to change the deck a whole lot. But the 
piling on and the consistent piling on of additional regulation 
is very, very stunning.
    In the good old days I had a part-time person that did 10 
percent of their job in the area of compliance and we complied 
with all the rules of the land. Today, we have got six or eight 
people, all senior officers that sit on a compliance committee, 
attempting to deal with these reforms as they come along. And 
it is punishing and it is very difficult for small 
institutions.
    Chairman Walsh. Mr. Daley, an appropriate reaction? An 
overreaction?
    Mr. Daley. Thank you. I think our members would say it is 
largely appropriate. The process in the Congress was 
fascinating to watch for us. And the balance that came through 
the debate and exchange really served the country well we 
think. There are a couple of areas where we would like to see 
things stronger. The proprietary trading provisions we thought 
could be strengthened. We would have liked to see the swipe fee 
rules applied to credit cards as well as debit cards. But 
overall the work of the Congress seemed appropriate.
    I also think it is appropriate for you to continue your 
work now. Congressional oversight of the implementation of this 
act is important. It is good that you are holding a hearing 
here and there are other hearings because that balance that we 
think was achieved in the Congress needs to be achieved in the 
implementation of the act.
    Chairman Walsh. Mr. Sekula.
    Mr. Sekula. NAFCU does not blame Dodd-Frank for the credit 
crunch, but we do believe that it overreaches and is an 
overreaction as all credit unions are under the CFPB's 
rulemaking authority. A couple of items that we do like, we 
feel positive about the Dodd-Frank, of course, as mentioned 
earlier, the permanent increase in the Federal Deposit 
Insurance from $100,000 to $250,000, and consumers do need 
protection from predatory lenders. And we understand and we 
support that view. We are just hopeful that more time will be 
spent on unregulated entities, such as payday lenders that 
should be the focus of the CFPB.
    Chairman Walsh. Mr. Boyle.
    Mr. Boyle. I feel that it is an overreaction. In our shop 
of $800 million bank, we have two full-time compliance officers 
and we also outsource to a third party to make sure we remain 
in compliance. We are anticipating with the uncertainty that 
the Dodd-Frank bill is going to bring that we are actually 
interviewing additional consulting firms that could cost us 
anywhere from $75,000 to $125,000 going forward to make sure we 
maintain our good standing in the compliance arena. So we feel 
that it is an overreaction.
    Chairman Walsh. Thanks. Mr. Daley, quick question, and I am 
confused. And I apologize for that.
    Briefly describe your members to me because I think if I 
took you by the hand and you and I walked around my district 
for a day and we talked to 50 small businessmen and women, you 
would hear the same refrain. They are scared to death. There is 
so much uncertainty out there and there is a lot of angst about 
the additional regulations and the regulatory climate that they 
believe Dodd-Frank is going to lead to. Your members are fine 
with what is coming?
    Mr. Daley. May I describe our members? They are small 
businesses. We have about 10,000 members. Our members are the 
owners and they own and operate their businesses. I talk to 
them a lot, we are in fairly constant communication. And they 
come a lot to testify to Congress and go to meetings. They are 
more concerned about the long-term return to practices that put 
them in the bank. And when I have these conversations, because 
I remember, they said that is their greatest concern. The 
problems that were caused by these practices as having harmed 
them, as having destroyed their customer base, and the law that 
is being put in place to prevent that from happening in the 
future is important.
    Chairman Walsh. Did they feel overregulated before Dodd-
Frank?
    Mr. Daley. When I talked to them about the operation of 
their businesses, they do not talk to me about regulation. They 
talk to me about what is going on in my community. My community 
is--the quality of life and the quality of the local economy is 
what is important to them. They do not draw their business from 
around the state or around the country or internationally. They 
do all their business from their community. And their community 
is in trouble now and their business is in trouble as a 
consequence. So they do not talk to me about regulation. They 
do not talk about taxes. They talk about getting investment 
into the community. Getting jobs into the community so that my 
business can continue to thrive.
    Chairman Walsh. You and I are talking to different folks. 
That is fascinating. It actually is.
    One final quick question. Mr. Ohlendorf, are you getting 
consistent information from regulators about your portfolio?
    Mr. Ohlendorf. I talk to a lot of bankers around the 
country and we feel like there is some very inconsistent data. 
I talked to a banker on the way to the airport yesterday from 
one of our neighboring states who was dealing with an appraisal 
and they had gotten the appraisal, you know, it is supposed to 
be the be-all, end-all. This is the value of the property. And 
they were concerned about some of the assumptions. So they 
shared some of their thoughts on those assumptions with the 
appraiser or with the examiner. And the examiner came back and 
said that the bank had no business making any changes to the 
assumptions to the appraisal. Okay, fine.
    A banker 30 minutes from that bank had a set of examiners 
in and had a piece of commercial real estate that was worth, on 
their books, $4 million. It had just been appraised at $4 
million and the regulators came in and asked that bank to 
charge that loan down to $2 million because the appraisal was 
not worth anything.
    As a banker, in trying to work in this economy, how am I 
supposed to take those two stories that are both very current 
with banks that are 30 minutes apart in a neighboring state and 
gel that together to understand what I am supposed to do to 
help, you know, make small business loans. I cannot have 
arbitrary 50 percent write-downs to my portfolio when the 
appraisal just indicated that the value is what I said it was. 
And on the other hand, I cannot look at another appraisal and 
try to, you know, say well, maybe some of those assumptions are 
not accurate and try to massage it because they were told they 
did not have the credentials and the expertise.
    Chairman Walsh. Thank you. I now turn to Ranking Member 
Schrader.
    Mr. Schrader. Thank you, Mr. Chairman.
    As I listen to the panel, it would appear that the biggest 
problem seems to be the regulators maybe more than Dodd-Frank 
itself. And I hear that same song and verse back at home with 
my local banks and credit unions. You get that inconsistent 
regulation.
    Question for Mr. Ohlendorf and Mr. Boyle, in particular. In 
Dodd-Frank, they talked about a five percent capital 
requirement holdback that was going to be mandated and maybe 
even some flexibility for mortgage-based loans. But when I 
talked to some of my folks at home they are saying, well, 
actually, we are getting rules that are talking about a 20 
percent downpayment and stuff. Could you comment on are you 
hearing that also? That would seem to be in contravention to 
what was put out there. Mr. Ohlendorf and then Mr. Boyle.
    Mr. Ohlendorf. We heard that discussion. We are concerned 
that the horse is out of the barn. Back in the days when I 
started in banking, a 20 percent downpayment may have been 
traditional and you saved up money and you tried to buy your 
first house. The rules somewhere along the line were changed 
significantly and obviously lower downpayments were allowed, 
which fueled tremendous boom in the housing industry and a lot 
of first-time homebuyers were able to buy homes that were not. 
And we can argue the political policy of that for all it is 
worth for a long time and that is not probably what you want to 
do.
    The problem that we have today is to go backward to that is 
going to have significant additional downward pressure on real 
estate. There is a lot of real estate out there and if only 
people with 20 percent downpayments are eligible to be able to 
buy a home, it is going to be very difficult to take and handle 
the slack and the supply.
    Mr. Schrader. Are your regulators mandating that right now?
    Mr. Ohlendorf. We are not seeing it mandated right now but 
we have seen it talked about in a variety of a number of places 
within some of the proposed regulations. You know, a limit at 
some level of a required downpayment may be appropriate. Twenty 
percent, I believe, and the ICBA believes is too high.
    Mr. Schrader. Okay. Mr. Boyle.
    Mr. Boyle. We also believe that the 20 percent is 
excessive, but we do believe that the borrower should have some 
skin in the game. And maybe the right answer might be 10 
percent. But in our marketplace, and Greg's as, well, you know, 
we are in a relatively upscale-type of product and if it is 
very difficult for someone to save $80,000 to $100,000 as a 
downpayment, so there needs to be some adjustment from the 20 
percent down to a more manageable number to allow younger 
people to move into communities.
    Mr. Schrader. Okay. Yeah, I would hope that would be the 
case. I mean, 20--I had to do that way back when but times have 
changed and I believe we got way too lax. Prior to Dodd-Frank 
we are making lots of mistakes, so some intermediate area and 
hopefully our Committee and others will talk to FDIC and some 
of our friends, comptroller, to make sure that they get this 
right.
    I guess, Mr. Daley, it would appear to me that from your 
testimony you feel that access to credit has been a long-term 
issue for small businessmen and irrespective, I guess, Dodd-
Frank came last year. And prior to Dodd-Frank, if I look at the 
graphs, it looked like small business credit was inaccessible 
long before Dodd-Frank came into being. Would that be your 
assessment also?
    Mr. Daley. The difficulty our members expressed to me about 
access to credit has to do with the idea that they are 
reluctant to borrow and lenders are reluctant to lend if their 
business is not thriving. The key question for them is 
customers. We need people coming in the door with money in 
their pocket. And when that happens, it is easier for us to 
borrow.
    Let me mention one borrowing phenomena for small businesses 
that is important, and that is a lot of small business start-
ups are financed by equity in their homes. You can see the 
people will start up a small business by borrowing against the 
equity in their home. And the housing crisis, the drop in 
housing value throughout the company has had an impact on that 
as well. And I think as you evaluate the credit problem for 
really small businesses, you need to think of that as well.
    Mr. Schrader. So it is a longstanding, ongoing issue 
irrespective I think of the new regulations.
    Mr. Daley. It came well before the passage of this bill or 
the introduction of it even.
    Mr. Schrader. I guess I had a question regarding small 
business lending. Small businesses come in all sizes 
apparently. They are not just small-small, you know, under 500 
employees under a certain gross retail volume, you fit into a 
small business category. Get I a comment from you, Mr. Sekula 
and Mr. Boyle on which small businesses are now getting credit? 
Because anecdotally I hear back home that for some of my larger 
small businesses it is okay; for some of my smaller small 
business, not so much. What are you seeing? Do you see that 
differentiation? Or is lending improving slowly but surely for 
all those businesses?
    Mr. Sekula. Well, for lending at Randolph-Brooks, our 
members, our small business owners are still able to get loans. 
We have realized continued growth through our portfolio for the 
last three years in a row. Where we are running into a problem 
is that, as an SBA lender, we have had problems being able to 
maintain. See, our membership is specific. I mean, they are 
military or Air Force. We support the Patriot Express SBA 
program. And as a result, we are the fifth largest Patriot 
Express lender in the country for a credit union. So that is 
our membership. That is who we are serving. They are coming to 
us for these business express lines of credit under $50,000, 
and we are granting them. I think probably close to 75 percent 
of our portfolio is made up of those type of loans. Our average 
loan size on the SBA size is only $44,000. So those are the 
members who are coming to us that we are trying to serve.
    The problem that we have is that we just completed an SBA 
exam and it was cited as a finding that we needed to improve 
our delinquency rate, our past due rate. If not, we run the 
risk of losing our preferred lender status and access to these 
funds. Well, as we look at the lender portal that the SBA puts 
out, our numbers, as we view it, are great. We think that they 
are good. So we do not know if SBA added this as a finding as 
the shot across the bow as a warning maybe for all financial 
institutions, but as a result and by listing it as a finding I 
have to address and explain what our actions are going to be to 
make sure that delinquency in those losses do not go up, yet we 
are a well-capitalized organization. Our underwriting standards 
are top-notch. Our performance is great. And here we are, we 
think that we are doing things right. Our numbers show that we 
are doing things right, but yet the SBA is now telling us that 
I have got to put a plan in action to improve those numbers, 
which means then now instead of me focusing on these loans that 
are for the $35,000 to $50,000 range that our membership is 
asking for; now I need to focus on maybe a larger 7A loan or a 
504 loan just so I can make my numbers look better. That is not 
my membership. That is not what they are asking for. And so as 
a result, that is the biggest problem I have.
    Now, in defense of the SBA, we have had a great 
relationship working with them since we have been offering SBA 
loans. And also in their defense, we just got our write-up, our 
finding two weeks ago. So as a result, I have not had an 
opportunity to respond back to them about my concerns. But 
since the timing of this hearing was right now, I felt it was 
important to share it because I feel that we are not the only 
institution experiencing these type of experiences with the 
SBA.
    Mr. Schrader. Thank you. Mr. Boyle.
    Mr. Boyle. We believe that each individual credit request 
is unique in and of itself. And we are a relationship lender by 
nature. And we always have viewed our business is to make 
loans. We are not profitable unless we make loans. I will admit 
to the fact that over the last two years the underwriting has 
significantly increased and that the scrutiny and the 
requirements from the businesses, the additional information 
that we request is probably more than we have in the past. But 
it is our goal to continue to make small business loans going 
forward because without it we are not profitable.
    Mr. Schrader. I will yield back, Mr. Chairman, and let the 
others.
    Chairman Walsh. Thank you, Mr. Schrader.
    I now turn to my colleague from Colorado, Mr. Coffman.
    Mr. Coffman. Thank you, Mr. Chairman.
    You know, I want to say, first of all, one of the stunning 
things that is lacking in Dodd-Frank, and I think it is part 
due to the fact that--well, part largely due to the fact that 
government never wants to point the fingers at itself. But if 
we look at the catalyst of the financial crisis it is subprime 
lending. And who mandated subprime lending? Who was the one who 
came forward with this policy that said let us take people that 
really cannot afford these homes and let us put them in these 
homes. You know, and then, of course, we will securitize it and 
bundle it up and credit rating agencies missed it. So therein 
lies the catalyst of this crisis. And it was government.
    And guess what is not included in Dodd-Frank? Fannie Mae, 
Freddie Mac, the very catalysts that drove us into the ditch is 
nowhere mentioned because the very politicians who wrote it had 
their fingerprints on it. And so I just think it is stunning 
that we have not dealt with that issue that is the basis of 
really the problem that we have today.
    But let me just ask this question to the three bankers, and 
that is are regulators communicating with each other? Or are 
you answering duplicative questions from various regulators?
    Mr. Boyle.
    Mr. Boyle. In our situation we are of a size where most of 
our or all of our examinations are a joint examination between 
the FDIC and the state. And we have not seen a duplication of 
questions. In Chicago, the FDIC is very well organized and 
getting the requirements ahead of time makes the examination as 
last burdensome as possible even though it takes four weeks.
    Mr. Sekula. In regards to the National Credit Union 
Association, communication with them has been very good in 
regards to some of their expectations coming down and giving us 
an opportunity to prepare. Whether they coordinate with the SBA 
on any of their exams or audits, that is information I am not 
aware of. So I am sorry, I am not able to add much more 
information to that.
    Mr. Ohlendorf. We are federally regulated by the Federal 
Reserve in the state and we have experienced very little 
difficulty in communication. Where there have been overlaps, we 
have brought it to their attention where they have asked us to 
do things twice and in general sense they have been able to 
work that out amongst themselves. So I do not think it is the 
nature of them doing duplicative things. I think we have other 
issues that need to be addressed.
    Mr. Coffman. Great. Thank you, Mr. Chairman. I yield back.
    Chairman Walsh. Thank you. I will now turn to my colleague 
from Michigan, Mr. Peters.
    Mr. Peters. Thank you, Mr. Chairman.
    You know, much of the testimony that we have been hearing 
today has been kind of focused on some of the potential 
negative aspects of Dodd-Frank. And I say potential because 
most of the bill has not gone into effect. And so the criticism 
that we are hearing is speculative in nature at this point. And 
yet we have already seen numerous attempts from the Republican 
majority to delay, to weaken, and even to kill this new bill. 
Community banks and credit unions certainly did not cause the 
financial crisis. In fact, in many respects I believe that you 
are among the worst victims of the crisis. There have been 
hundreds of bank failures since the 2008 financial crisis and 
each time one of these banks fails, another community lender is 
not in a position to make critical, small business loans. As 
was mentioned, where most of the small business come from are 
credit unions and small community banks.
    But now that the worst of the crisis is over, there seems 
to be a tendency to forget what caused it and how it affected 
Americans all across the country who lost their jobs, their 
homes, and saw their retirement savings vanish. I want to work 
certainly with the industry to make sure that this bill is 
implemented in ways that work, but I also believe it is very 
shortsighted to lose focus of the fact that the bill was passed 
in the face of the worst financial crisis in generations that 
absolutely destroyed our economy. A crisis that was caused for 
a variety of reasons that caused it but it was excessive 
speculation and risk taking particularly by some of the very 
large, systemically risky institutions that are in our country. 
And so I think that needs to be the focus of what we are 
looking at for reforms. Folks here before us on the panel are 
not part of those large, systemically risky institutions but we 
need to address that so we do not ever have a situation where 
we are put into a catastrophe like we had.
    So with that kind of premise, Mr. Boyle, I want to direct 
this question to you. When small banks get into trouble now, 
the FDIC will come in and will unwind them through an orderly 
dissolution process. As you know, that did not exist for some 
of these very large institutions. That caused a significant 
problem for our economy as we were going off the cliff. The 
Dodd-Frank bill did create a new dissolution process for these 
large, systemically risky institutions. You know, what is your 
assessment of that? Is that helpful to small banks and does it 
help put smaller banks on the same footing that these large 
institutions will be under?
    Mr. Boyle. The Dodd-Frank Act and its treatment of the too 
big to fail concept was probably one of the better aspects of 
the bill. With regards to leveling the playing field, the 
Chases and Bank of Americas are not my competitors. My 
competitors are my local community banks within the 
metropolitan area of Chicago. So I do not think that it leveled 
the playing field. We each carve out our own niche and we do 
not view the Bank of America as our competitor.
    Mr. Peters. But now you talked about the too big to fail as 
probably the best part of the bill. Would you just elaborate on 
that, please?
    Mr. Boyle. Well, I think the way that they would deal with 
the orderly liquidation or the solving or a problem of too big 
to fail, you know. Having a system in place that does not exist 
currently.
    Mr. Peters. Do others share that opinion?
    Mr. Ohlendorf. I think one of the obvious benefits was the 
whole change in the FDIC Act and the assessment base and so on. 
But also one of the other major provisions that we have yet to 
see how it is going to work out is bringing the shadow banks 
and the mortgage brokers and the nonregulated financial 
institutions into the fold. Our consumers do not understand the 
difference. When they hear someone can make them a mortgage 
loan, they do not understand, Congressman, that that person may 
be or may not be from a regulated financial institution. They 
assume that they may be getting a better rate or it looks like 
a better rate but they are not sure we are playing by all the 
same rules. Their assumption is we are all playing by the same 
rules. And in fact, we are not. And if in part of this crisis 
we can reign that in, find out who those folks are and bring 
them under the same type of regulation that we have long been 
under and have successfully operated under those types of 
rules, I think it is going to make a major change. That has yet 
to be seen.
    Mr. Peters. Again, a lot of this still has to be 
implemented going forward so we are in the very beginning 
stages, which is why it seems to be premature to try to unwind 
this because I agree with you that we had a system prior to 
Dodd-Frank that had heavily regulated institutions like 
yourself and everybody at this panel here. We had silos of 
regulation but between those silos there was a lot of open area 
where people would compete. And they were your competitors, 
whether they were paid A lenders or other folks that are in 
that shadowy area that is significant competition to you. And 
they are playing in an unregulated environment and they are 
using tactics that often are predatory on customers. You know, 
you are trying to do what is right for your customers. You are 
playing by all the rules, you believe in having a long-term 
relation with those customers. And yet you have folks out there 
who have a whole different business model and it is disruptive 
to your ability to raise funds, raise capital, investment in 
small businesses if you have got to compete with these shadowy 
organizations. So Dodd-Frank is a move forward to try to reign 
in that practice and those unsavory type business practices. 
And so I look forward to working with you so that we can 
continue to do what is right for the American consumers and the 
American taxpayers and stand up to some of these very large, 
systemically risky financial institutions as well that caused 
so much trouble in our economy. So with that I will yield back 
my time.
    Chairman Walsh. Thank you. Now it is my pleasure to hear 
from my colleague from South Carolina, Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    Gentlemen, I have run a couple of small businesses. I have 
started three or four of them myself. I have served on this 
Committee now for about six months with the rest of these 
gentlemen. And I have to admit that I have never heard anybody 
come in and talk about the things Mr. Daley has. Mr. Daley, you 
heard the Chairman say that he might be speaking to people who 
are different than the people you are talking to. Is that at 
all possible?
    Mr. Daley. I do not know. How would I assess that? I do 
talk--I actually have a business myself. It is very small. And 
have in the past operated small businesses. I have worked, as 
was mentioned, as a mayor in a small town, small-time mayor 
actually. Small town, Olympia, Washington, where I lived for 
many years. And worked with the businesses community closely as 
we tried to bring back our downtown, revitalize the core of the 
city.
    I find the values that I experience when I interact with 
small businesses to be close to what I have described here. 
They are very concerned about the quality of their communities. 
They choose to do business with banks like the ones that are--
financial institutions like the ones that are represented here 
because they have a relationship to the communities. And they 
do that when they can and appreciate them.
    Mr. Mulvaney. And let us talk about those businesses for a 
second if we can, because I admit when I came into prep for 
this meeting, I know who the American Bankers Association is, I 
know who the federal credit unions are, and I know who the 
community bankers of America are. In fact, all of those 
organizations are very active in my state of South Carolina.
    I had not been familiar with the Main Street Alliance, but 
was surprised to find out that it is also active in my home 
state of South Carolina through an organization called the 
South Carolina Small Business Chamber of Commerce. And as I was 
sitting here, I just learned that, Mr. Daley, as I was going 
through the internet while you were testifying. I am familiar 
with this organization, and I think it would be of value to 
those of you who have heard testimony today and to this 
Subcommittee to recognize who that group is in South Carolina, 
if it is representative, Mr. Daley, of who your organizations 
are. It is an organization that exists only on paper. Its core 
group is a liberal talk show host, a Democrat lobbyist, a 
Democratic political consultant, and a Democrat public 
relations specialist. They supported Obama Care, including the 
public option. They supported cap-and-trade, and they actually 
got very active in South Carolina in encouraging the state 
government to create a new agency to oversee small business. In 
fact, the quote that they had that was much talked about in my 
state was let us acknowledge that small businesses are a pillar 
of success in the state and are just as deserving of a new 
state agency to lead them. I have never heard of a small 
business group talk about creating new state agencies to 
oversee them.
    Actually, in South Carolina they claim to have 5,000 
members, just as you heard Mr. Daley claim that nationwide they 
have about 10,000 members. The only way they get to 5,000 
members in the state of South Carolina is by using the lists of 
the South Carolina Association of Trial Lawyers and the South 
Carolina Association of Claimants Attorneys.
    I heard Mr. Daley testify earlier today that he actually 
likes the uncertainty that comes with Dodd-Frank, which would 
surprise me none as trial lawyers love uncertainty. Mr. Daley, 
I used to--before I was a small businessperson, I was actually 
a trial lawyer, so I have been down that road as well. The NFIB 
has spoken out against South Carolina Small Business Chamber of 
Commerce, another organization that I am a little bit familiar 
with, as have our two largest Chambers of Commerce in the state 
of South Carolina, decrying it as nothing more than a front for 
the trial lawyers in our state. It does not surprise me then, 
sir, that you have come in here today to defend Dodd-Frank, and 
in all fairness, probably just reaffirms my position that the 
bill is a complete travesty to begin with and should be 
repealed in its entirety.
    Thank you, Mr. Chairman. I yield back the balance of my 
time.
    Mr. Daley. Mr. Chairman, may I for the record point out 
that we do not have an affiliate in South Carolina, and we are 
not affiliated with the Small Business Chamber of Commerce.
    Mr. Mulvaney. To that point, if I may reclaim my time, Mr. 
Chairman, your website identifies 14 agencies, 14 state 
agencies that make up your base, essentially your affiliate 
agencies. They include the Idaho Main Street Alliance, the 
Colorado Main Street Alliance, the Iowa Main Street Alliance, 
the Maine Main Street Alliance, something called the Keystone, 
which I assume is Pennsylvania, and then very clearly on your 
website, the South Carolina Small Business Chamber of Commerce.
    Thank you, Mr. Chairman. I yield back.
    Chairman Walsh. Thank you. I now turn to Ms. Clarke, my 
colleague from New York.
    Ms. Clarke. Thank you very much, Mr. Chairman. And thank 
you Ranking Member Schrader.
    I have a statement that I would like to insert for the 
record, Mr. Chairman.
    Chairman Walsh. Yes, without objection.
    Ms. Clarke. Thank you very much.
    Let me just start by recognizing the support in my district 
in Brooklyn, New York, for the work of community banks and the 
credit unions and acknowledge that as all of America knows, 
your entities were not a part of what took down our economic 
system. And so we want to thank you for your steadfast work and 
your commitment to the growth and development of communities 
across this nation and the businesses they are in.
    Let me ask my question to Mr. Daley. And let me say that, 
you know, we recognize how much small businesses have suffered 
during the downturn and that you welcome any of the provisions 
of Dodd-Frank. One of the number one issues that I hear when 
talking to small business owners and entrepreneurs in my 
district is the lack of access to capital. I think, you know, 
it is almost a mantra at this point. So my question is given 
that small businesses, we all recognize as the engines of our 
economy, and recognize that Dodd-Frank is the law of the land, 
what else can be done to get lenders to free up the over one 
trillion in reserves that they are holding so that small 
businesses can hire again and power our economy toward a full 
recovery? Or is the business model of lenders so inflexible at 
this stage that it simply cannot adjust to the current 
regulatory environment.
    [The information follows on page 62.]
    Mr. Daley. During the meltdown, Congress passed a law 
allowing the Fed to pay interest on surpluses. They are 
currently paying interest on surpluses that are way in excess 
of the required financial holdings. And we raised the question 
as to why? Why is that money not being invested back into the 
economy rather than sitting in the Fed gaining interest? And I 
hope you will take a look at that question.
    There are some other things that might help our customers 
that are related to lending that are not related to the lack of 
capital. And one of them is the foreclosure crisis. It is a 
tremendous drag on the neighborhood economies. And efforts by 
the government to try to get these underwater loans drawn down 
have not proven very successful and have not been very 
aggressive. And we have a continuing drop in the value of 
housing, a continued lack of construction industry would help 
us tremendously if that crisis could be closed. So two answers. 
Take a look at why we are sitting on all this money for one, 
and please take a look at that foreclosure crisis.
    Ms. Clarke. Thank you. Do any of you gentlemen want to add 
your perspective to that question? I am trying to figure out, 
you know, what is it? Is it that it is hard to adjust to the 
current regulatory environment? Or what would you say? Yes.
    Mr. Boyle. One way for us to increase our lending would be 
for a reduction in the stringent capital requirements put on us 
by the FDIC. We are currently holding nine percent capital. If 
we could get that reduced to just eight and a half percent, we 
could make as much as $10 million in new loans. So the joke 
around our institution is the accountants are running the bank 
because everything we do is dedicated towards the achievement 
of the nine percent capital ratio.
    Mr. Ohlendorf. One of the other things that I would like to 
mention is in the days gone by we were able to show sources of 
liquidity to the regulators as lines of credit with our 
correspondent banks, lines of credit with the Federal Home Loan 
bank, the discount window authorization, our relationships with 
maybe brokered CD providers. Today the regulators are asking us 
for on-balance sheet liquidity. They do not trust that we are 
going to be able to draw on those lines because some of those 
organizations have withdrawn lines from banks that show some 
signs of weakness. So instead now I need to hold on my balance 
sheet levels of liquidity that were prior unheard of in dollars 
and cents. So part of it again is going back to what I am being 
required to hold on my balance sheet which looks like 
substantial loanable funds and I would love to loan those funds 
out.
    Ms. Clarke. Thank you very much, gentlemen. I yield back, 
Mr. Chairman.
    Chairman Walsh. Thank you. I have just a couple quick final 
questions.
    Mr. Daley, you state or stated that ``some small 
curtailment of available credit over the long term is favorably 
outweighed by the certainty that sensible requirements to 
mitigate risk will stabilize credit markets over the long term 
and less the like likelihood of another financial collapse.'' 
What data can you point to to show that the current regulations 
are merely sensible and not burdensome and that they will 
prevent another financial crisis?
    Mr. Daley. I am not going to point that I do not have data 
that would make a prediction like that. And I must be clear 
that the provisions related to reserving in Dodd-Frank are very 
complex. And I believe that there is a legitimate debate about 
whether they need to be uniformly applied or is there some way 
that different institutions with different circumstances should 
have different applicability of those reserving requirements. 
But the underlying idea of there being those reserving 
requirements in place and being applied throughout lending 
institutions is important to the long-term stability of credit. 
And that is what I am trying to express here. That having some 
base requirement there. I do think there is a reasonable debate 
about how exactly to apply those provisions of the law. But 
that there be provisions like that is important to the long-
term stability of credit.
    Chairman Walsh. Your members are small business owners. Did 
they support the repeal of the 1099 aspect of Obama Care?
    Mr. Daley. Yes.
    Chairman Walsh. Overwhelmingly?
    Mr. Daley. There was one sense of hesitation. It was the 
pay-for. The original proposals to pay for the repeal of the 
1099 provision undermined aspects of the ACA, or the Affordable 
Care Act, of which they supported passage.
    Chairman Walsh. In describing your membership briefly, this 
is a real short answer, the small business owners, do they feel 
overregulated and overtaxed?
    Mr. Daley. To the degree I have had conversations with them 
about these things, they are not--they do not say they are 
overregulated and they are overtaxed. They are much more 
concerned about what happens to the money that they pay? Where 
is it invested? They are much more concerned about what impact 
the general quality of life in their community has on them than 
anything else.
    Chairman Walsh. You and I need to take a day. We will go 
and randomly find 100 small business owners around the country. 
We will ask them that question. Thank you.
    One final question for the three bankers. In essence, you 
are all small businessmen. What, to your estimation, and be 
brief, is, as small businessman, your greatest fear right now 
for the small business community?
    Mr. Ohlendorf. My greatest fear is where does this 
regulation stop. Every time we have to comply with a new 
regulation we are just having to spend that much more time on 
the regulation and that much less time supporting small 
business people. We completely understand their need for 
capital. We completely understand our role in that. We are in 
business to make loans. We are in business to support our 
communities. There does not need to be a regulation to tell us 
how to support our communities because if we do not do that our 
communities will not do business with us. So it is not 
complicated in a community bank. We just need to find a way to 
be able to get out from under the burden of oppressive 
regulation.
    Chairman Walsh. Mr. Sekula.
    Mr. Sekula. The concern definitely is about the 
overreaching, regulation. Right now we are talking about 
investing and taking care of our members, their needs right 
now. That is all they can think of right now. So some of them 
are not investing and growing their business or seeking loans 
because of the fear and uncertainty, but when they come to us 
we want to make sure that they feel comfortable and that we are 
going to be there to take care of their needs, whatever it may 
be. When we have our regulators, whether it be the National 
Credit Union Association or the SBA hindering and preventing us 
from getting in the way, especially for a well-positioned 
financial institution to be able to take care of them, what 
kind of message does that send?
    And that is my biggest fear, is that we think that we have 
done everything right to take care of our business the way we 
operate and our members, and now being possibly restricted from 
being able to get them access. That concerns me because we 
think we are doing everything right but now I am being told you 
need to be careful.
    Chairman Walsh. Mr. Boyle, your greatest concern for this 
small business community?
    Mr. Boyle. I have been a banker for 34 years and I started 
off as a regulator and moved into the banking environment. And 
in those 34 years I could not recall a regulation being 
retracted. Every time they put a new layer of regulation on us 
it costs us money. This new regulation for Dodd-Frank, as I 
mentioned earlier, could cost us as much as an extra $150,000 a 
year. The debit change effect last week where we lost, those 
are $200,000 a year. That is $300,000 in profits I do not know 
how I am going to make up. And if I had those dollars as 
capital I could make as much as $30 million in new loans. So 
the leveraging aspect worries me. The overregulation is only 
going to hamper my ability to become more profitable.
    Chairman Walsh. Thank you. I am done. Mr. Schrader, any 
follow-up?
    Mr. Schrader. No, sir.
    Chairman Walsh. Great. Thanks. Now that the questions are 
complete, I would like to again thank our witnesses for being 
here today to discuss this important issue for small business. 
We know that small businesses will lead any economic recovery 
and jobs recovery. So today was a step in the right direction 
towards focusing our efforts on determining the impact of the 
law and resulting regulations on small business. As we move 
forward with the implementation of this law, I would like to 
encourage the participants here today to keep us informed about 
the issues discussed. It is important that we know the exact 
impact of policies for those who are working every day to grow 
business and create jobs.
    With that I ask unanimous consent that members have five 
days, legislative days, to submit statements and supporting 
materials for the record. Without objection, so ordered.
    The hearing is now adjourned. Thank you.
    [Whereupon, at 11:19 a.m., the Subcommittee hearing was 
adjourned.]




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