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





                AN EXAMINATION OF THE CHALLENGES FACING
                COMMUNITY FINANCIAL INSTITUTIONS IN OHIO

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

                             FIELD HEARING

                               BEFORE THE

                 SUBCOMMITTEE ON FINANCIAL INSTITUTIONS

                          AND CONSUMER CREDIT

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                      ONE HUNDRED TWELFTH CONGRESS

                             SECOND SESSION

                               __________

                             APRIL 16, 2012

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 112-116













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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                   SPENCER BACHUS, Alabama, Chairman

JEB HENSARLING, Texas, Vice          BARNEY FRANK, Massachusetts, 
    Chairman                             Ranking Member
PETER T. KING, New York              MAXINE WATERS, California
EDWARD R. ROYCE, California          CAROLYN B. MALONEY, New York
FRANK D. LUCAS, Oklahoma             LUIS V. GUTIERREZ, Illinois
RON PAUL, Texas                      NYDIA M. VELAZQUEZ, New York
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JUDY BIGGERT, Illinois               BRAD SHERMAN, California
GARY G. MILLER, California           GREGORY W. MEEKS, New York
SHELLEY MOORE CAPITO, West Virginia  MICHAEL E. CAPUANO, Massachusetts
SCOTT GARRETT, New Jersey            RUBEN HINOJOSA, Texas
RANDY NEUGEBAUER, Texas              WM. LACY CLAY, Missouri
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
JOHN CAMPBELL, California            JOE BACA, California
MICHELE BACHMANN, Minnesota          STEPHEN F. LYNCH, Massachusetts
THADDEUS G. McCOTTER, Michigan       BRAD MILLER, North Carolina
KEVIN McCARTHY, California           DAVID SCOTT, Georgia
STEVAN PEARCE, New Mexico            AL GREEN, Texas
BILL POSEY, Florida                  EMANUEL CLEAVER, Missouri
MICHAEL G. FITZPATRICK,              GWEN MOORE, Wisconsin
    Pennsylvania                     KEITH ELLISON, Minnesota
LYNN A. WESTMORELAND, Georgia        ED PERLMUTTER, Colorado
BLAINE LUETKEMEYER, Missouri         JOE DONNELLY, Indiana
BILL HUIZENGA, Michigan              ANDRE CARSON, Indiana
SEAN P. DUFFY, Wisconsin             JAMES A. HIMES, Connecticut
NAN A. S. HAYWORTH, New York         GARY C. PETERS, Michigan
JAMES B. RENACCI, Ohio               JOHN C. CARNEY, Jr., Delaware
ROBERT HURT, Virginia
ROBERT J. DOLD, Illinois
DAVID SCHWEIKERT, Arizona
MICHAEL G. GRIMM, New York
FRANCISCO ``QUICO'' CANSECO, Texas
STEVE STIVERS, Ohio
STEPHEN LEE FINCHER, Tennessee

           James H. Clinger, Staff Director and Chief Counsel
       Subcommittee on Financial Institutions and Consumer Credit

             SHELLEY MOORE CAPITO, West Virginia, Chairman

JAMES B. RENACCI, Ohio, Vice         CAROLYN B. MALONEY, New York, 
    Chairman                             Ranking Member
EDWARD R. ROYCE, California          LUIS V. GUTIERREZ, Illinois
DONALD A. MANZULLO, Illinois         MELVIN L. WATT, North Carolina
WALTER B. JONES, North Carolina      GARY L. ACKERMAN, New York
JEB HENSARLING, Texas                RUBEN HINOJOSA, Texas
PATRICK T. McHENRY, North Carolina   CAROLYN McCARTHY, New York
THADDEUS G. McCOTTER, Michigan       JOE BACA, California
KEVIN McCARTHY, California           BRAD MILLER, North Carolina
STEVAN PEARCE, New Mexico            DAVID SCOTT, Georgia
LYNN A. WESTMORELAND, Georgia        NYDIA M. VELAZQUEZ, New York
BLAINE LUETKEMEYER, Missouri         GREGORY W. MEEKS, New York
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             JOHN C. CARNEY, Jr., Delaware
FRANCISCO ``QUICO'' CANSECO, Texas
MICHAEL G. GRIMM, New York
STEPHEN LEE FINCHER, Tennessee








                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    April 16, 2012...............................................     1
Appendix:
    April 16, 2012...............................................    33

                               WITNESSES
                         Monday, April 16, 2012

Barnes, Stan, Chief Executive Officer, CSE Federal Credit Union..     4
Blake, William J., Deputy General Counsel, KeyBank...............     7
Cole, Martin R., President and Chief Executive Officer, the 
  Andover Bank...................................................    13
Fireman, Steven, President and General Counsel, the Economic and 
  Community Development Institute................................    11
Haning, G. Courtney, Chairman, President, and Chief Executive 
  Officer, the Peoples National Bank, on behalf of the Ohio 
  Bankers League.................................................     9

                                APPENDIX

Prepared statements:
    Barnes, Stan.................................................    34
    Blake, William J.............................................    60
    Cole, Martin R...............................................    82
    Fireman, Steven..............................................    88
    Haning, G. Courtney..........................................    92

 
                    AN EXAMINATION OF THE CHALLENGES
                       FACING COMMUNITY FINANCIAL
                          INSTITUTIONS IN OHIO

                              ----------                              


                         Monday, April 16, 2012

             U.S. House of Representatives,
             Subcommittee on Financial Institutions
                               and Consumer Credit,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10 a.m., at 
the Carl B. Stokes U.S. Courthouse, 801 West Superior Avenue, 
Cleveland, Ohio, Hon. Shelley Moore Capito [chairwoman of the 
subcommittee] presiding.
    Members present: Representatives Capito, Renacci, and 
Duffy.
    Chairwoman Capito. The hearing will come to order.
    I would first like to thank the City of Cleveland for 
welcoming the Financial Institutions and Consumer Credit 
Subcommittee to the Carl B. Stokes U.S. Courthouse, which is 
beautiful, and for allowing us to use this chamber for our 
hearing. So thank you to the City of Cleveland.
    I am going to kind of walk everybody through today's 
hearing. Obviously, this is a field hearing, so we will be a 
little more informal than we might be in the regular hearing 
room.
    Mr. Renacci and Mr. Duffy and I will each give an opening 
statement, and then our witnesses each will be recognized for a 
5-minute opening statement. And then, we are going to have a 
couple rounds of questioning where each Member will be 
recognized for 5 minutes. We should be finished in plenty of 
time for us to catch our flights back to Washington. We are 
returning after a 2\1/2\ week Easter recess.
    I haven't gotten a chance to really compare notes with my 
colleagues, but I think we have--I certainly did, in my 2 weeks 
home, get a lot of feedback where people are questioning what 
direction we are going, and a lot of frustration, really, and 
concern. So I hope that, with the great witnesses that we have 
today, we will be able to dig down deep in some of this, at 
least in terms of the Financial Institutions Subcommittee.
    Over the past year, we have held field hearings across the 
Nation to gain a better understanding of the unique challenges 
faced by financial institutions in different regions of the 
country.
    In Georgia, which has had the highest number of bank 
failures since the financial crisis, they have very unique 
difficulties.
    In Wisconsin, in Mr. Duffy's district, we heard from 
community banks, credit unions, and small businesses about ways 
to promote economic growth.
    I also went to San Antonio last month where community 
bankers and credit unions also discussed the growing regulatory 
burden and cost of compliance.
    And our most recent field hearing in Nevada provided me and 
other Members with insight into private sector solutions to 
mitigate foreclosures. They have an enormous issue with their 
real estate in and around Las Vegas and in the State of Nevada.
    Each hearing has been a learning experience for me, further 
providing solutions to our Nation's problems and also 
reinforcing that those solutions aren't going to necessarily 
come out of Washington D.C. They will come out of the heartland 
of America.
    By the way, I am from West Virginia, for those who haven't 
had a chance to hear me brag about that. There are a lot of 
West Virginians here in Ohio. And I did say that if you all 
would just learn how to drive, we would feel a lot better about 
that. But, please, no West Virginia jokes. I don't want to hear 
them.
    This will mark the fifth field hearing for us. And I would 
like to thank Mr. Renacci for serving as our host. He is my 
vice chairman on the subcommittee, and he brings a wealth of 
experience and a broad-based business background that has been 
extremely helpful, not just in the subcommittee, but to me, in 
particular. And I want to thank him for that.
    We also have Mr. Duffy from Wisconsin, who is a freshman, 
as well. And he has led the charge on some of our CFPB 
legislation and others. So I want to thank him for coming 
today.
    Today, we are going to continue on the theme of a better 
understanding of the local financial institutions. Our panel of 
witnesses will provide insight as to the unique challenges 
faced by financial institutions of varying sizes.
    We will hear from small community banks and credit unions 
about the regulatory impediments to promoting economic growth, 
and KeyBank will provide Members with a better understanding of 
the unintended consequences of the Volcker Rule, the very 
complicated Volcker Rule.
    Finally, we will hear from a community development 
financial institution about their efforts to splurge off 
growth.
    As with other hearings, we are here to listen and learn, 
and I look forward to that.
    We normally have a timer, but I was just informed that the 
timing device is in California. I don't know what it is doing 
there, but there is another field hearing in California. I left 
my watch in West Virginia when I left at 5:30 this morning, so 
I have my dutiful staff members back there to tap me on the 
shoulder. So if you hear me kind of wrestling around, you will 
know it is time to move along a little bit. But I appreciate 
everybody, really, the witnesses and the audience for coming.
    And I would like to now yield to Mr. Renacci for the 
purpose of making an opening statement.
    Mr. Renacci. Thank you, Madam Chairwoman. And I want to 
begin by thanking you for holding this important hearing and 
for being gracious enough to hold it in the wonderful City of 
Cleveland.
    I also want to thank all the witnesses here today. I can't 
emphasize enough what a pleasure it is to be in front of a 
hometown crowd this morning.
    I am proud to say that Ohio is home to some of the finest 
financial institutions in the country, and I have no doubt 
these institutions are committed to helping our economy achieve 
a more robust and sustainable economic recovery.
    When I travel around the 16th District, meeting with small 
business leaders, I find a frustrated group who are eager to 
expand their businesses, but are prohibited from doing so 
because they cannot access the necessary capital.
    At the same time, the financial institutions in my district 
repeatedly say they are ready to extend credit to these small 
businesses and have the capital to do so, but are unable to do 
because of overzealous, inconsistent, and ever-changing 
regulations. We are here today because cities like Cleveland 
and institutions like yours are the ones affected by Washington 
regulations. I believe part of the problem is that, for too 
long, lawmakers have legislated from Washington with no real 
sense of how the regulations will impact people across the 
country.
    I have no doubt that most regulations are drafted with the 
best of intentions. The most problematic regulations are the 
ones that sound reasonable on their face, but, taken 
accumulatively, have a devastating impact. A perfect example is 
the Dodd-Frank Act. The drafters' intentions were noble: to 
prevent another financial crisis and prove transparency; to 
stop banks from taking excessive risks; to prevent abusive 
financial practices; to and end too-big-to-fail.
    Unfortunately, instead of sound regulation aimed at reining 
in fraudulent and destructive behavior, we ended up with 
hundreds of pages of hastily thrown-together regulations. 
Instead of preventing the next financial crisis, we have 
managed to paralyze our financial institutions by creating a 
sense of uncertainty and confusion.
    Instead of sound regulations, we have left many of our 
financial institutions standing on the sidelines unwilling and 
unable to provide liquidity to our markets because they are 
unsure what the rules are and when they might be unilaterally 
changed again. The uncertainty in costs of new regulations is 
having an especially profound impact on smaller institutions. 
Without a large compliance staff or back office legal teams, 
our smaller institutions are forced to divert precious capital 
to keep up with new regulations; this is capital that would be 
better used in the hands of its customers. That is why we are 
here today. I want to hear the issues being discussed inside 
our community institutions.
    I want to hear how regulations coming out of Washington, 
D.C., are impacting access to credit, how they are impacting 
your institutions' ability to conduct business. I realize that 
many of you are tired of telling your stories. I know sometimes 
it seems like no one is listening. I want to assure you that we 
are listening and we care.
    Myself, Chairwoman Capito, Mr. Duffy, and many other 
members of this committee have heard from similar institutions 
across the country and we recognize that your institutions are 
the key to our economic recovery.
    Thank you, again, for being here today, and I look forward 
to hearing your testimony.
    Chairwoman Capito. Thank you. I now recognize 
Representative Duffy for the purpose of an opening statement.
    Mr. Duffy. Thank you. And it is an honor to be here in 
Cleveland. This is my first trip to Cleveland, and I only got 
to see it from about midnight last night until this morning, 
but what I have seen so far is fantastic.
    It is also great to be here with Chairwoman Capito, who has 
done a fantastic job leading our subcommittee, and also to be 
here with Mr. Renacci. As part of the freshman class, we serve 
on financial services together. But, also, as a freshman class, 
he is one of our greatest leaders and does a fantastic job 
moving this herd of a freshman class, driving us forward, and 
is respected by everybody and is, again, one of the best 
leaders we have.
    So it is a privilege to be here in Cleveland today.
    I come from central and northern Wisconsin. I have had a 
chance to talk to our small banks and our credit unions time 
and time again, and I keep hearing the same thing over and 
over; the regulations are killing them. It is making it harder 
for them to do their jobs, to get capital out into their 
communities. They talk about regulations that are stifling 
their community and stifling their business.
    They talk about the regulators coming in and these 
outrageous reviews that take place, and standards are changing 
from one regulator to the next, year over year. And the outcry 
has been quite loud.
    I guess I am interested today to see if you gentlemen have 
the same stories that I hear in central and northern Wisconsin. 
And if it is just a Wisconsin phenomenon or if it is a 
phenomenon that takes place around the country.
    I would also like to hear if you gentlemen have any ideas 
for solutions. Obviously, we know we have to change the law and 
the structure, but it would help if you would say, ``There is a 
lot to be done, but if you could really focus on this area 
first, that would do the most for us to help us do our jobs 
better.''
    So I am here with open ears and I look forward to hearing 
your testimony.
    Chairwoman Capito. That concludes our opening statements. 
We will now turn to our panel. Your full written statements 
will be made a part of the record, and I will introduce each of 
you individually to give a 5-minute summary of your testimony. 
We will then get to the question portion of the hearing.
    First, I would like to recognize Mr. Stan Barnes, CEO of 
the CSE Federal Credit Union. Welcome, Mr. Barnes.

STATEMENT OF STAN BARNES, CHIEF EXECUTIVE OFFICER, CSE FEDERAL 
                          CREDIT UNION

    Mr. Barnes. Thank you, Chairwoman Capito.
    Chairwoman Capito. I don't know if your microphones are on 
or working. Is there a green light on?
    Mr. Barnes. Yes, there is.
    Chairwoman Capito. There we go.
    Mr. Barnes. Thank you, Chairwoman Capito, and members of 
the subcommittee. Thank you for this opportunity today to 
represent Ohio's 377 credit unions and 3 million Ohio credit 
union members and to share with you on their behalf the 
difficult circumstances facing community-based credit unions in 
the form of overburdensome regulations and lack of transparency 
in the examination process and to update you on the current and 
future role of the credit union movement.
    My name is Stan Barnes. I am the president and CEO of CSE 
Federal Credit Union in Canton, Ohio. We are a $150 million 
not-for-profit financial service cooperative, and we proudly 
serve 30,000 members in the northeast Ohio area. And like every 
credit union, we do so under the business philosophy of not for 
profit, not for charity, but for service.
    Regulatory burden and the cost of compliance, as you have 
noted, is the number one concern among Ohio credit unions. 
Attached to my testimony and submitted for the record are the 
Federal regulatory requirements for both banks and credit 
unions, which should put into some perspective the time, the 
effort, and the cost tied to compliance.
    In many cases, when credit unions should be dedicating 
resources to the financial livelihood and benefit of their 
members, they are instead challenged with the increasing burden 
of following far-reaching rules and regulations.
    And these regulations are particularly onerous on small 
asset credit unions, which are subject to the same regulations, 
but struggle to adhere to these guidelines due to thin 
operating margins and small staffs. In fact, the vast majority 
of Ohio credit unions, 65 percent, are small credit unions 
under $35 million in assets.
    To give you a sense of the increasing regulatory burden, 
since 2008, Ohio credit unions have been subjected to more than 
160 new rules and regulations from 27 different Federal 
agencies.
    Additionally, there are at least 27 rulemaking proposals 
pending at various agencies, including the National Credit 
Union Administration, the Federal Reserve, the Consumer 
Financial Protection Bureau, the Department of Housing and 
Urban Development, the Financial Accounting Standards Board, 
the Treasury FinCEN, and the Federal Trade Commission, among 
others.
    Unfortunately, even though the natural person credit unions 
that I represent did not cause the financial crisis, they have 
been subjected to a flood of regulation that creates 
unnecessary burden without any measure of the effectiveness of 
the changes. With regard to examination standards and 
inconsistencies, the experience of the majority of Ohio credit 
unions is that the high standard of transparency and 
accountability expected of financial institutions is 
underwhelmingly practiced by the National Credit Union 
Administration (NCUA) during the examination process.
    Credit unions have voiced to the NCUA that their examiners 
are practicing regulatory micromanagement and overreach. Quite 
simply, regulators are dictating the business of operating a 
credit union.
    It is important that examiners not overregulate or exceed 
their authority and substitute their judgment for that of the 
volunteers and the executives in the governance, management, 
and operations of credit unions.
    While the relationship that I enjoy with my examiner is 
transparent, professional, and rooted in mutual respect, 
colleagues of mine have experienced the exact opposite.
    I urge the committee to consider improvements to the 
examination process. H.R. 3461, sponsored by the chairwoman, is 
a good step in that direction. It does address the examination 
process and is a positive step in balancing the relationship 
between the regulated and the regulator.
    It also provides for a more transparent and consistent 
examination process. And I know that the Credit Union National 
Association (CUNA), of which CSE is a member, supports the 
legislation and is working closely with the NCUA to incorporate 
examination enhancements and transparency.
    CUNA has also urged the NCUA to take several steps to 
improve the regulatory process and relieve credit unions' 
regulatory burden. I have submitted a copy of a letter from 
CUNA to NCUA Chairwoman Debbie Matz that recommends immediate 
actions to relieve overwhelmed credit unions.
    Credit unions have called on the NCUA to impose a 
moratorium on new regulations for at least the next 6 months, 
and have suggested that the agency reinstate the regulatory 
flexibility program which provides well-managed and well-
capitalized credit unions an exemption from certain regulations 
that are not statutorily required.
    Despite the issues caused by regulatory overreach and 
examination transparency, I am proud to say that credit unions 
continue to serve their members with responsible and affordable 
financial products and services. Over the years, credit unions 
have grown considerably and play an important role in local 
communities. In fact, research by the Credit Union National 
Association finds that credit unions save Ohio members $132 
million annually by offering better-priced, conservatively-
managed products and services. The not-for-profit cooperative 
model is working and, in my opinion, it is best suited to meet 
the needs of all Ohioans.
    I have submitted as part of my testimony examples of the 
Credit Union Difference in Action and how credit unions are 
helping Ohioans in today's economy through financial education.
    But credit unions can do more. With commonsense regulation 
that would essentially double the arbitrary cap on small 
business lending, credit unions can infuse $13 billion of new 
capital into small businesses.
    We ask that you support S.2231 and H.R. 1418.
    Similarly, H.R. 3993, which would allow well-capitalized 
credit unions to receive supplemental capital, a much needed 
financial resource as credit unions face a difficult revenue 
building environment and increased pressure to perform by 
regulators. Again, we ask for your support in that measure.
    We look forward to continuing to work with Congress to 
resolve issues facing community-based financial institutions. 
We ask that as you consider legislation in this arena, you 
regularly consult credit unions in your districts. We want to 
be a solution to the economic issues facing our State and 
country and we are here to help.
    Thank you for the opportunity to present to you this 
morning, and I am happy to answer any questions that you may 
have.
    [The prepared statement of Mr. Barnes can be found on page 
34 of the appendix.]
    Chairwoman Capito. Thank you, Mr. Barnes.
    Our next witness is Mr. Bill Blake, deputy general counsel 
of KeyBank.
    Welcome.

 STATEMENT OF WILLIAM J. BLAKE, DEPUTY GENERAL COUNSEL, KEYBANK

    Mr. Blake. Thank you. Thank you, Chairwoman Capito, 
Congressman Renacci, and Congressman Duffy. It is a privilege 
for me to be invited here today to talk about the Volcker Rule 
and the proposed regulation. KeyBank and other regional banks 
submitted a joint comment letter on the proposed regulation 
several weeks ago. The letter was signed by Branch Banking and 
Trust Company, Capital One, Fifth Third, KeyCorp, PNC, Regions 
Financial, Suntrust, and U.S. Bancorp.
    All of our institutions have one thing in common. Our 
primary mission is to serve our local communities by providing 
traditional banking services: deposits; loans; and trust and 
asset management.
    We are regional banking organizations who share the same 
concerns about the Volcker Rule. We are not the complex, 
global, interconnected businesses that Dodd-Frank was intended 
to address. Our organizations don't engage in proprietary 
trade, nor do we have any substantial interest in running hedge 
funds or private equity funds.
    Congress did not intend the Volcker Rule to unduly restrict 
traditional banking and customer-facing activities or impose 
substantial compliance burdens on banking organizations 
primarily engaged in traditional banking activities.
    The proposed implemented regulations too often take a one-
size-fits-all approach that results in unintended consequence.
    In today's testimony, I would like to highlight four areas 
in which the rule negatively affects our ability to serve our 
customers, manage risk, control costs, and avoid losses. We are 
concerned that the proposed regulation will actually increase, 
rather than decrease, the risks to safety and soundness of our 
organizations.
    First, the proposal hampers our ability to meet the 
liquidity needs of customers, especially small and middle-
market companies. We have long provided liquidity through our 
market-making activities and market-making operations. Small 
and mid-market companies have security issuances that are 
relatively small in size and traded less frequently than large 
companies.
    Under the proposed rules, our legitimate market-making 
activities and less liquid securities face a substantial risk 
of being improperly viewed as illegal proprietary trading. The 
implementing regulations need to ensure that issuances of small 
and middle-market companies are not disadvantaged compared to 
larger companies.
    Second, effective hedging and asset liability management 
activities are critical to the way we manage risk and ensure 
the soundness and safety of our institutions. The proposal 
fails to clearly protect bona fide hedging and ALM activities.
    Organizations like ours will operate in a continuous zone 
of uncertainty, unsure whether bona fide hedging and ALM 
activities and trades will, on an after-the-fact basis, be 
determined by an agency to constitute impermissible proprietary 
trading.
    Without the ability to execute our critical asset liability 
activities, banks may scale back even traditional lending if 
the risks associated with them cannot be appropriately hedged. 
Small and middle-market businesses, as well as municipalities, 
may see a reduction in lending and an increase in borrowing 
costs.
    Third, our organizations are committed to maintaining 
strong and effective compliance programs that are appropriate 
to the size, nature, and complexity of our organization's 
activities, but the costly, detailed programmatic compliance 
requirements of the Volcker Rule proposal go beyond what is 
appropriate for regional banking organizations that do not in 
any way, in a meaningful way, engage in trading that could be 
viewed as proprietary.
    We do not believe our organizations need such programs to 
prove a negative in the fact that we don't do proprietary 
trading. Instead, we think the Volcker Rule dollar threshold 
for a programmatic compliance program should be raised from $1 
billion to $10 billion. In fact, raising it to even $15 billion 
would still capture more than 97 percent of the total trading 
assets and trading liabilities of all U.S. banking 
organization.
    Finally, the rule requires banking organizations to divest 
existing legacy investments in private equity funds, subject to 
certain extensions. The purpose of this extended period was to 
allow banks to unwind these investments in an orderly fashion 
without the need for fire sales. Most of these investments 
provide capital to small and middle-market companies.
    All of the investments were legally made at the time they 
were acquired, but the Volcker Rule now requires us to dispose 
of all of them. The rules, as written, would likely result in 
forced sales of private equity fund interests at distressed 
prices, which would transfer significant value from the 
regulated banking industry to private investors.
    The rules essentially negate the availability of the 
statutory 5-year period for running off illiquid investments. 
The Volcker Rule provisions in Dodd-Frank are scheduled to go 
into effect on July 21, 2012, a little more than 3 months from 
now. The proposed rules generated over 17,000 comments from 
academia, Members of Congress, trade groups, public interest 
groups, and other interested parties.
    We and a growing chorus of other interested parties believe 
that substantial revisions to the proposed regulations are 
necessary.
    Accordingly, a final point I would like to make is that our 
regional banking group strongly supports the efforts being made 
by a bipartisan group of Senators, including Senators Crapo and 
Hagan, to delay the effective date of the Volcker Rule, and we 
ask you to support their initiative.
    Key, along with other regional banks who share our view, 
filed a comment letter with the agencies on February 13th to 
explain our concerns. I am submitting a copy of our comment 
letter with my testimony today. I encourage you and members of 
your staff to consult it to get a better understanding of the 
problems that we face.
    I sincerely appreciate the opportunity to testify today, 
and I especially thank you all for coming to Cleveland. We, the 
regional banks, are committed to helping restore our economy 
and we look forward to working with you.
    Thank you.
    [The prepared statement of Mr. Blake can be found on page 
60 of the appendix.]
    Chairwoman Capito. Thank you.
    Our next witness is Mr. G. Courtney Haning, chairman, 
president, and CEO of the Peoples National Bank. Thank you.
    Welcome.

STATEMENT OF G. COURTNEY HANING, CHAIRMAN, PRESIDENT, AND CHIEF 
EXECUTIVE OFFICER, THE PEOPLES NATIONAL BANK, ON BEHALF OF THE 
                      OHIO BANKERS LEAGUE

    Mr. Haning. Chairwoman Capito, Congressmen Renacci and 
Duffy, my name is Courtney Haning, and I am the chairman and 
present CEO of the Peoples National Bank of New Lexington, 
Ohio. I am also chairman of the Ohio Bankers League (OBL), and 
I am here speaking on behalf of its members.
    The OBL is the only trade association in Ohio representing 
the full spectrum of insured depositories, including mutual 
thrifts, community banks, and multi-State holding companies.
    Today, I am here to focus particular attention on the 
challenges facing community banks. While larger banks care 
about their customers, they do not share the same vested 
interest in my community that I do. In many cases, we are the 
only economic engine in the area we serve. If my customer is 
forced to leave because he cannot find a good job, I cannot 
follow him. So my bank must closely align with local needs. My 
expertise is that I am a close friend to my customers, which 
gives me added insight. This means I can make more loans safely 
than my bigger competitors that rely on mathematical models. 
Many successful businesses in Ohio started with a close call on 
a loan made by a community bank, which could say ``yes,'' 
because it knew its customer well.
    Unfortunately, this ability to exercise good judgment based 
on local market knowledge is being threatened by both recent 
regulatory burdens and inconsistent decisions by regulators.
    Most banks in the Midwest did not participate in the 
underwriting practices that contributed to the recent 
recession. Sadly, however, we are paying for the past through 
costly new regulatory burdens, anxious examiners, and customers 
who are unwilling to borrow. These remedies are hitting all 
segments of our financial statements, as costs are going up, 
opportunities to earn revenue have been curtailed, and the 
amount and cost of capital we need is increasing.
    I know that your subcommittee has heard a great deal about 
the issue of too-big-to-fail. That is an important problem. 
However, today, I would like to talk about whether, under the 
new environment, community banks have become too-small-to-
survive. While we see the cumulative effect of new regulations 
and exam procedures, community bankers are concerned that 
policymakers don't understand that we don't have the same 
resources to meet new compliance demands as multi-State banks.
    There are numerous new recordkeeping burdens set to take 
effect. For example, under the rules proposed by the SEC, banks 
will have to register as municipal advisors just to offer the 
same deposit and loan services we have always provided to local 
governments.
    The goal of the new statute was to provide oversight for 
advisors that fell in gaps between the banks and security 
regulators, not to duplicate oversight for banks that are 
already regulated.
    Yet, the proposed rule will add to our overhead without 
providing additional protections for consumers.
    Examiners have a hard job that is made even more 
challenging in difficult times. Yet, there can be no doubt that 
examiners are becoming more rigid, leaving less room for 
judgment. This is particularly detrimental for local bankers, 
since our competitive advantage is our knowledge of that local 
marketplace. If the examiners take away that flexibility 
through a one-size-fits-all approach, it will handicap our 
ability to compete.
    For example, while fighting discrimination is an important 
goal of government, as a result of recent changes, we are now 
hesitant to loan to long-time customers if they do not qualify 
based solely on objective criteria.
    Now, everyone has to fit in a box. If the customer doesn't 
fit, yet we approve the loan, that borrower becomes an 
exception. If we create such an outlier, we must justify the 
reasons for making the loan.
    Our examiners will demand similar exceptions for outliers 
in a protected class or the bank risks referral to the 
Department of Justice for prosecution. As a result, bankers 
stopped making exceptions.
    All banks and customers are different, so that it does a 
great disservice for examiners to create a one-size-fits-all 
approach.
    Finally, I would like to thank you for introducing H.R. 
3461 to restore consistency to the bank exam process. We would 
encourage you and your colleagues to follow through and see 
that the good ideas in the proposal become law.
    I believe bankers and examiners still want the same thing: 
a healthy, vibrant, competitive banking system.
    H.R. 3461, the Financial Institutions Examination Fairness 
and Reform Act helps all parties achieve that goal.
    In conclusion, I sincerely appreciate the opportunity to 
testify here today, and I would like to thank the Members of 
Congress and their staff for coming to my home State to gather 
information on issues of vital importance. Banks have served 
this country well and will continue to provide a significant 
engine for economic growth and job creation if we are allowed 
to perform without excessive regulatory burden or inconsistent 
examination oversight.
    We would urge the House of Representatives to continue on 
the path they started at the beginning of the 112th Congress. 
Hold bank regulators, including the CFPB, accountable for the 
cost of compliance and ensure that the layers of regulation do 
not accumulate to the point where it is no longer feasible for 
community banks to continue to serve their local markets.
    Thank you.
    [The prepared statement of Mr. Haning can be found on page 
92 of the appendix.]
    Chairwoman Capito. Thank you. Our next witness is Mr. Steve 
Fireman, president and general counsel, the Economic and 
Community Development Institute.
    Welcome. Thank you.

STATEMENT OF STEVEN FIREMAN, PRESIDENT AND GENERAL COUNSEL, THE 
          ECONOMIC AND COMMUNITY DEVELOPMENT INSTITUTE

    Mr. Fireman. Thank you, Chairwoman Capito, and Congressmen 
Duffy and Renacci. Thank you very much for having us.
    On behalf of the board of directors and staff of the 
Economic and Community Development Institute (ECDI), we want to 
thank you for hosting this conversation regarding the 
challenges faced by Ohio's community-based financial 
institutions.
    The Economic and Community Development Institute is a 
501(c)3 nonprofit economic development organization, U.S. Small 
Business Administration intermediary microlender, and a U.S. 
Treasury-designated community development financial 
institution.
    Since 2004, ECDI has made $10.5 million in loans to around 
550 local small businesses in central and southwest Ohio 
creating and/or retaining approximately 1,650 jobs. Because of 
our success in central and southwest Ohio, ECDI has recently 
been approached by funders and stakeholders in the Cleveland 
area and asked to expand our microenterprise development 
services to northeast Ohio. The organization will open a branch 
in Cleveland in July 2012.
    In addition to filling the gap in the credit industry by 
offering loans ranging from $500 to $100,000 to small local 
businesses through our revolving loan fund program, ECDI 
addresses the needs of very small business owners in the 
creation and expansion of small business.
    Challenges: Our challenges are quite different than some of 
the challenges that are being discussed today. However, our 
popularity is a direct result of the challenges being discussed 
by the witnesses today. There is no doubt about that.
    First and foremost, we are faced with the challenge of 
demand for capital. As one of the few microlending 
organizations in Ohio, there has been an increased demand for 
ECDI to make business loans. As a young and dynamic 
organization, ECDI is committed to scaling up to meet the 
increasing demand. Since 2009, ECDI has demonstrated consistent 
and dramatic growth in the amount of loan capital disbursed and 
the businesses served.
    In addition to seeing increased demand in our central Ohio 
market, ECDI has expanded our services from 7 counties, when we 
were doing business in 2009, to 49 counties currently at the 
request of stakeholders, including SBA, the Ohio Department of 
Development, and the aforementioned Cleveland Foundation. The 
surge in demand for small business loans, as well as the 
geographic expansion, has caused some challenges for EDCI.
    The first challenge we have faced is keeping up with demand 
for capital. At the end of 2010, EDCI's loan funds were nearly 
100 percent deployed. EDCI faced this challenge head-on by 
creating an investment instrument approved by the Ohio 
Securities Commission called Invest Local Ohio.
    Invest Local Ohio gives community members the opportunity 
to invest in small business by investing in EDCI. Every dollar 
invested in the Invest Local Ohio fund is loaned to Ohio small 
businesses and leveraged with at least two more dollars from 
other existing ECDI loan funds. ECDI investors receive a 2 
percent return on their investment for a 3-year note, and a 3 
percent return on a 5-year note. Challenge number two is 
related, but a little bit different. It involves demand on our 
capacity. This challenge is caused because, in addition to 
outreach, assessment, training, processing, and servicing 
loans, ECDI's model differs a bit from the banks and credit 
unions in that we commit to provide ongoing technical 
assistance to our portfolio beginning with the loan and 
continuing throughout the life of the loan. We like to tell our 
customers that when you do a loan with us, it is like getting 
married; you are not going to get rid of us.
    This is critical to building successful businesses and, 
therefore, we proactively work with clients to keep a healthy 
portfolio.
    This is also very, very costly. As an SBA intermediary 
microlender, ECDI receives a yearly allocation of technical 
assistance funds to spend time with our clients on building 
strong business and capacity. This is very valuable, but 75 
percent of the funding is restricted to working with the 
clients only after the loan is closed. Not only is this a huge 
compliance-related burden associated with allocating and 
tracking staff time, but very little of the SBA technical 
assistance allocation is able to be used in working with 
potential loan clients before the loan is closed. And none of 
the funding is able to be used for general loan administration 
such as underwriting, processing, and servicing.
    Another challenge that we have is the unpredictability of 
Federal funding. I don't think I need to say much more about 
that, actually. But it is enough to say that, every year, we 
have to compete for our Federal funding, CDFI and SBA money, 
which is okay. We appreciate the competition. However, it is 
just a difficulty in building an organization to scale when you 
have to plan year-by-year, as opposed to a few years out.
    Another challenge that we face, and this is very different 
from the other banks sitting at the witness table with me 
today, is that the philanthropic communities are not wired to 
think about small business development as a viable target for 
their dollars.
    According to a report from the Foundation Center entitled, 
``Spotlight on Economic Development Grantmaking in Ohio,'' 
although the amount of dollars granted to economic development 
initiatives by foundations in Ohio increased by 152 percent in 
the period of 2005 to 2008, grants specifically targeted 
towards small business development decreased by a third.
    Another related challenge or similar challenge has to do 
with State economic development initiatives. Just as 
traditional philanthropy is not wired to understand the 
importance of small business development, the majority of 
Ohio's sponsored economic development initiatives are not wired 
to understand the importance of microenterprise development. 
Instead, they focus time and money on traditional economic 
development strategies such as attracting and retaining large 
corporations.
    Start-up initiatives that the State does put their money 
into, such as Ohio's Third Frontier Program, benefit the high-
growth technology sector. While this is crucial and it is very 
valuable, it neglects a large portion of Ohio's potential 
employers: small businesses that employ five or less employees.
    As a result, we have to spend a lot of time screaming and 
yelling and trying to get in front of the Ohio Department of 
Development, and now Jobs Ohio people, and explain our story 
and why small business, really small business development is 
crucial for job creation. Without continued Federal support and 
education on the State level, microenterprise will not have the 
opportunity to create the jobs that we have the potential to 
create. As you can see, with each challenge, we try to look for 
creative ways to continue to meet the capital demands of Ohio 
entrepreneurs and microbusinesses.
    Thank you for the opportunity to communicate these 
challenges we face in serving small business. I hope this 
testimony is useful as you return to Washington.
    One other example I would like to give on a regulatory 
burden is, we were the recipient of Small Business Loan Fund 
dollars, SBLF dollars, a small allocation in the form of a 
loan, a low-interest loan, which is how we get a lot of our 
capital, like SBA capital and/or bank capital.
    And it seemed like a good idea at the time. It was 
$203,000, which we deployed to small business. However, the 
process took approximately 6 months. We had auditors in from 
three different States, which is probably all good shepherding 
of Federal dollars, but--and then the closing. I went back and 
forth with the closing attorneys from New York 16 times to get 
to the actual deal closed.
    So I can imagine that our $203,000 loan probably cost--I 
don't even want to think about what it cost. But it was quite 
an expensive deal.
    I think that demonstrates some of the regulatory burden 
that we face, as well.
    Thank you very much.
    [The prepared statement of Mr. Fireman can be found on page 
88 of the appendix.]
    Chairwoman Capito. Thank you.
    And our final witness is Mr. Martin Cole, president and 
chief executive officer of the Andover Bank.
    Welcome. Thank you.

  STATEMENT OF MARTIN R. COLE, PRESIDENT AND CHIEF EXECUTIVE 
                   OFFICER, THE ANDOVER BANK

    Mr. Cole. Thank you, Madam Chairwoman, Congressman Duffy, 
and Congressman Renacci. Thank you for bringing this hearing to 
Ohio, and for your invitation to testify today.
    My name is Martin Cole. I am present CEO of the Andover 
Bank. We are a rural, State-chartered community bank with $330 
million in assets, which has been in existence since 1884. I 
have been there for 36 years. Viewed from enough distance to 
gain perspective, the structural flaws in our financial 
regulatory system are clear.
    In the early 20th Century, the average consumer or small 
business only had one resource for financial services, a bank. 
Thus, policymakers viewed banks as vital to the public's 
interest and Congress enacted safeguards. Deposit insurance and 
on-site regular examination provide two examples. Please note, 
banks pay the entire costs for both.
    The marketplace constantly innovates. Active regulation can 
impede innovation. If one path is blocked, the marketplace will 
blaze another. Significant government costs for banks pushed 
the marketplace to invent non-banks to avoid these costs.
    Simply put, bank supervision is far more intrusive and 
expensive to banks than government regulation is to any of our 
non-bank competitors.
    Let me try to reinforce the public policy importance of 
equivalent regulation with an Ohio example. Leading up to the 
collapse of the housing market, Federal mortgage lending laws 
theoretically applied to mortgage brokers, but in Ohio, no one 
enforced those laws.
    As a result, Ohio suffered from rampant predatory lending 
as criminals and charlatans slipped through the enforcement 
gap. When Ohio belatedly licensed brokers, its process included 
criminal background checks. As I understand the numbers, an 
estimated 2,000 brokers, who had been operating, never applied 
for licenses. Of the roughly 10,000 who did, 14 percent were 
found to have criminal backgrounds.
    My bank's primary marketplace is a single county. For my 
bank to prosper, I must invest in the communities we serve. As 
a small bank, my sustainable competitive advantage is that I 
can know my customers. Thus, I can safely make a small business 
loan that another bank, relying only on credit reports and 
credit scores, would rationally deny.
    Across Ohio, there are thousands of successful businesses, 
some grown large, that exist because of the initial insights 
and hands-on help of a community banker. For that process to 
work, the regulator must allow us to use informed judgment.
    Today, what I hear from peers is that they feel that bank 
examiners are not allowed to respect the judgment of skilled 
bankers.
    Let me be clear that I believe the financial services 
industries should and must be regulated. I have enormous 
respect for my regulators. Their job is very important and 
very, very difficult.
    Let me turn to consumer regulations. As a community banker, 
I will succeed or fail based upon my reputation. We have 
powerful incentive to work very hard at treating our customers 
fairly and helping them make decisions that are best for them. 
We understand there are bad guys in the marketplace and that we 
need consumer protections.
    However, for a smaller bank, every change in a regulation 
imposes real cost and distracts my colleagues from our 
customers. That is okay if the consumer gets a benefit that 
outweighs the cost, but far too often, he or she does not.
    The Ohio Bankers League, which represents Ohio's banks and 
savings and loans from the smallest to the largest, operates an 
on-line exam evaluation system. This system is new. Its purpose 
is to provide useful feedback to agencies to help them improve 
their procedures and training.
    Evaluations of recent exams give cause for concern. Forty-
two percent of the participating banks reported that their 
examiners were neither flexible nor open to the exchange of 
views. Less than half of the banks believe their examinations 
have resolved issues and recommended corrective actions in a 
fair and reasonable manner.
    I would commit two bills pending before the House.
    The first is H.R. 3461. We are encouraged by its clear 
focus on timely, fair, and effective examination.
    Finally, while I understand that H.R. 1697 content is too 
diverse to be considered by a single committee, I would ask for 
your review of those provisions under your jurisdiction. Please 
understand that redundant regulation or regulation designed for 
larger, more complex institutions can severely harm the ability 
of a small bank to respond to the legitimate needs of its 
community.
    I want to specifically thank Congress for recently raising 
the SEC's shareholder threshold from 500 to 2,000. That single 
change will make it far easier for smaller banks like mine to 
raise capital in the future.
    We have 460 shareholders. We have a list of individuals who 
would like to buy our stock. We can now proceed with capital 
expansion plans without fearing costly additional regulatory 
requirements. Thank you.
    In the movie, ``It's a Wonderful Life,'' George Bailey had 
a crazy Uncle George who unintentionally and inadvertently 
almost destroyed the financial institution he loved.
    I have a crazy uncle, also. His name is Uncle Sam. I 
believe he has inadvertently and unintentionally destroyed 
community banking. Maybe you can be my Clarence.
    I am grateful for your interest in Ohio and its 
communities. I would be happy to respond now or in the future 
to any questions you may have.
    [The prepared statement of Mr. Cole can be found on page 82 
of the appendix.]
    Chairwoman Capito. Thank you. Thank you all very much for 
your testimony. I think we have a good variety of witnesses 
here, so I think we can get some good questions. I am going to 
begin the question-and-answer portion.
    Mr. Blake, I want to ask you about the Volcker Rule. 
Knowing the complications of it, and I am glad you mentioned 
that the Senate was making a move to postpone this, but there 
has been a rush to get this onto the books and sort of in the 
barn.
    But the question I have is, you talked about safety and 
soundness. What are the compliance costs? You mentioned 
disproving a negative, so disproving that you are not engaging 
in this. Have you been able to calculate what the compliance 
costs would be to KeyBank? Have you already hired people to try 
to meet these challenges?
    Mr. Blake. We have not. We are waiting for more guidance on 
the final rule and where it would wind up.
    The proposed rule would certainly require us to, in my 
view, at least hire a full-time compliance officer for nothing 
other than the Volcker Rule.
    But the reach of the Volcker Rule is so extensive that it 
requires significant record-keeping, significant analytical 
work, significant testing that the compliance program that is 
part of the rule has, I think, about 24 different statistical 
analyses that banks have to perform. Fortunately, we don't fall 
into the biggest category, but we still would have to do a 
number of those.
    It is a little bit difficult without more guidance from the 
Federal regulators to know exactly how much it is going to 
cost.
    But, for example, we have to identify every single trading 
desk, and that is every area where there would be a trade made. 
So we have a broker dealer, for example, that does marketing. 
We have a treasury group that does asset liability management. 
Each of those desks has to have procedures and policies. Each 
of the trades has to be identified and tracked. And on an 
after-the-fact basis, regulators will come in and let us know 
whether any of that activity is proprietary trading.
    Chairwoman Capito. Thank you. There has actually been a lot 
of criticism, too, about the international implications of what 
this rule could mean to our financial institutions.
    I want to get to--I think Mr. Haning and Mr. Cole mentioned 
this in their testimony. I was at a small bank in my district 
over the holiday, and this whole theory, or not theory, but, I 
guess--I don't want to say fear, because that might be too 
strong, but consequence of community banks sort of being swept 
under and, really, being forced to either merge or be acquired 
because you meet the compliance costs, is really going to, I 
think, endanger that one-on-one personal relationship. Your 
bank has gone back, what did you say, 200 years--
    Mr. Cole. Since 1884.
    Chairwoman Capito. Yes, 1884. I am sure you have 
relationships with probably everybody in your community and 
know a lot of the folks in your communities.
    In my bill, in the examination bill, we are trying to get 
the consistency in there, the timeliness of it, the ability for 
you to have questions answered and to appeal certain decisions.
    Have you in your experience through your examinations, 
tried to appeal decisions that have been made? And what has 
been the result of that? Not yes or no, but really, do you have 
any frustrations with that, I guess is what I am asking?
    Mr. Cole. Not specifically in the safety and soundness 
area. We do in the compliance area, and we have just recently, 
because of the time period between examinations, the 4-year 
period. And my discussion with the policymakers at The Federal 
Reserve was that there was too much of a gap in communication, 
a lack of understanding of what they wanted versus what the 
regulations state, because there is a lot of nebulous 
interpretation under the guise of fair lending.
    As an example, I have been forced to go out and hire a 
full-time compliance officer with salary and benefits of about 
$60,000 a year.
    We are currently employing the services of a consultant at 
$1,200 a day. They are spending about 2 days a week in there; 
just coming in, assessing what we need to do, trying to 
interpret the--in anticipation of rules coming from the CFPB or 
any other agencies.
    It is the uncertainty and the unknown that we most fear. 
And our bank is doing quite well. We are coming off of our 
third consecutive year of record earnings. So it is not that we 
are struggling in this market. The concern is the future.
    This afternoon, when I return to the bank, I have an 
appointment with a gentleman from a much larger banking 
institution to discuss the possibility of merging.
    So it is an option we have to consider for our 
shareholders. Unfortunately, it would be a huge loss for our 
particular area because of the services we provide.
    Chairwoman Capito. What county are you in?
    Mr. Cole. Ashtabula County.
    Chairwoman Capito. Which is up to the east?
    Mr. Cole. The very northeastern part.
    And we have the number one market share in Ashtabula 
County. We are a significant financial institution playing a 
significant role in our community, and it would be a tremendous 
loss.
    But the reality is, what we see in the headwinds of 
compliance, based on our size, we feel we have to generate a 
larger size in one fashion or another to absorb the cost just 
to meet regulatory compliance.
    Chairwoman Capito. I am going to move on to Mr. Renacci. I 
will get back to you, Mr. Haning, in our second round.
    But I am sure this will give you great comfort to know that 
one of the top 10 fastest-growing occupations in this country 
is compliance officers in the financial institutions, 
compliments of Dodd-Frank, I am sure.
    Mr. Renacci is recognized for questions.
    Mr. Renacci. Thank you, Madam Chairwoman.
    I do want to thank all of you for being here. After 
listening to all your testimony, it continues to reinforce some 
of the concerns that I have over regulations.
    And, Mr. Fireman, your comments about certain 
unpredictability. Without uncertain predictability, things get 
frozen up, too. So I appreciate that.
    I will open this next question up to anyone on the panel. 
Secretary Geithner has stated that FSOC will coordinate an 
interagency review to identify and eliminate regulations that 
are outdated, unnecessary, or unduly burdensome to insure 
depository institutions. Have your trade associations been 
active participants in this process based on the agency's work 
to date?
    Should we be optimistic that their efforts will yield 
constructive recommendations for reducing regulatory burdens 
that your institutions face?
    Again, anyone on the panel who would like to address that?
    Mr. Haning?
    Mr. Haning. I can't say that I have seen any efforts on our 
part of our association. Unfortunately, it sounds like a little 
bit of government rhetoric.
    I am sure they don't want anything to happen that would 
cause undue harm to the financial institutions in Ohio or 
across the country, but in the efforts, obviously, from Dodd-
Frank and the interpretation of much of what we have yet to 
see, I can't see the efforts of reducing burden, more so of it 
increasing.
    Mr. Barnes. Congressman, if I could respond to that, also?
    Our association works diligently to work with all of the 
agencies, whether that is reviewing new rules and regulations 
on behalf of credit unions and then filing comment letters with 
respect to all of those on potential consequences or 
alternatives or things like that. So, our association certainly 
has.
    What we hope the outcome of that will be is to bring an 
element of common sense back into this regulatory process to 
eliminate those things that are of no value, that simply 
increase cost, and minimize the ability of local financial 
institutions to serve consumers, and to restore some common 
sense to the process.
    My colleague from Andover Bank--that is $350 million, if I 
understand that correctly--just spoke to you about the 
incredible amount of effort that they have to input to comply 
with that. And as I said in my testimony, 65 percent of credit 
unions are $35 million or less. That is one-tenth of his size. 
So you can imagine complying with those same rules.
    So, we certainly are hopeful that any process to minimize, 
streamline, and eliminate burdensome and duplicative 
regulations will be successful, and we will do anything we can 
to help.
    Mr. Renacci. Mr. Blake, I am going to come back to the 
Volcker Rule. The Volcker Rule was championed as an easy 
solution. Simply stop banks from taking excessive risk with 
federally-insured deposits and we would have all the answers. 
The argument was that banks could not engage in proprietary 
trading and financial systems would be safer. However, 
reinstating a 1930s regulation in today's complex financial 
world, of course, has proven to be very, very difficult.
    When regulators went to draft the so-called easy fix, the 
result was a 298-page proposal that included more than 1,300 
questions seeking comments on nearly 400 topics.
    Defining proprietary trading is not an easy task, is it? 
Why is it so complicated?
    Mr. Blake. I think it is complicated because while, in 
fact, I believe Mr. Volcker himself said that proprietary 
trading is one of those things that you know it when you see 
it, but, otherwise, it is very difficult to detect.
    I think the difficulty is that when Congress and when 
regulators think of proprietary trading, they think of the 
larger institutions, the money center banks, the investment 
banks. And those institutions had proprietary trading desks. 
They gave their desks a certain credit limit, a certain dollar 
amount limit, and allowed them to trade for the firm itself. 
So, they were buying and selling securities, derivatives, 
credit default swaps, and making money or losing money for the 
institution.
    Most banking institutions never did that. Most banking 
institutions focus on their core business, which is providing 
deposits, loans, and other traditional banking services.
    Mr. Barnes used a phrase earlier that I think is really 
appropriate here. He called it ``regulatory micromanagement.'' 
That is really what we see with the Volcker Rule. What the 
agencies are doing is trying to find proprietary trading in 
every nook and cranny.
    So if we are engaged in asset liability management, for 
example, and we have a fixed-rate loan portfolio that we are 
trying to hedge, if we don't do a perfect hedge, we make money. 
And, oddly enough, making money is one of the indicia of 
proprietary trading.
    So it is micromanagement, overregulation, but certainly 
micromanagement of the individual pieces of our business that 
make proprietary trading and the Volcker Rule so complex.
    Mr. Renacci. Just a quick follow-up, and you said this in 
your testimony. In addition to raising costs, how could the 
proposed rule actually increase the risk to a financial system?
    Mr. Blake. If we are not able to do asset liability 
management, that leaves us exposed to risk.
    And, it is an old system. We take in deposits at one rate 
and make loans at another rate, and the difference is the 
spread where we make our money.
    When we make fixed-rate loans, we have to hedge against the 
possibility of interest rates raising. When we make variable 
rate loans, we expect interest rates to drop, and we may hedge 
that. So we have a fairly complex and fairly sophisticated 
asset liability management system.
    What the Volcker Rule does is require us to look at that 
after the fact and say that, if our hedges were not perfectly 
correlated--the phrase that the regulation uses is ``reasonably 
correlated to the risk.'' But the problem with the regulation 
is, it looks at it in hindsight. If we weren't able to predict 
the degree of increase in the interest rates or the timing of 
the increase in the interest rates, our hedges may actually 
make us money. And curiously enough, that would, again, be 
indicia that we are engaged in proprietary trading.
    And that is why I say one of the fundamental problems with 
it is the regulatory micromanagement; getting into the nitty-
gritty of asset liability management and looking at it on an 
after-the-fact basis.
    Mr. Renacci. Thank you. I yield back.
    Chairwoman Capito. All right. Mr. Duffy?
    Mr. Duffy. Thank you.
    I come from a rural part of Wisconsin. I grew up in a town 
that has roughly 2,000 people. The bigger Wall Street banks 
necessarily weren't participating in my community. We had 
credit unions and small community banks.
    I have spent my adult life in smaller rural parts of 
Wisconsin, and I have had an opportunity to deal with the 
smaller banks, and I have had a chance to deal with the larger 
institutions. And the larger institutions do good work, but I 
guess I see the value that the smaller banks provide in the 
rural areas across America.
    And one of my concerns is that the rules and the 
regulations that are coming out have a disproportionate impact 
on the small credit unions and the smaller banks as compared to 
larger Wall Street banks.
    And I guess, if you look at the background as to why we are 
seeing all these rules and regulations, it might be from some 
of the bad actors that Mr. Cole referenced, but, also, some of 
the behavior that has taken place on Wall Street and not 
necessarily the behavior of the financial institutions that are 
before us today. But the smaller institutions that didn't have 
that role in the crisis are bearing the brunt of the new rules 
that are now coming out.
    Am I misguided in my comment or analysis on how I am seeing 
this?
    Mr. Barnes. No. I think you are dead on, Representative 
Duffy. We certainly believe that what you are stating is true. 
You are exactly right.
    Credit unions that I represent had no impact or cause or 
weren't a cause of the financial crisis, but, yet, we see 
regulations being written to the lowest common denominator.
    And our credit unions have always worked--as have many 
community banks--with people to try to get to know them, to 
treat them on a one-to-one basis, to give them a fair and 
honest deal from the very beginning without ever beginning told 
to by Congress or a regulatory agency.
    But the problem is, with the regulations, when they are so 
onerous and designed to curtail certain awful behaviors that 
created such a problem, that there are so many unintended 
consequences that we see that inhibit a small credit union's, 
or any credit union's ability to continue to provide that 
working one-to-one relationship without a huge burden of 
regulatory experience.
    So we believe you are right on target.
    Mr. Haning. Congressman Duffy, I agree wholeheartedly.
    I am from southeastern Ohio. My financial institution is 
$110 million, so I am about a third of the size of these guys 
to my left and right.
    I also had to go to a full-time compliance officer, $50,000 
plus benefits, which, prior to 5 to 7 years ago, was about a 
third to a half position. Twenty hours a week would be max for 
compliance, and now I have a full-time compliance person. Plus, 
I pay for an outside audit to check the rules and regulations.
    Unfortunately, community banks get caught in the trickle-
down effect of rules and regulations that are set for larger 
financial institutions. They have a rule.
    They have a good position.
    I have a large institution one block to the left of my main 
bank, and a large institution one block to the right of my main 
bank.
    They both offer the same products that I do. They are 
mandated by law. They set the price for lower standards or 
lower pricing. Where is your customer going to go? Is he going 
to go to the big buy at the lower price or come and see you and 
pay more?
    So we, in effect, through trickle down, have to comply with 
rules and regulations that are set for all financial 
institutions.
    A good examples of that is the debit card fee structure. We 
were mandated in the amount that we could charge for processing 
debit card transactions. We complied. We made some noise and 
squirmed a little bit, but we complied. With some mediation, we 
got the price upped a little bit, but still below the cost of 
doing business. The merchant has taken that and run.
    Home Depot and Fortune 500 companies are announcing to 
their shareholders that they are going to have increased 
earnings from debit card fees. They are not passing it onto the 
consumer.
    So while the middle man had good intentions, it never got 
to the bottom-line consumer. Those are issues.
    We also have the same issues with the examination process. 
My bank is on an 18-month cycle. Over the last three exams, I 
have seen a force of examiners come in. Completely different, 
new faces. I had some disagreements.
    We are a highly-rated, well-capitalized financial 
institution. My earnings have stayed the same over the last 3 
years because of increasing expenses.
    I had the opportunity to have to call a district office. I 
had some discussions with them, didn't get the answer that I 
wanted or I thought was appropriate. Finally, I ended up 
talking to the people in Washington. So, the next exam came in. 
I had a whole new team. We had a wonderful examination and--but 
some consistency, I guess, is where I am going with that. I 
think the biggest problem we face is not knowing what to expect 
when they walk in the door, and then sitting there not knowing 
when we are going to get the report back.
    Mr. Duffy. I have heard the same thing in Wisconsin.
    But to the point of--if you look at the small institutions 
and the impact that it has on that institution, the new rules 
and regulations, as compared to a larger financial institution, 
is it fair to say the larger institution has a broader base to 
defray those costs over, as opposed to a smaller institution 
and, therefore, the burden isn't equally worn by the larger and 
the smaller institutions? It is unfairly placed on the smaller 
institution. Is that not right?
    Mr. Cole. Absolutely. And your presumption of what exists 
out there is exactly right. Many legislative individuals have 
indicated that same thing to me.
    And even at the beginning of the crisis, my own 
Representative, my own Senator told me, ``Marty, we understand 
you are not the cause of it. We will make sure that this 
doesn't impact you.''
    We were in Washington last month. We spoke with Governor 
Raskin of the Federal Reserve. She also indicated her 
understanding and sensitivity to the community banking 
industry.
    I have read many articles about--stating, again, this 
sensitivity to the community banking industry.
    I think there is a feeling of sensitivity towards our 
industry and, again, an appreciation and, I think, truly a love 
for our industry by the public and, I feel, by Washington.
    The disconnect is in its execution. The policymakers, I 
think, in theory believe that there should be some kind of 
different regulatory system for large and small institutions. 
They don't know how to execute it, quite frankly.
    And my complaint to Governor Raskin, my complaint to the 
policymakers here at the Cleveland Fed is the lack of 
understanding of the theoretical application of policy and the 
execution in the field. Again, the intention is not being 
carried out.
    My compliance examiner bragged about his years of 
experience of working as a compliance individual for a large 
bank. He was already biased by what he had known and seen at a 
larger institution and was expecting the same from us and, I 
think, was surprised at the lack of sophistication that we 
displayed. He didn't have the understanding of the differences 
in the different institutions.
    Many of the examiners, again, just don't understand how we 
can operate the way we are--safely, soundly, profitably--
without the sophistication. And quite frankly, it is 
challenging, but we are able to do it because it is different.
    I think that theory and philosophy is where it gets 
disconnected through the system because, obviously, it is a 
bureaucratic system.
    Mr. Duffy. To that point--I know I have to yield back in 
one second. But I think we do--it is true. There is an affinity 
for the smaller financial institutions.
    And I think we have seen the difficulty in saying, ``How do 
you structure one set of rules for a smaller institution as 
opposed to a larger institution?'' I think that can be 
problematic and there is a lot of struggle with that.
    But I think it then goes to the point that, if you continue 
to overregulate and have all of these different rules and do 
not use a scalpel to make sure you have reforms in place that 
actually address the lessons of the crisis, but, instead, you 
use that crisis to wildly expand government into this sector, 
the net impact is borne by the smaller institution, and I think 
that is what we are seeing, and trying to make sure we have a 
structure in place that allows that weight to be lifted off 
everybody.
    I think it allows you all to compete more effectively.
    I know my time is up. I will yield back.
    Chairwoman Capito. If you don't mind, we will do another 
round. I have a couple more questions.
    I wanted to ask, Mr. Fireman, you have mentioned in your 
testimony the unpredictability of the Fed funds, and then you 
mentioned two funds that you get funds from, the CDFI, and was 
the other one SBA?
    Mr. Fireman. Yes. SBA. We are a microlending intermediary, 
so we borrow money from SBA. And the uncertainty there is not 
necessarily the ability to borrow funds. That has been fairly 
consistent. As an intermediary, each organization or agency at 
any one time can borrow up to $5 million. That just got raised, 
as did the definition of a microloan from $35,000 to $50,000. 
So that has not been--knock on wood--the issue.
    The issue, though, is, a year later--each year, you apply 
for SBA technical assistance money. That is what I was 
referencing, concerning our ability to take care of our 
portfolio, other than unrestricted funds that we generate 
ourselves or raise or get invested.
    We have to apply--we use money that is a formula based upon 
dollars on the street, average size loan, and performance of 
the portfolio, all of which are fine.
    However, there are 180 of us applying for a certain amount 
of money, also. So that is what I was--
    Chairwoman Capito. Okay. I am interested in the economic 
development issues that you stated. Just briefly, what is the 
unemployment rate in Ohio? I know it is above the national 
average, correct?
    Mr. Fireman. It is somewhere around 8.5 percent.
    Chairwoman Capito. What kinds of businesses are you seeing 
expanding? I am certain they are all small, obviously. And are 
any of these--how does it shake out? Woman-owned businesses? 
Are there more woman-owned businesses growing? I am just kind 
of wondering if you have noticed anything like that.
    Mr. Fireman. Our portfolio consists of 44 percent woman-
owned businesses. We work with main street businesses. We don't 
work with tech companies.
    Chairwoman Capito. So, retailers mostly.
    Mr. Fireman. Retail, a lot of food-based businesses, local 
food-based businesses, transportation, home healthcare.
    Chairwoman Capito. It also has to do with healthcare.
    Mr. Fireman. And, some like tech service, business-to-
business service industries in general.
    Chairwoman Capito. Are there one or two of those that seem 
to have more growth potential in your mind?
    Mr. Fireman. We have seen some growth potential. A couple 
of our home healthcare companies have gone from 3 or 4 people 
to 60 or 70 jobs. And then some of the restaurants have grown 
to multi-location chains or the same owner who has several 
businesses, employing 40, 50, 80 people, as opposed to 5 or 6 
people.
    Chairwoman Capito. Let me just make a statement, and then I 
will ask you all to react to it. The CFPB was created, and 
Dodd-Frank itself was created to protect consumers, those who 
had been harmed. And Mr. Cole talked about some of the 
unscrupulous lending behavior, subprime loans, so we are 
certainly aware of that.
    My fear with everything that I have heard today, and I am 
seeing it in my district, Mr. Haning said you are no longer, or 
at least you are hampered now sometimes in the lending to your 
long-time customers because of the way they are rated or 
because of other issues.
    In the pursuit of extending consumer protection, we are 
really hurting or have the potential to harm those people who 
are falling in the questionable category. There are more of 
them. There is less availability of credit. Credit has 
tightened up.
    If you are spending $50,000 and you are spending $60,000 
for a compliance officer, that is $50,000 or $60,000 you are 
not lending on a car loan or a small business loan or whatever.
    And so, obviously, in the examination process, the riskier 
loans and the riskier consumer is going to be the one who is 
going to get shut down first because it is going to make your 
balance sheets and everything else in your exams look less 
favorable if you keep engaging in those kinds--am I going down 
the right path here? This is something I am very concerned 
about. And I am starting at the credit union, and we will just 
go down the line quickly, if you all want to make a quick 
statement.
    Mr. Barnes. Yes, ma'am. Certainly.
    Chairwoman Capito. If you have an anecdotal issue, that 
would be helpful to us.
    Mr. Barnes. Sure. As was referenced before, when certain 
loans don't fit inside of a box, those become exceptions.
    Our credit union has worked very hard over the last 7 or 8 
years to remove a lot of barriers in our lending policies to 
really reach out and serve every member in our community. We 
really take seriously the credit union mission to serve people 
of small means.
    Chairwoman Capito. Right.
    Mr. Barnes. But many times, those loans, and you can't have 
all of those. There has to be a balance. So we have developed a 
lending program that has allowed us to enter in and engage in 
that type of lending.
    But the issue for us is, the relationship we have with our 
examiner currently is positive. However, that can change. And 
with this not-on-my-watch mentality that exists amongst so many 
regulators when they come in, that is in jeopardy.
    I would hate to think of what Stark County, Ohio, would be 
like if it weren't for CSE doing the kind of lending that we 
are doing. We do it safely, we do it soundly, and we do it 
profitably. But when the rules change, or we don't know what 
those rules will be in the future, that certainly--
    Chairwoman Capito. Mr. Blake, I know you have a larger 
institution. Certainly, you have seen this?
    Mr. Blake. Yes. I would add, I think, one thing from our 
perspective of the larger institutions. We go through the CCAR 
process, the Comprehensive Capital Analysis and Review, which 
are those stress tests that are generating so much publicity.
    The stress tests apply a reverse economic scenario as to 
our existing loan portfolios and predict losses in the future. 
To the extent that our portfolio includes the lower-quality 
loans, the regulators project larger losses. Larger projected 
losses impact our ability to pay dividends or potentially pay 
dividends, to share buybacks or take other capital action that 
we think are necessary.
    So like the smaller institutions, we also feel the same 
pressure.
    Chairwoman Capito. Mr. Haning?
    Mr. Haning. Madam Chairwoman, a couple of issues. Number 
one, we do have money to loan. I know you have heard that on 
the trail, too. What we lack is consumer confidence.
    There are consumers out there who still don't have great 
confidence in the economy yet and they don't come in, or there 
are those people who just don't qualify. We have not increased 
our lending standards. They are the same as they were. We were 
conservative 7 or 8 years ago. We still are. It is just, the 
standards have not changed, therefore, less people qualify.
    The interpretation of the rules from legislators to 
regulators to the bank is an issue, which gets me to the point, 
you saw me shaking my head, of not-on-my-watch. We have Federal 
regulators from the OCC, now the CFPB, the Federal Reserve, the 
FDIC, who were jockeying for position at one time, so they were 
a little more stringent in their examination procedures, which 
causes you to pull in the reins a little bit.
    And the issues are such that, if we can't make loans, we 
can't make a return, we can't get the money to the capital line 
to grow the bank and to make mortgage loans.
    Chairwoman Capito. Mr. Fireman?
    Mr. Fireman. Our business--we were formed, and our mission 
is to help underserved, underbanked, and unbanked communities 
and make them bankable.
    What has happened over the last couple of years is our 
portfolio, or our originations, have gone from 70 percent 
start-up to 70 percent existing business. All of the things 
that the gentlemen are talking about have led to our bank 
partners, credit union partners, community bank partners 
referring us more and more of the customers who, historically, 
wouldn't have been exceptions, or maybe it would have made 
sense for them to work with, so they come to us. And what that 
does is, it has the unintended consequence for those who were 
actually formed to serve getting pushed out of the credit 
marketplace.
    We are in the business of providing opportunity and 
accepting risk, and that is why we get paid to do the technical 
assistance, that hand-holding that we do. And we still do that.
    It doesn't mean that all of the customers being referred 
are cherries or gems, but, by the same token, it does have an 
adverse impact on those we used to serve. So that is kind of 
how we see this whole--
    Chairwoman Capito. Mr. Cole, did you have anything to add?
    Mr. Cole. Yes. I just wanted to state that you are 100 
percent correct in that I think the intentions of the CFPB and 
others that are wanting to protect the consumer are going to 
have unintended consequences of the opposite.
    And, I believe that community banks operate very much, as 
my colleague from the credit union is. We are very similar. And 
I am very aware--my sister is the president and CEO of the 
largest credit union in our marketplace. We compete head-to-
head.
    Chairwoman Capito. That must make for great family 
relations.
    Mr. Cole. Interesting Thanksgivings.
    But, actually, we share a common goal, and that is to 
improve the quality of living in our county, which we both were 
raised and grew up in. We both dearly love it, and we both 
contribute back, her, in her way, and me, in my way.
    So I am very familiar with the credit unions and how they 
operate. We are very, very similar. Our focus is on everyone in 
that community, especially the underserved.
    And when you look at regulations, like the Community 
Reinvestment Act, the credit unions do not have to comply 
because they recognize that it is not necessarily given, how 
they function, but we have to comply. And, again, it is 
overburdensome because, again, the way we operate, we have to 
reinvest back in our communities. There are many regulations 
out there that simply do not apply to us by our inherent 
nature.
    And my recommendation would be--not that I want another 
regulator, God forbid, but instead of the CFPB--and Congress 
and Washington recognize the distinctive difference between the 
size of banks when they come out with $10 billion. I don't know 
if that is the number. But since I am trading under $30 
billion, I am okay with $10 billion. But, anything less than 
$10 billion should be treated differently.
    Now, our concern is that the rulings coming out of the CFPB 
are going to become best practices, just like the stress test 
of larger banks, are going to become best practices. Examiners 
are going to see these as best practices and apply them to us, 
as well.
    My recommendation would be: the establishment of a 
community bank regulator; that banks of a certain size are 
regulated by people who understand community banks; that we are 
not subject to the other regulations, but those established by 
a community bank regulator, made of panels and advisories of 
community bankers who can work through these execution issues 
and policy issues.
    Chairwoman Capito. I appreciate that. Before I turn the 
microphone over, I want to reiterate that consumer protection 
is a huge issue for all of us and for everybody sitting here, 
and you wouldn't still be in business if you didn't try to 
engage in good consumer protection. Striking that right balance 
is going to be difficult.
    Mr. Renacci?
    Mr. Renacci. Thank you, Madam Chairwoman.
    And it is interesting. Mr. Cole, I was listening to your 
comments, and I agree wholeheartedly. We had issues with the 
big banks, the big Wall Street banks, and what we have done is, 
we have thrown a blanket over everybody, which also includes 
some of the smaller institutions, which just isn't fair.
    So I kind of want to put a human face on this issue.
    There are some who say regulatory relief is really just 
shorthand for the desire of financial institutions to cut costs 
or avoid burdensome regulations.
    I remember 28 years ago when I came to Ohio, I went to a 
small institution. I had a good credit history. And I borrowed 
some money and started a business, and grew that business 
because a small institution believed in me and they believed in 
my background. They believed in my experience.
    So I question, for example--let's talk about the customers 
for once. How are we affecting Mr. Barnes and Mr. Cole and 
maybe Mr. Haning? Put a human face on that.
    Do you have those people, like I was 28, 29 years ago, who 
come to your institutions looking for that first step to employ 
people, to start a business, to engage in entrepreneurship and, 
all of a sudden, these regulations are stopping you from 
helping them?
    Mr. Cole. Absolutely. I, myself, own a business. I am a 
small business. Our bank is a small business. I am an 
entrepreneur.
    Before I became president and CEO, I was a commercial 
lender. I can tell you stories of many people who came to us, 
just like yourself, and we started them, and now are successful 
businesses employing numbers of people who wouldn't have gotten 
the start otherwise because other institutions wouldn't have 
seen the person and the character and what is behind the 
numbers. So as a community banker, growing up in the community 
and knowing people, there is a value there that extends beyond 
the numerical evaluation. So, yes.
    We have people coming today, and because of the way we have 
to rate loans--and I am still part of the credit committee. And 
I, as a former commercial lender, struggle when I hear my 
credit analyst and my loan people and my person in charge of 
loan administration say, ``Well, you know, if we make this 
loan, it is going to be immediately classified and we will have 
to reserve.''
    Seriously? And, yes.
    And so we struggle. We struggle with that. And given 
economic factors, we may not make that loan that, in my heart, 
in my day, had I been making that--I would have made that loan 
all day long.
    So, yes. That situation does exist.
    Mr. Renacci. I am sure my first loan would have been 
classified, too. That is the problem.
    Mr. Barnes, any comments?
    Mr. Barnes. Congressman, yes. Thank you.
    We do see many people with business opportunities who come 
to us looking for financing, who have been turned down by 
either banks or have had lines of credit terminated.
    Our credit union does do some business lending, but we are 
not involved at a huge level. So what we usually do is try to 
pass those referrals onto credit unions in our area that do 
provide that.
    But they all come with a similar story; they have gone 
elsewhere and they have either had lines of credits terminated 
or they are not able to get a loan, or what did qualify at one 
time no longer meets certain criteria or fits in that box. So, 
certainly, from the business standpoint, we see that.
    We also see it on the personal side, especially with 
residential mortgages. And I don't mean any disrespect to 
anybody on the panel, but sometimes some of the larger 
institutions don't have an interest in doing small mortgages.
    And a lot of it comes down to regulation. There is a ton of 
regulation and compliance that is involved in executing a 
mortgage for a member. And that cost and that level of 
compliance is the same on a $200,000 mortgage as it is on a 
$25,000 mortgage. So, we see many members coming to us with 
small mortgages. In Stark County, Ohio, there are a lot of 
repossessed homes that can be purchased for that amount of 
money.
    One example in particular, it was a young kid, 26 years 
old, no credit, but he was a good kid. In fact, my dad was an 
elementary school principal, and his mom taught school for my 
dad. This was a kid that she had, and my dad knew him from 
years ago. We were able to help him because of the personal 
relationship, which anywhere else, I don't know if that would 
have happened.
    Mr. Renacci. Mr. Blake, do you agree with that? I am going 
to put you on the spot, seeing that you are a bigger bank.
    Mr. Blake. I think, because of our size, we tend to be more 
statistically driven when it comes to making loans because our 
regulators tend to look at us and drive us statistically.
    We certainly try in our community branches to be the kind 
of personal lender that my compadres over here are, but, 
obviously, because of the size of the institution, we aren't 
always able to do it as well as they are in those kind of 
situations.
    Mr. Renacci. Mr. Haning, Mr. Cole, financial institutions 
often tell me they have no recourse when they have a dispute 
with the regulator, be it the FDIC, the OCC, or the Federal 
Reserve. In other words, the regulator is the judge, the jury, 
and the executioner for any dispute or disagreement in a 
regulatory examination.
    How could the appeal process be improved in your mind or 
your thoughts? And could the office also be strengthened to 
give it more substantial power?
    Mr. Haning. Congressman Renacci, I have a tendency to want 
to agree with that assessment, but I also feel like there is a 
process in place. The Ohio Bankers League also has a procedure 
in which we can do some things anonymously and have the 
association pass on the rule and regulation.
    It comes down to the point of, we need to make a conscious 
decision, is it worth the time and effort and possible 
retribution of disagreeing with an examiner, what the outlying 
results would be if we just let it go and try to comply. But 
having an opportunity or a process that understands is very 
critical. I think they have those things in place.
    I have not taken that process, so I can't address that 
specifically, but it is needed. There does need to be an avenue 
to share your findings without a specific name and number.
    Mr. Renacci. Just a quick follow-up, because you said 
something that is very important, possible retribution. Do you 
believe banks fear that, possible retribution? I know, a lot of 
times, they don't want to appear in front of a panel because of 
possible retribution, so--
    Mr. Haning. I don't think it is anything, yes.
    They will come in and they may dig a little deeper. They 
may find a particular area that they want to drill down on and 
find possible issues. So it is a possibility. I think, in 
general, it is not something that happens on a regular basis, 
but that is always a concern.
    Mr. Renacci. Mr. Cole?
    Mr. Cole. I think it depends on, from my perspective, who 
the regulator is.
    We are a State-chartered bank, so, thereby, we are 
regulated by the State of Ohio. John, who is in the audience, 
who is director of the department of financial institutions, 
individual financial institutions, we have a great relationship 
with him. If I have issues, I can pick up the phone and call 
John. So I think the relationship there is different than it is 
on the national level. From what I have heard from my peers, 
the SEC is a little different.
    I also have a good relationship with the Federal Reserve 
Bank here in Cleveland, and I know policymakers, and I can pick 
up the phone and call.
    If you are not--unfortunately, the way the system works, I 
think it is a matter of who you know.
    Also, the issue is, is there blood in the water?
    Unfortunately, what I have seen over my career is, once 
there is blood in the water in a bank, there is very little 
motive for the regulator to not be more aggressive. They are 
not rewarded on the basis of public interest in terms of making 
loans. They are not rewarded to see that banks--how much banks 
do in the community. They are rewarded on the--and I think they 
have gotten unfairly punished on this last crisis, so I think 
they took a beating. And so if I am in their shoes, what am I 
going to do? I am going to err on the side of being overly 
conservative because I am not rewarded to do otherwise.
    So if there is a situation out there where there are 
potential problems, I don't want my regulators walking away 
from that and not identifying everything.
    When there is blood in the water, yes, I think they can get 
overly aggressive, and I think the options for the individual 
banks are very limited. And, yes, I do think they fear that. At 
that point, having not been a CEO in that situation, but just 
surmising, if that were to occur, I would be very compliant.
    Mr. Renacci. That is an interesting analogy, blood in the 
water. I will remember that one. Thank you so much.
    I yield back.
    Chairwoman Capito. Mr. Duffy?
    Mr. Duffy. In regard to retribution, I hear a lot of my 
institutions telling me stories, but saying, ``Make sure you do 
not use my name. I don't want my name out there associated with 
the story I am telling you, and I don't want to go public. You 
can use it, but put a different name to it or leave it out.''
    Just maybe a little follow-up on the ability to make this--
is it a character loan, or is it, you said, informed judgment, 
and how that is now scrutinized. And I think Mr. Renacci made a 
good point. You had someone who was willing to make an informed 
judgment or look at his character and take a little larger risk 
on him. And I imagine, in all of our communities, our financial 
institutions being willing to make that kind of call have bred 
more success than failure, I would imagine. That is why you can 
do it and there are factors you can look at.
    I think that is one of the concerns that I continuously 
hear; you can't use your judgment as a banker to invest in a 
business where the owner has good character and is a good risk, 
because when the regulators come in, it will be classified.
    Is that basically what your point was, Mr. Cole?
    Mr. Cole. Yes. I did commercial lending for 20 years, and I 
think maybe I was luckier than I was good, because I had a lot 
of success. In the whole 20 years, I only had a few loans go 
bad, and I had many businesses prosper.
    And, yes, I used a lot of intuitive judgment and was given 
the flexibility at that time to do that, as long as I had a 
good rationale to support the loan.
    Today, it is not that way. The same loans that I made then, 
I would not be allowed to do today. And the document has to be 
supported numerically. Again, there is a grading system.
    And there is a heavy, heavy emphasis, a flawed emphasis, on 
collateral and collateral values that, to me, is a whole other 
subject in how this appraisal process is working.
    But, again, my evaluation of collateral in my community, 
which I probably know better than anyone, would not be able to 
be used.
    So there are a lot of things that have changed, and we have 
become more sophisticated. There is modeling that must be done, 
which has been going on in all aspects of the banking industry. 
And we saw in the crisis that these models fail. These models 
should never have replaced intuitive judgment, should never 
have replaced human intelligence. Unfortunately, those models 
are being used as the only intelligence.
    Mr. Duffy. Maybe just one other thought, and I will then 
yield back. Switching gears to the CFPB and consumer 
protection.
    One of the concerns we have had on our committee is, we 
have our basic standard of safety and soundness, and then, 
here, we have the CFPB with a different standard of consumer 
protection and, at some point, those may sing in unison, but at 
some point, they may be contradictory, which has led us to 
have, I think, a lot of concern as to how we are going to deal 
with safety and soundness and consumer protection.
    Maybe if I can, again, echo what somebody else said 
earlier, if you don't protect your consumers, if you are 
working your consumers over and treating them unfairly, they 
will go across the street to another bank or credit union and 
you do not stay in business for very long, unless you are one 
of the bad actors who are able to set up shop on the corner and 
engage.
    Have you thought through the consumer protection regulation 
side as opposed to safety and soundness? Has that had any 
points of concern for any of you?
    Mr. Barnes. It certainly has been a concern for credit 
unions. With respect to the CFPB, generally, credit unions 
support their mission. Taking care of and making sure consumers 
get a good deal is at the heart of what we do, what we have 
always done. So, we want to see that continue.
    And we also feel that the Director--certainly, we, in Ohio, 
have a good relationship with Mr. Cordray and we believe that 
he certainly intends to do the right thing.
    With that said, however, there are issues and concerns that 
we do have about the Consumer Financial Protection Bureau. 
First of all, the existence of a single director is troublesome 
for us. We would prefer to see a panel, similar to the NCUA 
board, and appropriate congressional oversight. We feel that is 
important.
    The other thing that we see about the Consumer Financial 
Protection Bureau is this: Credit unions have always given 
their members a good deal. I will say that over and over. And 
that is what the Consumer Financial Protection Bureau is in 
place to ensure.
    So, as they are looking at rules and regulations and 
processes, even though they are not in charge of the 
enforcement of the majority of credit unions, we still have to 
follow their rules. And any time rules change, while the 
outcome may be the same, and consumers, our members, still get 
a good deal, those new rules come along with an increased cost 
of compliance.
    And then the second thing is, we just don't want to see 
mission creep. We want to make sure that the Consumer Financial 
Protection Bureau really does what it was intended to do, and 
that is, take over the administration and enforcement of those 
rules and regulations, as opposed to adding new ones to the 
mix.
    So we are concerned about that, and we are keeping a close 
eye on it. But that is our position on that, sir.
    Mr. Duffy. Mr. Fireman?
    Mr. Fireman. I was just going to say, with regard to the 
CFPB, I had meetings last month with the Director and I 
discussed with him, not as related to us, but just concerns in 
various sectors that I have heard about the agency, fear. And 
his message was, ``Have them come talk to me. I am a reasonable 
guy.'' And I think everybody knows that he is. So, I just 
wanted to send that message.
    Mr. Duffy. And I have heard a lot of positive comments that 
the concern, when you set up an agency, will he be a lifetime 
appointee? Probably not. You will see other heads of the 
agency, which has raised some concern. But I think--is he in 
Mr. Stivers' district? Maybe I am wrong on that.
    And one of the other concerns that we brought up in a bill 
that I introduced was the fact that, if there is going to be a 
rule that comes up from the CFPB that is undermining safety and 
soundness, it can be overturned by FSOC with a supermajority 
vote.
    I just have a hard time believing that Mr. Barnes or Mr. 
Cole could make that appeal to FSOC; that a rule that affects 
you two negatively will then, therefore, affect safety and 
soundness in the country. I don't know if they are going to 
listen to you.
    But, in essence, if you are a bigger--and, Mr. Blake, maybe 
not even you. I think if you have a larger Wall Street bank, 
though, no doubt, they can make that argument.
    And, again, you have empowered those institutions that did 
not necessarily have other--those institutions that were 
involved in the crisis and have left voiceless those who didn't 
have any real role in the crisis with this agency that was 
supposed to address consumer protection.
    So, I appreciate you all coming in. And I don't know that I 
will get another chance to question you, but I appreciate your 
honesty and your willingness to share with us.
    I yield back.
    Chairwoman Capito. Thank you.
    Do you have any other further questions, Mr. Renacci? Would 
you like to make any comments?
    Mr. Renacci. Thank you. I am going to go back to the CFPB 
because I did ask Mr. Cordray, and Mr. Cordray is a good man, 
but I asked him a question last week or 2 weeks ago in a 
hearing, that he is walking into all of these examinations with 
an attorney. Can you all tell me what your thoughts are when 
the CFPB walks into your establishment--if they have, or if 
they haven't yet--with an attorney?
    Mr. Haning. Congressman Renacci, I would like to address 
that.
    I also met with Director Cordray last month in Washington, 
and I talked with one of their newly-hired employees who said 
their count was up to 100, and 87 of them were attorneys. So 
everybody in his group has a legal background.
    He also assured us that, for the best of the order, their 
regulation wouldn't affect community banks, but that is not the 
case, because what the examiners hear in the way of review 
trickles down to us in the terms of best practice.
    They don't need to learn six or seven different ways of 
reviewing the same type of loan, so they are going to use a 
best practice.
    And although we have a good relationship with Mr. Cordray 
and, once again, as my colleagues here said, we are not on 
board with their method of reporting, we do have concerns. We 
do have compliance issues. And if the best practice comes down, 
I think we are all going to be looking at the same regulations.
    Mr. Cole. Here is the analogy I would like to draw, in that 
I think you all remember when the Cuyahoga River was on fire 
and we couldn't fish out on Lake Erie, couldn't drink or swim 
in Lake Erie. And so, there was a need for an intervention by 
the government to put safeguards in place to protect the 
citizens. And having grown up in this area, I was all in favor 
of it. And now we have an opportunity with drilling in Ohio, to 
have a significant economic boom in my area. And we want to 
make sure that the EPA, again, acts responsibly to safeguard 
the citizens, and at the same time, allow for economic 
development.
    I see that same application as it applies to the CFPB, as 
the new EPA of the financial word. It has a purpose. There was 
damage that was done. There were consumers who were harmed. And 
I think we all want to see that fixed and corrected, but at the 
same time, we have to make sure that it doesn't impede economic 
development, because, of those same citizens that they are 
protecting, they are going to be harming.
    Mr. Renacci. I would always use the analogy, and I have 
used it many times, I was a fireman at one point in time, and 
everybody thought that the way to save the building was to 
throw more water on it. Sometimes, when you throw more water on 
it, the building burns faster. Keep that in mind as we talk 
about regulations going forward.
    But I do also want to thank all of you. You have been very 
honest, and I appreciate your comments. I look forward to 
working with you over the rest of this year and into the 
future.
    Thank you.
    Chairwoman Capito. I want to thank our panelists and our 
audience. And I think we have gotten some excellent testimony. 
I want to thank you for taking time out of your busy days, 
particularly on a Monday, to come before us.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, this hearing record will remain 
open for 30 days for Members to submit written questions to 
these witnesses and to place their responses in the record.
    This hearing is adjourned.
    [Whereupon, at 11:45 a.m., the subcommittee was adjourned.]







                            A P P E N D I X



                             April 16, 2012







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