[House Hearing, 113 Congress]
[From the U.S. Government Publishing Office]



 
   REGULATORY BURDENS: THE IMPACT OF DODD-FRANK ON COMMUNITY BANKING

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

                                HEARING

                               before the

                    SUBCOMMITTEE ON ECONOMIC GROWTH,

                  JOB CREATION AND REGULATORY AFFAIRS

                                 of the

                         COMMITTEE ON OVERSIGHT

                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             FIRST SESSION

                               __________

                             JULY 18, 2013

                               __________

                           Serial No. 113-47

                               __________

Printed for the use of the Committee on Oversight and Government Reform


         Available via the World Wide Web: http://www.fdsys.gov
                      http://www.house.gov/reform




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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 DARRELL E. ISSA, California, Chairman
JOHN L. MICA, Florida                ELIJAH E. CUMMINGS, Maryland, 
MICHAEL R. TURNER, Ohio                  Ranking Minority Member
JOHN J. DUNCAN, JR., Tennessee       CAROLYN B. MALONEY, New York
PATRICK T. McHENRY, North Carolina   ELEANOR HOLMES NORTON, District of 
JIM JORDAN, Ohio                         Columbia
JASON CHAFFETZ, Utah                 JOHN F. TIERNEY, Massachusetts
TIM WALBERG, Michigan                WM. LACY CLAY, Missouri
JAMES LANKFORD, Oklahoma             STEPHEN F. LYNCH, Massachusetts
JUSTIN AMASH, Michigan               JIM COOPER, Tennessee
PAUL A. GOSAR, Arizona               GERALD E. CONNOLLY, Virginia
PATRICK MEEHAN, Pennsylvania         JACKIE SPEIER, California
SCOTT DesJARLAIS, Tennessee          MATTHEW A. CARTWRIGHT, 
TREY GOWDY, South Carolina               Pennsylvania
BLAKE FARENTHOLD, Texas              MARK POCAN, Wisconsin
DOC HASTINGS, Washington             TAMMY DUCKWORTH, Illinois
CYNTHIA M. LUMMIS, Wyoming           ROBIN L. KELLY, Illinois
ROB WOODALL, Georgia                 DANNY K. DAVIS, Illinois
THOMAS MASSIE, Kentucky              PETER WELCH, Vermont
DOUG COLLINS, Georgia                TONY CARDENAS, California
MARK MEADOWS, North Carolina         STEVEN A. HORSFORD, Nevada
KERRY L. BENTIVOLIO, Michigan        MICHELLE LUJAN GRISHAM, New Mexico
RON DeSANTIS, Florida                VACANCY

                   Lawrence J. Brady, Staff Director
                John D. Cuaderes, Deputy Staff Director
                    Stephen Castor, General Counsel
                       Linda A. Good, Chief Clerk
                 David Rapallo, Minority Staff Director

  Subcommittee on Economic Growth, Job Creation and Regulatory Affairs

                       JIM JORDAN, Ohio, Chairman
JOHN DUNCAN, Tennessee               MATTHEW A. CARTWRIGHT, 
PATRICK T. McHENRY, North Carolina       Pennsylvania, Ranking Minority 
PAUL GOSAR, Arizona                      Member
PATRICK MEEHAN, Pennsylvania         TAMMY DUCKWORTH, Illinois
SCOTT DesJARLAIS, Tennessee          GERALD E. CONNOLLY, Virginia
DOC HASTINGS, Washington             MARK POCAN, Wisconsin
CYNTHIA LUMMIS, Wyoming              DANNY K. DAVIS, Illinois
DOUG COLLINS, Georgia                STEVEN A. HORSFORD, Nevada
MARK MEADOWS, North Carolina
KERRY BENTIVOLIO, Michigan
RON DeSantis Florida
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on June 18, 2013....................................     1

                               WITNESSES

Mr. Eddie Creamer, President and CEO, Prosperity Bank, ST. 
  Augustine, Florida
    Oral Statement...............................................     5
    Written Statement............................................     7
Mr. Hester Peirce, Senior Research Fellow, Mercatus Center, 
  George Mason University
    Oral Statement...............................................    19
    Written Statement............................................    21
Hon. R. Bradley Miller, Former Member of Congress, Senior Fellow, 
  Center for American Progress
    Oral Statement...............................................    28
    Written Statement............................................    30
Tanya Marsh, Assistant Professor of Law, Wake forest University 
  School of Law
    Oral Statement...............................................    33
    Written Statement............................................    35

                                APPENDIX

A Letter to Rep. Jordan from Bill Cheney, Credit Union National 
  Assoc., submitted for the record by Rep. DeSantis..............    66


   REGULATORY BURDENS: THE IMPACT OF DODD-FRANK ON COMMUNITY BANKING

                              ----------                              


                        Thursday, July 18, 2013

                   House of Representatives
Subcommittee on Economic Growth, Job Creation, and 
                                 Regulatory Affairs
               Committee on Oversight and Government Reform
                                                   Washington, D.C.
    The subcommittee met, pursuant to call, at 2:44 p.m., in 
Room 2154, Rayburn House Office Building, Hon. Jim Jordan 
[chairman of the subcommittee] presiding.
    Present: Representatives Jordan, DeSantis, Duncan, McHenry, 
Lummis, Collins, Cartwright, Cummings, and Duckworth.
    Staff Present: Brian Daner, Majority Counsel; Michael R. 
Kiko, Majority Staff Assistant; Emily Martin, Majority Counsel; 
Jedd Bellman, Minority Counsel; Jaron Bourke, Minority Director 
of Administration; Jennifer Hoffman, Minority Communications 
Director; Elisa LaNier, Minority Director of Operations; and 
Brian Quinn, Minority Counsel.
    Mr. Jordan. The subcommittee will come to order. We are 
going to get started.
    I know Congressman--the ranking member, Congressman 
Cartwright is on his way. And as I think the witnesses know, we 
have some other hearings going on.
    But I will now recognize the vice chair of the committee, 
Mr. DeSantis, for an opening statement.
    Mr. DeSantis. Thanks, Mr. Chairman.
    Thank you to the witnesses for coming today and appreciate 
your flexibility. Obviously, we have a hearing downstairs that 
is taking quite a while.
    Millions of Americans are out of work, millions are 
unemployed, and millions have given up looking for a job. A top 
priority of this Congress should be to remove barriers to job 
creation so Americans can get back to work, and small 
businesses are the key to this goal. They provide half of all 
employment in the United States and 42 percent of all payroll 
spending. Most importantly, small businesses are the leader in 
creating new jobs.
    If small businesses are the engine of job creation, then 
community banks are the engine of small business because 
community banks are the leaders in making small business loans. 
At the end of 2010, community banks held $160 billion in small 
business loans on their books, representing almost half of all 
outstanding small business loans. In other words, $1 out of 
every $2 loaned to a small business comes from a community 
bank.
    Community banks, characterized by local ownership, local 
control, and local decision-making, are best positioned to 
evaluate the precise business environment in a local community. 
Furthermore, community banks' ability to offer highly 
customized financial services ensures that each small business 
receive products that are tailored to fit that business' 
individual needs.
    Congress has an obligation to support and promote the 
business model that community banks have used so successfully. 
Unfortunately, the regulatory regime imposed by the traditional 
banking regulators, as well as the Dodd-Frank Act, needlessly 
raise community banks' costs of doing business. There will be 
only one consequence from this regulatory burden, a reduction 
in community banks' ability to serve their communities.
    Fewer services will be offered, fewer loans will be made, 
and those loans that are made will come at higher prices. Fewer 
small businesses will get off the ground. Less Americans will 
have a good job.
    This regulation is not necessary. It seeks to solve a 
problem that doesn't exist. Just 2 weeks ago, the Comptroller 
of the Currency, one of three primary banking regulators in the 
U.S., emphatically stated, ``Community banks and thrifts had 
nothing to do with bringing on the financial crisis.'' Yet 
community banks all across the country are feeling the brunt of 
the Federal leviathan.
    This demonstrates a truism that is not unique to banking. 
Big, burdensome government typically gives big business a 
competitive advantage over existing and would-be small 
businesses. As J.P. Morgan CEO Jamie Dimon explained, increased 
regulatory burdens make it easier for large firms to gain 
market share because they create substantial barriers to entry 
for smaller competitors.
    The sad thing is that much of the regulatory burden faced 
by community banks does not serve a compelling purpose but is 
simply an exercise in rote compliance. If the official position 
of this administration is that community banks were in no way 
responsible for the financial crisis, then why are we 
subjecting them to such onerous regulation?
    The fundamental goal of this hearing is to understand just 
how burdensome Federal banking regulations have become on our 
community banks and, in turn, how that affects our small 
businesses.
    I thank our witnesses with their individual expertise, and 
I thank them for being here. In particular, I would like to 
thank one of my constituents, Eddie Creamer from St. Augustine, 
Florida--he is a community banker in my district--to offer his 
personal experience as a community bank leader.
    Mr. Chairman, thank you for having this hearing, and I 
yield back the balance of my time.
    Mr. Jordan. I thank the gentleman for his statement, for 
his hard work in Congress, and specifically for helping us put 
this hearing together.
    I now recognize the ranking member, the gentleman from 
Pennsylvania, Mr. Cartwright.
    Mr. Cartwright. Thank you, Mr. Chairman.
    And thank you, Mr. DeSantis, for that fine opening 
statement as well.
    Thanks to the witnesses for showing up today on this chilly 
day in Washington, D.C.
    [Laughter.]
    Mr. Cartwright. I represent northeastern Pennsylvania, a 
place where people rely on community banks for their banking 
needs. In fact, in one out of five counties in America, 
community banks are the exclusive source of credit. 
Individuals, homeowners, small business people, and farmers 
need community banks to be open for business in their 
communities.
    So protecting the sustained viability of community banks is 
important for the quality of life in small towns and rural 
counties all across this Nation. But a long-term trend of 
consolidation in the banking industry threatens the continued 
existence of community banks. According to the FDIC, the 
decline in the number of banks with assets less than $100 
million was large enough to account for all of the net decline 
in total banking charters between 1984 and 2011.
    At the same time, banks with assets over $10 billion have 
expanded their share of industry assets from 27 percent in 1984 
to 80 percent in 2011. In fact, just 90 banks now control $11 
trillion in assets in this country.
    We are still recovering from our national experience with 
the big banks that fail. The hearing today probes the extent to 
which the Wall Street Reform and Consumer Protection Act of 
2010, also known as the Dodd-Frank Act, has contributed to this 
30-year trend in bank consolidation.
    I hope today's hearing is not just another attempt by those 
opposed to reforming Wall Street and protecting consumers from 
predatory banking practices. Unfortunately, some of the folks 
across the aisle from me have devoted considerable effort to 
stymie the law's new protections. Until just days ago, 
Republicans in the Senate refused to consider President Obama's 
nominee to head the Consumer Financial Protection Board until 
the Dodd-Frank Act was amended to their liking.
    Members on this committee spent a week of hearings 
interrogating Elizabeth Warren, formerly the appointed head of 
the CFPB, who was trying to stand up the new agency. I wish 
that effort could have been spent interrogating the people who 
caused the financial crisis, rather than the public servants 
who were trying to prevent the next one from occurring.
    What is clear from looking at the Dodd-Frank Act and its 
implementation so far is the real awareness by the law's 
authors and regulators of the dangers of banks that get too big 
and the importance of protecting small-sized community banks. 
In example after example, we have seen evidence that 
requirements imposed by the law specifically exempt small 
community banks, and the costs of new regulations are largely 
borne by the large banks. That is as it should be and I think 
was the intention of the law's authors.
    Fortunately, today we have with us former Congressman Brad 
Miller, who was our participant in drafting of the bill. If the 
intention to protect small community banks has not been 
fulfilled, I want to hear about that. That is the purpose of 
congressional oversight.
    But if the purpose of this hearing is to impede 
implementation of new consumer protections and to address the 
causes of the financial crisis, I strongly reject that. I look 
forward to hearing from the witnesses today, and again, I thank 
the chairman and Congressman DeSantis for being here today.
    Thank you.
    Mr. DeSantis. [Presiding] Thank the gentleman.
    And the gentlemen from Tennessee like to make an opening 
statement?
    Mr. Duncan. Well, very briefly, Mr. Chairman, thank you for 
requesting this hearing. I think this is a very important 
topic.
    And I will tell you that just a few weeks ago, there was a 
column in the Washington Times, which said that it has been 3 
years since the House and Senate passed the Dodd-Frank 
financial reform legislation. So far, the effects are not what 
Washington promised.
    More than 200 smaller banks have failed in the wake of 
Dodd-Frank. And it says, and he said, we have learned once 
again that whenever Washington announces new regulations, hold 
onto your wallets.
    And very similar to that, I have a column by Louise 
Bennetts from the Cato Institute, an article that appeared in 
the American Banker. And she said this, ``The Dodd-Frank Act, 
sold to the public as the tamer of the Wall Street titans, may 
well end up having a disproportionate impact on smaller 
institutions, thanks to the costs of capital implications? of 
being not too big to fail and the advent of the Consumer 
Financial Protection Bureau.''
    And that is the problem. When you overregulate something, 
it hurts the little guys first, then the medium size, and it 
ends up helping the big giants. And I can tell you, I have no 
problems with the regulators being very strict, very tough on 
the big giants. But that is not the way this law is working, 
and I have had many bankers in my district in east Tennessee 
complain about this and tell about how expensive it has been 
for them already.
    And it is only going to get worse if we don't do something 
about it. So I thank you for calling this very important 
hearing.
    Mr. DeSantis. Thank you.
    And the committee received a letter from the Credit Union 
National Association, explaining how credit unions are 
similarly burdened by onerous regulations in Dodd-Frank. Like 
community banks, credit unions were similarly blameless for the 
financial crisis of 2008.
    And with unanimous consent, we will enter this letter that 
they sent to the committee into the record.
    Members may have 7 days to submit opening statements for 
the record.
    We will now recognize our panel. Mr. Eddie Creamer is 
president and CEO of Prosperity Bank of St. Augustine, Florida. 
Professor Tanya Marsh is assistant professor of law at Wake 
Forest University School of Law. The Honorable Bradley Miller 
is a former Member of Congress and senior fellow at the Center 
for American Progress. And Ms. Hester Peirce is senior research 
fellow at the Mercatus Center at George Mason University.
    Pursuant to committee rules, all witnesses will be sworn in 
before they testify. Please stand. Please rise and raise your 
right hand.
    [Witnesses sworn.]
    Mr. DeSantis. Let the record reflect that the witnesses 
answered in the affirmative.
    Now you will each be recognized for 5 minutes. I know some 
of you prepared statements. You feel free to read from that or 
provide whatever information you would like to provide.
    So, Mr. Creamer, you are up.

                       WITNESS STATEMENTS

                   STATEMENT OF EDDIE CREAMER

    Mr. Creamer. Thank you, Vice Chairman DeSantis and Ranking 
Member Cartwright, Ms. Duckworth, and Mr. Duncan.
    I appreciate this opportunity to speak to you today. It's 
both an honor and a privilege for me to talk to you on behalf 
of my 160 employees about the sometime damaging, but always 
overwhelming and ever-changing regulatory environment that a 
community bank faces.
    As my written testimony states, I've been a community 
banker in Florida for over 31 years. And while I understand 
that all banks must be regulated and the consumer must be 
protected, I also understand that these regulations must be 
clear, concise, uniformly applied to banks so they can reach 
their--or meet their intended purpose.
    I also understand that the vast difference between 
community banks and very large banks, that a one-size-fits-all 
regulatory approach is impractical and, frankly, does not work. 
There is certainly more complexity and systemic risk in a $2 
trillion bank than there is my $748 million bank in northeast 
Florida.
    Today's Wall Street Journal headline reporting that one our 
country's largest banks will likely agree to a record fine for 
manipulating the electricity market is the best example I could 
give you of this difference today. While I do not understand 
how a bank could manipulate the electricity market, nor do I 
think I want to understand that, I do understand the crystal 
clear difference when contrasted to what a community bank does 
and the purpose it serves.
    Over my 31-year career, I've experienced law after law, 
regulation after regulation, rule after rule--FIRREA, Gramm-
Leach-Bliley, Truth-in-Lending, Truth-in-Savings, Fair Lending, 
Know Your Customer, and now Dodd-Frank. Dodd-Frank, by the way, 
which by some reports almost 63 percent is yet to be written. 
So I can't judge the impact of that.
    All of these regulations, while well intended, had the 
stated purpose to protect, defend, amend, enforce, or simplify 
something. There are thousands and thousands of pages that a 
community banker must understand and attempt to comply with, 
and rarely, if ever, are existing regulations amended, 
repealed, or modernized in consideration of the new 
regulations.
    These laws and regulations and rules are often and 
inconsistently--or often inconsistently interpreted and 
implied--applied from exam to exam and examiner to examiner 
and, frankly, from agency to agency. This has created 
regulatory fatigue in our bank and among our employees, and the 
cost of compliance with these regulations skyrocketing for us.
    You have seen in the written testimony here and you already 
know that community banks play a vital role in our economy. To 
continue to play this vital role, it is important that 
community banks have clear, concise, uniformly applied 
regulations commensurate to their business model and their 
inherent risk.
    If not, I am confident there will be fewer community banks. 
And if there are fewer community banks, there will be fewer 
choices for the consumer and fewer products. Fewer choices, 
fewer products mean higher cost for the consumer.
    Again, I'm deeply grateful for this opportunity to talk to 
you about my industry and my profession, of which I'm deeply 
passionate, and I welcome the opportunity to address your 
questions.
    Thank you.
    [Prepared statement of Mr. Creamer follows:]

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    Mr. DeSantis. Thank you for that statement.
    And the chair will now recognize Ms. Peirce for her opening 
statement.

                   STATEMENT OF HESTER PEIRCE

    Ms. Peirce. Sorry. It's an honor to be here today. I 
appreciate the opportunity.
    One of the wonderful things about our financial system is 
its diversity, its flexibility, and the competition that it 
affords. And this is good for consumers because it allows 
consumers of all different types to find something that works 
for them.
    Unfortunately, the regulatory system that we're putting in 
place is not consistent with that competitiveness, flexibility, 
and diversity. Instead, it prefers large banks over small. It 
imposes regulatory costs that disproportionately burden the 
small banks, and its consumer protection model is one that 
works much better for large banks than it does for small.
    A lot of people say Dodd-Frank is not about community 
banks. It's about big financial institutions. And they're 
right. It's about a partnership between big financial 
institutions and the Government.
    This manifests itself most directly in the designation of 
systemically important financial institutions under Dodd-Frank. 
And while it's true that as a designated institution, you are 
subject to many more regulations, but what is also true is that 
the Government has made a statement that they stand behind 
those institutions that they think they're too important to 
fail.
    And so, when times of trouble come, when there's a 
liquidity crisis, customers of these institutions and also 
creditors are going to know that it's the large banks--that the 
Government has the back of the large banks. And that's a real 
advantage for large banks.
    But there are also more subtle--more subtle disadvantages 
for the smaller entities, and that comes in the form of 
regulatory burden. The financial industry was, as we just 
heard, quite regulated before Dodd-Frank. But Dodd-Frank came 
along with almost 1,000 pages of legislative text. And then add 
to that 11,000 pages and counting of proposals and final rules 
and guidance.
    For a large bank with an army of in-house lawyers, outside 
experts to assist them in figuring out how to comply and how to 
comply efficiently, it's a burden, but it's not the type of 
burden that it is for a community bank. For a community bank 
that has to hire a new compliance person or pay high-priced 
outside consultants to help it understand what applies to them, 
it could be the difference between a profitable year and not a 
profitable year.
    But more important I think than the monetary cost is the 
distraction. If you think of your average community banker who 
got to where she is because she loved the community she serves 
and she wanted to figure out how to help small businesses in 
that community grow, how to help families buy homes, she didn't 
want to spend her time thinking about regulation. But now the 
cloud of uncertainty, of regulatory uncertainty is what's 
keeping her up at night, and that's not good for the consumers 
that she wants to serve.
    And then, as far as consumer protection goes, the Dodd-
Frank model of consumer protection is one in which the 
regulators in Washington will figure out what works best for 
consumers all across the Nation. And that means designing plain 
vanilla products that will work for every consumer in every 
circumstance. And that works pretty well for large banks, which 
have a mechanistic approach to lending.
    But for a community bank, which prides itself on getting to 
know its customers and its communities and tailoring products 
to them, it doesn't work so well. And so, this could end up 
leading community banks into areas that they're not--into new 
business lines that they're not comfortable with, into new 
products, and into more aggressive ways to fund themselves and 
more aggressive product lines.
    So what can we do about this? Well, first, we can find out 
more. We can find out what the good, the bad, and the 
indifferent parts of Dodd-Frank are for community banks, which 
the Mercatus Center, where I work, is now trying to do that. 
We're conducting an online survey of small bankers, and we hope 
to present the information that we get from that to 
policymakers so that they can figure out which parts are truly 
the worst.
    And the second thing that we can do is now we have 3 years 
of objective hindsight with which we can look at Dodd-Frank and 
say, okay, what's working and what's not? What do we need to 
fix? What do we need to throw out?
    And then we can look at designing better exemptions for 
small entities. And these exemptions can't be ones that are 
conditioned on very complicated criteria because then that, 
too, becomes a regulatory burden for the small banks.
    And then we can ask the regulators, ask the financial 
regulators to do economic analysis. This is something that they 
don't traditionally do, but it's not too much to ask them to 
look through an economic lens, figure out what the problem 
they're trying to solve is, look at the alternatives, and look 
at the costs and benefits of those alternatives.
    Thank you very much, and I'd be happy to answer any 
questions.
    [Prepared statement of Ms. Peirce follows:]
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    Mr. DeSantis. Appreciate that statement.
    Mr. Miller, thank you for joining us. You are up for 5 
minutes.

              STATEMENT OF HON. R. BRADLEY MILLER

    Mr. Miller. Thank you, Mr. Chairman.
    I'm Brad Miller. I've served for a decade as a Member of 
the House and left at the beginning of the year. I'm now of 
counsel to the law firm of Grais & Ellsworth and a senior 
fellow at the Center for American Progress.
    The consolidation of the banking industry has largely 
reduced the role of community banks to a niche in the economy, 
but it is an important niche, as almost everyone who has spoken 
has noted. Community banks still hold a majority of deposits in 
rural and small town America. One out of five rural and 
micropolitan counties--that's small towns--the only physical 
banking offices are those of community banks.
    Community banks are locally owned and controlled. They 
gather deposits locally, and they make lending decisions 
locally. As of 2011, 46 percent of the banking industry's small 
loans to farms and businesses were by community banks, and 
community banks just had 14 percent of banking assets.
    Congress and regulators should recognize real differences 
between community banks and too big to fail institutions. Avoid 
needless compliance costs because compliance costs are largely 
a fixed cost rather than a variable cost. Avoid giving large 
institutions an unfair competitive advantage. Allowing 
examination of smaller banks for CFPB compliance by existing 
safety and soundness regulators, rather than having too 
disruptive regulations, is a sensible recognition the 
differences between community banks and bigger banks. I got 
some grief at the time from some of my usual allies on 
financial reform for leading that compromise. But I thought 
then, and I still think, that different compliance examination 
rules made sense.
    Similarly, the CFPB created a sensible, limited exception 
from the qualified mortgage, or QM, rule for portfolio 
mortgages by community banks and credit unions with less than 
$2 billion in assets that make fewer than 500 first lien 
mortgages a year. The Dodd-Frank Act was the most significant 
set of financial reforms since the New Deal, and the financial 
crisis was the most significant financial crisis since the 
Great Depression.
    A GAO study last fall concluded that some provisions will 
help community banks, such as supervision by the CFPB of 
nonbank lenders that competed unfairly with responsible 
community banks in the past and changes in the calculation of 
deposit insurance premiums.
    Other visions inevitably will result in some compliance 
costs for community banks, the GAO found. But how much will 
depend upon the implementing regulations. So this is all kind 
of a guess in what compliance costs may be.
    Regulators should certainly make sensible exceptions, like 
CFPB's exemption from the QM rule for some portfolio mortgages 
by community banks. But other provisions really should apply 
equally to all lenders. Community bank lending may be more 
relationship based than lending by bigger banks, but no one 
walks into a community bank with a legal pad or a laptop and 
says, ``I need a loan. Do you want to be the party of the first 
part, or do you want me to be the party of the first part?''
    They all use standard forms. They use the same forms for 
all of their lending. No lender's standard form should include 
predatory, equity-stripping provisions. Community banks were 
generally not guilty of some of the worst abuses of the last 
decade, and community banks remain more constrained by 
reputational concerns than are the biggest banks.
    But community banks are not incapable of bad conduct. In 
the movie, ``It's a Wonderful Life,'' George Bailey was a 
community banker, but so was Mr. Potter. I know that I've just 
made a reference that no one under the age of 30 caught.
    [Laughter.]
    Mr. Miller. Which is--which means 97 percent of 
congressional staffers.
    There is litigation pending now against a New York 
community bank for mortgages that the banks made to homeowners 
with lots of equity but problem credit. The mortgages had an 
interest rate that adjusted to almost 10 percent.
    If a mortgager--if a homeowner was late with a payment, the 
rate went to 18 percent and stayed at 18 percent until the 
homeowner got completely current. Almost half of the 5,000 
mortgages, 5,000 homeowners who got those mortgages are losing 
their home.
    If Congress is serious about helping community banks 
compete, there are a lot of things Congress can do. Congress 
can limit ATM charges that are unrelated to the cost of 
transactions. There is a Bank of America cash machine just two 
blocks from here on Pennsylvania Avenue. Good luck with finding 
one for Prosperity Bank.
    Most important, Congress should end the implicit subsidy of 
too big to fail banks. The ICBA has joined in the chorus 
calling for ending too big to fail because of the unfair 
competitive advantage it gives too big to fail banks over 
community banks, and Congress should pay attention.
    Again, Mr. Chairman, thank you for this opportunity to 
testify.
    [Prepared statement of Mr. Miller follows:]
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    Mr. DeSantis. Thank you for your attendance.
    And Ms. Marsh, thank you for attending as well, and you are 
up for 5 minutes.

                    STATEMENT OF TANYA MARSH

    Ms. Marsh. Thank you, Chairman, members of the 
subcommittee.
    I appreciate you convening this hearing today and for 
inviting me to testify.
    My name is Tanya Marsh. I'm an associate professor at the 
Wake Forest University School of Law in Winston-Salem, North 
Carolina, and I'm an adjunct scholar with the American 
Enterprise Institute.
    In May, I coauthored a research paper for AEI, entitled 
``The Impact of Dodd-Frank on Community Banks.'' A copy of that 
paper is included in my written testimony, but I just wanted to 
highlight a couple of key points from it for you today.
    The purpose of Dodd-Frank, as everyone has noted, is to 
prevent another financial crisis by enhancing consumer 
protection and ending the era of too big to fail. But the 
regulatory burden imposed by Dodd-Frank on community banks I 
believe undermines both goals, and ultimately, it will harm 
both consumers and the economy by first forcing community banks 
to consolidate or go out of business, furthering the 
concentration of assets in too big to fail institutions, and, 
second, encouraging standardization of financial products, 
which potentially will leave millions of vulnerable borrowers 
without meaningful access to credit or banking services.
    The American system of banking regulation is really a 
system of regulation by accretion. And what I mean by that is 
it's a result of about 200 years of very well-meaning 
legislative responses to financial and banking crises. But the 
net effect of all of these policies is a one-size-fits-all 
system that is fundamentally flawed.
    My key message today is I think we need to take a step back 
and rethink our regulatory approach to banking in general, to 
target our resources on the real risks to the American consumer 
and the American economy, rather than doubling down on a 
regulatory approach that represents more of a historical 
accident than a deliberate policy choice.
    It's a simple fact that a depository institution with $165 
million in assets, the median American bank, poses different 
risks to consumers and the economy than a $2 trillion bank. And 
I think we should take a more tailored approach to regulating 
them both.
    We need to remember that financial services sector is not a 
free market. It's a highly regulated market. Therefore, our 
policy choices can have a substantial impact on the ability of 
institutions to compete within that market. Although few would 
argue, and no one is arguing here today, that community banks 
caused the financial crisis, 7 of the 16 titles of Dodd-Frank 
are expected to impact community banks in some way.
    Hundreds of regulations are anticipated to be promulgated. 
Most of these rules are very complex, and the stakes for 
understanding and following them are high. It is not an 
insignificant cost to have an expert read the new regulations 
as they're proposed and determine whether or not they are 
applicable, let alone implement them.
    As the Federal Reserve determined in 1998, a small bank is 
less able to absorb this regulatory burden than a large bank. 
So by imposing unnecessary regulation on smaller institutions, 
we are awarding the larger banks a further competitive 
advantage.
    A recurring theme in Dodd-Frank, particularly with respect 
to the Consumer Financial Protection Bureau, is that the 
standardization of financial products and forms will protect 
consumers. But this focus on standardization fails to recognize 
the challenges posed by--posed by borrowers who lack the deep 
credit history or documentation necessary for the model-based 
lending that's used by the larger banks.
    The self-employed, seasonal workers, farmers, people 
transitioning to work are particularly at risk, I believe, by 
increased standardization. Financial activities that are 
fundamental to the average American are only really worth the 
time of a megabank if they involve a completely standardized 
product and if the borrower is a completely standardized 
borrower. You either fit in the box, or you don't.
    And as a result, millions of Americans are left out of the 
box altogether. According to the FDIC, one in four American 
households is unbanked or underbanked. These households 
interact with nonbank financial service providers who have been 
largely unregulated prior to Dodd-Frank, and they typically 
bear far higher costs than those households that are fully 
served by banks.
    So if regulators push the entire banking industry in 
lockstep toward standardization, many small businesses and 
individuals that are currently served by community banks may be 
denied credit and swell the ranks of the unbanked or 
underbanked. In addition, because of their higher operating 
costs relative to larger banks, if community banks become 
forced through standardization into just small versions of 
large financial institutions, they will be at a severe 
competitive disadvantage.
    So, as a result, credit and banking services will be 
eliminated or become more expensive for millions of American 
consumers, especially those living in rural communities and 
small businesses.
    For these reasons, I ask the subcommittee to consider 
taking an overall fresh look at the Federal regulation of banks 
to determine how to more appropriately regulate both community 
banks and large financial institutions.
    Thank you again for the opportunity to testify today.
    [Prepared statement of Ms. Marsh follows:]
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    Mr. DeSantis. Well, thank you for your statement and for 
your attendance.
    And the chair will recognize himself for the first 5 
minutes of questions. You know, it is interesting. I saw an 
estimate about once all the Dodd-Frank rules are implemented, 
that compliance economy wide is going to be about 24 million 
man-hours. And by way of comparison, 20 million man-hours was 
sufficient to build the Panama Canal.
    So this is a huge diversion of energy into compliance. And 
I think today we want to figure out is all this compliance 
necessarily a good thing, particularly for institutions who are 
not too big to fail and did not cause the financial crisis.
    Mr. Creamer, do you have unlimited resources at your bank?
    Mr. Creamer. No, sir. I do not.
    Mr. DeSantis. So as you face more burdens from the 
regulatory apparatus, do you basically have to just diverted 
existing resources into meeting that compliance, the compliance 
requirements?
    Mr. Creamer. We diverted existing resources. In addition to 
that, over the past 4 years in a very difficult economy when, 
as a small business, a bank or any other business had to watch 
every cost, every paper clip, every piece of paper to make sure 
that we retained the core profitability that we needed to 
survive, those limited resources were strained even further as 
we moved away from customer-facing personnel to compliance and 
audit-related personnel.
    In fact, coming out of the recession now, I went into the 
recession with 260 employees. I came out of the recession with 
165 employees. I now have more compliance staff than I do small 
business lenders.
    Mr. DeSantis. And does that have--I would imagine that 
would have an effect on how broad you can lend throughout the 
community, given those numbers?
    Mr. Creamer. It has a negative effect. Obviously, I mean, 
first of all, during the recession, there was not a lot of 
demand for new loans. But there was a lot of demand from 
existing customers for help with existing loans.
    As we have seen in northeast Florida now, the economy is 
beginning to recover, and there is a demand for new loans. But 
resources are still limited. And so, having the compliance and 
audit staff and the costs we spend in addition to that for 
training and three outside firms we employ for compliance 
review, it will cost us in excess of $750,000 this year just 
for compliance. That's resources that I cannot devote back into 
production people, calling officers, and that sort of thing.
    Mr. DeSantis. Now just as an experienced community banker, 
does your bank or any community bank that you have seen pose a 
systemic risk to the national or world economy?
    Mr. Creamer. I don't believe we pose a systemic risk to the 
national or world economy. In fact, I'm not sure we pose a 
systemic risk to St. Augustine and Palatka, frankly. We perform 
a very important function in those markets, but I do not 
believe the economy would stop functioning if we ceased to 
exist.
    Mr. DeSantis. Now I guess one of the--and Mr. Miller 
suggested, hey, well, you can cap some fees or do this. Now you 
and I talked in the district about some of the purported 
consumer protection regulations that come out, and you serve a 
lot of low-income people. And you told me the issue you are 
having with some of the folks who have this overdraft 
protection and how you are basically, in response to the 
regulation that is supposed to be pro-consumer, they are now 
actually going to probably have less choices.
    Can you explain that?
    Mr. Creamer. Well, we are a--we are a business like most 
other businesses. We are a for-profit business. In fact, our 
regulators want to make sure we are a for-profit business 
because, obviously, one of the ways we build capital, which is 
very important, is through our net profit.
    When our profit is strained or our costs are increased, we 
have to pass that on, to some extent, to the consumer. We can 
only cut costs so much within our organization. And I think, 
more specifically, what you and I talked about was in relation 
to the overdraft protections, we are--we serve a very blue 
collar market. In fact, to a large extent, we serve what I call 
a ``no collar'' market--a lot of contractors, a lot of people 
who are working for a living.
    There is a misconception about banks and overdrafts. 
Customers who use overdrafts are normally not customers that 
are being abused by the financial institution. They are using 
those because they are making a conscious choice. Because it's 
2 days before payday, and I'm a schoolteacher. I work for the 
city, and I have to pay my rent or I have to buy my groceries. 
That's a fact of life in our economy.
    I have two choices. I can write a check that I know my bank 
is going to pay, which has very little stigma to me, and I will 
cover that check later. Or I can go to the payday lender, which 
has a huge stigma and a large cost to the consumer.
    So in many cases what is represented as being terribly 
problematic is more so serving a demand for that individual 
customer that is making a choice.
    Mr. DeSantis. And as a result of some of the new rules, you 
basically are going to be in a situation where they are going 
to have less options in that respect?
    Mr. Creamer. They already have significantly less options.
    Mr. DeSantis. Okay. Ms. Peirce, you kind of hit on this. 
But with the advantages that some of the heavy regulatory 
burden provides to some of the large banks, obviously, they can 
comply with this much easier. They have huge staffs, all this.
    Are there funding costs? And you said there is an implicit 
taxpayer guarantee here. So does that reflect itself in them 
having lower funding costs than small and medium-sized 
competitors?
    Ms. Peirce. I think it does. Now they don't always compete 
in the same capital markets, the small banks and the bigger 
banks. But I will say that especially during a time of crisis, 
we're going to see that funding gap really spread. And so, 
that's when it really matters, when you really--you need to 
have liquidity to survive. It's going to really matter, and the 
bigger institutions will have a hands-down advantage then.
    So I do believe they have a funding advantage now, but it's 
even more critical in times of crisis.
    Mr. DeSantis. Great. Thank you.
    My time has expired, and I will recognize the gentlewoman 
from Illinois.
    Ms. Duckworth. Thank you, Mr. Chairman.
    Thank you to all the witnesses for being here.
    I am deeply concerned about the well-being about community 
banks. I feel that they are absolutely critical to the success 
and economic well-being of our communities. They provide close 
to half of the small business loans, at least in my district, 
and I think that may be nationwide. And they also provide 
something around 16 to 20 percent range of residential 
mortgages, mortgage lending.
    Community banks operate on a very different business model 
than the large banks, and I think it is really critical that we 
ensure that any financial regulations that we put into place 
respect those differences and don't put our community banks at 
a disadvantage.
    The last thing I want is more consolidation in the market 
and for the big--too big to fail banks to get even bigger. The 
housing market in Illinois was particularly hard hit, and as it 
recovers, I want to make sure that we are not harming the 
ability of families in my State to achieve the American dream 
of buying a home.
    The CFPB has requested public comments on the proposal to 
adjust the qualified mortgage rules for the community banks. 
Could each of you provide me with your thoughts on the impact 
of this proposed adjustment to the qualified mortgage rule will 
have on residential mortgages--residential mortgage lending, 
particularly for community banks?
    Mr. Creamer. Yes, ma'am. And thank you.
    I can speak from my standpoint. I'm not comfortable with 
the CFPB defining a qualified mortgage. I think that's the 
purview of the bank and its underwriting practices and the 
customer individually at the time.
    As an example, the definition now, as I understand it, is 
if a mortgage loan is made in excess of a 90 percent loan to 
value, it may not be a qualified mortgage, and the borrower 
could have a rebuttable presumption to put the loan back if 
there is a default.
    Unfortunately, in our market, that will have the effect of 
eliminating a huge segment of needed mortgage loans. I know a 
number of people, and I will speak for my son and my daughter-
in-law, who are both college graduates, who are both gainfully 
employed, who are both renting an apartment. And at some point, 
they'll want to buy a home. And in our market, to buy an 
affordable home, it would probably be $175,000, and there will 
be closing costs in that.
    For them to put 20 percent down on that home would probably 
be somewhere around $40,000. Well, not only do they not have 
$40,000 saved, they haven't sold a home and made $40,000. Most 
Americans have a hard time saving $40,000.
    And even though they would fully qualify for the loan, they 
would be prohibited from getting the loan because of the down 
payment requirement, even though the monthly payment at today's 
interest rates would be less than their rent payment.
    Ms. Duckworth. Great point.
    Ms. Peirce?
    Ms. Peirce. Yes, I mean, I just want to echo what Mr. 
Creamer said in the sense that it should be the bank's 
responsibility to figure out what sound underwriting is for a 
loan. It's very difficult to--I think the CFPB has a very 
difficult task to try to set underwriting requirements for all 
the loans across the country, and that's really what they're 
trying to do in the qualified mortgage rulemaking.
    And there are exceptions, but the exceptions, from my 
understanding, aren't broad enough to cover some of the normal 
lending practices of community banks.
    Ms. Duckworth. Congressman Miller?
    Mr. Miller. I understood your question about QRM rather 
than QM.
    Ms. Duckworth. Okay.
    Mr. Miller. One of the criticisms that we heard of what 
went wrong before the financial crisis, leading up to the 
financial crisis, was that the origination of mortgages was an 
originate to distribute, and the originator, which were often 
not community banks, were often mortgage companies with 
essentially no assets, sold those immediately to Wall Street, 
which immediately put them in a pool and sold mortgage-backed 
securities based upon them.
    And so, the phrase we used, we heard so much at the time 
was ``skin in the game.'' That if the originator had some skin 
in the game, they would, in fact, apply underwriting standards. 
But if they could get somebody to buy 100 percent of the risk, 
they didn't care.
    So the object of qualified--but then the idea was they had 
to keep at least 5 percent. But we heard from a lot of the 
financial industry that if we did that, it really would 
constrict liquidity, and there should be some kind of obviously 
safe mortgages that should not be subject to that 5 percent 
retained risk, skin in the game requirement.
    Now I have thought that the QRM rules do go too far. I 
don't think that they need--we need to go back to Ozzie and 
Harriet loans of the 1960s. I don't think we need to have 20 
percent prime, you know, all the rest. But I do think that as 
an exception to the risk retention rules, the QRM, a QRM 
exception does make sense, and leaving it entirely to the banks 
just puts us back where we were in the middle part of the last 
decade.
    Ms. Duckworth. I am out of time, Mr. Chairman.
    Mr. DeSantis. Ms. Marsh, if you weigh in on that, give you 
----
    Ms. Marsh. If I could just briefly? I think that the 
qualified mortgage rule is a great example of the 
standardization issue that I mentioned in my testimony. So when 
I was doing research for my paper, I talked to a community 
banker in the upper Midwest, where the economy is very reliant 
on timber and mining, seasonal activity. So most people don't 
have any cash flow during the winter months.
    He structures residential mortgages so they only have to 
make payments for 9 out of the 12 months because that matches 
their income stream. Under the qualified mortgage rules, he 
can't do that.
    That's not the kind of activity that we're trying to clamp 
down on. We're trying to align underwriting risk with skin in 
the game, as Congressman Miller mentioned. And I think 
exempting loans that are held in portfolio can accomplish that.
    Mr. DeSantis. Thank you.
    The chair now recognizes the gentleman from Tennessee.
    Mr. Miller. Loans held in portfolio are 100 percent skin 
the game.
    Ms. Marsh. Right.
    Mr. Miller. Okay.
    Mr. Duncan. Well, thank you, Mr. Chairman.
    The staff asked, I didn't know what the up-to-date 
statistics were. So I asked the staff a few minutes ago what 
was the average size of a typical bank in this country, and 
they tell me the median size, bank size is $165 million, that 
80 percent of the 7,100 banks have less than $1 billion. The 
average size of the 10 largest banks is $717 billion, and so 
there is quite a discrepancy between the very largest.
    And I started this hearing saying that I don't have any 
objection to going to these trillion dollar banks or these 
mega-billion dollar banks because they can handle it. But the 
problem is, is that this is--as those quotes I gave, this is 
most harmful to the little banks.
    In fact, this one article says, thanks to Dodd-Frank, 
community banks are too small to survive. We talked about too 
big to fail, too small to survive is what we are looking at in 
the over 200 that has run out of business since we started 
Dodd-Frank.
    And Ms. Peirce, I was under the impression--you know, I 
remember--every Member gets a thing called the Congress Daily 
at their door each morning. And I remember 2 or 3 years ago, 
there was a cartoon in there, and it showed these banks with 
huge bags full of money, and the banker saying, ``Lend, 
lend''--I mean, excuse me, and it showed the President, 
President Obama, saying, ``Lend, lend, lend.'' And then it 
showed the regulators pulling back, saying, ``No, no, no.''
    And I was under the impression that the banking industry, 
even before Dodd-Frank, was one of the more heavily regulated 
industries in this--or businesses in this country. Is that 
correct?
    I mean, before you had the 2,300-page Dodd-Frank law and 
the hundreds of new rules and regulations, you already had all 
kinds of rules and regulations and red tape for these banks 
anyway?
    Ms. Peirce. That's correct. And unfortunately, some of 
those rules directed bankers to instead of using their own 
skills in figuring out whether to loan and when, it tried to 
direct them when to loan and tried to make decisions for them, 
just as you mentioned.
    Mr. Duncan. Mr. Creamer, did you start your bank? Or were 
you in at the first?
    Mr. Creamer. No, sir. I did not.
    Mr. Duncan. What size was it when you first got involved?
    Mr. Creamer. When I joined Prosperity Bank in--16 years 
ago, the bank was about $75 million in assets.
    Mr. Duncan. Seventy-five million?
    Mr. Creamer. Yes, sir.
    Mr. Duncan. How--what do you think would be the effect on a 
bank much smaller than yours? Let us say a $100 million or a 
$200 million bank?
    Mr. Creamer. Of a regulation--of the current regulations?
    Mr. Duncan. Yes, of the Dodd-Frank law.
    Mr. Creamer. Catastrophic.
    Mr. Duncan. Catastrophic?
    Mr. Creamer. Yes, because resources are resources. Banks 
operate on net interest margin and non-interest income. Both of 
those are a function of asset size. The larger the bank, 
especially in a community bank that gets over $500 million, and 
there's been a lot of conversation that if you're not over $500 
million, you probably can't afford to operate in the regulatory 
scheme. But economies of scale build in, and you have some 
efficiencies at that point to afford compliance staff and, at 
some point, outside legal help.
    If you're below that level, with net interest margins 
compressed, as they are today, and non-interest income being 
regulated down as hard as it is today, it's going to be 
extremely difficult for those banks to, one, I would say, 
survive. And I don't mean survive from a failure standpoint. I 
mean without having to merge out. And two, to be profitable to 
return any modicum of return to the shareholders.
    Mr. Duncan. Ms. Marsh, do you think that this law is going 
to continue this trend of forcing smaller banks either out of 
business or forced to merge with bigger banks?
    Ms. Marsh. Absolutely. It already has, actually.
    I think Ms. Peirce and I have both conducted or are 
conducting research to try and quantify what the regulatory 
burden actually costs banks and to see what actually happens as 
a result. It's very difficult to figure that out, especially 
since many of the rules are still being created.
    But there's all kinds of anecdotal evidence that small 
banks are merging, and if you listen to the testimony and the 
public statements of the leaders of some of those banks, 
they're doing it because, as Mr. Creamer mentioned, a smaller 
bank simply can't absorb the costs. And they have to bind 
together to survive collectively.
    Mr. Duncan. Well, I just think it is very sad that a law 
that was aimed at a few big giants on Wall Street is ending up 
hurting the little guys and the medium-sized guys most of all.
    Thank you very much, Mr. Chairman.
    Mr. DeSantis. Thank you.
    And the chair will now recognize the ranking member of the 
full committee, Mr. Cummings.
    Mr. Cummings. Thank you very much, Mr. Chairman.
    And I want to thank all of you for being here.
    And to Congressman Miller, it was good to see you back. I 
always respected your work in so many areas, but particularly 
in this area.
    Many of the provisions under the Dodd-Frank Act are geared 
towards the larger, too big to fail institutions. However, 
there are many examples where community banks receive positive 
treatment under new regulatory requirements implementing the 
Dodd-Frank Act. For example, the Dodd-Frank Act raised the 
Federal deposit insurance coverage on consumer bank accounts to 
$250,000 while shifting the cost to larger institutions to 
better reflect their industry market share.
    Community banks have benefited by a significant drop in 
Federal deposit insurance premiums paid by the institutions 
with less than $10 billion. And it was recently announced that 
there will be a refund of $5.8 billion in deposit insurance 
fund prepayments from the last 3 years.
    Now, Congressman Miller, by reforming the deposit insurance 
assessments, do you think that the regulators have it right, 
have the right balance in terms of assessments charged to large 
banks versus the small banks?
    Mr. Miller. Mr. Cummings, I think we did that. We don't 
want to give the regulators credit for that.
    Mr. Cummings. Okay. All right. Well, we will take credit.
    Mr. Miller. I know that Mr. Creamer, in his written 
testimony at least, did speak of the burden of deposit 
insurance, the assessments, the premiums. But the adjustment of 
those was something that truly does help. The GAO study pointed 
it out as something that would truly help community banks.
    The fact that community banks were having to compete with 
nonbank lenders that were not playing by any rules at all was 
unfair to community banks, took away business. That is 
something else that helps community banks.
    And the GAO study said, as for the rest, it's certainly 
true that we've passed the most significant financial reform 
package since the New Deal because we had the most significant 
financial crisis since the Great Depression. So, of course, 
there will be some compliance cost.
    But until the implementing regulations come down, we can't 
know what they will be. So all of what we've heard about how 
crushing they will be is--is speculation because we don't know 
because most of them have not come down.
    The CFPB, at least in their rulemaking to this point, has 
taken to heart the suggestions of small banks. They have a 
trade association, an Independent Community Bankers 
Association, ICBA, that has been very involved in the 
rulemaking. The reformers like Center for Responsible Lending, 
CRL, is working closely with ICBA and trying to be reasonable 
and compromise.
    So, as I said in my prepared--as I said both in my oral 
statement and my written statement, I very much encourage the 
regulators to look closely at the concerns raised by community 
bankers to see what is not a necessary cost of compliance, as 
we did in Congress with having a different examination regime 
for the CFPB for small banks, and try to make sense of this.
    Not needlessly drive up compliance costs, but also 
recognize where the rules do need to be the same.
    Mr. Cummings. Okay. The Dodd-Frank provides the CFPB with 
supervisory authority over nonbank financial institutions in a 
capacity new to that industry. Congressman Miller, in your 
testimony today, you have stated, and I quote, ``A GAO study 
last fall concluded that some provisions will help community 
banks, such as the supervision by the CFPB of certain nonbank 
lenders that competed unfairly with responsible community banks 
in the past.''
    Would you comment on that, please?
    Mr. Miller. Certainly. There were some--like the New York 
community bank I spoke about in my testimony, my prepared 
testimony, there are some bad actors. But generally, the 
community banks were not--were not guilty of the worst 
practices.
    Some of the worst practices were by mortgage companies that 
were not depository institutions at all, did not have a charter 
from anybody. They were almost completely unregulated.
    I've heard Ben Bernanke say in sort of defense of the Fed--
because they had rulemaking authority they never used under 
HOEPA, Home Ownership and Equity Protection Act, passed in 
1994--that the mortgage market, mortgage practices went to hell 
in a very short period of time in a pretty dark part of the 
market, where they did not really see what was going on.
    You certainly had lenders like Ameriquest that weren't--
weren't depository institutions at all. You also had really a 
gray line between brokers and an originator that all you really 
needed to be--needed to do to become a mortgage company was to 
get a warehouse line of credit and to have a relationship with 
a Wall Street investment bank that would buy the mortgages as 
soon as you made them.
    And those folks were competing with Mr. Creamer. And when 
you make them play by the same rules that Mr. Creamer plays by, 
that his bank plays by, it's going to help him a lot.
    Mr. DeSantis. Thank the gentleman.
    And the chair now recognizes the gentleman from Georgia, 
Mr. Collins.
    [Pause.]
    Mr. Collins. May as well go for it. You made a comment 
earlier. You made a statement. Micropolitan? What was your ----
    Mr. Miller. Micropolitan. It's a Census Bureau term. It 
just means small towns.
    Mr. Collins. Well, I have another term for it. It's called 
home. And ----
    Mr. Miller. It was called my district, too. Yes.
    Mr. Collins. Exactly. So we understand that. And I think it 
sort of sets the stage for my questions and just really where I 
am at as well because I like your analogy. And by the way, it 
is a traditional favorite at our house of the Baileys and the 
Potters, and we understand that.
    Mr. Miller. You're raising your children right.
    Mr. Collins. Exactly right. But I think there is an issue 
of the market taking care of the Potters of the world, and 
there is an issue with the Baileys, and neither one were 
exactly models of bookkeeping, okay, in that movie.
    [Laughter.]
    Mr. Collins. But what I see here and what I want to talk 
about, Mr. Creamer, as I see you here today, and I sense as we 
were talking about this, I just sense a frustration not in 
necessarily your voice, but in your eyes. That you are just, 
see, you look a lot like the bankers that I talk to in 
northeast Georgia.
    One of the stories that I have, and it may be similar in 
your area of north Florida, was we had a community bank, a 
little three-branch community bank, great little lender. Came 
in with all the regulations. They came in with--their auditors 
came in to their home office.
    Their home office had 10 employees. They brought in about 
14 auditors and got mad because they didn't have a place to 
work out of. This is the kind of things that I think folks just 
don't understand.
    Mr. Creamer, are you seeing this sort of thing as you talk 
to other bankers? I would like just to hear. I have read your 
statement, and I am sensing that. But I also want to hear from 
you again.
    Mr. Creamer. Well, I'd like to apologize first for speaking 
with my eyes and not my voice because ----
    Mr. Collins. But I think this happens.
    Mr. Creamer. There is a large level of frustration. And I 
had breakfast with my vice chairman last week, and he told me I 
was becoming cynical and I needed to guard against that. So I 
am guarding against that.
    Mr. Collins. Well, you came to the wrong city for that.
    [Laughter.]
    Mr. Creamer. Yes. Well, you know, I would first like to say 
I was remiss in not thanking the Members for speaking very 
complimentary about community banks and even the testimony here 
and saying a number of times that we did not cause the 
financial crisis. Because, frankly, if you've been on the 
business end of 8 safety and soundness exams over the last 6 
years like I have, you would believe that you were the sole 
cause of the crisis.
    It is comforting that the FDIC is going to give back some 
of the premiums. However, in the State of Florida, there is 
about 200 community banks, plus or minus. Seventy-five of those 
were put under consent or cease and desist orders over the past 
4 years.
    Of those 75 cease and desist orders, 63 read exactly the 
same, and they all impose 8 percent and 12 percent capital 
ratios, which are above the regulatory standards. If you have 
one of those consent orders, you do not get a refund of that 
premium. So it is not very helpful in that.
    From the examination story, in our bank, it's more like 30 
to 35 examiners. It is a 6- to 8-week process. That is new in 
the last 4 years, and it's--I mean, it's something we have to 
do because we're an insured institution. But it is difficult at 
best.
    Mr. Collins. And one other thing that I want to emphasize 
in the little bit of time I have left here is Georgia has had a 
large issue with that problem as well, failed banks and failed 
specifically community banks, for a number of reasons, some 
good and some bad. But one of the issues that I am having 
trouble as we get around just some issues that my banks are 
bringing to me was not being able to get into the markets that 
are de novo standard, that coming out in 2008 were well 
capitalized or limited.
    If they were established after 2008, that standard coming 
in where they can't reach out in the markets in a different 
way. Can you explain to me, and Mr. Creamer or others want to 
jump in, explain the change in the de novo status that is meant 
for newer community banks trying to come in and fill the gap 
where some have been mentioned?
    And also has there been an effect of this standard maybe 
cutting back the access to residential mortgage markets in 
areas that preventing healthy community banks from entering 
into those markets? Is that something that would you speak to 
or someone else would speak to?
    Mr. Creamer. I'm not sure I can speak to the de novo 
situation because we're not a de novo.
    Mr. Collins. Not de novo, yes.
    Mr. Creamer. And I can't imagine anybody would want to 
start a bank today anyway.
    Mr. Collins. Well, we have had a couple, and I have one 
bank in particular that was starting to get into a new market, 
had hired consultants, went through the paperwork, and went 
through everything else. The consultants then went to another 
job because of the length of time it was taking to get this up. 
So they finally just put it on hold, and it stopped the market.
    And it was just, again, we are in an area which is a little 
bit different. So anybody else want to take a stab it, 
Congressman and others? I mean, because it seems like we are 
limiting our environment here, and that is the one thing we 
really don't want to do, as long as the standards are properly 
and appropriately applied.
    Mr. Miller. I'm not familiar with any--like Mr. Creamer, 
I'm really hearing for the first time about a discussion about 
newly chartered banks. I think there's probably true there are 
not a whole lot.
    Now there has been a study of the 200 or 300 community 
banks that failed during the financial crisis. I think it was 
the GAO. It may have been the FDIC. But in fact, most of those 
were fairly newly chartered banks, and they were fairly newly 
chartered banks that were chartered specifically to get 
involved in what they called at the time the real estate boom, 
now we call the real estate bubble.
    And that doesn't even take into account--it's like 70 or 80 
percent of the failed banks were newly chartered banks that 
their business model was largely dirt lending, either 
acquisition development in construction loans, a form of 
commercial lending, or mortgages. And those were the ones that 
they got into trouble.
    And then, in addition to that, there were a fair number of 
investors who bought community banks specifically to get in on 
the real estate boom, now we call the bubble, and a lot of 
those got into trouble as well.
    But it's probably pretty hard to raise capital right now in 
part because the economy is still kind of bad.
    Mr. Collins. And especially in those that exist. And Mr. 
Chair, I know my time is out.
    But I think one of this is the thing that they are actors. 
And as you--and I do like the analogy to a point of the Bailey 
and Potter issue. But we can't continue to regulate the Potters 
of the world at the expense of the Baileys of the world, and I 
think that is the problem that I am seeing right now, and it is 
the concern that I have.
    Mr. Chairman, I yield back.
    Mr. DeSantis. Thank the gentleman from Georgia.
    Now we don't have anyone from the other side. Obviously, if 
they come, they will be recognized. But seeing the lack of 
Members on that side, the chair will now recognize the 
gentlelady from Wyoming.
    Ms. Lummis. Thank you, Mr. Chairman.
    Kind of following in on this theme, I, too--I'm from 
Wyoming, the smallest population in the Nation. There really 
are no big banks in Wyoming, none. We are completely reliant on 
community banks, and so the thought that we would all have to 
drive to Denver or Salt Lake to bank for an entire State is 
absurd.
    Professor Marsh, I want to ask you, does too big to fail 
give systemically important institutions an advantage that 
community banks can't get?
    Ms. Marsh. Well, to clarify, what do you mean by ``too big 
to fail?'' So, do you mean systemically ----
    Ms. Lummis. Systemically ----
    Ms. Marsh.--significant designation?
    Ms. Lummis. Yes.
    Ms. Marsh. That hasn't really been my focus of my research, 
but there are a number of people who would argue that that's 
true.
    I think it is true that that designation means that many 
people in the marketplace consider that the Government, even 
though Dodd-Frank repeatedly says we're not bailing anyone out, 
the marketplace doesn't believe it. And the marketplace is 
giving a premium to the larger banks at the expense of the 
smaller banks.
    So ----
    Ms. Lummis. Why doesn't the marketplace believe it?
    Ms. Marsh. I think because if you allow an institution to 
remain that large, if we found it difficult to imagine a world 
where they all cascaded in failure 5 years ago, and they've 
only gotten bigger since then, how can we imagine a world where 
the Government would allow them to all cascade in failure this 
time?
    Ms. Lummis. Mr. Creamer, why didn't your bank--why doesn't 
your bank believe it?
    Mr. Creamer. Because it's been the practice that too big to 
fail, whether you are a financial institution or an automobile 
manufacturer, it has just been a practice that you've been 
bailed out. The moral hazard has been created. And as a 
financial person, we fully understand that a $2.3 trillion 
financial institution that can manipulate the electricity 
market cannot be allowed to fail.
    Ms. Lummis. So how is this going to affect the needs of 
customers in States like mine and communities like Mr. Collins' 
in northern Georgia, very rural areas? What are we going to do?
    Mr. Creamer. Well, as Mr. Miller said earlier, and he's 
accurate on residential loans that all the forms are basically 
the same, not so on small business loans where the forms can be 
different. But the difference then is the customers are not all 
the same. And in a community bank, it's about the story of the 
customer.
    It's about the need of the customer, what the customer is 
trying to accomplish, and how can the community bank help that 
customer accomplish what they're trying to accomplish. Because 
if we're successful in helping a small business owner 
accomplish what they want to accomplish, then they hire more 
people.
    More people potentially bank with us. More people then 
potentially borrow for their homes and their cars, which makes 
our community stronger, and it makes our bank stronger, and 
it's just a good thing.
    Ms. Lummis. So how many Fortune 500 companies do you think 
are incorporated in Wyoming, have their home offices in 
Wyoming? What would you guess? Anybody?
    Mr. Creamer. None?
    Ms. Lummis. You got it. So with places like Wyoming or any 
of these districts that are really comprised of small towns, 
what is the future for the borrower, for the small business 
person, the small business person?
    Mr. Creamer. The future should be a strong, viable 
community banking system.
    Ms. Lummis. How do we get it back?
    Mr. Creamer. We have to relieve the overwhelming regulatory 
burden off of the community banks, and we have to allow 
community banks to be able to effectively compete in the niches 
they compete in.
    Ms. Lummis. Professor Marsh, and you can answer that as 
well, but in addition, would you answer this question? Will the 
regulations coming out of Dodd-Frank make smaller banks more or 
less able to compete with larger banking institutions?
    Ms. Marsh. Well, I'll answer both questions at once, if I 
may?
    Ms. Lummis. That would be great.
    Ms. Marsh. Because I think that, as I've said before and 
others have said, the issue is not to look at Dodd-Frank in a 
vacuum because no bank can look at Dodd-Frank in a vacuum. It's 
regulation by accretion. So it's on top of decades and decades 
and decades of regulations that the banks have to deal with.
    And so, that's our problem, right? That we just react to 
crises and add new laws. And what we need to do is take a step 
back and fundamentally re-imagine what is the appropriate way 
to regulate a bank that is located in rural Wyoming and most of 
its business is farm lending.
    Ms. Lummis. And the community banks, did they create this 
crisis that Dodd-Frank was built to address?
    Ms. Marsh. I do not think so.
    Ms. Lummis. I yield back, Mr. Chairman.
    Mr. DeSantis. Thank you for that.
    I am going to go ahead and do a second round. We may have--
I know there are some Democratic Members coming. I did see, 
just on kind of some of the news that I know Mr. Cartwright is 
down there for an IRS hearing. So it should give him a chance 
to come back up here.
    In terms of just the cause of the financial crisis, and I 
know you got to it a little bit in your report, but there was a 
narrative developed that it was Wall Street decided, you know, 
they got greedy and they tanked the whole economy.
    And I have no problem with criticism directed at Wall 
Street, but it seems to me that really overlooks the extent to 
which Government policy created incentives that created the 
environment to where you would have that. So is that something 
that you would agree with just in your research?
    Ms. Marsh. I very deliberately stayed away from researching 
that.
    [Laughter.]
    Ms. Marsh. Well, I mean, I am much more interested in what 
the impact is because from the perspective of what I was trying 
to write about, I don't care what caused the financial crisis. 
I care what's going to cause the next financial crisis and 
what's going to cause problems for small businesses and farmers 
and rural communities.
    Rural communities, I think, are the most vulnerable to this 
increased pressure on the small banks. And you didn't hear 
about a lot of problems in rural communities in the lead-up to 
the financial crisis.
    Mr. DeSantis. Sure. Ms. Peirce, do you have anything on 
that? Because it just seems to me that--and I wasn't in 
Congress during this. This is my first term. But it seems to me 
that people here are quick to try to say, oh, it was this, but 
not very quick to do a little self-examination in terms of bad 
policies that have created--that have helped create some of 
these problems.
    Ms. Peirce. Yes, I mean, I think that institutions will 
take advantage of bad policies to work for their own advantage. 
And unfortunately, the Government has set up a regulatory 
regime that really takes away consequences for poor decisions 
made by people in the private sector.
    And so, what we need to do and what we should have done 
instead of doing what Dodd-Frank did, we should have put more 
responsibility on the people who actually make bad decisions to 
pay for them. And I think community bankers will pay for their 
bad decisions because they're going to go out of business if 
they make a lot of bad lending decisions.
    But these bigger banks, we let them stay in business even 
though they continue to make very bad decisions. So, yes, 
there's definitely a role of Government policy.
    Mr. DeSantis. So shifting the risk from taxpayers to 
shareholders, basically, do you think that would be good 
policy?
    Ms. Peirce. It would be good policy. And making creditors 
responsible, too, because they should be monitoring the 
institutions to which they lend.
    Mr. DeSantis. When I walk around here, I will get people 
bringing me these leaflets or whatever, and every week for 
sure, but sometimes even every day, someone will come up and 
Glass-Steagall, Glass-Steagall. Do you, Mr. Miller or Ms. 
Peirce, anyone, that repeal of Glass-Steagall, it is kind of a 
simplistic narrative that Glass-Steagall is repealed and then, 
lo and behold, the economy cratered.
    What role do you think that that had in the financial 
crisis?
    Mr. Miller. I think the deregulation generally in the '80s 
and '90s played a very large role. The separation of commercial 
investment banking or the ending of that separation at least 
had the role of making the institutions very large and very 
complex and, therefore, too big to fail.
    The problem with too big to fail, the reason that it's a 
problem for community banks is that there is an assumption in 
the market, which I think Ms Peirce talked about generally, or 
someone talked about the assumption. The assumption is that 
they will not be allowed to fail. So if you lend them money, 
you're going to get paid back one way or the other.
    If they can't pay you back, then the taxpayers will, one 
way or the other, pay you back. So you're going to get paid 
back. And that's worth something.
    There have been various estimates. Bloomberg, I think, 
estimated that it's a quarter to a half a percent advantage. 
The rating agencies point to that to give better credit 
rating--credit ratings to big banks, the assumption that they 
would not be allowed to fail.
    They're almost impossible to underwrite. They're too big to 
fail, too big to manage, too big for the market to discipline, 
too bit to underwrite. And so, they're getting at least a half 
a point less when they borrow money than Mr. Creamer's bank 
does.
    ICBA is now very much on the issue of too big to fail, and 
their issue is that they get money more cheaply. There is a GAO 
study coming on it, I think, shortly, if it hasn't already come 
out, but on too big to fail. And that is an unfair competitive 
advantage for Mr. Creamer and every other community bank.
    Mr. DeSantis. Do you want to weigh in, Ms. Peirce?
    Ms. Peirce. Yes, with respect to Glass-Steagall, I don't 
think that--I mean, I think it's a nice rallying cry. But I 
don't think that that's going to solve the problem to put 
Glass-Steagall back ----
    Mr. DeSantis. Because Lehman Brothers was pretty much a 
pure investment bank. Correct?
    Ms. Peirce. Right.
    Mr. DeSantis. Now in terms of ending too big to fail, some 
have said, hey, let us just set kind of some arbitrary caps on 
capital requirements or size. I have concerns about whether 
Members of Congress have the competence to decide those things. 
So in terms of ending too big to fail, what would be your 
policy prescriptions in that respect?
    Ms. Peirce. Well, if we could trade capital requirements 
for all the other regulations, then we could pare back a lot of 
the other regulations that, as Professor Marsh said, have 
accreted over time. Unfortunately, I think if we do increase 
capital requirements, it's not going to be at the expense of 
other requirements.
    And also we put in risk-based capital requirements, which 
don't work as well as a simple leverage ratio. I mean, 
community banks tend to be more heavily capitalized than the 
larger banks. And so, I think we need to think creatively about 
perhaps even increasing the liability for shareholders so that 
if your bank fails, you end up having to kick in some more 
money. That will make you pay a little more attention.
    Mr. DeSantis. Ms. Marsh?
    Ms. Marsh. I don't know that it's going to be a magic 
bullet for anything, but if we're trying to limit the size of 
these institutions, I think it makes more sense to separate 
depository institutions from investment banks than it does to 
put a cap on, an artificial cap that you said. I mean, none of 
us are really in a position to determine what is too big to 
fail.
    It makes more sense to split them up functionally as Glass-
Steagall did than to set an arbitrary cap.
    Mr. DeSantis. Yes, I mean, I think some of us--look, I 
mean, if you are a big bank, and you are not getting special 
policies that give you competitive advantage, and if you are 
bearing the risk, I think a lot of us are concerned when you 
have a system of privatized gains and socialized losses.
    Obviously, there is a moral hazard issue, and there is just 
an unfairness issue because no one is going to care outside of 
our community if your bank fails. You are not going to get 
bailed out, obviously. But when one of the big banks, then they 
would get a disparate treatment. So that is just a problem with 
our policy.
    The gentlewoman from Wyoming, do you have any other 
questions? Because if you do, I can recognize you to give maybe 
Mr. Cartwright some time. And then, otherwise, I will just 
probably the gavel the hearing to a close.
    Ms. Lummis. I do have additional questions, Mr. Chairman.
    Mr. DeSantis. Okay. The chair recognizes the gentlewoman 
from Wyoming for 5 minutes.
    Ms. Lummis. Thank you very much.
    Could I ask any of you to comment on the proposed Basel III 
regulations?
    Ms. Peirce. Well, I mean, I would just say that, first of 
all, having our regulations decided by central bankers across 
the world and imposing one uniform standard doesn't seem like 
the wisest approach to me.
    But second of all, the focus on risk-based capital, which 
Basel III embodies, is I think a very dangerous approach 
because it homogenizes the banking sector further, and it 
forces people to try to gain--I mean, it's an invitation to 
arbitrage, and that's what happened ----
    Ms. Lummis. Isn't it true that banking is more concentrated 
in Europe than it is in the United States?
    Ms. Peirce. It is. We have a more--we have a much more 
competitive landscape than Europe does.
    Ms. Lummis. So, Basel III, Mr. Creamer, would do what to 
American banking?
    Mr. Creamer. Well, to go back very briefly to what Mr. 
DeSantis had said about regulation incenting some things, first 
of all, risk-based capital regulation incented residential 
mortgage loans because they were risk-weighted lower, and it 
required lower capital requirements. In many cases, there's 
more inherent risk in a residential mortgage loan than there is 
in an owner-occupied commercial real estate loan to an 
operating business.
    In addition to that, Fannie Mae and Freddie Mac put 
explicit Government guarantees. Now they were implicit at the 
time, but we all know they're explicit. So when you have an 
incentive to capital and you have explicit guarantees by the 
Government in a product, you'll probably create a price bubble.
    Basel III doesn't really address that. Basel III still 
risk-weights residential mortgage loans at 50 percent. So 
there's still an encouragement to make residential mortgage 
loans. It still risk-weights small business loans at 100 
percent.
    Right now, each quarter my bank files a call report. That 
call report is about 78 pages. All call reports--all banks file 
call reports. The call report instructions are 626 pages for 
that 78 pages.
    This is a mailer we received last week from a very 
reputable brokerage firm with a breakdown of Basel III as it 
relates to community banks. Basel III doesn't simplify that. It 
makes it more complicated for our staff to calculate. And while 
they say they have simplified the definition of leverage 
capital, I'd simply refer to one section of this, which is 
about 16 lines of the deductions from what is qualified as 
regulatory capital.
    And I am a banker and an accountant by trade, and I don't 
recognize the acronyms that are in here, and these are the ones 
that supposedly apply to me.
    Ms. Lummis. I hear a lot about Basel III from the banks in 
my communities, and they are expressing true alarm over them.
    Another question for anyone on the panel who wishes to 
address it. The Consumer Protection Financial Bureau has only 
completed about a third, a little more than a third of its 
regulations thus far, and they were supposed to have them all 
completed at this time. So given that, and the fact that the 
interpretations of those regulations was really given to the 
regulators, so how is a bank supposed to determine what 
services you can provide based on rules that haven't been 
written or rules that haven't been interpreted?
    Mr. Creamer. Well, I think Ms. Marsh said it--Professor 
Marsh said it very well a while ago. It is an accretion of 
regulation. We already have consumer protection regulations. We 
have the Federal Reserve alphabet regulations, Regulation A 
through YY.
    Equal Credit Opportunity, Home Mortgage Disclosure, 
Electronic Funds Transfer, Privacy of Consumer Information, 
Fair Credit Reporting, Truth in Lending, Unfair Deceptive Acts 
or Practices, Community Reinvestment, on and on and on. These 
laws are very effective. And yes, as Mr. Miller said, there are 
bad actors.
    As a community banker who has been doing this for 31 years, 
I expect bad actors to be dealt with. But it's difficult to 
deal with the entire industry because of one or two bad actors, 
and that makes this more difficult.
    I have heard that the Consumer Financial Protection Bureau 
is going to make it easier for consumers. Well, these 
regulations are Government-promulgated as well, and I'll simply 
point out to you that under Fair Lending, in Regulation Z, this 
is a residential mortgage application that a consumer that 
comes into any bank has to fill out and understand.
    Now the easiest way to take care--to take advantage of a 
consumer is something like this. Now I shudder to think what 
the unwritten regulations that are coming down the pike will do 
to this and what that will do to my customer, who is normally a 
plumber or electrician or a carpenter who is buying their first 
home, who has no chance of understanding what this is.
    Ms. Lummis. Mr. Chairman, would you indulge one other of 
the respondents to weigh in on that?
    Mr. DeSantis. Sure.
    Ms. Lummis. Anyone wish to?
    Mr. Miller. Ms. Lummis, I have heard differently. I've 
heard that CFPB is doing a better job of hitting their 
deadlines than any of the other agencies, which may be a low 
standard, but I think ----
    Ms. Lummis. That is a low standard, I would suggest.
    Mr. Miller.--they are actually getting their regs in on 
time. And they've also shown a willingness that Congress rarely 
shows of adjusting their regulations after they've adopted 
them.
    Just within the last--either last week or even earlier this 
week, they just issued a lot of little changes to the QM rules, 
the qualified mortgage rules, based upon concerns that were 
raised. Congress tends to enact some big act and then not touch 
it for a generation.
    And when the inevitable little things that aren't working 
exactly the way Congress thought they would work come forward, 
instead of just fixing that, usually the people who've been 
opposed to the bill now point to that as evidence that it 
should never have been passed, and the people who supported the 
bill are unwilling to admit any error.
    So CFPB is actually showing some reasonableness and 
flexibility and a willingness to listen. And some of what 
they're doing is designed to make forms more readable, more 
understandable. The Truth in Lending Act and RESPA, TILA and 
RESPA, the Real Estate Settlement Practices Act, required 
really almost identical disclosures, but not quite identical.
    And one thing I've heard from--when I was in Congress, one 
of the things I heard from my community bankers and my credit 
unions was that their lawyers told them that they were afraid 
to try to take statutory language, which was legalese, and turn 
it into plain English for fear they might get it wrong. And so, 
with TILA and RESPA, what they would do is set out in the 
statutory language, which no one could read.
    And with TILA and RESPA, they set out all of TILA and then 
all of RESPA. So CFPB has issued a form that is both 
disclosures, TILA and RESPA, on one form that is plain English. 
That is clearly better for consumers. I assume that Mr. Creamer 
prefers it as well.
    And so, I think there is some hope with CFPB, if part of 
their mission is to make finance understandable, that they will 
actually turn unreadable forms into something that can be 
understood by a normal human being.
    Ms. Lummis. I hope so, too, Mr. Miller. Everything I hear 
so far from my community banks and their borrowers, their 
customers, is to the contrary.
    Mr. Miller. The baseline against which we're working was 
complete inability to understand anything.
    Ms. Lummis. Thank you.
    I yield back. Thank you, Mr. Chairman, for your indulgence.
    Mr. DeSantis. Thank you.
    Well, we really appreciate the witnesses here. I think you 
all did a great job. I think what we were trying to establish 
here is when Government takes on, Congress implements, passes 
these big bills designed to deal with certain issues, that 
oftentimes we can create new problems and disadvantage smaller 
institutions vis-a-vis competing with larger institutions or 
even just make life more difficult for smaller institutions.
    So I think we were able to demonstrate that. I think that 
from what I heard from the comments on the other side, I don't 
think that many of these folks, who probably supported Dodd-
Frank, want to see community banks harmed. And so, there may be 
some opportunity to get some bipartisan relief from some of the 
onerous regulations.
    We talked a little bit towards the end about CFPB, and I 
think that may be something for another day. But I think that 
that is going to be something that is very concerning to me 
because if you look at the way CFPB is structured, it is 
essentially immune from any type of congressional oversight. We 
don't have any way to affect their budget or conduct meaningful 
oversight.
    And really, the President is limited in removing the head 
of that agency or the head of the board, and the courts are 
limited in their review of that. So, to me, that is 
problematic.
    Madison in Federalist 51 said, ``If men were angels, no 
government would be necessary. If angels were to govern men, 
neither internal nor external constraints would be necessary.'' 
The way the CFPB is structured we better hope that he was wrong 
about that and that these folks are angels because, otherwise, 
I fear that there will be some unintended consequences, or 
maybe even intended down the--but that is something for another 
day.
    At this time, I want to thank again the witnesses for their 
time, and this hearing is adjourned.
    [Whereupon, at 4:08 p.m., the subcommittee was adjourned.]


                                APPENDIX

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