[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 IN ILLINOIS

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

                             FIELD HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             FIRST SESSION

                               __________

                            DECEMBER 5, 2011

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-89


                  U.S. GOVERNMENT PRINTING OFFICE
72-630                    WASHINGTON : 2012
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Printing Office. Phone 202ï¿½09512ï¿½091800, or 866ï¿½09512ï¿½091800 (toll-free). E-mail, [email protected].  



                 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, Missouri
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, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         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


                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    December 5, 2011.............................................     1
Appendix:
    December 5, 2011.............................................    43

                               WITNESSES
                        Monday, December 5, 2011

Bates, William, Jr., Executive Vice President and General 
  Counsel, Seaway Bank and Trust Company, on behalf of the 
  National Bankers Association...................................     9
Ohlendorf, Gregory M., President and Chief Executive Officer, 
  First Community Bank and Trust, on behalf of the Independent 
  Community Bankers of America (ICBA)............................     6
Palmer, Bob, Policy Director, Housing Action Illinois............    20
Rand, Dory, President, Woodstock Institute.......................    18
Renn, James J., President and Chief Executive Officer, Lisle 
  Savings Bank, on behalf of the Illinois League of Financial 
  Institutions...................................................    12
Roolf, James M., Chairman, Illinois Bankers Association (IBA)....    10
Schmitt, John, President and Chief Executive Officer, Naperville 
  Area Chamber of Commerce.......................................    14

                                APPENDIX

Prepared statements:
    Bates, William, Jr...........................................    44
    Ohlendorf, Gregory M.........................................    51
    Palmer, Bob..................................................    58
    Rand, Dory...................................................    61
    Renn, James J................................................    63
    Roolf, James M...............................................    67
    Schmitt, John................................................    74

              Additional Material Submitted for the Record

Biggert, Hon. Judy:
    Written statement of Peter Haleas, Chairman, Bridgeview Bank 
      Group, Bridgeview, Illinois, on behalf of the Illinois 
      Bankers Association........................................    83
    Written statement of Michael G. Steelman, Chairman and CEO, 
      Farmers and Merchants State Bank of Bushnell, Illinois.....    88


                    REGULATORY REFORM: EXAMINING HOW
                     NEW REGULATIONS ARE IMPACTING
                     FINANCIAL INSTITUTIONS, SMALL
                       BUSINESSES, AND CONSUMERS
                              IN ILLINOIS

                              ----------                              


                        Monday, December 5, 2011

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 9 a.m., in 
Chicago, Illinois, Hon. Spencer Bachus [chairman of the 
committee] presiding.
    Members present: Representatives Bachus, Manzullo, Biggert, 
Dold, and Schweikert.
    Also present: Representatives Kinzinger and Walsh.
    Chairman Bachus. This hearing will come to order.
    The Financial Services Committee is meeting in Chicago this 
morning to take testimony concerning the bank regulations and 
their effect on financial institutions.
    I would like to thank Mrs. Biggert, the chairman of the 
Subcommittee on Insurance, Housing and Community Opportunity, 
for organizing this hearing. She has been a tireless advocate 
of financial literacy, a dedicated public servant who I think 
looks after the people of Illinois very well, and she always 
seems to have the health of our Nation's financial system 
foremost on her mind, particularly those in the banking 
community.
    Mrs. Biggert, would you like to say anything at this time?
    Mrs. Biggert. I have an opening statement.
    Chairman Bachus. I will let Mrs. Biggert give her opening 
statement, and you don't need me to give one.
    Mrs. Biggert. I'm sure they would rather hear from you, Mr. 
Chairman, but I'll be glad to do that. I'm sure you'll have 
some more.
    Chairman Bachus. I don't want to depress them. I know the 
banks are having tremendous problems with the volume of 
regulations. As you know, Dodd-Frank was the biggest change in 
our regulatory law since the 1933 and 1934 Acts, and, in fact, 
Dodd-Frank has more rules and more pages than all of those Acts 
put together, of all the Acts during the Hoover and Roosevelt 
Administrations.
    To compare it with Sarbanes-Oxley, Sarbanes-Oxley is about 
330 pages and 16 rules; Dodd-Frank is over 400 rules. And 
Sarbanes-Oxley took 3 years before the Congress, and over 60 
hearings. Dodd-Frank was put together in about 4 months. A 
third of it was written in the last 3 days, so to say it was a 
rush job would be kind.
    The regulators are about 28 percent through with Dodd-
Frank, and already the regulations would fill two bankers' 
boxes, and that's even with small print.
    And I know the costs of compliance, the costs to comply 
with Dodd-Frank continue to go up with every new regulation or 
every recalculation, and it could take as much as with 
compliance, the cost it could cause the cost of compliance to 
go up another 50 percent from where it was prior to its 
passage. I don't need to tell these bankers that.
    We're going to take testimony on what we need to do, what 
needs to be done to address the problems.
    Mrs. Biggert. Thank you, Mr. Chairman. I knew that we could 
get an opening statement out of you. Thank you. And I want to 
thank you for holding this hearing, and I want to especially 
thank you for choosing this wonderful City of Chicago for such 
an important hearing.
    Illinois is home to some of the finest financial 
institutions in the country, and I know that these institutions 
stand ready, willing, and able to provide the crucial funding 
that our communities and small businesses so desperately need.
    As I meet with small business leaders in my district, I 
constantly hear that they are ready to help our economy get 
going again but are unable to access the capital they need to 
grow in their businesses. And at the same time, I hear from our 
community bankers that they are ready to extend credit to these 
small businesses, and have the capital to do so, but they are 
being stymied by overzealous and inconsistent regulators.
    Lenders large and small are paralyzed by hundreds of 
unattainable and inconsistent financial regulations, chiefly 
those included in the far-reaching Dodd-Frank Act. And 
unfortunately, our jobs created by access to capital have 
become a casualty as bankers are left scrambling to figure out 
how to play by the new rules.
    We cannot expect even the most healthy and well-capitalized 
institutions to make loans if they are unable to determine when 
regulators might ban certain products, or randomly require them 
to post additional capital or arbitrarily change the treatment 
of a performing loan. Too many bankers are already 
disproportionately affected by new regulations due to their 
limited resources, and now is absolutely the wrong time to 
invoke and impose new burdensome compliance clauses on 
institutions that could better use their resources to provide 
services and extend credit to their customers.
    If we stand any chance for a broad-based economic recovery, 
we must get the government out of the way and allow our 
financial institutions to resume responsible lending.
    I thank the witnesses for being here today. It's great to 
see the friendly faces of a hometown crowd, and I again thank 
the chairman for holding this hearing.
    Chairman Bachus. Thank you.
    I am now going to recognize Mr. Manzullo. Don Manzullo is a 
senior member of the committee from Illinois. There are a lot 
of good friends here.
    Mr. Manzullo. I'm here ready to receive definitive impact 
statements. We have people from QSA, Rosemont, Springfield, 
Chatham, and all kinds of places. It's good to have you here.
    Welcome to Illinois, Mr. Chairman.
    Chairman Bachus. Thank you.
    Our next two members--there were 81 freshmen, and 61 of 
those freshmen requested the Financial Services Committee. We 
only had seven slots, and these two gentlemen to my right: Bob 
Dold who is your Illinois Congressman, in the Chicago area, the 
beautiful City; and Dave Schweikert from Scottsdale, Arizona. 
Dave was treasurer of Maricopa County in a prior life, and he 
has a financial background.
    Bob?
    Mr. Dold. Mr. Chairman, thank you so much for holding this 
hearing. It is certainly great to be here in Chicago talking to 
those who provide access to capital for small businesses.
    Coming from the private sector, certainly we understand 
that it is the lifeblood of small businesses to have access to 
capital, and I have had the opportunity to spend some time with 
many of you here who are testifying before the committee today, 
and I certainly understand some of the issues and the burdens 
that you face.
    And this, I believe, is a particularly important hearing 
because the function of a healthy credit market is absolutely 
essential for job creation. The number one issue we face today, 
I think, in the country is, how do we create sufficient jobs 
and put our economy back on track, which is critical for 
economic growth and prosperity.
    Certainty, our credit markets and financial institutions 
must be regulated, but those regulations must be sensible, they 
must be balanced, and they must account for meaningful 
differences amongst our broad and diverse array of financial 
institutions.
    I don't believe we can have a one-size-fits-all type of 
regulation that comes down for all the financial institutions 
that we have in front of us today.
    Unfortunately, in that respect, our regulatory environment 
doesn't currently meet these reasonable standards. Instead, our 
current regulatory environment is needlessly hurting the 
functionality and health of our credit markets, and by 
extension, hurting our job creators' business growth and 
ultimately economic prosperity.
    The regulatory burden is particularly acute for our small 
financial institutions which indisputably had little, if 
anything, to do with the financial crisis. And that's because 
they must necessarily devote a large percentage of their 
resources to the enormous cost of reviewing and analyzing and 
complying with an avalanche of regulatory burdens.
    I don't know about many of you; I did have an opportunity 
to talk with a smaller financial institution just the other day 
that said, ``We are hiring,'' which was positive. We like to 
hear people are hiring, but they were hiring all in compliance, 
taking a lot of heads on in compliance.
    So they're trying to cross the ``T''s and dot the ``I''s 
and comply with the rules and regulations that Washington is 
putting in place, but not a single one of them was adding to--
bringing on people who were going to help the bank, who were 
going to help lend additional resources out to small businesses 
that are out there.
    So I believe small businesses or small financial 
institutions are essential to financing our small businesses 
which are responsible for most of the job growth. Two-thirds of 
all entry-level jobs are created by small businesses, so across 
our country, we're going to rely on smaller financial 
institutions that I believe have a much greater understanding 
of who they're lending to in terms of, you see them in your 
grocery store, you see them at church or synagogue or some 
other place along those lines.
    So with our current economic challenges, all of us in 
Congress are obligated to create a legal regulatory environment 
that strongly promotes job creation, business growth, and 
economic prosperity. And a very important step in creating that 
kind of regulatory environment is understanding clearly what 
our small financial institutions are dealing with and helping 
them get some relief from overly burdensome regulations.
    Again, I want to emphasize that we do need regulations; we 
just want them to be smart regulations.
    I just came from a meeting with somebody who gets regulated 
pretty heavily, and he actually used the dresser analogy. Every 
single one of us has a dresser at home. We buy clothes. 
Eventually, when we can't close the dresser drawer, we have to 
figure out what clothes we want to get rid of and which ones we 
want to keep in our drawer.
    The same thing is true with regulations, I would say. If 
they're good regulations, we need to keep them. Just more and 
more of them, we need to have a different approach.
    So I certainly appreciate each and every one of you taking 
the time to be with us today. We certainly look forward to your 
testimony.
    Mr. Chairman, thank you so much for coming to Chicago to 
hold an important hearing. It's important that we hear from 
some of our local financial institutions. Thank you so much for 
your time.
    Chairman Bachus. Thank you, Bob.
    At this time, I recognize Dave Schweikert, a member of our 
committee, and one of our new freshman.
    Mr. Schweikert. Thank you, Mr. Chairman.
    Actually, for Illinois, you should be very proud. You have 
a lot of oomph on the Financial Services Committee when 
Chairwoman Biggert and the constituents come to a field hearing 
here.
    It will be also be noted that you're going to have a little 
sales tax spike, because my wife and I came in on Saturday and 
hopefully left a nice contribution to the City of Chicago.
    Mr. Dold. We appreciate that.
    Mr. Schweikert. There's great value to this type of get-
together hearing. What we're hunting for is often some of the 
sort of detail that we don't get in D.C., where often it is 
somewhat scripted.
    We're also looking for what are the unintended consequences 
that have put you in juxtapositions from previous regulations 
to new authorships to also certain concerns as rules are being 
promulgated, what do you think sneaks up on your business model 
and therefore ultimately hurts your community and our country.
    So as you share your testimony with us, please let us know 
your anticipation of what is damaging, but also, if you also 
have an insight into mistakes in the designs of the regulations 
that are creating any undue consequences that we haven't heard 
in all of this, we'll do our best.
    Thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    We're also joined by two other members of the Illinois 
delegation, and I will ask now for the consent of the committee 
that without objection, we will allow them to participate in 
the hearing.
    Not hearing any objection, the two Members from Illinois 
are Joe Walsh and Adam Kinzinger.
    I used to call ``Aaron Schock'' ``Adam Schock'', and then 
Adam Kinzinger showed up. At least I think by now, I have 
started calling Aaron ``Aaron'' and Adam ``Adam.''
    But we welcome both of you, and this is the normal custom 
that when we are in a State, Members whose jurisdiction touches 
on banking also participate in the hearing, and their opinions 
do affect certain aspects of that, and so we invite an opening 
statement from you gentlemen.
    Mr. Kinzinger. Mr. Chairman, I'll keep it very brief.
    I'm Adam Kinzinger from North Central Illinois, and I 
currently sit on the Energy and Commerce Committee, and I'm a 
freshman. And I want to say thank you for coming to Chicago. As 
we mentioned, Representative Schweikert, thank you for coming 
all the way from Arizona to listen.
    And I think this is what's very important is just the idea 
that, look, we can go to Washington, D.C., and we can talk 
about laws and we can talk about bills and all that kind of 
stuff, but you really don't know how it impacts people until 
you hear from people so I just want to say thank you for coming 
out.
    I have been spending the last number of months listening to 
folks in the financial industry like Mr. Roolf from Joliet as 
well as Kevin Olson from Grundy Bank who I see here and many 
others, and I look forward to hearing what you have to say or 
what you have to say today.
    And the big key is we want to understand that there is a 
role for the government in the economy, but what is that role, 
and we definitely don't want to have too much of a role.
    So again, we look forward to your testimony. And I want to 
say thank you, Mr. Chairman.
    Chairman Bachus. Thank you.
    At this time, we will hear from our witnesses.
    Oh, I'm sorry. Joe?
    Mr. Walsh. No, no, Mr. Chairman, that's fine. I'll be even 
briefer.
    Chairman Bachus. I'm sorry.
    Mr. Walsh. That's okay.
    Thank you and thank you for coming into Chicago.
    I chair a subcommittee--the Small Business Committee's 
Economic Growth, Tax, and Capital Access Subcommittee--and we 
held a hearing earlier this year on this very topic, so this is 
a rife topic.
    It's good to see some of the familiar faces. We are choking 
right now underneath regulation so I am quite interested to 
hear from our witnesses.
    Thanks, Mr. Chairman.
    Chairman Bachus. Thank you.
    Our witnesses are Mr. Greg Ohlendorf, president and chief 
executive officer from First Community Bank and Trust, 
testifying on behalf of the Independent Community Bankers of 
America. We are considering legislation now that the ICBA and 
American Bankers proposed. We're beginning to have hearings on 
those and expect to move something. We appreciate your 
organization.
    Mr. William Bates, executive vice president and general 
counsel of Seaway Bank and Trust on behalf of the National 
Bankers Association. It is good to see you, Mr. Bates.
    Mr. Jim Roolf, chairman of the Illinois Banking 
Association--I have mixed emotions about sitting in here with 
him. When I was at Alabama and he was at Notre Dame, they beat 
us twice. It was a long time ago, and he has his Notre Dame tie 
on so he can egg me on. Two Sugar Bowl victories, but anyway, 
Jim, it is great to see you again.
    And Mr. Jim Renn, president and chief executive officer of 
the Lisle Savings Bank, is that ``Lisle?''
    Mr. Renn. ``Lisle,'' that's correct.
    Chairman Bachus. He is testifying on behalf of the Illinois 
League of Financial Institutions.
    Mr. John Schmitt, president and chief executive officer of 
the Naperville Area Chamber of Commerce. Ms. Dory Rand, 
president of the Woodstock Institute. And Mr. Bob Palmer, 
policy Director of Housing Action Illinois.
    And we'll just go from left to right and take your 
testimony. Normally, the statements are 5 minutes. Did they 
tell you all that? But if you go over a minute or two, we're 
usually not going to be--at a field hearing, since we're not 
even in Washington, we're not going to be that strict.
    We'll start with you, Mr. Ohlendorf.
    And we welcome each and every one of you to testify about 
regulatory reform, and examining how new regulations are 
impacting financial institutions, small businesses, and 
consumers in Illinois.
    One thing about small businesses--Joe mentioned that he 
chairs the subcommittee. In the last 2 months, our net job 
growth has all come from small businesses. Small business, in 
this recession, has created 70 percent of the jobs. So the 
health of small businesses is important to not only small 
businesses but large businesses, communities, families, and the 
Nation's economy.
    Mr. Ohlendorf?

    STATEMENT OF GREGORY M. OHLENDORF, PRESIDENT AND CHIEF 
EXECUTIVE OFFICER, FIRST COMMUNITY BANK AND TRUST, ON BEHALF OF 
      THE INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA)

    Mr. Ohlendorf. Chairman Bachus and members of the 
committee, I am Gregory Ohlendorf, president and CEO of First 
Community Bank and Trust, a $150 million asset community bank 
located in Beecher, Illinois, Congressman Kinzinger's district.
    I am pleased to be here today to represent the nearly 5,000 
members of the Independent Community Bankers of America, and I 
thank you for coming to Chicago to hold this hearing. We 
appreciate your interest in the impact that new regulations 
have had on financial institutions, including community banks.
    Community banks are the primary source of credit, 
depository, and other financial services in thousands of rural 
areas, small towns, and suburbs across the Nation. As such, we 
play an essential role in the recovery of our national economy.
    Regulatory and paperwork requirements impose a 
disproportionate burden on community banks which do not have 
the scale of larger banks to amortize the expense of 
compliance.
    I will focus my remarks today on the Dodd-Frank Act, the 
predominant but not exclusive source of new bank regulation.
    This Act was generational legislation and will permanently 
alter the landscape for financial services. It's a mixed 
outcome for community banks, providing both punitive and 
helpful provisions. Every part of financial services, including 
every single community bank, will feel the effects of this new 
law.
    The community bank business model is based on the strength 
of our reputation in the small communities we serve and the 
long-term customer relationships that we cultivate.
    Community banks don't engage in abusive consumer practices 
and did not cause the financial crisis, and we appreciate the 
support our industry received to shield us from some of the 
provisions designed to respond to this crisis.
    Regulation calibrated to large-bank risks and business 
models can suffocate smaller banks, curtail the possibility 
that we need to offer customized products and services, which 
is how we compete against the larger banks, and thereby harm 
the communities that we serve.
    We reject the notion that regulation must fall equally on 
all banks. That is based on the false premise that a community 
bank is just like a mega-bank but on a little smaller scale. We 
differ not only in size but in our fundamental orientation 
toward customers and communities.
    ICBA has persistently advocated for tiered regulation of 
the financial service industry.
    Among some of the provisions of the Dodd-Frank Act, the new 
Consumer Financial Protection Bureau (CFPB) perhaps carries the 
most risk for community banks. We are already required to spend 
significant resources complying with consumer protection rules. 
Every hour I spend in compliance is an hour that could be spent 
with a small business owner or a consumer. CFPB rules should 
not contribute to this distraction. The CFPB should use its 
authority to grant broad relief to community banks where 
appropriate.
    ICBA also strongly supports legislation passed by this 
committee and the House, H.R. 1315, to reform the CFPB and make 
it more balanced and accountable in its governance and its 
rule-writing.
    Another concern of Dodd-Frank is the new mortgage lending 
requirements that run the very serious risk of accelerating 
industry consolidation, which would create even more systemic 
risk as well as higher costs and fewer choices for consumers, 
particularly in small communities.
    Statistically, the Risk Retention Requirement Section 941, 
if broadly applied, will disadvantage community banks because 
they lack access to the increased capital needed to offset risk 
retention despite their conservative underwriting. Similarly, 
enhanced escrow requirements for high-cost loans will create a 
significant cost for community banks.
    We recommend that community banks' loans held in portfolio 
be exempt from this requirement. Lenders have every incentive 
to protect the collateral of loans held in their own 
portfolios.
    In representing our members during consideration of Dodd-
Frank, ICBA focused on making the Act workable for community 
banks. This meant seeking exemptions where appropriate. It also 
meant seizing the opportunity to advocate for long-sought 
community bank priorities that we believe will strengthen 
community banks over the long term.
    ICBA was a leading advocate for the deposit insurance 
provisions of the Act, including the change in the assessment 
base from domestic deposits to assets (minus tangible equity) 
which will better align premiums with a depository's true risk 
to the financial system, and will save community banks $4.5 
billion over the next 3 years.
    The Act also contains provisions that would help rein in 
the too-big-to-fail banks and the Wall Street firms that 
imperilled our economy, including the creation of the Financial 
Stability Oversight Council (FSOC) for banks over $50 billion 
and systemically risky nonbanks.
    My community banker colleagues and I were galled and 
profoundly angered when we read last week's Bloomberg Report on 
the Federal Reserve's secret $7.77 trillion bailout. Borrowing 
at a cost as low as one basis point, the largest, riskiest 
firms turned a profit of some $13 billion. There must be no 
repeating of these events.
    In closing, I would like to note that the legislative ideas 
highlighted in my written testimony are included in the 
Communities First Act or CFA, H.R. 1697, which has 61 bill 
sponsors: 40 Republicans; and 21 Democrats. CFA also has the 
strong support of 37 State banking associations.
    In addition to proposed changes to Dodd-Frank, CFA includes 
other regulatory and tax relief provisions for community banks.
    Thank you again for the opportunity to testify today. 
Legislation of the breadth and ambition of Dodd-Frank will 
generally need modification.
    We look forward to working with this committee to improve 
the law and to assure that it is implemented in a way that will 
impose the least burden on community banks.
    Thank you.
    [The prepared statement of Mr. Ohlendorf can be found on 
page 51 of the appendix.]
    Chairman Bachus. Thank you for your testimony.
    Mr. Bates?

 STATEMENT OF WILLIAM BATES, JR., EXECUTIVE VICE PRESIDENT AND 
 GENERAL COUNSEL, SEAWAY BANK AND TRUST COMPANY, ON BEHALF OF 
                THE NATIONAL BANKERS ASSOCIATION

    Mr. Bates. Good morning, Chairman Bachus, and members of 
the committee.
    My name is William Bates, Junior. I am the executive vice 
president and general counsel of Seaway Bank and Trust Company 
in Chicago, Illinois. We are a $621 million commercial bank 
with 11 offices and 315 employees. We are a member of the 
Illinois Bankers Association. We serve the Chicago area, and we 
also have a branch in Milwaukee, Wisconsin.
    Thank you for convening this important hearing in Illinois. 
I appreciate the opportunity to present my views about the 
current regulatory environment on behalf of the National 
Bankers Association.
    Our members include banks owned by African Americans, 
Native Americans, Hispanic Americans, Asian Americans, and 
women located in 21 States, including Illinois and the District 
of Columbia.
    Our member banks, with a few exceptions, serve distressed 
communities plagued by many social and economic problems. Our 
institutions are deeply committed to providing employment 
opportunities, entrepreneurial capital, and economic 
revitalization in neighborhoods which often have little or no 
access to financial services, however, all of the costs, 
complexities, and time associated with monitoring, managing, 
and complying with the current regulatory landscape are 
handicapping most banks' ability to do what they do best: Serve 
customers, our local communities, and many local organizations 
which rely on banks for help.
    Each new rule puts an additional strain on our staffs, and 
for many community banks, it is becoming a nearly 
insurmountable burden.
    When you add to this the more than two dozen proposals 
established under Dodd-Frank for a whole new class of 
regulation mostly to be issued by yet another regulator 
combined with the uncertainty and legal risks, it is plain to 
see how difficult it can be to achieve the right balance 
between satisfying loan demands and regulatory demands.
    At Seaway, we have seen a significant increase in costs in 
order to meet regulatory compliance demands over the last 
several years. We currently have three people who spend all of 
their time on the Bank Secrecy Act, anti-money laundering, and 
overall regulatory compliance, and at least three more 
individuals who spend up to 25 percent of their time on 
regulatory compliance, not to mention the individuals 
throughout the bank who serve on our Compliance Committee.
    The expenditures that our bank has incurred for regulatory 
compliance take away from the resources that can be directly 
applied to serving the bank's community. Each new regulation or 
change in an existing one adds another layer of complexity and 
cost of doing business.
    Without quick and bold action to relieve some of the 
regulatory burden, there will be a contraction of the banking 
industry with banks disappearing from communities over the next 
few years. Each bank that disappears from the community makes 
that community poorer.
    What can Congress do? We urge you and other Members of 
Congress to make sure that our regulators are measuring the 
cumulative effect of all of the rules, current and future, with 
which traditional banks must comply.
    It is critical that the perceived benefits of each rule be 
weighed against this ultimate cost to a bank's customers, 
including the cost that it adds to a particular product or 
service as well as its impact on the availability of and access 
to those products and services.
    In addition, because bank regulators have expertise in 
balancing the safety and soundness of banking operations with 
the need to protect customers, we hope that our primary 
regulators will have a more meaningful role in writing rules 
for the Consumer Financial Protection Bureau.
    Members of the National Bankers Association, along with the 
entire banking industry, are working to do their best to 
provide the necessary financial services and credit to the 
thousands of consumers and small businesses who need it, and we 
are working exhaustively with those businesses who are 
struggling in our communities, however, we need Congress' help. 
We want to work with you and our Members of Congress to restore 
the economic viability of our local communities.
    Again, thank you for the opportunity to hear our views 
about the current regulatory compliance environment and its 
impact on Illinois and our communities. Thank you.
    [The prepared statement of Mr. Bates can be found on page 
44 of the appendix.]
    Chairman Bachus. Thank you.
    We have heard about a lot of rules and that the benefits 
are certainly outweighed by the cost to especially bank 
customers, and we will continue to focus on that.
    Also, you mentioned your ability to customize products for 
your customers. That's obviously very important and something 
that we also are concerned with, that these will restrict your 
ability to meet their needs in a way that best suits them.
    Now, we will hear from Mr. Jim Roolf, chairman of the 
Illinois Bankers Association.

    STATEMENT OF JAMES M. ROOLF, CHAIRMAN, ILLINOIS BANKERS 
                       ASSOCIATION (IBA)

    Mr. Roolf. Thank you, Chairman Bachus, members of the 
committee, and other members of the Illinois delegation.
    My name is Jim Roolf, and I am president of First Midwest 
Bank, Joliet Banking Center, which is part of an $8.4 billion 
banking organization headquartered in Itasca, Illinois.
    It's my privilege to be here this morning as chairman of 
the Illinois Bankers Association, an organization that 
represents 325 banks and savings institutions of all sizes 
across our State.
    I would like to start by thanking you for holding this very 
important and historic meeting in Illinois on the subject of 
regulatory burden and for giving me the opportunity to present 
the views of the IBA concerning the considerable challenges 
that our members, banks of all sizes, are facing.
    The banking industry is indispensable, and the health and 
the strength of it and the economic strength of our communities 
are closely interwoven.
    Illinois is home to more banks and savings institutions 
than any State in the Nation. There are 636 FDIC-insured banks 
and thrifts--584 are headquartered in Illinois, and they 
represent $341 billion in assets and $276 billion in deposits.
    It's a well-known fact that when a bank establishes its 
roots in a local community, that community thrives. In fact, 
over 575 Illinois banks have been in business for more than 50 
years, and the vast majority of them have been in operation for 
more than 100 years. Hopefully, they will have the opportunity 
to continue to stay in business.
    As chairman of the IBA, I have traveled 2,000 miles in the 
last few weeks to meet with bankers throughout Illinois, and 
their message was strong and consistent about the negative 
impact the overwhelming regulatory burden and escalating 
compliance costs are having on their businesses and their 
ability to serve their customers, causing them to question 
their long-term viability.
    Last year, the Illinois Bankers conducted a survey, and the 
information gleaned from it was simply startling. More than 160 
survey respondents said that in addition to compliance costs 
and the requirement to retain more and more capital and 
earnings in lieu of lending, they are likely to consider a 
merger or a sale of their bank, and this will have a 
significant negative impact on communities throughout our 
State.
    As prudential regulators and the Consumer Financial 
Protection Bureau attempt to streamline existing rules and 
develop new ones to implement Dodd-Frank, we urge you and all 
Members of Congress to hold all regulators accountable to 
determine those costs. Those costs of compliance are 
significant.
    We hope Congress will exercise prudent oversight over CFPB 
as they start to implement the rules, and we urge you to make 
sure that they replace layers of regulation as is intended and 
not simply add new layers of regulation.
    We also want to express our strong support for two bills 
that are pending in Congress: H.R. 3461, which seeks to address 
some of the examination environment and more precise and 
understandable classification standards for commercial loans, 
an expedited and independent appeals process, as well as an 
independent ombudsman to ensure consistency in the examination 
process.
    Also, H.R. 1697 and Senate Bill 1600 would provide banks 
with some needed regulatory and tax and other of many 
compliance requirements that disproportionately burden 
community banks.
    In closing, Illinois and the rest of the country can simply 
not afford to have fewer banks. Our communities depend on banks 
every day. The banks and thrifts that are doing the business in 
Illinois employ over 95,000 people and have significant local 
impact. In other words, they are businesses, too.
    Bankers are community leaders. Bankers provide leadership 
to countless local and regional organizations and activities 
that are essential to the vitality of the communities we serve. 
And lastly, banks create jobs.
    Directly or indirectly, we all know that small business 
lending plays a vital role in the economic vitality and the 
recovery by providing and supplying capital that fuels the 
desperately-needed job creation and growth in communities 
across this State and indeed the Nation.
    Illinois bankers are committed to help restore our economy 
through lending and job creation, and we know Congress is 
committed to doing the same.
    Thank you again for coming to Illinois and listening to us, 
and we look forward to working with all of you to achieve our 
mutual objectives. Thank you.
    [The prepared statement of Mr. Roolf can be found on page 
67 of the appendix.]
    Chairman Bachus. Thank you, Mr. Roolf.
    Congresswoman Biggert and I would like all the bankers to 
know that Chairman Roolf has been to visit us in Washington, he 
has visited with us here, and he requested that we hold a 
hearing in Illinois and pointed out many of the things about 
the Illinois banking community that you covered in your opening 
statement and some things we didn't realize.
    There are States where there was a housing bubble, or 
circumstances in which underwriting standards were too lax, but 
Illinois was, I think, probably one of the best examples of a 
banking community that did things right and was the victim of 
others' missteps, and much of Dodd-Frank is addressed to 
problems or solutions to problems which your banks didn't have, 
and so I think it gives some valuable insight.
    We appreciate your efforts on behalf of Illinois banks. It 
will make all of our banks throughout the country stronger if 
we come here where you were doing things right before the 
recession.
    At this time, Mr. Renn is recognized.

   STATEMENT OF JAMES J. RENN, PRESIDENT AND CHIEF EXECUTIVE 
 OFFICER, LISLE SAVINGS BANK, ON BEHALF OF THE ILLINOIS LEAGUE 
                   OF FINANCIAL INSTITUTIONS

    Mr. Renn. Chairman Bachus, members of the House Financial 
Services Committee, and members of the Illinois delegation, 
thank you for holding a field hearing this morning and allowing 
me to testify today.
    My name is James J. Renn, and I am the chief executive 
officer of Lisle Savings Bank in Lisle, Illinois. We are a two-
office mutual savings bank with $544 million in assets with 
capital just under $90 million. We were founded in 1917.
    I am also the immediate past chair of the Illinois League 
of Financial Institutions, which is a statewide trade 
association that serves State savings and community banking 
institutions.
    The league was founded in 1880, and its purpose is to serve 
the Illinois financial institutions' business and public 
interests by fostering thrift in homeownership and by 
sustaining and promoting the legislative, regulatory, and 
business interests of its members.
    I believe the focus and culture of our bank is very 
representative of most of the Illinois League members, and it's 
visually reinforced by viewing our Web site, lislebank.com. On 
our home page, you see our motto: ``Every person counts.'' Our 
welcome mat is out for all local residents regardless of their 
income level or account balance.
    There is also a CEO message for our customers to read 
explaining the differences among investment banks, national or 
regional institutions, and community banks like ours.
    Among other statistics, it states the medium-size bank 
employs 37 people, has $154 million in assets; 3,000 banks have 
fewer than 30 employees.
    Like other small community banks, we believe in developing 
and maintaining long-term relationships with customers. One out 
of every three banks has serviced a local community for more 
than 100 years.
    Personally, I have been with our bank for 40 out of its 94 
years in business, and I have seen many changes over that 
course of time. The most recent and dramatic changes, however, 
have taken place in just the past few years.
    We do have a plain vanilla business plan to gather local 
deposits and portfolio single-family home loans in our market 
area, yet each year, we feel unduly paralyzed by the time spent 
on compliance and regulatory monitoring.
    In today's environment, we believe the objective of 
determining whether a bank is a threat to the FDIC insurance 
fund has evolved into micromanaging a private business.
    It's also disheartening knowing that banks such as ours 
were not the cause of the housing crisis, yet we are saddled 
with the perceived remedies.
    We currently have 43 policies that require annual board 
approval. While there may not be a legal mandate of a one-size-
fits-all approach to regulations and examinations, the policies 
and procedures of the very largest banks eventually become the 
best practices for the rest of us.
    We are struggling with the dichotomy of executing a Home 
Depot business plan while really trying to be a small town 
hardware store.
    For years, there was a calm, business-as-usual environment 
at Lisle Savings Bank during safety and soundness compliance 
and CRA exams, then loan delinquencies, and foreclosures in 
real estate demanded our full attention.
    In 2009, we were told our compliance management system was 
lacking because we didn't have a full-time compliance officer. 
So during the compliance exam, we proactively asked one of our 
younger management trainees if he would be interested in 
learning the ins and outs of compliance and assume that 
responsibility on a full-time basis. He accepted the offer, as 
he knew promoting from within had always been our preferred 
practice.
    After spending nearly $100,000 on both training and 
independent compliance consulting services over a 12-month 
period, we saw that the promote-from-within concept was not 
going to work in this instance. The learning curve was too 
steep, and our compliance officer gave notice of his 
resignation, deciding the banking industry and serving in 
compliance were not for him.
    For the very first time, we were in the market to hire an 
officer from another bank. After six interviews, we learned 
that the cost of meeting the demands of the very experienced 
compliance applicants would make our compliance officer the 
sixth-highest-paid person at the bank.
    I hope our pervasive concern with compliance and decision-
making under the auspices of what will the examiner say can 
eventually become secondary to providing the best possible 
customer service and pursuing growth strategies.
    The increased regulatory burden and interpretations offered 
during exams result in overwhelming input to our bank's 
compliance team which really consists of the supervisors of 
customer service departments.
    Compliance expense, excluding salaries, auditing, and 
training expenses was $80,000 in 2008, and grew steadily to 
$140,000 in 2011. These costs are severely, severely 
understated if we're to include the salary expense and allocate 
overall employee time to regulatory duties. The cost of Dodd-
Frank is, as you know, really unknown.
    Thank you again for the opportunity to testify here this 
morning, and please know that your work on behalf of the Nation 
is greatly appreciated.
    [The prepared statement of Mr. Renn can be found on page 63 
of the appendix.]
    Chairman Bachus. Thank you.
    Did you ever hire a compliance officer, or you just 
couldn't find one?
    Mr. Renn. Our bank is similar to many smaller institutions 
in that people wear several hats, some certainly more than 
others, and we had a compliance officer for 15 years but doing 
IT, human resource work, but we had never had any compliance 
issues, and all of a sudden, in 2009, the work that he had done 
in the past apparently was not satisfactory.
    Chairman Bachus. All right. We had some testimony about the 
young man promoted within the bank, and we're hearing that more 
and more, people having to go outside their counties and their 
States to hire consultants.
    Mr. Schmitt?

   STATEMENT OF JOHN SCHMITT, PRESIDENT AND CHIEF EXECUTIVE 
          OFFICER, NAPERVILLE AREA CHAMBER OF COMMERCE

    Mr. Schmitt. Chairman Bachus, distinguished members of the 
Financial Services Committee, and members of the Illinois 
delegation, thank you for the opportunity to speak with you 
today.
    My name is John Schmitt, and I am the president and CEO of 
the Naperville Area Chamber of Commerce, a regional chamber in 
the Western Suburbs of Chicago.
    Your time is valuable, and I know that you might ask 
questions of the witnesses today, so I would like to read an 
abbreviated statement that we have prepared.
    The Naperville Area Chamber of Commerce is proud to have 
approximately 1,400 members of every size and sector. On behalf 
of all of our members, thank you for holding this field hearing 
and studying how recent legislation and regulatory changes are 
affecting the availability of credit for businesses.
    Today, I am here to provide you with an update from the 
business community and to explain the environment small 
businesses are operating in, and the general themes we hear 
from our members about the availability and accessibility of 
credit.
    Our Chamber firmly supports sound consumer protection 
regulations. Our national economy and global economy are still 
struggling to recover from the depths of one of the worst 
meltdowns in the history of civilized society.
    Small businesses are the majority of our membership, and 
businesses in America have been hurt mightily during this 
recession, so while today we are discussing what changes can be 
made to improve the accessibility of credit, I think it is 
important to remember just where we have come from.
    The recession and its aftermath decimated the small 
business community. Small businesses are reeling from soft 
consumer demand, lowered home values, a difficult economic 
climate, and difficulty maintaining and obtaining credit. The 
culminant result of this is existing businesses have been 
pushed to the brink, and many have had to close.
    For reference, we recently completed a review and estimated 
that since January of 2008, 300 businesses that were members of 
the Chamber have closed and gone out of business.
    New businesses are finding it difficult to get started. 
While small business is inherently a risky enterprise during 
the good times, the recession and the resulting softness of our 
economic climate has been a toxic mix for too many 
entrepreneurs.
    While there is a need to save those too-big-to-fail 
institutions for the safety and soundness of America and the 
global economy and the financial system, today, it is the small 
businesses, the smaller institutions, and the American people 
who are paying the price to restore the financial system to 
health.
    I don't know if regulators understand the perils and the 
risks of having tunnel vision on their quest to ensure that the 
mistakes of the past aren't repeated and are having on the 
business community.
    The Chamber doesn't fault them for this. It is the job of 
the regulatory community to regulate and prevent too much 
leverage from threatening the financial system, but we hope 
that they are hearing from you, our elected officials, on the 
importance of enabling banks to lend to small businesses and 
start-up firms.
    Loans to small businesses didn't cause our economic 
meltdown, but it seems that our natural reaction to the 
financial collapse and the past abuses may be hampering our 
ability to recover by making it too difficult for small 
businesses to obtain credit.
    Unfortunately, I'm afraid that we are just at the beginning 
of a long and difficult struggle for small businesses to obtain 
the credit they need to stay open and expand their operations, 
hire additional workers, and invest in America's communities.
    I say this because we repeatedly hear that business owners 
are spending more and more of their time working on obtaining 
credit rather than running their businesses and working on 
actually growing the businesses.
    One of the most puzzling and disheartening stories we 
repeatedly hear at the Chamber is a bank turning away or 
revoking credit from a long-standing and long-established 
customer. Often with very little communication, small 
businesses are told that their existing arrangements must be 
reworked and will not be renewed or that a business must infuse 
a significant amount of capital and get the loan renewed.
    For a small business, this results in a frantic and 
difficult chase to secure financing. This is a distraction from 
running their business and weighs heavily on the decision to 
hire additional workers.
    At this point, I would ask permission to add in the 
following anecdotes to the record. I would like to ask 
permission in refraining from using business names or 
organizations that are seeking a loan.
    The Chamber isn't passing judgment on why their experiences 
turned out as they did. I just want to provide you with some 
examples of what we have heard and what is important to note 
and what we have heard from several organizations that 
responded to problems accessing credit. Generally, they're our 
long-established organizations, and the vast majority of our 
negative experiences come from businesses in the start-up phase 
of their business.
    On Main Street and in general, the business community has 
seen a change in banking relationships. There is a new party in 
the transition, and it is the banking regulator. Often, 
businesses seeking loans are told about this mysterious party, 
and often, bad news is delivered in the name of the regulator.
    Our Chamber is pleased provide meeting space and other 
assistance to the Fox Valley Score chapter. Every week, the 
volunteers of Score meet with individuals seeking the American 
dream, to start a business. Before the recession, generally, 
the advice focused on a need to develop a business plan and to 
submit it to the bank. Now, however, many of these 
entrepreneurs struggle to find available credit for their 
concept.
    A Score counselor recently told me that they were advising 
clients to seek access to private capital in lieu of 
traditional courses of bringing their business plan to the 
bank.
    That is not to say that every person who thinks of starting 
a business is taking this path, but I think it speaks volumes 
to the challenges facing new businesses.
    Another very successful retail start-up contacted us about 
the testimony today. This business owner has a great retail 
concept and has been doing very well since they opened their 
business a year ago. As they have pursued a loan to expand, 
they have been repeatedly denied. They have been told it is 
because they don't have a three-year track record. This is why 
they put hundreds of thousands of dollars of their savings into 
the business they launched. They are growing increasingly 
frustrated at the inability to obtain financing.
    The retail businesses are risky enterprises, and if we want 
to fill the shopping centers, strip malls, and downtowns of 
America with the scores of workers we need, we need to have a 
ready supply of credit available to entrepreneurs with an idea 
and a concept.
    Another example from our membership I would like to share 
with you is a story of one of the Chamber's Small Business of 
the Year winners and one of our Chamber board members. He has 
been trying to expand. He has been trying to do exactly what 
this country needs, purchase another business, invest in it, 
take a new retail space, and hire additional workers.
    After being told by his bank, where he had a long-standing 
relationship, that financing would not be possible, this 
entrepreneur has spent the past 10 months trying to find 
someone else who would step forward to provide the financing. 
He is awaiting the final approval from an SBA lender, however, 
the inability to obtain financing has delayed the expansion and 
investment in the business.
    It is important to remember many small businesses, unlike 
large corporations, often rely on all of the above means of 
financing for their business. They use and risk their personal 
credit, their cash, their home equity loans, their collateral, 
their credit cards, anything and everything to get their 
businesses through lean times.
    Small businesses, entrepreneurs, and start-up companies' 
most need of credit is to be available and cheap during the 
lean times. Small businesses need banks to give them loans when 
the small businesses need them, not when it works for the 
bank's ratio or when they have a proven track record.
    As I said before, a small business is an inherently risky 
enterprise, but it brings with it the greatest reward possible 
in the American dream.
    We need a system that can evaluate and review concepts and 
new ideas and find ways to quickly and promptly provide an 
answer.
    Our Chamber believes endless and lengthy delays in 
obtaining credit are negatively impacting our economic 
recovery.
    We hope these examples today echo what you have heard, and 
I want to visit with you and your constituents so it leads the 
committee toward taking action making it easier for small 
businesses to obtain and access credit.
    Our economy relies on trial and error, success and failure. 
We urge you to keep a close eye on the regulatory and banking 
system to make sure that it is not stacked against funding the 
American entrepreneur. Our Nation desperately needs this 
talented group of people to bring us back to prosperity.
    In conclusion, we hope that you continue your efforts to 
understand why small businesses are finding it difficult to 
obtain loans.
    If at the end of the examination, you feel that the 
regulatory community is taking an inappropriate or overly 
conservative approach towards the availability of credit to 
small businesses, we urge you to use your regulatory and 
oversight authority towards making changes that will increase 
the lending and availability of loans to the budding local 
entrepreneurs and small businesses.
    Thank you for the opportunity to speak to you today. I'll 
be happy to respond to any questions that you might have.
    [The prepared statement of Mr. Schmitt can be found on page 
74 of the appendix.]
    Chairman Bachus. I'm wondering whether the entrepreneurs 
who started Apple or Google or Facebook would have gotten a 
loan for those risky endeavors?
    Mr. Schmitt. That's an interesting question.
    Chairman Bachus. Thank you.
    Mrs. Dory Rand, Woodstock Institute.

     STATEMENT OF DORY RAND, PRESIDENT, WOODSTOCK INSTITUTE

    Ms. Rand. Good morning. I'm Dory Rand, president of 
Woodstock Institute.
    Mr. Chairman, members of the committee, and other Members, 
thank you for inviting me here to share my perspective with you 
today on regulatory reform.
    My perspective is based on working with lower-wealth people 
and consumers at Woodstock Institute, and as an attorney at 
nonprofits in Chicago for over 20 years. I also served on the 
Federal Reserve Board's Consumer Advisory Council for the last 
2 years, and I have served as a member of the Board of 
Directors of the National Community Reinvestment Coalition.
    Woodstock Institute's mission is to create a just financial 
system in which everyone, including lower-wealth consumers and 
communities of color, can create economic security and 
community prosperity. We do this by doing research and policy 
development on fair lending, wealth creation, and financial 
reform issues at the local, State, and national levels. We work 
closely with other groups that provide direct services such as 
housing counseling, legal services, and other services to 
consumers.
    While I'm sometimes critical of particular financial 
institution products and practices, I do have a history of 
partnering with banks of all sizes and credit unions, 
regulators, and other community members to develop services, 
products, and programs that serve the needs of underserved 
consumers and communities.
    Representatives of banks and credit unions have served, and 
do serve, on my Board of Directors, and many financial 
institutions contribute to Woodstock Institute, including some 
on the panel here.
    Our research has documented the negative impacts of high-
cost, high-risk financial products and the deregulation we had 
that led to this crisis. We know from this research that the 
negative impacts--high debt, foreclosures, and neighborhood 
blight--damaged credit scores, caused bankruptcies, and 
affected broad segments of the community, but they are 
disproportionately concentrated among lower-wealth consumers: 
women; communities of color; service members; and older 
persons.
    The negative impacts of the risky mortgage products that 
precipitated the foreclosure crisis, often sold through non-
depository institutions beyond the purview of the Federal 
prudential regulators, extend far beyond those consumers who 
directly obtained loans.
    The negative impact affects innocent victims including 
nearby homeowners, small businesses in communities that lost 
equity, consumers, customers, access to credit, jobs, and local 
tax revenue.
    Moreover, our local governments have incurred additional 
expenses for inspections, legal notices, code enforcement, and 
protecting vacant and abandoned properties.
    Woodstock Institute's reports about these negative impacts 
on consumers and communities have been used to develop better 
evidence-based policies to protect consumers and communities. 
For example, our reports were used by the Illinois General 
Assembly to adopt payday loan reforms, by banks and Federal 
regulators to change tax refund anticipation loan policies, and 
by the City of Chicago to pass an ordinance holding mortgage 
servicers accountable for maintaining vacant properties.
    We believe that the Dodd-Frank Wall Street Reform Consumer 
Protection Act of 2010 contains important provisions and tools 
that will address many of the problems that led to the current 
foreclosure and economic crisis and will make our financial 
system more effective, transparent, and fair for consumers, 
small businesses, and financial institutions. One of the key 
provisions requires additional oversight of financial 
institutions that pose systemic risk to our economy so that we 
do not again have to use taxpayer funds to bail out too-big-to-
fail institutions.
    Another key provision of the Dodd-Frank Act is the creation 
of the Consumer Financial Protection Bureau, the CFPB. Among 
other things, the CFPB consolidates functions that were 
formerly spread out among several Federal agencies and levels 
the playing field so that similar financial products will be 
governed by similar rules regardless of the type of financial 
institution providing the product.
    The CFPB also has authority to conduct research, field 
consumer complaints, and develop new disclosure requirements so 
that consumers can better understand financial products and 
make wise decisions in a competitive marketplace.
    The CFPB is already doing a good job of using its authority 
to collect consumer complaints regarding credit cards, for 
example, to collect public input and draft new forms for 
disclosures regarding mortgage loans and to collect input on 
streamlining rules and possibly eliminating rules, as 
Representative Dold suggested may be needed.
    The CFPB has also conducted extensive outreach to industry, 
consumer advocates, and others requesting comments on how to 
define ``larger market participants'' that will be subject to 
its authority.
    As you know, many CFPB functions cannot be fully 
implemented until the Senate confirms a Director. These 
functions include prohibiting unfair and deceptive acts, 
writing rules related to model credit disclosure forms, 
defining larger non-depository institutions, and examining and 
enforcing laws against non-depository institutions such as 
mortgage brokers, payday lenders, student loan providers, and 
others.
    We hope that the Senate will act quickly to confirm the 
President's nominee so that this important work can move 
forward.
    We believe Illinois residents are among those hardest hit 
by the foreclosure and economic crisis, and we need the Dodd-
Frank Act and the CFPB to lessen the risk of future financial 
crises and to establish a safer and more accountable financial 
system that works for everyone.
    I ask that Members of Congress refrain from weakening this 
law and agency and instead give them time to be fully 
implemented, and I look forward to working with you on these 
issues. Thank you.
    [The prepared statement of Ms. Rand can be found on page 61 
of the appendix.]
    Chairman Bachus. Thank you.
    Mr. Palmer?

   STATEMENT OF BOB PALMER, POLICY DIRECTOR, HOUSING ACTION 
                            ILLINOIS

    Mr. Palmer. Mr. Chairman, and members of the committee, 
thank you for inviting me to testify. My name is Bob Palmer, 
and I'm a policy Director for Housing Action Illinois.
    Housing Action Illinois is a statewide coalition formed to 
protect and expand the availability of quality affordable 
housing throughout the State.
    One of our programs is to provide training and technical 
assistance to HUD-certified housing counseling agencies such as 
the DuPage Homeownership Center, the Interfaith Housing Center 
for the Northern Suburbs, and the Rockford Area Housing 
Coalition represented by some of the Members of Congress here 
today. Unfortunately, this work is far from done.
    Recent data released on the foreclosure crisis showed that 
more than 46 percent of all single-family homes with a mortgage 
in the Chicago area were underwater in this year's third 
quarter, far more than the Nation as a whole.
    Nationally, 28.6 percent of homes with mortgages were 
underwater at the end of September, and 43.4 percent of all 
homes sold in the Chicago area in the third quarter sold for a 
loss compared to 34.4 percent nationally.
    A new report from the Center for Responsible Lending, that 
I go into some detail about in my written testimony, shows that 
we're not even halfway through the foreclosure crisis. And this 
report also shows that some of the troubling mortgage products 
that Dory cited in her testimony are very much strongly linked 
with higher foreclosure rates.
    We know that the ephemeral question that there's still no 
agreement on is whether the foreclosure crisis was a result of 
too much or too little regulation.
    Many people have tried to blame the Community Reinvestment 
Act for the crisis, but a February 2009 Federal Reserve Board 
study showed that 94 percent of the high-cost subprime loans 
sold nationwide in 2006 were issued by lenders who were not 
covered by the Community Reinvestment Act.
    We believe that if the regulatory provisions in the Dodd-
Frank Act had been in place back in 2006, the housing market 
and the overall economy would have been much healthier today.
    Some of these provisions that have yet to be implemented 
include: requiring lenders to ensure a borrower's ability to 
repay; prohibiting unfair lending practices, such as incentives 
for subprime loans, that encourage lenders to steer borrowers 
into more costly loans; establishing penalties for 
irresponsible lending; establishing consumer protection for 
high-cost mortgages; requiring additional disclosures for 
consumers on mortgages; and establishing the Office of Housing 
Counseling within HUD.
    One part of the Dodd-Frank law that the Consumer Financial 
Protection Bureau has already begun to implement is Know Before 
You Owe, an effort to combine two federally-required mortgage 
disclosures into a single simpler form that makes the costs and 
risks of the loan clear and allows consumers to comparison 
shop. Once this is completed, this will benefit both consumers 
and lenders.
    In short, I think the Dodd-Frank Act will provide a more 
level playing field between different types of lenders, remove 
some of the problematic incentives in the mortgage market that 
led to the foreclosure crisis in the first place, and give 
consumers more tools to make informed decisions before taking 
out a mortgage loan.
    The experience of HUD-certified housing counseling agencies 
in Illinois has been that the overwhelming majority of 
predatory loans were made by bigger banks and previously 
unregulated nonbank lenders. Moreover, it is the big banks that 
are generally much harder for borrowers to work with in case of 
default.
    Before the housing bubble burst, the lack of regulation 
gave the big banks and unregulated nonbank lenders unfair 
competitive advantages against small and community-based 
lenders which were generally much more responsible in their 
lending.
    The Dodd-Frank Act authorizes the Bureau to examine all 
sizes of nonbank mortgage companies, payday lenders, and 
private education lenders, however, the Bureau generally will 
only be able to supervise larger participants in other markets 
for consumer financial products and services, and the Bureau 
must develop a rule, which they have yet to do, to define those 
larger participants.
    The Bureau will be able to examine companies which have 
never been subject to Federal oversight to ensure that no one 
is getting an unfair advantage by breaking the law. This will 
ultimately create more fair competition and more transparent 
markets for consumers.
    We also hope that the Senate will quickly confirm the 
President's nominee to lead the Consumer Financial Protection 
Bureau so that this important work can move forward.
    [The prepared statement of Mr. Palmer can be found on page 
58 of the appendix.]
    Chairman Bachus. Thank you, Mr. Palmer.
    How many of you have worked with Mr. Palmer and Ms. Rand? 
When talking about the Consumer Protection Financial Bureau, 
how many of you--and you, Ms. Rand, have worked with them?
    Ms. Rand. Yes, sir. I have been to meetings there, and I 
have responded to their requests for published comments on a 
number of issues.
    Chairman Bachus. Mr. Palmer, have you worked with them?
    Mr. Palmer. A couple of months ago, representatives from 
the Bureau had a roundtable discussion here in Chicago for 
housing counselors to find out what was happening, the latest 
trends in the market, I believe on the same day that we were 
making a presentation at the Mortgage Bankers meeting.
    Chairman Bachus. Have any of the other witnesses been 
working with CFPB?
    Mr. Ohlendorf. I have been involved in four different 
meetings with Professor Warren, who was heading up the agency 
at that time and trying to get some input as to what we thought 
was important.
    One of our members who was in those meetings brought up 
mortgage disclosures from his loan which was 35 years ago, and 
it was four pieces of paper. When he bought the loan, when he 
closed the mortgage on his house with the bank, it was a stack 
that was several inches high, so we're trying to show that some 
of these burdensome regulations that have come on, if there's a 
way of streamlining those things and a way to make it more 
meaningful to the consumer, I think it would be a positive 
step.
    Chairman Bachus. One thing that you mentioned was the 
foreclosures and the new City law here in Chicago.
    Actually, I had talked with the regulators--Fannie Mae, 
Freddie Mac, and Mr. DeMarco with FHFA--and, of course, as you 
know, Fannie and Freddie are 100 percent owned by the 
taxpayers, and Mr. DeMarco believes that law is actually going 
to cost the taxpayers a considerable amount of money because of 
the loans that Fannie and Freddie made.
    It's my understanding that this new law makes the 
lienholder of the first mortgage responsible for maintaining 
the property; is that correct?
    Mr. Roolf. Yes, it is.
    Ms. Rand. That's correct, sir.
    Chairman Bachus. And these are abandoned properties?
    Ms. Rand. What our research showed was that after the 
filing of the foreclosure, the mortgage servicer just abandoned 
the property, didn't proceed with the foreclosure process, but 
the residents had already moved out, and so the properties were 
causing blight in the neighborhood and cost to the city, and 
the servicers weren't taking care of that property, they were 
just walking away from it.
    Chairman Bachus. Then, was it that they weren't able to 
foreclose or they just refused to foreclose?
    Ms. Rand. They chose not to proceed with the foreclosure 
proceeding. We don't know why, but I can only speculate they 
thought it was more profitable to them to do that than to 
proceed with a foreclosure.
    Chairman Bachus. I can't imagine how it would be more 
profitable for them to not foreclose.
    Ms. Rand. It was happening thousands of times in the City 
and causing significant problems to lots of innocent neighbors.
    Chairman Bachus. The interest is to see that the property 
is foreclosed as soon as possible and put back on the market, 
is that--
    Ms. Rand. Yes, for those properties that are confirmed as 
vacant and abandoned, we support a more rapid court foreclosure 
process, but for houses that are occupied by residents, of 
course, we want time to try and negotiate a loan modification 
or a principal reduction or some other outcome.
    Chairman Bachus. If it is occupied, that would mean there's 
no--is there an obligation on the lienholder?
    Mr. Roolf. Mr. Chairman, if I may, I think we need to make 
a distinction between an owner of the property and a lienholder 
of the property.
    Chairman Bachus. Yes.
    Mr. Roolf. First off, as a lienholder, we cannot go on that 
property until the foreclosure is completed.
    We have worked in the past--the bankers have worked in the 
past to pass legislation in Springfield that would allow for a 
superior lien to be placed by the community if they plowed the 
snow and cut the grass and did other things to monitor and make 
sure that property stayed intact, if you will.
    I think that's a big distinction, because the foreclosure 
process right now in Illinois averages about 504 days from 
start to finish, and that's a very extensive time.
    I can't speak for all the mortgage servicers who perhaps 
looked at a property and suggested that it was simpler for them 
to walk away. That's certainly not what I know bankers to do. 
We have worked through this process.
    Our biggest concern is that we're in a ``damned if we do, 
damned if we don't'' situation. If we were going to do 
something to modify property based on it being vacant before 
it's foreclosed on and we actually take ownership, the 
individual who abandoned the property could come back and 
litigate against us.
    So, I would look for a balance on that if we could arrive 
at something, but my biggest concern is this ordinance will 
cause the secondary market to look at Chicago and, say, raise 
some questions, do I want to buy mortgages that are made in the 
City of Chicago because of this additional situation that has 
been precipitated by the ordinance, and that ordinance suggests 
that we have to be thinking about a last resort on every credit 
that we make.
    It's difficult enough to assess the risk. It's also 
difficult to suggest that the values of the properties and 
people who are underwater which is very unfortunate, but that's 
a market force, that isn't a banker force.
    I built a home 11 years ago that cost me $240,000 to build. 
Today, it's valued at $250,000 after hitting a high of maybe 
$300,000. Do I like that? Absolutely not. Have I walked away 
from my responsibility to continue to pay the mortgage that I 
have? Absolutely not.
    Chairman Bachus. I would think it would obviously impact 
community banks that own the mortgages on these vacant 
properties. It's a cost that I'm not sure how you would make up 
unless you charge more for the actual mortgages or even vacated 
that market.
    Mr. Ohlendorf. Mr. Chairman, that is absolutely correct. 
The cost of originating, you have to take in all of the risks 
and expenses that we could theoretically incur.
    I have talked to bankers who, because of talk of this 
ordinance, have said that they're just not going to participate 
in the market. Every time you withdraw participants from the 
market, you obviously end up with less competition and the 
opportunity for those that remain in the market for abusive 
practices and other things of that nature.
    If we have that loan in the marketplace, we have all the 
risk in the world, and walking away and taking zero is not the 
best alternative in most situations, at least in the small 
community banking world.
    Ms. Rand. Mr. Chairman, I would point out that this 
ordinance passed the city council twice unanimously. Between 
the first time it passed in July and the second time it passed 
in October, there were a lot of discussions with the bankers 
about some of these concerns and some of the definitions that 
were negotiated, and then the ordinance did pass again 
unanimously in October.
    And I think you have to balance these concerns with the 
impact on the neighbors and the communities in the city. This 
was costing the city $36 million a year, so something had to 
happen.
    Chairman Bachus. Thank you.
    Mrs. Biggert?
    Mrs. Biggert. Thank you, Mr. Chairman. Again, thank you all 
for being here.
    My question would be for Mr. Bates.
    Many bankers have told me that they have no recourse when 
they have a dispute with their regulator, in other words, the 
regulator is the judge, the jury, and the executioner for a 
dispute or a disagreement in the bank examination.
    Can you tell us more about the current appeals process when 
the bank management wishes to appeal the examiner's findings it 
feels are unfairly stringent?
    Mr. Bates. The major appeal process--first of all, if there 
is a dispute, our primary regulator, which is the FDIC, 
attempts to resolve things in the field before they will even 
issue an examination report, however, if you can't resolve 
things with the field examiner, there are steps through the 
FDIC to follow, and if the dispute remains, there is an 
ombudsman process that a bank can avail itself of, however, 
typically, because of the power that regulators hold, you do 
feel as though they hold all the cards.
    Mrs. Biggert. Is this ombudsman someone from the FDIC?
    Mr. Bates. Yes, it's an FDIC or OCC employee, depending on 
whom you're regulated by.
    Mrs. Biggert. Would it be better to have an ombudsman who 
was independent and wasn't really with either of those 
agencies?
    Mr. Bates. It would probably be better if they were 
independent and separate from the agency, but currently, the 
process is they do work for the agencies.
    Mrs. Biggert. So many times, we have heard that the FDIC, 
the Director didn't know what the field person was doing, in 
other words, there was a time where the field person went in 
and said that they needed to devalue a loan even though it was 
performing, even though there had been no lack of payments. The 
FDIC oversight stated that they would never do that, yet that 
happened; is that correct?
    Mr. Bates. Yes, there have been instances of that, I'm 
sure.
    Mrs. Biggert. Mr. Roolf, thank you for being here. You're 
very close to my district, so welcome.
    In conversations with other bankers, have you found that 
the examination procedures are being applied appropriately?
    Mr. Roolf. I think that's one of the biggest challenges, 
Congresswoman, that it's thought that the examinations are 
being basically performed based on the individuals and not 
necessarily a consistent application of the regulations.
    When you think of regulations and you think that there's 
Reg A through Reg QQ, and then there are about 15 or 16 other 
Acts that all banks are expected to follow, it may be difficult 
for examiners to apply that uniformly. That might be a 
challenge.
    I have also heard that when there are those challenges and 
disagreements, oftentimes, the banker doesn't even want to 
engage the regulator to talk about those differences because of 
consequences that might come as a result.
    They may not be implicit, but somewhere in there, there 
might be some retribution that comes as a result of that, and 
that's the independence in having someone who could visit with 
a bank and visit with a regulator independently to assess the 
situation. I think it would be a great way to handle that 
situation.
    Mrs. Biggert. Thank you.
    And Mr. Schmitt, thank you for being here from my district 
also.
    According to some, they say that the decline in loan 
activity is attributable in part to the dearth of qualified 
buyers, for example, a recent survey by the Federal Reserve and 
the National Federation of Independent Businesses indicates 
that the loan demand is generally weak.
    How do these surveys compare to your experience and why do 
they think the loan activity is down?
    Mr. Schmitt. I think loan demand is lower today than it was 
a few years ago because we have gone back to having certain 
qualifications where we didn't have qualifications before.
    Prior to being with the Chamber of Commerce, I was in real 
estate for over 20 years, and when I started, we had ratios 
that we had to adhere to, to be able to sell into the secondary 
market. We had to ensure that the loan to value was greater 
than 80 percent.
    Over time, a lot of those things went away, and so there 
were more people who came into the market who were able to 
borrow, and it created some issues. And now, we have had to go 
back to more or less like retro real estate, retro lending back 
with the rules and regulations again, but we don't want to pile 
too many on there.
    Mrs. Biggert. I have one more question for Mr. Renn, from 
Lisle.
    We have heard from many bankers about the additional costs, 
and you presented in your testimony how the costs had gone up 
for compliance burdens. When do you get to the point where it's 
too expensive for your bank to offer certain products or 
services?
    Mr. Renn. I wouldn't say it has to do with the cost of the 
product. I think it's the--I had that analogy of a Home Depot 
business plan for a small hardware store.
    As I said, I have been there 40 years as well. We have many 
employees who have been there a very long time, and I think the 
point is that the formality and the structure of how the 
business is run is just so much different than it was when--I 
don't want to say when I started, because that does go back 
some time, but it seems like it's more for the benefit of the 
examiner when they come in. It's easier for them to look at the 
minutes of different committees.
    And all the formality of holding really strategic planning 
sessions for different departments has gone into just 
compliance and people on a committee because we really--and we 
had one compliance officer, and compliance is throughout the 
bank; there's no question about that.
    So you're taking really in our case employees who are 
customer service people in their respective departments, but 
because compliance also touches part of their jobs, you have 
these committee meetings that last long and with minutes, and 
you're always proving up the daily activities of the bank.
    An example that I can give--and this is maybe a little bit 
away from compliance per se, but more with how the bank is run.
    The examination process of banks, there's the CAMELS rating 
which I presume some of you are familiar with. And 2 years ago, 
we had our exam, and the ``L'' in CAMELS is liquidity, and we 
have a two, which is okay. That's good, but I asked a very 
common-sense question: ``What do you have to do to get a one?'' 
You're always asking for some guidance.
    And there was a kind of a long pause, and they said, 
``Actually, your balance sheet has the characteristics of a 
one.''
    So I said, ``So you're saying that really, how we have 
managed the bank, we should have a higher rating than we do?''
    And he didn't answer that directly, but he said, ``Your 
problem is that you didn't have minutes of your Asset and 
Liability Committee, and you didn't stress that's your 
portfolio'' which is something else.
    But what's interesting, when I started, there were only 12 
employees; we have 65 now, and so that answer was like you 
achieved the results, but you didn't prove how you got there, 
so the results don't matter, but proving that you got there 
counts.
    The following year, we had an exam, and I asked that 
question again, because we did the things that they had asked, 
and so the response was, ``You're still a two.''
    Mrs. Biggert. Thank you.
    If I may, Mr. Chairman, I would ask to submit for the 
record statements from Michael Steelman, chairman and CEO of 
Farmers & Merchants State Bank of Bushnell, Illinois, and Peter 
Haleas of Bridgeview Bank & Trust of Bridgeview, Illinois, and 
the statements submitted by the Bolingbrook Area Chamber of 
Commerce.
    Chairman Bachus. And they're here in the audience?
    Mrs. Biggert. Yes.
    Chairman Bachus. Would each of you gentlemen stand up? 
Thank you.
    Mr. Manzullo?
    Mr. Manzullo. Thank you. I appreciate your coming here.
    Mr. Ohlendorf, what did your bank do to bring about this 
crisis in finance and home mortgage?
    Mr. Ohlendorf. Honestly, very little. Unfortunately, we 
were just kind of participating like a community bank for 95 
years has participated, and something happened, and I'm not 
sure what.
    Mr. Manzullo. Mr. Bates, what did you do wrong?
    Mr. Bates. Absolutely nothing.
    Mr. Manzullo. Mr. Roolf?
    Mr. Roolf. Nothing.
    Mr. Manzullo. Mr. Renn?
    Mr. Renn. Nothing.
    Mr. Manzullo. I closed over a thousand loans, I brokered at 
a couple of banks and even before RESPA when you had the three 
pages like that, and when you go to a closing nowadays, people 
don't read them. You can't. If you don't sign them, you don't 
get the house.
    So now we have more and more regulations including 
appraisers going out, doing RESPA for years, MERS came along, 
and we fought that like crazy because with the electronic 
recorder of the mortgages, you can no longer track who owned 
the note to the county offices on it.
    And as I see what's going on here, the Federal Reserve has 
always had the authority to govern underwriting standards and 
documents to the extent it has authority over banks, and it 
wasn't until 2 years ago that the Federal Reserve actually came 
up with a rule requiring written proof of a person's earnings 
before a person could borrow.
    The GSEs either as to the loans they would collateralize 
and sell to the secondary market or hold in their own portfolio 
have always had the authority. They have underwriting standards 
to the loans that they would accept. What did they do? They did 
nothing because housing went from a privilege to a right, then 
it became an entitlement, and at that point, all the standards 
fell.
    And so here we are with this biggest mortgage collapse 
going on because somebody didn't use any common sense out 
there, and the people who did not cause the problem are now--
many of them are sitting before us saying, ``You have to do 
something.''
    We had a hearing, Mr. Chairman, I think it was last week, 
with the acting Director of the Consumer Financial Protection 
Board, and he said they're examining over 10,000 transactions 
as to which they're trying to determine whether or not they 
have authority.
    This is outrageous, but I would like to, Mr. Ohlendorf, ask 
you another question.
    I come from Northern Illinois, North Central Illinois, and 
I'm impressed with the force of bankers here, and I am very, 
very disturbed on Page 4 of your testimony when you talk about 
the qualified residential mortgage and because regulations are 
written incorrectly and then the Farm Credit System, the direct 
lenders can come in and actually threaten to take away your 
business. Could you expand on that?
    Mr. Ohlendorf. I'm concerned about several of the new 
mortgage rules and the definitions of what they're going to be.
    In a community bank, it's easy to understand a 30-year 
plain vanilla mortgage, and I wish everyone would qualify for 
one, but it just isn't the truth.
    If you're in rural areas like we are, all our homes aren't 
cookie cutter subdivisions where all of them look alike and 
they all follow the same rules. We have people with horses and 
a barn and other things like that, and so we make balloon loans 
which are just a way that we can portfolio that, hold the 
interest rate exposure risk to 5 years, and then refinance the 
product as 5 years roll along.
    They're starting to define disqualified residential 
mortgage and unqualified mortgage and what these terms will be 
and what the safe harbors will be. And our significant concern 
is as they define these terms, if they're defining them too 
stringently, what's going to happen is a lot of the loans that 
we as community bankers have made and the portfolio, which 
means we have the entire risk, the credit is on our balance 
sheet. If this loan fails, it's ours.
    And then you tie the mortgage escrow requirements in on 
high-cost loans and the way some of those indices were set 
which were set many, many years ago with interest rates as low 
as the Fed had allowed them to drop were triggering on very 
normally-priced loans triggering into high-cost mortgage loan 
territory, and so now I'm saying to my customer, ``In order to 
give you this loan, we have to escrow your taxes.''
    And we have had these customers for 10, 15, 20 years, and 
we have managed their finances quite nicely, thank you, and we 
have managed their escrow, and now we look at them and say in 
essence, what we're saying is, ``We don't trust you enough 
anymore to handle it on your own, we now have to add another 
layer of bureaucracy.''
    That's always very, very expensive to offer. A lot of 
community banks aren't in that business because it is complex, 
it is cumbersome, and now I'm telling my consumer that, ``We 
really don't trust you anymore.''
    So what happens with all of these rules and regulations is 
that the type of loans that we make, we have been creative, we 
have helped people with unusual circumstances and situations 
become very successful, and now, because they're not cookie 
cutter and they don't follow what maybe the definitions turn 
out to be, all of a sudden, some of those loans we're going to 
have a very difficult time doing.
    And again, I have heard bankers say, ``We just may not be 
in that business anymore, we're running out of businesses to be 
in.''
    Mr. Schmitt, you have a unique background, having come from 
the real estate industry. Why did these standards slip, why did 
the normal loan-to-value ratio and the amount of downpayment? 
What happened?
    Mr. Schmitt. I don't know exactly what happened totally. It 
might have been a little bit higher than my pay grade at the 
time, but I was always told that the loans had to be certain 
specifications and certain standards so that they could be sold 
onto the secondary market, and so they basically had to be 
cloned. Okay?
    Then I believe they had the ability and the secondary 
market began to buy them when they weren't necessarily cloned 
and weren't all the same, and it had to be greed.
    We used to insure anything more than 80 percent financing. 
Where it really got kind of absurd is when you would have an 80 
percent mortgage, a 10 percent mortgage, another 10 percent 
mortgage, and then can get a line of credit as you walk out the 
door of the closing and be underwater.
    Mr. Manzullo. During the height of the real estate heyday, 
about 25 percent of the mortgages were collateralized with the 
GSEs, and now, it's about 95 percent, but the GSEs had the 
authority at that time to insist upon strict underwriting 
standards.
    We have been looking at these all day in the subprime 
mortgages; am I correct? You would know that. That's a matter 
of law.
    Mr. Schmitt. Yes, I don't know why it happened except, as 
you said, it went from a privilege up to almost an entitlement.
    Mr. Manzullo. Thank you.
    Chairman Bachus. Mr. Dold?
    Mr. Dold. Thank you, Mr. Chairman. I appreciate it. Again, 
thank you so much for taking your time to be with us today.
    I have had an opportunity to talk to a number of financial 
institutions, and many bankers have actually had the 
opportunity to talk with me and my staff about the 
disproportionate impact of the increasing regulations that are 
out there, and I'll go back to my earlier premise.
    We need regulations. We want them to be smart regulations, 
we want them to be focused. We just don't want more of them 
just to have them.
    Can you talk to me a little bit about how Dodd-Frank--and 
again, when we look at the rules and regulations that are out 
there, there are an enormous number of rules that have yet to 
even be written, and the uncertainty that's out there that's 
being placed not only on the financial institutions but on 
those that are looking to try to comply, can you give me some 
sort of an indication of how that's impacting your business 
right now in terms of the small financial institutions in 
Illinois?
    I guess we'll go more on this side.
    Mr. Roolf. If I may?
    Mr. Dold. Sure.
    Mr. Roolf. I talked to a few bankers and I asked them to 
give me some live examples. And this happens to come from a 
bank in New Lenox, Illinois, a small community bank that was 
started about 6 years ago, and they're a $125 million bank with 
24 employees, and their annual cost right now is about $200,000 
a year and growing. That's a very significant, significant cost 
to put on a bank of that size.
    And I think when you recall I mentioned Regulations A 
through QQ, any one of those regulations is probably 
appropriately defined and put in place, but when you start 
looking at the cumulative impact that all of those are having, 
a bank that's $125 million trying to comply with the same rules 
and regulations as someone that might have 400 people in their 
compliance division is just something that I think you're going 
to cause banks like this to look at their organization and say, 
at what point have we spent so much money on compliance to a 
point where we can't return on investment to their local 
investors.
    When you talk about these small community banks, their 
investors are the hardware store guy, the barber, the doctor, 
the dentist. They're people in the community who invested in 
their own community, and thus, this bank plays a very intricate 
role in it.
    And I think that's the concern, because there are, as I 
mentioned earlier, 584 banks that are headquartered in this 
State. They're in communities as small as 700 or 800 people. If 
you take that bank and continue to layer on this regulation, 
their survival is indeed in question.
    Mr. Manzullo. Any one of you can jump in also.
    Mr. Ohlendorf. Congressman, we understand as well, as you 
stated in your premise, that regulation is part of our business 
and it's certainly required for many things. We get that, but 
it is akin to treating a patient with cancer. We don't go in 
and kill the body because that would get rid of the cancer. We 
go in and try to surgically take out as little as we can and 
treat the area around it and then move on.
    And unfortunately, these regulations, especially if we have 
come down because of the mortgages and because some of the too-
big-to-fail institutions, we all get blanketed with the 
solution, and we're looking for the opportunity to tier out the 
folks who didn't do the wrong thing.
    You have all said, and we appreciate that you're 
understanding, that the community banks didn't cause this 
problem. We have talked about that over and over, and we really 
appreciate your understanding there, but then also, we can't 
just get blanketed with the solution, and so there have to be 
places in these regulations where we can find ways to 
surgically go after the things that didn't go well and the 
folks who didn't do the right thing and protect the rest of us 
from having to comply because it's this overlap, as Mr. Roolf 
said, this overlap of regulation. One more regulation doesn't 
seem like a lot until you add them all up.
    Mr. Roolf. May I add one thing, Congressman?
    Mr. Dold. Please do.
    Mr. Roolf. Mr. Palmer made a statement earlier about 94 
percent of the problem or the financial meltdown, if you will, 
was caused by unregulated financial organizations. That's a 
critically important statement because the regulations and 
those who were playing by the rules are still playing by the 
rules.
    Don't misunderstand our concern with whining. We are not 
whining; we are indeed concerned. And the 6 percent of us who 
operate in the world by the regulations, however many of them 
there are, are not saying we shouldn't have regulation, but 
what we're saying is we need to be meaningful in terms of 
reviewing what's there and what continues to be applicable and 
modify it accordingly.
    Mr. Dold. One of the concerns that I have had is the one-
size-fits-all kind of mentality that Dodd-Frank has really 
placed on some of the financial institutions and its impact as 
Mr. Schmitt, I think, brought up in his testimony on some of 
the entrepreneur small businesses that are out there.
    As a small business owner, let me just tell you I recognize 
that access to capital is absolutely critical just to run the 
business each and every day, and if your receivables are up a 
little higher, you're going to need to dip into perhaps a line 
of credit that you have at a bank or something along those 
lines.
    One of the things that I hear about is we have heard about 
the banks that have to limit that line of credit in light of 
that, a $100,000 line of credit, $50,000 line of credit, and 
all of a sudden, if you have $20,000 off on that $50,000 line 
and you drop that line to $25,000, all of a sudden, that 
impacts your credit score because now you have borrowed a 
significantly higher percentage.
    And so, you find those that are in performing mortgages 
right now that all of a sudden, banks are going back to them 
and saying, ``By the way, your loan to value is now underwater, 
and we're going to require that you put in additional 
capital,'' which for most small businesses is devastating. They 
come to you for the access to capital; you're not supposed to 
go to them and ask for additional capital. And these are the 
performing mortgages.
    And so we hear about the entrepreneur that is 100 percent 
occupancy in a building that they're operating that has to go 
to 22 financial institutions just to get access to additional 
liquidity.
    Is this something that you're experiencing in the banks in 
your day-to-day operations, and could you shed a little bit of 
light on that?
    And more importantly, really more importantly why we're all 
here is what should we be doing in the United States Congress 
to try to rectify that, because I can tell you I have an 
instance, we have a thriving practice, physician practice, up 
in the 10th District that purchased a building and a piece of 
property, and the banks came to them and said, ``Look, we're 
going to have to foreclose unless you come up with an 
additional million dollars.''
    They were able to come up with that additional million 
dollars, but I would argue that the highest and best use of 
that land and that facility that was built for them is to run 
this physician practice. They never missed a payment.
    Running a small business, I can tell you that when you 
factor in things like rent, that you know you have to pay the 
bank ``X'' number of dollars each and every month, and whether 
the bank views that as underwater, they're viewing it as a 
block between running their business.
    If you have any examples, I would welcome that, and then 
we'll come down to this end of the table because we don't want 
to deny you the opportunity.
    Mr. Roolf. I have an example of that.
    You'll recall I mentioned that I had traveled about 2,000 
miles without leaving the State of Illinois over the last few 
weeks talking to bankers in preparation for today, and let me 
read it just because I haven't been able to study it 
sufficiently, but I think it's a good example.
    It says: ``Allow me to highlight a specific example. We 
have a local borrower who owns a gas station which faced an 
enormous real estate tax increase. This tax increase caused the 
borrower to come to us and plead for assistance, parenthetical, 
a lowered rate and a modified amortization schedule, yet 
because we would be forced to carry this loan in a troubled 
debt/restructured category or TDR as it's known in the 
industry, it results in a classified asset.
    ``We told this borrower we could not help him. As a result, 
he shut his business down and fired his employees. The bank was 
left with no alternative but to incur a loss via the sale of 
the asset in order to avoid carrying the classified asset on 
the books for an extended period of time.
    ``These actions forced upon us were morally gut wrenching. 
We did not help an individual, and we certainly did not assist 
in economic recovery.''
    This banker specifically asked if we would review the 
requirements of the troubled debt restructure.
    If we take a borrower who is struggling and we modify the 
terms of their agreement in any way, it becomes a troubled debt 
restructure, and as such becomes classified. When it becomes 
classified, they charge capital, make the loan provision, and 
it erodes your capital base.
    This is a very significant issue so this is one that we 
could look at very much so. Particularly if the borrower over 
the last 5 years has paid as contractually agreed to, we should 
be allowed to work with those individuals, and we can't.
    Mr. Dold. If I can just turn a little bit--and I certainty 
want to talk more about this as we go another round. I just 
want to talk about the FSOC and then the CFPB for just a 
second.
    The CFPB has a decision that they make concerning your view 
on this and the perspective.
    In order to overturn a decision that the CFPB makes or 
perhaps the Director, who right now, the sole power really 
rests with the Director of the CFPB, and we can all agree that 
we want consumer financial protection. I don't think there's 
anybody who wants to see, or in the room who doesn't agree that 
we should be able to have some protection for the consumers but 
a decision made by the Director.
    And really, what I would like to do is take it forward 10 
years from now so that we take all politics out of this. So 
whoever the President appoints as the Director to the CFPB, 
that individual will have a significant amount of power.
    The decision that they make, should it be overturned by the 
FSOC or Financial Services Oversight Council, right now, it's a 
two-thirds majority to do so. Is that too high a threshold for 
the CFPB in terms of something that would have systemic risk?
    Mr. Ohlendorf. Congressman, I'm very concerned about that, 
and I'm concerned about the single Director as well. I would 
love to see it be a panel. I think there's a lot of power 
vested if you appoint one individual.
    Once the CFPB is cut away and it's out standing on its own, 
my prudential regulator which is responsible for safety and 
soundness also did my compliance in days gone by and wrote the 
rules, and they knew when they wrote those rules--they knew my 
safety and soundness situation, they knew the bank safety and 
soundness. They were very close. I think there's a nice 
relationship there.
    Now, we have stripped that and put it over in some corner, 
and this two-thirds requirement--and it's not just two-thirds, 
it's two-thirds under some very limiting circumstances where a 
rule could be overturned. Prudential regulators would really 
pull away from that.
    And they have the regulators, they're in the banks, they're 
in the bank every year, every 18 months. They're gathering a 
lot of good information about what's really happening in the 
field, and I think it's very important that they're staying 
involved, and I'm very concerned that the bar has been set too 
high and also the criteria upon which a decision can be 
overturned is also very stringent.
    Mr. Dold. Ms. Rand, if you just wanted to chime in, go 
ahead.
    Ms. Rand. No surprise, I disagree with that opinion. I 
think it's extremely important that the Director and the CFPB 
have independence and autonomy within the context of consulting 
with the prudential regulators.
    I think part of the reason we got to this foreclosure 
crisis is because the prudential regulators were in what we 
call regulatory capture; they were too closely identified with 
the banks that they supervise.
    In fact, I think it was Mr. Chairman who even said, ``the 
regulators are there to serve the banks,'' and that's really 
how a lot of them looked at their job. So I think having an 
independent agency whose sole purpose is to look out for 
consumers is absolutely essential.
    Mr. Dold. I guess I--
    Chairman Bachus. Ms. Rand, that has been a quote that has 
gone around.
    My statement was that the regulators were public servants, 
and that means they should be public servants to the banks as 
well as to their customers, and that was taken out of context.
    Actually, it wasn't even taken out of context. It's a 
misstatement similar to the 60 Minutes show where it said that 
Immelt told Paulson that GE might default on some of their 
obligations, and that Paulson may have told me, and that I 
short-sold GE.
    I bought GE, so it was a total misrepresentation, but those 
things, they take on a life of their own.
    Ms. Rand. Mr. Chairman--
    Chairman Bachus. And I can tell you that you see that on 
some of the blogs, but if you go back to the original article, 
you can see that I said that the regulators should consider 
themselves as public servants.
    And the question was, do you consider them as public 
servants to the banks, and I do. I think they're there to serve 
the banks and everyone else, but you took that out of context. 
That's why they're called public servants.
    Mr. Dold. I guess if I can follow up.
    Chairman Bachus. But I also said that they should enforce 
the rules and that they should enforce them right.
    Mr. Dold. I guess if I could just--for clarification, it 
wasn't the existence or whether we should have a CFPB or an 
FSOC, it was the threshold of two-thirds, should two-thirds of 
the FSOC have the vote because that's an extraordinarily high 
threshold. Should it be a simple majority when you look at just 
who comprises the FSOC?
    And that was really my question, should it be at two-thirds 
or the smaller--
    Ms. Rand. I think it should be the two-thirds requirement 
because I believe it's necessary to preserve independence of 
the agency, yes.
    Mr. Dold. Okay. Thank you.
    Mr. Chairman, thank you.
    Chairman Bachus. Actually, the CFPB is a voting member, so 
it's seven out of nine, which is actually greater than two-
thirds, but someone mentioned the burden.
    The burden of proof is that the rule would bring down the 
entire American economy, and I doubt that one rule--it may 
bring down all of the community banks, it may bring down all of 
the insurance companies, but anyway, that's a debate we are 
having, whether one person ought to have that much power, and 
there are differences of opinion.
    Mr. Schweikert?
    Mr. Schweikert. Thanks, Mr. Chairman. And it's always sort 
of fun trying to explain the differences between selling short 
and actually buying long.
    Chairman Bachus. And obviously, if you were in a meeting 
and someone said ``GE is going broke tomorrow,'' and 2 days 
later, you went out and bought the stock, I have hearing aids, 
and maybe my hearing aids were off, but I was a railroad lover 
and a representative of GE years ago, and they make the only 
diesel engines for the trains, and I bought it because I 
thought they had a good business, and the stock had fallen and 
fallen and fallen. As opposed to short selling it because ``I 
didn't have faith in the financial industry, I was buying it--
produced British aircraft engines.''
    They also said I went out and bought financial--here I am 
the Financial Services Committee Chairman, and I went out and 
got financial services, ETF, and I won't bore you with what ETF 
is--and that I shouldn't have been doing that, I should have 
bought energy or technology and something else.
    I didn't buy financial; I bought energy futures. They were 
an energy company, but that doesn't prevent those stories that 
will be out there till the day I die, sort of like all of us in 
this room, where do you go to get your reputation back?
    Mr. Schweikert. Mr. Chairman, two things I have learned in 
my 11 months now doing this job: you would be stunned how much 
public policy is done by folklore; and I'm heartbroken to find 
out how often a good story is the story that you can just make 
up.
    Because I'm the guy from out of town, I want to try to do 
this quickly, because I know our time is somewhat limited.
    Ms. Rand, before there was a part of the discussion of how, 
I guess, these local regulations in regards to what a lender--
we're a nonrecourse mortgage state here, yes?
    Ms. Rand. We're a judicial foreclosure state.
    Mr. Schweikert. Yes.
    That the lender is obligated to go in and maintain and 
board up a property that's declared abandoned by a 
municipality?
    Ms. Rand. I don't have the details at my fingertips, 
Congressman, but my understanding is that for confirmed vacant 
and abandoned properties where the foreclosure is not yet 
complete, the servicer has some obligations under the ordinance 
that require some upkeep so that--
    Mr. Schweikert. So there's an ordinance that actually 
allows them to gain access onto the property?
    Ms. Rand. It requires them to do some maintenance so that 
it doesn't become a blight on neighboring properties.
    Mr. Schweikert. I appreciate the blight thing. We have 
dealt with that.
    What I mean is just how the municipality--specifically how 
the municipality from a governmental standpoint is able to gain 
access to the property, and very often, they attach a lien.
    It's an interesting property rights issue if you're going 
to have a lienholder who now goes and has access to that. I 
will make a point to read about this.
    I must tell you, we have been--one of the things I have 
great interest in is mortgage insurance and the way you 
securitize some of these, the mechanics out there, and I always 
have this great concern we're heading towards a time where 
there will be a differential in the pricing of loan mortgage 
guarantees because of if it truly takes 500 or 600 days to do a 
judicial foreclosure here, you're a lot more expensive than a 
deed-of-trust State such as I come from where it can be--I 
think we're averaging 4 or 5 months.
    Just reality, you deserve to pay a premium on your loans 
because your loans are more expensive, and why should my folks 
in Arizona be subsidizing your mortgage instruments?
    Just understand--and as you stack other things on, just 
understand that you will--not only for your court system, the 
type of loan instruments you do or your regulatory system, you 
deserve to pay a premium. Other folks in other parts of the 
country, why should we be subsidizing them?
    I have a great interest because it's not often we get to 
sit down with community bankers in this type of forum, I hear 
lots of discussion in literature about the mark-to-market and 
how often we'll have an occasion where you have a performing 
strip center. And I'll use this because I have a little article 
with me about this very situation.
    A strip center, long-term tenants, a couple of them even 
credit tenants, the strip center down the street goes through 
foreclosure, sells here. The regulator walks in and says, 
``Yes, this is a performing loan, yes, you have some credit 
tenants, but yes, you have too high a debt ratio when we adjust 
to the sale over here, go get your owners to bring in some 
cash.''
    Have any of you had that experience? I'll take anyone.
    Mr. Roolf. I would say that's not an untypical situation. I 
think that those occurrences happen across the State.
    In terms of working with bankers as I have, as I said, over 
the last few weeks, I have heard examples from them where they 
were required to ask for additional equity and for additional 
collateral of some sort, equity in your business or additional 
collateral that helps bring that loan to value and balance.
    Mr. Schweikert. When you have had that type of occurrence, 
has your discussion with regulators looked at either the 
tendency or the cash flow? Because I come from the world where 
you would look at the cap rate and say yes, the cap rate works 
and my payment history works, but even though those things 
would look fairly solid, you would still be having to go into 
the capital call.
    Mr. Roolf. We would still be challenged in that regard, 
yes.
    Mr. Schweikert. Is that a consistent story here you come 
across?
    Mr. Roolf. It would be unusual to ask for a show of hands, 
but you could ask the bankers in the room specifically, and I 
would not be out of line to suggest that every one of them has 
had that experience over the last 2 or 3 years.
    Mr. Schweikert. While it's a concern to so many of us, if 
you have an ongoing concern that's working, you have just 
pushed on a level of uncertainty to not only the lender but 
also that other business saying just because some--forgive my 
language--screwball made a mistake and this all of a sudden, is 
your gas station example--the economic future now is in the 
hands of not your loan performance, not your quality of your 
capital and not your history but this becomes now that mark-to-
market issue.
    Mr. Roolf. And you have taken out the judgment that the 
banker uses to assess the risk and the character of the 
individual they're doing business with. That's an important 
component of the loan arena.
    We have to know our borrowers and we have to understand 
what it is they're trying to do, and if we can't give them the 
benefit of the doubt, then we have a vertical climb trying to 
make loans anywhere.
    Mr. Schweikert. Mr. Chairman, I know I'm out of time, but 
this goes to anyone else in the room. I am trying to collect--
    Chairman Bachus. You're actually 2 minutes shy.
    Mr. Walsh. Mr. Chairman, don't tell him that.
    Mr. Schweikert. I'm sorry. I'm the guy from out of town. 
Okay? Did I mention all the sales tax revenue?
    Mr. Walsh. Yes.
    Mr. Schweikert. In all sincerity, I'm doing my best to 
collect something beyond those examples, sort of regulatory 
examples, so I can sort of ferret into it where regulatory 
policy needs to go so we stop creating this sort of uncertainty 
and this sort of wake of damage that comes with this sort of 
policy, so thank you, Mr. Chairman.
    Mr. Schmitt. We have used the term a lot, ``performing 
loan,'' a performing loan, and there's no credit for a 
performing loan anymore.
    Many times, with some of these rules and regulations, the 
performing loans are forced into noncompliance and they can't 
perform anymore so we have seen the example that you have used 
and everything throughout our community with a number of 
people.
    Chairman Bachus. Adam?
    Mr. Kinzinger. Thank you, Mr. Chairman, and thank all of 
you for coming out. And those in the audience, thank you for 
coming out as well and taking an interest.
    And specifically, Mr. Ohlendorf and Mr. Roolf, as district 
residents, it's great to have you here.
    I want to say that one of the things I have seen in just 
the 10 or 11 months I have been in Congress now is, I get 
people from all over the place coming in and talking about this 
thing, Dodd-Frank, and talking about how it's going to affect 
them. And this is to the level of what I never expected when I 
went to Congress.
    I have had people who run grain elevators come in and talk 
to me about the impact that Dodd-Frank is going to have on 
their business and people from all walks of life. It's like 
this is a monster that really has its hands in places you never 
would have imagined. I wouldn't be surprised if a little league 
team doesn't come in and start talking about how it affects 
their life.
    But, in the process of all this, we're trying to find that 
balance between too much government regulation, which freezes 
up the system and continues to stagnate the economy, and no 
government regulation, which also is bad for the economy, and 
we saw to an extent in the past what no government involvement 
or no regulation has done, so we're trying to find that.
    But let me just--I want to get more of a 10,000-foot view 
on this because we have had a lot of good discussion here, and 
I'm not going to take my time just to take it, but as 
regulators are implementing Dodd-Frank, as they're coming in, 
they're barely even making a mark so far on what needs to be 
done, but as that is being implemented, if you could give these 
folks who are implementing it one takeaway of one thing to keep 
if mind as they're building this up, what would it be? What 
would be--I'll just go down the line.
    What would be from each of you the one thing that you would 
love to tell these folks?
    Mr. Ohlendorf. Congressman, it is good to see you.
    What we would like to see is that the community bank 
business model be taken into consideration while these rules 
are being written.
    I think in real life, there is an opinion on Dodd-Frank in 
a number of places regarding the difference between large banks 
systemically and more financial institutions and community 
banks, and you see it littered in the bill, in the law now, and 
there are places where community banks were given some 
exceptions and carveouts.
    There are also a lot of places in the rule-writing process 
where that can also take place, and I think there has been 
given some rope in order to craft the law and write the rules 
in such a way that community banks are considered and are 
considered as being different.
    And again, we have all said how many times that we didn't 
create it and we're different and we serve a different market.
    I think every time there's a rule written, the folks who 
are writing the rule, whether it's an agency or whether it 
becomes another piece of legislation, we have to consider the 
impact on community banks, we have to consider how the rule 
could be written so that it has the appropriate impact on those 
who need to have the impact and no inappropriate impact on 
those who are just sort of left as collateral damage.
    Mr. Kinzinger. Thank you.
    And the rest of you, I also want you to keep in mind that 
some of these rules are going to span multiple agencies, and 
that can be a situation that's going to be even more difficult 
and more confusing.
    Mr. Bates. I would echo what Mr. Ohlendorf said, and I 
would like the regulators to remember that even though there 
may be exemptions for community banks on certain things, a lot 
of the regulations that will go into place will then turn 
around and be used as best practices that over time, community 
banks will have to adhere to, and again, the cost of 
implementing these best practices as well as the actual 
regulations that we have to comply with come around them.
    Mr. Kinzinger. It also takes out of the--it seems like from 
what I hear from folks, this is going to take out of the 
community bank process the ability to make a decision based on 
you are part of that community, you know somebody, you know 
their history. Beyond just what you see on paper, it's maybe 
the experiences that you have, and I think maybe that's a touch 
that community banks have that big banks don't.
    Mr. Roolf?
    Mr. Roolf. They clearly have that issue.
    Have you ever closed a business and then walked into the 
same supermarket, the same aisle with the individual you put 
out of business? I can tell you it isn't fun.
    I think as we look at all of the regulation that's out 
there, if I could do one thing in this whole great scheme, it 
would be to make sure that people understand that we are not 
trying to eliminate regulation; we just want it to be done in a 
consistent and rational fashion.
    Now, that may be one large, large task to accomplish as we 
look at the myriad of regulation that's out there already. Some 
have clearly outlived their usefulness.
    So if we could look at--if I could have one thing, it would 
be to look at what we have eliminated and establish what's 
appropriate and practical in today's environment.
    I will restate it. We are not for eliminating regulation. 
We are for making sure that it's well-thought-out, practical, 
and something that is consistently applied throughout our 
industry.
    Mr. Kinzinger. Mr. Renn?
    Mr. Renn. I believe you used that phrase ``the 10,000-foot 
view,'' and Dodd-Frank is really just it's an add-on to rules 
that we have now, and I think that my point of my testimony is 
that you can accomplish things and that substance over form and 
Mr. Ohlendorf's comment about have things applicable to what 
we're in business for.
    Our balance sheet is a little bit different than our 
business model is a little bit different than the other 
witnesses, but that's my biggest take on it is that you have to 
have rules and policies, procedures and you're examined for 
things that are applicable to your business, that we don't feel 
that we're--we feel that we're micromanaged.
    Mr. Kinzinger. For the next three, I'll have to ask you to 
keep it real brief. We're up against time.
    Mr. Schmitt. Mine would be basically you cannot write rules 
and regulations for one-size-fits-all. We have different size 
banking, and we have different size businesses. There has to be 
some flexibility coming into account, some judgment calls when 
dealing with these various businesses and organizations.
    Chairman Bachus. Ms. Rand?
    Ms. Rand. I think the CFPB should continue to do what it 
started, which is to create evidence-based policies based on 
input from consumers, from the industry, from the general 
public, and take all that information, look at real facts and 
then create--I agree with Jim--practical, consistently-applied 
policies that protect consumers.
    Mr. Kinzinger. Thank you.
    Mr. Palmer?
    Mr. Palmer. And I would say that Dodd-Frank levels the 
playing field between the big banks, community banks and the 
previously-unregulated others so I think in the long term, 
leveling the playing field is actually good for community banks 
because the foreclosure crisis happened because big banks and 
unregulated lenders were able to make really risky loans that 
the community banks didn't, and because of that, they captured 
more market share so eliminating that situation, again, is good 
for consumers and is good, again, for community banks.
    Mr. Kinzinger. Thank you, sir. Mr. Chairman, thank you 
again. And a special thanks to Mr. Schweikert.
    Chairman Bachus. Mr. Palmer, one thing. You're correct what 
you have said of unregulated and subprime lenders.
    Some of the large regulated banks bought unregulated 
subprime lenders. They were actually a sub--they were an 
unregulated affiliate. And we actually changed that in a 
subprime lending bill about a year before Dodd-Frank, and it 
included provisions which I had written and introduced in 2005.
    But you're right, the big banks sort of fooled us when we 
would say, are you doing this, no, but the story was they were 
doing it in their unregulated affiliates.
    So once bitten, twice shy, but yes, they were coming in the 
back door.
    Mr. Walsh. Thank you, Mr. Chairman. I'll be very brief.
    A couple of questions for our four bankers. And Mr. 
Ohlendorf, let me go off of your analogy.
    In attacking the cancer, did Dodd-Frank kill the body, or 
would you describe it as a whole as surgical precision? If the 
four of you could give a concise answer to that?
    Mr. Ohlendorf. It was clearly a mixed bag, and the jury is 
still way out.
    There were certain things inside the deposit insurance 
reform, and the raising of the deposit insurance limits was 
very important in the community banks, there's no question.
    There are so many--I think the statistic was 28 percent of 
the rules actually haven't been written and the scope and size 
of the legislation is very, very challenging. The interchange 
is going to be a big problem. There are a lot of things that 
came into the bill that are going to be a big problem.
    We knew it would have been naive to suggest that a bill of 
this sort wouldn't have come out, but Congressman, 
unfortunately, I think the jury is still out on a lot of it.
    We're very concerned about how CFPB gets done, and to talk 
about what Chairman Bachus was suggesting, the unregs are still 
unregulated. There is nobody who is able to go after those 
folks so that piece of carveout that was written, I'm sure, at 
3 a.m., was pretty clever, and those folks are still 
unregulated.
    So all the unregs and the CFPB right now affect all of us 
here at the table, and the ones that we were most concerned 
about that were in my analogy of cancer are still out there 
without any regulation. So it's going to take a lot to see how 
that all gets reined in, and I'm going to leave the verdict out 
there for now.
    Mr. Walsh. Mr. Bates, did your government kill the body, or 
was it surgically precise?
    Mr. Bates. To extend the analogy, community banks, for the 
most part are the healthy tissue in the body, and we want to 
ensure that the solution does not further endanger the healthy 
tissue and does work to root out the cancer so we're 
essentially hoping that the regulators and the government will 
be very prudent in what they do and enact regulations that will 
protect consumers without raising the costs and the risks to 
community banks to do business.
    Mr. Walsh. Mr. Roolf?
    Mr. Roolf. Congressman, we had an opportunity to meet with 
some of our regulators in Washington during the month of 
September. In a couple of instances, at the very highest level 
within those regulatory agencies, it was suggested to us that 
Dodd-Frank would not differentiate between the very largest and 
the very smallest, even though there are some thresholds 
identified or embodied within that legislation.
    And further, they used the health care analogy of, you 
break your arm, you go to the hospital, and they treat you with 
radiation and chemo, and you die. That's essentially what they 
told us Dodd-Frank would do, and it was startling to me that 
regulators would be really that candid, but I think that's the 
concern that's out there.
    Think of driving--and all of us have revelations from time 
to time. I had one the other night.
    I was driving on the interstate, and it was a crystal clear 
evening, and I was thinking about Dodd-Frank and thinking about 
today and the things I would say and more importantly not say. 
And it dawned on me that I was driving 65 miles an hour on a 
moonlit night. The road was clear so I was able to keep doing 
my business, if you will, without any question.
    All of a sudden, I hit a wall of dense fog, and I'm driving 
and I'm thinking somebody's behind me, in front of me, I don't 
know if they're on the other side of the road or directly in 
front of me, coming from the side or coming right side or left 
side. All of a sudden, I'm in a fog, and I'm not really sure 
what to do.
    I think that's what Dodd-Frank has done in many respects to 
our industry because there are so many unknowns in this 
process--28 percent of it has been--the rules have been 
developed. There are 4,000 pages for 28 percent. That's 4,000 
pages on top of Regulation A through QQ plus all of the other 
Acts that I have referred to.
    It's an inordinate amount of business and regulation that 
has been placed on an industry where, quite frankly, consumers 
have many options. And if we don't do our job and do it 
effectively, that customer is going to say, ``Jim, I'd like to 
bank with you, but because of ``X,'' I'm going somewhere else, 
because they do it a little better than you and a little less 
expensive.''
    So I guess I would encourage all of the Members of Congress 
to understand that while we need to make sure that we are 
protecting the consumer, don't underestimate the intelligence 
of the American consumer. They're pretty good at it.
    Mr. Walsh. Mr. Renn?
    Mr. Renn. Being the fourth person, I don't think I can add 
that much more to what has been said. The only thing that I 
might think of is when we have an exam, the examination team 
oftentimes quarrel among themselves about certain things, their 
viewpoint on certain things.
    And so when this is all sorted out, I guess one thing I 
would like for you to think about, for us to think about, is 
that when you're examined, whatever this monster would look 
like at the end, will the people who are looking at you have 
uniform application of the law, will they understand it, and 
will they agree among themselves on certain aspects that 
they're looking at?
    Mr. Walsh. Again, just being a freshman in Congress, that's 
probably my biggest frustration with this job is you have 
described it as a monster. We know it's a monster. We're not 
quite clear what it's going to look like yet, but we tend to 
create these monsters, and then we scramble for the next few 
years to try to make that monster look like something, but it's 
still a monster.
    I'm going to try to pin you down on it for a yes-or-no 
answer. This monster, if you go back a day before Congress 
approved Dodd-Frank in toto, if this entire bill was plopped in 
your lap a day before the previous Congress passed it, would 
you have advised us to vote yes or no on the entire package? 
Yes or no?
    Mr. Renn, I will start with you.
    Mr. Renn. No.
    Mr. Walsh. Mr. Roolf?
    Mr. Roolf. No.
    Mr. Walsh. Mr. Bates?
    Mr. Bates. No.
    Mr. Walsh. Can you top that, Mr. Ohlendorf?
    Mr. Ohlendorf. I don't know what to do with that. There's 
no good answer to that, Congressman. I'm sorry.
    Mr. Walsh. Mr. Chairman, thank you.
    Chairman Bachus. Thank you.
    This concludes our hearing.
    I want to say this: Consumers were abused, and the 
regulators did not do their job in protecting consumers in many 
cases, and so the American people were, I think, sometimes 
traumatized and demanded action.
    We did have a credit card boom, we had a subprime boom, and 
we had Dodd-Frank, and there are parts of Dodd-Frank, the 
Stability Oversight Board, that could--I think could be 
beneficial.
    And if the Consumer Financial Protection Bureau would spend 
its time on going after the bad actors, I will say Elizabeth 
Warren did state almost every time she spoke that she wanted to 
go after the unregulated bad actors. And we know they're there, 
we know we have been there, and the bank regulators don't have 
jurisdiction over them, and I think there could have been a 
better solution.
    And another thing that happened, not only did the banks buy 
unregulated affiliates, some of them, not your entities, but 
they also padded these securitizations and sold them to the 
American people, and so they are--but the community banks are 
the victims of someone else's malfeasance and misconduct.
    But we appreciate your time and we appreciate all of the 
views, and by having everyone's views, I think we're better off 
for it.
    [Whereupon, at 11:17 a.m., the hearing was adjourned.]


                            A P P E N D I X



                            December 5, 2011


[GRAPHIC] [TIFF OMITTED] T2630.001

[GRAPHIC] [TIFF OMITTED] T2630.002

[GRAPHIC] [TIFF OMITTED] T2630.003

[GRAPHIC] [TIFF OMITTED] T2630.004

[GRAPHIC] [TIFF OMITTED] T2630.005

[GRAPHIC] [TIFF OMITTED] T2630.006

[GRAPHIC] [TIFF OMITTED] T2630.007

[GRAPHIC] [TIFF OMITTED] T2630.008

[GRAPHIC] [TIFF OMITTED] T2630.009

[GRAPHIC] [TIFF OMITTED] T2630.010

[GRAPHIC] [TIFF OMITTED] T2630.011

[GRAPHIC] [TIFF OMITTED] T2630.012

[GRAPHIC] [TIFF OMITTED] T2630.013

[GRAPHIC] [TIFF OMITTED] T2630.014

[GRAPHIC] [TIFF OMITTED] T2630.015

[GRAPHIC] [TIFF OMITTED] T2630.016

[GRAPHIC] [TIFF OMITTED] T2630.017

[GRAPHIC] [TIFF OMITTED] T2630.018

[GRAPHIC] [TIFF OMITTED] T2630.019

[GRAPHIC] [TIFF OMITTED] T2630.020

[GRAPHIC] [TIFF OMITTED] T2630.021

[GRAPHIC] [TIFF OMITTED] T2630.022

[GRAPHIC] [TIFF OMITTED] T2630.023

[GRAPHIC] [TIFF OMITTED] T2630.024

[GRAPHIC] [TIFF OMITTED] T2630.025

[GRAPHIC] [TIFF OMITTED] T2630.026

[GRAPHIC] [TIFF OMITTED] T2630.027

[GRAPHIC] [TIFF OMITTED] T2630.028

[GRAPHIC] [TIFF OMITTED] T2630.029

[GRAPHIC] [TIFF OMITTED] T2630.030

[GRAPHIC] [TIFF OMITTED] T2630.031

[GRAPHIC] [TIFF OMITTED] T2630.032

[GRAPHIC] [TIFF OMITTED] T2630.033

[GRAPHIC] [TIFF OMITTED] T2630.034

[GRAPHIC] [TIFF OMITTED] T2630.035

[GRAPHIC] [TIFF OMITTED] T2630.036

[GRAPHIC] [TIFF OMITTED] T2630.037

[GRAPHIC] [TIFF OMITTED] T2630.038

[GRAPHIC] [TIFF OMITTED] T2630.039

[GRAPHIC] [TIFF OMITTED] T2630.040

[GRAPHIC] [TIFF OMITTED] T2630.041

[GRAPHIC] [TIFF OMITTED] T2630.042

[GRAPHIC] [TIFF OMITTED] T2630.043

[GRAPHIC] [TIFF OMITTED] T2630.044

[GRAPHIC] [TIFF OMITTED] T2630.045

[GRAPHIC] [TIFF OMITTED] T2630.046

[GRAPHIC] [TIFF OMITTED] T2630.047

[GRAPHIC] [TIFF OMITTED] T2630.048

[GRAPHIC] [TIFF OMITTED] T2630.049

[GRAPHIC] [TIFF OMITTED] T2630.050

[GRAPHIC] [TIFF OMITTED] T2630.051

[GRAPHIC] [TIFF OMITTED] T2630.052

