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


 
                      DODD-FRANK ACT'S EFFECTS ON 
                     FINANCIAL SERVICES COMPETITION

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

                                HEARING

                               BEFORE THE

                            SUBCOMMITTEE ON
                         INTELLECTUAL PROPERTY,
                     COMPETITION, AND THE INTERNET

                                 OF THE

                       COMMITTEE ON THE JUDICIARY
                        HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 10, 2012

                               __________

                           Serial No. 112-117

                               __________

         Printed for the use of the Committee on the Judiciary


      Available via the World Wide Web: http://judiciary.house.gov



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                       COMMITTEE ON THE JUDICIARY

                      LAMAR SMITH, Texas, Chairman
F. JAMES SENSENBRENNER, Jr.,         JOHN CONYERS, Jr., Michigan
    Wisconsin                        HOWARD L. BERMAN, California
HOWARD COBLE, North Carolina         JERROLD NADLER, New York
ELTON GALLEGLY, California           ROBERT C. ``BOBBY'' SCOTT, 
BOB GOODLATTE, Virginia                  Virginia
DANIEL E. LUNGREN, California        MELVIN L. WATT, North Carolina
STEVE CHABOT, Ohio                   ZOE LOFGREN, California
DARRELL E. ISSA, California          SHEILA JACKSON LEE, Texas
MIKE PENCE, Indiana                  MAXINE WATERS, California
J. RANDY FORBES, Virginia            STEVE COHEN, Tennessee
STEVE KING, Iowa                     HENRY C. ``HANK'' JOHNSON, Jr.,
TRENT FRANKS, Arizona                  Georgia
LOUIE GOHMERT, Texas                 PEDRO R. PIERLUISI, Puerto Rico
JIM JORDAN, Ohio                     MIKE QUIGLEY, Illinois
TED POE, Texas                       JUDY CHU, California
JASON CHAFFETZ, Utah                 TED DEUTCH, Florida
TIM GRIFFIN, Arkansas                LINDA T. SANCHEZ, California
TOM MARINO, Pennsylvania             JARED POLIS, Colorado
TREY GOWDY, South Carolina
DENNIS ROSS, Florida
SANDY ADAMS, Florida
BEN QUAYLE, Arizona
MARK AMODEI, Nevada

           Richard Hertling, Staff Director and Chief Counsel
       Perry Apelbaum, Minority Staff Director and Chief Counsel
                                 ------                                

  Subcommittee on Intellectual Property, Competition, and the Internet

                   BOB GOODLATTE, Virginia, Chairman

                   BEN QUAYLE, Arizona, Vice-Chairman

F. JAMES SENSENBRENNER, Jr.,         MELVIN L. WATT, North Carolina
Wisconsin                            JOHN CONYERS, Jr., Michigan
HOWARD COBLE, North Carolina         HOWARD L. BERMAN, California
STEVE CHABOT, Ohio                   JUDY CHU, California
DARRELL E. ISSA, California          TED DEUTCH, Florida
MIKE PENCE, Indiana                  LINDA T. SANCHEZ, California
JIM JORDAN, Ohio                     JERROLD NADLER, New York
TED POE, Texas                       ZOE LOFGREN, California
JASON CHAFFETZ, Utah                 SHEILA JACKSON LEE, Texas
TIM GRIFFIN, Arkansas                MAXINE WATERS, California
TOM MARINO, Pennsylvania             HENRY C. ``HANK'' JOHNSON, Jr.,
SANDY ADAMS, Florida                   Georgia
MARK AMODEI, Nevada

                     Blaine Merritt, Chief Counsel

                   Stephanie Moore, Minority Counsel


                            C O N T E N T S

                              ----------                              

                             JULY 10, 2012

                                                                   Page

                           OPENING STATEMENTS

The Honorable Bob Goodlatte, a Representative in Congress from 
  the State of Virginia, and Chairman, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     1
The Honorable Melvin L. Watt, a Representative in Congress from 
  the State of North Carolina, and Ranking Member, Subcommittee 
  on Intellectual Property, Competition, and the Internet........     2
The Honorable John Conyers, Jr., a Representative in Congress 
  from the State of Michigan, Ranking Member, Committee on the 
  Judiciary, and Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................     5

                               WITNESSES

Ellis L. Gutshall, President and Chief Executive Officer, Valley 
  Financial Corporation
  Oral Testimony.................................................     7
  Prepared Statement.............................................     9
Adam J. Levitin, Professor, Georgetown University Law Center
  Oral Testimony.................................................    14
  Prepared Statement.............................................    16
Alex J. Pollock, Resident Fellow, American Enterprise Institute
  Oral Testimony.................................................    23
  Prepared Statement.............................................    24

          LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

Prepared Statement of the Honorable John Conyers, Jr., a 
  Representative in Congress from the State of Michigan, Ranking 
  Member, Committee on the Judiciary, and Member, Subcommittee on 
  Intellectual Property, Competition, and the Internet...........     6
Material submitted by the Honorable Melvin L. Watt, a 
  Representative in Congress from the State of North Carolina, 
  and Ranking Member, Subcommittee on Intellectual Property, 
  Competition, and the Internet..................................    41


                      DODD-FRANK ACT'S EFFECTS ON 
                     FINANCIAL SERVICES COMPETITION

                              ----------                              


                         TUESDAY, JULY 10, 2012

              House of Representatives,    
         Subcommittee on Intellectual Property,    
                     Competition, and the Internet,
                                Committee on the Judiciary,
                                                    Washington, DC.

    The Subcommittee met, pursuant to call, at 4:07 p.m., in 
room 2141, Rayburn Office Building, the Honorable Bob Goodlatte 
(Chairman of the Subcommittee) presiding.
    Present: Representatives Goodlatte, Coble, Chabot, Watt, 
Conyers, Jackson Lee, Waters, and Johnson.
    Staff present: (Majority) Holt Lackey, Counsel; Olivia Lee, 
Clerk; and (Minority) Stephanie Moore, Subcommittee Chief 
Counsel.
    Mr. Goodlatte. Good afternoon. This hearing of the 
Subcommittee on Intellectual Property, Competition and the 
Internet will come to order.
    Today's hearing examines the Dodd-Frank Wall Street Reform 
and Consumer Protection Act, better known as ``Dodd-Frank,'' 
and its effects on competition in the financial services 
industry.
    The free flow of capital is the linchpin of our capitalist 
economy. We must be extremely cautious about any attempts by 
the Federal Government to thwart the ability of the private 
sector to choose through the allocation of private sector 
resources which ideas and businesses are meritorious and which 
should be left on the cutting room floor.
    Unfortunately, Dodd-Frank injects government bureaucrats 
into the decision-making process in the flow of capital. This 
raises unnecessary and artificial hurdles to our economic 
recovery and distorts competition in the financial services 
market.
    Even before the 2007-2008 crisis, there was tremendous 
concentration in some markets related to the housing bubble and 
the toxic securities that brought our economy to the brink of 
collapse. The subprime mortgages at the root of the crisis were 
repurchased and securitized by the government-sponsored duopoly 
of Fannie Mae and Freddie Mac. The mortgage-backed securities 
that Fannie and Freddie created were given AAA ratings by the 
big three ratings agencies which controlled about 95 percent of 
the market. These securities were then purchased by the largest 
Wall Street banks which have consolidated an ever-larger share 
of the market over the past few decades. Perhaps more 
competition in all of these markets would have encouraged more 
responsible decision-making and helped to avert or limit the 
crisis.
    However, instead of fostering more market competition, 
Dodd-Frank is likely to entrench current market leaders, making 
it harder for small and innovative banks and financial 
companies to compete. Dodd-Frank does nothing to decrease the 
market power held by Fannie, Freddie, and it will likely have 
the unintended effect of encouraging consolidation in banking 
and other financial sectors. Dodd-Frank will harm competition 
in the financial services industry because its regulations fall 
hardest on small banks and credit unions which makes it harder 
for them to compete with their larger counterparts.
    Regulations always fall harder on small businesses than 
large. In the banking sector, the costs of complying with 
regulations have historically been two and a half times higher 
as a share of operating expenditures for small banks than for 
large. If the costs of complying with Dodd-Frank are too great, 
it could drive many local community banks out of business or 
force them to merge with larger competitors. If Dodd-Frank 
results in community banks and credit unions leaving the 
market, not only will competition suffer, but so will the 
communities and small businesses that these banks serve.
    Small and mid-sized banks account for 54 percent of small 
business lending. America's small businesses need these loans 
so they can create jobs. The government should be doing 
everything possible to encourage small businesses to grow and 
create jobs. At a time of sustained unemployment and with the 
President proposing to raise taxes on America's small 
businesses, the last thing we should do is bury the community 
banks that finance small businesses beneath a new mountain of 
regulation.
    The Dodd-Frank Act could also harm competition by 
designating certain banks and non-bank financial institutions 
as systemically important and creating special liquidation 
procedures for them outside of bankruptcy. These special 
liquidation procedures treat systemically important companies' 
creditors better than the bankruptcy law. As a result, 
systemically important institutions, already among the biggest 
companies in America, may receive favorable treatment in the 
credit markets. This could lead to even more concentration.
    The Administration is fond of touting the supposed 
reinvigoration of antitrust enforcement out of the Department 
of Justice and the Federal Trade Commission, but the Dodd-Frank 
Act, like the Administration's other signature legislative 
achievement, The Affordable Care Act, will have the effect of 
hindering competition in one of the most important sectors of 
our economy.
    It is now my pleasure to recognize the Ranking Member of 
the Subcommittee, the gentleman from North Carolina, Mr. Watt, 
for a different perspective.
    Mr. Watt. Well, maybe not so. I thought I was in the 
Financial Services Committee here for a little bit.
    I hope the Chairman will forgive me if I say bluntly at the 
outset that I believe this hearing is much ado about nothing. 
The Dodd-Frank Wall Street Reform bill, which I often 
affectionately call as a Member of the House ``the Frank-Dodd 
reform bill,'' was the culmination of years of efforts to rein 
in predatory lending and other major abuses in the financial 
services sector, and to reduce the prospect that financial 
institutions get too big to fail and taxpayers end up getting 
stuck with the cost of bailing them out.
    The bill establishes an entity for the first time in the 
Federal Government, the Consumer Financial Protection Bureau, 
that has as its primary purpose protecting consumers of 
financial products and erects a comprehensive regulatory regime 
designed to reduce the incentives that drove many financial 
institutions to pay much more attention to making excessive 
profits than to protecting the interests of their customers, 
our Nation, or our economy.
    I cosponsored the legislation and, as a Member of the House 
Financial Services Committee, played a major role in crafting 
many of its provisions, and together with Ranking Member 
Conyers and our colleague, Ms. Waters, served as a conferee on 
the House-Senate conference that produced the final product. 
Although I served as a conferee representing the Financial 
Services Committee, I also brought to the conference my 
antitrust and other policy experiences from this Committee.
    I believe the Dodd-Frank bill reflects the goals of both 
competition policy and stabilizing our financial institutions.
    Mr. Chairman, I think my views on how this Committee 
addresses antitrust concerns are well known. While educating 
our citizens on pending antitrust matters serves a very 
important public good, I generally believe that we should allow 
the regulators to do their jobs, especially when they have 
access to a wealth of detail that is not in the public domain.
    When Congress intervenes to affect the outcome of an 
antitrust investigation, I believe it can place undue pressure 
on the regulating bodies. But here we are having a hearing on 
the Dodd-Frank Act's effects on financial services competition, 
effects that have yet to be seen. There are no concrete set of 
concerns before us. We are simply relitigating issues that were 
carefully studied in crafting the Dodd-Frank legislation.
    As for the Act itself, section 6 of the law contains a 
specific antitrust savings clause designed to ensure that 
antitrust policy continues to have a place within the 
regulatory framework. And I quote, ``Nothing in this act or any 
amendment made by this act shall be construed to modify, 
impair, or supersede the operation of any of the antitrust laws 
unless otherwise specified,'' close quote. That is directly 
from the Dodd-Frank legislation.
    Now, in the past decade, the Supreme Court has issued two 
decisions that have called into question the role of antitrust 
policy in regulated industries. The Trinko and the Credit 
Suisse cases have been the subject of hearings before this 
Committee and were not overlooked during the construction of 
the Dodd-Frank Act. In Trinko, the Court upheld the effect of a 
general antitrust savings clause, but found no violation of the 
antitrust laws. In Credit Suisse, the Court refused to give 
effect to a broad, nonspecific savings clause, finding instead 
that there was an implied antitrust immunity in essence to 
avoid conflict between incompatible regulatory regimes.
    There are those who question the reach of both Trinko and 
Credit Suisse. Are they limited to the regulated industries 
involved in the facts of each case, telecommunications and 
securities respectively, or do they apply generally to all 
regulated industries?
    Whatever the answer to those hypothetical questions, the 
fact of the matter is that many of the regulations that will 
shape our financial sector moving forward have yet to be issued 
or implemented. Moreover, the Obama administration adopted the 
position when it inherited a financial industry on the brink of 
collapse that it would increase antitrust enforcement in 
regulated industries and maintain enforcement during the 
economic crisis and recovery.
    And the Justice Department has conducted four 
investigations into the financial services markets since the 
rulings in Trinko and Credit Suisse, three of which are ongoing 
into the municipal bonds, investment credit, credit derivatives 
markets, and the London Interbank Offered Rate, or LIBOR as it 
is sometimes called.
    The Department of Justice has also been active in the 
rulemaking process mandated by Dodd-Frank.
    Now, I am sure that there will be testimony today about how 
Dodd-Frank disadvantages small and community banks and 
advantages large financial institutions that some believe are, 
quote, ``too big to fail.'' On this issue, I will simply make 
two points.
    Number one, small and community banks were disadvantaged 
vis-a-vis large financial institutions long before there was a 
Dodd-Frank bill. In my view, Dodd-Frank significantly leveled 
the playing field between larger and smaller banks, and it 
seems to me that a major part of the dissatisfaction with Dodd-
Frank is that we could never absolutely level the playing 
field, just as we have not found it possible over the history 
of our country to level the playing field between the rich and 
poor in this country.
    Yes, I keep complaining about that, and I don't begrudge 
those who keep complaining about the disparity between large 
and small financial institutions. Perhaps we can and should do 
more, but I don't find it a very persuasive argument that we 
perhaps didn't come up with the perfect solution in Dodd-Frank. 
I refuse to let the perfect be the enemy of the good, and when 
I do, I should simply resign or leave this institution 
immediately.
    Second, small and community banks got a lot more than they 
gave in the Dodd-Frank bill. The major source of competition 
that small and community banks were facing before the passage 
of Dodd-Frank was competition from unregulated check cashers, 
payday lenders, and other unregulated entities that operated by 
no rules while small community banks had to abide by 
regulations. Dodd-Frank brought all these unregulated entities 
under regulation and, in the process, made them operate by the 
same rules that apply to community banks. Most of my community 
banks praise that aspect of Dodd-Frank as fostering, not 
undercutting, competition and enhancing their ability to 
survive.
    So while I am happy to hear from the witnesses on this 
panel on their various theories on how things may pan out with, 
quote, ``too big to fail,'' the fact is that I think a more 
appropriate title for this hearing would be, quote, ``too early 
to tell.''
    I yield back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman for his comments and 
turn now to the Ranking Member of the full Committee, the 
gentleman from Michigan, Mr. Conyers.
    Mr. Conyers. Thank you, Chairman Goodlatte.
    I want to associate myself with the remarks of the Ranking 
Member of this Committee, the parts that I understood, because 
this is a very complex subject.
    I probably won't take the full 5 minutes, but I did want to 
put in a mild reservation about why we are holding this hearing 
in the first place.
    I mean, it seems a little bit uncharacteristic that a bill 
that was passed a couple years ago is now being examined as if 
it is in full force. I don't think it is yet. But we needed the 
Wall Street reform act because ``too big to fail'' policies 
foreclose competition. And I am hoping that we will get an 
examination of how we got into this ``too big to fail'' and 
where it is going to lead and what it has cost us so far since 
the 2008 debacle.
    Here, Members of the Committee, we have 5,400 banking 
mergers between the last 15 years and 74 of them were defined 
as mega-mergers. That means that the buyer and the seller each 
had more than $10 billion worth of assets.
    Now, we need to do more to protect consumers and 
competition, and as a friend of the gentleman from 
Massachusetts, Mr. Frank, who was once a Member of the 
Committee on the Judiciary, I commend and support the Dodd-
Frank bill--law.
    I don't think I am the only person on this Subcommittee 
that feels that it should have gone further and that we have a 
responsibility, when we analyze this, to determine how that can 
be responsibly done. Why? Because we need to do more to protect 
consumers and competition in this Wall Street business that 
goes on. And so while the implementation process still goes on 
around Dodd-Frank, it is clear that the legislation is not 
enough to protect consumers and that the global market still 
remains basically predatory and anticompetitive practices rule 
in the financial industry world. JP Morgan Chase lost $2 
billion with acknowledged irresponsible bets on the derivatives 
market. The British investigation into Barclays' deliberate 
inflation of key banking interest rates like the LIBOR have 
triggered revelations that Chase, Citigroup, other American 
firms may have undertaken similar actions.
    And so what I am hoping will happen is that we will now 
sleep more comfortably in our beds at night now that title X of 
Dodd-Frank has not developed the horrible results that had been 
predicted.
    I will put my statement in the record, Mr. Chairman, and I 
will welcome and await the testimony of our distinguished 
witnesses. Thank you.
    [The prepared statement of Mr. Conyers follows:]

Prepared Statement of the Honorable John Conyers, Jr., a Representative 
 in Congress from the State of Michigan, Ranking Member, Committee on 
   the Judiciary, and Member, Subcommittee on Intellectual Property, 
                     Competition, and the Internet

    The hearing today will allow us to explore the impact that the 
Dodd-Frank Act is having on financial service competition.
    First, we needed the Dodd-Frank Act because too big to fail 
policies foreclosed competition.
    Market concentration in the financial sector limits consumer 
choice, lowers quality, and raises prices.
    Between 1990 and 2005, more than 5400 banking mergers occurred, 
including 74 mega-mergers where both the buyer and seller had more than 
$10 billion in assets. When the Bush-era financial crisis began, the 
ten largest banks controlled 55% of domestic financial assets and 45% 
of domestic deposits.
    The TARP bailout and related Treasury Department actions occurred 
precisely because the market was so destabilized by the lack of 
competition in the financial sector.
    Second, more needs to be done to protect consumers and competition.
    While the law is still in the implementation process, it is clear 
that the legislation was not enough to protect consumers and the global 
market from remaining predatory and anti-competitive practices of the 
financial industry.
    JP Morgan Chase lost $2 billion with irresponsible bets on the 
derivatives market. And the British investigation into Barclay's 
deliberate inflation of key banking interest rates like the Libor have 
triggered revelations that Chase, Citigroup, and other American firms 
may have undertaken similar actions.
    We are still seeing the negative impact that big banks are having 
on the banking industry. With incentive structures rewarding short-term 
risk-taking, Wall Street has been in the business of getting bigger and 
more complex, and taking greater risks.
    I will continue to fight for consumers especially those with 
financial hardships. Antitrust laws must remain in place to protect our 
economic freedoms against monopolization and anticompetitive restraints 
on trade. We must now refocus and bring back into the spotlight the 
need for change and aid to those who have fallen victim during these 
financially perilous times.
                               __________

    Mr. Goodlatte. I thank the gentleman.
    Without objection, all other opening statements will be 
made a part of the record.
    And we are now pleased to turn to our witnesses. We have a 
very distinguished panel of witnesses today, and each of the 
witnesses' written statements will be entered into the record 
in its entirety. I ask each witness to summarize his testimony 
in 5 minutes or less. To help you stay within that time, there 
is a timing light on your table. When the light switches from 
green to yellow, you will have 1 minute to conclude your 
testimony. When the light turns red, it signals that the 
witness' 5 minutes have expired.
    Before I introduce our witnesses, as is the custom of this 
Committee, I would like to ask them to stand and be sworn.
    [Witnesses sworn.]
    Mr. Goodlatte. Thank you very much. Please be seated.
    Our first witness today is Mr. Ellis Gutshall, President 
and CEO of Valley Financial Corporation and Valley Bank. Valley 
Bank was founded in 1995 in my hometown of Roanoke, Virginia, 
where Mr. Gutshall has worked as a banker since 1976. Mr. 
Gutshall is the current chairman of the Virginia Association of 
Community Banks. He is a graduate of Washington and Lee 
University and of the ABA Stonier Graduate School of Banking. I 
am proud to call him my constituent and friend.
    Our second witness is Professor Adam Levitin, a visiting 
professor at Harvard Law School and a professor at Georgetown 
University Law Center where he teaches courses in financial 
regulation. Professor Levitin served as Sspecial Counsel to the 
Congressional Oversight Panel supervising the Troubled Asset 
Relief Program. Professor Levitin holds a J.D. from Harvard Law 
School and two Master's degrees from Columbia University and a 
Bachelor's degree from Harvard College.
    Our third and final witness is Mr. Alex Pollock, Resident 
Fellow at the American Enterprise Institute. After 35 years in 
banking, Mr. Pollock joined AEI where he focuses on financial 
policy issues. Prior to joining AEI, he served as President and 
CEO of the Federal Home Loan Bank of Chicago from 1991 to 2004. 
Mr. Pollock holds Master's degrees from Princeton University 
and the University of Chicago and a B.A. from Williams College.
    I welcome all the witnesses and we will begin with you, Mr. 
Gutshall. Welcome.

 TESTIMONY OF ELLIS L. GUTSHALL, PRESIDENT AND CHIEF EXECUTIVE 
             OFFICER, VALLEY FINANCIAL CORPORATION

    Mr. Gutshall. Chairman Goodlatte, Vice Chairman Quayle, 
Ranking Member Watt, and Members of the Subcommittee, my name 
is Ellis Gutshall, President and CEO of Valley Financial 
Corporation and its wholly-owned subsidiary, Valley Bank. My 
banks is a 17-year-old community bank headquartered in Roanoke, 
Virginia, and we have invested over $1 billion in our community 
in the form of loans during the 17-year period. Our company has 
assets of approximately $800 million and eight offices serving 
the Greater Roanoke MSA.
    Well, thank you for inviting me to testify on the effects 
of Dodd-Frank on financial services competition.
    We all appreciate the importance of regulation that 
protects the safety and soundness of our institutions and 
protects the interests of our customers. We know that there 
will always be regulations that control our business, but the 
reaction to the financial crisis has layered on regulation 
after regulation that does nothing to improve safety or 
soundness and only raises the cost of providing banking 
services, both credit and depository-related.
    While community banks pride themselves on being quick to 
adapt to changing environments and determined to meet any 
challenge head on, there is a tipping point beyond which 
community banks will find it impossible to compete. During the 
last decade, the regulatory burden for community banks has 
multiplied 10-fold with more than 50 new rules in the 2 years 
before Dodd-Frank. Over the last decade, 1,500 community banks 
have disappeared from our communities.
    Without quick and bold action to relieve regulatory 
burdens, we will witness an appalling contraction of the 
banking industry at a pace much faster than we have witnessed 
over the last decade. Holding oversight hearings like this one 
is critical to ensure that banks are allowed to do what they do 
best, namely, that is to meet the financial needs of our 
communities.
    There are three key points I would like to make today.
    First, the costs to implement new regulations are 
substantial and weigh most heavily on community banks. Make no 
mistake about it. That burden is keenly felt by all banks. 
However, many small banks do not have the resources to manage 
all the new regulations and the changes in existing ones. 
Besides the real, hard-dollar costs, there are important 
opportunity costs related to products and services that either 
cannot be offered or will be offered only at higher cost to our 
customers.
    For our bank in 2011, we estimate that we spent over 
$500,000 in hard-dollar compliance costs. That translates to 
roughly 7 cents per common share to our shareholders. 
Historically, the cost of regulatory compliance as a share of 
operating expenses is two and a half times greater for small 
banks than for large banks. And I fear that gap may widen even 
more once Dodd-Frank is fully implemented.
    For the industry as a whole, a very conservative estimate 
of all the hard-dollar compliance costs will be around $50 
billion annually, and that is about 12 percent of total 
operating expenses.
    Secondly, the lost opportunity costs are significant for 
community banks, their communities, and their customers. 
Excessive regulation saps staff and resources that should have 
gone to meeting the needs of our customers. Even a small 
reduction in the cost of compliance would free up millions of 
dollars that could facilitate lending activity and other 
banking services. If we are forced to become more internally 
focused in an attempt to deal with the avalanche of 
regulations, we will lose the competitive advantage that we 
have created and that has been so well received by our 
customers. Customer service levels will decline, and it is the 
customer who will be disadvantaged by all of these actions.
    Thirdly, unintended consequences of Dodd-Frank have far-
reaching effects on the very ones the legislation was designed 
to help and protect. Congress must be diligent in its oversight 
of the efforts to implement Dodd-Frank and to ensure that rules 
are adopted only if they result in a benefit that clearly 
outweighs the burden.
    One unintended consequence occurring right now in our 
industry is the effort to find new and additional revenues to 
offset the rising costs of new regulations. Banks are 
increasing service-related fees in an attempt to generate the 
needed revenues to offset these rising costs. Free checking and 
no minimum balance products are disappearing from the 
marketplace, and it is happening at the mega-banks and 
community banks as well.
    There are many other unintended consequences of Dodd-Frank, 
such as a host of mortgage lending rules, a burdensome 
municipal advisor rule, swaps provisions that will hurt my 
commercial customers, and the largely unknown direction of the 
Consumer Financial Protection Bureau--what direction that will 
take.
    In conclusion, the consequences of excessive regulation are 
real. Costs are rising and will continue to rise. With the 
regulatory overreaction, piles of new laws, and uncertainty 
about government's role in the day-to-day business of banking, 
meeting local community needs is proving difficult at best.
    This scenario leads us to a banking industry with far fewer 
competitors than we have today which may be the largest 
unintended consequence of all from Dodd-Frank.
    I thank you again for allowing me to appear before you 
today.
    [The prepared statement of Mr. Gutshall follows:]

        Prepared Statement of Ellis L. Gutshall, President and 
         Chief Executive Officer, Valley Financial Corporation

    Chairman Goodlatte, Vice Chairman Quayle, Ranking Member Watt, and 
members of the Subcommittee, my name is Ellis Gutshall, President and 
CEO of Valley Financial Corporation and its wholly-owned subsidiary, 
Valley Bank. My bank is a 17-year-old community bank, headquartered in 
Roanoke, Virginia. The Roanoke Region is the largest metropolitan area 
in Western Virginia and home to more than 300,000 residents. Our 
Company has assets of approximately $800million and eight offices 
serving the Greater Roanoke MSA. I also serve as the 2012 Chairman of 
the Virginia Association of Community Banks and as a Director of the 
Virginia Bankers Association Benefits Corporation. Our Bank is a member 
of the American Bankers Association and the Independent Community 
Bankers of America, both of which represent banks of all sizes and 
charters and are the voices of the nation's $13 trillion banking 
industry and its two million employees.
    To begin with a brief background, in 1993, Dominion Bank, a 100-
plus year old institution with over $10 Billion in assets headquartered 
in Roanoke, merged with First Union Corporation. During its heyday, 
Dominion Bank dominated the banking arena in the Roanoke Valley, 
controlling roughly one-half of the deposits in the marketplace. With 
the demise of Roanoke's community bank, the organizers of Valley Bank 
felt that a region as large and important as the Roanoke Region needed 
to have a locally owned and locally managed community bank if it were 
to continue to grow and prosper.Valley Bank opened for business in May 
of 1995 and in just 17 years, we have grown to the #4 market share in 
terms of deposits, surpassing even Bank of America, within the Roanoke 
MSA. I make this point to demonstrate just how critically important 
community banking is to communities all across this nation and how 
community banks such as Valley Bank can effectively compete against the 
much larger mega-banks. During this 17-year period, our share of the 
MSA deposit base has grown to nearly 10% while the leader's share, the 
former Dominion Bank which is now Wells Fargo after the merger with 
Wachovia, has declined to 27%. For decades, community banks have been 
the backbone of all the Main Streets across America, and for the 
Roanoke Region in particular, Valley Bank's presence has provided a 
strong catalyst to the economic growth, health, and vitality of our 
community as we have invested over $1 Billion of investment into our 
community in the form of loans during our 17-year history. It is our 
vision and mission to continue this role for many, many years to come. 
Unfortunately, the cumulative impact of years of new regulations is 
threatening the very existence of community banks.
    We all appreciate the importance of regulation that protects the 
safety and soundness of our institutions and protects the interests of 
our customers. We know that there will always be regulations that 
control our business--but the reaction to the financial crisis has 
layered on regulation after regulation that does nothing to improve 
safety or soundness and only raises the cost of providing banking 
services, both credit and depository related, to our customers. New 
rules, regulations, guidance and pronouncements flood in to our bank 
almost daily. With Dodd-Frank alone, there are3,894 pages of proposed 
regulations and 3,633 pages of final regulations (as of April 13) and 
we're only a quarter of the way through the 400-plus rules that must be 
promulgated.
    While community banks pride themselves on being agile, quick to 
adapt to changing environments and determined to meet any challenge 
head on, there is a tipping point beyond which community banks will 
find it impossible to compete. During the last decade the regulatory 
burden for community banks has multiplied tenfold, with more than 50 
new rules in the two years before Dodd-Frank.Over the last decade1,500 
community banks have disappeared from communities. Each new law or 
regulation in isolation might be manageable, but wave after wave, one 
on top of another, will certainly over-run many more community banks.
    Without quick and bold action to relieve regulatory burdens we will 
witness an appalling contraction of the banking industry, at a pace 
much faster than we've witnessed over the last decade.
    Congress must be vigilant in overseeing regulatory actions. Ifleft 
unchecked excessive regulation will surely negatively affect community 
banks' ability to effectively compete. Holding oversight hearings like 
this one is critical to ensure that banks are allowed to do what they 
do best--namely, meet the financial needs of their communities.
    There are three key points I would like to make today.

        b  The costs to implement new regulations weigh most heavily on 
        community banks making it difficult to compete with the mega-
        banks, tax-exempt credit unions and nonbank financial firms

        b  The lost opportunity costs are significant for community 
        banks, their communities and their customers

        b  Unintended consequences of Dodd-Frank have far-reaching 
        effects on the very ones the legislation was designed to help 
        and protect

I.  The Costs to Implement New Regulations are Substantial and Weigh 
        Most Heavily on Community Banks Making it Difficult to Compete 
        with the Mega-Banks, Tax-Exempt Credit Unions and Nonbank 
        Financial Firms

    Make no mistake about it, this burden is keenly felt by all banks, 
however,many small banks do not have the resources to manage all the 
new regulations and the changes in existing ones. Besides the real, 
hard dollar costs, there are important opportunity costs related to the 
products and services that either cannot be offered or will be offered 
only at higher costs to our customers.
    For our bank, in 2011, we estimate that we spent over $500,000 in 
hard dollar compliance costs. That translates to roughly 7 cents per 
common share to our shareholders.This includes salaries attributable to 
compliance, annual bank-wide compliance training, legal and compliance 
consulting services, compliance software and other IT expenses, 
printing expenses and privacy mailing costs, and various record-keeping 
requirements. And there are other costs that we simply cannot capture. 
We have several dedicated compliance officers just to handle all the 
legal and paperwork requirements and, in addition, estimate that 
another one-half of our total staff have some compliance obligations 
they must fulfill. Historically, the cost of regulatory compliance as a 
share of operating expenses is two-and-a-half times greater for small 
banks than for large banks. I fear that gap may widen even more once 
Dodd-Frank is fully implemented.
    Changes in existing regulations and the new regulatory requirements 
that will flow from Dodd-Frank have necessitated the need for us to add 
another full-time compliance person. That cost, plus many other 
ancillary costs of these new changes, will add another $75,000 to the 
overall cost. Of course, we are only in the early stages of the Dodd-
Frank implementation, so we are bracing for additional costs that must 
somehow be borne. All these extra expenses could have been more 
productive if they were devoted to providing services to our customers.
    As an $800 Million asset bank, we are better able to spread some of 
the compliance costs than our smaller brethren. In 2006, at a time when 
we were approaching $500 Million in assets, I made the decision to 
create an enterprise-wide risk management department that would be 
responsible for assessing and monitoring risks associated with all of 
the bank's compliance and non-credit operating units. Looking back now, 
this was one of the most significant things we could have done as we 
had fully developed a risk management department and staff prior to 
Dodd-Frank. I seriously doubt we would be able to do what we are doing 
now in terms of compliance and training without this enterprise-wide 
risk management group. However, this group has quickly been stretched 
to their limits. We will not be able to continue our high level of 
compliance expertise without additional staffing and training. The 
rising costs are just not in-house staffing requirements, but also the 
high costs of attending conferences and seminars, the many 
subscriptions to legal and accounting services that we feel we have to 
have just to make sure we do not miss anything, IT software up-grades 
to monitor our activities and the additional regulatory burden 
associated with proving we have complied with the new laws. The 
regulatory agencies want to see independent third-party confirmation, 
so besides internal audits, banks now have to have outside audits for 
compliance which is a significant expense for smaller banks. For the 
median-sized bank in this country with $166 million in assets and 38 
employees, the burden is magnified tremendously. For larger banks, 
Dodd-Frank imposes significant changes that are already driving an 
entire reevaluation of business lines and models. Together with the new 
Basel capital and liquidity rules, these added costs likely will total 
in the hundreds of millions of dollars.
    For the industry, a very conservative estimate of all the hard 
dollar costs would be about $50 billion annually, or about 12 percent 
of total operating expenses.This expense ratio is only surpassed by the 
salaries & benefits we pay to our employees.
    We at Valley Bank have taken great pride during our 17-year history 
in the fact that our noninterest expense management has placed us in 
the top performing quartile of our FDIC peer group. In 2011, our 
personnel expenses were 22% below the peer average and our total 
noninterest expenses were 17% below the peer average. At the same time, 
our employees were managing $5.8 Million in assets per employee 
compared to $4.6 Million for the peer average, a 26% positive variance 
and a strong demonstration of the superior productivity of our staff. 
Our low overhead framework coupled with high productivity ratios have 
enabled our bank to effectively compete head-to-head with the mega-
banks in our market and actually take market share away while also 
producing the levels of profitability our shareholders demand.However, 
new regulations just keep being piled on top of older outdated 
requirements and we are clearly experiencing expense ratios that are 
increasing much more rapidly than our ability to increase revenues.

II.  The Lost Opportunity Costs Are Significant for Community Banks, 
        Their Communities and Their Customers

    The direct out-of-pocket expenses are just part of the story when 
one realizes the significance of the opportunity costs. Instead of 
teaching staff to reach out to new markets, trainers are bringing the 
employees up to speed on the latest regulations. Instead of employee 
time and focus being used to invest our precious capital to support 
loans to hardworking people and businesses in our communities, it is 
being spent interacting withconsultants, lawyers, and auditors. Instead 
of investing our time and efforts to develop new products and solutions 
to meet the ever-changing demands and needs of our customers, we are 
spending our time analyzing changes to software to assure compliance 
with all the new changes. Excessive regulation saps staff and resources 
that should have gone to meeting the needs of our customers. Even a 
small reduction in the cost of compliance would free up billions of 
dollars that could facilitatelending activity and other banking 
services. The differentiating factors that set community banks apart 
from the mega-banks are a) that ability to focus our complete attention 
on our local community and the local customer, and b) to provide local 
operational support and local decisions. These factors are customer-
centric and customer driven. If we are forced to become more internally 
focused in an attempt to deal with the avalanche of regulations, we 
will lose the competitive advantage that we have created and that has 
been so well received by our customer base. Customer service levels 
will decline and it is the customer who will be disadvantaged by these 
actions. As I mentioned earlier, Valley Bank's presence has provided a 
strong catalyst to the economic growth, health, and vitality of our 
community as we have invested over $1 Billion of investment into our 
community in the form of loans during our 17-year history. We would 
like this to be our role for many, many years to come. If banks, 
especially community banks, find themselves so internally-focused on 
compliance related activities that they cannot attend to the job of 
extending credit,any hopes for a sustained economic recovery in this 
country will fade quite rapidly.

III.  Unintended consequences of Dodd-Frank have far-reaching effects 
        on the very ones the legislation was designed to help and 
        protect

    Congress must be vigilant in its oversight of the efforts to 
implement the Dodd-Frank Act to ensure that rules are adopted only if 
they result in a benefit that clearly outweighs the burden. There is an 
unintended consequence that is occurring right now in our marketplace 
and most likely throughout all of America. In an effort to find new and 
additional revenues to offset the rising costs of new regulations, 
banks of all sizes are reviewing and analyzing their service charges 
and fees associated with both loan and deposit products and services. 
Due to relatively weak loan demand and compressing net interest 
margins, the traditional spread income most banks, and especially 
community banks, relied on to support noninterest expense growth is not 
growing. Therefore, banks are increasing service related fees in an 
attempt to generate the needed revenues to offset these rising costs. 
Free checking and ``no minimum'' balance products are disappearing from 
the marketplace, and it is not just happening at the mega-banks. 
Additionally, banks are utilizing their customer profitability systems 
to a much higher degree to determine which customers are profitable and 
which ones are not. The result will surely be an effort to improve 
profitability throughout the spectrum which will result in either 
increased fees or decreased availabilityof services. In either case, 
the customer will be paying more or choosing not to use the service at 
all.
    Another unintended consequence we are facing lies in residential 
mortgage lending. Following the residential mortgage meltdown that 
essentially obliterated the mortgage broker network, banks once again 
were viewed as a potential resource for home buyers and homeowners 
throughout the country. Banks were quite willing to jump in and fill 
this void and many banks immediately began the process of expanding 
residential mortgage loan operations. Our bank did exactly that. 
However, we are finding some rules under Dodd-Frank, if done 
improperly, could literally drive banks out of the mortgage business. 
These new rules on mortgage lending and on mortgage originator 
compensation are particularly problematic provisions.
    One of the changes required in the Dodd-Frank Act is that lenders 
must show that borrowers meet an ``ability to repay'' test--which can 
be challenged in court for the entire life of the loan, raising the 
risk of litigation tremendously. It also imposes broad risk retention 
requirements on most loans sold into the secondary market. These 
requirements have the potential to make it much more costly for banks 
to make loans and could have the unintended consequence of denying 
quality loans to creditworthy borrowers. Dodd-Frank does provide that 
banks can show they have met the ability to repay test by making loans 
that fall into a category known as a Qualified Mortgage or QM. The QM 
is intended to be a category of loans with certain low risk features 
made to borrowers shown to be creditworthy and able to meet the payment 
terms. The Consumer Financial Protection Bureau (CFPB) is tasked with 
finalizing a rule setting forth exactly what will qualify as a QM, but 
a number of concerns have arisen with regard to the approach which the 
CFPB may take. If the QM category is made too narrow by excluding too 
many loan types or by requiring borrowers to meet too high a standard 
of creditworthiness, then credit will contract and potential borrowers 
will be denied credit for which they would otherwise qualify.
    How these exceptions are defined will dramatically impact the 
willingness and ability of banks to make mortgage loans, and of 
consumers' ability to qualify for credit.
    The thought of quality institutions being forced from the mortgage 
market and of otherwise creditworthy borrowers being denied credit 
because of overly broad regulations is chilling--especially at a time 
when our housing economy has been severely battered and is just 
beginning to show signs of recovery.
    There are many other issues raised in Dodd-Frank that will affect 
the competitiveness of banks and that will also negatively affect 
customers of banking services. Below, I describe two of those issues.
    The municipal advisor proposal would limit services to 
municipalities by local community banks.
    Banks offer public sector customers banking services and are 
regulated closely by several government agencies. It is generally 
believed that Dodd-Frank intended to establish a regulatory scheme for 
unregulated persons providing advice to municipalities with respect to 
municipal derivatives, guaranteed investment contracts, investment 
strategies or the issuance of municipal securities. The Securities and 
Exchange Commission has proposed a very broad definition of 
``investment strategies'' that would cover traditional bank products 
and services such as deposit accounts, cash management products and 
loans to municipalities. This means that community banks would have to 
register as municipal advisors and be subject to a whole new layer of 
regulation on bank products for no meaningful public purpose.
    Such regulation would be duplicative and costly. Consequently, 
community banks would not be able to offer services to municipalities 
at a price that would be competitive. As a result, many banks may 
decide not to provide banking services to their local municipalities--
forcing these local and state entities to look outside of their 
community for the services they need. This proposal flies in the face 
of the President's initiative to streamline federal oversight and avoid 
new regulations that impede innovation, diminish U.S. competitiveness, 
and restrain job creation and economic expansion.
    We urge Congress to oversee this implementation and ensure that the 
rule addresses unregulated parties and that neither Section 975 of 
Dodd-Frank nor its implementing regulation reaches through to 
traditional bank products and services.
    The swaps push-out provision would create competitive imbalances 
between U.S. banks and foreign counterparties.
    Section 716 of Dodd-Frank, will prohibit swap dealers from 
receiving various forms of federal assistance including FDIC insurance 
and access to the Federal Reserve discount window. This provision will 
essentially require banks that are swap dealers to ``push out'' many 
swaps transactions to a nonbank affiliate. We support repealing the 
push-out provision because failing to do so would have a negative 
impact on bank and bank customer risk management practices and create 
competitive imbalances between U.S. and foreign banks.
    Banks currently have the ability to centralize risk management for 
each customer relationship by conducting a customer's swaps 
transactions together with that customer's other transactions. In other 
words, banks can assess the credit risk of the customer and negotiate 
loan, swap, collateral and other credit terms as part of a complete 
package. Customers benefit because they can receive more attractive 
loan terms or a higher credit limit if the bank can net and setoff 
different exposures from each of the customer's transactions. If the 
push-out provision is not repealed, bank customers will face higher 
costs and reduced credit availability.
    Many customers also prefer to have a bank as a swap counterparty 
because it enables customers to centralize their own risk management of 
loans and other forms of credit. Customers now have ``one stop 
shopping'' for all of their credit needs, including swaps that may 
offset their credit risk. Swap customers may also prefer to have a bank 
as a counterparty from a credit risk standpoint. If banks have to push 
out some swaps transactions into a separate affiliate, then customers 
will not be able to centralize credit risk management with a bank even 
if it is their preferred swap counterparty.
    The push-out provision would also create competitive imbalances 
between U.S. banks and their foreign counterparties. To date, it does 
not appear that other countries are considering adopting ``push-out'' 
requirements. Therefore, it is likely that foreign banks will still be 
able to offer integrated credit and risk management products in one 
entity. Customers who still want ``one stop shopping'' for their credit 
needs--including swaps--may choose to move their business to foreign 
banks. This may not ever affect my community bank in a direct manner, 
but letting our larger banks lose larger US customers to foreign banks 
concerns me greatly as I hope it does you.
    If banks have to create a separate affiliate to conduct swaps 
transactions, then the affiliate also will have to be funded separately 
and meet separate capital requirements. The capital requirements for 
the affiliate may be entirely different from bank capital requirements 
if the swap transactions are done through a broker-dealer affiliate. 
Bank customers would have to sign new credit agreements with the bank 
and its affiliate. Considering all of these costs and complexities, it 
is likely that only large financial institutions would be able to 
create, fund, and capitalize a separate affiliate to conduct swaps 
activities that need to be ``pushed out'' of a bank. My own bank uses 
swaps as part of our commercial lending process, so this is a critical 
competitive issue for community banks as well as large banks.

                               CONCLUSION

    The consequences of excessive regulation are real. Costs are rising 
and will continue to rise. To offset these rising costs, banks must 
find new and additional revenue sources, most likely from increased 
service fees, or cut back the services they provide. Both of these 
actions will adversely affect the customer.With the regulatory 
overreaction, piles of new laws, and uncertainty about government's 
role in the day-to-day business of banking, meeting local community 
needs is proving difficult at best.
    My bank's philosophy--shared by community banks everywhere--has 
always been to treat our customers with respect and to strive to 
provide the best possible financial solutions to create economic growth 
and wealth creation. We will continue to do this, but with the many new 
hurdles being placed in our way, our customers' most basic banking 
needs will inevitably be more costly, more time consuming to complete 
and less beneficial to them as the end result.
    In my view, there will be three scenarios that will evolve for the 
community banks of this country. There will be those community banks 
that will just be unwilling or unable to take on these hurdles and they 
will move to partner with others in the short term. There will be a 
second group of community banks that will accept the challenge but 
eventually fail to produce the return on investment their shareholders 
demand, and they will ultimately partner up as well. And finally, there 
will be a much smaller group of banks that are able to successfully 
navigate the regulatory landscape and be able to also providethe return 
on investment that just may ensure their independence for the 
foreseeable future. These scenarios lead us to a banking industry with 
far fewer competitors than we have today, which may be the largest 
unintended consequence of all from Dodd-Frank.
    Thank you for allowing me to appear before you today.
                               __________

    Mr. Goodlatte. Thank you, Mr. Gutshall.
    Professor Levitin, welcome.

                 TESTIMONY OF ADAM J. LEVITIN, 
                GEORGETOWN UNIVERSITY LAW CENTER

    Mr. Levitin. Thank you. Good afternoon, Mr. Chairman 
Goodlatte, Ranking Member Watt, and Members of the 
Subcommittee. Thank you for inviting me to testify at this 
hearing.
    My name is Adam Levitin. I am a Professor of Law at 
Georgetown University and Visiting Professor at Harvard Law 
School. Financial regulation is a major focus of my teaching 
and scholarship.
    I wish to make two points about the effect of the Dodd-
Frank Act on competition in the financial services industry. 
The first point is on ``too big to fail,'' and the second point 
is on regulatory compliance costs.
    The ``too big to fail'' problem long predates the Dodd-
Frank Act. The Dodd-Frank Act is the first step in addressing 
the ``too big to fail'' problem. The Dodd-Frank Act's approach 
to ``too big to fail'' is to identify systemically important 
financial institutions, or SIFI's, and then subject them to 
increased regulatory scrutiny and requirements. Critically--and 
I want to emphasize this point--the identification of financial 
institutions as SIFI's does not make the institution 
systemically important. It merely recognizes a preexisting 
reality.
    There are two types of financial institutions that are 
designated as systemically important by the Dodd-Frank Act. 
First are all bank holding companies with over $50 billion in 
consolidated net assets. Second are non-bank financial holding 
companies designated as systemically important by a two-thirds 
majority vote of the newly created Financial Stability 
Oversight Council, and that vote has to also include the 
affirmative vote of the Treasury Secretary. To date, the 
Financial Stability Oversight Council has not designated any 
firms as systemically important. It has only published a final 
rule detailing how it will make such a determination.
    The Dodd-Frank Act subjects the systemically designated 
firms, non-banks and large bank holding companies, to 
heightened regulatory requirements. These include risk-based 
capital requirements, the leverage limits, liquidity 
requirements, overall risk management requirements, the 
development of risk resolution plans known as living wills, 
credit exposure report requirements, and concentration limits. 
All of this will have the effect of increasing regulatory costs 
on ``too big to fail'' firms. We don't know how much it is 
going to increase the costs, but the Federal Reserve Board has 
recently proposed a set of standards that include 100 to 350 
basis point capital surcharge on these large institutions.
    The goal of the increased regulation of the systemically 
important financial institutions is two fold.
    First, it aims to ensure that there is better upfront 
prudential regulation of the financial institutions that pose 
the most risk.
    And second, increased regulation of these systemically 
important institutions may ultimately discourage financial 
institutions from becoming ``too big to fail'' by 
counterbalancing the funding benefits of being ``too big to 
fail'' with increased regulatory costs. If implemented 
correctly, the Dodd-Frank Act will make it unprofitable to be 
``too big to fail'' and investors will demand the ``too big to 
fail'' firms break themselves up. This is a conceptually sound 
approach that should have the collateral effect of leveling the 
competitive playing field between ``too big to fail'' firms and 
smaller financial institutions.
    Regarding regulatory costs, there is no doubt that 
regulatory burdens for all banks, large and small, have 
increased in recent years with provisions like the Safe 
Mortgage Licensing Act that predate Dodd-Frank. What is 
important to emphasize, though, is that the Dodd-Frank Act 
itself imposes very few regulatory burdens specifically on 
community banks. While the Dodd-Frank Act has become the 
flagship of financial regulatory reform, most of its provisions 
have little or no bearing on small banks. Thirteen of the acts 
16 titles are unlikely to affect most small financial 
institutions.
    Of the few provisions that do affect small banks, many have 
yet to go into effect, so they cannot be blamed for small 
banks' travails. For example, title X of the Dodd-Frank Act 
created the Consumer Financial Protection Bureau. Virtually all 
of the CFPB's rulemakings in progress could have been 
undertaken before Dodd-Frank by Federal bank regulators. The 
rulemakings are under preexisting powers. Yet, had that 
occurred, it would have been without the CFPB's required small 
business impact review under the Small Business Regulatory 
Enforcement Fairness Act, or SBREFA, and without the cost-
benefit analysis required by the CFPB for rulemaking.
    All in all, then Dodd-Frank is actually creating more 
protections for small financial institutions rather than 
creating problems for them.
    The Dodd-Frank Act, in sum, is likely to help level the 
playing field between large and small financial institutions by 
imposing regulatory costs on ``too big to fail'' firms that 
will help offset their funding advantage from their implicit 
government guarantee. The creation of the CFPB will level the 
playing field between banks and non-banks, and it will give 
small financial institutions a voice in the regulatory process 
through SBREFA.
    To be sure, there are general regulatory costs imposed by 
Dodd-Frank that are likely to be harder for small financial 
institutions to absorb, but overall, it would seem that the 
Dodd-Frank Act helps level the competitive playing field 
between large and small financial institutions.
    Thank you.
    [The prepared statement of Mr. Levitin follows:]

    
    
    
    
    
    
    
    
    
    
    
    
    
    
                               __________

    Mr. Goodlatte. Thank you, Professor Levitin.
    Mr. Pollock, we are pleased to have your testimony as well.

    TESTIMONY OF ALEX J. POLLOCK, RESIDENT FELLOW, AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Pollock. Thank you, Mr. Chairman and Ranking Member 
Watt, Chairman Conyers, Members of the Subcommittee.
    I believe all major expansions of financial regulation have 
effects on competition, even though they are principally 
addressed to controlling risk, and in fact, they are often more 
successful at changing competition than they are at controlling 
risk.
    For example, after the financial crises of the 1980's there 
were three major acts of Congress expanding regulation. It was 
predicted at the time that this would ensure we would never 
again have a financial crisis--a poor prediction, needless to 
say, but arguably among their effects was the dominance of 
Fannie Mae and Freddie Mac in the market for mortgages.
    It is my view that similarly the Dodd-Frank Act will not 
prevent another crisis although, of course, proof awaits the 
unknowable future. However, it is certain and is universally 
agreed that Dodd-Frank has and will continue to expand the 
regulatory burden on financial businesses, including community 
banks.
    The disagreement is about whether this expanded burden is 
worth it. My view is that it is not worth it, and among its 
effects will be competitive disadvantages for smaller banks. As 
the Chairman said, if complex, expensive regulatory 
requirements are placed on all competitors, the burden will be 
disproportionately heavier for small competitors and large 
firms will be relatively advantaged. Consider in this context 
the total staff of a median-sized bank, which is 37 employees.
    Further, it is not unreasonable to think that Dodd-Frank's 
effects will impede the ability of small banks to raise capital 
as has been suggested by the Conference of State Bank 
Examiners.
    Professor Amar Bhide has proposed that we reinstate, ``old-
fashioned banking where bankers know their borrowers and have 
case-by-case local knowledge.'' I bet that is a proposition we 
would all agree to, but contrast this to top-down regulatory 
formulas in mortgage lending as a key example, which reduce 
community banks' natural local advantages.
    Regulation itself is one of the most important procyclical 
factors in credit markets, especially in the down cycle when 
regulators, reacting to past mistakes, clamp down forcefully. 
This contracts credit further than the crisis already has, as 
we have once again experienced.
    Community banks can be very successful managers of 
residential mortgage credit to their own customers in their own 
towns. A healthy, competitive residential mortgage sector, in 
my opinion, should feature mortgage credit risk widely 
dispersed among knowledgeable local lenders, who also have the 
ability to share credits among themselves.
    But what did the American GSE-centric mortgage system 
create instead? As we all know, a duopoly system of Fannie and 
Freddie with mortgage risk concentrated on the banks of the 
Potomac. One of the most important competitive effects of Dodd-
Frank is its well-known failure to address the duopoly system 
of Fannie and Freddie in any way.
    In the meantime, all actors in the residential mortgage 
market await and debate the QRM, or qualified residential 
mortgage, rules. These rules will determine when mortgage 
competitors are required to retain credit risk in mortgages 
which are securitized. This is the ``skin in the game'' idea. 
Now, I think having mortgage lenders retain credit risk in the 
loans they make is an excellent idea as long as the risk 
retention is a voluntary market transaction. The Dodd-Frank 
idea by contrast is not a voluntary market arrangement, but a 
mandatory and formulaic requirement.
    Now, as has been said by many others, a notable provision 
of Dodd-Frank is the designation of systemically important 
financial institutions, or SIFI's. As has also been said, 
SIFI's will be subject to special regulatory requirements and 
oversight--a burden. But on the other hand, with regulators 
having devoted so much special effort to making them safe, the 
failure of a SIFI would be the obvious failure of the 
regulators themselves.
    The logical conclusion for a potential creditor, large 
depositor, or counterparty of any kind to draw is that they 
will be safer with a SIFI, all political protestations to the 
contrary notwithstanding. Remember how various government 
officials tried to claim that Fannie and Freddie were not 
guaranteed by the government. But buyers of GSE debt and MBS 
did not believe such claims and they were right.
    So what is the difference between a SIFI and a GSE? In my 
opinion, not much. Effectively creating more GSE's will tend to 
make the financial markets more consolidated and concentrated.
    I want to just mention rating agencies, if I may, Mr. 
Chairman, because they are in Dodd-Frank. We are addressing a 
competitive issue, namely, a previous government-sponsored 
duopoly in the credit ratings business. My written testimony 
recommends a simple amendment to Dodd-Frank regarding the 
credit rating agency provisions which would create a more pro-
competitive approach.
    In conclusion, it is my belief that all proposed financial 
regulations should specifically take account of their effects 
on competition, just as this hearing is considering.
    Thank you for the opportunity to share these views.
    [The prepared statement of Mr. Pollock follows:]

        Prepared Statement of Alex J. Pollock, Resident Fellow, 
                     American Enterprise Institute

    Mr. Chairman, Ranking Member Watt, and members of the Subcommittee, 
thank you for the opportunity to be here today. I am Alex Pollock, a 
resident fellow at the American Enterprise Institute, and these are my 
personal views. Before joining AEI, I was the President and CEO of the 
Federal Home Loan Bank of Chicago for 13 years, where the customers 
were about 800 member financial institutions, most of them community 
banks. In all I spent 35 years working in financial services, and have 
extensively studied and written on the problems of financial cycles.
    After every over-optimistic credit expansion comes the ensuing 
bust. After every bust, come legislation and expanded regulation to try 
to prevent the next crisis from happening--but it always happens 
anyway. For example, after the financial crises of the 1980s, we had 
the Financial Institutions Reform, Recovery and Enforcement Act of 
1989, the FDIC Improvement Act of 1991, and the very ironically named 
Federal Housing Enterprises Financial Safety and Soundness Act of 1992. 
It was predicted at the time that this would ensure we would ``never 
again'' have a financial crisis--a poor prediction, needless to say, 
including the fact that Fannie Mae and Freddie Mac proved to be the 
opposite of safe and sound.
    After the corporate accounting scandals of 2001-2002, we had the 
Sarbanes-Oxley Act, which attempted, among other things, to ensure 
business risks were controlled by expanded rules and procedures. They 
obviously were not.
    After the great housing bubble and the collapse of 2007-2009, we 
got the Dodd-Frank Act. It is my view that the greatly increased 
bureaucracy and regulation mandated by this act will not prevent 
another crisis--to know whether this is correct we have to await the 
unknowable future. However, it is certain and universally agreed that 
Dodd-Frank has and will continue to significantly expand the regulatory 
burden on financial businesses, including community banks. The 
disagreement is about whether this expanded burden is worth it or not. 
About this there are of course conflicting views--my view is that it is 
not, especially considering the negative effects on overall competition 
in financial services.
    I believe the central question posed by this hearing is excellent--
indeed we should be required to ask and answer about every regulation: 
what are its effects on competition?
   regulatory burden falls disproportionately on smaller competitors
    As a general principle, if complex, expensive regulatory 
requirements are placed on all competitors, the burden will be 
disproportionately heavier for small competitors and large firms will 
be relatively advantaged. Large firms already have internal 
bureaucracies accustomed to complicated paperwork, reporting and 
regulatory relationships, the costs of which they spread over large 
business volumes. These economies of scale are not available to small 
competitors.
    Congress recognized this general problem in Dodd-Frank itself, when 
it reduced the burden on small public companies of the notorious 
bureaucracy of Sarbanes-Oxley's Section 404.
    As Tom Hoenig (then President of the Federal Reserve Bank of Kansas 
City and now a Director of the FDIC) said, ``Dodd-Frank has raised the 
cost of financial transactions in America and that encourages 
consolidation because it's the only way you can spread the costs over 
larger assets.''
    The CEO of M&T Bank, a well-managed regional bank, said last year 
that the paperwork of Dodd-Frank had so far required 18 full-time 
employees--that is before implementation of many other regulations now 
in some stage of development, including whatever the Consumer Financial 
Protection Bureau mandates, and before the arrival of the complicated 
new risk-based capital requirements. Compare this to the total staff of 
the median bank: 37 employees.
    The complex new risk-based capital requirements, which are being 
applied to all banks, large and small, are an interesting case of the 
problem. Banking consultant Bert Ely concluded that ``the highly 
granular features of many specific provisions in the regulatory capital 
proposal will mandate a substantial increase in the number of both 
financial and non-financial data items banks will have to collect on 
individual assets in order to generate the numbers. Data of the type 
now generally found in a bank's accounting records will not be 
sufficient. Inadvertent compliance errors, when calculating capital 
ratios, will increase.'' Ely speculates that these costs ``could drive 
[smaller] banks to exit lines of business.''
    It is not unreasonable to think that Dodd-Frank's effects will 
impede the ability of small banks to raise capital. ``Investors are 
concerned with a smaller bank's ability to respond to regulatory 
obligations,'' wrote the Conference of State Bank Examiners. ``As 
investors vote with their money on the regulatory burden issue, 
policymakers should take notice that this is a very real issue with a 
potentially adverse economic impact.''
    Fletcher School Professor Amar Bhide has published an intriguing 
discussion of financial reform entitled A Call for Judgment. He points 
out the economic potency of competitive economies in which 
decentralization gives ``many individuals the autonomy to make 
subjective judgments,'' and in which they must live with the results of 
their judgments. ``Specifically,'' he writes, ``I propose we reinstate 
old-fashioned banking, where bankers know their borrowers'' and have 
``case by case local knowledge.'' Thus they confront ``the 
unquantifiable uncertainty that is an important feature even of 
seemingly routine lending decisions.''
    Obviously, he is describing the competitive advantage of well-run 
community banks and recommending a system of decentralized credit 
decision-making and credit risk bearing. Top-down regulatory formulas, 
for example in mortgage lending, reduce this advantage, while complex, 
expensive regulations create relative advantages for large 
institutions.

             THE EFFECTS OF DODD-FRANK ON MORTGAGE FINANCE

    Regulation itself is one of the most important procyclical factors 
in credit markets--a problem well known to theoreticians of financial 
regulation. This is especially true in the down cycle, where we still 
are in housing finance, as the regulatory efflorescence mandated by 
Dodd-Frank continues. Reflecting each bust, including the most recent 
one, regulators, afraid of being criticized, seeing the depletion or 
disappearance of their deposit insurance fund, and reacting to the past 
mistakes now so apparent in hindsight, clamp down forcefully on banks, 
including refusing to charter new entrants which would bring unburdened 
new capital to the sector. This contracts credit further than the 
crisis already has, as we have once again experienced, this time in the 
residential mortgage market.
    Community banks can be very successful managers of residential 
mortgage credit to their own customers in their own towns. A healthy, 
competitive residential mortgage sector, in my opinion, should feature 
mortgage credit risk widely dispersed among knowledgeable local lenders 
of the kind Bhide pictures, who also have the ability to share credits 
among themselves.
    What did the American GSE-centric mortgage system create instead? A 
dupoly system of Fannie and Freddie, with mortgage credit risk 
concentrated on the banks of the Potomac, a system once claimed in 
Congressional testimony and elsewhere to be ``the envy of the world.'' 
The result was that Fannie and Freddie lost every penny of all the 
profits they had made in the 35 years from 1971 to 2006, plus another 
$150 billion. They have been transformed in substance from insolvent 
GSEs to government housing banks, but they are still there and more 
dominant than before in mortgage finance.
    One of the most important competitive effects of Dodd-Frank results 
from a lack of action: its well-known failure to address the 
concentrated, duopoly system of Fannie and Freddie in any way. Thus 
concentration in the mortgage business and mortgage credit risk bearing 
continues and grows. Indeed, some people are now calling for Fannie and 
Freddie to be combined into a single mortgage securitizer--to turn 
their conforming mortgage duopoly into a monopoly. I do not favor this 
proposal.
    In the mean time, all actors in the residential mortgage market, 
including the community banks, are involved in the continuing complex 
development of two mortgage regulations in particular, arising from the 
requirement of Dodd-Frank: the ``QM'' (Qualified Mortgage) and ``QRM'' 
(Qualified Residential Mortgage) rules. By establishing top-down 
formulas and escalating the legal risks to the lender of making 
mortgage loans, these regulations will certainly increase the burdens 
and reduce the role of local judgment in the mortgage business.
    The QRM rule will determine whether mortgage competitors are 
required to retain credit risk in mortgages sold into securitizations--
the ``skin in the game'' idea (the regulations will exempt loans sold 
to Fannie and Freddie--another boost to concentrating mortgage risk in 
them). I think having mortgage lenders retain credit risk in the loans 
they make, when they are paid for so being in the mortgage credit 
business, is an excellent idea--as long as the risk retention is a 
voluntary, market transaction. In fact, for a community bank, bearing 
credit risk in your own loans to your own customers, even if they are 
being funded by the securitization market, is a logical business. It is 
the basis of the Mortgage Partnership Finance program which we invented 
15 years ago, when I was at the Chicago Federal Home Loan Bank--a 
program which has had very good credit performance from 1997 to now, 
and which definitely helps community banks compete in the mortgage 
business.
    The Dodd-Frank idea is not a voluntary market arrangement, but a 
mandatory and formulaic requirement. The better approach would be to 
facilitate and encourage mortgage credit risk retention by lenders, but 
not mandate it.

            WHAT'S THE DIFFERENCE BETWEEN A SIFI AND A GSE?

    A notable and much-debated provision of Dodd-Frank is the 
designation of very large financial firms as ``SIFIs''--Systemically 
Important Financial Institutions. What will the competitive effects of 
this be?
    SIFIs will be subject to special regulatory requirements and 
oversight--a burden. But on the other hand, this will cause them to be 
perceived as safer. Moreover, they will most probably benefit from 
being designated as of special interest and significance to the whole 
financial system and to the government. Having devoted so much special 
attention to making them safe, the failure of a SIFI would be the 
obvious failure of the regulators themselves, and a crisis will induce 
their normal bailout strategy. So in my view, becoming designated as a 
SIFI effectively makes a competitor a GSE--and we know to what lengths 
the government will go to protect the creditors of GSEs.
    The logical conclusion for a potential creditor, large depositor, 
or counterparty of any kind, to draw is that they will be safer with a 
SIFI--all political protestations to the contrary notwithstanding. 
Remember how various government officials tried to claim that Fannie 
and Freddie were not guaranteed by the government. But buyers of GSE 
debt and MBS did not believe such claims, and the investors were right 
to believe instead that they were guaranteed by the taxpayers. I 
believe similar beliefs will apply to SIFIs.
    So what's the difference between a SIFI and a GSE? Not much.
    That means, as has been pointed out by many observers (and 
contested by others, but incorrectly, in my view) that SIFIs will be 
even more advantaged in the amount and cost of funding and deposits 
available to them, and will be preferred counterparties for financial 
transactions, compared to smaller competitors. This will tend to make 
the financial markets more consolidated.
    An interesting comparison in this contest is the much more 
concentrated banking system of Canada, which has received a lot of 
praise over the last few years. Canadian banking is entirely dominated 
by five big, universal, nationwide banks, all of which are certainly 
SIFIs. Oligopolies are arguably more stable than competitive markets. 
Should we trade our 7,000 banks for such an oligopolistic structure? I 
wouldn't.

                            RATING AGENCIES

    A pro-competitive provision of Dodd-Frank, one I firmly support, 
was to prohibit regulatory agencies from making the use of the ratings 
of credit rating agencies be required by regulation. This helps break 
up what was previously a government-sponsored duopoly in the credit 
ratings sector. However, the provision went too far, and has now caused 
a competitive issue for smaller banks.
    Community banks have an advantage in local credit judgments, but a 
natural disadvantage in credit analysis of nationally-traded 
securities, as a matter of knowledge and scale. It makes perfect sense 
to allow them, without requiring them, to use credit ratings for their 
investment and money market portfolios. The Independent Community 
Bankers of America have proposed allowing use of external credit 
ratings, and I have been told that regulators have privately expressed 
the desire to gain flexibility in this matter by an amendment of the 
Dodd-Frank Act.
    The problem is that Dodd-Frank provides (in Section 939A) that 
regulators must ``remove any reference to or requirement of reliance of 
credit ratings.'' The fix is simple: delete the phrase '' reference to 
or.'' The provision would then read that regulators must ``remove any 
requirement of reliance on credit ratings.'' In other words, no 
requirements allowed, but use could be approved in the appropriate 
circumstances if proposed by the bank--this would remove an unintended 
competitive disadvantage for smaller banks.
                    promoting entry and competition
    A British Member of Parliament and former banker has recently 
recommended the following principle: ``Regulators must have a specific 
objective to reduce barriers to entry and promote competition.'' A good 
idea. Proposed regulations, including those arising from Dodd-Frank, 
should specifically take account of their effects on competition among 
their costs and benefits--just as this hearing is considering.
    Thank you again for the opportunity to share these views.
                               __________

    Mr. Goodlatte. Thank you, Mr. Pollock.
    And we will now turn to questions from Members of the 
Committee, and I will start with a question for you, Mr. 
Gutshall.
    Does Valley Bank compete in Roanoke with branches of large 
banks covered by titles I and II of the Dodd-Frank Act?
    Mr. Gutshall. Yes, we do.
    Mr. Goodlatte. And to the extent that these ``too big to 
fail'' institutions receive a funding advantage, how does that 
affect your ability to compete to offer loans in Roanoke?
    Mr. Gutshall. Well, it does make it difficult. The larger 
banks do have better access to funding not only from depositors 
but from other sources. So their cost of funds are less than 
ours, in most cases as much as 50 basis points today, which is 
a huge hurdle to get over.
    We do compete. We compete on price, but we compete on 
service primarily. And we get most of our customers because 
they want to deal with somebody like our bank, somebody who 
understands their business and willing to spend time with them. 
So we cannot compete. I don't think we will ever be able to 
compete with the Wells Fargos and BB&Ts of the world on pricing 
and cost, but we have to do it on service and that is the way 
we do it. We have taken market share from everybody in the 
Roanoke MSA. That is why we have grown to $800 million. And I 
think we are a shining example of what a community bank can do.
    Mr. Goodlatte. When a small bank is forced to spend a 
dollar on complying with regulations, is that a dollar the bank 
is unable to use to finance small businesses that could create 
jobs?
    Mr. Gutshall. Now, we see a dollar of compliance cost or 
any other expense as a dollar against the profit, profits that 
flow to the bottom line. We can use those, leverage them up 
tenfold. Every dollar of capital should produce somewhere 
around $10 worth of loans and investments. So it is a 10 to 1 
ratio.
    Mr. Goodlatte. And a higher percentage of your bottom line 
is going to pay for regulations that diminish that bottom line 
than a larger institution competing with you. Is that generally 
true?
    Mr. Gutshall. Well, I think just from economy of scale 
concept, for us to comply with roughly the same regulations, 
maybe not to the same degree, but we have to do that as well 
and leverage that over $800 million in assets. A BB&T has got 
$155 billion in assets to do the same thing. We cannot afford 
in-house counsel or accountants on staff to help us with this. 
We have to go outside. We have to pay their fees to advise us 
on compliance issues. So a lot of that what we have to do, we 
have to go outside to get and it is more expensive.
    Mr. Goodlatte. Now, Professor Levitin says that a lot of 
these Dodd-Frank regulations don't apply to small banks like 
yours and that a lot of them haven't taken effect yet. But what 
impact is the concept of best management practices having in 
terms of bank regulators taking the regulations that they are 
required by Dodd-Frank to impose on larger banks and which they 
may not have to impose on a smaller bank, but do they anyway?
    Mr. Gutshall. Well, we realize we are exempt from quite a 
bit of Dodd-Frank, and we certainly appreciate that. A lot of 
these things that flow through to the Federal Reserve, to other 
regulatory agencies, they find their way down to us as well. I 
mean, it is a best practices concept, and if it is deemed best 
practice, then we will see it I think without a doubt.
    Mr. Goodlatte. Mr. Pollock, are the risks of creating 
disparities in the cost of doing business particularly acute in 
the banking industry in which large and community banks have to 
compete not only for customers by also for investor dollars?
    Mr. Pollock. Mr. Chairman, I think it does include investor 
dollars, but in particular it is money market funding dollars, 
large deposits which are not guaranteed by the government, and 
also all businesses in which you are a counterparty in various 
kinds of transactions, be they securities or derivatives 
transactions. In all those, as I said in my testimony, I think 
the large banks have an advantage which will be increased, in 
my judgment, by the SIFI role that has been defined by the Act.
    Mr. Goodlatte. If the banking industry became more 
concentrated and oligopolistic, would that harm the typical 
American consumer, and if so, how?
    Mr. Pollock. If you look around the world, Mr. Chairman, we 
have an unusual banking system because it still has 7,000 banks 
in it. Most countries have very concentrated, more 
oligopolistic systems. I hope we don't move in that way. Big 
banks have an obvious competitive role to play, but I do think 
there is a special advantage in this country from keeping a 
vibrant, robust community bank sector.
    Mr. Goodlatte. What if we fail to do that? What is the 
impact on consumers going to be?
    Mr. Pollock. I think it takes away a major consumer and 
business alternative, which is dealing in a local way based on 
the banker who really knows his customers and knows the local 
conditions. That is very important in maintaining a well 
functioning and growing entrepreneurial economy.
    Mr. Goodlatte. Thank you.
    The gentleman from North Carolina, Mr. Watt, is recognized.
    Mr. Watt. Mr. Chairman, I think I will defer to the other 
Committee Members since they may have someplace to go. I got to 
stay.
    Mr. Goodlatte. I will yield next to the gentleman from 
Michigan, Mr. Conyers, for 5 minutes.
    Mr. Conyers. Thank you, Chairman Goodlatte, and thank you, 
Ranking Member Watt.
    Gentlemen, this is a very academic discussion of a problem 
that has some other dimensions. For example, can any of you 
explain to us about the amount of loss in the 2008 financial 
crisis in general?
    Mr. Pollock. I will take a try at that, Mr. Chairman.
    Mr. Conyers. Thanks, Professor Pollock.
    Mr. Pollock. Chairman Conyers, I have thought a lot about 
that. I have written a book on financial cycles called ``Boom 
and Bust,'' which has the advantage of being short, if you ever 
want to look at it.
    Mr. Conyers. I am more interested than ever. [Laughter.]
    Mr. Pollock. Financial cycles are apparent in all of 
financial history. They repeat. They always have multiple 
occasions. They always arise out of an over-optimistic group-
think, you might say.
    In our case, we have the interaction, as is often in a 
bubble, between asset prices in houses----
    Mr. Conyers. How much was lost?
    Mr. Pollock. Oh, do you want a dollar number? It is many, 
many hundreds of billions of dollars.
    Mr. Conyers. It didn't reach the trillions.
    Mr. Pollock. And the losses of Fannie and Freddie alone 
were $250 billion.
    Mr. Conyers. Right.
    Mr. Pollock. So it is bigger than that.
    Mr. Conyers. And do any of you have something that you can 
tell us about the fact that in many countries around the 
planet, there is action being considered against the biggest 
banks, including UBS, JP Morgan, Citigroup? I mean, this was a 
worldwide collapse of our financial system, Professor Levitin, 
that seemed to have taken economists by surprise. But now that 
we look back on it, there is less justification for the 
surprise. Is that a fair statement?
    Mr. Levitin. Well, not being an economist, I can't speak 
for it. But I think if you look back and place the Dodd-Frank 
Act into context, we saw a financial crisis, the likes of which 
certainly have not been seen in my lifetime, and you have to go 
back to the Great Depression to find anything like it. If 
anything, I think what the Dodd-Frank Act does on ``too big to 
fail'' is too modest. I think the approach is sound 
conceptually, but it leaves a lot to the regulatory 
implementation.
    You asked about the cost of the crisis. I think it is very 
important that we be cognizant of--that we compare the costs 
imposed by financial crises with the costs that may be imposed 
by regulation. And if you are at all risk-averse, I think this 
is not even a close one, that the regulatory costs here are a 
small insurance premium for making sure that we do have not 
have an economic collapse.
    Mr. Conyers. Now, JP Morgan Chase, $2 billion loss, 
irresponsible bets in the derivatives market. You say it was $9 
billion. My colleague says it was not $2 billion. It was $9 
billion.
    Barclays' deliberate inflation of key banking interest 
rates like LIBOR have triggered revelations that Chase, 
Citigroup, and others may have undertaken similar actions. Is 
that too drastic an accusation to be made publicly?
    Mr. Levitin. I don't think so. I think it has been all over 
the newspapers. And I would say with that $9 billion, I think 
it is $9 billion and counting. We haven't seen the end of it 
unfortunately. I think that we are just starting to learn the 
extent of financial institution malfeasance before and after 
the financial crisis.
    Mr. Conyers. Could I get 15 seconds, Mr. Chairman, to ask--
--
    Mr. Goodlatte. Without objection, the gentleman is 
recognized for an additional minute.
    Mr. Conyers. Mr. Pollock his impressions of this line of 
discussion?
    Mr. Pollock. Adam and I were discussing before the hearing, 
Mr. Chairman, this very interesting situation. One of the most 
interesting aspects of it is the potential involvement of the 
regulators and the central banks themselves. There are 
allegations that the Bank of England or the government were 
possibly encouraging or even directing the banks to do this. It 
was said today that the Federal Reserve Bank of New York was 
aware of this several years ago.
    When we discuss any financial crisis, what we find is that 
it isn't true that regulation protects us. Adam, you and I may 
disagree on this. The regulators and the central banks are part 
and parcel of the problems. Everybody is all mixed together. 
That is what makes them so hard to anticipate and to manage. 
That is true in this LIBOR case as well, apparently.
    Mr. Conyers. Thank you, Chairman Goodlatte.
    Mr. Goodlatte. I thank the gentleman.
    The gentleman from Ohio, Mr. Chabot, is recognized for 5 
minutes.
    Mr. Chabot. Thank you, Mr. Chairman.
    Mr. Gutshall, if I could ask you a question. I agree with 
you that our community-based financial service providers, both 
community banks like yours and credit unions for that matter, 
are absolutely essential pillars in the American banking 
system. It is clear that community banks and credit unions are 
facing an increasing amount of regulatory burden in terms of 
the breadth and pace of rulemaking from the CFPB and other 
regulators. Regulators including all of those that sit on the 
Financial Stability Oversight Council have a responsibility to 
information-share and coordinate with each other in an effort 
to make the post-Dodd-Frank environment as manageable as 
possible for those institutions serving Main Street.
    You mentioned in your testimony that Valley Bank has 
invested over $1 billion of investment loans during your 17-
year history. You also mentioned the significant opportunity 
costs that come from Dodd-Frank compliance.
    My question is if you had had to comply with Dodd-Frank 
over your entire 17-year history, approximately how much do you 
think that Dodd-Frank compliance would have cost you out of 
that $1 billion?
    Mr. Gutshall. That is a very good question and a very tough 
one to answer as well. Typically if we are allocating somewhere 
close to 8 to 10 basis points of our earning assets for 
compliance issues, that would have taken 10 cents off of every 
dollar. So that $1 billion could have shrank to, say, $6 
billion or $7 billion--$600,000 or $700,000 per year. So it 
could have cut our lending by about 3 or 4 percent.
    Mr. Chabot. And, Mr. Pollock, let me ask you. The name of 
your book again was ``Boom and Bust''?
    Mr. Pollock. ``Boom and Bust.''
    Mr. Chabot. ``Boom and Bust,'' okay. You get it on Amazon 
or where is it available?
    Mr. Pollock. If I am allowed to say this, you can buy it on 
Amazon for $9.95. [Laughter.]
    Mr. Chabot. I think you are allowed to say that.
    And like Mr. Conyers, the fact that it was short kind of 
appealed to me as well. But that is what I would like to read.
    And with your knowledge about the financial cycles that we 
have seen over the years repeated again and again--and most of 
that time was, obviously, not during Dodd-Frank's existence. We 
now have it. Are there things that could have been done that 
would have made sense, that could have dealt with the financial 
meltdown and other things short of Dodd-Frank or different from 
Dodd-Frank? Or do you have an opinion on that?
    Mr. Pollock. Yes, Congressman, I do. With regard to 
mortgages in particular, I actually have published a list of 10 
things that one could have done or should have done. Of course, 
notable among them is dealing with Fannie Mae and Freddie Mac.
    Fannie and Freddie I think played a role which is often not 
understood, which was allowing large amounts of foreign money 
to drive up the prices in American real estate without taking 
any risk. I think a general principle is if you want to invest 
your money and take the risk, that is fine, but by the 
government guarantees, as I said, denied, but nonetheless real, 
they allowed large amounts of money to come in, drive up real 
estate prices, drive up risk, but not take any risk themselves. 
Investors have their risk now being paid for by ordinary 
taxpayers as they provide the money to pay off Fannie's and 
Freddie's obligations.
    So the biggest thing would have been to deal with them in 
restructuring the mortgage finance market which was the center 
of the problem in what became in the bubble the insidious 
interplay of rising asset prices and ever-expanding credit. 
They were major factors in that credit expansion.
    Mr. Chabot. Thank you. My time is rapidly expiring. Just 
let me ask you one more question, if I could, Mr. Pollock.
    The Community Reinvestment Act. Do you have an opinion as 
to the relationship between that and the ultimate financial 
crisis that we found ourselves in in this country?
    Mr. Pollock. Anytime one is directed to make loans that 
look riskier to you in order to fulfill a regulation, I believe 
that is a mistake. Loans ought to be made as objectively as 
possible to good credits in order to create good credit, and 
the more we have a system like that, the better it will be.
    Mr. Chabot. Thank you.
    Mr. Goodlatte. I thank the gentleman.
    The gentlewoman from California, Ms. Waters, is recognized 
for 5 minutes.
    Ms. Waters. Thank you very much, Mr. Chairman.
    Let me just start off by saying that I agree with Mr. Watt 
that this hearing is quite unnecessary, but we know what is 
going on. As we approach the 2-year anniversary of the passage 
of the Dodd-Frank Wall Street Reform and Consumer Protection 
Act, some of my colleagues on the other side of the aisle want 
to mark this occasion by trying to make the case for repeal of 
the Act or otherwise try to undermine the regulation of an 
industry that nearly brought our economy to its knees in 2008. 
And I don't think we need to go into what happened during the 
crisis and what caused the crisis. We all know what the 
subprime meltdown was all about.
    But we put a lot of time and effort into Dodd-Frank and we 
listened to everybody that had something to say about it. And 
we have a bill that really does attempt to reform the industry. 
But since Dodd-Frank passed, the Republican efforts to 
undermine Dodd-Frank have been extraordinary. They have passed 
legislation to try and defund regulators, repeal the orderly 
liquidation of authority, repeal risk retention, delay 
derivatives regulations for 2 years, repeal liability for 
credit rating agencies, prohibit CFTC and SEC regulation of 
international swaps, all of this while we are witnessing some 
other kinds of actions that are taking place that should cause 
us all concern. We should be concerned about MF Global. We 
should be concerned about the Bickwell in London and the 
proprietary trading that we attempt to try and deal with with 
the Volcker Rule. We should be concerned about the LIBOR 
manipulations, et cetera.
    So here is what I would like to say to the community banks. 
You have a lot of friends in Congress, and we know that Dodd-
Frank really doesn't have a lot to do with the fact that you 
are at some disadvantage with the big banks. We understand 
that. And a lot of people, even in Dodd-Frank, as we were going 
through the conference committee, took actions to try and 
relate to some of the problems of the community banks.
    I just feel really strange about community banks being 
roped into these antics of my friends on the opposite side of 
the aisle as they attempt to dismantle Dodd-Frank piece by 
piece. And I would suggest to you that if you have not seen the 
FDIC White Paper entitled ``Impact of Dodd-Frank Act on 
Community Banks,'' that you ought to read it. You ought to read 
it because if you read this paper and if you are not familiar 
with a lot of what was done with Dodd-Frank that is to your 
advantage, I think that you may change your mind about joining 
with people who have other agendas that may not be in the best 
interest of community banks.
    Let me just ask quickly about some of the white paper that 
describes the impact of Dodd-Frank on community banks.
    Assessment base. As a result of Dodd-Frank, FDIC 
assessments will now be based on average consolidated assets, 
less average tangible equity, rather than total domestic 
deposits. Is this helpful to community banks?
    Mr. Gutshall. Absolutely.
    Ms. Waters. That is.
    Secondly, the offset of effect of increased reserve ratio. 
In addition, Dodd-Frank increased the minimum reserve ratio for 
the Deposit Insurance Fund from 1.15 percent of estimated 
insured deposits to 1.35 percent. Is that helpful to community 
banks? Mr. Pollock, you know everything. What do you have to 
say?
    Mr. Pollock. I try to pretend like I know everything.
    Ms. Waters. I know.
    Mr. Pollock. No, I don't think that is. That suggests a 
higher deposit insurance premium for community banks, in fact, 
which is an increased expense.
    Ms. Waters. Okay. Let's go to increased deposit insurance 
coverage. Dodd-Frank permanently increased the FDIC's basic 
insurance coverage limits to $250,000. This higher coverage 
level should help community banks attract and retain core 
deposits. Is that helpful to you, Mr. Gutshall?
    Mr. Gutshall. That is helpful, yes.
    Ms. Waters. All right.
    And in ``too big to fail,'' as with the increased deposit 
insurance coverage, the end of ``too big to fail'' will make it 
easier for smaller institutions to compete with larger 
institutions. A level playing field will help to eliminate the 
subsidy that ``too big to fail'' banks have enjoyed and 
encourage market discipline. Do you think that is true? Is that 
a statement that you could agree with, Mr. Gutshall?
    Mr. Gutshall. Well, I believe that the ``too big to fail'' 
has obviously benefitted the larger banks. I mean, a lot of 
customers feel more comfortable with their money in those 
banks, and I think the TAG program that we all participate in, 
which we hope will be extended, is a huge issue for community 
banks.
    Ms. Waters. Well, let me just----
    Mr. Goodlatte. The time of the gentlewoman has expired.
    Ms. Waters. Unanimous consent for at least 30 more seconds.
    Mr. Goodlatte. Without objection, the gentlewoman is 
recognized for an additional minute.
    Ms. Waters. Mr. Pollock, exemption from section 404 of 
Sarbanes-Oxley. For many years, community banks expressed 
concerns about the auditor attestation requirements in section 
404 of Sarbanes-Oxley for publicly traded companies. Dodd-Frank 
effectively exempts public companies with less than $75 million 
in capitalization from these requirements which cover many 
publicly traded community banks. Is that helpful, Mr. Pollock?
    Mr. Pollock. Congresswoman, the exemption from the onerous 
bureaucracy of section 404 for small companies was a pro-
competitive provision in Dodd-Frank, which I applaud.
    Ms. Waters. Which you applaud. Say it loudly so everybody 
can hear you, Mr. Pollock.
    I have a whole list of things here that is identified in 
this white paper that is helpful.
    Let me just say this as I wrap up, that again, you have a 
lot of friends on both sides of the aisle who want to be 
helpful to community banks. I don't want you to get caught up 
in something else that is going on here which is not helpful to 
community banks. I believe that what we have done----
    Mr. Goodlatte. The time of the gentlewoman has expired.
    Ms. Waters [continuing]. In Dodd-Frank--we will continue to 
work with community banks because we think you have real value 
in the community. We think people prefer to deal with you. We 
think it is customer-friendly and all of those things. So let's 
be careful about being, you know, right up here to deal with 
these issues in the way that you are dealing with them because 
I don't think it helps your cause. It hurts rather than helps.
    I yield back the balance of my time if I have any left.
    Mr. Goodlatte. The gentlewoman is well aware that she does 
not.
    And the gentleman from Georgia is recognized for 5 minutes.
    Mr. Johnson. Thank you, Mr. Chairman.
    Yes, I myself am also rather disturbed that you, Mr. 
Gutshall, would be here to testify on this issue, Dodd-Frank. 
You are not a bank that is too large to fail, but you are a 
community bank and a darned good one, I would say, one that is 
a 17-year-old community bank, assets of $800 million. You are 
the number four in terms of market share with respect to 
deposits in the Roanoke Metropolitan Statistical Area, 
surpassing even Bank of America within that area. So for a 17-
year-old bank to do that, I think if we have banks that are the 
backbones of the Main Streets throughout America that are as 
well run as yours, America would be in great shape. So I do 
appreciate you and I appreciate community banks in general. In 
fact, when I was a practicing lawyer, my accounts were at a 
local community bank. So I am a community bank guy.
    And I don't understand why the majority, or the folks on 
the other side, would bring a community banker up here to help 
in the effort to get rid of Dodd-Frank which is mostly 
concerned with banks that are ``too big to fail''. And I know 
that community banks have a lot of regulations that they have 
to abide by, and there are certainly more regulations that have 
been applied to the ``too big to fail'' entities. And I think 
they should be the ones up here to talk about over-regulated 
they are in the face of $9 billion losses like JP Morgan has 
admitted to, finally. I think they are the ones who should be 
here sitting in your chair. We should be talking about 
community banks specifically, how we can help them become more 
competitive with these ``too big to fail'' entities, which it 
seems like that is basically who my colleagues on the other 
side of the aisle are concerned about. So why bring you up here 
as a sheep in wolf's clothing kind of? We don't buy that. We 
really don't buy that.
    But, look, what impact did the repeal of Glass-Steagall 
have on this ``too big to fail'' problem that it seems like it 
is getting even larger with a $9 billion loss? It was $2 
billion just a few weeks ago when it was announced. It was 
announced, I think, on Friday and then on Monday it was a $3 
billion loss, and now several weeks, it is a $9 billion loss 
and no end in sight is what I am hearing. What impact did the 
Glass-Steagall repeal have on Wall Street and the ``too big to 
fail'' phenomenon, Mr. Pollock?
    Mr. Pollock. Congressman, with specific reference to the JP 
Morgan trading embarrassment, I think the answer is none as far 
as----
    Mr. Johnson. Well, I am talking about----
    Mr. Pollock [continuing]. Activity could be done----
    Mr. Johnson. I am talking about on Wall Street in general, 
the Wall Street meltdown back in----
    Mr. Pollock. I understand.
    Mr. Johnson. Yes.
    Mr. Pollock. And with respect to----
    Mr. Johnson [continuing]. Contribute to Freddie Mac and 
Fannie Mae.
    Mr. Pollock. Glass-Steagall had little or nothing that I 
can think of to do with Fannie Mae and Freddie Mac.
    Mr. Johnson. Did Fannie Mae and Freddie Mac trade in 
derivatives, by the way?
    Mr. Pollock. Yes. They were major users of derivatives and, 
as you know, had a large accounting scandal about derivatives 
that cost the management their jobs.
    Mr. Johnson. And we need to regulate that kind of trading 
especially when it is for the account of the entity itself. Is 
that not correct?
    Mr. Pollock. Well, all of these things are happening inside 
regulated entities, Congressman. I think overall if you look--
--
    Mr. Johnson. But not in the community banking sector, 
though, is it?
    Mr. Pollock. It certainly isn't. They have their own and 
different----
    Mr. Johnson. They do it the old-fashioned way.
    Mr. Pollock. Well, if they do it right, it is old-
fashioned, and that is another thing I applaud.
    And if I could just say so also, Congresswoman, in the 
couple thousand pages of Dodd-Frank, there are only two 
provisions which I fully support.
    Ms. Waters. Say it real loud. [Laughter.]
    Mr. Johnson. You already had your 10 minutes, 
Congresswoman. [Laughter.]
    But anyway, Professor Levitin----
    Mr. Goodlatte. The time of the gentleman has expired. 
Without objection, the gentleman is recognized for 1 additional 
minute.
    Mr. Johnson. Thank you.
    Professor.
    Mr. Levitin. Regarding Glass-Steagall?
    Mr. Johnson. Yes.
    Mr. Levitin. I think there are two effects that are 
important to note.
    First, Glass-Steagall separated investment banking from 
commercial banking. Putting them back together exposes insured 
deposits--in other words, the government ultimately--to risk 
taking that banks do in investment banking, and that is a 
problem.
    Secondarily, and I think----
    Mr. Johnson. Subject to the $250,000 per account.
    Mr. Levitin. Yes.
    Mr. Johnson. Yes.
    Mr. Levitin. Secondarily--and I think often overlooked on 
this--is a political effect that was lost. Glass-Steagall 
divided the financial services industry. And if you go back 30 
years or so, 40 years, you would see that the commercial banks 
and the investment banks and the life insurance companies 
didn't get along. They would fight with each other. They would 
fight with each other on legislation. They would fight about 
regulations and they would litigate. And this affected the way 
their lobbying worked because they were not presenting a 
unified lobbying front that if you took a position that was 
adverse to the commercial banks, the investment banks would 
love you and vice versa.
    What has happened is that they have found that it is easier 
to unite and be a united front, and what that does is it makes 
it much harder, I think, politically for Members of Congress 
and for regulators to prevent deregulation. What we have seen 
with the demolishment of Glass-Steagall is really a politically 
united financial services industry, and I think that is a huge 
impact that really has not been noticed.
    Mr. Goodlatte. The time of gentleman has expired.
    The gentlewoman from Texas, Ms. Jackson Lee, is recognized 
for 5 minutes.
    Ms. Jackson Lee. I thank the Chairman and the Ranking 
Member for this hearing.
    And I would like to start out, I think as many have started 
out, to indicate to the panelists that I appreciate their 
testimony and I appreciate Mr. Gutshall's representation of 
community banks. And just for the record, I want to acknowledge 
the vital role that community banks play and the interest and 
commitment that your customers, clients, have. They love their 
banks. I love my community banks that are in my constituency 
and work very closely with them. And I want to see them as 
strong--and as I noted by one of my colleagues, your record is 
certainly strong in terms of assets. Many others have strong 
assets.
    And so as we are debating the health care repeal--and you 
would ask the comparison--I always recognized that bills passed 
are not in their most perfect form. And we work through the 
legislative initiatives to ensure that we do address concerns 
needing to be concerned. I certainly don't want to see a repeal 
of the Affordable Care Act. I want to see the bill implemented 
to save lives.
    Dodd-Frank has the same basis. One might not say saving 
lives, but those who have fell victim to some of the excesses 
of some of our huge, multinational banks might think that they 
are in fear of their lives. They have lost their assets. Small 
businesses don't have access to resources. Major foreclosures, 
still an epidemic, if you will, in the financial structure 
where people's homes are still being foreclosed.
    Not having heard your testimony--and I apologize for being 
delayed in another hearing, but I will be posing a question to 
you as to singularly some item that might be responsive to some 
of the concerns. As you well know, you are a bigger community 
bank. There are certainly a lot smaller ones that many of us 
work with, but we do believe you are enviable to an asset to 
the financial system.
    So I am first going to go, however, to Dr. Levitin. And 
tell me, as you look at the FSOC and its intent--and I just 
want to read its name into the record because maybe if we heard 
its name, Financial Stability Oversight Council, that is a 
good-sounding purpose, at least if you take the words 
literally. But it has gotten in the eye of the storm. The 
President had to do a response through his own presidential 
authority, which I support. But tell me what good can come to 
Mr. Gutshall with this kind of structure, even though it seems 
to focus on--it seems to have a consumer protection element, of 
course, but what is your perspective on that?
    Mr. Levitin. I want to make sure that we are speaking about 
the same thing: the Financial Stability Oversight Council or 
the Consumer Financial Protection Bureau?
    Ms. Jackson Lee. I want to speak about both of them. So let 
me start with the Consumer Protection Bureau first. Thank you.
    Mr. Levitin. Sure.
    With the Consumer Financial Protection Bureau, the first 
good thing that can come to community banks is the creation of 
the CFPB levels the regulatory playing field between banks and 
non-banks. Non-banks compete in all kinds of consumer finance 
activities, and before the creation of the CFPB, they were very 
thinly regulated. Now they are subject to examinations just 
like community banks are, and this means that they are going to 
have to bear the same kind of regulatory costs as community----
    Ms. Jackson Lee. Could you pause for a moment? Mr. 
Gutshall, does that help you?
    Mr. Gutshall. It does. I think that is a step in the right 
direction, and they were the ones who should have been looked 
at at the beginning.
    Ms. Jackson Lee. And those are entities that deal in real 
estate matters and other things or financial products, let me 
just say, that would overlap.
    Mr. Gutshall. Most of the overlap--I think where we saw 
problems was in the mortgage business. The brokerage outfits 
did push the banks, especially community banks, out of the 
mortgage business.
    Ms. Jackson Lee. I see common ground. Let me move on to the 
Financial Stability Oversight Council, Professor.
    Thank you, Mr. Gutshall.
    Mr. Levitin. The Financial Stability Oversight Council you 
can think of sort of a justice league of regulators, that it is 
a collection of various financial regulators. And I think the 
real benefit for community banks from having the Financial 
Stability Oversight Council is that the FSOC is going to 
designate which institutions it believes are systemically 
important, and then it is required to impose additional 
regulation on those institutions.
    Ms. Jackson Lee. So let's get to the bottom line. Can we 
find common ground for a banking structure of the community 
banks, juxtaposed to ``too big to fail,'' as compatible with 
Dodd-Frank? Would you find that they can actually find common 
ground and find a positive response to their needs as opposed 
to a negative response?
    Mr. Levitin. I would think that there are numerous 
provisions in Dodd-Frank that would be good for community 
banks. There is some increased regulatory burdens. There is no 
question about that. But there is also a lot of things that 
help community banks by leveling the playing field between 
either community banks and ``too big to fail'' banks or 
community banks and non-banks. And I think those things are 
really good for----
    Ms. Jackson Lee. Is the regulatory scheme one that can be 
ironed out, for lack of a better term? Is it something that we 
should be looking at there critiquing and not undermine the 
bill but be able to respond to it?
    Mr. Levitin. I think that if community banks have 
particular provisions in Dodd-Frank that they are concerned 
about, those provisions should be examined, but concerns about 
community banks are not an excuse for a wholesale repeal of 
Dodd-Frank.
    Ms. Jackson Lee. I would just conclude by saying, Mr. 
Gutshall, we look forward to working with you. You have great 
value. I am glad to hear that are some components that work for 
you. Can we not work with the association that represents many 
community banks and look at it as to how we structure some of 
the review--and I have no commitment that anyone would want to 
review it--but some of the review to constructively make sure 
we have this structure in place but respond to your concerns?
    Mr. Gutshall. I think we can and I appreciate that. Most 
community bankers are concerned about the commoditization of 
banking. And a lot of times when we win customers, it is 
because we are more agile. We offer more options. It is just 
not plain vanilla cookie cutter stuff, and it is very important 
that community banks be allowed to continue to do that not only 
in the residential mortgage business but also in the business-
related credit.
    Ms. Jackson Lee. Discretion is important in your business. 
It really is.
    Mr. Chairman, I believe that I missed getting Mr. Pollock, 
but I am sure he has absorbed the Q&A that I just engaged in 
and he finds common ground to be able to support Dodd-Frank and 
sees its great value. So I am sorry, Mr. Pollock, I did not get 
a chance to seek any answers from you. [Laughter.]
    But I have already gotten agreement and I am going to yield 
back right now. Thank you. I yield back.
    Mr. Goodlatte. The time of the gentlewoman has expired, and 
the Ranking Member, the gentleman from North Carolina is 
recognized.
    Mr. Watt. Thank you, Mr. Chairman, and I thank my 
colleagues for being here for the hearing.
    I guess I better give Mr. Pollock a chance to tell us which 
two provisions in the Dodd-Frank bill---- [Laughter.]
    He considers good. I am just doing cleanup now since I 
deferred to all the other Members till last. So go ahead and 
let's put that in the record here.
    Mr. Pollock. Thank you, Ranking Member Watt.
    One is, as previously discussed, the exemption from 
Sarbanes-Oxley, another regulatory expansion bill. For small 
public companies, I think that was a very good idea. I am in 
support of that.
    The other is not allowing bank regulation to require the 
use of credit ratings by credit rating agencies since credit 
rating agencies were, as I said, a government-sponsored duopoly 
with Standard & Poor's and Moody's. However, that second 
provision actually needs a slight amendment which I recommend 
in my written testimony to help----
    Mr. Watt. I will be sure and take a look at that. And I 
assume we would be taking that up in Financial Services not in 
Judiciary. So I am glad to get those two points into the 
record.
    I want to publicly agree with Mr. Pollock that we never 
thought that Dodd-Frank would prevent any future financial 
crises. History, based on the research we were doing, and all 
of the studies, when we were doing Dodd-Frank, indicated that 
every 27 years or so, there is going to be a crisis because you 
regulate and then you deregulate, and the profit motive becomes 
a lot more salient than the regulatory motive. And over time, 
that is what has happened throughout the history of our 
country. So we are figuring Dodd-Frank is good for maybe 27 
years if we are lucky. So I agree with you.
    The final point I want to make is also something that you 
said. You seem to applaud the value of ``know your customer'' 
in one of your comments. I just wanted to remind you that I was 
the Chair of one of the Subcommittees when we were dealing with 
``know your customer,'' and it requires substantial 
regulations. All of the banks were complaining about the 
regulations that went with ``know your customer.'' So the good, 
old days ain't as good as they seem sometimes.
    So I appreciate all of you being here. I didn't think much 
of the hearing, as I said in my opening statement, but you 
know, sometimes even good things come out of bad hearings.
    I yield back, Mr. Chairman.
    Mr. Goodlatte. I thank the gentleman for his admission that 
good things come out of the hearings that are scheduled in this 
Committee, and I happen to agree with that.
    And I would like to thank our witnesses for their testimony 
today.
    And without objection, all Members will have 5 legislative 
days to submit to the Chair additional written questions for 
the witnesses which we will forward and ask the witnesses to 
respond as promptly as they can so that their answers may be 
made a part of the record.
    Without objection, all Members will have 5 legislative days 
to submit any additional materials for inclusion in the record.
    And with that, I again thank the witnesses.
    Mr. Watt. Mr. Chairman, might I ask that we just put into 
the record the study that Ms. Waters was making reference to so 
that we get that preserved in the record?
    Mr. Goodlatte. Certainly. Without objection, the study will 
be made a part of the record.
    Ms. Waters. It is entitled ``Impact of the Dodd-Frank Act 
on Community Banks.''
    Mr. Goodlatte. Great. If you will provide a copy of that to 
Committee staff, we will make sure it is made a part of the 
record.
    [The information referred to follows:]

    
    
    
    
    
    

                               __________

    Mr. Goodlatte. And I thank the witnesses and declare the 
hearing adjourned.
    [Whereupon, at 5:32 p.m., the Subcommittee was adjourned.]

                                 
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