[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
REGULATORY REFORM: EXAMINING HOW
NEW REGULATIONS ARE IMPACTING
FINANCIAL INSTITUTIONS, SMALL
BUSINESSES, AND CONSUMERS
=======================================================================
FIELD HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
AND CONSUMER CREDIT
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
OCTOBER 31, 2011
__________
Printed for the use of the Committee on Financial Services
Serial No. 112-79
U.S. GOVERNMENT PRINTING OFFICE
72-620 WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
HOUSE COMMITTEE ON FINANCIAL SERVICES
SPENCER BACHUS, Alabama, Chairman
JEB HENSARLING, Texas, Vice BARNEY FRANK, Massachusetts,
Chairman Ranking Member
PETER T. KING, New York MAXINE WATERS, California
EDWARD R. ROYCE, California CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois BRAD SHERMAN, California
GARY G. MILLER, California GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas WM. LACY CLAY, Ms.ouri
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
JOHN CAMPBELL, California JOE BACA, California
MICHELE BACHMANN, Minnesota STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan BRAD MILLER, North Carolina
KEVIN McCARTHY, California DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico AL GREEN, Texas
BILL POSEY, Florida EMANUEL CLEAVER, Ms.ouri
MICHAEL G. FITZPATRICK, GWEN MOORE, Wisconsin
Pennsylvania KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Ms.ouri JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee
Larry C. Lavender, Chief of Staff
Subcommittee on Financial Institutions and Consumer Credit
SHELLEY MOORE CAPITO, West Virginia, Chairman
JAMES B. RENACCI, Ohio, Vice CAROLYN B. MALONEY, New York,
Chairman Ranking Member
EDWARD R. ROYCE, California LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina GARY L. ACKERMAN, New York
JEB HENSARLING, Texas RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan JOE BACA, California
KEVIN McCARTHY, California BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Ms.ouri GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee
C O N T E N T S
----------
Page
Hearing held on:
October 31, 2011............................................. 1
Appendix:
October 31, 2011............................................. 47
WITNESSES
Monday, October 31, 2011
Bauer, Kurt R., President/Chief Executive Officer, Wisconsin
Manufacturers & Commerce....................................... 19
Erickson, Hon. Alan, Mayor of Mosinee, Wisconsin................. 7
Matthiae, Mark A., President, Crystal Finishing Systems.......... 17
Nagel, Todd, President, River Valley Bank........................ 11
Reinhart, Marty, President, Heritage Bank........................ 9
Sanchez, Bethany, Director of Community Development, Metropolitan
Milwaukee Fair Housing Council................................. 21
Wesenberg, Patricia, President and Chief Executive Officer,
Central City Credit Union...................................... 13
Willer, Mark, Chief Operating Officer, Royal Credit Union........ 16
APPENDIX
Prepared statements:
Bauer, Kurt R................................................ 48
Erickson, Hon. Alan.......................................... 50
Matthiae, Mark A............................................. 52
Nagel, Todd.................................................. 56
Reinhart, Marty.............................................. 58
Sanchez, Bethany............................................. 62
Wesenberg, Patricia.......................................... 65
Willer, Mark................................................. 68
REGULATORY REFORM: EXAMINING HOW
NEW REGULATIONS ARE IMPACTING
FINANCIAL INSTITUTIONS, SMALL
BUSINESSES, AND CONSUMERS
----------
Monday, October 31, 2011
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 10:30 a.m., at
the Wausau City Hall, 407 Grant Street, Wausau, Wisconsin, Hon.
Shelley Moore Capito [chairwoman of the subcommittee]
presiding.
Members present: Representatives Capito, Renacci, Huizenga,
and Duffy.
Chairwoman Capito. Good morning to everybody. I appreciate
everybody coming, and I certainly appreciate the opportunity
for me, Shelley Moore Capito. I'm the Chair of the Subcommittee
on Financial Institutions and Consumer Credit, which is a
subcommittee of the House Financial Services Committee in
Washington.
It's an honor for me to be here on my very first visit to
Wisconsin. So thank you for holding back on the snow. I guess
we did that on the East Coast. And I would like to thank
Congressman Duffy for inviting us here today.
I'm just going to talk a little bit--I have an opening
statement. I want to tell everybody how it's going to roll out,
because we're doing a hearing very similar to what we would do
in Washington.
As the chairperson, I will make an opening statement. Then,
I will turn it over to Congressman Duffy, and he's going to
make an opening statement; and our other two Members will have
a word to say as well.
And then, I'm going to have Congressman Duffy introduce the
witnesses. All of the witnesses have submitted written
testimony and I appreciate that. And they will each be
recognized for 5 minutes for an oral statement.
They entrusted me, as the only woman on the congressional
panel, with the red, green, and yellow button. This is power
right here. So I'm going to put it here. We'll try to keep to 5
minutes, and the reason we'll do that is because a lot of
times, the most significant portion of our meetings is the
question-and-answer section.
After we have our opening statements, I'll begin
questioning for 5 minutes and then we'll go through. We might
go through more than once or twice, if that's okay, seeing how
time goes.
So I appreciate everybody being here. And with that, I will
begin with my opening statement.
I brought my handy-dandy gavel with me, so I'm ready to
roll.
This field hearing will come to order.
Again, I want to thank everybody for being here. And I
would like to thank, in particular, Representative Sean Duffy
for inviting us, the Financial Institutions and Consumer Credit
Subcommittee, to his district.
This is our second field hearing. We actually had a field
hearing in Georgia, where they have had 64 bank failures, by
the way.
And so now we're going to find out the unique challenges
facing Wisconsin financial institutions, credit unions, small
businesses, housing advocates, and see, really, in general,
what we can do in Washington to get this economy moving again,
to make sure that we have the best possible playing field for
our country's economics.
Representative Duffy also has led the effort in the U.S.
House of Representatives to bring greater transparency and
accountability to the Consumer Financial Protection Bureau. He
had a bill put forward to ask for appropriate consumer
protections, but also ensuring that the Federal Government is
not overly involved in our everyday personal financial
decisions.
Today's hearing builds on several hearings that we have had
in the subcommittee so far this year. We frequently hear from
small business owners that they're having difficulty obtaining
loans from financial institutions. And many times, the
financial institutions cite concerns about the difficulties
with Federal regulators as a large contributor to the difficult
lending environment.
Sometimes, it seems as though everybody from the President
on down is saying to financial institutions, lend, lend, lend
to small businesses, because we know small businesses are the
job creators.
And at the same time, the regulators are saying to the
financial institutions, hold your capital, hold your capital,
hold your capital.
It's a conflicting message, and it makes it difficult for
the qualified small business to be able to expand and grow
their business and thereby create more jobs in their local
communities.
If we're going to get our economy going again, we need
these financial institutions to make these small business
loans.
We need regulators, financial institutions, and elected
officials to work together.
There's a new concept: We're going to work together in
Washington to address these challenges.
This is the primary reason why we're here today. We need
common-sense recommendations. And hopefully, we'll get some of
those here today.
Again, I would like to thank Representative Duffy and the
people of Wausau for hosting the subcommittee.
And I would like to recognize Mr. Duffy for the purposes of
making an opening statement for 5 minutes.
Mr. Duffy. I appreciate everyone coming in and
participating in today's hearing, specifically Chairwoman
Capito, her willingness to come all the way to central
Wisconsin and participate in what I think is a very important
conversation about how the rules and regulations and the
regulators are affecting our small financial institutions, our
small banks, and our small credit unions and their ability to
get dollars out the door to businesses, manufacturers, and
farmers.
I also appreciate Representative Bill Huizenga coming in
and participating with us. He's from right across the pond in
Michigan. And then Representative Renacci from Ohio who flew in
this morning in the fog. So I appreciate everyone coming in.
They're all members of the Financial Services Committee,
and the Financial Institutions Subcommittee, all freshman
colleagues of mine, and they have been doing an outstanding job
representing their districts, but also actively engaging in the
conversations that we have in our committee.
If you look at what has happened over the course of the
last several years with regard to the financial crisis, I think
many of us would look back to 2008 and say we--we need to look
at what happened and how do we reform the rules and regulations
to make sure that it doesn't happen again.
Whenever you have a crisis, whenever you have an issue like
that that in your economy, you want to take a hard look and
implement changes to make sure it doesn't happen again.
And so that process started after the crisis. But instead
of using a scalpel to look at the problems that we faced in our
regulations, we got a sledgehammer, which came down by way of
Dodd-Frank, a 2,000-page bill that implemented a number of
rules and regulations. There are actually 400 rulemakings
coming out of Dodd-Frank.
And some might say that's great; it's wonderful that we
have all those rules in our financial sector.
One of the problems that we face in our committee is that
many of the rules that came down from Dodd-Frank, that are in
the process of coming down from Dodd-Frank, aren't specifically
focused on the bad actors from the financial crisis.
I think all of us would agree that it was big Wall Street
banks that helped cause this crisis. It wasn't our small
community banks and credit unions in central and northern
Wisconsin that caused the crisis.
But the rules, the regulations, and the pressure coming
from the regulators on our community banks and credit unions
has been immense; the ones that had nothing to do with the
crisis.
And that breeds great concern for me because, if we're
going to grow our economy, if we're going to put people back to
work in central Wisconsin, we have to make sure that we have
our economic base growing.
And what do we have here? We have small businesses, we have
small manufacturers, we have farmers. If they can't access
dollars, if they can't access capital, they can't grow. And if
they can't grow, they can't put people back to work.
So these financial institutions in our community are very
important to make sure that the growth in jobs takes place.
And when you have a crack in that system, it makes it very
difficult to put our hard-working families back to work.
I think today's hearing is important because so often, we
see the bullhorn in the hands of Wall Street banks. Today, the
bullhorn comes to central Wisconsin, where we're able to come
together, and I think it's a great panel that we have today, to
talk about the issues that we face right here. And we make sure
that Washington understands that the rules and regulations that
they pass have a true impact on our community.
This is our time to come together and share the impact that
it has. I believe that this is the first time the subcommittee,
or the committee as a whole, has ever been to central
Wisconsin.
So I'm happy that we're here and I'm happy that my
colleagues were willing to join me.
I know my time is just about up. With that, I would yield
back to Chairwoman Capito.
Chairwoman Capito. Thank you.
I would like to welcome Mr. Huizenga from your neighboring
State of Michigan.
As I was thinking about the four of us up here, and the
four States that we represent, we really have a lot of
similarities in terms of the heartland of the country; a lot of
reliance on manufacturing.
And so we all know that we have had difficulties,
certainly, in our four States. Everybody has, but we have the
same and similar difficulties.
So I want to thank Jim Huizenga for coming in, and I
recognize him for the purpose of an opening statement.
Mr. Huizenga. Madam Chairwoman, thank you.
And to my friends Sean and Jim, I know that speaking,
probably, for all of us, this has been quite a ride the last 10
months as a freshman on this committee.
I hope I don't shock anybody here, but Washington can
operate in a bubble. That has been very evident. And it's field
hearings like this that help break us out of that bubble and
help make sure that not only I'm being connected in with west
Michigan, when I'm going home every weekend, but I get to hear
what the people in Congressman Duffy's district think. And, the
same thing with Congressman Renacci.
This is very important to go do this, but I do feel I need
to make a slight confession here. In central Wisconsin, I'm
seeing a lot of red out in the audience. MSU quarterback Kirk
Cousins is a constituent and went to the same high school I
did. I know that might cause a bit of a riot, and my apologies
to you all, as well as being a Lions fan. I know this is tough.
Hopefully, to try to regain a little credibility in your
eyes, I have shot a number of grouse up here near Clam Lake
Lodge and in Sean's district here. So I have been very pleased
to be up here a few different times, and you have a great area
up here.
As Sean was saying, I think that's a concern that I have,
as well. So often, whether it's New York or Chicago, you hear
sort of the buzz that surrounds a lot of these big banks and
what's happening. And we know that, so often, the small
community banks, the regional mid-sized banks, the credit
unions, all get caught up in that same regulation.
And unfortunately, we have a one-size-fits-all kind of
prescription. All it takes is visiting Zeeland, Michigan, my
hometown, or Wausau here, or somewhere else, to know that we're
a little different than New York and Chicago.
And we like it that way, but we can't necessarily have the
same rules apply the exact same way, because we simply don't
have the ability to add three more people into a compliance
department. Why? Simply because we're adding on 15 telephone
books on new, the size of new regulation onto things. That,
frankly, if they had just implemented the rules that were on
the books as they were, we would have been able to avoid a
number of these things.
So I'm pleased to be here today and I appreciate Chairwoman
Capito's willingness to take this subcommittee that I proudly
serve on. Sean and I sit next to each other on the committee,
and we compare notes on a lot of different things.
I'm still trying to catch up to him. I only have five kids;
he has six.
But it truly is a pleasure to be here, and I appreciate
your willingness to share your experiences so that I can take
that back, as well as the rest of the members of this
committee.
So thank you very much. I yield back.
Chairwoman Capito. Thank you.
And I would like to welcome and thank Mr. Renacci. He's the
vice chairman of the subcommittee and has a wealth of
experience in a lot of different areas ranging from small
business to financial institutions, as well.
So welcome, Mr. Renacci from Ohio.
Mr. Renacci. Thank you, Madam Chairwoman.
I want to also thank all of you for being here today. I
want to thank Congressman Duffy for having us here, and my
colleague Congressman Huizenga for being here, too.
It's important that we continue to hear, outside of
Washington, what's going on. Now, for me, because as a CPA, as
a small business owner, as a small town mayor at one point in
time, I have created jobs and I understand the problems with
financing.
But what I really never did understand was why Washington
put so many constraints on the financing for small banks and
small credit unions and small business owners because that is
the lifeblood, as we all know, of small business.
And it's been interesting as, also, a board member of a
small community bank in my community, to see what the Dodd-
Frank legislation has done to many of the small community
banks, whether it comes to the regulations, whether it comes to
the appraisals, all of those things that are putting
constraints on the ability for our businesses, our small
businesses, to get the credit they need.
It's interesting, and I use this all the time, what happens
sometimes in government--I know, in somebody's testimony, as I
read that, we talked about the blanket effect. You take a
blanket and throw it over everything.
And even though we did have people and companies and large
banks in the industry that caused us problems in 2008, this
blanket has been thrown over everyone, and it's causing
constraints now that are occurring that are not allowing the
capital to flow out to the small business owners.
I was also a small town fireman. And one thing I have used
as an example many, many times, and sometimes I think
Washington does this; I always remember the theory that you run
into a building--this is before I had the training--and you
start dumping water on the fire, and that's the answer; you
just dump as much water as you can.
But as a fireman, and anyone who has ever really fought a
fire, you realize that the more water you dump on it, the more
regulations you put on it, sometimes the fire jumps in other
places. And sometimes it jumps behind you, sometimes it jumps
around you, and sometimes you can cause a building to actually
burn down quicker.
With that in mind, I went to Washington thinking, why do we
do this. It has been an interesting learning experience for the
last 9 or 10 months because I do believe we need to be cautious
on how much water we dump on the fire. When you do that, so
many other things can happen.
I'm really interested in hearing from the panelists here
today some of the issues I know they're running into and some
of the things that we can do to maybe change some of the
direction we have in Washington.
I know the panel here--we have been working very hard,
looking at a lot of issues with Dodd-Frank.
And again, there are probably some things that were
necessary, but clearly, throwing the blanket over everything is
not the right answer.
So, again, this is my first visit to central Wisconsin.
Although, being from Ohio, as we all know, the Buckeyes ended
up beating Wisconsin this weekend. It was kind of a fluke play.
But I was also from Pittsburgh originally, and you guys--
the Packers were able to beat the Steelers in the Super Bowl.
So we're back and forth, one on one.
Maybe this year, the Steelers will get back with the
Packers, and we'll see what happens.
But I do appreciate being here and I look forward to your
testimony.
Thank you so much.
Chairwoman Capito. Thank you.
We will now get to the testimony of the witnesses. And I'm
going to ask Mr. Duffy to introduce the witnesses.
Mr. Duffy?
Mr. Duffy. Thank you, Madam Chairwoman.
We'll start over here and go around. I do appreciate the
panel coming in and sharing their testimony. I think it's a
great panel that has nice breadth, involving different sectors.
Let's start off with Pat Wesenberg. She is the president
and CEO of Central City Credit Union in Stevens Point. Central
City is a $179 million credit union serving 22,000 members.
Thank you for being here, Pat.
We have Mark Willer, who is the chief operating officer for
Royal Credit Union in Eau Claire. He's responsible for deposits
and lending that affect 140,000 members. So thank you for
coming over this morning, Mark. We appreciate that.
Marty Reinhart, he is the president and CEO of Heritage
Bank in Spencer. Heritage is a $100 million asset community
bank located right here in central Wisconsin.
And then Todd Nagel, maybe a little bit bigger bank, is at
River Valley right here in Wausau. They have 18 branches
throughout central Wisconsin and the UP of Michigan. So thank
you all for coming in.
And then, she might have traveled the furthest to get here,
Bethany Sanchez, who came up--I think you're in Milwaukee; is
that right?
Ms. Sanchez. That's right.
Mr. Duffy. She came up from Milwaukee. She directs the Fair
Lending Program at the Metropolitan Milwaukee Fair Housing
Council. That's a 34-year nonprofit civil rights organization
serving the State of Wisconsin with offices in Milwaukee,
Appleton, and Madison. So thanks for making the drive up today.
And then, we have Kurt Bauer. He is the CEO of Wisconsin
Manufacturers & Commerce. WMC is Wisconsin's largest business
and industry trade association.
And then we have Al Erickson. He is the Mayor of Mosinee,
but he also owns various businesses in the area and also serves
as chairman of the economic development committee for the City,
and, I think, has a wide range of background and unique
perspectives.
And last but not least, Mark Matthiae is the owner of
Crystal Finishing Systems in Schofield. He and his wife, Laurie
are a true story of a couple of folks who lived the American
dream, worked hard, invested, and grew what started out as a
two employee firm that began with $6,000, grew it into an $80
million business, employing 400 people right here in central
Wisconsin.
It started in 1993. I had a chance to, a couple of weeks
ago, go tour the facility, and they're doing a fantastic job
and I think have some unique insights into what's happening
here with capital flow.
So with that, I appreciate the panel coming in. And I turn
it back over to Chairwoman Capito.
Chairwoman Capito. Thank you. And again, welcome.
I have a listing here of an order, and you're not seated in
order. So I'm going to go by my listing, and I'm going to
recognize the Honorable Al Erickson, the Mayor of Mosinee,
Wisconsin.
Welcome, Mr. Mayor.
STATEMENT OF THE HONORABLE ALAN ERICKSON, MAYOR OF MOSINEE,
WISCONSIN
Mr. Erickson. Thank you, Madam Chairwoman.
I wear two hats as I sit here before you today. First, I am
here as a member of the small business world of north central
Wisconsin.
I feel the pain, as others do, of the decreasing revenues
and increasing expenses. As the owner of Small Business World
Web Hosting and Design, I witness the decline in the amount of
money spent in the area of promotion and--for small business,
even though these are the times when promotion is essential,
businesses find paying operational costs as critical.
As the owner of Little Bull Falls Trolley Company, I have
realized a major decline in the use of unique transportation
opportunities for weddings and special events.
As the owner of three commercial buildings which offer
lease space or retail and/or service business, I, as well as
others, are faced with the challenge of obtaining and retaining
tenants.
Secondly, I am here with you today as the mayor of the City
of Mosinee and the chairman of the economic development
committee for the City.
We, as a City, have been aggressive in our economic
development efforts in all commercial and downtown development.
Within the last 2 years, at least 3 large commercial
developments have been stalled in the City of Mosinee because
they were unable to obtain the necessary financing.
Small businesses have had difficulty obtaining the credit
that they need to expand, and in some cases, even to continue
operating.
I believe most small business owners are excited about the
new future but can't get the loans they need to grow.
But the economic recovery is pinned to job creation, and
job creation is pinned to entrepreneurship and small business.
And small business owners are having difficulty having the
confidence--they do have the confidence, I'm sorry, to invest
in and grow their businesses over the long haul.
Many small businesses have been operating at a loss for the
last couple of years and are unable to get bank loans. They are
sitting on land and buildings that they own which are next to
impossible to sell in this economy.
If they close down part of their operation to save
operational costs, this also means that they limit production
and eliminate jobs.
Banks are pointing to two reasons for the drop in real
loans: lack of collateral; and renewed sense of risk aversion.
For lack of collateral, business owners who were once able
to borrow against assets--their land, building or equipment--
have seen their property values diminish along with everyone
else.
As far as risk goes, banks say that regulators are getting
in the way of them making good loans. For business owners,
though, those problems are arguable.
But while banks are closing the windows for small business
loans, they happily open the back door to any business that
wants that money in the form of a credit card loan.
For a small business, credit card terms are generally far
worse than regular bank loans. Most small businesses rely on
lenders to provide the capital they need to either open a
business or to finance capital improvements.
Without loans, many small business owners would be unable
to realize their dreams of opening business, renovating their
buildings, or expanding their operations.
But long-term planning isn't possible with credit card
financing. When they need to get together money to keep going
and the loan isn't there, there aren't many options that don't
involve plastic.
Bankers worry that companies won't be able to find access
to capital, which is ironic, given the banks are primarily
responsible for lending out that capital. Increasingly, bankers
worry government regulation will become a major issue for small
business.
I'm not a believer in the blanket approach to management
decision-making. Who gets hurt? Those who did it right. Who
suffers? All those people and the organizations they serve.
We need to stimulate the system from the bottom up. It's
about jobs. We create jobs by investing.
I believe our economy would be better stimulated if low-
interest loans are made available for small business.
I would like to ask why the government hasn't provided
stimulus for smaller businesses. Government needs to rethink
the concept of trickle-down economics.
Thank you.
[The prepared statement of Mayor Erickson can be found on
page 50 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is Mr. Marty Reinhart, president of the
Heritage Bank. Welcome, Mr. Reinhart.
Mr. Reinhart. Thank you.
STATEMENT OF MARTY REINHART, PRESIDENT, HERITAGE BANK
Mr. Reinhart. Thank you, Chairwoman Capito, amd members of
the subcommittee. I'm Marty Reinhart, president of Heritage
Bank, a $100 million community bank located in central
Wisconsin, formed in 1908. So, we have been around for a while.
I'm pleased to be here today to represent the 200 members
of the Community Bankers of Wisconsin.
Thank you for convening this field hearing examining how
new regulations are impacting the financial institutions and
small businesses and consumers in our area.
Community banks are playing a significant role in the
broad-based economic recovery of our Nation because we serve
rural, small town, and suburban customers and markets that are
not comprehensively served by larger banks.
Localized credit decisions made one by one by thousands of
community bankers support small businesses, economic growth,
and job creation.
While there has been publicity that banks have been
unwilling to lend, a recent report published by the Community
Bankers of Wisconsin shows banks with assets less than $10
billion, community banks, have an increase of over 4 percent in
commercial and industrial loans, as well as small business
loans of a million dollars or less, year over year.
And I'm pleased to say that, over the past 2\1/2\ years,
Heritage Bank has increased our RSA loans by over 30 percent.
I recognize the seriousness of the financial situation that
existed prior to the passage of the Wall Street Reform Act and
the need for Congress to take action.
The community banking industry appreciates the efforts that
were made to distinguish between the large money center banks
and smaller community banks. The new system for computing FDIC
premiums will lower assessments for smaller community banks for
98 percent of the institutions throughout the country.
And allowing community banks to be exempt from examination
from the Consumer Financial Protection Bureau maintains the
current examination and oversight conditions that exist today.
And finally, making the FDIC insurance coverage of $250,000
permanent benefits not only the banking industry, but it eases
concerns our depositors have about their money being safe.
Having said this, with regulatory and paperwork
requirements, both new and old, there continues to be a
disproportionate burden placed on the banking industry and
community banks.
The uncertainty associated with how new regulations will be
written and interpreted causes anxiety about the future of our
industry and our ability to compete.
While there are many examples of costs associated with
regulations, I would like to highlight some of those associated
with a residential mortgage loan.
The application process has been changed several times
within the HUD regulations and RESPA requirements. The process
for ordering and reviewing appraisals has become more
cumbersome and involved.
Extra forms, early disclosures, and having to register and
fingertip our mortgage loan officers, adds to the costs
associated with this type of lending. It creates delays,
additional costs, and confusion on the part of the borrower,
and a typical mortgage file has more than 100 pages by the time
the loan is closed.
While it's too early to tell how many of the new
regulations of the Dodd-Frank Wall Street Reform Act will
affect community banks, one source of concern is the new
Consumer Financial Protection Bureau.
We remain concerned about regulation to which community
banks will be subject.
In particular, we are hoping that we will not have to
implement new rules that will adversely impact the ability of
community banks to customize products to meet customer needs.
On behalf of the Community Bankers of Wisconsin, I would
like to take this opportunity to thank Representative Duffy,
Chairwoman Capito, and other members of the subcommittee who
support H.R. 1315, the Consumer Financial Protection Safety and
Soundness Improvement Act, which passed the House. Thank you
for that.
While there is recognition that there has been some
improvement as the number of problem banks has diminished, the
current examination environment is hampering lending at the
very time that the bank credit is needed to sustain economic
recovery.
Community bankers nationwide have reported that bank
regulators are often demanding significant capital increases
above the minimum regulatory levels established for a well-
capitalized bank.
As a result, banks are forced to pass deny sound loan
opportunities in order to preserve capital. There has to be a
reasonable regulatory balance.
What is particularly frustrating to us is the field
examination practices are often not consistent with directives
from Washington.
We understand that examiners have a difficult job, and the
stakes were raised sharply by the financial crisis, but I
believe many examiners have overreacted with adverse
consequences for banks and the economy.
I understand examiners are not evaluated on the bank's
contributions to support the local economy. They have become
overly cautious in their analysis of the bank's condition. And
as a result, an examiner's incentive is to err on the side of
writing down loans or demanding additional capital.
Finally, I would like to advocate for an important piece of
legislation that would help to relieve community banks of
certain burdensome regulations they face, both in examination
and compliance, and help community banks serve customers.
The Communities First Act would improve the regulatory
environment and community bank viability to the benefit of
their customers and communities, and has gained support of 34
State community banking associations.
There's no question that the current regulatory and
examination environment is an impediment to the flow of credit
that will create jobs and advance the economic recovery.
I appreciate the opportunity to testify today. Thank you.
[The prepared statement of Mr. Reinhart can be found on
page 58 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness will be Mr. Todd Nagel, president of the
River Valley Bank.
Welcome, Mr. Nagel.
STATEMENT OF TODD NAGEL, PRESIDENT, RIVER VALLEY BANK
Mr. Nagel. Thank you, Chairwoman Capito, and members of the
subcommittee. My name is Todd Nagel, and I am president of
River Valley Bank. We're a $957 million asset bank based here
in Wausau, Wisconsin.
Thank you for taking the time to bring the House Financial
Services Committee to your district.
Wisconsin is home to 270 banks which employ 30,000 people.
Wisconsin banks are performing better than their peers and have
the fourth greatest loan-to-deposit ratio in the Nation.
Wisconsin banks help young people buy their first cars, we
help newlyweds take the first step toward the dream of owning
their own home, we help entrepreneurs turn ideas into small
businesses.
We live among our customers, employees, and shareholders,
and we are always available during good times and bad, because
we recognize the value that banks play in the community.
That important service to our neighbors is imperiled,
however, by the excessive government regulation coming from
Washington.
The amount, intensity and uncertainty of new Federal
regulations, chiefly the Dodd-Frank Act, have forced banks to
allocate an enormous amount of time and resources to
compliance, and away from our primary mission of serving our
customers.
Wisconsin banks are not Wall Street investment firms,
despite the fact that the media and others generically refer to
all financial firms as banks.
In Wisconsin, you can't call yourself a bank unless your
deposits are insured by the Federal Deposit Insurance
Corporation. Traditional banks are insured depositories and
lenders; investment banks are the Wall Street traders.
Some may argue that this is splitting hairs when we point
out the difference. We disagree.
We must continue pointing out the difference between
traditional banks and Wall Street investment firms because the
distinction continuation is lost on some in Washington.
Federal laws meant to regulate Wall Street ought to not
adversely impact Main Street, but that is precisely what is
happening.
Uncertainty about what expensive new regulation will come
out of the growing Federal bureaucracy hampers our ability to
lend, which, in turn, stifles job growth in our communities.
I would like to give some examples of the effect on
regulatory burden. This economy needs capital investment, as
everyone has said here today, by small businesses to create
jobs.
Today, banks are required to maintain the highest liquidity
and capital ratios in the history of banking. That money is
just sitting there. What does that mean? In our case, it
relates to capital. It restricts $20 million to $40 million of
capital investment into loans. It is capital that is just
sitting there due to the higher ratios.
We want to make more loans. We need incentive to lend, not
fear. We can't save more money in the form of capital and take
more risk in the form of loans. The math simply does not work.
Regarding lending decisions, today, unfortunately, we are
not making lending decisions on the financial performance or
character of borrowers. Rather, we are only giving loans that
will make the regulators happy in order to not be criticized in
our next field exam. When a loan is criticized, we have to
reserve additional capital expense for each loan.
Appraisal requirements, which you referred to: Our
institution has $780 million in loans; $575 million of those
loans are to small businesses; most of them are secured by
commercial real estate.
The problem: We keep terms and balloons short on these
loans to match-fund the obligation of the market conditions.
That is pretty simple banking. What this means is, re-evaluate
the loan at the time of the balloon or renewal. Now, we are
required to get a new appraisal, which costs the customer
money.
When the real estate value is less, which is most of the
time, an examiner, a field examiner, will criticize the loan,
effectively paralyzing the borrower, which forces us to start
liquidation on a substandard loan, even if it is performing. In
other words, they're making their payments.
A quick example is, we have a $100,000 appraisal on a piece
of commercial real estate. We lent them $80,000. We get a new
appraisal that comes in at $70,000. They're making their
payments, and now we have a criticized loan. That makes no
sense.
Consumer home mortgages: Today, we get penalized by
regulators for helping homeowners stay in their homes. If we
try to extend the term, lower the rate, we now have a
criticized or substandard loan, which means we must reserve
more loan dollars for the loan.
Regulators would rather us liquidate the loan and get the
toxic asset off of our books. We want to help people stay in
their homes and stop criticizing restructured loans.
Due to new residential home mortgage reform, again, that
Marty referred to, banks must send out 20 to 30 documents for a
new mortgage application within 3 days of applying.
If the customer changes their mind and they want to borrow
more money, which we like to do, we have to redisclose those
documents. At closing, you will have an additional 20 to 30
documents.
This regulation was supposed to protect the consumer and
create a more transparent process. Sixty documents is not
transparency; it's regulatory burden.
Some quick solutions: Create a one-page truth-in-lending
disclosure that shows the fees the customer will pay, the
interest rate on the loan, and how much profit the bank makes.
Then, at the closing, have them sign a note and a mortgage.
Three documents.
What can you do? Capital: For banks that grow their loan
portfolios, incent them to have a lower cap ratio. If they're
taking the risk and they're out there investing in America, let
them lower their capital ratios.
Regarding liquidity: Incent banks to deploy their liquidity
into the asset loan growth.
Appraisal requirements: Simply stop requiring new
evaluations on performing loans.
Troubled debt restructure: Use this already-established
structure to incent banks to help borrowers who are
experiencing financial stress. Instead of making this a
criticized category, make it a good category, a thank-you-for-
helping-your-neighbors category.
Restrict the category to 10 percent of asset size and put a
24 limit on construction.
Again, thank you for allowing me the opportunity to speak
today, and thank you for coming to central Wisconsin.
[The prepared statement of Mr. Nagel can be found on page
56 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is Ms. Pat Wesenberg, president and chief
executive officer, Central City Credit Union. Welcome.
STATEMENT OF PATRICIA WESENBERG, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, CENTRAL CITY CREDIT UNION
Ms. Wesenberg. Thank you.
Chairwoman Capito and members of the subcommittee, thank
you very much for the opportunity to testify at today's
hearing.
As was stated before, I am the chief executive officer at
Central City Credit Union, which is a $179 million credit
union, and we serve 22,000 members in the central Wisconsin
area.
I am also a member of the board of directors of the Credit
Union National Association.
As you know, credit unions did not cause the financial
crisis, but we have been affected by it. In the wake of the
financial crisis, credit unions face what might best be
described as a crisis of creeping complexity related to
regulatory burden.
It is not necessarily any one single regulation that is
overly burdensome; but rather, the totality of all regulations,
the frequency with which the regulations change, and sometimes
varying application of the regulation by field examiners, which
conflicts with or expands upon the original intent of the
regulation.
The barrage of regulations creates an unnecessary burden
without any measure of the effectiveness of these changes. They
are costly, both in time and personnel, to implement. And they
are confusing to our membership.
We would prefer to spend our resources on promoting our
mission of financial literacy and the development of new
products to serve the needs of our members within our local
communities.
However, the recent increase in regulatory burden has
forced us to hire a full-time compliance person, just to stay
on top of all the changes.
In addition to that, my vice president of lending has
dedicated about one-third of her time to all of the changes
that impact the lending staff. This is valuable time that could
be spent trying to develop products that would help serve our
membership better during these extremely difficult times.
The financial cost to Central City Credit Union doesn't end
with increased staffing costs. There are also costs to update
all of our software to make sure our forms are in compliance.
For a large financial institution, the compliance costs,
even if large, are just a very small slice of their total
costs. For smaller institutions, like my credit union, they
represent a huge increase in relative costs.
While I realize the basis of the changes is to help the
consumer be better informed, today our biggest regulatory
obstacles involve keeping up with ongoing and piecemeal changes
to the various consumer protection regulations.
If regulations continue to come from so many directions, I
don't see how we will be able to keep up.
As an example of the frequency in which the regulatory
requirements change, in January of 2010, financial institutions
were required to completely amend and overhaul the RESPA Good
Faith Estimate and comply with new disclosure requirements
regarding the Department of Housing and Urban Development, HUD,
settlement statements.
This took a tremendous amount of staff time to retrain
mortgage lending and compliance personnel to adapt our systems
and staff to these regulatory changes.
On the heels of our completed implementation throughout the
spring of 2010, HUD issued a series of frequently-asked
questions documents, some 50-plus pages in each version with
yet additional instructions and clarifications as to how these
particular forms were to be completed.
And now, not even 2 years later, these forms are yet again
being completely revised and amended, with new regulations
being written to implement these changes.
There are costs associated with any change in regulation,
even if the intent is to reduce regulatory burden.
Updating and changing documents on a continual basis is
hitting the budget hard, especially for smaller financial
institutions, not to mention the time spent by staff to try to
meet deadlines, take additional time to explain the new forms
to our members, and the additional time and resources that are
required for training and education.
While the new Consumer Financial Protection Bureau seems to
be approaching its job with a watchful eye towards minimizing
regulations and has sought ongoing input from credit unions on
its work, concerns remain.
The CFPB rules may not necessarily change how credit unions
operate; but if we are not careful, they could result in
increased costs associated with changing processes,
documentation, and training to comply with new rules.
That is why credit unions, through our national trade
association, have been working closely with the CFPB staff
during this transition period, and we have encouraged them to
establish an office of regulatory burden monitoring. We are
pleased that they have established an office of community banks
and credit unions.
The CFPB was designed to regulate instead of, and not in
addition to, the Federal Reserve Board and other regulators.
With respect to the 19 consumer protection laws that it now
implements under the Dodd-Frank Act, credit unions are
concerned with how the CFPB and the NCUA will coordinate
regarding the implementation of consumer financial protection
laws.
There are also concerns about whether credit unions will be
subjected to burdensome data collection requirements, and how
NCUA's own office of consumer protection fits into the consumer
protection regulatory regime.
CUNA has urged the NCUA to take several steps to improve
the regulatory process and relieve credit unions' regulatory
burden.
And I would ask that a copy of the letter that CUNA sent to
NCUA Chairman Deborah Matz be inserted into the record.
Chairwoman Capito. Without objection, it is so ordered.
Ms. Wesenberg. Thank you.
Among other recommendations, we have called on the NCUA to
impose a moratorium on new regulations for at least the next 6
months.
We have also called on the agency to reinstate the
Regulatory Flexibility Program, which provides well-managed and
well-capitalized credit unions an exemption from certain
regulations which are not statutorily required.
We believe that there is considerable merit to these
recommendations because there are no new material systemic
problems within the credit union system.
And current safety and soundness concerns with a natural
person and corporate credit persons are being well-managed.
Madam Chairwoman, thank you very much for coming to
Wisconsin and holding this hearing.
Credit unions remain committed to serving their members.
The ever-increasing regulatory burdens we have make it very
difficult.
We appreciate the attention you're giving to this issue and
look forward to working with you to solve the problem.
[The prepared statement of Ms. Wesenberg can be found on
page 65 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness is Mr. Mark Willer, who is chief operating
officer of the Royal Credit Union. Welcome.
STATEMENT OF MARK WILLER, CHIEF OPERATING OFFICER, ROYAL CREDIT
UNION
Mr. Willer. Thank you.
Welcome to all of you. Thank you, Representative Duffy, for
coordinating this subcommittee.
I welcome all the Representatives from our neighboring
States. It's great to have you here. We would welcome you back
in January, when it's a little colder, as well.
But I appreciate the opportunity to testify before the
subcommittee.
Royal Credit Union is a community-based credit union
serving 140,000 consumers in 18 counties in Wisconsin, in west
central Wisconsin, and 12 counties in eastern Minnesota.
Our members, as well as their financial services needs, are
diverse.
In our statement of commitment developed by our board of
directors and management team, we state, ``As a member-owned,
not-for-profit financial cooperative, RCU is committed to our
members. We will uphold our fundamental responsibility to
actively serve people within our field of membership and in the
communities in which we live. We will continue to deliver a
wide range of products and services to the diverse economic
needs and social make-up of our members and potential
members.''
RCU's strategic plan includes efforts that encourage our
members to become financially self-sufficient and successful.
We will continue to place a high importance on consumer
education and financial thrift.
RCU strives to offer services designed to improve the
economic and social well-being of all members from all socio-
economic backgrounds and to return financial value to all those
who participate in our member-owned financial cooperative.
The current regulatory environment creates a significant
challenge to achieve the statement of commitment.
As a result of the ongoing economic crisis, Congress has
enacted legislation that has created a significant burden on
the financial services marketplace. The well-intentioned
legislation has had significant unintended consequences that
confuse and financially harm the very consumers it's intended
to protect.
The regulatory pendulum has swung so far that the financial
institutions are faced with eliminating services or charging
for them to offset the cost and increased regulatory burden of
providing them.
Many of the new regulations are intended to address abuses
in the financial marketplace or prevent unethical financial
practices that harm consumers.
For example, the new rules that are being developed on a
consumer's ability to repay mortgage loans and debit
interchange provisions in the Dodd-Frank Act were advocated to
correct problems that some may have engaged in.
Yet, I would challenge any member of this subcommittee to
find a single local community credit union or community bank
that has been accused of such practices. To the contrary, we
are seen as the trusted local financial services provider.
Unfortunately, new regulations do not consider this. As a
result, costs to provide services have increased.
Unfortunately, these costs are passed on to our members.
Costs include training and education for credit union
personnel, forms or form revisions to reflect rule changes,
brochures, software programming costs, and compliance and
auditing expenses, just to name a few.
The consumers are confused.
Mr. Reinhart pointed out the number of pages now required
for a mortgage loan. I assure you, consumers have a hard time
wading through a one- or two-page application, let alone 30
pages' worth of disclosures.
I can provide a sample real estate file, as well, to show
the difference between an auto loan and an example of a
mortgage loan; it is significantly different.
The cost of regulatory burdens to credit unions has been
enormous. At RCU, we have an executive vice president who
oversees our compliance function.
As a result of the increase in regulations and rule
changes, we recently hired a full-time compliance specialist.
This is in addition to an internal manager that we have and two
internal auditors.
Additionally, RCU hires multiple third-party providers to
ensure compliance with any and all regulatory requirements.
These are real costs that ultimately are passed on to the
consumer.
As we are coming out of the financial crisis, we have a new
government agency to deal with: The Consumer Financial
Protection Bureau.
Like many of my colleagues in the credit union system, I'm
afraid the CFPB will only add a layer of regulation, not
replace a layer of regulation, as it was intended to do.
We understand that the intentions are to protect the
consumer. Unfortunately, history has shown that regulations,
rules, and bureaucracies reach beyond their original
intentions.
We hope Congress will exercise prudent oversight of the
CFPB, especially in the early days of its operations.
Thank you for the opportunity to provide this testimony.
[The prepared statement of Mr. Willer can be found on page
68 of the appendix.]
Chairwoman Capito. Thank you.
Our next witness will be Mr. Mark Matthiae, president of
Crystal Finishing Systems.
Did I say your last name correctly?
Mr. Matthiae. It's ``Matthiae.''
Chairwoman Capito. ``Matthiae.'' I made it French, I think.
Welcome.
Mr. Matthiae. It's actually German.
Chairwoman Capito. German.
Mr. Matthiae. Yes.
STATEMENT OF MARK A. MATTHIAE, PRESIDENT, CRYSTAL FINISHING
SYSTEMS
Mr. Matthiae. Good morning. I would like to thank
Chairwoman Capito and the members of the subcommittee for the
invitation and for allowing me to speak to you this morning.
My wife and I have lived the American dream, starting small
businesses, creating jobs, supporting our family and community,
and building our dream home.
So I'm giving you our perspective not only on small
business and banking, but also as homeowners.
We have enjoyed the success with the help of our local
banking system, the SBA, Wisconsin Business Development
Corporation, McDEVCO Corporation, and a great customer base.
Our core business is aluminum extrusion, painting, powder
coating, and fabrication, along with distribution of our
customers' products.
Our current business employs 430 full-time employees, with
an annual payroll over $13 million.
Our company annually pays, in real estate taxes, our share
of payroll taxes, fuel tax, over $2.2 million before our
company makes one dime of profit.
I feel this is important, as a perception of the public
today is that businesses and business owners do not pay their
fair share of taxes.
If we are fortunate to have profits, these profits result
in additional tax contributions, as well.
During the past 3 years, we have employed as many as 468
full-time staff and as low as 305 due to the severe economic
conditions. We have gone from a business that banks were
competing to do business with to a company that struggled to
keep enough financing to keep our business running.
The large banks simply look at either your market segment,
your ratios after current appraisals and past history;
experience or track record mean nothing.
I have seen a true shift in the current banking climate
that has American homeowners and small business owners worried
about even renewing a loan, let alone seeking new money for
updates or expansion.
In today's competitive business climate, locally,
nationwide, and worldwide, without constant upgrades to
equipment, infrastructure, and facilities, it is nearly
impossible to grow a business, create jobs, or simply remodel
your home.
We have spent countless hours on renewals, thousands of
dollars in fees, appraisals, just because we are looked at
being equal to that risky short-term investment return greed of
Wall Street when all we want to do is run a business with good
long-term business plans.
But the pressure on the banks currently today to simply
look at the bottom-line ratios along with deflated appraisals
on real estate, equipment, and property, both small businesses
and homeowners are losing their equity.
This loss of equity is a direct result of a lack of
consumer confidence and a lack of consumer demand, resulting in
more economic pressure on businesses and workers alike.
As a homeowner, you fear to do a home loan, only to find
out not only do you not qualify for more money against the
equity you thought you had in your home, you may find out your
loan is undercollateralized and the bank may actually ask you
to write a check to pay the loan down further.
By forcing banks into the situation of analyzing loans not
on the merit of the project or the past relationship of the
customer, you are ultimately compounding the already depressed
housing market and the commercial real estate market alike.
If banks are no longer able to do the right thing with
their customers and negotiate payment terms, etc., without
having to be punished, our economy will not recover anytime
soon.
If this same climate existed when Laurie and I started our
business, there would be no Crystal Finishing, there would be
no 430 jobs today, no $13 million payroll, and no tax
contribution of $2.2 million annually from our company, before
profits.
I again would like to thank you for allowing me the time to
share our experience with you.
[The prepared statement of Mr. Matthiae can be found on
page 52 of the appendix.]
Chairwoman Capito. Thank you very much.
Our next witness is Mr. Kurt Bauer, who is president of the
Wisconsin Manufacturers & Commerce.
Welcome, Mr. Bauer.
STATEMENT OF KURT R. BAUER, PRESIDENT/CHIEF EXECUTIVE OFFICER,
WISCONSIN MANUFACTURERS & COMMERCE
Mr. Bauer. Thank you.
Chairwoman Capito and members of the subcommittee, I very
much appreciate you coming to Wisconsin, although I could have
gone without knowing that two of the Members were Ohio State
and Michigan State fans, respectively. It was a tough 2
weekends in my household.
I am Kurt Bauer, president/CEO of Wisconsin Manufacturers &
Commerce. We're the largest business trade association in the
State. We represent about 3,500 businesses from all sectors of
the economy.
The vast majority of our members, however, are small
businesses, under 50 employees; and about 53 percent of our
members are in the manufacturing sector, which is Wisconsin's
largest business sector.
In preparing my remarks for today, I went back and I looked
at the surveys that we do of our membership and also of our
chamber of commerce partners to see whether or not credit
availability was an issue that was raised. And the answer was
``no.''
There are a lot of things that they're concerned about, but
credit availability has not been a major one.
I also went and looked at the U.S. Chamber of Commerce.
They do a small business survey on a quarterly basis. Credit
availability was not mentioned.
And then also, we have a partnership with the National
Association of Manufacturers, and they do a survey quarterly,
as well, with IndustryWeek.
Their most recent one did show that 6.1 percent of their
more than 300 small business respondents said that credit
availability was a challenge.
So you can see that it's not a major issue that's bubbling
up to the surface to our membership via our surveys; but having
said that, we are certainly aware that credit availability is a
concern.
We hear anecdotal stories. We had a phone call to the
office last week on the topic. And it's something that we're
certainly concerned about.
I should have mentioned that I spent 18 years in the
banking business prior to coming to WMC. So I'm very much
familiar with Dodd-Frank and how massive that piece of
legislation is.
Forgive me. I don't remember exactly how large Glass-
Steagall was, but I often like to try and compare the two,
because Glass-Steagall was another landmark piece of banking
legislation that was passed in reaction to a crisis; and I
believe that was around 30 pages, or certainly nowhere near the
2,300 pages of Dodd-Frank.
Mr. Duffy. It was 78 pages, I believe.
Mr. Bauer. Seventy-eight pages, okay. Very good.
So we're aware that there are concerns. And we're
monitoring it very closely because, like the other panelists
have said, credit is, without a doubt, the lifeblood of our
economy.
And without having partnerships with financial
institutions, particularly our small member businesses, we
would not be able to be successful. I think that was very well
pointed out by Mr. Matthiae.
I think it's also important to point out here that it's not
just Dodd-Frank. New regulations certainly are a problem, but
you have to also look at the examination environment, and that
has been expressed by the bankers and credit union panelists.
But you are seeing a lot of regulation by fiat, by
examiners in the field, and of course, by the regulatory
agencies themselves with the reinterpretations of rules.
And I imagine that they're reacting to a lot of the
pressure that they feel for supposedly having allowed the
financial crisis to occur, which I don't think is a fair
criticism on their part because I think that there are a lot of
different factors that caused the financial crisis. And there's
a lot of blame that can be pointed in a number of different
directions.
But from our perspective at WMC, I think we're seeing a bit
of an overreaction, which has been compounded by
overregulation. And I'm afraid to say, also, that scenario of
overreaction, overregulation is not unique to the banking
sector.
We're seeing that, as well, in some of the other areas that
we monitor at the WMC such as environmental protection, OSHA
regulations, health care reform, etc.
So from our perspective, we have a broader view, and Dodd-
Frank is certainly something that very much concerns us, but I
think it's all part of this deluge of regulation coming from
Washington.
And I guess my final comment would be that, when I talk to
my members, it's pretty clear that they believe that Washington
is the biggest drag on economic recovery, more so than anything
else that they face.
Thank you.
[The prepared statement of Mr. Bauer can be found on page
48 of the appendix.]
Chairwoman Capito. Thank you very much.
Our final panelist is Bethany Sanchez, director of
community development, Metropolitan Milwaukee Fair Housing
Council.
Welcome.
STATEMENT OF BETHANY SANCHEZ, DIRECTOR OF COMMUNITY
DEVELOPMENT, METROPOLITAN MILWAUKEE FAIR HOUSING COUNCIL
Ms. Sanchez. Thank you, Madam Chairwoman, and members of
the subcommittee. I appreciate your invitation to come here
today to provide my perspective on these important issues.
Let me share with you the basis for my perspective.
I have worked in the housing and economic development field
for almost 35 years. In addition to my 10 years at the Fair
Housing Council, I'm on the board of the Urban Economic
Development Association of Wisconsin, and I'm the current chair
of the board of the National Community Reinvestment Coalition.
The Fair Housing Council works to eliminate discrimination
and increase housing choice in Wisconsin. My work on this issue
is important to the Fair Housing Council because increased
housing choice and healthy communities depend on access to
reasonably-priced home and small business loan products.
All of the organizations I'm affiliated with work in
partnership with small, medium-sized, and large banks, credit
unions, and other financial institutions. We collaborate on
projects and policy work that will help create and sustain
healthy neighborhoods and strong, stable communities across the
State and the country.
To answer the credit needs question, yes, there's an unmet
demand for small business loans and home loans in the
communities that we serve.
Small business owners and those who work with them have
often shared their frustration with me over their lack of
access to credit and capital.
And just this past Friday, the need for small business
loans was again highlighted at a community development forum I
attended at the Marquette Law School.
There's also a big demand for home mortgages and for home
repair loans. But the financial crisis and the uncertainty it
created has resulted in loans not being made, even to well-
qualified borrowers.
Regulations can and will help address this need. Federal
regulations already in place, like the Community Reinvestment
Act, encourage depository institutions to make home loans and
small business loans to all sectors of the community, including
the low- and moderate-income areas that we work to assist.
CRA does not, as some people insist, force banks to make
bad loans. On the contrary, it requires safe and sound loans.
Our experience in Milwaukee and, indeed, the experience of
organizations across the country has shown that CRA provides
underserved communities with a mechanism that encourages
institutions to work with us to do a better job of meeting the
community needs and to make a profit along the way.
In addition to CRA regulations, Dodd-Frank will also be
important to our economy, providing safeguards to borrowers in
the mortgage market and ensuring that large institutions
looking to acquire another bank will need to evaluate not only
the bank's records in CRA assessment areas but whether the
acquisition would be a significant benefit across the country.
A month ago, and in testimony at the Federal Reserve, Chris
Cole, who is a senior vice president of the Independent
Community Bankers of America, noted the importance of Dodd-
Frank's requirements to consider the extent to which a proposed
acquisition results in greater or more concentrated risks to
the stability of the United States banking or financial system.
In Milwaukee, we know firsthand the impact of creating too-
big-to-fail institutions and allowing them to engage in overly
risky business practices.
In Milwaukee County, since 2008, on average, over 500 homes
per month have gone into foreclosure. Within the City's limits,
we still have over 2,000 vacant foreclosed homes, and another
6,200 in the foreclosure process.
And the foreclosure crisis has affected, as you know, the
entire economy, creating more job loss.
Had Dodd-Frank been in place, the damage could have been
contained. Dodd-Frank's provisions are aimed not only at ending
too-big-to-fail, but are also designed to level the playing
field between the mega banks and the rest of the industry, our
colleagues around the room today, and to provide a way to warn
of the systemic risk before toxic financial products and those
activities threaten the economy.
It was crafted as a response to consumer advocates like me
and my colleagues at NCRC, as well as small businesses and
community bankers who had been asking Congress to modernize and
strengthen financial regulations to ensure that mortgage
brokers and independent mortgage companies could not continue
the practices that started this subprime mortgage crisis.
In tacit acknowledgment that small banks did not cause the
crisis, most of the provisions of Dodd-Frank apply only to a
few dozen of the country's largest banks, those with more than
$50 billion in assets.
And Dodd-Frank allows community banks to pay lower premiums
for deposit insurance and to continue to work with their
existing regulators.
In some respects, no one likes regulations, even me.
Complying with regulations and doing reports is not my idea of
a good time.
My work days are often spent writing reports to our various
private and public funding sources, detailing the outcomes of
our work, which takes away from the time spent actually doing
the work that I'm funded to do.
But regulations and reporting provide accountability,
accountability that in this case is a necessary framework for
our large, complicated, and interconnected economy.
The Dodd-Frank law is long and complicated, but please give
it a little time. Don't throw out the baby with the bathwater.
Ninety percent of it is yet to be implemented.
I would support the position articulated at the Fed hearing
by Chris Cole with the ICBA when he said, ``ICBA strongly
recommends that the regulators impose a moratorium on all
acquisitions and mergers involving financial institutions with
over $100 billion in assets, including Capital One's
acquisition of ING Direct. This moratorium should continue
until the banking agencies have finalized all the rules under
Dodd-Frank.''
He went on, and that's in the testimony.
Dodd-Frank's provisions have been characterized by some as
generating job-killing uncertainty. But as Christopher Dodd
recently wrote in the Washington Post, ``In fact, it was the
uncertainty inherent in a nontransparent and reckless financial
system that made Dodd-Frank necessary in the first place.''
Dodd went on to say, ``The truth is that the catastrophe
was years in the making caused by regulatory negligence and
Wall Street gambling. We can't expect to rebuild our prosperity
overnight, but we can't rebuild it at all if we let false
political talking points undermine our efforts to restore
confidence in our financial system.'' I agree.
Dodd-Frank was created in response to immense gaps in our
modern financial system which allowed profits and greed to
supersede the prudent extension of credit and the systems that
support that activity.
Wisconsin residents and the rest of the country need the
opportunities and safeguards generated by CRA and Dodd-Frank.
Rather than pushing new legislation that would weaken Dodd-
Frank before it's even fully implemented, please concentrate
your efforts on helping the CFPB staff to understand the areas
of concern and assist them as they write rules that can truly
help everyone.
I look forward to working with you on that. Thank you very
much.
[The prepared statement of Ms. Sanchez can be found on page
62 of the appendix.]
Chairwoman Capito. Thank you.
I would like to thank all the witnesses, and now we're
going to proceed to the question portion of the hearing. And I
get to be the first one to ask the questions.
I'm going to start with a comment, but I'm going to put
myself on the clock, because I don't want to go past my 5
minutes of questions.
In partial response to Ms. Sanchez's 5 minutes of
testimony, in terms of, was regulation needed? Absolutely. I
think we agree on that.
But I think what you heard is the great disconnect. The
disconnect of what Congressman Duffy alluded to in his opening
statements of what was happening on Wall Street and what has
been happening on Main Street and the frustrations of the
regulatory burden that we have now pushed, not just to Wall
Street because of the lack of transparency and accountability,
but how it's bleeding out into our smaller institutions that
don't have the capacity and don't, quite frankly, probably need
the capacity to fulfill a lot of the demands of a large
regulatory environment.
So I think that's the balance that we are trying to reach.
We are having a hearing next week on CFPB in our
subcommittee--actually, it's this week, on Wednesday. And we'll
be delving into some of the questions that Ms. Sanchez brought
up in her testimony.
I would like to, on my first question, Mayor, you mentioned
why has government not helped small businesses in terms of
being able to get financing. And we need to stimulate from the
bottom up.
I would say that there was a small business lending
program, I don't know if any of your financial institutions
have--did you all, banks, apply for that.
It was supposed to last for a year, but because the
regulations only got going 9 months into the year, only 3
months of lending. It was only $4 billion, which it could have
been $30 billion. But of that, a lot of the banks that availed
themselves of the small business lending fund used the Federal
dollars to pay back the Federal TARP dollars that they owed to
get out from under the TARP program.
So there's a big disconnect here, did it ever really reach
Main Street, and I think the answer is no, it didn't.
And that's a frustration for us, as policymakers, that
policies are going forward without legislative approval that
really are not meeting the challenges.
What would be a good way for us to stimulate small business
lending?
We have heard a lot about forms and all those kinds of
frustrations. Is it more leeway on--in terms of performing
loans? We've heard a lot about that in committee. Do you have
any suggestions on that?
Mr. Erickson. That's an excellent question.
I wish I had more suggestions. But I look at it from
situations I've been involved with from the--I'm also on the
board of directors of McDEVCO, and, of course, working with our
small business in our community and other areas.
But it seems like so many of the programs that are aimed to
small business are aimed to small businesses who--they say, how
many jobs are you going to create from it? If you're going to
get this money, how many jobs are you going to create? If you
can't demonstrate that you're going to create a number of jobs,
then it's very difficult to get help.
Chairwoman Capito. Right.
Mr. Erickson. And I would like to say that we forget that,
when we talk a lot of small business, we have a lot of
operations out there, mom-and-pop operations.
Again, just for an example, a good friend of mine has a
florist business, and he's really struggling right now. He has
40 years in. He's wondering if he's going to lose everything
he's worked for for 40 years.
There's no help for the mom-and-pop small business-type
operations. I just use that for an example because I'm saying--
they say, what kind of jobs do they create?
If it wasn't for the thousands and thousands of independent
florists that are all over the country, we wouldn't have the
floral distribution, we wouldn't the big business we have
with--that's worldwide as far as buying those products. It all
starts down with the small business.
Chairwoman Capito. Right. Right.
Mr. Erickson. They create a lot of jobs, but their help--
they can't demonstrate and say, I'm going to be able to be
trained or create a hundred new jobs. No, they're not going to
be able to do that.
Chairwoman Capito. In terms of how can we help that person,
it's creating a good solid economic environment where we're
growing jobs so more people are buying flowers. And they have
the confidence that if they extend $100 to a floral arrangement
for a wedding or whatever, that they're going to be able to pay
for that and they're not going to--people are hunkered down now
in their own personal spending habits, and several of you have
alluded to the lack of confidence.
Let me ask you, Mr. Matthiae. I tried to make your name
French.
You mentioned the SBA. I think, in your statement, you
mentioned that you have recently gotten an SBA loan. Is that
correct? Or have you been funded--
Mr. Matthiae. We have actually used the SBA over the years
to help get us going and we have used--USDA has been our most
recent.
Chairwoman Capito. Rural development?
Mr. Matthiae. Yes.
Chairwoman Capito. And has that process been easier? Are
you still using the same financial institutions, or do you use
different ones for--
Mr. Matthiae. We still use some of the same institutions.
Chairwoman Capito. So we're talking--you mentioned a lack
of consumer confidence, a lack of demand. Part of it is this
feeling of the regulatory burden. Part of it is this feeling of
inability to make new acquisitions.
As an employer, do you feel hunkered down into your
business? Are you just sort of in survival mode? Do you feel
any confidence coming back? How are your long-term and short-
term projections?
Mr. Matthiae. Short-term, if you would have asked a year
ago--how long have you been with WMC, Kurt?
Mr. Bauer. Seven months.
Mr. Matthiae. Seven months.
I think, if his survey would have been a year ago, there
would have been a great deal of frustration over access to
capital.
What businesses have done is we have gotten very lean. We
have actually cut spending. We have had to pull back in a lot
of areas, and a lot of businesses have stabilized.
And the businesses that did not address the rapid pullback
in the economy probably didn't make it.
Chairwoman Capito. Right.
Mr. Matthiae. Our business did. We have just enjoyed the
best year we have ever had as far as growth. The future looks
great. We're buying equipment, we're building buildings, and
we're working kind of like we were in 2008 and 2007 and prior.
I think the biggest concern out there right now is really
the ratios. And what I think is--it's almost a double standard.
You take out a 20-year loan and you anticipate paying it off in
20 years. Nothing's for sale. It's no different than a stock,
everything is fine.
But then a third of the way through, they--because the
economy falls, they do this appraisal out of the blue, and you
lose all of your equity. That's what's causing the hardships.
And, I think Todd did a very good job of pointing out the
fact that businesses can get in big trouble, homeowners can get
in big trouble, because they need this ratio, 70, 80 percent.
Chairwoman Capito. Right.
Mr. Matthiae. If you had 20 percent down, but the real
estate fell by 25 percent, you haven't even caught up to that
yet on a normal payment. So you have done nothing but what you
have signed a contract to do. And now, the rug is kind of
getting pulled out on a lot of businesses and a lot of
homeowners.
And it's not right. Somewhere, it should be illegal, I
think.
At the end of the day, I thought the contract was that you
made your payments, and if you make your obligations, that
should be it.
Chairwoman Capito. Right.
Mr. Matthiae. And the negotiation was about interest rates.
If the rate went up, that's a chance you took in short-term. It
shouldn't be about, geez, did I buy the right piece of property
and is it going to be worth that same amount all the way
through when I--that is what I think is driving a lot of the
frustration for the banks on the lending side and I think for
tboth the businesses and homeowners alike.
Access to the capital is there. There is no question it's
out there. But you really have to work to get it.
Chairwoman Capito. Right.
Mr. Matthiae. And it's the time lag. There are times, like
this year, we purchased four major pieces of equipment. We
didn't have time to get--if we would have had to finance it and
we couldn't pay cash in some areas, it never would have
happened. And we wouldn't--we hired people and we put people to
work on those, on that equipment, but we didn't have 6 months
to get a loan approved or 90 days.
In years past, once you had your line of credit, you had
your operating--within a week to 2 weeks, it was approved,
you're going, you're ordering that equipment, you're moving.
You can't--business needs to move fast.
Chairwoman Capito. Right.
Mr. Matthiae. It cannot be moving at the speed of
government. It has to actually function in a real-time format.
Chairwoman Capito. Thank you.
My 5 minutes is up, but I will make a comment. When you
said, when you saw the downturn coming and you saw the
difficult times, one of the first things you did, and
businesses across the country did, was cut spending.
Sound familiar?
That's what we're trying to do in Washington. It's very
difficult, as you know.
But--and then you said, the next thing you said, was the
cutting the spending and then led to your growth. This is a big
debate we're having in Washington right now. And I'm glad to
hear you sort of reinforce that concept. Certainly for me, it's
very helpful.
So with that, I'll go to Mr. Duffy for 5 minutes for
questions.
Mr. Duffy. Many of you may know we had a jobs fair here in
central Wisconsin last week, and it was well-attended. We had
about 100 businesses that came that were looking to hire and we
had about 1,200 folks who were looking for a job, folks who had
lost their jobs the week before, some had been out of work for
a month, some for years.
But one of the continual things I heard from the employers
was the quality of workers in central Wisconsin who were coming
through looking for the opportunity to get back to work.
And there was, I think, a great area of improvement, once
the economy turns around, for a great workforce that we have
here.
Ms. Sanchez, I thought of that as I heard your testimony.
I'm not as familiar with your organization down in Milwaukee,
but the folks that you represent, are those the higher-income,
wealthier folks of the Milwaukee community?
Ms. Sanchez. For the most part, no. We actually don't have
any income requirements for people we serve, but the bulk of
the people who come to us for assistance are low- and moderate-
income folks.
And my work on fair lending and CRA work is directed at
low- and moderate-income communities.
Mr. Duffy. Okay. I want to make sure I have an
understanding, as well, because if you look at some of the
rules and regulations that came out, specifically, say, in
Dodd-Frank--and I'll ask this to our banker/credit union panel
here: Have the interchange changes that have taken place with
debit cards and the new rules and regulations, have they helped
you continue to give free checking and free debit cards to your
customers? Or has it made it more difficult to provide free
checking and free debit cards? Anyone on the panel can take
that.
Mr. Nagel. Absolutely not. It has made it more difficult.
The regulatory burden--I would disagree with Ms. Sanchez's
comments completely. The regulatory burden from Dodd-Frank
has--it did create a new job at our bank, but now we have six
people focusing on regulatory burden.
And it has certainly diminished our revenue 10 to 15
percent on interchange alone, just the interchange, which was
one piece of that legislation.
Mr. Reinhart. I know, in the bill, there was kind of a
carve-out that said community banks weren't going to be
impacted by the interchange, but the fact of the matter is,
markets work the way markets work. We're all concerned that,
ultimately, that's going to have an impact on us, and it will.
Have we made any changes to pass on those costs to our
consumers at this point? Not yet. But whether or not it will
have an impact, it certainly has a bottom-line impact on our
operation.
And at a time when we're trying to comply with all the
regulations and having to spend resources, both financial and
with employees to comply, we're looking for every opportunity
to try to continue to be a viable organization. Certainly, that
is something we'll have to think about.
Mr. Duffy. Would you all agree with that?
Multiple Speakers. Yes. Yes.
Mr. Duffy. Oftentimes, folks in our communities are
struggling to pay their bills and is it--I have to imagine it
would be tougher for them to start to have to pay extra bank
fees for their checking accounts or for the use of their debit
card, especially in these difficult times. Would you not agree?
Ms. Wesenberg. I would certainly agree. And I would say our
membership is mostly low to moderate income, as well.
And, even if you're talking the $5 a month that Bank of
America is talking about--or is implementing, for some of our
members, that is what pushes them over the edge.
I think there are many unintended consequences when these
regulations occur. People don't understand that the opposite
side of the Dodd-Frank Act, or the interchange piece, is that
credit unions and banks, we have to absorb all the losses. The
merchants don't really have that piece of it.
And so, part of these fees that people are talking about is
to recoup some of those costs.
Mr. Duffy. I think you guys talked about the increase in
the application size for home loans. Is that a fact? Have they
increased recently?
Mr. Willer. Yes. We have actually had two or three people
retire indirectly as a result of the rest of the changes. It
just has become so burdensome, so complicated, the training is
never-ending, the changes are never-ending.
Again, the intent is to help the consumer. And what has
happened is it has created a lot of confusion.
Mr. Reinhart pointed out the number of pages, and I just
have a hard time imagining anybody being able to wade through
all that information and come to any conclusion as to whether
or not they have the best deal available.
Mr. Duffy. I'm a big fan of transparency. I want to make
sure that customers who have come into the bank know the
products which they're going to get and they understand the
cost and what the arrangement is.
And one of my concerns is, when you make the process so
much more complex, you add that much more paperwork to it, I
don't see that our customers are going to want to wade through
more paperwork and that they're going to understand more what
the arrangement is and what the deal is.
I think simplifying it, condensing it so they can
understand it, would be beneficial.
You get your credit card statements where they're going to
change the rules on you, where you have four pages of small
type, I don't know who reads through that.
And if you have a better understanding of what the
arrangement is with your credit card, I bet most people might
throw it away.
Simplifying, streamlining the process, I think, would help
consumers, instead of stacking up more documents on them,
because they're not going to go through it.
Do you guys disagree with my assessment?
Mr. Willer. Just as an example, this is the paperwork for
an auto loan. So as you can see, there are probably 5 to 10
pages there. That's probably too much, to be honest with you.
I think Mr. Nagel hit it right on the head: Three pieces of
paper, and that can contain all the necessary disclosures.
Mr. Duffy. I have a lot more questions, and I think we're
going to be able to go through our panel a few times, but I'll
yield back. My 5 minutes are up, and we'll have a chance to
come back.
Chairwoman Capito. All right. Mr. Huizenga, for 5 minutes
for questions.
Mr. Huizenga. Thank you, Madam Chairwoman.
I appreciate all of you coming and giving this testimony.
And it is similar testimony to what I've been hearing as I've
been going around the 2nd District in Michigan, which is about
a 250-mile stretch of Lake Michigan shoreline; really a pretty
unique mix of manufacturing, and a number of tier 1 and tier 2
automotive suppliers, office furniture, largest three office
furniture makers are in the district; everything from tool and
die and extrusion and metal forming. It's also very heavily
agriculture and food production, and then it's also tourism.
So we have seen a lot of different effects on that. But I'm
struck by the similar themes that I'm hearing about lack of
certainty, especially, as we're talking about credit
availability and what businesses are doing or not doing as
they're trying to make those decisions.
And I think it was Ms. Wesenberg who was talking about the
piecemeal consumer protections that were being put in place.
My background is in real estate developing. My family is
involved in construction. I own a sand and gravel company with
three employees, third generation. My Dad and my uncle had
started a ready-mix concrete company, which at one time had
about 18 employees, and it's down significantly, as you can
imagine, construction in Michigan.
And I'm struck by that exact same point. The thing I wrote
down, as I was starting to hear some of this testimony, is that
more documents don't necessarily equal more transparency.
It's sort of that old concept of hiding in plain sight.
Right? How do you confuse somebody? Flood them with all this
information that you just kind of go, whatever, I'm not sure.
And I think Ms. Sanchez, getting to sort of what
Congressman Duffy was talking about, are we really serving
constituents, really serving customers, by doing what we've
been doing?
That's one of my main concerns with Dodd-Frank. And I would
like to hear your point again, because I know, when I was going
through my real estate licensing 20 years ago, I was taught
that people aren't brown, people aren't white, people aren't
yellow; they're green.
People are green, and they can either afford things or they
can't afford things. And that, I think, would be very healthy
if we could--I can't remember who exactly, maybe Mr. Nagel, was
making the comment that we're not making decisions based on
people's ability to pay and those kinds of things. We're
looking at what's going to please the regulator.
So I don't know if you care to address that at all.
Ms. Sanchez. Thank you for giving me the opportunity,
because I think there--I do have a fair amount of agreement
with a number of the points made by the other witnesses,
including this issue of regulation and--not regulation, well,
some on regulation, but the disclosures in particular.
Yes, I don't think a stack of papers is helpful in helping
anybody except for maybe a lawyer. And, generally, lawyers that
I've talked to even say, I don't read that at my closing, why
would I expect anybody else to have read it.
So no, I don't think that long disclosures are effective. I
do think that short disclosures, if they're structured right,
can be much more effective in helping people to understand what
they're getting into.
Mr. Huizenga. But I you thought I heard you say, also, sort
of, let Dodd-Frank play out here a little bit, give it some
time, and we'll see where we're at. That's my concern. I'm not
sure that we have that ability or that time.
Ms. Sanchez. As has been noted, there is a lot in Dodd-
Frank. And the protection that Dodd-Frank gives to borrowers is
the part that I'm concerned about and the part that I support.
When there are regulations that are duplicative or that
don't make any sense for our small businesses and for our small
bankers and credit unions, then yes, let's take a look at
those. And that's what I said at the end. Let's figure out how
to make it work.
But don't repeal Dodd-Frank, because we need the
protections that are in Dodd-Frank. We need the playing field
to be level. We need a more overall look at our financial
system in terms of too-big-to fail and other kinds of issues
that it raises.
Mr. Huizenga. That has been the interesting part, having
come in there at the implementation side of it. I wasn't there
for the creation of it, but I'm there living with the after-
effects of it.
And the stunning part to me has been it is treated like
holy writ on high that neither a jot nor a tittle can be
changed in this bill, especially by the former chairman whose
name happens to be attached to it, or on the Senate side, as
well.
So you see, I think any discussion of trying to hit some of
those reasonable accommodations is treated in a very hostile
manner.
I think that's my goal, personally, and I think that is the
goal of my colleagues here, as well, but I appreciate that
input.
So thank you. I think my time is up. Thank you, Madam
Chairwoman.
Chairwoman Capito. Thank you.
And next, we'll go to Mr. Renacci for 5 minutes for
questions.
Mr. Renacci. Thank you, Madam Chairwoman.
Ms. Sanchez, you made the comment, ``Most of the provisions
of Dodd-Frank apply to only a few dozen of the country's large
banks, those with only $50 billion in assets.''
Would any of the witnesses here agree to that?
Mr. Nagel. No.
Mr. Renacci. That's what I thought.
``Most'' is, I guess, a unique word to use there.
I think one of the problems with Dodd-Frank is the blanket
effect. And you also made the comment, ``Had Dodd-Frank been in
place, the damage could have been contained.''
There are some who say that if the regulations that were in
place in 2008 were followed, the damage could have been
contained.
Would you agree with any of that?
Ms. Sanchez. I think that if the Fed had the ability to
regulate the banks more effectively, if they had the ability,
under unfair and deceptive practices, to do a better job of
regulating banks and mortgage companies that were abusing the
system and abusing borrowers, but the overall structure of how
Dodd-Frank regulates the mortgage system, if that had been in
place, I think it would have gone a long way.
Mr. Renacci. Would you possibly agree that if we would have
taken the things that didn't work and tried to fix those, and
left some of the other stuff alone for now, that might have
been the better approach, versus throwing the blanket over
everything?
Ms. Sanchez. I haven't read all 2,000 pages of the Act, so
I'm probably not qualified to answer that.
Mr. Renacci. Okay. But you did say that you were hoping
that it would stay intact, without reading the whole 2,000
pages. So that's a--
Ms. Sanchez. I hope that the aspects of the bill that help
the borrowers that we serve, and keep things fair for borrowers
across the country, including small businesses, and encourage
small business lending, remain in place.
Mr. Renacci. And again, I think that's a good point. There
might be some pieces in there. The problem is we wrote a 2,000-
plus page bill that is affecting credit unions and small banks
and community banks in so many ways that maybe we should have
taken a look at what didn't work and fixed that first but--
Mr. Bauer, you mentioned that Washington is the biggest
drag on the economic development. I think that was one of the
things you closed on. Can you give me some specific examples?
Mr. Bauer. Yes, I would be happy to.
If you would look at--and this is directly from the
membership surveys that we have done and the feedback that we
got back, not only from our specific surveys but also the
surveys that I read from, conducted by the U.S. Chamber at the
National Association of Manufacturers.
But I mentioned EPA, National Labor Relations Board, of
course, Dodd-Frank, and health care reform.
On EPA Industrial Boiler MACT Rule, and in particular in
this area, in central Wisconsin, which is a heavily papermaking
area, that rule alone could cost thousands of jobs in Wisconsin
because it disproportionately impacts papermaking in that
process.
There are other regulations that are being implemented that
we're very concerned about.
And to the point on EPA, it disproportionately affects us
because we're coal-dependent in Wisconsin, very similar,
probably, then, to the chairwoman's home State of West
Virginia. We tend to get our coal from Wyoming, however. But 70
percent of the energy that we use in Wisconsin for industrial
use is coal.
Because the EPA regulations have really gone after fossil
fuels, and coal in particular, it has a disproportionate effect
on us.
We say, at WMC, that there are two major threats to
manufacturing in Wisconsin, which, again, is our largest
business sector, an important sector, because it creates jobs
not only in factories but in other sectors of the economy.
Workforce, making sure that we have that quality workforce
that Congressman Duffy talked about; and then energy because,
as energy costs go up, it makes us less competitive, not only
here in the United States, but certainly to our competitors
internationally.
Mr. Renacci. Thank you.
Mr. Matthiae, you indicated that your business is booming
today, but credit was an obstacle. Can you give me some ideas
of how you're capitalizing your new purchases and your growth?
Is it through cash flow? Is it because--or are you still
able to borrow money?
Mr. Matthiae. With the USDA's help, we were able to get
financed. We were able to convert leases that we had actually
had equipment that was worth something. So we were able to
actually draw a value out of that.
We were able to--first of all, we, again, cut our costs,
and we got ourselves profitable again.
And it all starts with not necessarily the bottom line, but
also, we got very aggressive in sales. And we expanded our
markets. We really--I guess I am a believer that if you're
going to wait for something to happen to you, it's not going to
happen. And so we decided that maybe we should make it happen,
and we hired additional sales staff and really got aggressive.
We had a 39 percent growth this year, which is, for a company
our size, a lot of growth.
Future, we are regulated, certainly, with what the ratios
are, and where we should be. All businesses should have to
follow good business practices. Consumers should have to do the
same thing, keep the house in order.
When you're a fast-growing, high-capital business like we
are, there's never enough cash and there's never enough time.
So at the end of the day, I encourage you to support the
USDA, the SBA. They are good programs. They don't cost money.
They help lending institutions borrow where traditional rates
may not happen and traditional borrowing may not happen.
Some of our loans were actually held up because the USDA
was out of money. The loans were approved but the USDA was
underfunded at that point.
But yes, we are getting enough funding to operate today.
Mr. Renacci. But it's through current cash and the USDA?
Mr. Matthiae. Correct.
Mr. Renacci. In the past, did you use the small--whether
it's a small bank, small community banks? Were those dollars
available to you in the past? Are they available to you today?
Mr. Matthiae. Not in the same form, no.
Our traditional banking, we have not been able to do that
today.
Mr. Renacci. All right. Thank you. That's--
Mr. Matthiae. We needed the help of the USDA.
Mr. Renacci. Thank you.
I see my time is up. I have other questions, but I'll wait
until the next round.
Chairwoman Capito. Okay. I'm going to start over again here
and ask a question of the credit union and community bankers.
We have heard Dodd-Frank--how large it is and the
regulatory structure that's just now beginning, because it
hasn't even been fully implemented. And there are a lot of
carve-outs in there. I think the four of you, your
institutions, are supposed to be carved out.
I just want to re-emphasize, because we are going to be
having this hearing with the CFPB on Wednesday, that your
feeling is that you're not, in reality, exempted, because it--
could somebody speak to that issue one more time for me,
please?
Mr. Nagel. I think I can.
Most banks and credit unions, for that matter, borrow from
larger banks. So I think that's the largest myth out there,
that we need larger banks or correspondent banks to do our
relationships.
So as it relates to interchange, the $10 billion bank, or
whatever the limit is, they issue our debit cards and credit
cards. That's where our interchange comes from.
What happens--it's the spin-off effect of this legislation
that's happening. And we're already feeling it across our
revenue streams in many different areas.
I agree with Representative Renacci, though. If regulators
did have the power to stop this crisis--all the regulations
that were in place, had they been followed, we wouldn't be in
this situation.
Chairwoman Capito. Mr. Nagel, let me ask you, when we had
our field hearing in--no, Mr. Reinhart, I want to ask you this
question.
When we had our field hearing in Georgia, when you talked
about the re-appraisals of the properties and we--this is what
has sunk their 64 banks. This is the commercial real estate
issue.
And there was a frustration from the community bankers
that, and I alluded to this in my opening statement, on the one
hand, there's a pressure to lend. But the regulators--and you
all talked about this--come in and tighten down.
And you mentioned you could make loans but only if they're
the ones that make the examiner's report look favorable.
Is this a change of behavior from the last 2 or 3 years?
Obviously, you think it's an unfavorable change. How can we
make that connection?
Because we did have the regulators at that hearing to hear
what our community bankers and those in Georgia were saying.
That's a big disconnect, I think. Do you have a comment on
that? First of all, is it a change? You have been in banking
for--
Mr. Reinhart. Thirty-five years.
Chairwoman Capito. --35 years.
Mr. Reinhart. Yes, it has been a big change.
And we can all appreciate the fact that we have been
through a very, very difficult period of time.
One of the changes that's happening is, because of the
pressure that has been put on the regulators, the FDIC, etc.,
we're getting examination teams from all over the country.
They're coming in from Iowa or Kentucky or wherever. They don't
have the same perspective of having worked with you over the
years and knowing the management team and knowing what your
strengths and weaknesses are, so you have to kind of go through
that whole educational process as part of it.
The other thing is that, because of the concerns about
capital and liquidity that was mentioned, we have to be overly
sensitive about how our loans portfolio is going to be viewed;
are they going to be classified, not classified, because that
has a big impact on our reserve requirements.
And so, whereas in the past, a lot of the credit decisions
were based on historical performance, character, collateral,
not that we weren't looking at cash flow and capacity and--and
all of the five ``Cs.''
But it seems like there's been more and more pressure put
on, as was pointed out, getting updated appraisals. And if
those appraisals come in poorly, how are you going to deal with
it? Is the loan going to be classified, not classified? If it
is, you have to have more reserve requirements.
And cash flow requirements have become much more
complicated than they were in the past, and you need to look at
more factors.
When we're trying to determine what kind of provisions for
loan losses that we have to make, we have to go through a much
more involved calculation today than we used to. And it has
become so difficult.
So, whereas the examiners are erring on the side of being
conservative, some banks feel like they have to do the same
thing for fear of the next examination and how you're going to
be viewed.
Chairwoman Capito. Do you have this phenomenon--one of the
bankers in Georgia mentioned that he sits down with the review
team, and the report is verbalized to him. And then the report
comes out, I don't know, a month later, the written report, and
it doesn't even look like the same; it doesn't look like the
same review because of what is written. They have to cover
themselves so much more.
Is that an area where you have seen any differences, or not
really?
Mr. Reinhart. Yes. Certainly, from my perspective, and
having talked to people, there's definitely a disconnect.
You really don't know exactly what's going to be in that
document when it shows up 2 or 3 months later.
Chairwoman Capito. Even after you've had the verbal review?
Mr. Reinhart. Correct.
Chairwoman Capito. Let me ask Ms. Sanchez one quick
question, because my time's up.
Does your organization--have you acquired any of the
Neighborhood Stabilization money?
Ms. Sanchez. No.
Chairwoman Capito. No?
Ms. Sanchez. We work with the City on their NSP programs,
and try and get the word out on the programs as they're working
on it, but we don't get--
Chairwoman Capito. Okay. But you mentioned--
Ms. Sanchez. We don't get NSP money directly.
Chairwoman Capito. You didn't get NSP money.
You mentioned in your statement that there were 2,000
vacant homes in Milwaukee?
Ms. Sanchez. Right.
Chairwoman Capito. That had been foreclosed on?
Ms. Sanchez. Yes.
Chairwoman Capito. Is the City using that Neighborhood
Stabilization?
Ms. Sanchez. It is.
Chairwoman Capito. To do what with the properties?
Ms. Sanchez. To--
Chairwoman Capito. Rehab and resell?
Ms. Sanchez. Right. Exactly.
Chairwoman Capito. Is that meeting with success, or--
Ms. Sanchez. Limited success. It's not enough and it's not
fast enough. My understanding is this is sort of a low bar, but
compared to NSP programs around the country, we're quite
successful.
Chairwoman Capito. It's a little discouraging, just because
there's billions and billions of dollars in there.
And in the Dodd-Frank Act, there was another, I think,
billion dollars that was put into that program. I was wondering
how successful it was being.
I will go to Mr. Duffy for more questions.
Mr. Duffy. You have all--I think we were talking about the
traditional analysis you do on your loans, whether it was
historical performance, collateral, character, there's a whole
bunch of different factors you would look at.
What I keep hearing is those traditional factors, based on
your relationship with the individual, that has been thrown
out, and you're managing your loans for the file. So when the
regulators come in, the file looks appropriate.
Is that the case? Or are you still able to go with some of
these traditional analyses? Anyone on the panel?
Ms. Wesenberg. I would have to agree with your comments. I
think we certainly know the businesses that we've dealt with
for a long time that have the character.
We do try to back into it and make it look good on paper,
so to speak. But sometimes you can't because of property values
declining. It could be a good performing loan, but because of
that, you can't renew. And that is because of the examiners.
If we had an option on those loans, we would most likely
renew because we have a good relationship, we know that
borrower, but it puts us in a position not to.
Mr. Duffy. But to be clear, the performing loan is--there's
no default?
Ms. Wesenberg. Correct. It means they're making their
payments.
Mr. Duffy. They're making their payments every month, but
because of changing valuations and pressure from regulators,
you'll pull those loans? In essence, is that what's happening?
Ms. Wesenberg. Yes.
Mr. Duffy. I just wanted to make sure I was clear on that.
Before I come back over to the right, I want to talk to you
about the CFPB because we passed a bill in the House that's
waiting in the Senate. And it was going to streamline the CFPB,
and make it more accountable.
One of my concerns with that bill was that, basically, to
have FSOC review rules that came from the CFPB, you almost had
to have a complaint that the rule from the CFPB was going to
create systemic risk to the economy as a whole.
And one of my concerns about that was--I don't know how any
of the four of you go to FSOC and make the claim that the way
this rule impacts you and your credit union or your bank is
going to create systemic risk to the economy as a whole.
Maybe you guys are more compelling than I think you are,
but now, if you're Bank of America, if you're U.S. Bank, if
you're Wells Fargo, those bigger banks are able to go in and
make that argument. They have a far larger claim that the rules
that impact them can affect the economy.
Am I wrong in that assessment? Do you think you can go in
there and make those claims and change rules that come from the
CFPB the way the law has been currently written?
Because if I'm wrong on that, I want you to tell me.
I think that what's important is we want to make sure that
we give a voice to our small financial institutions to have
push-back on rules that impact them. Because if they impact
you, they impact our community as a whole.
And I think we see the connection between lending,
expansion, and jobs.
One of my concerns was with what Mr. Matthiae indicated,
and I have heard this before: Folks who have been in business
for a while will say, if I had to start my business today, I
wouldn't be able to do it.
I will use Ron Wanek as a example. He started Ashley
Furniture, he says in 1971. He knew how to make furniture, and
he knew how to sell it. He started his business in a little
shop and grew it into a billion dollar business.
He said, ``If I had to do it today, I'd never be able to do
it because of all the mandates and regulation and the red
tape.''
And to hear you say that as well is disturbing. What has
changed, do you think, between 1993 and today that makes it so
much more difficult for folks with an idea to pursue that dream
and invest and work hard?
Mr. Matthiae. My original business plan was, they have
parts, I'm going to paint them. That was the plan.
I had 3 weeks to get the financing, find a building, get
the equipment, and I had a whole lot of cash. Not.
That wouldn't happen today, pure and simple.
Is that how every business would start? Heck, no. I
wouldn't recommend that for anybody, by the way.
But at the end of the day, that's why I'm here today. It's
not for myself, it's not for--my company is fine now. We are
actually a better company, I think, than we were 3 years ago.
But when you go to start a business, there are very few
business plans that are going to show a profit in that first
couple of years, no matter how good that business is.
If you present that to a bank or any--you lay it out, and
it's already a classified loan, and you haven't even--the ink
isn't dry. So you're already in a classified segment.
The amount of cash you need down would be so high that
those loans are just--you can ask the banks that question, but
I don't think any of them would touch me today if--other than
the bank that I went to, which happens to be across the table,
and in the back of the room, actually.
They knew that I was a hard worker and that I knew what I
was doing. And at the end of the day, that meant something. I
don't know of a form that you can fill out that says, okay,
this guy knows what he's doing. There has to be that heartbeat
there. And there's no wiggle room anymore, with all these forms
you're creating.
With all the restrictions, it's difficult. Business was
much simpler back then, as well.
Today, we have a very good relationship with our local DNR,
but the DNR and the EPA aren't on the same page.
So you can be totally compliant with the DNR, and the EPA
can come in and shut you down because you're not. We have
specialists in just that part of regulation.
It's unfortunate that you feel that you're complying and
then you potentially could not be because another agency says
you're not.
But it's those types of issues that are stopping small
businesses from either starting or--I feel for the florist who
is struggling. They're not going to be able to create any jobs.
They've been a two-person company or a business forever, and
they're happy and they were successful. And for whatever
reason, things are happening to them. Who does help those
people?
It's not right. And it's certainly going to do--when you
hear that businesses are--and homeowners are making their
payments but, again, it comes down to these appraisers that
are--that the market is flooded with foreclosed properties.
Obviously, you could never replace these facilities or
buildings or homes for what they're getting sold for. In some
cases, the higher the value, the worse it is.
So, at the end of the day, let banks be banks and judge
people. And somewhere there should be a--if you're going to do
a rating, that should count for something. Somewhere, that
experience, that--whether it's a college education, something
substantial with your past business experience.
I graduated from high school, by the way, and then I got a
ton of education form the school of hard knocks. I have paid
for many Harvard educations by several mistakes. And so, I have
one of the most expensive educations you can get. I have made
more mistakes than most people, but you learn from your
mistakes and you go forward.
At the end of the day, let banks judge people and give that
some credit. It still should be a solid loan.
And I agree, this Wall Street mentality, the quick strike,
make the quick buck and get out of it, small business isn't
like that. Homeowners aren't like that. They want to live in a
home. This is their home they want to buy.
A business is--this is my--I want to sell these flowers.
But they need to keep on selling flowers. If they're making
their payments and, just because an appraiser says their
property is worth less than what they may or may not owe, that
was a solid loan in 2007. Today it's junk? And you've made
payments for 5 years? It makes no sense.
Mr. Duffy. Just quickly, are you a billionaire?
Mr. Matthiae. I'm not a billionaire, but I am a
millionaire, yes.
Mr. Duffy. Are you a corporate jet owner?
Mr. Matthiae. No.
Mr. Duffy. Are you involved in big oil?
Mr. Matthiae. I do have a jet ski.
Mr. Duffy. And you just--you guys just hired 30 new people;
is that right? Or roughly 30?
Mr. Matthiae. We have hired, since the first of the year,
about 120.
Mr. Duffy. 120. So let me just--I'm going off in a little
different area.
If we could just raise your taxes a little more, would that
help you create more jobs in central Wisconsin? If we just got
a little more money out of your pocket into the Federal
coffers, could you do a better job of putting more people to
work?
Mr. Matthiae. If you would do a better job of spending that
money.
I think, at the end of the day, I don't have a problem
paying taxes. I have been at both ends of the spectrum. If I'm
paying taxes, that means I'm successful.
However, there is a limit. And when--when cash is--you need
to keep building a balance sheet. How do you build a balance
sheet when you pay 30, 40 percent in taxes?
You have your depreciation. You have all these tax items
going on. Yet, at the end of the day, you could tax-smart
yourself right out of business, according to Ms. Wesenberg
there.
You could make your payments, but you could have your
accountants write your business down so far that you're going
to be out of ratio and guess what, you're out.
Mr. Duffy. What you're telling me, and I want to make sure
that I'm clear on this, is as a constituent and as a job
creator, you would say that you could create more jobs if we
tax you more?
Mr. Matthiae. Oh, no. No.
Mr. Duffy. I just want to be clear. I want to help you
create jobs. And if we could really do that by raising your
taxes, I would.
Mr. Matthiae. The deal was if you did a better job of
spending money that I pay in, then it would be a good
investment.
You guys are not going to spend your way out of this. You
need to cut the programs. You need to cut spending. You need to
get your own house in order.
And to keep taking us further in debt isn't the answer. I'm
working very hard to get out of debt. I'm working very hard to
get my balance sheet in order. And I work every day at that,
and I think most people sitting here do that.
So it's unfortunate that our country, which is--I never
served in the military, but I think if I ever served in the
military, I would be pretty upset with where things are going
today.
The freedoms are being eaten up every time we make a new
law. And these laws are made for--there's consequences.
In business, any business, when you make a change, you have
to follow that change through the whole process. Because what
started out very good, with good intentions, doesn't turn out
so good always. And I think the same thing is true with the
regulations and with laws.
Mr. Duffy. I yield back.
Chairwoman Capito. Thank you.
Mr. Huizenga?
Mr. Huizenga. I appreciate that. I'm going to have to use
that line, ``jet ski owner.''
It is interesting. As you were talking, I was reflecting
back on my own family business. How my family got involved in
ready-mix concrete was because when my dad and my uncle were
digging basements and building roads for people, they finally
looked around and said, we don't have enough concrete coming
in.
And, as you said, it's not a way to start a business, but I
think that's exactly how most businesses start. They see that
need and they go to fill it.
That's a concern I have, as well, is now, with the
parameters that have been placed on there, all--and many times,
for good intentions, we have just created these choke points
that people can't get beyond.
I appreciate my colleague from Wisconsin here with his line
of questioning about the CFPB. And that's something that we get
to pursue. I sit on the subcommittee, and we get to pursue that
on Wednesday.
Right, Madam Chairwoman?
Chairwoman Capito. Right.
Mr. Huizenga. He's probably too modest to tell you that was
his bill that was trying to introduce some modicum of
reasonableness into this whole process.
And all of us on that committee were pretty much vilified
as we were trying to protect the small banks and the credit
unions here in central Wisconsin, and I was trying to do it in
west Michigan, I know Jim was trying to do it in Ohio.
That is the kind of attitude that I think is getting in the
way of trying to find new solutions as we're moving forward on
this. And so that gives that sort of, that holy writ from on
high sort of aura around this piece of legislation.
We just have to be honest with ourselves, and that's why I
appreciate that conversation.
And Mr. Bauer, right? Kurt, right? You had talked a little
bit--this is a point that we all need to know about. Boiler
MACT--M-A-C-T--Maximum Achievable Control Technology.
There were two pieces of legislation, one dealing with
boilers, the other one dealing with cement plants. I happen to
know a little bit about that one, and you're right.
I also have a constituent who owns a company that makes
those boilers. And under the regulation that has been proposed,
not quite implemented yet, but proposed by the EPA, in the case
of cement plants, we would shut down 20 percent of all the
cement plants in the United States.
Forty-six percent of all cement is created in China. Guess
where it's going to be coming in from? And they have a little
bit less concern about what they're putting into the
environment than what we do.
Exact same thing with the boilers. Last week, when I was
back in the district on our district work period, I sat down
with this owner from Hines Corporation--H-I-N-E-S--not the
ketchup people.
But he was telling me he has a number of contracts,
potential contracts, for these boilers and that they're frozen;
that lack of certainty has caused these people who are wanting
and needing to buy a new boiler from him to not do so, because
even if they bought that brand new boiler, which would almost
double their efficiency, it still would not come in compliance
with what the proposed rules were from the EPA.
And in the area of the cement, the EPA was proposing
regulations that were 5 times more stringent than the European
Union--5 times more stringent than the European Union. And it
parallels that with the boiler.
So that is the kind of thing that I'm very concerned about.
I believe it was you who said, it's not just Dodd-Frank; it's
overregulation on a lot of different areas.
I am just wondering if you can maybe expand on that
uncertainty element and how that may be affecting the business
owners?
And, Mayor, if you have any businesses in your area that
are dealing with some of those things?
Mr. Bauer. I'll just make a comment, and then I'll yield to
the mayor, because I've already had a chance to talk a little
bit about this.
You look at the stimulus package that we passed, I think
that was in 2009, almost a trillion dollars and a lot of
consternation on whether or not that was effective.
It was supposed to prevent us from going over 8 percent on
unemployment, and we're somewhere north of 9 percent. We're a
little bit better here in Wisconsin.
But I think that a lot of the Federal spending has been
undermined by the compression layer of regulation coming down
from Washington. It absorbs the benefit and negates the impact
on the economy.
So I think, if there's a message that I can deliver,
whether it's Dodd-Frank, whether it's EPA, whether it's some of
the things that we're seeing from the Department of Labor with
OSHA regulations and what we're seeing with health care reform
and the uncertainty that creates for small businesses in
particular, try and create certainty because--
Mr. Huizenga. I'm sorry. I have to interrupt, though.
So you're not in favor of small children becoming
asthmatic?
Mr. Bauer. No. No.
Mr. Huizenga. Or elderly people dying?
Mr. Bauer. I think the--
Mr. Huizenga. Or workers being injured on the job?
Mr. Bauer. No, we're not in favor of that.
Mr. Huizenga. I just wanted to clarify that.
Mr. Bauer. But the OSHA regulations, in particular,
considering you ended with that, is analogous, I think, to
what's going on in banking because you have the rules and then
you have the examiners who go on site and they have tremendous
leeway.
And what we're hearing is is that they go on site, they
give the factory or the work site a clean bill of health, and
then they come back the next day and say, I was told that I
have to write you up on something.
It creates more and more uncertainty and frustration. And I
do think that is just another example of the problem that we're
talking about here today.
Mr. Erickson. Just to expand a little bit, too, Madam
Chairwoman, when we're talking about how do we stimulate small
business, how do we get things going there, I think--and I said
it's a tough question. And it really is. But I just wanted to
expand on that a little bit, as it relates directly to what
we're referring to here.
It's not--I don't know if it's stimulus money coming down
here as much, or how it can be done for small business. We're
talking about the mom-and-pop organizations that are 20-year
loans.
The big issue is, it can be stimulus money, but it has to
come from a different direction.
Most small businesses--and I'm talking, again, the 20 and
smaller. Once they develop and they start to grow, they're--and
I did the same thing. You look at concentration.
I mentioned before that I do have some commercial
buildings. And I told my son this, who is working into the
business, you have to have some stability. Your stability
becomes the properties. That's the only way you can stabilize
your business.
You build the equity in those properties, and then you look
at it saying, I need working capital. If I don't have money
here, I can go borrow against that. And now it's really
difficult to do that.
It also means retirement for so many of the small
businesses. That's what they work for and that's what they
build. And they put all their energies and efforts into real
property. And all of a sudden, this real property isn't worth
anything anymore.
Now, you're looking and saying, how do I maintain, how can
I keep operating? You go to the bank and they say, it doesn't
matter if you are over 800 in your credit rating; we can't give
you any money.
Why? Because you don't have that equity in your property
anymore. Why don't they have equity in their property anymore?
Because it has been devalued.
And it's frustrating. I look at my son coming into the
business. It's frustrating as heck for him because I always
told him, too, sweat equity. You put everything in.
A lot of the buildings we purchased needed--they were
projects, not that it wasn't a good investment on our side from
the standpoint of building stability. But, we looked at, then,
also building equity, because the more we put into it, the more
they're worth.
Now, they're twice the building that they ever were, but
they're worth half as much. And so a lot of sweat, but not much
equity.
And so now we're looking at it, and we're looking at
growing, with him being young. At my age, I'm not looking at a
lot of growth anymore. But--gray hair.
But we're looking at the--what's in it for him, and I'm
saying--he's saying, we should do this, Dad, we should move
forward here, and I agree with you 100 percent. And I say,
okay, where are we going to get the dollars to do it, because
you're absolutely right, that's where we have to go.
But if you go talk to the bankers that we're working with
all along--and my banker is apologetic all the time. He says,
jeez, I know your credit rating is awesome; I know you have
everything going for you and you have always done everything
right; but, there's no money in your building anymore. No. You
have already borrowed what you can.
That's where the stimulus needs to come in, because I still
believe that it's those small businesses that create all the
jobs. That's where they come from.
Mr. Huizenga. My time has expired.
Chairwoman Capito. All right.
Mr. Renacci?
Mr. Renacci. Thank you, Mayor; and I would agree with you.
What is interesting about stimulus from Washington is, when it
goes up, it never comes back down in the same amount.
The best stimulus is what Mr. Matthiae talked about. When
you cut costs, you can get your costs down to where you can
stimulate your own business by using your own dollars.
Mr. Matthiae, I also appreciate your comments. At age 24, I
borrowed $265,000 with $10,000 in the bank and just the
background experience that the bankers believed in me that I
was able to start my own business, too.
The concern I have now, and I'm going to look over on this
side, is I'm concerned about those who have started their
business and--and I know there are some examples in my
district, where people started their business, they're
profitable, they're making the dollars they need to make,
they're making maybe even the same amount of money they made 3
or 4 years ago. But their building value went down in one
example, from $5.5 million down to $4 million, and their notes
are being called.
And now, all of a sudden, even though they're making the
same dollars and they're the same stable company, just because
their building value went down, their business is somewhat in
trouble because they can't refinance.
Can you tell me some examples, not specifics, but how many
times you're starting to see that in the banking industry? And
even in the--either of the bankers, is that something that's
happening here, too, and you're seeing that often?
Mr. Nagel. I would say that's what I was alluding to
earlier, and what Mark was alluding to earlier is we're seeing
equipment hold its values; but as it relates to real estate, an
example I use it that it is devalued 30 percent.
If we don't have collateral to shore up that loan and the
bank examiner walks in, they'll require us to downgrade the
credit or create a--make it substandard, which we'll have to go
from a 1 percent reserve on a million dollar loan to a 15
percent reserve. So the expense to the bank is quite large.
We'll be ``forced'', is the word I use, to go to the
customer and ask them for more collateral, which they don't
have, which then creates a default, which then creates a piece
of property on the market that's already devalued that, once
the bank has it, now it gets devalued to 50 percent.
So it just--the downward spiral is going to continue every
time the renewal comes up because real estate values are
continuing to go down.
The same thing is happening in the residential market.
That's why there are 2,000 foreclosed homes that no one's
buying in Milwaukee, because they're not worth anything.
Mr. Renacci. So how many customers are you seeing this
occur to? Five percent, 10 percent? I'm talking about good
solid businesses. Their model hasn't changed, their economics
haven't changed. The only thing changed is some of their assets
have been devalued through foreclosures of other properties.
Mr. Nagel. Yes. Almost all of our small business customers
are seeing their commercial real estate devalued. All of them.
We had a conversation with a customer last year who's
performing, everything is excellent with it, and we had to ask
them for more collateral.
They went and called another bank and the bank told them
the same thing. So it's happening daily. I don't know the exact
percentage, but I think anyone who is attached to commercial
real estate is seeing them going down, even on brand new
buildings.
We're seeing it in--another example is, Friday we had a
residential appraisal that, because of market comparables, came
in 25 percent less than the cost to build, than the actual cost
to build. So we can't give them that loan unless they come up
with the extra dollars, according to the regulation.
Mr. Renacci. Right. It's the regulators. It's the
appraisals.
Mr. Nagel. Right.
Mr. Renacci. And that's what I keep trying to get at.
So I think of the person who has started that business, and
now has been in business for 20 years, they are coming to you
and saying--or you're going to them and saying, we need you to
put more capital in?
Mr. Nagel. Right. The simple solution is to let us lend on
cash flow. If the customer cash flows and the debt coverage
ratio is adequate, let us lend; don't criticize the loan.
That's the solution.
Mr. Reinhart. Just a couple of comments on the subject.
Number one, the commercial real estate appraisers are
coming under a lot of pressure as well, because they've been
criticized because of the fact that when these properties
become distressed, they go down in value.
So I think that there's a chilling effect with them, as
well; that they have a tendency to appraise these properties
for less than they did in the past, for their own protection so
that they can be safe.
Separate from the fact of whether or not you're going to be
able to continue to work with a company, as was pointed out,
the ability to fund expansions and help businesses grow,
because of those collateral values, is a very limiting factor.
You may be able to continue to work with a company to help
them through these difficult times, difficult times meaning
because their real estate is worth less, but your ability to
significantly loan more money to them to help with the
expansion is impacted.
Mr. Renacci. In my district, there was a business that
appraised for $2.7 million, had a million dollars' worth of
debt on it, and a $100,000 line of credit. When the $100,000
line of credit came due, the bank didn't have the cash to pay
the $100,000 line of credit. That business today is in
foreclosure and is being sold at probably $200,000 to $300,000,
even though the bank had $1.3 or $4 million worth of debt on
it.
So again, the process that we're talking about is hurting--
and this business was making money. It's sad that we're seeing
that. That's why my concerns are that it's affecting those
business owners today.
I see I've run out of time. Thank you.
Chairwoman Capito. Thank you.
I have no further questions. Mr. Duffy wants to make a
closing comment and then I'll close up.
Mr. Duffy. Again, I appreciate the subcommittee coming and
hearing everyone's views here today, to take the insight and
information back to Washington.
I appreciate the panel coming in and sharing your views. I
know sometimes it's not always easy to come in and tell us what
you think and do it publicly. We appreciate that.
And I guess I would just leave all of you with a message
that I do think, especially in the House, there is a movement
afoot to say, let's try to do things better.
It's not--no one's saying let's get rid of Dodd-Frank,
let's not have any regulations. That's not what we're saying.
But we can do it more effectively. We can streamline it. We can
make it easier for our businesses to expand and grow and create
jobs, easier for our banks and credit unions to get capital out
and still be safe and sound.
And I guess my pitch to all of you would be, if you have
any ideas, if you have any information, don't be afraid to
share it. I think the best ideas do not come from Washington. I
guarantee you that. They come from right here.
And so, if you're willing to share those ideas with us, you
have a Committee and a House with open ears, and we'll take
those ideas and implement the best ones.
I appreciate you coming in today. Hopefully, this is just
the starting point of many more conversations that we can have
to hopefully make government work better.
Thank you all for coming in. And I thank the chairwoman and
my colleagues for joining us today, as well.
Chairwoman Capito. Thank you.
I would like to thank you, again, Mr. Duffy, for inviting
us here. This has been, I think, very interesting and
illuminating.
And I hope that you feel that it was worth your time. It
certainly was worth our time to come and listen and hear.
I'm certain that we would hear very similar things in all--
and I have been hearing that in my district.
And please take heart that there's a lot of cynicism around
Members of Congress. What are we down to now? A 9 percent
approval rating?
And a lot of is, I think, a view that we don't listen and
that we don't take back what we hear, that this is just window
dressing. And I want to assure those in the audience and those
who have taken time out of their valuable business days, that
we are listening and we are going to take this back.
I just leaned over to Mr. Huizenga and I said, ``What do
you do about the appraisal issue?'' That is obviously a
resounding theme here.
And so, we're already starting to think what kinds of
built-in mechanisms we can put in to help with that.
The Chair notes that some Members may have additional
questions for this panel which they may wish to submit in
writing. Without objection, the hearing record will remain open
for 30 days for Members to submit written questions to these
witnesses and to place their responses in the record.
And with that, this hearing is adjourned. Thank you.
[Whereupon, at 12:45 p.m., the hearing was adjourned.]
A P P E N D I X
October 31, 2011
[GRAPHIC] [TIFF OMITTED0] 72620.001
[GRAPHIC] [TIFF OMITTED] 72620.002
[GRAPHIC] [TIFF OMITTED] 72620.003
[GRAPHIC] [TIFF OMITTED] 72620.004
[GRAPHIC] [TIFF OMITTED] 72620.005
[GRAPHIC] [TIFF OMITTED] 72620.006
[GRAPHIC] [TIFF OMITTED] 72620.007
[GRAPHIC] [TIFF OMITTED] 72620.008
[GRAPHIC] [TIFF OMITTED] 72620.009
[GRAPHIC] [TIFF OMITTED] 72620.010
[GRAPHIC] [TIFF OMITTED] 72620.011
[GRAPHIC] [TIFF OMITTED] 72620.012
[GRAPHIC] [TIFF OMITTED] 72620.013
[GRAPHIC] [TIFF OMITTED] 72620.014
[GRAPHIC] [TIFF OMITTED] 72620.015
[GRAPHIC] [TIFF OMITTED] 72620.016
[GRAPHIC] [TIFF OMITTED] 72620.017
[GRAPHIC] [TIFF OMITTED] 72620.018
[GRAPHIC] [TIFF OMITTED] 72620.019
[GRAPHIC] [TIFF OMITTED] 72620.020
[GRAPHIC] [TIFF OMITTED] 72620.021
[GRAPHIC] [TIFF OMITTED] 72620.022
[GRAPHIC] [TIFF OMITTED] 72620.023