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


 
                      ASSESSING THE IMPACT OF THE
                    DODD-FRANK ACT FOUR YEARS LATER

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED THIRTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JULY 23, 2014

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 113-94
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]


                        U.S. GOVERNMENT PUBLISHING OFFICE
91-158 PDF                  WASHINGTON : 2015                        
________________________________________________________________________________ _____
For sale by the Superintendent of Documents, U.S. Government Publishing Office, 
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, 
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].  

                        
                           

                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

GARY G. MILLER, California, Vice     MAXINE WATERS, California, Ranking 
    Chairman                             Member
SPENCER BACHUS, Alabama, Chairman    CAROLYN B. MALONEY, New York
    Emeritus                         NYDIA M. VELAZQUEZ, New York
PETER T. KING, New York              BRAD SHERMAN, California
EDWARD R. ROYCE, California          GREGORY W. MEEKS, New York
FRANK D. LUCAS, Oklahoma             MICHAEL E. CAPUANO, Massachusetts
SHELLEY MOORE CAPITO, West Virginia  RUBEN HINOJOSA, Texas
SCOTT GARRETT, New Jersey            WM. LACY CLAY, Missouri
RANDY NEUGEBAUER, Texas              CAROLYN McCARTHY, New York
PATRICK T. McHENRY, North Carolina   STEPHEN F. LYNCH, Massachusetts
JOHN CAMPBELL, California            DAVID SCOTT, Georgia
MICHELE BACHMANN, Minnesota          AL GREEN, Texas
KEVIN McCARTHY, California           EMANUEL CLEAVER, Missouri
STEVAN PEARCE, New Mexico            GWEN MOORE, Wisconsin
BILL POSEY, Florida                  KEITH ELLISON, Minnesota
MICHAEL G. FITZPATRICK,              ED PERLMUTTER, Colorado
    Pennsylvania                     JAMES A. HIMES, Connecticut
LYNN A. WESTMORELAND, Georgia        GARY C. PETERS, Michigan
BLAINE LUETKEMEYER, Missouri         JOHN C. CARNEY, Jr., Delaware
BILL HUIZENGA, Michigan              TERRI A. SEWELL, Alabama
SEAN P. DUFFY, Wisconsin             BILL FOSTER, Illinois
ROBERT HURT, Virginia                DANIEL T. KILDEE, Michigan
STEVE STIVERS, Ohio                  PATRICK MURPHY, Florida
STEPHEN LEE FINCHER, Tennessee       JOHN K. DELANEY, Maryland
MARLIN A. STUTZMAN, Indiana          KYRSTEN SINEMA, Arizona
MICK MULVANEY, South Carolina        JOYCE BEATTY, Ohio
RANDY HULTGREN, Illinois             DENNY HECK, Washington
DENNIS A. ROSS, Florida              STEVEN HORSFORD, Nevada
ROBERT PITTENGER, North Carolina
ANN WAGNER, Missouri
ANDY BARR, Kentucky
TOM COTTON, Arkansas
KEITH J. ROTHFUS, Pennsylvania
LUKE MESSER, Indiana

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    July 23, 2014................................................     1
Appendix:
    July 23, 2014................................................    79

                               WITNESSES
                        Wednesday, July 23, 2014

Carfang, Anthony J., Partner, Treasury Strategies, Inc...........    10
Deas, Thomas C., Jr., Vice President and Treasurer, FMC 
  Corporation, on behalf of the Coalition for Derivatives End-
  Users..........................................................    14
Frank, Hon. Barney, former Member of Congress and former 
  Chairman, House Committee on Financial Services................    12
Kupiec, Paul H., Resident Scholar, the American Enterprise 
  Institute......................................................    16
Wilson, Dale, Chairman and Chief Executive Officer, First State 
  Bank, on behalf of the Texas Bankers Association...............     9

                                APPENDIX

Prepared statements:
    Carfang, Anthony J...........................................    80
    Deas, Thomas C., Jr..........................................    91
    Frank, Hon. Barney...........................................    97
    Kupiec, Paul H...............................................   105
    Wilson, Dale.................................................   141

              Additional Material Submitted for the Record

Hensarling, Hon. Jeb:
    Written statement of the National Association of REALTORS...   148
Capito, Hon. Shelley Moore:
    ``Impact of Federal Mortgage Rules on West Virginia's 
      Families''.................................................   150
Hurt, Hon. Robert:
    Written statement of Mosaic Collateral Asset Management......   153
Perlmutter, Hon. Ed:
    Wall Street Journal article entitled, ``Wall Street Adapts to 
      New Regulatory Regime,'' dated July 21, 2014...............   163

                      ASSESSING THE IMPACT OF THE


                    DODD-FRANK ACT FOUR YEARS LATER

                              ----------                              


                        Wednesday, July 23, 2014

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10 a.m., in room 
2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Members present: Representatives Hensarling, Royce, Lucas, 
Capito, Garrett, Neugebauer, McHenry, Bachmann, Pearce, Posey, 
Fitzpatrick, Westmoreland, Luetkemeyer, Huizenga, Duffy, Hurt, 
Stivers, Stutzman, Mulvaney, Hultgren, Ross, Pittenger, Wagner, 
Barr, Cotton, Rothfus, Messer; Waters, Maloney, Velazquez, 
Sherman, Meeks, Capuano, Hinojosa, Clay, McCarthy of New York, 
Lynch, Scott, Green, Cleaver, Moore, Ellison, Perlmutter, 
Himes, Carney, Sewell, Foster, Kildee, Delaney, Sinema, Beatty, 
and Horsford.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    This hearing occurs 2 days after the fourth anniversary of 
the Dodd-Frank Wall Street Reform and Consumer Protection Act.
    Today, we will examine its impact on our capital markets 
and the American economy and our citizens more generally. I now 
recognize myself for 4\1/2\ minutes for an opening statement.
    Dodd-Frank has always been based upon a false premise that 
somehow deregulation or lack of regulation led us into the 
crisis. However, in the decade leading up to the crisis, 
studies have shown that the regulatory burden on the financial 
services industry actually increased.
    There were few industries that were more highly regulated: 
FDICIA, FIRREA, Sarbanes-Oxley, the list goes on. We hear a lot 
about Wall Street greed. I could not agree more. I am just 
curious at what point was there not greed on Wall Street. So I 
am wondering how that could necessarily be the determining 
factor.
    What I do know is that affordable housing goals of Fannie 
Mae and Freddie Mac on steroids and other policies helped 
incent, cajole, and mandate financial institutions into loaning 
money to people to buy homes who ultimately could not afford to 
keep them.
    My Democratic colleagues at the time said, ``Let's roll the 
dice on housing.'' They did. And the economy imploded. It 
wasn't deregulation. It was bad regulation that helped lead us 
into this crisis.
    And so, if you get the wrong diagnosis, you get the wrong 
remedy. Dodd-Frank has been the wrong remedy, adding 
incomprehensible complexity to incomprehensible complexity.
    Now, frequently in Washington--I say frequently, but 
regrettably, it is the rule as opposed to the exception--laws 
are evaluated by their advertised benefits, not by their actual 
benefits or actual cost.
    So at the time Dodd-Frank was passed, we were told it would 
``lift the economy,'' ``end too-big-to-fail,'' ``end 
bailouts,'' ``increase financial stability,'' and, ``increase 
investment and entrepreneurship.''
    And instead, what have we learned? We have learned that it 
is now official that we are in the slowest, weakest recovery in 
the history of the Nation: tens of millions of our countrymen 
are now unemployed or underemployed; there has been negative 
economic growth in the last quarter; business startups are at a 
20-year low; and 1 out of 7 people are dependent upon food 
stamps.
    Again, increasing entrepreneurship, I don't think so. 
Ending too-big-to-fail, we have had this debate before. We had 
it yesterday. We will have it today. We will have it tomorrow. 
Dodd-Frank codified too-big-to-fail into law, and it is now 
demonstrable 4 years later that the big banks have gotten 
bigger and the small banks have gotten fewer.
    Financial stability, I suppose that is a debatable 
proposition. Financial stability is now defined by the 
unelected and unaccountable bureaucrats.
    I don't know if you increase concentration, though, in our 
larger financial institutions, whether one can say we have 
achieved financial stability. But what I do know is that it 
comes at an incredible cost.
    Thanks to Dodd-Frank, it is now harder for low- and 
moderate-income Americans to buy a home. Again, thanks to Dodd-
Frank, there are fewer community banks serving the needs of 
small businesses and families.
    Thanks to Dodd-Frank, Main Street businesses and farmers 
faced higher costs in managing their risk and producing their 
products, which is impacting every single American at their 
kitchen table.
    Thanks to Dodd-Frank's Volcker Rule, our capital markets 
are less liquid than before, making it more expensive for 
companies to raise working capital, which harms Americans who 
are saving for retirement, and for childrens' education.
    Thanks to Dodd-Frank, services that bank customers once 
took for granted, like free checking, are being curtailed or 
eliminated.
    It is one of the reasons that the House Financial Services 
Committee has moved numerous regulatory relief bills, a number 
of which have actually passed with bipartisan support, and none 
of which I recall being taken up by the Democratic Senate.
    By the time this Congress is over, the House Financial 
Services Committee will have addressed Dodd-Frank's greatest 
sin of omission, housing finance reform, and worked alongside 
our friends at the Judiciary Committee, who are developing a 
bankruptcy alternative to the Orderly Liquidation Authority.
    Before the end of this Congress, we will also have 
addressed Dodd-Frank's greatest sin of commission: codifying 
too-big-to-fail and a taxpayer-backed bailout fund.
    I now yield to the ranking member for an opening statement.
    Ms. Waters. Thank you very much, Mr. Chairman.
    I would like to welcome all of today's witnesses.
    And I, too, want to acknowledge and welcome the former 
chairman and long-time veteran of this committee, Mr. Barney 
Frank, and I am so pleased that he has agreed to be the 
Democratic witness today.
    Barney, I have had your portrait hanging over me for just 
about a year now and during that time, I have concluded that 
just seeing Barney Frank without hearing him is no Barney Frank 
at all.
    I am pleased we all will be able to hear you today, and I 
hope to hear you remind my Republican colleagues about just how 
close to the brink we came in 2008 and about why Congress and 
the President responded forcefully with your namesake 
legislation, the Dodd-Frank Wall Street Reform and Consumer 
Protection Act.
    I am hoping you will recount the incalculable widespread 
human suffering that was inflicted upon millions of Americans, 
suffering that still continues to this day, and how years of 
deregulation, lax enforcement, and zero accountability for the 
Nation's financial institutions destroyed more than $13 
trillion in economic growth, $16 trillion in household wealth, 
and led to millions of foreclosures and devastating 
unemployment.
    In the aftermath, Democrats and some Senate Republicans 
passed Dodd-Frank, which provided oversight to Wall Street, 
gave regulators the tools to end the era of too-big-to-fail 
entities and taxpayer bailouts, and eliminated loopholes that 
allowed risky and abusive practices to go unnoticed and 
unregulated.
    And, most importantly, it restored responsibility and 
accountability to our financial system, giving Americans 
confidence in a system that works for and protects them.
    Chairman Frank, I am proud to have worked so closely with 
you on this important legislation, and I am even more proud of 
the law's remarkable progress in just 4 short years.
    The Consumer Financial Protection Bureau is up and running, 
already returning $4.6 billion to 15 million consumers who have 
been subjected to unfair and deceptive practices.
    The Volcker Rule has been finalized, which is forcing banks 
to limit the practice of trading to make money for themselves 
and refocusing them on making investments in the real economy.
    Shareholders of the U.S. corporations now have a say on pay 
and can better hold executives accountable by voting down 
excessive compensation or golden parachutes.
    And thanks to loaner authorities given to the Securities 
and Exchange Commission, one of Wall Street's top cops, more 
than $9.3 billion in civil penalties has been recovered from 
bad actors since 2011.
    But before these accomplishments were evident, in fact 
before the ink on President Obama's signature was dry, 
Republicans immersed themselves in an aggressive unrelenting 
campaign to repeal, weaken, and pressure regulators to return 
us to the time before the crisis.
    They incorrectly blame the financial crisis on government 
efforts to house the poor and disadvantaged, despite the fact 
that private market securitizations built on predatory markets 
and loans started the crisis.
    Exotic over-the-counter derivatives exacerbated it, and 
poor corporate governance and risk management allowed it to 
flourish. And just as they may diagnose the causes, they 
misunderstand the cure.
    Republicans have pushed proposals to cut regulated funding 
and subject their rulemakings to constant implementation 
hurdles and core challenges. Democrats have tirelessly fought 
GOP efforts to render Dodd-Frank toothless or risk returning 
the financial services industry to the opacity, risk, and 
deregulation that caused the crisis.
    They make hyperbolic claims about the effects of 
regulation. These assertions are as old as time. Indeed, the 
same salvos can be heard from opponents of the 1933 Securities 
Act which was passed in response to the crisis of 1929.
    And though they are the loudest critics, Republicans have 
never offered an alternative, no alternative to protect 
consumers, no way to wind down large, complex banks, and no 
capacity to pass reforms of Fannie Mae and Freddie Mac.
    I continue waiting for my Republican colleagues to 
acknowledge, as Mr. Greenspan has, that they have found a flaw 
in free market ideology.
    Mr. Chairman, the 4-year anniversary of the Dodd-Frank Act 
is an important milestone. We should look back and assess how 
far we have come and where we need to go.
    And today, I, for one, look forward to correcting the 
record and getting some facts straight about this historic law 
and its contribution to the renewed vibrancy of our Nation.
    I welcome the witnesses' testimony. And I yield back the 
balance of my time.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from West Virginia, Mrs. Capito, chairwoman of our 
Financial Institutions Subcommittee, for a minute and a half.
    Mrs. Capito. Thank you, Mr. Chairman.
    And welcome back, former Chairman Frank.
    This past Monday marked the fourth-year anniversary of the 
passage of Dodd-Frank, with more than 2,300 pages, 400 new 
rules, of which 298 have been finalized, and still 24 percent 
are yet proposed.
    I think we see now that this legislation is having a 
detrimental impact on our Main Street businesses and community 
lenders and consumers.
    As many of you know, for the past 3 years I have had 
numerous hearings in the Financial Institutions and Consumer 
Credit Subcommittee, highlighting the challenges facing 
community lenders and small businesses. One of my fears during 
the drafting of Dodd-Frank was that it would limit the ability 
of community lenders to tailor their products to their clients' 
needs. And, unfortunately, we are seeing this become a reality.
    Later this morning, I will share several accounts from a 
West Virginia lender of cases where they no longer are able to 
provide West Virginians with tailored products to meet unique 
financial circumstances and challenges because of the new 
regulations.
    These cases bring to light one of the central flaws of 
Dodd-Frank, which is the premise that lending decisions are 
best determined by Washington bureaucrats rather than local 
lenders. Lenders need flexibility to tailor their products. 
Removing this critical flexibility is a detriment to rural 
communities like those that I represent in West Virginia.
    Unfortunately, the consequences of Dodd-Frank are not 
limited to access to credit. Life insurance policyholders could 
potentially see increases in premiums if life insurers are 
forced to capital levels designed for a lending institution.
    I will continue to work with both Chairman Hensarling and 
Chairman Neugebauer to resolve this unintended consequence. And 
I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, the ranking member of our Capital Markets 
Subcommittee, for a minute and a half.
    Mrs. Maloney. Thank you, Chairman Hensarling, and Ranking 
Member Waters.
    And welcome, Chairman Frank. We miss you. It is great to 
see you. This legislation bears your name and was the most 
sweeping overhaul of our financial regulation since the Great 
Depression.
    History shows that financial reform is a work in progress 
and will improve and solidify with time. When the Investment 
Company Act of 1940 was passed, it was called at the time, and 
I quote, ``the most intrusive financial legislation known to 
man or beast.''
    That same intrusive financial legislation is now the 
cornerstone of the large and thriving U.S. mutual fund 
industry. It is also important to remember that even the post-
depression financial reforms took a very long time to 
implement.
    While the Securities Act of 1933 is a landmark reform of 
our securities markets, the SEC didn't adopt the 1933 Act's 
main antifraud rule, Rule 10b-5, until 1948, over 15 years 
after the 1933 Act was passed.
    In sum, financial reform, done properly, takes time. It 
requires flexibility on the part of regulators, the industry, 
and Congress.
    So I look forward to our witnesses today and will respond 
by saying that when President Obama entered office, we were 
losing 700,000 jobs a month. We have had 52 months of private-
sector job growth, last month over 288,000, resulting in the 
Dow being the highest ever, 17,000, with the stock market. We 
are moving in the right direction. Financial reform is a part 
of our financial growth and stability.
    Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Housing and Insurance Subcommittee, 
for 1 minute.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    The Dodd-Frank Act was the most far-reaching financial 
reform legislation since the Great Depression. Put in 
perspective, if you took the Securities and Exchange Act of 
1933, the Securities and Exchange Act of 1934, Gramm-Leach-
Bliley, Sarbanes-Oxley, and every amendment you tacked on since 
then, you would still need 600 pages to have the same amount of 
pages as the Dodd-Frank Act: 398 rulemaking requirements 
compared to 16 for Sarbanes-Oxley. Just in the first of 225 
rules, 24 million man-hours per year are required to comply 
with it.
    What does this mean? It means that we have institutions now 
that are hiring more compliance officers than loan officers, 
and it is beginning to hurt small businesses all across the 
country.
    The SBA recently said that the microloans have declined 
every year since the passage of Dodd-Frank. It climbed over 
$170 billion to 2008, from $170 billion to $138 billion. 
Recently, we had a loan banker here saying he is hiring more 
compliance officers than loan officers.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, the ranking member of our Financial Institutions 
Subcommittee, for a minute and a half.
    Mr. Meeks. Thank you, Mr. Chairman.
    I want to thank all of the witnesses for your testimony 
today, but I want to especially say that it is with great 
pleasure that I welcome back Chairman Frank.
    Very few individuals who serve on this committee will 
experience the great honor of having their picture on the wall 
of this hearing room. This honor speaks volumes to the great 
influence and impact, Mr. Chairman, that your leadership had 
within these walls and, by extension, to our financial services 
industry and our great country.
    Many have forgotten how far we have come. You led when the 
country needed strong leadership, when our most prized 
financial institutions were collapsing and when average 
Americans were helplessly losing their jobs and retirement 
funds.
    Four years later, Mr. Chairman, we can proudly say that we 
have made great progress not only in restoring confidence in 
our financial markets, but also in safeguarding and preventing 
the excessive risky behaviors of the past.
    Four years later, Mr. Chairman, more Americans are 
returning to work, confidence and trust has returned to our 
financial institutions and markets, and our banks and credit 
unions are starting to lend again, but they are doing it more 
carefully this time.
    While there is no bill that is a perfect bill, Dodd-Frank 
has given us a foundation to build upon to make sure that there 
is strict transparency in our markets and that Americans can 
continue to live the American dream.
    I yield back the balance of my time.
    Chairman Hensarling. The gentleman yields back the balance 
of his time.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, the vice chairman of our Financial Institutions 
Subcommittee, for 1 minute.
    Mr. Duffy. Thank you, Mr. Chairman.
    And thank you, witnesses, for being here today.
    It is widely believed that the financial crisis resulted 
from a lack of regulation, but today the regulations that 
resulted from the 400 new mandates included in Dodd-Frank do 
not provide any more security to our financial markets. All 
they do is provide less choice for consumers and, in some 
cases, expose them to more dangers.
    In fact, the Dodd-Frank Act was supposedly created to end 
too-big-to-fail, but all it has done is make it harder for 
small community banks and credit unions to serve the American 
people.
    Take, for instance, the Consumer Financial Protection 
Bureau (CFPB). Protecting consumers is a noble goal and a 
mission that I support, but you don't protect consumers by 
taking away or limiting products like the CFPB does through the 
qualified mortgage rule, limiting credit options, or claiming 
disparate impact based on numbers that don't exist.
    And the additional dangers that the CFPB is exposing 
consumers to through their data collection is absolutely 
unacceptable. The Dodd-Frank Act has not made the American 
consumer safer, and it has failed to end too-big-to-fail. As we 
celebrate the Dodd-Frank birthday, I think the American people 
realize there is not much to celebrate.
    I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes, for 2 minutes.
    Mr. Himes. Thank you, Mr. Chairman.
    And I, too, welcome the panel, especially former chairman 
and my friend, Barney Frank. It is a real pleasure to have you 
back here.
    I want to make an observation about the 80-page reflection 
that the Majority produced on Dodd-Frank. I read it closely and 
carefully, and what is most interesting to me about that and 
this opportunity on the fourth-year anniversary of the passage 
of Dodd-Frank--what is most interesting to me about that 80-
page report is the dog that didn't bark.
    It has for 4 years, of course, been the practice of the 
other side to abide by the idea that if you don't have 
something nasty to say, say nothing at all. And the 80 pages on 
this fourth anniversary are related exclusively to Title I and 
Title II, 2 titles of a 16-title bill.
    The reflection in the 80 pages makes no mention of the CFPB 
and the billions of dollars that have been returned to some 
pretty badly abused consumers, no mention of the fact that the 
CFPB is stopping the selling of its toxic mortgages to American 
families, no mention of the first meaningful regulation of the 
massive derivatives market, a market which was at the very 
center of the meltdown of 2008.
    And, of course, there is no mention in either that 80 pages 
or any of the opening statements from my friends on the other 
side about the fact that the financial markets today are 
thriving, in many cases, as they never have before. And, as we 
all know, the banks are remarkably profitable. These are facts 
that completely belie the predictions of chaos and catastrophe 
that we have heard for 4 years from the other side.
    Instead--and this is a compliment to my friends on the 
other side--they do focus on the fascinating question of too-
big-to-fail, where, of course, the reality is none of us know 
whether we have put in place the tools to address the failure 
of a systemically important institution.
    Sheila Bair thinks that perhaps we have. Tim Geithner 
thinks that perhaps we haven't. This is a terribly important 
question and one that I think is worthy of good, strong 
bipartisan consideration and debate.
    And, with that, Mr. Chairman, I yield back the balance of 
my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Stutzman, for 1 minute.
    Mr. Stutzman. Thank you, Mr. Chairman, and thank you for 
calling this hearing.
    And thank you, witnesses, for taking the time to speak with 
us today.
    As we will hear today, Dodd-Frank has failed in bailouts 
and failed to lift the economy, as the President promised. In 
practically every way, Dodd-Frank puts regulators ahead of 
taxpayers and consumers. Still, no one believes the economy has 
been made safe from future bubbles or bailouts.
    What the lenders in front of us do know is that 4 years of 
Dodd-Frank have left lending more expensive and loans harder to 
come by for consumers. For 4 years, Senate Democrats have 
blocked this committee's push for even minor changes to the 
law.
    One perfect example is my bill, the Bureau Guidance 
Transparency Act, which this committee passed on a bipartisan 
basis. It only requires the CFPB to declare its new 
restrictions on lending in a slightly more transparent way. 
Yet, no one expects Senate Democrats to notice.
    Today, I am looking forward to real-world lenders, not 
regulators, to explain how this law is impacting the American 
people.
    Thank you, Mr. Chairman. And I yield back.
    Chairman Hensarling. We will now turn to our witnesses, 
each of whom I will introduce briefly.
    First, we welcome Mr. Dale Wilson, chairman and CEO of the 
First State Bank of San Diego, Texas.
    Next, we welcome Mr. Anthony Carfang, a partner at Treasury 
Strategies, a firm that counsels businesses on Treasury 
management strategies.
    And now, with a lot of sincerity, I welcome back Chairman 
Frank.
    I haven't had an opportunity to shake your hand and greet 
you personally. We will remedy that situation after the 
hearing.
    Selfishly, I welcome the chairman back for two reasons: 
one, I won a bet that the ranking member would call him as the 
Democrat witness to defend his law, and it is always good to 
win a bet; and two, I have a vested interest in ensuring that 
former chairmen are treated well by this committee because I 
intend to be one someday. But to the chagrin of my Democratic 
colleagues, I am not planning for that to be one day soon.
    Next, we welcome Mr. Thomas Deas, Jr., vice president and 
treasurer of the FMC Corporation in Philadelphia. His testimony 
today is on behalf of the Coalition for Derivatives End-Users.
    Last, but not least, Mr. Paul Kupiec is a resident scholar 
at the American Enterprise Institute. He has previously held a 
variety of positions with the FDIC and other public-sector and 
private-sector institutions.
    Without objection, each of your written statements will be 
made a part of the record.
    For those who have not testified before--and I am somewhat 
uncertain whether Chairman Frank has ever testified from the 
table, but I know he knows the system--we have a green, yellow, 
and red lighting system. Green means go, yellow means wrap it 
up, and red means stop.
    And we have not improved the audio system since Chairman 
Frank's day. So you will need to take the microphone and bring 
it very, very close to your mouth so that all can hear you.
    Mr. Wilson, you are now recognized for a summary of your 
testimony.

STATEMENT OF DALE WILSON, CHAIRMAN AND CHIEF EXECUTIVE OFFICER, 
  FIRST STATE BANK, ON BEHALF OF THE TEXAS BANKERS ASSOCIATION

    Mr. Wilson. Thank you, Chairman Hensarling, and Ranking 
Member Waters.
    My name is Dale Wilson. I am the CEO of First State Bank of 
San Diego, a rural community bank serving a small South Texas 
town. I appreciate the opportunity to be here to present the 
views of the Texas Bankers Association on the impact of the 
Dodd-Frank Act.
    Let me start by thanking my own Congressman, Ruben 
Hinojosa, who serves on this committee. We had the pleasure of 
hosting Congressman Hinojosa at my bank in South Texas, and we 
appreciate his service to our community.
    During the last decade, the regulatory burden for community 
banks has multiplied tenfold. Dodd-Frank alone has already 
added nearly 14,000 pages of proposed and final regulations. 
Managing this tsunami of regulation is a significant challenge 
for a bank of any size, but for a small bank with only 17 
employees, it is overwhelming.
    Today it is not unusual to hear from bankers who are ready 
to sell to larger banks because the regulatory burden has 
become too much for them to manage. Since the passage of Dodd-
Frank, there are 80 fewer Texas banks. These banks did not 
fail. Texas has one of the healthiest economies in the country. 
We call it the ``Texas miracle.''
    These are community bankers--and I have talked to some of 
them personally--who could not maintain profitability with 
regulatory costs increasing between 50 and 200 percent. These 
are good banks that for decades have been contributing to the 
economic growth and vitality of their towns, but whose ability 
to serve their communities is being undermined by excessive 
regulation and government micromanagement.
    The real costs of the increased regulatory burden are being 
felt by small-town borrowers and businesses that no longer have 
access to credit. When a small town loses its only bank, it 
loses its lifeblood. It is more difficult to improve schools, 
health care facilities, and other infrastructure projects.
    I know it was not the intent of Congress when it passed 
Dodd-Frank to harm community banks, but that is the awful 
reality. One issue in particular that has hindered the ability 
of community banks to serve their communities is the new 
qualified mortgage rules.
    As a result of the qualified mortgage rules, our bank no 
longer makes mortgage loans, as the cost and the risks are just 
too high. Make no mistake, the true cost is felt by my 
community. I used to make mortgage loans that averaged $50,000, 
and I made them to borrowers who would not otherwise qualify 
for secondary market loans.
    I am not the only bank in South Texas to exit the mortgage 
business. Other banks in my county have stopped, as well as 
community banks in adjacent counties. This is occurring in 
Texas and across the country.
    The real victims here are the working-class and middle-
class prospective homeowners. Banks want to make safe, 
profitable mortgage loans. Denying mortgage loans to borrowers 
otherwise considered creditworthy goes against every sound 
business instinct a banker has.
    Accordingly, we support H.R. 2673 and H.R. 4521. These 
bills would exempt any mortgage held on a bank's balance sheet 
from the ability-to-repay requirements and exempt loans held by 
small creditors with less than $10 billion in assets from the 
escrow requirements imposed by the Dodd-Frank Act. No bank is 
going to hold a loan it doesn't believe the borrower has the 
ability to repay.
    In conclusion, I ask this committee to look at the 
unintended consequences of the Dodd-Frank Act and to make 
changes so that community banks can go back to what they have 
always been good at: meeting the credit needs of local 
individuals and small businesses.
    Unless major changes are made, compliance costs will 
continue to drive massive consolidation within our industry and 
limit the ability of our Nation's community banks to drive Main 
Street growth across the country.
    Thank you very much.
    [The prepared statement of Mr. Wilson can be found on page 
141 of the appendix.]
    Chairman Hensarling. Mr. Carfang, you are now recognized 
for your testimony.

STATEMENT OF ANTHONY J. CARFANG, PARTNER, TREASURY STRATEGIES, 
                              INC.

    Mr. Carfang. Good morning, Chairman Hensarling, and Ranking 
Member Waters. I am pleased to be here today.
    My name is Tony Carfang, and I am a partner with Treasury 
Strategies. We are a consulting firm that consults for 
businesses and financial institutions, including health care 
organizations, higher education, and municipalities. We have 
been doing this for about 40 years. And we appreciate the 
opportunity to be here today.
    First of all, we would like to let the committee know we 
fully support any activity to improve the safety and soundness 
of the U.S. financial system, and we support the objectives of 
the Dodd-Frank regulation.
    Unfortunately, as we sit here 4 years later, we are only 
beginning to see some of the impact of that regulation. The 
verdict is not good. The regulations created an atmosphere of 
fear, uncertainty, and doubt.
    The delayed implementation is creating a tremendous 
uncertainty on the part of America's businesses and financial 
institutions. The ambiguities in the regulation, the 
inconsistencies, some of the vague language, things like ``know 
your customer,'' systemically important whatever--whatever, 
that lack definition, are creating a tremendous uncertainty 
that will drag on the economy.
    Let me just point out two things at a conceptual level. One 
is that institutions are mandated to fund themselves with 
longer liabilities, which, yes, they are more stable, yet, at 
the same time, investment managers are being mandated to invest 
in shorter-term instruments because they can be turned over 
more quickly and they're less risky, but you can't do both.
    There are similar inconsistencies in terms of too-big-to-
fail. Yes, we think an organization should not be too-big-to-
fail, but by designating them as systemically important, you 
are, in fact, telling depositors, ``Put your money in there 
because you will be protected. They are too-big-to-fail.''
    So here we are 4 years later only beginning to see some of 
the impacts. What is the verdict? Let's list through the items 
in the preamble of the Act and see how we have done.
    First is we want to improve the safety and soundness of the 
U.S. financial system. Well, U.S. capital markets are by far 
the most robust and the deepest markets in the world.
    Before Dodd-Frank, U.S. companies operated with cash on 
their balance sheets equal to about 9 percent of U.S. gross 
domestic product. That is an example of efficiency. The 
European number, by the way, is 21 percent.
    But now that we are beginning to see the beginning impacts 
emerge, that 9 percent is growing to 12 percent. We are clearly 
moving in the wrong direction.
    Hundreds of billions of dollars have been simply sidelined 
on U.S. balance sheets as a precaution against the uncertainty 
of the regulation.
    If you were to reach the 21 percent level of the European 
capital markets, that would sideline an extra $1 trillion. So 
on that objective of Dodd-Frank, we miss.
    Transparency. Yes, there are certain banking activities 
that are now more transparent and they come under the 
microscope, but the important thing and the real issue is risk. 
It is the risk of the banks that is key.
    Risk can only be created or destroyed. It can only be 
transformed and it can only be shifted. So by taking them off 
of the--away from the visibility of a bank's balance sheet, we 
are, in fact, making the risk less transparent, and more 
difficult to manage. So on that point, we fail as well.
    Too-big-to-fail. I addressed this--or I alluded to this 
earlier. Since the passage of Dodd-Frank, U.S. GDP, even 
including inflation, is up 14 percent. Bank assets are up 25 
percent. The banks are getting bigger.
    Eliminating bank bailouts--taxpayer bailouts--is one of the 
objectives. I point to the balance sheet of the Federal Reserve 
Bank, which has grown from $1 trillion to $4.3 trillion since 
the enactment of Dodd-Frank.
    This is a huge concentration of risk, which, by the way, is 
invested in longer-term assets, unlike--the rest of the balance 
of the bill includes, and is funded by overnight bank reserves. 
What we have here is the next taxpayer bailout in the making.
    Finally, Dodd-Frank wants to eliminate abusive practices. 
We are eliminating a lot of practices, as Dale alluded to, in 
terms of mortgages.
    Inconsistencies in the law are causing banks to close 
accounts of diplomats because of anti-money laundering 
concerns. They are no longer dealing--big banks are no longer 
dealing with community banks because of normal customer 
concerns.
    We would recommend that, to remedy the situation: first, we 
eliminate FSOC, which is a regulator comprised of regulators, 
so you have redundancy of double jeopardy in the system; 
second, we encourage you to eliminate ambiguities in the 
regulation and in the terminology; and finally, we encourage 
you to carve out some protections for the 99.999 percent of all 
American businesses and financial institutions that have 
nothing to do with this regulation.
    To wrap up in just a second, 2 years ago I testified before 
this committee, and I asked the question, ``When a business 
calls its bank for financial services, will anybody be there to 
answer the phone?''
    Now I know the answer to that, and the answer is ``yes.'' 
The compliance officer will be there, not the loan officer. 
Ladies and gentlemen of the committee, that is no way to run 
the best economy in the world.
    Thank you very much.
    [The prepared statement of Mr. Carfang can be found on page 
80 of the appendix.]
    Chairman Hensarling. Again, Chairman Frank, welcome back 
home. You are now recognized for your testimony.

   STATEMENT OF THE HONORABLE BARNEY FRANK, FORMER MEMBER OF 
  CONGRESS AND FORMER CHAIRMAN, HOUSE COMMITTEE ON FINANCIAL 
                            SERVICES

    Mr. Frank. Thank you, Mr. Chairman.
    I apologize that my written statement was not in the form 
for the chairman. It was a last-minute thing. And then I--on 
the other hand, I think any problem with the element of 
surprise is probably not a problem here. I don't think any of 
the members of the committee will be surprised by what I say.
    I want to begin with the too-big-to-fail question. And the 
issue, I think, is an interesting one because, first of all, as 
I said in what I did write, I was surprised myself by how 
bipartisan the committee's report was, for instance, in saying 
that this whole problem started with Ronald Reagan in 1984 with 
Continental Illinois.
    The committee report said that this began with Ronald 
Reagan and Continental Illinois and then it was continued by 
Bill Clinton with Alan Greenspan taking the lead in long-term 
capital management, but the report clearly puts most of the 
blame on George W. Bush and his aides, Mr. Paulson and Mr. 
Bernanke, because it said this really became a problem with 
Bear Stearns.
    And while I recognize that is a very bipartisan thing for a 
Republican committee to do, to put major blame on those two 
Presidents, I think you are being a little unfair to them. And 
I think the need to respond there shows that was a problem 
which had to be dealt with.
    On the other hand, I was struck by your bipartisan effort 
to embrace Tim Geithner, but I think you got it wrong. You 
misunderstand Mr. Geithner in that report. Mr. Geithner does 
say we still have a too-big-to-fail problem, but the problem he 
sees is exactly the opposite of what I think most Republicans 
think.
    There is this argument that we are going to have bailouts. 
Tim Geithner's explicit point is that we did too good a job in 
preventing bailouts. I urge people to read his book when he has 
this conversation with Larry Summers. He objects that we shut 
down too many of these ways to do it.
    So Mr. Geithner is one who believes--look, everybody 
understands that there are going to be institutions that are 
too-big-to-fail. Everybody else understands that when I move my 
hands, you hear the shutters.
    What Mr. Geithner has said is that given the size of 
banks--yes. And everybody understands that from Ronald Reagan 
in Continental Illinois--The question is how do you deal with 
that as long as they are that size.
    And what Mr. Geithner says is he believes inevitably there 
is going to be the need at some point for Federal taxpayer 
intervention and we did too good a job in shutting that down. 
So, when you cite Mr. Geithner, you will understand that is 
what you are citing.
    The other argument that I think is more reasonably--why did 
we not do too-big-to-fail? There are two arguments, one, that 
we have made being designated a systemically important 
financial institution very attractive.
    That is interesting because every institution which has 
been threatened with being named has reacted very violently and 
very negatively. For people who tell me you are supposed to 
listen to the businesses, how come you haven't heard that the 
businesses hate the idea of being designated, that instead of 
it being an advantage, they think it is a curse.
    When you talk about, oh, this is a great advantage and you 
ignore what the businesses themselves say about this, those who 
could be designated, I think that is a very Marxist analysis.
    But the Marx in question is Chico, when he said in one of 
his movies, ``Who are you going to believe? Me or your own 
eyes?'' Who are you going to believe? Your own viewpoint or 
what the financial institutions tell you?
    The other argument on too-big-to-fail is that, oh, well, 
even though the law says the Fed should not give money to 
insolvent institutions and the Secretary of the Treasury should 
not do what was done in the past, give them the money and keep 
them alive to pay their debts, they will violate the law.
    I have heard the most astonishing argument that political 
pressure in this country will force the Secretary of the 
Treasury, the President, and maybe the head of the Fed, to 
violate Federal law by advancing money to keep these people in 
business.
    What the law says is you may have to pay some of their 
debts, as Ronald Reagan recognized in 1984 with Continental 
Illinois, but, first of all, you put them out of business, you 
put them in receivership, and, secondly, you get the money 
back.
    Finally, I was very struck by the, frankly, schizophrenic 
approach that the Majority seems to be taking on subprime loans 
or loans to poor people.
    I was astonished again--I get astonished a lot these days; 
I am out of the business--that there is a criticism that under 
the bill, fewer loans are being made to low-income people. Yes. 
That was part of what I thought everybody wanted to do. I 
thought there was a consensus that too many loans were being 
made to those people.
    And then, when you blame the Community Reinvestment Act, I 
would just like to cite the testimony of our banker from Texas 
who says community banks didn't make bad loans. I agree. And 
guess what? They are all subject to the Community Reinvestment 
Act. So if the Community Reinvestment Act was so distorting, 
that is a problem.
    Finally, I would say I look forward to congratulating you, 
Mr. Chairman, on a fourth anniversary coming up. I know that 
this committee passed a bill on Fannie and Freddie, but it 
hasn't even passed the House.
    So I think we are about to see the fourth anniversary of 
your party being in control of the House and not doing anything 
about this problem that you say is such a serious one.
    [The prepared statement of former Chairman Frank can be 
found on page 97 of the appendix.]
    Chairman Hensarling. Mr. Deas, you are now recognized for 
your testimony.

STATEMENT OF THOMAS C. DEAS, JR., VICE PRESIDENT AND TREASURER, 
  FMC CORPORATION, ON BEHALF OF THE COALITION FOR DERIVATIVES 
                           END-USERS

    Mr. Deas. Thank you, Mr. Chairman.
    And good morning to you, Ranking Member Waters, and the 
members of this committee.
    I am Tom Deas, vice president and treasurer of FMC 
Corporation and, also, immediate past chairman of the National 
Association of Corporate Treasurers (NACT).
    FMC and NACT are members of the Coalition for Derivatives 
End-Users representing thousands of companies across the 
country that employ derivatives to manage day-to-day business 
risks.
    First, let me sincerely thank both the chairman and the 
ranking member along with the distinguished members of this 
committee for doing so much to protect end users from the 
burdens of unnecessary regulation.
    The press often portrays Capitol Hill as paralyzed by 
gridlock while, when it comes to the needs of Main Street 
businesses, the members of the committee have worked together 
to get things done.
    You have supported the end-user margin bill, H.R. 634, 
championed by Representatives Graham and Peters, and the 
centralized Treasury unit bill, H.R. 677, which Representatives 
Moore and Stivers have done so much to move forward. We are 
hopeful that a version of that bill modified through 
discussions with the chairman's and the ranking member's staffs 
will soon come to the House Floor.
    As you oversee implementation of the Dodd-Frank Act, I want 
to assure you that, in my experience, end users comprising less 
than 10 percent of the derivatives markets were not and are not 
engaging in the kind of risky speculative derivatives trading 
activity that became evident in 2008.
    We use derivatives to hedge risks in our day-to-day 
business activity. We are offsetting risks, not creating new 
ones. We support the transparency and the derivatives market 
that the Dodd-Frank Act attempts to achieve.
    We also believe it is sound policy and consistent with the 
law to exempt end users from provisions intended to reduce the 
inherent riskiness of swap dealers' activities.
    However, at this point, 4 years after passage of the Act, 
there are several areas where the regulatory uncertainty 
remaining compels end users to continue to appeal for 
legislative relief.
    Among areas of concern, I would like to invite your 
attention to two. First, margining of derivatives. FMC 
Corporation, an innovator in the chemical industry, was founded 
almost 130 years ago. This is our 83rd year of being listed on 
the New York Stock Exchange. When we went to that market in 
1931, the NYSE was the largest pool of capital to grow our 
business.
    Today, using derivatives, we have an additional and even 
larger market that is the cheapest and most flexible way for us 
to hedge everyday business risks of foreign exchange rate 
movements, changes in interest rates, and global energy and 
commodity prices.
    Our banks do not require FMC to post cash margin to secure 
mark-to-market fluctuations in the value of derivatives. To do 
so would divert cash from funds we would otherwise invest in 
our business.
    The proposals by the banking regulators--mandating 
collection of margin from end users--are not only out of sync 
with the CFTC, but also with the European regulators as well.
    Further, an imposition of margin requirements on end users 
would effectively negate the benefits of the end-user clearing 
exception, which Congress included in the text of the Dodd-
Frank Act.
    We believe end users and their swap dealers should remain 
free to negotiate mutually acceptable margin arrangements 
instead of having regulators impose mandatory daily margining 
with its uncertain liquidity requirements.
    The Coalition also recognizes the efforts of the CFTC to 
provide relief on centralized Treasury units. But as a recent 
Coalition survey shows, it doesn't work for most end users.
    End-user treasurers have long used widely accepted risk 
induction techniques to net exposures within their corporate 
groups so they can reduce derivatives outstanding with banks.
    However, the internal centralized Treasury units they use 
are set to be designated as financial entities subject to 
mandatory clearing and margining even though they are acting on 
behalf of nonfinancial end-user companies otherwise eligible 
for relief from these burdens.
    Although I have focused here on two main issues, end users 
are concerned about the web of, at times, conflicting rules 
from U.S. as well as foreign regulators that will determine 
whether we can continue to manage business risk through 
derivatives.
    Our fear is that cross-border regulatory uncertainty and 
conflict could put FMC and other American companies at an 
economic disadvantage.
    The end-user exemptions for margining and clearing we 
thought would apply are still uncertain, confronting us with 
the risk of foreign regulatory arbitrage and potential 
competitive burdens that could limit growth and ultimately our 
ability to sustain and even grow jobs.
    Thank you again for your attention to the needs of end-user 
companies.
    [The prepared statement of Mr. Deas can be found on page 91 
of the appendix.]
    Chairman Hensarling. Mr. Kupiec, you are now recognized for 
your testimony.

  STATEMENT OF PAUL H. KUPIEC, RESIDENT SCHOLAR, THE AMERICAN 
                      ENTERPRISE INSTITUTE

    Mr. Kupiec. Chairman Hensarling, Ranking Member Waters, and 
distinguished members of the committee, thank you for convening 
today's hearing and for inviting me to testify. I am a resident 
scholar at the American Enterprise Institute, but this 
testimony represents my personal views.
    The primary goal of the Dodd-Frank Act was to end the 
perception that the largest financial firms are too-big-to-fail 
and remove the risk that a large institutional failure could 
create financial instability unless the government protects 
investors from loss.
    After 4 years of implementation, Dodd-Frank has imposed a 
host of new regulations that are depressing economic growth, 
but it has failed to meet its primary objectives.
    Regulatory data on bank funding costs showed that in the 
years prior to the financial crisis--2005, 2006, and 2007--the 
largest banks, banks with assets greater than $100 billion, did 
not enjoy a subsidy on their funding cost. Instead, their 
average cost of funding was higher than the cost incurred by 
smaller banks, but the difference was not statically 
significant in any year.
    In post-crisis, post-Dodd-Frank data--2012, 2013, and 
2014--the largest banks have lower average funding costs 
compared to smaller banks. In each year after the passage of 
Dodd-Frank, large banks have enjoyed a funding cost subsidy of 
more than 22 basis points, and in each year this subsidy 
estimate is highly statically significant.
    The passage of Dodd-Frank has not eliminated too-big-to-
fail, but, instead, it coincides with the emergence of a 
sustained large bank funding cost subsidy that did not exist 
before the financial crisis.
    It is not hard to understand why investors might still 
believe in too-big-to-fail. In the financial crisis, the 
government demonstrated that it would not let the largest 
financial institutions fail, and Dodd-Frank has not diffused 
these expectations.
    After Dodd-Frank, the large institutions are subject to 
enhanced prudential supervision and regulation by the Federal 
Reserve Board of Governors. They must meet risk-based capital 
and leverage requirements, file detailed annual orderly 
resolution plans, and pass the Board of Governors' annual 
micro-economic stress test examination.
    These new prudential standards are so intrusive that it is 
not a stretch to say that the largest institutions are now 
being run, at least in part, by the Federal Reserve Board.
    The Federal Reserve Board closely monitors the largest 
institutions and, after Dodd-Frank, it has the power to acquire 
a wide range of changes in these institutions' operations if, 
in the Fed's judgment, changes are needed to prevent failure or 
financial instability. When one of these institutions 
experiences a serious hiccup, the Fed will at least be 
partially responsible.
    So given these changes, why wouldn't a rational investor 
conclude that these institutions are too-big-to-fail? Dodd-
Frank is supposed to eliminate the government's ability to use 
taxpayer guarantees and bailouts to prevent financial 
instability when a large institution fails.
    Designated institutions must file orderly resolution plans 
or blueprints for a speedy reorganization using Chapter 11 
bankruptcy, and these plans must not cause financial 
instability.
    The Board of Governors and the FDIC must approve these 
plans, and they have the power to require operational changes 
or even divestitures if, in their judgment, the plans do not 
facilitate an orderly bankruptcy.
    Advertised as prepackaged bankruptcies, these plans are 
nothing of the sort. The key to a prepackaged bankruptcy is 
creditor acceptance of the debt restructuring plan before 
entering bankruptcy, but creditors did not approve Dodd-Frank 
or the resolution plans and, indeed, firms are not even 
obligated to follow these plans should they enter bankruptcy.
    If Title I doesn't do the job, Dodd-Frank has Title II, a 
backup mechanism for resolving large failing financial 
institutions. It is supposed to remove the risk that the 
failure of a large institution will cause financial instability 
without using government guarantees or bailouts.
    Only Title II really doesn't do this. Using the FDIC 
single-point-of-entry strategy, a Title II resolution will 
maintain financial tranquility by ensuring all of the 
liabilities of the failing institutions' subsidiaries. In most 
cases, one of these subsidiaries will be a large failing bank.
    Here, Title II extends a full government bailout to all of 
the bank's uninsured liabilities. In other words, Title II will 
fully protect investors who otherwise would have lost almost 
everything in an FDIC bank resolution and a bank holding 
company bankruptcy.
    Title II reduces bankruptcy systemic risk by extending a 
larger government guarantee and bailing out investors who would 
not have taken a loss in bankruptcy.
    In the midst of a crisis, the FDIC will have to use its 
unseasoned judgment to decide how large the government bailout 
must be to maintain financial stability. If receivership 
proceeds in a Title II resolution do not fully cover the 
government's bailout costs, the largest financial institutions 
would be assessed to recover expenses, but the Dodd-Frank 
requirement to repay Title II bailout costs without the use of 
taxpayer funds is less binding than it seems.
    For example, what if Title II had been used in the past 
crisis? In the last crisis, the Federal Reserve began paying 
banks' interest on their excess reserves, and they earned quite 
a lot on that. These payments channel taxpayer funds directly 
into banks.
    There is nothing in Dodd-Frank that precludes the 
government from using this channel to provide the largest 
institutions with the funds they need to reimburse the Orderly 
Liquidation Fund, surely less than a transparent taxpayer 
bailout, but a taxpayer bailout nonetheless.
    Thank you. And I look forward to your questions.
    [The prepared statement of Mr. Kupiec can be found on page 
105 of the appendix.]
    Chairman Hensarling. I thank all of our panelists.
    The Chair now yields himself 5 minutes for questions.
    Mr. Wilson, I am especially happy that you are here because 
I care deeply about the future of community banking. In my 
district in Texas, half the district is rural.
    So your voice is an important one, but I have to tell you 
that yours is not a solitary voice, because rarely does a week 
go by that I don't hear about the plight of community banking 
from some banker.
    We heard from a banker in El Paso, Texas, who said, with 
respect to the regulatory burden of Dodd-Frank, ``We will see 
community banks continue to decline. We simply cannot afford 
the high cost of Federal regulation.
    ``And as one banker, I will tell you my major risk is not 
credit risk, risk of theft, risk of some robber coming in with 
a gun in my office. My number one risk is Federal regulatory 
risk.''
    I heard from a banker in Gothenburg, Nebraska, about the 
Dodd-Frank Act: ``These pressures are slowly, but surely, 
straining the traditional community banks, and handicapping 
their ability to meet the credit needs of their community.''
    Another banker from Linn, Missouri: ``The more expense for 
the bank, the less that is available to loan to our primary 
customer base, which is small businesses, farmers, and folks 
who are just trying to get by in these difficult times.''
    I heard from a banker in Temple, Texas: ``Reluctantly, we 
are working to downsize our consumer lending program, 
especially in the small loan area. Over the years we have 
provided thousands of small loans to our customers in what was 
a simple, straightforward process. Certainly, this is no longer 
the case.
    ``And many customers are now going to other sources with 
their credit needs where they can get a loan without the hassle 
that comes with bank compliance.
    ``There is no question these rules will reduce the 
availability of credit to many creditworthy borrowers and 
markets of all size.''
    And I could go on and on and on.
    So one banker used the word ``strangle.'' Mr. Wilson, is 
Dodd-Frank, in your opinion, strangling community banks?
    Mr. Wilson. Yes, sir. There are lots of challenges for us. 
And we have 17 employees. And so the--just when you have the 
changes to regulation, it is retraining staff, it is retraining 
systems. And so anytime there is significant regulatory change, 
it is difficult on small organizations.
    Chairman Hensarling. I also understand--the data that I 
have seen is that there are roughly 800 fewer community banks 
post-Dodd-Frank than pre-Dodd-Frank and now they have a smaller 
market share.
    Have you seen this study or similar studies, Mr. Wilson?
    Mr. Wilson. I have heard those numbers. Yes, sir.
    Chairman Hensarling. Again, it's a sad situation as far as 
the plight of community banking goes. And, also, although it 
wasn't advertised that Dodd-Frank would somehow lift the plight 
of low- and moderate-income people, I believe that quite the 
opposite has happened. Although not advertised, it has hurt 
low- and moderate-income people.
    What I have seen is that an analysis of credit cost for 
those people pre- and post-Dodd-Frank--credit cards are now, on 
average, 224 basis points. That is over 2 percentage points 
greater. On residential mortgages, jumbo, 45 basis points 
greater; conforming, 14 points greater; small unrated corporate 
debt, 41 basis points.
    Here is an interesting one. Auto financing, 17 basis points 
less. Isn't that interesting, since auto dealers were exempt 
from Dodd-Frank's CFPB.
    We also know that the Fed has shown in their study on QM, 
once fully implemented, without exempting the 95 percent of 
mortgages handled by the GSEs, that one-third of Blacks and 
Hispanics will not be able to obtain a mortgage due to DTI. I 
am still waiting to see the outrage on the other side of the 
aisle. CoreLogic is again imported and fully implemented. Only 
half of today's mortgage originations will meet QM.
    Before Dodd-Frank, 76 percent of banks offered free 
checking. Now, only 39 percent do. And it continues to drop. 
There has also been a 21 percent surge in checking fees post-
Dodd-Frank. The list could go on.
    Mr. Wilson, I am going to go back to you. You obviously 
bank a lot of low- and moderate-income people. Is Dodd-Frank 
hurting low- and moderate-income people?
    Mr. Wilson. Yes, sir. In our market, that was probably the 
main niche we had on the housing side. Our census tracks are 
low to moderate income for our community. And so, those who do 
not have access to that credit from us, it is hurting them.
    Chairman Hensarling. I now yield to the ranking member.
    Ms. Waters. Thank you very much, Mr. Chairman.
    To Barney Frank, who worked so very, very hard to bring 
about protection for consumers and who spent a considerable 
amount of time paying attention to community banks--I kind of 
resent Mr. Wilson's testimony here today that talks about QM 
without him even understanding that his bank, under QM, a bank 
under $2 billion--you can keep all of your loans and portfolio 
as long as they are not predatory loans, no-documentation 
loans, those kinds of loans, and you have some protection under 
safe harbor.
    So I am going to go to Barney Frank. Just talk about what 
we have done and what you have done to be of assistance to 
small banks and community banks.
    Mr. Frank. A couple of things. First, on the point you 
raise, I am again very surprised to hear my Republican friends 
now say our problem is that we have toughened up the standards 
for banks loaning to people. I thought there was pretty general 
agreement that was part of the problem. Although this does--
there is this myth that somehow the Democrats were pushing for 
these loans.
    In fact, during the period from really the mid-1990s, it 
was people on our side who were trying to restrict these 
abusive subprime loans and were restricted. We passed the 
Homeowner Equity Protection Act. Mr. Greenspan wouldn't use it. 
A number of States, including the State of Georgia, passed laws 
to restrict subprime lending abuses, and the Bush 
Administration preempted it and said, no, no such laws.
    And then I was working with Spencer Bachus, and Mel Watt 
and Brad Miller from the Democratic side. As Sheila Bair notes 
in her book, we were trying to put legislation through to 
regulate subprime loans, and the Republican leadership said, 
shut it down. And on the day that this committee, once the 
Democrats were in control, began to regulate subprime loans, it 
was over the objection of several of the Members here who said 
subprime loans were good, and Wall Street Journal objected and 
said, look, these are good loans; 80 percent of them are paying 
on time, which didn't seem to me to be a great statistic.
    And, in fact, what happened was this: People on the 
conservative side were generally pushing these loans until the 
crisis hit, and then they needed an alternative victim--a 
villain to blame for the crisis. So they retroactively became 
opposed to these kind of loans. And now they have reverted. So 
there was a period where they were blaming us.
    Again, I think there is this great inconsistency between 
saying the Community Reinvestment Act caused the problem by 
forcing these people to make these loans to poor minority 
people and now complaining that we have regulated and somewhat 
restricted those loans.
    As to the community banks, let me say this: I would be in 
favor of saying that people who kept loan portfolio should not 
have these problems. I, on the other hand, think what is 
important, and this is the one criticism I have of the 
regulators, I believe risk retention is the best way to go 
about this, because risk retention leaves the decision in the 
hands of the market. And I agree, and I think Mr. Carfang says, 
you can't get away from the responsibility--you can't get away 
from this; you can shift it.
    And this goes also, I would say, to the question about 
regulation. Yes, there was some regulation before the crisis 
started, but it wasn't regulating--there wasn't regulation for 
two very important things: financial derivatives. Mr. Deas--and 
I agree with much of what he says about the end user, and I 
also appreciated him acknowledging--not acknowledging, noting 
that there was irresponsible, speculative activity in 
derivatives, which the CFTC was legislatively prevented from 
dealing with. But the biggest problem was the model for a lot 
of loans in the mortgage area shifted from the kind that Mr. 
Wilson makes and keeps in portfolio to those that are made and 
then securitized. And securitization, I think, is a great 
example of what Mr. Carfang said, not getting rid of risk, but 
passing the risk off.
    So one of the things I wanted to do in the bill was to 
require that if people were going to securitize loans, the 
securitizer has to have a 5 percent risk retention. That was 
weakened somewhat in the Senate, and I would prefer a situation 
in which there was risk retention if securitization took place, 
and then you could be much easier if people kept things in 
portfolio.
    But, again, I emphasize, Mr. Wilson's bank and the 
community banks have always been covered by the Community 
Reinvestment Act, and it is inconsistent, again, to talk about 
what a good job they did and blame the Community Reinvestment 
Act for messing things up.
    As for small banks, yes, we did, as he acknowledges, reduce 
the premiums, and we did exempt them from being examined by the 
CFPB, and there were some other areas. People raise with me the 
question of showing compliance with the Volcker Rule or with 
their forms of compensation. Dan Tarullo made a suggestion that 
they be specifically exempted from those since they don't 
apply.
    I think that would be a good way to not weaken the 
regulation and ease their compliance, because apparently some 
banks feel they have to spend money to show they are not 
violating the Volcker Rule or having this kind of stock-based 
compensation. I think for banks below a certain level to simply 
be exempted from those rules since they never use them anyway 
would ease the problem. And bills need further correction. 
Those are two small ones that I would be for.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from West Virginia, Mrs. Capito, chairwoman of our 
Financial Institutions Subcommittee.
    Mrs. Capito. Thank you, Mr. Chairman, and I want to thank 
the witnesses for their testimony.
    I would like to ask, Mr. Chairman, for unanimous consent to 
enter into the record a very detailed description from a 
community banker in my district with 10 very specific examples 
on how the new ATR/QM rules have had a negative impact on West 
Virginia consumers.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Frank. I almost said yes, Mr. Chairman.
    Mrs. Capito. Mr. Wilson, we are kind of singing from the 
same hymn book here in terms of the value of community bankers. 
Obviously, I live in a rural State, West Virginia, which is 
principally served by community banks. But I think it is also 
important to distinguish that by a community bank, which is 
similar to FDIC's description, reports that community banks 
loaned--48 percent of small business loans are issued by U.S. 
banks; 15 percent of residential mortgage lending; 43.8 percent 
of farmland lending; and 34 percent of commercial real estate. 
So that is very significant particularly in the areas where you 
do your business and where I live.
    And so when you say that you have gotten out of the 
mortgage business, is the reason for that, even if you can hold 
them on portfolio, are the rules too constrictive? Is it that 
you are finding that the QM box is something you can't lend in? 
Are you worried about examiner oversight in this area? 
Specifically, why would you get out of that business in terms 
of the Dodd-Frank regulations?
    Mr. Wilson. Thank you.
    The mortgages we originate were all balloon-type mortgages, 
and so that was really discouraged. We--in my 35 years of 
banking, I have never sold a mortgage. And so we originate 
those for our customers, and we keep them in the bank. So the 
qualified mortgage, if you look at those, like the debt to 
income--
    Mrs. Capito. Right.
    Mr. Wilson. --we use 50 percent debt to income. So the bulk 
of those people we served in our market would not have met the, 
I believe it is 43 percent, debt-to-income limitations in the 
QM rules.
    Mrs. Capito. And I guess in your prior practice of issuing 
mortgages under those parameters, would you say that the 
customers that you have been serving would be in a low, 
moderate--you said $50,000 was your average mortgage. 
Obviously, that is on the lower end of the scale. How else 
would these folks ever be able to purchase a home that they 
could call their own?
    Mr. Wilson. Many of them I would encourage to go try to get 
a permanent fixed-rate mortgage for the life of their mortgage, 
no balloons, would be in their best interest. But those who, 
because their credit scores weren't high enough--
    Mrs. Capito. Right.
    Mr. Wilson. --or for some other reason, we were able to 
help them--and I will just confess that we do not have any 
problems in our real estate mortgages, the ones that we 
underwrite and keep, but they just didn't fit for some reason. 
They may have been small business owners who had Schedule C tax 
returns instead of a W-2.
    Mrs. Capito. Okay.
    Let me ask another question on another line that you--when 
you talk about community banks and the constriction on the 
numbers and the different mergers and acquisitions, what kind 
of effect do you think that will have in rural America? 
Obviously, your business model's relationship banking in the 
bigger and larger institutions as they grow moves away from 
that model, for obvious reasons. How would you express that 
concern?
    Mr. Wilson. So in our particular instance, we have no 
branches. We are in San Diego. We have a board of directors who 
live in that area. We have a president of the bank. We have 
senior vice presidents. In the branching environment, if we 
were to sell to a megabank, you would have tellers and maybe 
someone to open a new account. All of those positions would be 
eliminated.
    Mrs. Capito. Right.
    Mr. Kupiec, let me ask you this. You didn't really address 
this in your statement, but something I mentioned in my opening 
statement is that there are still many, many rules and 
regulations that are yet to be written concerning Dodd-Frank. 
What kind of impact do you think that has, moving forward?
    Mr. Kupiec. The regulatory burden of Dodd-Frank has been 
significant. I think just a week or two ago, it was reported 
that JPMorgan was laying off thousands of people, but hiring 
thousands of compliance staff, so something like 7,000. So 
compliance staff, that is to meet the regulatory burdens of 
Dodd-Frank.
    In terms of community banks, there is a lot of evidence. 
There is a Mercatus study that came out that I cited in some 
testimony in March that showed that the study has--
    Mrs. Capito. I think I have run out of time here. Thank 
you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, ranking member of our Capital Markets Subcommittee.
    Mrs. Maloney. Chairman Frank, we seem to hear a lot from 
the other side of the aisle on this committee about how Dodd-
Frank's resolution authority for large financial institutions 
somehow ``enshrines bailouts,'' because the FDIC would use 
money borrowed from Treasury to facilitate a wind-down if you 
needed it.
    But I remember that when the financial reform bill was in 
this committee, it was the Democrats on the committee who 
wanted to avoid the need for the FDIC to borrow from Treasury 
by creating an upfront resolution fund paid through assessments 
on financial institutions rather than taxpayers. But I also 
remember that it was the other side of the aisle who demanded 
that the upfront resolution fund be removed because they 
claimed it was--you guessed it--a bailout fund.
    Now, I would like you to go back to the financial bailouts 
of 2008 and 2009 and tell us if there was any such action that 
we did back then that we could do now under the new rules of 
Dodd-Frank. Dodd-Frank actually said that there is no legal 
authority to use public money to keep a failing entity in 
business. The law actually forbids it, and it repeals the power 
that the Federal Reserve had to extend funds to any financial 
institution, as what has happened with the bailouts with AIG.
    So would you go back to this point, because this is a point 
we hear over and over again, how Dodd-Frank resolution 
authority protects taxpayers' dollars.
    Mr. Frank. Thank you.
    I would like just to say preliminarily, to comment on 
something Mr. Kupiec said, to the extent that we were 
responsible for JPMorgan Chase beefing up its compliance staff, 
I am not embarrassed. Frankly, if they had done that earlier, 
they would have saved themselves I don't know how many--in the 
tens of billions of dollars for noncompliance. And I admire 
Jamie Dimon, I think he has done a good job, but they were not 
overcomplying by any means beforehand in a number of areas.
    The gentlewoman from New York is absolutely right. We did 
have a fund, and there has been a fundamental difference 
between the two parties on whether or not we should assess 
large financial institutions, not community banks, $50 billion 
or more. In fact, when we were in conference on this bill in 
2010, and our position was, with the Senate, that when the CBO 
said it was going to cost $20 billion over a 10-year period, 
that we should get that from the large financial institutions, 
those of $50 billion and over, and that would have included 
everybody, whether or not they were SIFIs, et cetera, the 
Republicans objected in the Senate. There weren't that many 
Republicans voting for it, but the Senate Republicans who were 
going to vote for the bill objected, Senators Brown, Snowe and 
Collins, and made us take that out because they wouldn't have 
given the Senate the 60 votes they needed and instead put it on 
the taxpayers. So, in fact, we had this history where the 
Republicans objected to an assessment on the large financial 
institutions and instead do it for the taxpayers.
    Similarly here, the Federal Reserve could not do AIG under 
this law. Now, it is true, people say, they can set up a 
broadly applicable facility, but under this law, and I think 
Mr. Sherman had a role in this, they have to guarantee that it 
is a solvent institution with a very high percentage of 
probability. So we have specifically prevented the Fed from 
doing what they did with AIG.
    Now, the argument, as I understand it, is that even though 
the law says--and the other difference is no money can--we do 
all recognize, as I said, going back to Ronald Reagan and 
Continental Illinois, that some institutions are so large that 
you can't just let them not pay their debts without having 
reverberations. So the question is, what do you do about it?
    Under the law now in place, that effort to deal with their 
debts can't happen until they have been put into receivership. 
The boards have done away with it. Shareholders are wiped out. 
So as I said, it is death panels but for the large 
institutions. And then any money that is spent beyond what was 
available from the owners has to come back from an assessment, 
and the Secretary of the Treasury is mandated--not authorized, 
mandated--to recover it.
    So the argument is that--and I have heard this from 
people--oh, in a political crisis, a financial crisis like 
that, there would be overwhelming political pressure on the 
Secretary of the Treasury to ignore Federal law and use public 
money indefinitely to keep an institution in business. I don't 
know in what universe people have been living if they think--I 
think there would be enormous political pressure not to do 
anything at all.
    So, yes, I cannot think of any of these past efforts that 
would now be legal under our bill.
    Mrs. Maloney. Thank you.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from New Jersey, Mr. 
Garrett, chairman of our Capital Markets Subcommittee.
    Mr. Garrett. I thank the chairman for a very timely 
hearing. And I think only former Chairman Frank could reference 
Secretary Geithner's book and Chico Marx all in one breath. It 
reminded me of Groucho Marx's statement: ``From the moment I 
picked up the book until I put it down, I was convulsed with 
laughter. Someday I am going to read the book.''
    So let me go first to Mr. Kupiec.
    No, maybe I will go first to the Congressman. Was it your 
intention that FSOC designates a nonbank--when they do 
designate a nonbank SIFI, that it would be regulated as a 
nonbank SIFI into perpetuity?
    Mr. Frank. No. As a matter of fact, I--
    Mr. Garrett. Thanks, because I didn't think it was.
    Mr. Kupiec, is there a problem with the way that the Fed is 
handling that right now? Because I look and see--
    Mr. Frank. Mr. Garrett, may I state--you are cutting me 
off.
    Mr. Garrett. No, thanks. I appreciate--
    Mr. Frank. There was a premise in your question to which I 
did not agree, and you imputed me agreeing to it. In fact, I am 
very skeptical of designating nonbank institutions as SIFIs. It 
seems to me that the question assumed that I agreed that they 
should do that. I have been very skeptical of them doing that.
    Mr. Garrett. Oh, great. I appreciate that.
    Mr. Frank. I sent a comment to the FSOC to that effect.
    Mr. Garrett. I appreciate that.
    And so, Mr. Kupiec, then, in your testimony, you pointed 
out that FSOC makes it nearly impossible for companies to know 
what steps they can take to avoid the designation as a SIFI. 
That makes no sense; for them not to be able to make that fact 
clear makes no sense to me. So I agree with you. Can you just 
jump off of what the Congressman just stated, and I guess you 
would agree with him that they should not be making these 
designations as well, and as long as they are, that they are 
inadequately telling us how they will not be in perpetuity?
    Mr. Kupiec. I completely agree. And I thought there was 
some intention that the designation should be reviewed annually 
anyway. But since the designations themselves don't explain why 
the institution--what the specific characteristics that make it 
a SIFI are, and what they would have to do to become 
undesignated, the process is really broken.
    Mr. Garrett. Right. So I guess we have an agreement on that 
point.
    Also, I did catch your one comment, Congressman, earlier. 
You said you mentioned some areas that needed to be changed in 
Dodd-Frank, and I think you said there were other areas that 
also need further correction. The Senate recently unanimously 
passed one, which is call the Collins fix, to ensure the Fed 
can appropriately--those are my words, not theirs--regulate 
nonbank SIFIs. I assume, then, that you agree with that 
unanimous change to--
    Mr. Frank. I am not familiar with the bill. I don't have to 
read them all these days.
    Mr. Garrett. Okay.
    Mr. Frank. But can I say, Mr. Garrett, if I might, this 
whole conversation that the three of us have had starts from 
the standpoint that being designated a SIFI is an unpleasant 
thing, and that institutions should be empowered to resist it, 
which I think undercuts the point that being named a SIFI is 
such a great benefit, and being in that category is something 
that helps you. If it did, why would they all fight it so hard?
    Mr. Garrett. We only have limited time.
    Mr. Kupiec, do you want to go to that point?
    Mr. Kupiec. The problem with that reasoning is if you truly 
are a systemically important firm, and you are going to get the 
bailout, then you have a very big benefit by not having any of 
the regulations because you are going to be bailed out in the 
end anyway. So you would fight. You would fight even--so that 
it is--if you are systemically important, you are systemically 
important, in the end the government has to bail you out. And 
your best bet is to diffuse any regulation anyway. So they 
would fight like crazy even if the too-big-to-fail is a 
benefit.
    Mr. Garrett. And I think that is an important point. So 
let's just give a hypothetical. Someday in the future, when a 
megabank, a SIFI, does go down, and that will happen again, 
part of the cost of that whole process, the resolution process, 
will be borne by whom? By the rest of the SIFIs, right?
    Mr. Kupiec. If it goes through a Title II.
    Mr. Frank. Not just SIFIs; any institution of $50 billion 
or more.
    Mr. Garrett. Okay. So, then, the question is now we have 
designated these nonbank SIFIs, FSOC has recently done, 
including potentially for asset managers, right? So these asset 
managers will now be one that could be--or would be bearing 
some of the brunt of the bailout. Now, asset managers do not 
have a lot of capital. So where will the bailout actually be 
paid for? Won't it be paid for by the retired widow who has 
funds in the asset manager? The retired widow will be paying 
for the reckless conduct of these SIFIs.
    Is that correct, Mr. Kupiec?
    Mr. Kupiec. Yes. The asset management companies will have 
to get the money from somewhere, so the fees would have to go 
up. It would have to recoup it somewhere.
    Mr. Garrett. Was that your intention, Congressman, that--
let me restate the question. Is it your intention that retired 
widows and designated entities would be the ones who would bear 
the brunt if they were part of the resolution?
    Mr. Frank. Mr. Garrett, if it was a serious question, you 
wouldn't ask it with no time left. So I will wait for someone 
else to ask me that question so I can answer it in a reasonable 
way.
    Chairman Hensarling. The time of the gentleman has expired.
    Mr. Garrett. It is a very serious question and a very 
serious problem.
    Chairman Hensarling. The Chair now recognizes the 
gentlelady from New York, Ms. Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Chairman Frank, as you have seen here today and you hear, 
we continue to hear that the Dodd-Frank Act is having a 
negative impact on the economy. Yet the stock market is 
reaching all-time highs, job creation is on the rebound, and 
access to capital for small businesses is the best it has been 
in 4 years.
    Now that you are in the real world out there, do you think 
that Main Street is buying this rhetoric that is not in line 
with the reality?
    Mr. Frank. I think Main Street is not, and, as you know as 
Chair of the Small Business Committee while we were writing the 
bill and as a member of this committee, you added very 
significant input, and I think we tried very hard to deal with 
that.
    By the way, the argument the Republicans gave at the time, 
remember, there was a bill that we worked on that Treasury had 
asked us to do to encourage lending to--
    Ms. Velazquez. Small business.
    Mr. Frank. --from community banks to small business, and 
the Republicans opposed it, and they said, the problem is not 
that banks won't lend, it is that the small businesses don't 
want to borrow because the economy is so bad. So they 
consistently argued that the problem was on the borrower and 
not the lender.
    And if I could briefly just use your time to respond to the 
last-minute question or last-second question that I got before, 
the fact is that when we wrote the law talking about who would 
have to assess, we took into account the different levels of 
financial activity, and, in fact, asset managers are not exempt 
from contributing at all, but by formula they would contribute 
a much smaller share of what they have. And, in fact, I don't 
think they should be included as SIFIs. That doesn't determine 
they don't contribute.
    But there is a formula that would minimize their 
contribution, and I would say, and I was proud to represent 
Fidelity and Putnam and other institutions, but if they had to 
make a contribution along with all the others, they would not 
have to go after old widows or even young widows. There are 
ways that they could do that out of the very considerable 
profits that they made.
    But to go back on--even on community banks, we also 
increased the deposit limit to $250,000, which the community 
banks wanted, and in our bill in the House, we indefinitely 
extended transaction account guarantees. So, again, many small 
banks said to us, we want to do business with small businesses, 
but they need to keep more than $250,000 around for their 
transactions. We said yes to it. Unfortunately, it was later 
terminated in the new Congress.
    I do agree that--and I think, frankly, sometimes it is the 
lawyers' fault. I have talked to some people, because I did not 
recall many provisions in the bill other than the mortgage one, 
and I understand that, that affected smaller banks. And one of 
the things I found was some lawyers were persuading community 
banks that they had to go to great efforts to show that they 
were compliant with the Volcker Rule or with the compensation 
pieces.
    That is why I agreed with Mr. Tarullo, Governor Tarullo, 
and we were just making clear that if you don't do those 
things, you are exempt from them. And I think in some cases 
people have overlawyered to try to prove that. But, yes, we 
tried very hard to be respectful of the community banks, and I 
was pleased when the independent community bankers said they 
thought the bill was okay.
    Ms. Velazquez. Thank you.
    Mr. Carfang, you mentioned the uncertainty facing the 
financial sector due to the delays in rulemaking. Would you 
agree that the Federal regulators should expedite Dodd-Frank 
implementations to bring certainty to the industry?
    Mr. Carfang. Ma'am, I am absolutely in favor of certainty. 
And if there can be an expedited process to all of this, or a 
date certain in which this ends, and we have a period where we 
know what the rules are and can operate, that would be a very 
good thing, yes.
    Ms. Velazquez. Okay. Thank you.
    Thank you, Mr. Chairman.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Neugebauer, chairman of our Housing and Insurance Subcommittee.
    Mr. Neugebauer. Thank you, Mr. Chairman.
    Mr. Kupiec, in your testimony you said that 4 years after 
the passage of Dodd-Frank, there is no evidence that it really 
ended too-big-to-fail, and indeed, Dodd-Frank has probably 
reinforced investors' expectations that the largest financial 
institutions actually benefit from government safety net 
protections that are not available to smaller institutions.
    Can you kind of quickly tell me what advantages did you see 
that those institutions have over smaller institutions like Mr. 
Wilson's?
    Mr. Kupiec. I think that the perception that the government 
is so closely watching them, and they are subject to much, much 
tighter regulation and supervision gives investors the 
impression that they will be protected by the government; that 
the Federal Reserve, who is intrusively involved in their 
operations, is responsible for not letting them fail.
    And I think there is the system set up where the intrusive 
regulation has replaced the market discipline that you usually 
see in banking markets, and so the cost of funding for these 
institutions, the largest institutions, is now much less than 
the cost of funding. It is more than 20--on average, about 25 
basis points; 22 is the smallest year, 32 is the biggest in the 
years I looked at. So there is a definite cost of funding 
advantage to being a large bank.
    Mr. Neugebauer. Mr. Frank mentioned several times that he 
felt that the larger financial institutions actually didn't 
benefit from Dodd-Frank, that it was more onerous on them. And 
I wanted to quote some things that some people who run some of 
these financial institutions say. Lloyd Blankfein, for example, 
said that Goldman Sachs would be one of the biggest 
beneficiaries of this reform. Jamie Dimon even pointed out that 
while margins may come down, the market share may increase due 
to a bigger moat. And so several CEOs have said that Dodd-Frank 
solved--for example, Wells Fargo said that I don't think Dodd-
Frank got it right or solved the issue.
    So the question is, we have gone through all these 
gymnastics of doing this, but, in fact, the bigger financial 
institutions have gotten bigger, and we have seen--
    Mr. Frank. First--
    Mr. Neugebauer. I didn't ask you a question.
    Mr. Frank. Oh, sorry.
    Mr. Neugebauer. So the question is the bigger financial 
institutions have gotten larger, and we have seen a lot of 
consolidation in the smaller institutions, community banks. We 
have seen a number of consolidations. If we continue without 
making some changes to Dodd-Frank, do you think that is the 
direction that we continue to go, that the larger financial 
institutions with that advantage get larger at the expense, in 
many cases, of the smaller institutions?
    Mr. Kupiec. Yes. I think very definitely that the changes 
in Dodd-Frank will change the--will increase the consolidation 
in the industry and tend to make assets and deposits be 
concentrated in the largest institutions.
    There is a number of features, and it is not just the 
regulation of the largest institutions. Dodd-Frank had a big 
impact on Subchapter S banks, which most small banks are. It 
doesn't allow you to pay dividends if you get below a capital 
threshold. And this is the means by which you get money out of 
a Subchapter S so they can't pay their owner's dividends. It 
stopped the trust preferred securities (TRuPs), it eliminated 
TRuPs, which was a major source of funding for the smallest 
banks.
    So I think it has shut down--and the large deposits, if you 
are a large corporate or municipal, you are going to go to the 
largest banks where you think things will be protected here in 
a Title II resolution. And so I think there is a lot that tilts 
the whole system over the long run towards the larger banks.
    Mr. Neugebauer. Mr. Wilson, sometimes when you are 
competing for deposits in your marketplace, particularly if it 
is a large deposit, do you find it difficult to compete with 
some of the larger financial on, say, your CD rates or money 
market rates?
    Mr. Wilson. We have challenges in that, but we are in a 
market that is pretty much awash in deposits right now, part of 
the oil field activity in our area.
    Mr. Neugebauer. But with your cost--you said you had 17 
employees. With your cost, and you add additional compliance 
costs, it is putting some pressure on your margins in what you 
could pay on deposits based on what your loan rates are?
    Mr. Wilson. Yes, sir, our margins have squeezed 
considerably over the last 4 years.
    Mr. Neugebauer. With that, Mr. Chairman, I will yield back.
    Chairman Hensarling. The gentleman yields back his 10 
seconds.
    The Chair will now recognize the gentleman from California, 
Mr. Sherman.
    Mr. Sherman. Thank you, Mr. Chairman.
    To set the record straight, this $50 billion we are talking 
about was originally $10 billion in the bill, and some of us 
had to fight very hard to raise that. The original approach was 
that the SIFIs get the bailout, and the medium-sized 
institutions are among those paying for it, even though the 
medium-sized institutions never could have gotten the bailout.
    The problem we have is twofold, and these problems 
continue: first, the existence of entities that are too-big-to-
fail; and second, the credit rating agencies. As to the 
existence of entities that are too-big-to-fail, we are told 
that the current law prohibits using taxpayer money to bail 
them out. I was here in 2008; law prohibited using taxpayer 
money to bail them out. We passed a new law. And one would 
suspect, in fact, the markets are convinced that is exactly 
what will happen again.
    And that is why Mr. Kupiec testifies that these giant 
institutions enjoy a 22 basis points benefit. I have submitted 
to the record of previous hearings that it is closer to 80 
basis points of benefit. And as Mr. Kupiec points out, the 
sweet spot is to be a SIFI, but not to be classified as a SIFI. 
So if the markets believe that you are so big that you will 
take down the whole economy, they will loan you money at a 
lower rate knowing that Congress acted in 2008 and would 
probably act the same way again. The solution to too-big-to-
fail is not to have institutions that can take down the entire 
economy.
    Mr. Chairman, and I mean the current chairman who has just 
left the room, the Republican report that we are here having a 
hearing on identifies that there are only two legislative 
answers that have been put forward to deal with this. One is 
Mr. Capuano's bill that would require additional capital to be 
held by those that are enjoying this subsidy; and then there is 
my bill and Bernie Sanders' bill to say too-big-to-fail is too-
big-to-exist.
    Since the purpose of this hearing is to focus on solving 
problems that haven't been solved, the biggest problem is we 
may be asked to bail out institutions again, and there are only 
two legislative proposals to deal with the problem identified 
in the Republican report. I don't know if the current chairman 
can speak for the permanent chairman of the committee, but I 
would look forward to asking him why we can't mark up the only 
two legislative proposals identified in the Republican report 
to deal with the problem that we are talking about here.
    I have a question for Mr. Wilson, and that is, as you 
already know, the regulators are crafting--the regulators are 
currently crafting the QRM rule. Do you agree that this rule 
needs to be issued promptly and closely track the language of 
the QM rule to ensure a transparent secondary mortgage market?
    Mr. Wilson. I am an advocate for if the bank keeps the 
mortgage in his portfolio, those rules should not apply to the 
bank. That is 100 percent risk retention.
    Mr. Sherman. That is, I think, a different issue.
    Mr. Carfang, do you have a different--
    Mr. Carfang. Risk retention is very important. That is how 
capital gets allocated appropriately.
    Mr. Sherman. Okay.
    Mr. Chairman, I was addressing you while you weren't here, 
so I will repeat myself.
    Chairman Hensarling. Then I didn't hear you.
    Mr. Sherman. What?
    Chairman Hensarling. Then I didn't hear you.
    Mr. Sherman. And that is why I will use my last half a 
minute to ask you a question, which is since the Republican 
report says we have a huge problem, the too-big-to-fail 
institutions might be bailed out, since your report indicates 
there are only two legislative proposals to deal with that 
problem, Mr. Capuano's bill and mine, is there any chance that 
instead of just talking about how bad some prior bill is, that 
we would actually consider the only two legislative proposals 
identified in your report and mark them up?
    Chairman Hensarling. Perhaps the gentleman missed the 
Chair's opening comments when he said we will mark up too-big-
to-fail before this Congress is over.
    The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Oklahoma, Mr. 
Lucas, chairman of the House Agriculture Committee.
    Mr. Lucas. Thank you, Mr. Chairman. And I would like to 
move over to the subject of Title VII and the derivatives 
markets.
    And, Mr. Deas, your testimony is more than a little 
familiar to me. As chairman of the Agriculture Committee, my 
committee and I have held 17 oversight hearings on the 
Commodity Futures Trading Commission, the derivatives market, 
and the implementation of Dodd-Frank over the last 4 years. 
Your testimony asking for greater oversight to the 
implementation process and concern that end users are being 
treated like large Wall Street banks is something that this 
committee and the Agriculture Committee have heard dozens of 
times from dozens of witnesses.
    Now, that is why just about every issue you raised in your 
testimony, we addressed in my legislation to reauthorize the 
CFTC, H.R. 4413, the Consumer Protection and End User Relief 
Act, which passed the House last month with a large bipartisan 
majority. And you are correct, Mr. Deas, that end users did not 
create the financial crisis in 2008 and should not be regulated 
like they did. End users are the job creators and should be 
putting resources into research and development of the projects 
to grow their businesses and should not be required to put 
valuable resources in margin accounts.
    As you mentioned, the House has twice passed the Business 
Risk Mitigation and Price Stabilization Act with large 
bipartisan majorities, 141 votes last year. Unfortunately, the 
Senate, that other body, has not acted on this bill, so I 
included the prohibition on charging end user margin in the 
CFTC Reauthorization Act.
    Tell us, Mr. Deas, can you quantify the cost that FMC would 
incur in possible job losses if this protection is not enacted 
into law and FMC has to post marginal in its derivatives 
transactions? Could you expand on that for a moment, please?
    Mr. Deas. Yes, sir. Thank you for that question. FMC is 
also a member of the Business Roundtable, which is itself a 
member, along with FMC, of the Coalition for Derivatives End-
Users, and we surveyed the other nonfinancial members of the 
Business Roundtable and found that on average, for FMC and 
those other nonbusiness members, it would be $269 million that 
would need to be set aside for meeting these margin accounts, 
and that was only assuming a 3 percent initial margin without 
allowing for any variation margin.
    And so that would be a direct subtraction of funds that we 
would otherwise use to invest in capital equipment, to expand 
our business, in inventory to support higher sales, in research 
and development to innovate new products, and ultimately, we 
hope, to grow our employment.
    Mr. Lucas. It seems that Senate action on H.R. 4413 
therefore would be an important thing to help the economy.
    Mr. Chairman, if I could note for just a moment that on 
this fourth anniversary of Dodd-Frank, like a number of Members 
in this room, having been a part of the legislative action in 
the committee and across the Floor and the conference 
committee, time tends to modify our memories about how things 
are done. But as I remember it, the derivative section of what 
would ultimately be the Dodd-Frank Act started as a very 
bipartisan piece of legislation in the House Agriculture 
Committee, with support from both sides of the aisle.
    As I remember it, when we got to this committee, there was 
input from the Minority, this side of the aisle presently, but 
at that time the political minority. As I remember, the bill 
went across the Floor with a number of supportive votes from 
all sides of the room. When we got to conference, the decision 
was made by the conference committee chairman to set the House 
work product aside and take up Senator Dodd's product. And from 
that point on, as my memory goes, it was not too much of a 
bipartisan process.
    I just note to all my colleagues that serving on several 
committees, some with a very strong tradition of 
bipartisanship, that we began Dodd-Frank, whatever the end 
result was, I think, in a fashion that was appropriate for what 
we were trying to accomplish, but by the end I don't remember 
the Minority having that much input, Mr. Chairman. Maybe you 
remember things differently.
    With that, I yield to the chairman, and I yield back to his 
conclusion.
    Chairman Hensarling. I think that the gentleman's memory is 
quite vivid, notwithstanding the fact I recall being there for 
about 24 hours. But, yes, the gentleman's memory is correct.
    Does the gentleman yield back?
    Mr. Lucas. A bill only reflects how it is put together.
    Thank you, Mr. Chairman, I yield back.
    Chairman Hensarling. The gentleman yields back the balance 
of his time.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks, ranking member of our Financial Institutions 
Subcommittee.
    Mr. Meeks. Thank you, Mr. Chairman. And I appreciate the 
gentleman's last line of questioning. But I also--because 
listening to the testimony of the witnesses thus far, I do want 
to see whether or not there is anything that we can agree upon. 
So I will ask, I guess, Mr. Wilson first: Do you agree that it 
was bad behavior by some financial institutions that created 
the problem that we had with reference to the financial crisis?
    Mr. Wilson. There was no bad behavior on my part.
    Mr. Meeks. No, not your bank. I said some financial 
institutions, the larger ones in particular.
    Mr. Wilson. Some of those guys did something--financial 
institutions and nonfinancial institutions did something that 
got us in that--
    Mr. Meeks. Somebody did something.
    Mr. Wilson. Yes, sir.
    Mr. Meeks. Something went astray, and things went bad; is 
that correct?
    Mr. Wilson. Yes, sir.
    Mr. Meeks. And I ask the same question to Mr. Carfang.
    Mr. Carfang. Sure. There were a number of contributors, and 
large financial institutions were--
    Mr. Meeks. So somebody did something wrong. On their own, 
we didn't have anything covering it, but somebody did something 
wrong. A lot of people did something wrong to cause the crash. 
Is that correct?
    Mr. Carfang. Absolutely. Sure.
    Mr. Meeks. Okay.
    Mr. Deas?
    Mr. Deas. Sure, yes, there were financial institutions 
which engaged in risky activities, and those risks blew up in 
2008.
    Mr. Meeks. And Mr. Kupiec?
    Mr. Kupiec. Yes, there were lots of guilty parties. 
Regulation was very subpar. The regulators missed all kinds of 
warning signs. There were consumers all over the country who 
took out loans trying to profit by low rates and flipping 
houses, and they were taken advantage of, or they were 
facilitated by the financial institutions, but it was not just 
financial institutions that caused the problem. It was 
widespread. Blame is widespread.
    Mr. Meeks. Let me go back. So then, now, from what I am 
hearing, and I have heard from a lot of my colleagues 
especially on the other side of the aisle, is basically what 
they want to do is get rid of Dodd-Frank. If I listen to what 
they are saying, they are basically saying the cause of the 
problem and the problems we are having now is Dodd-Frank. Dodd-
Frank didn't exist when the problem was caused. Dodd-Frank is 
as a result of the problem.
    So now, I don't know whether individuals have tried to get 
rid of Dodd-Frank altogether. So the next question is, is there 
anything in Dodd-Frank that you agree with? Mr. Wilson?
    Mr. Wilson. Yes, sir.
    Mr. Meeks. Mr. Carfang?
    Mr. Carfang. Sure.
    Mr. Meeks. Mr. Deas?
    Mr. Deas. Yes, sir.
    Mr. Meeks. Mr. Kupiec?
    Mr. Kupiec. I think the goals of Dodd-Frank to eliminate 
too-big-to-fail and the problems that arise from that are 
admirable goals, and I support those goals. I just don't think 
Dodd-Frank does it very well or does it at all.
    Mr. Meeks. Mr. Frank, would you tell us the problems and 
how you arrived at the fact, going to the last question, that 
Dodd-Frank came into existence, and what it did do to help save 
the economy and put us where we are today?
    Mr. Frank. There are two areas--and the chairman mentioned 
that there had been a lot of regulation including some 
increased regulation. Mike Oxley did Sarbanes-Oxley in a 
bipartisan way. President Bush signed it. There were other 
things. But there were two innovations, and I think the problem 
was not so much that we deregulated as a society, but that we 
did not have new regulations to keep up with new activity.
    And there were two. One was the financial derivative 
business, and I noted what Mr. Deas said, and I agree with him 
essentially on the end users, and I said that. But there was 
risky speculative activity that became evident in 2008 
basically from people who were using that as an end in and of 
itself. It wasn't connected to helping the productive economy.
    Secondly, and most troubling, was securitization of loans. 
And what happened was people thought they had found a way to 
get rid of risk. I think Mr. Carfang correctly said you don't 
get rid of risk, you shuffle it off.
    And so one of--in those two areas, these new financial 
derivatives--remember, Congress actually in 2000 enacted 
legislation that says to the CFTC, stay away from derivatives. 
And we did have, we thought, in the Homeowners Equity 
Protection Act to mandate to the Fed to regulate subprime, they 
said they wouldn't do it. Many of my conservative colleagues 
said we should stay away from regulating subprime, that was a 
good thing.
    The problem was with securitization, people were making 
loans, and essentially the incentive became to make a quantity 
of loans and not quality. And that is why two important parts 
of the bill--too-big-to-fail, if we get to too-big-to-fail, 
then things have failed. We don't want the institutions to 
fail. By stopping these irresponsible loans and making people 
stand behind the financial derivatives, you hope very much to 
make it unlikely that people will fail.
    If there hadn't been bad loans, and AIG hadn't sold credit 
default swaps to people who had bought securities from these 
bad loans with no idea of how much they owed, we wouldn't have 
that kind of a problem.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, vice chairman of our Housing and Insurance 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I appreciate the opportunity for all the good folks to be 
here today and listen to their concerns. And it is interesting, 
as somebody who is involved in the community banking industry, 
and has been on both sides of the table as an examiner and as a 
banker before, and then seen the regulatory onslaught that has 
come as a result of the Dodd-Frank bill, it is mind-boggling to 
see the effect of what has happened. When I go talk to 
community bankers, the first thing they talk about is the 
amount of regulation that is coming out of Washington.
    Mr. Carfang, you talked about the fear and uncertainty and 
ambiguity. And, man, I hear that every time I talk to a bankers 
group. I just got done with one a minute ago. Another group of 
them were here. It is this uncertainty that causes them to not 
want to go out and invest. And the local community, the 
business people themselves, have this same fear and ambiguity 
and uncertainty from the standpoint of not being able or not 
wanting to risk their hard-earned blood, sweat, and tears 
business by expanding.
    And I have had a banker tell me before that--I asked him, 
``How are things going?'' He said, ``Last week, I had three 
people come in for whom I had approved the loans for their 
businesses over the past 2 weeks, and all three came in and 
sort of pushed themselves away from the table and said, no, we 
are going to wait. We are concerned about the economy. We are 
concerned about this regulatory environment coming out here. 
And obviously, the President's health care law is a big 
problem, but also, it comes down to Dodd-Frank and the 
accessibility of funds, the cost of those funds and of the 
uncertainty that it causes within our economy.''
    So, Mr. Wilson, you talked about--basically, I think, my 
view is that community banks were not the problem, yet they 
have been roped in as part of the solution. As a result, you 
talked a while ago about less flexibility and less ability to 
serve the unique needs of the communities that you sit in. I 
would like you to expound on that just a little bit from the 
standpoint of what goes on with a community bank and how you 
fulfill those unique needs.
    Mr. Wilson. We were in a market that is 85 percent 
Hispanic, and the mortgage loans that we would originate were 
somewhat creative, you might say, but they were 5-year 
balloons. They were not high-risk mortgages. We have very 
little losses in those portfolios, but we were able to uniquely 
tailor that loan to meet that customer's needs. And I might say 
during the lifetime of that loan, we were very flexible if a 
crisis happened in those families in working with those 
customers.
    Mr. Luetkemeyer. One of the things that I think has 
happened, and as somebody who comes from a rural part of the 
country, I go back home every weekend, and you see that there 
is another bank that is sold out to a competitor, a neighbor or 
a larger institution, and you guys have alluded to it this 
morning about the cost of compliance. And it is not that it is 
a bad economy, the economy is stagnated, but at some point, 
there is not a particular law or particular rule that caused it 
to happen, but it is an accumulation effect that at some point 
it is kind of like the straw that breaks the camel's back, that 
says, we can't take any more. We can't continue to spread these 
costs out over our entire business.
    And you see this consolidation going on. I know that 
yesterday in The Wall Street Journal there was an article about 
some of the banks getting close to the $50 billion mark with 
regards to being designated as a SIFI. And, I have a bill to 
try and say, hey, look, it is not the size; it is the size, 
complexity, interconnectivity, and the risk that the bank is 
taking. That should be what determines a SIFI, not necessarily 
just the size, wherein all these rules and regulations kick in.
    So I was kind of curious, Mr. Carfang, you have a lot of 
expertise in this area. What do you think about the situation 
that we need to do something about this SIFI designation to be 
able to protect some of the midsize banks as well?
    Mr. Carfang. One of the fears of the whole SIFI is that 
brings you under the jurisdiction of FSOC. And FSOC is an 
organization that essentially creates double jeopardy for 
everyone in the sense that FSOC steps in when it believes 
another regulator has failed and therefore creates another 
level of uncertainty, another bite at the apple, if you will.
    And that creates a lot of concerns on the part of financial 
institutions, but to the customers, the business borrowers, 
they are concerned about whether their banks will be fully 
compliant or fully able to make loans when the businesses need 
them.
    Mr. Luetkemeyer. It was interesting yesterday, the article 
talked about two banks in particular. One of them, as it hit 
the $50 billion mark, its stock went down 15 percent. There is 
another bank that is approaching the $50 billion mark. Its 
stock is down 7.4 percent this year, not because of anything 
they have done, but because of their size. That is an 
unintended consequence of this situation that can't be allowed 
to continue.
    Mr. Chairman, I will yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano, ranking member of our Housing and Insurance 
Subcommittee.
    Mr. Capuano. Barney, do you miss us?
    Mr. Frank. No.
    Mr. Capuano. I don't blame you.
    Mr. Frank. And I am not under oath. I could have said--I 
could have fudged.
    Mr. Capuano. I think the gentlemen of the panel and body 
has seen this again. This is another one of these show-and-tell 
hearings with apparently no purpose to it. And for me, I am 
actually kind of tired of them. If it wasn't for Barney, though 
I love you all, I would have left, because this seems to be 
going nowhere. And it is going nowhere.
    Mr. Wilson, you already made a proposal. I would sign on to 
this tomorrow. For a small community bank holding their own 
mortgages at 100 percent, you shouldn't be subject to QM. Sign 
me up. That is easy. But we don't want to talk about that. We 
want to talk about how bad Dodd-Frank is. We don't want to talk 
about the things we can come to an agreement on to fix some of 
the things. We all think we can fix them, not a problem. 
Instead we need to light candles at the alters of outside 
ideologue think tanks. That is what we have to do.
    We can't talk about too-big-to-fail. Many of us think that 
we did a pretty good job with too-big-to-fail. But I for one 
think, fine, if we can do more, let's do it. What is the 
problem? So I put a bill in, others have a bill in, H.R. 2266, 
I can't get the ideologues to support it or even to look at it 
unless we repeal Dodd-Frank.
    How are we going to get to an end? How are we ever going to 
get any of these things addressed if we simply sit here and 
say, oh, we hate this, we love that, here are my speaking 
points for my campaign. Fannie and Freddie, does everybody here 
realize that the U.S. Government has made money on Fannie and 
Freddie? Mr. Wilson, do you know that?
    Mr. Wilson. Yes, sir.
    Mr. Capuano. Mr. Carfang, do you know that?
    Barney, I know that you know it.
    Mr. Deas, do you know it?
    Mr. Deas. No, sir. It is all I can do to keep up with 
derivatives and how they affect end users.
    Mr. Capuano. Fair answer. But a lot of those derivatives 
are tied to Fannie and Freddie, so you should know who you are 
paying, because those derivatives are actually costing you 
money so that we can take money out of Fannie and Freddie.
    Mr. Kupiec, did you know we are making money on Fannie and 
Freddie?
    Mr. Kupiec. I knew.
    Mr. Capuano. Here we are, we are making money, we are 
actually costing homeowners more than they should be charged so 
that we can use it as a piggy bank, yet we can't have an honest 
discussion on how to fix it. Instead we have an ideologically 
based bill that gets out of this committee, sits on the Floor--
I have never seen a major bill sit on the Floor for as long as 
that proposal has--because they can't get it passed.
    And that is just one of them. We are having trouble with 
TRIA. We can't do it with the Highway Trust Fund. We can't do 
it with immigration, because we are lighting candles at the 
ideologue altar.
    Help me find a way to get to these points.
    Mr. Wilson, can you talk to some of your friends over there 
to let us do what we can do? Because I love them all, but they 
won't listen to me because I am from Massachusetts, I guess, 
and we are too liberal to be listened to. Could you get them to 
listen to us on some of these things?
    Mr. Wilson. I am excited that we have consensus on 
addressing the needs of community bankers.
    Mr. Capuano. The independent community bankers actually 
supported H.R. 2266. The American Banker wrote that it was a 
brilliant idea. And by the way, it wasn't my idea; it was a 
professor at BU, Con Hurley's, idea that I simply put into 
legislation.
    I guess I don't really have any questions because the truth 
is I already know some of the things that need to be done, and 
I am happy to work with any of you or anybody else who actually 
wants to address some of the problems in a bipartisan way. But 
I have to be honest, I am getting tired of the regular hearings 
that we have simply stating political points over and over and 
over.
    Dodd-Frank has done a very good job at containing the 
crisis that we had, putting us back on the footing. Can it be 
improved? Of course, it can. Barney will be the first one to 
tell you he didn't get everything he wanted. The 5 percent 
retention, I think it should be higher. There are others who 
would like to change some of these things. Those are changes to 
a bill that already works. It is not just throwing it out and 
pretending that we did something terrible.
    Gentlemen, I am sorry I had no questions for you, but the 
truth is, I can only suffer this so much.
    Thank you, and I yield back the remainder of my time.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from South Carolina, 
Mr. Mulvaney.
    Mr. Mulvaney. Thank you, Mr. Chairman.
    And I suppose in part in response to Mr. Capuano, let's see 
if we can't find something that we can actually accomplish. I 
was struck by the chairman's opening comments, the stories he 
heard from his bankers in Texas, the story that Mr. Wilson told 
about his compliance costs going up as a result of Dodd-Frank.
    And I am reminded of a story that I heard when I was in 
Charleston, South Carolina, with a small community bank, and 
they had been through their first or second examination after 
Dodd-Frank. And the examiner--they told the story, the examiner 
had asked them at the end, how you are finding the new regs? 
How are you finding the new environment? And the banker, it is 
a small community bank, said, it is killing us. We have 18 
employees, and we had to hire 3 people last year just to fill 
out paperwork, and it is just killing us. And he said that the 
response of the examiner was outrageous, that the response from 
the examiner was this blank look of nonrecognition when the 
examiner said, I don't understand; then it is working because 
you have created three jobs. And if you have a complete 
misunderstanding of how you create wealth and how you create 
jobs, then maybe that part of Dodd-Frank is a success for you.
    And I think Mr. Kupiec mentioned that the stories coming 
out that JPMorgan Chase said, I think, earlier this year they 
are going to hire 3,000 more compliance officers this year on 
top of 7,000 compliance officers last year, yet total 
employment at JPMorgan will go down by 5,000 people.
    So we are moving away from this concept of a productive 
financial sector into a compliant financial sector, and I am 
fearful that may be part of the long-term legacy of this 
particular piece of legislation.
    But if we go to Mr. Capuano's point about focusing on 
things that maybe we can agree on, I am encouraged by his 
comment, by Mr. Frank's comments that perhaps community banks, 
especially those that are holding loans, should be exempt from 
QM. I think maybe that is a move in the right direction. Let's 
see if we can build on that and maybe agree that this $50 
billion arbitrary threshold is a bad idea; and that maybe 
picking a number--I was surprised to hear Mr. Sherman say, 
because I wasn't here at the time, that number was originally 
$10 billion, which means that we are actually contemplating a 
regime where a bank, a financial institution with $11 billion 
would be treated essentially the same as one with $1 trillion, 
which is just absurd.
    So I will start with you, Mr. Kupiec, and I will go down 
the line.
    Mr. Frank. Could I just add one point?
    Mr. Mulvaney. I will give you a chance, Mr. Frank. I 
promise. You know that I will.
    But I want to start with Mr. Kupiec as to whether or not he 
thinks it would be better to replace the $50 billion threshold 
with, say, something that actually looks at the complexity of 
the business, not just the raw size, but the actual business 
model and what the financial institutions are engaging in.
    Mr. Frank, I will ask you the same question afterwards.
    Mr. Kupiec. It is an excellent question, and there are two 
aspects to it. On a positive note on what you can do to fix 
too-big-to-fail in Dodd-Frank, Title I should have been used to 
direct the FDIC in their regular bank resolution process to be 
required to split up large banks that fail rather than to sell 
them to another large bank in a whole bank resolution. That is 
how we got the biggest too-big-to-fail banks, and Dodd-Frank 
didn't do that.
    So it would have to modify the FDIC Act so that the FDIC 
did not have to do a least cost resolution, so that the whole 
notion that the FDIC handles bank failures well under the 
existing rule is nonsense. That is how we got the big banks we 
got. But if you fix that, then many of the regional banks, the 
banks between, say, $50 billion and $250 billion, don't really 
pose a systemic risk to the economy. The systemic risk they 
pose is if they fail and they go through an FDIC resolution.
    The FDIC is just going to sell them whole to another bank, 
and pretty soon you have a $100 billion bank and then another 
$300 billion bank. So the resolution process built up a too-
big-to-fail industry structure. That is what Dodd-Frank should 
have fixed. It should have addressed that flaw, and it didn't 
even touch it. Ordered resolution plans don't speak to that at 
all. It is all about a bankruptcy proceeding and everything 
else. It never recognized the resolution process that was in 
place. A regular FDIC resolution process is broken when it 
comes to a large bank, and it doesn't have to be.
    Mr. Mulvaney. We will come back to my point, Mr. Kupiec, 
which is this $50 billion arbitrary number, it just sells, 
doesn't it?
    Mr. Kupiec. It doesn't come from anywhere. There is no 
science that came up with $50 billion. The problem with having 
this potpourri of things and turning it over to the FSOC is 
there is nothing that constrains the FSOC. So if you turned it 
over to the FSOC and said, okay, $50 billion is out, but the 
FSOC has to consider complexity, interconnectedness, size, I 
don't know, whatever else you want to care about, the FSOC 
could sit there, and it is full of bank regulators, and they 
could look at it real hard and say, oh, yes, we looked at 
these; $50 billion is where it stays. There is nothing that 
fixes the problem if you kick it to the FSOC.
    Mr. Mulvaney. And I apologize, Mr. Frank. I did intend to 
ask you the same question. Maybe someone else will give you 
their time to--
    Mr. Frank. If I could just clarify. I think you may have 
misunderstood Mr. Sherman because you weren't here. The notion 
that it was once $10 billion, it was never--nobody ever thought 
about $10 billion as maybe it was SIFI. The $10 billion was the 
number at which you would have to contribute if there had been 
a bailout. So some people proposed it--
    Mr. Mulvaney. I wasn't suggesting it was a SIFI. It is just 
a heightened level of scrutiny whether or not--
    Mr. Frank. That was not about regulation. That was about 
contributions.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Clay, ranking member of our Monetary Policy Subcommittee.
    Mr. Clay. Thank you, Mr. Chairman, and I welcome back Mr. 
Frank.
    Just going along with that line of questioning, Senator 
Warren of Massachusetts has advocated reinstating Glass-
Steagall in order to address the issue of too-big-to-fail. What 
are your thoughts on that, Mr. Frank? Should we go back and 
address--
    Mr. Frank. No. I voted against the repeal of Glass-Steagall 
at the time because I thought it did not help benefit the new 
regulation. Glass-Steagall is a 70-year-old bill. I think the 
thing that I talked about as having caused the problem, the 
invention of the financial derivatives without backing, credit 
to false swaps, insurance not regulated in the way insurance 
should be regulated, securitization of mortgages, Glass-
Steagall wouldn't have stopped any of that. You could have 
still made all of those bad mortgage loans.
    Then the question is, do you break up the banks? And I did 
agree with Mr. Luetkemeyer that complexity is part of the 
issue. I agree with that, and that is one of the things that we 
asked them to look at with regard to those where there is a 
discretion about being a SIFI. That, by the way, is why I think 
the Volcker Rule is very important and why I changed my own 
position on the question of the push-outs. I originally didn't 
agree with Senator Lincoln's proposal about pushing out the 
derivatives. But there are ways of reducing the complexity, and 
I think it is not just size, it is complexity, and having them 
do less of the derivative area is a very good way to diminish 
the complexity.
    The other problem is people said, the banks are too big. My 
question is, what is the level at which you have to get them 
down? Remember, the precipitating event to the questions in 
2008 was the failure of Lehman Brothers, so presumably, if you 
think the answer is no bank should be too big so that its 
disappearance would cause a tremor, then the big issue to be is 
Lehman Brothers was at the time. And then the question is, how 
do you get there? How does the Federal Government order this 
dismantlement?
    I do think that the complexity issue of the Volcker Rule 
and the push-outs help. There was also a bill--an amendment to 
our bill that was adopted, authored by Paul Kanjorski when he 
was here, which does give the Fed the power to order the 
divestiture of any particular segment of any particular 
institution if it believes that it has gotten out of hand and 
isn't showing--doesn't have appropriate control.
    So I do think there is room for subtlety in that, but I 
don't think Glass-Steagall does it. As I said, if Glass-
Steagall had been in effect, it wouldn't have affected AIG. 
Nothing in Glass-Steagall would have kept AIG from coming to 
the Fed and saying, we owe $170 billion in credit to false 
swaps, and we have no--we didn't know how much we owed, and we 
know how to pay it off, and it wouldn't have stopped people 
from 100 percent securitization and making bad mortgage loans. 
These were new things that needed to be regulated in a new way, 
which I think is what we tried to do in the bill.
    Mr. Clay. Thank you for that response.
    The housing market has seen some signs of recovery with 
foreclosure rates declining, home sales rising, and equity 
creeping upward. Do you think the Dodd-Frank Act had an effect 
on the housing market, and just over time the housing market 
has corrected itself?
    Mr. Frank. We have had an effect, and, as I said, I am 
surprised some people lament it. There are fewer loans 
available for very poor people. And I wish there weren't poor 
people, but lending the money when they cannot afford to pay it 
back isn't doing anybody any good. Then the lending 
institution--unless they managed to securitize and pass it off 
on some other entity.
    I think, to the extent that we have seen the stabilization 
of the economy in general, that has helped the housing market. 
I think that the accommodation of things that have helped turn 
around this very serious recession have been helpful.
    Let me just comment on one thing, and I appreciate that 
people have talked about the uncertainty, et cetera. Some of 
that is inevitable. It has taken longer than it should have, 
probably because I think we have had a problem with funding for 
the CFTC, but transitions are painful. We were in a situation 
until 2009 where a lack of regulation of some things, a whole 
set of practices that had grown up that had outstripped 
regulation, were causing problems, and I think it was necessary 
to go to a new set of rules. And it is painful to go through 
the transition. So I accept the fact that there is some 
uncertainty now, but I do believe that 3 or 4 years from now, 
that part of the problem will be over.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, vice chairman of our Financial Institutions 
Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    Listen, to Mr. Frank's recent comment, I agree that we 
should not be making loans to borrowers who can't pay them 
back. That is a good thing. But I would argue that the pendulum 
has swung too far over, that traditionally there is a group of 
people who could get loans and could pay them back who now 
can't get loans because of Dodd-Frank. And so it is where that 
pendulum has swung that concerns me where people who are not of 
the highest income, but now can't get loans because of Dodd-
Frank.
    I know when this bill passed, I was not in Congress. I had 
the privilege of viewing this from my home couch in Wisconsin, 
but the claim was made that this ended too-big-to-fail, and I 
think the jury has come back: Dodd-Frank has not ended too-big-
to-fail. We have larger institutions which partook in the 
crisis, new rules and regulations have now come out, and those 
rules and regulations, that the intent was to stay with the 
larger banks, have now come down to our community banks and our 
credit unions, making it more difficult for community banks and 
credit unions to make loans across Main Street America.
    And if you are a large institution, and you look at the new 
regulatory regime, you would applaud it. You would think this 
is fantastic because you have economies of scale. You can deal 
with the rules and regulations far better than your smaller 
competitors. These rules, you might say they are bad, but 
really, they benefit you because now you have a competitive 
advantage.
    It helps the large institutions and crushes the small 
institutions, and this is what I hear from my smaller banks, my 
community banks all across Wisconsin. It is making it harder 
for them to compete, harder for them to do their job, which 
means it is harder for families to access capital. It is harder 
for businesses to expand or for that young entrepreneur who has 
an idea, to access a loan and get a bank to take a risk on him 
in rural America.
    But I want to pivot to the Consumer Financial Protection 
Bureau. We have a very powerful agency that I would argue, and 
I think many would agree, is unaccountable. I don't know if 
that was the--and this was all due to Mr. Frank--intent of 
Dodd-Frank. I don't think it was, but I think that is the 
reality on the regulatory side.
    But in regard to the Consumer Financial Protection Bureau, 
you now have an agency that is collecting anywhere from 600 
million to 850 million credit cards and the data off those 
credit cards. They are partnering with FHFA on a mortgage 
database, collecting information on race, religion, GPS 
coordinates to your home, credit scores, the number of children 
that you have, and the ages of your children, and the agency is 
out of control.
    You have an agency that has been involved in racism, in 
sexism, and in spending $250 million on a renovation. I know 
Mr. Chairman has asked this question. It is not taxpayer money, 
but if it is not taxpayer money, I don't know where they get 
it. I haven't figured that one out yet. But it is an agency 
that is out of control, and I know that some of my friends 
across the aisle think that is a good thing that only an agency 
that doesn't have any input and insight from Congress can 
protect consumers. But, listen, all--whether they are 
individuals or organizations, through the history of humanity, 
they claim to do really good things for people and for society, 
but it is under the auspices of those claims that they have 
sometimes nefarious purposes, and to think that this Congress 
doesn't have oversight, whether it is with the purse strings or 
through a commission of some sort that is bipartisan to help 
direct this agency, is of great concern for us.
    I know there has been a debate that goes on right now with 
regard to what happens with the President, who now believes he 
has the authority to waive and suspend laws that were 
rightfully passed by the Congress. It is concerning. I think 
there is going to be a push on the other side of the aisle that 
says there is no need for Congress. We just have to have an 
all-powerful executive and all-powerful agencies.
    But we will get to a question here. Mr. Wilson, do you 
believe that the CFPB rules, though they are intended for 
larger institutions, have had an impact on community banks?
    Mr. Wilson. Absolutely. I am appreciative that we are not 
examined by them, but we are not exempt from their regulatory 
reach.
    Mr. Duffy. And how is that?
    Mr. Wilson. When they pass regulations, we have to comply 
with those. The FDIC will continue to examine us, but we have 
to comply with those rules.
    Mr. Duffy. So you are not exempt. You get a little bit on 
examining, but you still follow the rules that are put out by 
the CFPB. So there is no firewall between you and the rules 
that come from the CFPB; is that right?
    Mr. Wilson. Yes, sir.
    Mr. Duffy. All right. My time has expired, and I yield back 
to the chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentlelady from New York, Mrs. 
McCarthy.
    Mrs. McCarthy of New York. Thank you.
    I would like to remind my colleagues that with the poll 
numbers that are out there, we are not liked by anybody, so 
maybe we should all retire.
    Barney, welcome back. It is good to see you. I think a lot 
of people here, especially some of the new Members, don't 
remember that we were having meetings almost every day. It took 
us over a year to come up with the--I call it the Frank bill. I 
still don't like putting ``Dodd'' on there, mainly because all 
of the headaches or an awful lot of the headaches that we have 
have come about because of the ``Dodd'' part of it.
    With that being said, there are many things in the Dodd-
Frank Act that we had wanted, we couldn't get it in, then 
things have changed. Certainly, I am one who was fighting for 
the community bankers. Barney knows that. Many of us here were 
trying to do that. We also felt with the business model of the 
insurance companies, that really had nothing to do with a very 
large extent of the collapse. But I think that one of the 
things that we have to keep reminding people, not only with the 
financial industry, but some that had nothing absolutely to do 
with the collapse killed--my small businesses in town all 
collapsed. A lot of people are still hurting even from then; 
unemployment. And yes, it was the fault of an awful lot of 
corporations.
    Now, someone has to start taking responsibility for that, 
because here we are, and things are coming back, but it took a 
long time, and a lot of people did lose their homes. And I 
believe with Barney--when I got my first mortgage, you had to 
go through some kind of background check, and you had to make 
sure how much you had. And remember, gentlemen, when I went for 
a mortgage, they weren't giving them out to women. It just was 
the case.
    With that, Barney, I am giving you the time because I keep 
seeing you writing down things, and I have been blessed to have 
you as my chairman when I first got onto the committee, you 
taught me a lot, but I also know when you are writing things 
down, you have a lot of answers that you want to give. And to 
me, you have been a wonderful teacher to all of us, and so if 
you have something that you want to answer back on the 
questions, please take that time.
    Mr. Frank. Thanks very much. I have to say Chris Dodd is 
not the whole Senate, so there were things that I don't like 
that he didn't like. Somebody mentioned the TruPS. That was 
Senator Collins from Maine, and she was the 60th vote, and she 
insisted on the--certainly any TruPS stuff.
    I did want to get back to this question of whether or not 
it is some boon to be designated a SIFI, and I have to say, I 
think Mr. Kupiec has been a little inconsistent on this. He can 
respond.
    I cite the fact that any institution over which there is 
discretion has vigorously resisted being named a SIFI as a sign 
that it carries more negative than positive by far. I accept 
their own judgment. His response was, they don't want to be 
designated, but they get the benefit of being a SIFI without 
the supervision. But he also said at one point, the fact that 
they are closely supervised by the Fed is one of the signals to 
the community. So the fact that they don't want to be closely 
supervised by the Fed, if it is simply their size alone that 
does it, then there is nothing you can do about it unless you 
want to break up Fidelity or break up--
    Mr. Kupiec. Thanks for asking.
    So banks bigger than $50 billion don't have a choice, so 
they are not--they are--
    Mr. Frank. That is not--
    Mr. Kupiec. --not in the fight.
    Mr. Frank. I am sorry, this is my time. If you want to 
talk--
    Mr. Kupiec. I thought you asked me.
    Mr. Frank. No, I didn't ask you about banks over $50 
billion. We know that.
    Mr. Kupiec. Okay. But is it--
    Chairman Hensarling. Believe it or not, the time belongs to 
the gentlelady from New York, and she can allocate it.
    Mr. Frank. The question I had to ask you is this: Why do 
they not want to be designated? You said the fact of 
designation and co-supervision is what leads people to think 
that they won't be allowed to fail, so why would they then not 
want to be designated? That is the question.
    Mr. Kupiec. Do I get time?
    Chairman Hensarling. Again, the time belongs to the 
gentlelady from New York. She can referee or swap.
    Mrs. McCarthy of New York. I would rather hear the 
discussion between the two of them, and the majority of people 
here on both sides are all taking too long to explain the 
question.
    Chairman Hensarling. So, Mr. Kupiec, you are recognized.
    Mr. Kupiec. So I am allowed?
    Mrs. McCarthy of New York. Yes.
    Mr. Kupiec. Banks are off the table. I agree with that. So 
here you have designation. You have AIG, which was a ward of 
the government and had no choice, so they were silent. The 
other insurance companies are going to be subject to heightened 
designation that is not mentioned anywhere. They are going to 
be treated like a bank. That can't--they are going to be 
treated--they are going to have to do stress tests just like 
they are a bank. They are gong to have capital just like a 
bank. Neither the FSOC nor the Board of Governors has specified 
what rules are going to--
    Mr. Frank. We agree, you shouldn't be designated, and they 
don't want to be designated, which you make that as a bad 
thing.
    Mr. Kupiec. Because they have no clue what will happen to 
them. They have no clue, so they wouldn't want to be 
designated.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, chairman of the House Foreign Affairs Committee.
    Mr. Royce. Thank you. Thank you, Mr. Chairman.
    The derivatives market is global, and trying to get an 
efficient global derivatives market should be a priority, I 
think, of this committee. In order to meet that goal, our 
regulators have to fully understand how Europe and Asia are 
going to implement derivatives reform and sort of do things in 
concert here and not end up with incompatible guidance and 
rules that could harm our competitive position of our companies 
and liquidity of our markets.
    So here is my point. As Mr. Deas outlined in his testimony, 
while the SEC adopted a formal rule, the CFTC adopted guidance 
that has been subject to changes of interpretation and a 
resulting lawsuit also. In late May, then-CFTC Chairman Mark 
Wetjen stated: ``I don't think it was the right decision to 
change the guidance, and equally comparable comprehensive 
regulations in Europe should allow for substituted compliance 
in this situation.''
    So my question to Mr. Deas and Mr. Carfang is, the 
businesses that use derivatives to manage their risk need 
certainty, they need that liquidity, they need those willing 
counterparties with which to trade, whether located here or in 
Europe or Asia. Do you believe that the failure to have one 
joint rule to govern how Title VII of Dodd-Frank will be 
applied outside of the United States is harming the ability of 
end users to manage their risk?
    Mr. Carfang. Sure. The jurisdictional issues, the conflict, 
and the inconsistencies among the various derivative 
regulations around the world is harming the ability of U.S. 
companies to basically get a handle and appropriately hedge 
their risk, time their risk, and get--frankly, get visibility 
of those risks.
    You create imperfect markets, corporate CFOs were allowing 
the market to give signals, to give economic signals, and to 
the extent that those signals are muted or quieted, the 
corporate treasurers are more reluctant to make investments 
simply because they don't have the economic clarity that they 
need to move forward.
    Mr. Royce. Commissioner Deas?
    Mr. Deas. Yes, sir. Thank you.
    There is uncertainty in several areas or potential bad 
outcomes from the lack of harmonization. The lack of the 
harmonization between the CFTC and the banking regulators has 
created this uncertainty that we thought was clear in the bill 
that end users should be exempted from having to post margin, 
and I indicated earlier that for the average nonfinancial 
member of the Business Roundtable in a coalition study we did, 
that was $269 million that represents a diversion of funds that 
would otherwise be used for business investment.
    The other element--and the European regulators have been 
much more clear that they view the derivatives activity by end-
user companies that is actually risk reducing, and so they 
have--they appear not only to be exempting end users from 
having to post margin, but from exempting the bank 
counterparties to a derivative end user from having to retain a 
higher capital level against that derivative exposure because 
of the risk-reducing nature.
    We fear that this--
    Mr. Royce. If I could--
    Mr. Deas. --aspect could put American companies at a 
disadvantage if--
    Mr. Royce. If I could--I understand your point. If I could 
quote Michel Barnier on this, the EU Commissioner, he says, 
``If the CFTC also gives effective equivalence to third-country 
clearinghouses, deferring to strong and rigorous rules and 
jurisdiction such as the EU, we will be able to adopt 
equivalence decisions very soon. In other words, we will treat 
you as you treat us.''
    I did want to ask Chairman Frank a question. It is good to 
see you, Mr. Chairman. It was mentioned to me that you had 
discussed exempting smaller banks from Volcker, and as memory 
serves, you are not of the opinion that asset managers should 
be designated as SIFIs. I was going to ask you, give you the 
floor here, on other issues that regulators are pursuing, do 
you find some there that were not intended, in your view, by 
Dodd-Frank?
    Mr. Frank. With regard to asset managers, to clarify, I 
don't think as a general rule they should be. AIG could have, 
should have been. I don't think insurance companies should be, 
but AIG is the kind that likes to complain. So it is not 100 
percent, but the assumption would be no.
    My biggest problem with the regulators, frankly, is they 
are equating the two kinds of mortgages. I think there should 
be risk retention. I agree with Mr. Wilson. You keep it in the 
portfolio, fine, but the flipside of that has to be strong risk 
retention, and I am not happy with what the regulators are 
doing there.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman, and I thank the members 
of the panel, especially Mr. Frank. It is good to see you 
again. Welcome back.
    I did see a good article yesterday in The Wall Street 
Journal by Victoria McGrane and Julie Steinberg, and a few of 
the takeaways from their article, the address is really how 
Wall Street is adapting to the new regulatory regime and Dodd-
Frank. And they talk about the fact that profits are up, number 
one; that banks are cutting ties with subsidiaries that are 
more risky. They are also shoring up their capital reserves in 
case of an upset in the economy, and they are deleveraging and 
becoming less complex institutions.
    They go on to say that Goldman Sachs last week announced it 
trimmed $56 billion from its balance sheet during the second 
quarter. That is the sharpest quarter, a quarter reduction in a 
very long time, and they are proactively trying to comply with 
Dodd-Frank.
    It talked about Morgan Stanley. They have cut assets by 
one-third since the 2008 crisis and downsized their fixed-
income trading operation, and they are focusing on less risky 
operations.
    Citigroup has shed nearly $700 billion in noncore assets, 
including the sale of more than 60 businesses that they viewed 
as more risky. And Bank of America Corporation has shed more 
than $70 billion worth of businesses and other assets since 
2010, including those that are more risky, and require the bank 
to hold a lot of capital against them. It has also eliminated 
746 legal entities, a 36 percent reduction.
    So Dodd-Frank, in part, is doing its job. It is working to 
reduce the risk and also the likelihood that these banks will 
fail in the first place.
    Now, Mr. Frank, I want to ask you about--you talked a 
little bit about this earlier with Mr. Garrett. I want to go to 
the issue of asset managers. Now, they had a--as you know, the 
Dodd-Frank Act recognizes each financial institution and 
company differently, and it should be reviewed with its unique 
characteristics in mind. The fact as outlined, as we know in 
Dodd-Frank, include the amount of leverage that the institution 
has, the off-sheet balance--the off-sheet balance sheet 
exposure of the company, and the degree to which the company is 
already regulated by the primary regulator.
    Now, that seems to suggest that these asset managers are 
not the folks that we intended to go after on the risk side, 
and I am just wondering, do you believe that designation as a 
SIFI is the appropriate way to address that industry?
    Mr. Frank. No, absolutely not. I agree with them that it 
would be a mistake. Again, I reiterate if being designated--
there has been an argument on the Republican side that being 
designated a SIFI gives you this advantage, that those that are 
recognized as SIFIs have a funding advantage, yet every 
institution over which there is discretion has vigorously 
resisted, and the fact is that being a SIFI could mean more 
regulation, and the notion that it is a benefit is belied by 
their response.
    There was one other factor that I think was in there, 
Steve, I don't know if you read it, about the breadth of 
ownership which was relevant. The more widely owned it is, the 
less likely it is to need to be in there.
    Mr. Lynch. And I think that was a good example of that.
    Mr. Frank. And I don't think that--if that is your major--
if that is all you do is asset management or sell life 
insurance, I don't think you should be a SIFI. For one thing, I 
think they have enough other things to do, and there is no sign 
of their causing problems.
    Now, you did have an issue with money market funds, and 
there, by the way, I think the FSOC has shown its value, 
because we are going to get some regulation to money market 
funds now because of the FSOC, which intervened when the SEC 
wouldn't do anything. People will disagree about the specifics, 
but I think it is a good thing that they move forward. But I do 
not believe that the asset managers, absent some other form of 
activity, pose a systemic threat.
    Mr. Lynch. Okay. Thank you very much, and I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now yields to the gentleman from Pennsylvania, 
Mr. Rothfus. Would the gentleman yield to the Chair for a brief 
moment?
    Mr. Rothfus. Yes, Mr. Chairman.
    Chairman Hensarling. I just want to point it out, because I 
have heard Chairman Frank make the point a couple of different 
times, I don't frankly know if the SIFI designation is a net 
benefit or a net cost, but, again, Lloyd Blankfein of Goldman 
Sachs says it ``would be among the biggest beneficiaries of 
reform.'' Jamie Diamond said, ``While margins may come down, 
market share may increase due to the bigger note.'' AIG called 
the SIFI designation ``a Good Housekeeping seal of approval.''
    So I think some of the biggest banks might respectfully 
disagree with our former chairman.
    I thank you, and I yield back to the gentleman from 
Pennsylvania.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Western Pennsylvanians are frustrated by the one-size-fits-
all decisions coming out of this town. These rules and 
regulations are not helping businesses in the communities I 
represent grow and create jobs. They are not helping an out-of-
work person get a job. Banks in western Pennsylvania are 
telling me the same thing. They are telling me that the 
regulations coming out of this town are stifling their ability 
to lend and offer products to businesses and families in our 
communities.
    Mr. Wilson, has your institution or are there institutions 
you know of who have stopped offering a product because of the 
regulatory cost associated with it? If so, what does this mean 
for customers?
    Mr. Wilson. As I have mentioned, I am very sad that we no 
longer serve that segment of our community who did not have 
access to credit because of the requirements of Dodd-Frank.
    Mr. Rothfus. But that was with mortgages. Are there other 
areas also?
    Mr. Wilson. No, sir.
    Mr. Rothfus. A recent study from the Mercatus Center found 
that small banks are spending more in compliance in the wake of 
Dodd-Frank, and that more than 80 percent of respondents had 
their compliance costs rise by more than 5 percent since 2010. 
Statistics like this are why I am of the belief that any 
regulation should have to undergo a rigorous cost-benefit 
analysis, including a review of whether it would actually cost 
jobs and harm wages.
    Mr. Wilson, can you quantify for us the cost that your 
institution has incurred to comply with Dodd-Frank regulations 
in terms of dollars?
    Mr. Wilson. My estimation is we spend about three full-time 
equivalents dealing with regulatory requirements in our--
    Mr. Rothfus. And that is on an annual basis?
    Mr. Wilson. Yes, sir.
    Mr. Rothfus. And about how much would that be?
    Mr. Wilson. The bulk of that is--a big piece of that is my 
time trying to read the regulations, trying to interpret them, 
getting training on what they are. Some of those are not clear, 
and they conflict with other regulations.
    Mr. Rothfus. This is time that you would not be spending 
with a customer trying to help that customer--
    Mr. Wilson. That is correct.
    Mr. Rothfus. --access a credit product that could help him 
or her grow a business, get into a mortgage.
    Mr. Wilson. I would much prefer to be calling on customers 
and offering them credit solutions.
    Mr. Rothfus. I have also been concerned about the 
consolidation that we are seeing and Dodd-Frank's effect on 
consolidation of the banking industry. I spoke to a group of 
bankers in Pennsylvania, small community banks, about 20 of 
them, and I asked a question of whether or not in 10 years they 
thought they would be independent still, or might they have to 
merge or be acquired, and every hand went up, because there is 
a lot of concern, and we are seeing that certainly with the 
numbers. That is one statistic that in the 4 years prior to 
Dodd-Frank, 510 new bank charters were granted, and after Dodd-
Frank, only 15 new charters have been granted.
    Mr. Wilson, what does this suggest to you? Are you 
concerned that we will see further consolidation of the banking 
industry once regulators get around to implementing the rest of 
Dodd-Frank?
    Mr. Wilson. I think it would be a tragedy; however, I see 
that happening, and I feel that pressure myself trying to keep 
up with the pace of change and the complexity of these changes, 
and if they are not issues that we have caused or been a part 
of, I hope that the Congress will exempt us from those sorts of 
regulations.
    Mr. Rothfus. Thank you.
    Chairman Frank, on December 11, 2009, your bill, the Wall 
Street Reform and Consumer Protection Act of 2009, was brought 
to the Floor. That bill provided for the creation of a consumer 
finance protection agency. It also provided for the conversion 
of that agency to a commission. Section 4103, subsection A, 
said on the agency conversion date, ``There shall be 
established a commission that shall, by operation of law, 
succeed to all the authorities of the director of the agency.'' 
And further in subsection B, it said, ``The commission shall be 
composed of five members who shall be appointed by the 
President by and with the advice and consent of the Senate.''
    You sponsored that legislation, and then you voted for 
that, correct?
    Mr. Frank. Oh, yes, I voted for that bill on the Floor.
    Mr. Rothfus. Thank you.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    First let me say, Chairman Frank, that we really miss your 
intellect, your intelligence, your wit, and your charm. Never 
did we need it more. Never did we need it more than at that 
moment of crisis, and throughout history, moments of greatness 
shine at their most brilliant at moments of crisis.
    This Nation was on the brink of a depression, unemployment 
was ratcheting up at 12 and 13 percent, we had AIG failing, we 
had Lehman Brothers, even General Motors, the worst economic 
conditions since the Depression, and you were, sir, the right 
person at the right time doing the right job, and we are 
grateful for that, and America is grateful for that.
    And I do want to say that the folks in Atlanta, Georgia, 
are still talking about that wonderful time we had when you 
came down and were there at the Ritz Carlton. I think you 
remember that. I am hoping that is one of the highlights of 
your career. It certainly was of mine.
    Let me ask you, I want to go back to a couple of things. I 
think the genesis of the Dodd-Frank bill is the essence of the 
too-big-to-fail, and in there has been pointed out the 
threshold of $50 billion being that point and above where we 
designate the systemically important financial institutions, 
which brings upon additional Federal regulation.
    But let me ask you, should a bank's systemic importance be 
based strictly and solely on their asset size?
    Mr. Frank. At some point, yes. That is, if you get to half 
a trillion dollars, I suppose, but I do think $50 billion is--
look, any number is arbitrary, obviously, in the nature of the 
case. I agree, Governor Tarullo always talked about moving 
that, and I think that is a reasonable thing to do. And 
basically I think what you ought to do is to set a fairly high 
number as the automatic cut-off and then allow for inclusion if 
there are further kind of complications. And then on that 
question, and I want to--I was frankly pleased that the 
chairman felt sufficiently stung by the notion that nobody 
wants to be a SIFI to read those other comments, but they are 
really not relevant.
    Mr. Scott. Right.
    Mr. Frank. Jamie Dimon and Lloyd Blankfein never had the 
option. It was obvious that Goldman Sachs and JPMorgan Chase 
were going to be there, and AIG, as the poster child for 
irresponsibility, didn't.
    The fact remains, and it is not controversial, that every 
single entity over which there would be discretion--it is not 
JPMorgan Chase or Goldman Sachs--has vigorously resisted being 
included. They hire lobbyists to fight it. They appeal the 
decision. We had a panel of regulators on that subject when I 
was still here, and we asked them, has any institution told you 
they would like to be a SIFI, or has any institution failed to 
object if there was discretion, and every single one of them 
said the institutions fight it because it is much more of a 
burden than not.
    But yes, I do think that it is reasonable to look at this. 
I also believe on the point is that complexity is obviously--
could be an additional risk factor, and I would reiterate, I 
think, as I look at it now, the Volcker Rule and the push-out, 
even though I had skepticism about it originally, accomplished 
that.
    If I could just comment on the question of the gentleman 
from Pennsylvania. He seemed to think he had scored some great 
victory by getting me to admit that I actually voted for this 
bill. I didn't think that was that much of a secret, but, in 
fact, I preferred it to be a single director of the CFPB. We 
had the votes, we had to give in, and--
    Mr. Scott. Mr. Frank, I only have 40 seconds. I have to ask 
you this last point because it would be clearer.
    Mr. Frank. I apologize.
    Mr. Scott. No problem. But I remember distinctly--a lot of 
people are watching this. C-SPAN's ratings are probably up 
because you are here. So I want to make sure that the Nation 
knows that it was you. It was you who insisted that no taxpayer 
money be used for a bailout. It was you who provided that. That 
is important. And I want to go back, and Mr. Garrett raised 
this point. I want to make it clear. Then who, under your bill, 
in your estimation, pays for that bailout?
    Mr. Frank. Institutions with more than $50 billion in 
assets, but there is a formula so that asset managers, et 
cetera, widely held will pay much less than a Goldman Sachs or 
a JPMorgan Chase.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Hurt, vice chairman of our Capital Markets Subcommittee.
    Mr. Hurt. Thank you, everyone here. And thank you, Mr. 
Chairman.
    I want to thank the witnesses for being here. It is kind of 
interesting that there seems to have developed among some of 
the Members here that the costs of some of these regulations 
and the red tape that has resulted from these regulations, a 
lot of which has been testified to by Mr. Wilson, is either not 
real, or if it is real, it is really not having an impact, it 
is not significant.
    In fact, it seems that we are heralding that this is a good 
bill because Wall Street has hit all-time highs, and I would 
suggest that may be true, but it really does not properly 
reflect the overall economy, and it certainly doesn't reflect 
the reality that the folks that I represent are feeling. And I 
represent Virginia's Fifth District. It is a rural district. We 
have 23 counties and cities. It is mostly Main Street America. 
We have had, in the last 6 years, unemployment in parts of our 
district as high as 20 percent, north of 20 percent. There are 
still localities in our district where we have unemployment 
almost as high as 10 percent.
    Our economy is struggling, and we need jobs, and we need 
the capital, we need access to capital that creates those jobs. 
And, we talk about the recovery, and we talk about the full-
time jobs that were created. There weren't any full-time jobs 
created. There were part-time jobs created in June, and I think 
that is important.
    So working families are paying more for gas, groceries, 
electricity, and health care, and it is costing them more to 
access credit, and they have fewer choices. So while this bill 
may be good for Wall Street, I would suggest to you that it is 
having a much harder impact on folks in the rural communities. 
Basically our community banks are a major part of providing 
that capital.
    And so I guess my question is--I have two questions. The 
first would be for Mr. Kupiec, Mr. Carfang, and Mr. Wilson, and 
that is dealing with the issue of too-big-to-fail, which, of 
course, is the Wall Street reform part of the Dodd-Frank Act. 
It strikes me that since 1984, there are 18,000 community 
banks. Now there are fewer than 7,000. The chairman indicated 
that since 2008, we have lost 800 community banks. These are 
important banks to our communities, and with that kind of 
consolidation, it seems to me that not only hurts access to 
capital in rural areas, but it also poses itself a systemic 
risk. And I guess, just with Mr. Kupiec, I would ask you, are 
community banks important to providing access to capital in our 
small, rural Main Street communities, and are they--and by this 
consolidation, are we, by its very nature, promoting systemic 
risk, two things--something that this Act purportedly tried to 
prevent?
    Mr. Kupiec. Absolutely. There was an FDIC study a year or 
two ago when I was still there where they looked into the 
community bank issue, and community banks are especially 
important in rural areas, in small towns, and in places where 
large banks don't want to branch. You need a big enough 
customer base before a large bank is willing to go there, and 
in many cases community banks are the banks that service places 
where large banks don't feel it is competitive to expand. So 
when we lose community banks in those places, and we are, it is 
very bad for the economy.
    The consolidation is ongoing, and certainly the regulatory 
burden--and I provided testimony to a subcommittee in March on 
that--of the estimates of the cost to the regulatory burden 
associated with compliance under the Dodd-Frank Act, and I used 
some estimates by a Federal Reserve Board Governor about how 
many people it would take for the size bank, and then I 
multiplied it by the average earnings per bank, and it was 
significant. It puts a lot of banks in a negative earnings 
position, the extra compliance costs. So this is huge, and I 
think it does force--the compliance costs force banks to have 
to be of a bigger size or they are just not going to survive 
the costs.
    Mr. Hurt. Thank you.
    Mr. Carfang, do you want to comment on that, then Mr. 
Wilson?
    Mr. Carfang. Three premises of sound banking are to make 
loans to those who have the capacity, who have the collateral, 
and who have the character. Community banks are best able to 
judge the character of the borrowers in their local community.
    In addition, though, the problem is actually larger than 
that because we have moved away from relationship banking to 
compliance banking today, and that takes character out of the 
equation. So we are now coloring by the numbers here, and we 
are losing a lot of the judgment and a lot of the flexibility 
that really needs to happen to fund innovation and risk-taking 
at the most elementary levels.
    Mr. Hurt. Thank you.
    Mr. Wilson, I suspect I know what your answer would be. 
Thank you. My time has expired.
    Chairman Hensarling. Indeed. The time of the gentleman has 
expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, ranking member of our Oversight and Investigations 
Subcommittee.
    Mr. Green. Thank you, Mr. Chairman, and I would like to 
welcome you back again, Chairman Frank. It was an honor to 
serve in Congress under your leadership when I was a neophyte, 
and I must tell you that it is also an honor to serve under the 
leadership of the Honorable Maxine Waters. You left the 
committee in capable, competent, and qualified hands, and I 
believe she is following in the tradition and doing an 
outstanding job.
    With reference to several things, we talk about community 
banks quite a bit, Mr. Frank, and when we talk about community 
banks in terms of the aid, and assistance, and the changes 
necessary to make them effective, we use small banks, but when 
we start to generate legislation, the size becomes very large. 
In fact, we have had testimony from at least one or two bankers 
who indicated that $30 million, $40 million, $50 million is a 
community bank.
    Mr. Wilson, we all support what you want in trying to help 
you, but when we try to get a definition of a community bank, 
it becomes very difficult when we reach the size of $30 
billion, $40 billion, $50 billion; not ``million'' dollars, 
``billion'' dollars. So therein, lies a small problem. But for 
today, let's deal with some other issues.
    Mr. Frank, I would like for you, if you would, to come back 
to the question of a single director as opposed to a 
commission, because I don't think you had an opportunity to 
finish your answer, and this is something that we have 
litigated here at the committee level quite a bit.
    Mr. Frank. Thank you.
    Let me just say with regard to the community bank problem, 
obviously it is a problem, if I could just interject, to have 
them diminish. I don't think that adds to systemic risk. There 
is a loss of social function of economic activity. A lot of the 
losses of community banks have been going more to the regional 
banks, of the midsized banks, so I don't think that is a 
systemic risk problem; it is a social problem that I would like 
to work on and a local service problem.
    As far as the single director, yes, the Member from 
Pennsylvania plainly made the point. I originally wanted it to 
be a single director. The intraparty votes in the House, the 
Energy and Commerce people wanted it to be a commission, so we 
compromised. We went to the Senate, and the Senate also wanted 
a single director, and I didn't put up that tough a fight for 
the House position. That was in the conference.
    People have alluded to other things, and there has been 
this notion that there is something unique about the CFPB 
because it doesn't go through Congress. Neither does the 
Federal Deposit Insurance Corporation. Neither does the Federal 
Reserve System. Neither does the Office of the Comptroller of 
the Currency. In fact, none of the bank regulators are subject 
to the appropriations process, and I believe that what you have 
is an anti-consumer activism issue here, not a process issue, 
because when I was here, and an amendment was offered to 
subject the Consumer Financial Protection Bureau to the 
appropriations process, I offered an amendment to do the same 
for the Federal Reserve. I would think people worried about 
accountability would think it was a greater problem that the 
Federal Reserve wasn't subject to the appropriations process, 
and, after all, the CFPB gets its money from the Federal 
Reserve.
    Now, I will tell you that caused great palpitations at the 
Federal Reserve, but, in fact, they were able to count on the 
fact that the Republicans didn't want to have a consumer bureau 
running amok without any congressional appropriations to draw, 
but with a much more powerful Federal Reserve, that was fine. 
So the committee voted down my amendment when the Republicans 
were in the Majority. So I think that underlines that we are 
talking about these limitations.
    Mr. Green. Accountability, would you address it for just a 
moment, please, because there seems to be the notion afoot that 
the CFPB is totally unaccountable, that it can make rules that 
cannot be overturned, that they simply have this inordinate 
amount of power with no restrictions. Would you kindly--
    Mr. Frank. Yes. In the first place, it is one of the most 
popular things Congress has done. And I know the chairman said 
that the financial reform bill is as damaging as the health 
care bill. My recollection is that this Republican Congress 
votes on a fairly regular basis to repeal the health care bill. 
Where is your bill to repeal the financial reform bill? If you 
have the courage of your convictions, let's bring it on. I 
think the problem is that the public is, in fact, much more 
supportive of it, and particularly of the CFPB.
    And as to accountability, I don't know how many hearings I 
was summoned to when we were in the Minority, oversight 
hearings by this committee, in which the topic was the lack of 
oversight of the Consumer Financial Protection Bureau. I never 
spent so much time in oversight hearings complaining about an 
absence of oversight, and I think the public--and here is the 
final point. They don't like it, and they complain that it is 
not subject to appropriations, but nobody has pointed to any 
abuse of practice that I can see. No one has pointed to any 
unfair intrusion into the business models.
    Mr. Green. Thank you, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. Thank you, Mr. Chairman.
    And I thank the panelists for being here. I think that the 
testimony today, and especially that of Congressman Frank, has 
illustrated that there are some lingering problems with the 
implementation of the Dodd-Frank Act. Even the rules that have 
yet to be promulgated create an even greater uncertainty in the 
environment. And while we talk about a recovery, I can only 
wonder what the recovery would have been like had there been 
more certainty in the markets for financial institutions.
    It seems that the Affordable Care Act, also known as 
Obamacare, and Dodd-Frank put together have been too behemoths 
of legislation that have created some serious problems and may 
not have been totally thought out.
    In my district, of course, we have community banks, Mr. 
Wilson, that I empathize with you that no longer do residential 
mortgages. Credit unions are in the same arena. Businesses feel 
that there is a regulatory environment, and when you couple 
that with Operation Choke Point that is now saying that you 
have a reputational risk, and DOJ says you will or will not do 
business with certain people, it creates a very unhealthy 
environment for the flow of commerce.
    And I am reminded that I think the fastest-growing 
occupation in this country right now is compliance officer, 
which does nothing to the bottom line of our financial 
institutions, and even does more egregious harm to the bottom 
line of our consumers and our citizens back home.
    Just as if a patient will never get better if not taken off 
bed rest, we have to give some sense of certainty to an 
overregulatory environment, and I understand that there are 
some flaws in the SIFI, and I think even Chairman Frank 
testified to that earlier in questioning from Mr. Garrett.
    Mr. Kupiec, you speak at length in your testimony about the 
fact that you have concerns regarding overregulation. In fact, 
you think that Dodd-Frank was a trade-off between economic 
growth and the probability of periodic recessions. Why do you 
say that?
    Mr. Kupiec. Financial intermediation is important. It is 
one of the most important things that causes economic growth. 
If you think about it, if you have an economy that has a single 
bank, and the bank gets into trouble, there is no way for 
savings to be translated into investment any longer if the bank 
fails. Financial intermediation is the way the economy collects 
savings, and it puts it into investment.
    So what Dodd-Frank does is it tells the regulators to--it 
gives them and empowers them and it says there are certain 
kinds of bad financial intermediation that could cause systemic 
risk. We are not sure exactly what those are. It is up to you. 
You go figure out what financial intermediation you think is 
bad, and go out and regulate it.
    The problem is the goal is to create financial stability, 
but financial stability is the absence of a crisis. A crisis--
you can have a very stagnant economy with very little growth, 
and there is financial stability. There nothing in the Dodd-
Frank Act that tells regulators that they have to take a trade-
off between the growth effects of stopping financial 
intermediation and this weeding out bad financial 
intermediation, and many times they don't get what is bad 
intermediation right.
    From 2005, all the way up to 2008, the Federal Reserve ran 
a study for the Financial Stability Board where they looked 
over and over and over again at securitization and credit risk 
transfers, and the same people who are regulating banks now, 
that same group of individuals--the ones who haven't retired--
looked at intermediation securitization of subprime mortgages, 
credit derivatives, and they said, these are a great thing for 
the banking system. This is good financial intermediation. And 
now we are coming back and saying really what we need to do is 
give those guys more powers with no constraints and let them 
pick out the bad financial intermediation.
    It didn't work last time; I just can't see how it is going 
to work next time.
    Mr. Ross. I appreciate that.
    Mr. Wilson, I know you are not a health care expert, but 
you are an employer, and you also have to not only comply with 
the regulatory environment in administering your bank, but you 
also have to comply with health care requirements now under the 
Affordable Care Act as an employer. Would you say that the 
combination of these two regulatory behemoths has created a 
greater burden on your institution, and if so, has it been to 
the benefit of your employees or your customers?
    Mr. Wilson. No, sir. We have always provided health care to 
our employees. The benefit of the health care act is since we 
are small, if we provide insurance, we get a tax credit.
    Mr. Ross. Right.
    Mr. Wilson. This year I am struggling because the IRS is 
telling me one thing, and my accountant is telling me another 
thing about buying on the exchanges, and so I have spent 
considerable time on that issue. And the financial institution 
regulations involve not only complying with what is past, but 
just think of 14,000 pages--
    Mr. Ross. Do you think the recovery could be better without 
that regulatory burden?
    Mr. Wilson. It would free me up to do other things and--
    Mr. Ross. Make you available to those who you think--
    Mr. Wilson. Yes, sir.
    Mr. Ross. --would be qualified to use it to encourage an 
even stronger and thriving economy?
    Mr. Wilson. Yes, sir.
    Mr. Ross. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from Wisconsin, Ms. 
Moore.
    Ms. Moore. Thank you so much, Mr. Chairman.
    I am so very glad to see you, Chairman Frank. Just let me 
say that you have left the position of ranking member in the 
hands of Ms. Waters, and she has taught us, set up meetings 
with us in the Library of Congress. We have had speakers, heads 
of agencies, journalists, and she has not yelled at us either.
    I read every single word of your testimony. This is such a 
boring subject to so many people who may be watching, but you 
certainly make it exciting. I read every single word, and I 
noticed that you didn't wax on and on about too-big-to-fail and 
how big the banks are, and, oh, there are more of them than 
there ever were before, and they have merged.
    Instead, the nugget--and I want you to clarify this for 
me--that you have given me as a cautionary note is that instead 
of being distracted by just the size of the banks, we ought to 
be looking more closely into what is happening in the D.C. 
court rulings where this cost-benefit analysis is hampering the 
ability of the CFTC and the SEC to operate, the appropriations 
process is starving the CFTC and the SEC, regulating risk 
retention out of statutes, no skin in the game, and we need to 
learn lessons from history or be doomed to repeat it. I would 
just like you to sort of elaborate on your testimony with 
regard to that.
    Mr. Frank. I will try to speak softer.
    Chairman Hensarling. Chairman Frank, I don't think your 
microphone is on.
    Mr. Frank. I said I was speaking softly, too softly. I was 
promising not to yell.
    Chairman Hensarling. You are certainly free to turn it off, 
Mr. Chairman.
    Mr. Frank. If all I turn off today is a microphone, I will 
feel it was a pretty good day.
    Which issue did you want me to address? Let me--
    Ms. Moore. The cost-benefit analysis and the district 
court.
    Mr. Frank. Yes. Let me--and I sympathize very much with the 
uncertainty. I do think, look, if you are in a situation where 
you think things are wrong, and you want to correct them, there 
is an inevitable period of uncertainty. So the only way to 
avoid uncertainty, it is like with--on the stability argument, 
is to perpetuate it. I am disappointed that things have taken 
too long. In particular, I think we have had a problem in the 
derivative area, and I, again, agree with Mr. Deas. He 
acknowledges there have been some problems in the expansion 
area; it hasn't done well enough to the end users.
    If I had one magic wand I could wave, I would have merged 
the SEC and the CFTC. It makes sense that if you start a new 
country, you would have one. But they represent deeply 
enriched--deeply rooted economic and social and cultural 
divisions, and it would be very difficult to do that.
    Sometimes people forget America is a more complex country. 
One of the reasons we have a multiplicity of bank regulators is 
we have the dual banking system. We have State-chartered banks 
and national-chartered banks. There was a proposal by Senator 
Dodd to give all the regulation of the banks to the OCC, and 
the State-chartered banks, many of the community banks, said, 
no, we don't want to be in there with the big banks. We want to 
stay with the Fed because we want a regulator that pays 
attention to us and isn't overly influenced.
    The problem is this--and one of the best things that 
happened, from my standpoint, for regulation going forward was 
Senator Reid's getting the Senate to say we are not going to 
allow judges to be filibustered, because you had a very 
conservative, imbalanced court in the circuit in D.C.; you had 
a lack of funding--and I think the single biggest problem has 
been the incredible underfunding of the CFTC. The CFTC was 
given the biggest grant of real authority, derivatives, very 
complicated. They are wildly underfunded, and I guess that is 
why people regret that we didn't let the CFPB be in that 
situation. What many of my friends here would like to do is to 
throttle the CFPB with underfunding the way they have done with 
the CFTC. And then you have the financial industry loading all 
these comments on the agency, which they have the right to do, 
and then you have the court requiring a very specific analysis 
and then saying, oh, no, that is not good enough.
    We had an example. The CFTC put out a rule in accordance 
with the bill's clear language regulating speculation that 
basically said if you don't use oil except in your salad and 
your car, please don't go out and buy a whole amount of it, 
which could have an impact on the price. The court threw that 
out and said Congress didn't mean it. We did.
    Ms. Moore. So, Barney, because of my time, are we--is this 
the sneaker risk thing that is happening to us?
    Mr. Frank. The what?
    Ms. Moore. With your indulgence, please. He didn't hear the 
question before--
    Mr. Frank. If I could have one--it is an indirect attack 
from people who don't want to bring it to the Floor and are 
trying to repeal it because it is too popular.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Mr. Chairman.
    I would like to thank all of you for being here today in 
this week of--this grim anniversary of Dodd-Frank, especially 
Mr. Carfang. It is good to have you here from Chicago, 
Illinois, my home area. I'm glad you made it all the way out 
here.
    It is increasingly clear that Dodd-Frank is doing real 
damage to our economy and stalling the economic recovery that 
we all want. Dodd-Frank spans 2,300 pages, imposes 400 
government mandates, and creates vast new bureaucracies, but 
despite this, it has not corrected the problems arising out of 
the financial crisis. This includes the problem of too-big-to-
fail and the need for a regulatory system that decreases 
systemic financial risk instead of increasing risk.
    Now, some on the other side of the aisle, including the 
Obama Administration and most Senate Democrats, view Dodd-Frank 
like I view the Ten Commandments: inerrant; unchanging; and 
demanding our complete devotion. With all due respect to 
Chairman Frank, I suspect even he would agree that Dodd-Frank 
did not come down from on high, nor was it written in stone.
    Thankfully, many on both sides of the aisle in this 
committee recognize that some parts of Dodd-Frank can be fixed, 
especially those relating to the community banks, credit 
unions, and the mortgage industry. After all, Dodd-Frank has 
had a disproportionately negative impact upon those 
institutions. These smaller financial institutions help people 
access the American dream by extending credit necessary to own 
homes, start a business, or to preserve a family farm. They 
provide at least 48 percent of small business loans and serve 
1,200 rural counties with otherwise limited options, and they 
lend based upon personal relationships and local knowledge of 
the community, not just statistical equations.
    Unfortunately Dodd-Frank too often forces these vital 
institutions into regulatory straightjackets that are designed 
for big banks, causing them to reduce lending, merge with 
competitors, or shut down. My constituents in the 14th District 
of Illinois demand answers to this problem, which is why I am 
really grateful for this panel here today.
    With that in mind, I want to address my first question to 
Mr. Wilson and ask about how Dodd-Frank is impacting your 
community bank's bottom line. I heard from many financial 
institutions about how high costs imposed by a growing mountain 
of additional rules, regulations, and compliance burdens are 
being faced by the industry. Are you concerned that these 
regulations could force your bank to limit its offering of 
certain financial products to consumers generally, and low-
income consumers specifically, and what about the impact that 
these regulations as well as their subsequent enforcement have 
on the availability and affordability of credit for small 
businesses and consumers?
    Mr. Wilson. Congressman, our market is low- to moderate-
income people. The community we serve is 65 percent Hispanic. 
The withdrawal of us offering home mortgages is not good. There 
are products that we have looked at and chosen not to offer at 
this time until we figure out the risk. We are a little behind 
the curve on some of the new technologies. So that is the 
impact of the risks that we try to face each day.
    Mr. Hultgren. I want to get back to a few more questions 
with you, but I do want to just remind this committee where 
this all started from. I want to go back to September 25, 2003.
    At a Financial Services Committee hearing here, Chairman 
Frank, you had said on the record, ``I do not want Fannie and 
Freddie to be just another bank. If they were not going to do 
more than another bank, would because they have so many 
advantages, then we do not need them.
    ``And so, therefore, I do not think--I do not want the same 
kind of focus on safety and soundness that we have at the OCC 
and the OTS. I want to roll the dice a little bit more in this 
situation towards subsidized housing.''
    In the GSE Act, Congress initially specified affordable 
housing goals of 30 percent of mortgage purchases by the GSEs. 
That goal is continually raised over the years to 42 percent, 
50 percent, finally, 56 percent. More than 70 percent of 
subprime and all-day mortgages that led to the crisis were 
backed by Freddie and Fannie, FHA, and other taxpayer-backed 
programs. If you have to point to a root cause of the financial 
crisis, that is it. Absolutely, that is it.
    Mr. Wilson, I want to get back to you. In September 2012, 
an ICBA survey found that 55 percent of bankers decreased their 
mortgage business or completely stopped providing higher-priced 
mortgage loans due to the expense of complying with escrow 
requirements for higher-priced mortgages that took effect in 
2010.
    I wondered if your bank still does offer and issue 
mortgages. And, if so, have you decreased the number of 
mortgages you issue because of regulatory uncertainty?
    Mr. Wilson. Yes, sir, most all of our mortgages would have 
fallen into the higher-price mortgage, and we do not have the 
staff capabilities to escrow insurance and taxes.
    Mr. Hultgren. Again, last few seconds. Thank you so much 
all of you for being here. We do want to figure this out. We 
need to clean this up. And, ultimately, I want to see community 
banks that are vibrant in our communities again.
    With that, I yield back, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Perlmutter.
    Mr. Perlmutter. Thank you, Mr. Chairman.
    Somebody mentioned the incredible cost of Dodd-Frank to the 
system, but I just want to start with, before Dodd-Frank, 
summer of 2008 to January, February 2009, the stock market lost 
6,000 points at $1.3 billion per point, $7.8 trillion. Home 
values dropped by 25 percent across the country, trillions and 
trillions of dollars. Millions of jobs lost.
    Since Dodd-Frank, the stock market has increased 10,500 
points, 10 million jobs have been gained, and housing prices 
have rebounded. Now, whether there is a direct cause and 
effect, I don't know, but certainly the economy has improved 
dramatically since before its passage.
    Mr. Kupiec, I am just going to mention a few things because 
I disagree with your basic premise that the primary goal of 
Dodd-Frank was too-big-to-fail.
    And having sat on the front lines of this thing, I know we 
were dealing with credit rating agencies, derivatives, mortgage 
lenders with their no-docs, no-down mortgage servicing, 
appraisals, foreclosures, leverage generally across the system, 
disclosures, Ponzi schemes--Madoff and Stanford--hedge funds, 
swaps, say-on-pay executives basing--pumping up their stock 
prices when it wasn't deserved, credit cards, transparency, 
money markets, the Securities Investor Protection Corporation, 
whistleblowers, securitization, accounting standards, and the 
CFPB.
    Each of those was an important goal and is found in Dodd-
Frank. So you describe it as the primary goal. I disagree with 
you. That wasn't. We had a whole range of things we had to 
address.
    I want to enter into the record the article that Mr. Lynch 
was describing from the Wall Street Journal dated July 21st. 
And a Bank of America executive said, ``Dodd-Frank certainly 
catalyzed substantial amounts of simplification, and we are 
moving well beyond that through our own initiatives.'' That was 
what we did. And if I could add it into the record.
    Chairman Hensarling. Without objection, it is so ordered.
    Mr. Perlmutter. Thank you, sir.
    So, Mr. Frank, I would like to now see if any of these 
things triggered thoughts on your behalf and--
    Mr. Frank. Yes. Let me say this is a discussion I have had 
with the chairman.
    I am pleased that Mr. Dimon, Mr. Blankfein and Mr. Moynihan 
at Bank of America recognize the value of the bank. It wasn't 
because they were glad to be designated SIFIs. That was never 
in question with them.
    I recognize they believe that we brought some stability--I 
don't think every piece of it, but that we brought some 
stability. And, among other things, it gave them some 
protection.
    We had a situation where--this was articulated by Chuck 
Prince at Citi. I asked him once why they hadn't put structured 
investment vehicles on his balance sheet. He said, ``Because if 
I do, I will be at a disadvantage vis-a-vis Goldman.''
    We had some common rules. And there is no question. And as 
to being the main purpose, the main purpose of the bill was to 
not get to the point where institutions failed by not having 
the bad loans and not having these irresponsible derivative 
practices that caused it.
    But I also am sorry that the Representative from 
Pennsylvania had so little time to spend with us because his 
distortions of the history with Fannie and Freddie were pretty 
egregious. It is true that in 2003, I did say that we should 
roll the dice with regard to subsidized housing, by which I 
meant very specifically, the phrase we used, multifamily 
housing built with Federal subsidies. In fact, that has done 
well with Fannie and Freddie. But it is also the case that was 
2003.
    And he referred to me as ``Chairman Frank.'' Mr. Cheney in 
his book said, ``Chairman Frank stopped it.'' Well, I wasn't 
chairman in 2003, because Mr. Cheney always had problems with 
things happening in 2003, like weapons of mass destruction.
    But the fact is that we were in the Minority. The 
Republican Party controlled the House from 1995 through 2006. 
It was entirely their decision not to pass any legislation 
regulating Fannie and Freddie. I was against it in 2003. By 
2005, I switched my position.
    The gentleman from Pennsylvania alluded to an increase in 
the affordable housing goals. Yes. When George Bush pushed it 
up over 50 in 2004, I objected.
    And, in fact, as you can read in Hank Paulson's book--
President Bush's Secretary of the Treasury--it wasn't until 
2006, when we were on the verge of taking over, that he talked 
to me and we got Fannie and Freddie legislation.
    So the Republican Party has been very consistent. From 1995 
through 2006, they did nothing legislatively about Fannie and 
Freddie.
    Mr. Perlmutter. And I would remind the chairman that Mr. 
Oxley, the chairman, said that the White House gave him a--
    Mr. Frank. George Bush gave the--
    Mr. Perlmutter. --one-finger salute--
    Mr. Frank. --one-finger salute.
    Mr. Perlmutter. --on dealing with Fannie Mae and Freddie 
Mac.
    Mr. Frank. But we then in our 4 years, we did put them into 
conservatorship. And, since then, the Republican Party has once 
again, in their control of the House, done nothing about Fannie 
and Freddie.
    Mr. Perlmutter. I yield back for the Chair.
    Chairman Hensarling. It is not a one-finger salute, but the 
time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr.
    Mr. Barr. Thank you, Mr. Chairman. I appreciate the 
opportunity to examine the impact of the Dodd-Frank Act on its 
fourth anniversary.
    Chairman Frank, I appreciated your earlier testimony that 
your intention in crafting the mortgage reform provisions of 
the law were directed to encourage more risk retention.
    I have a bill, H.R. 2673, and that bill is a portfolio 
lending bill that would encourage more risk retention on the 
part of mortgage lenders, small banks, like Mr. Wilson's bank.
    And, in fact, not only was that bill marked up out of this 
committee, several of my colleagues on the other side of the 
aisle, including Mr. Perlmutter, voted in favor of it.
    And my question to you is, would you support such a 
proposal to give a QM safe harbor status to portfolio loans in 
which the mortgage originator retains the risk?
    Mr. Frank. I would have to look at the specifics. I am 
generally in favor of that, although, I would write--and you 
said you would encourage this. I think we ought to give in to 
the Senate and loosen the risk retention.
    I would like to have portfolio allowed to be whatever--not 
below some certain objectionable level, but then also have 
stronger risk retention.
    Mr. Barr. I appreciate your general inclination toward risk 
retention and your general favorability towards that.
    Mr. Wilson, I want to direct your attention, as a small 
community banker, to the slide here. The ranking member earlier 
alluded to the fact that you should have no problem originating 
mortgages now because you are $2 billion or below in assets.
    This is a slide from the Consumer Financial Protection 
Bureau. This slide shows what it required--the chart--in order 
to qualify for the safe harbor protection.
    It is not just that you have to be $2 billion or below. It 
is loan features. It is balloon payment features. It is 
underwriting. It is points and fees. Then, there is the 
portfolio provision.
    Does this slide explain why you and other community banks 
have exited the mortgage loan business?
    Mr. Wilson. The fact that it is so complex on its summary 
page here is part of the problem. We did balloon mortgages. And 
so--I don't know. I would have to go through this complex--
    Mr. Barr. Let me just cut to the chase. If we had a bill 
like the one that I was referring to earlier where, if you 
could portfolio your mortgage and hold it and retain the risk, 
hold it in portfolio, would you reenter the mortgage lending 
business?
    Mr. Wilson. Yes, sir. I would love to be able to serve that 
sector.
    Mr. Frank. Mr. Barr, could I ask you one question about 
that bill?
    Mr. Barr. I have limited time. I would love to talk to you 
after--let's talk afterwards.
    Really quick, I want to just go really, really quickly to 
another point, which is that Dodd-Frank was sold under the 
premise that if community banks played ball and had a seat at 
the table, they would be protected from its new regulatory 
regime, in particular, jurisdiction under the CFPB.
    In fact, thanks to reporting in the Washington Post, we 
know that Chairman Frank had a strategy of selling Dodd-Frank 
as a bill that protected community banks because they would be 
exempt from supervision by the CFPB.
    In fact, the reporting says that--Mr. Frank, in 
communicating with the community bankers, said that, ``There is 
going to be a bill--this is Mr. Frank talking to the community 
bankers, according to the Washington Post--and either you are 
going to have to get on the bus or be run over by it. I don't 
expect you to support the consumer agency--now the CFPB--in 
public, but what is it going to take to get you to be 
neutral?''
    The community banker representative says, ``Well, Mr. 
Chairman, that is going to take a lot. We don't want to have 
examination forces from this bureau coming into our banks, 
given all of the other regulators that are in our banks. And we 
only have 20 or 30 employees in each of these banks, and they 
are being eaten alive by exams.''
    They jockeyed back and forth, settling on a standard. This 
is Chairman Frank and the community bankers.
    ``The CFPA's--that is what they called it then--supervision 
would extend only to banks whose assets exceed $10 billion.''
    And then, according to the Washington Post, again, Chairman 
Frank said, ``I am not asking you to come out and support this, 
but will you stay silent?''
    The community banker lobbyist says, ``I can make that work. 
We have a deal. I reached across the desk and shook his hand.''
    The Washington Post then reported that this deal was one of 
the most important made in the path of what would 9 months 
later become the law known as Dodd-Frank.
    Mr. Wilson, given that recounting of a critical deal made 
to get Dodd-Frank to the finish line, and given the regulatory 
maze that you have to go through in order to avoid these 
regulatory burdens, do you believe that Chairman Frank lived up 
to his end of the bargain in terms of exempting small community 
banks from the regulatory burdens?
    Mr. Wilson. We are subject to those regulations. We were 
not subject to examination by another agency. But when they 
make changes to the regulations, it changes my whole process, 
and it changes my training of my staff. And so, it is very 
complex.
    Mr. Barr. Thank you. My time is up.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison.
    Mr. Ellison. Thank you, Mr. Chairman, and Ranking Member 
Waters.
    Chairman Frank, out of all of the things in the Dodd-Frank 
Act, is there one piece of the legislation that you are 
particularly pleased that we were able to get through?
    Mr. Frank. May I begin by responding to that outrageous 
suggestion that I broke my word?
    I lived up exactly to that deal, as the gentleman on my 
right implicitly said. It was that they would not be 
supervised. There was never any suggestion that they would be 
exempt from the rules.
    And your question, I would say to Mr. Barr, did I live up 
to my deal? The answer is: I did. And Mr. Fine, with whom I 
made the deal, would affirm that.
    So, no, I don't think you and I will be talking about your 
bill, Mr. Barr, because I won't have my motives improperly 
impugned and a suggestion made that I am not good to my word 
when there is absolutely no basis for it.
    As far as the bill is concerned, to me, the most important 
piece is one of the things that I now worry about, which is 
risk retention in mortgage lending, I really believe that the 
single biggest cause was, and it was an intervention and it 
wasn't regulated because it was new.
    You had regulation of mortgage lending pretty good up 
through the 1980s, because most mortgages were made by banks 
and banks are regulated. And even if we don't have QM, the 
FDIC, the OCC, will still regulate the loans that Mr. Wilson's 
bank gives. And I am satisfied with that. That is, there is a 
general need to be reasonable.
    But what happened was banks, through money coming in from 
outside the banking system--and, yes, the banks were unfairly 
maligned, particularly the smaller banks.
    Most of the bad stuff happened outside the banks because 
all of a sudden money became available--not all of a sudden. 
There was liquidity available. You didn't have to go to 
depositors. When you went to depositors, you got regulated.
    But there was all this liquidity from oil countries and 
Asian countries with large balances of payment. So, a whole lot 
of lending shifted to outside of the banks.
    At the same time, thanks to intellectual property 
innovation, it was now possible to make thousands of loans, 
bundle them into a security and sell them.
    So the ability to take the risk without having the 
responsibility for it proliferated, and I believe that was the 
root of the problem: the ability to make those loans.
    And I think there has been an inaccurate argument, oh, the 
Federal Government forced people to make them. Well, the CRA 
didn't force Mr. Wilson to make bad loans then or now. And some 
of the agencies facilitated it, like Fannie and Freddie, but a 
lot of private people did it, too.
    People did it because they could make money, and they could 
make money in a way--and Mr. Carfang said it right, I think--
they thought they could--as far as they were concerned, the 
risk disappeared.
    It didn't disappear. It just went into other places, the 
people who bought the security, the people who issued the 
credit default swaps against those securities, like AIG.
    And so that is why I am troubled by a suggestion that there 
won't be full risk retention. And I think somewhere they may 
get it backwards.
    They are tougher on loans that are going to be held in 
portfolio and softer on loans that are going to be securitized. 
And that is why I see these as flip sides of the same coin.
    I would like them to be softer, easier, defer--and, in both 
cases, there is a common theme. You are deferring to the 
business judgment of the lender or the securitizer. That is, 
let Mr. Wilson make loans if he is willing to stand by that and 
keep them in his portfolio.
    On the other hand, if I want to securitize those loans, let 
me do that, as long as I stand behind them with risk retention. 
So that was the single biggest issue, it seemed to me, and I am 
a little nervous about what is happening to it.
    Mr. Ellison. Yes. Mr. Wilson, do you want to respond to 
that?
    Mr. Wilson. I just wanted to plead with former Chairman 
Frank to support community banks as in House Rule 2673, not to 
say he won't support that because of something that was said 
here, but to support community banks as in the exemption from 
those mortgages we hold in our portfolio and from the escrow 
requirements to support that concept.
    Mr. Frank. I will certainly work for that end. I was simply 
saying I can't negotiate with someone who thinks I am a liar.
    Mr. Ellison. I do have one quick question I want to ask 
before I lose my time.
    One of the things that has happened here is not just the 
bills that sort of, I believe, erode Dodd-Frank, but the lack 
of funding for critical agencies that are supposed to carry it 
out, like the SEC and the CFTC.
    Do you have anything to say about that?
    Mr. Frank. Yes. I am proud of the fact that we insulated 
the Consumer Financial Protection Bureau from that 
strangulation by non-appropriation that has happened to the 
CFTC.
    And, again, I think--I started answering and Ms. Moore ran 
out of time. I think the Republican's chairman says it is as 
bad as the health care bill. But the reaction of the Republican 
Party to these two bills has been very different.
    There has been no bill, to my knowledge, to repeal the 
whole of the Financial Reform bill or even any substantial part 
of it.
    There have been some things at the margins, some of which I 
think are good, some of which aren't. But there has been no 
attack on the whole thrust of it, and they do it by funding.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger. Would you yield a brief moment to the chairman, 
please?
    Mr. Pittenger. Yes. I will yield.
    Chairman Hensarling. I think it was Leo Durocher who said, 
``Kid, you have third base so screwed up nobody can play it.'' 
So we are going to take a little time in this committee and get 
it right.
    And, again, we have already dealt with Dodd-Frank's 
greatest sin of omission in dealing with the GSEs, and we will 
soon deal with too-big-to-fail. And I look forward to having 
former Chairman Frank support a number of our community bank 
regulatory relief provisions.
    I thank the gentleman for yielding.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thank each of you for your testimony.
    Mr. Wilson, I certainly sympathize with a lot of what you 
said today. I served on the Community Bank Board for a decade.
    And in Charlotte, where I live, we have had a number of 
consolidations of banks that just could not address the 
continued requirements and obligations, cost, compliance 
issues, and it has been bad for consumers and bad for the 
banking system.
    Mr. Carfang, I would like to take a look at some of your 
remarks and just get a little bit more insight into what you 
provided today. You have mentioned that banks are focusing on 
the safe segments, those outside the regulatory cross hairs.
    Could you elaborate on that?
    Mr. Carfang. Sure. Banks are afraid of making mistakes in 
this environment. And so they are looking for the customers 
that are the--
    Chairman Hensarling. Mr. Carfang, can you move the 
microphone a little closer to you, please?
    Mr. Carfang. I'm sorry. Excuse me.
    So banks are looking for customers to provide stable 
deposits. Companies with seasonal activity are actually finding 
themselves at a disadvantage in actually finding a bank to take 
their deposits. Banks are now responsible--in addition to 
``know your customer,'' they are now responsible to know your 
customer's customer.
    And that extension is getting a lot of banks out of the 
corresponding banking business. So major banks are no longer 
banking banks like Mr. Wilson's bank, and he then doesn't have 
access to upstream services to provide to his customers.
    Banks--a simple example, electronic benefit cards for 
welfare payments are a very efficient and effective and safe 
and secure way of providing benefits, yet under the ``know your 
customer'' rule, as it is being interpreted, banks are 
responsible to do all of the due diligence on the holders of 
their card, which is obviously an impossibility, and banks are 
exiting that business.
    We have retailers exiting the courtesy check-cashing 
business because of vague fears about anti-money-laundering, 
believe it or not, check cashing in a grocery store or 
pharmacy.
    These are some consequences, not necessarily that they have 
been regulated and are illegal, but they are falling into a 
gray area because of some of the--just the vocabulary in the 
rules that continue to be written.
    Mr. Pittenger. Thank you.
    Other outcomes that you have mentioned were that deposits 
were being discouraged because of higher fees and lower 
interest and there was a restriction of credit to all but the 
most well-documented borrowers.
    Give us some more thoughts on that as well.
    Mr. Carfang. Sure. Because banks now have to limit the size 
of their balance sheets, some to stay under the $50 billion 
limit and others for other regulatory reasons, credit, in 
effect, has to be rationed.
    And because banks are afraid of making a bad loan, a lot of 
the judgment has come out of this that--so we are down to 
checklists, so do you have all of your W-2s, and are they lined 
up, and can you show in your brokerage statement where your 
deposit came for your mortgage and things like that.
    All of those add cost and complexity and, frankly, cause 
banks much larger than Mr. Wilson's bank to scale back to 
simply the most credit-worthy or the most well-documented 
borrowers.
    Mr. Pittenger. Thank you very much.
    Another implication. You said that, due to extended 
interpretations of the ``know your customer'' rule to include 
your customer's customer, banks are exiting certain electronic 
benefit card segments, and these concerns are also resulting in 
the scaling back of the corresponding bank services within 
community banks.
    Mr. Carfang. Yes. And I would like to address the issue of 
the systemically important designation and the lack of 
screaming about that.
    In fact, the benefit of being a designated SIFI is lower 
deposit cost. So banks would not be screaming bloody murder 
about SIFI.
    But the nonbanks, the insurance companies and the asset 
managers who don't gather deposits are, in fact, screaming 
bloody murder because the benefit is not going to them at all.
    Mr. Pittenger. Thank you, sir.
    I yield back.
    Chairman Hensarling. The gentleman yield backs.
    The Chair now recognizes the gentleman from Connecticut, 
Mr. Himes.
    Mr. Himes. Thank you, Mr. Chairman. And I really do want to 
thank you for the focus on the question of too-big-to-fail. I 
know we disagree over the relative merits of Dodd-Frank.
    I am a real believer that the creation of the CFPB and the 
fact that American families will be protected from some of the 
more predatory and toxic products that have beset them for a 
long time is a real step forward. I also think the regulation 
of the notional value trillions of dollars derivative market is 
a real victory.
    But none of us really know, Mr. Chairman, the answer to the 
question of whether we ended too-big-to-fail. None of us really 
know if there is, in fact, a funding advantage for those large 
institutions.
    I have looked carefully at the statistical analysis offered 
by Mr. Kupiec. The statistical significance of his analysis is 
pretty small. It is also--Mr. Kupiec understands, of course, 
the difference between correlation and causality.
    There are a lot of things that impact the funding costs of 
a bank, including the fact that they are international, they 
have diversity of businesses. A large money center bank looks 
almost nothing like Mr. Wilson's bank.
    Nonetheless, nobody really knows whether we have ended too-
big-to-fail. Mr. Frank made the point that simply reasserting 
Glass-Steagall probably wouldn't do it.
    One thing that is for sure is that we took a whack at it in 
Title I and Title II. The right question, I think, is not did 
we end too-big-to-fail. We are not going to know that, frankly, 
until a systemically important institution is on the ropes. 
Then, we will see.
    Sheila Bair, whom I happen to trust on these matters, says 
that she thinks that sort of institution can be resolved. But 
we are not going to know until we see one of these institutions 
hit the skids.
    So I guess what I really want to do is continue this line 
because I actually think it is a really useful line of 
analysis. And I am going to ask Mr. Frank and Mr. Carfang, and 
if I have more time, I will open it up.
    But what I am really interested in is: We have established 
tools for regulators to both monitor--very aggressive tools--to 
change the nature of the businesses of systemically important 
institutions and a whole set of procedures to resolve those 
institutions in the case of them running into trouble. That may 
or may not be adequate. Anyone who says they know the answer to 
that, of course, is not being honest.
    So my question is--and I will start with Chairman Frank and 
then go to Mr. Carfang--what more could we and should we do to 
make sure that we never see a repeat of--
    Mr. Frank. Obviously, that is a central question.
    And one of the things we should do is this. Brad Sherman 
said that what he thinks will happen is, if we have another 
crisis, Congress will vote to give them money.
    Well, no Congress can bind a future Congress. If that is 
the theory, then nobody can do anything in a bill that stops 
the future Congress.
    My own view is that nothing could be more unlikely, given 
the current political mood. And that is the point I would like 
to start with, to Mr. Himes.
    People say, ``Oh, it will work. If we have a crisis, there 
will be a bailout.'' How? I want to know how they think that is 
going to happen.
    Will the Federal Reserve ignore the rule that says they can 
only lend money to an institution that is solvent? Will the 
Secretary of the Treasury violate Federal law and give people 
money? I don't understand the scenario. The political pressure 
would all be the other way.
    So my view is the best thing we can do--one thing is just 
there is a self-fulfilling prophecy. People say, ``Oh, the big 
banks that are too-big-to-fail, they are getting all these 
benefits because people believe that they will be bailed out.''
    They benefit from people saying that. People have a right 
to say what they want, but that is, I think, an inaccurate, 
self-fulfilling prophecy about what will happen.
    Again, I do not foresee a situation in which there would be 
political pressure on the Federal Government to ignore the law 
that says you don't give them money and allow them to keep 
acting.
    The only other thing you can do is--and I thought Mr. 
Perlmutter's questions were right--we want to keep them from 
failing. But we tried everything we could.
    I guess the other thing to do would be to mandate smaller 
banks. But, again, Lehman Brothers precipitated a crisis, and I 
don't know what it would take to get everybody $1 smaller than 
Lehman.
    Mr. Himes. Thank you, Mr. Chairman.
    Mr. Carfang?
    Mr. Carfang. There is no clear definition of ``systemically 
important.'' And if we knew what we were trying to regulate in 
order to strengthen the economy, we would be much better able 
to do that.
    The United States is the largest economy in the world. No 
U.S. bank ranks in the top 5 largest banks in the world. Only 
three in the top 20. Systemically important is really a 
function of interconnectedness, complexity, and things of that 
nature.
    I agree with Representative Frank that at some absolute 
size--if you are $1 trillion on your own balance sheet, yes.
    But if you are an asset manager or insurance company where 
you are not even holding the cash, you are simply a custodian 
for part of the people's cash, that is absolutely--not only is 
it ludicrous, it is chilling, because it tells everyone else, 
``Gee, behave, because you might be designated systemically 
important.''
    And if you are not a deposit-taker to take advantage of 
that deposit subsidy by being designated systemically 
important, you are at a serious competitive disadvantage.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Delaware, Mr. 
Carney.
    Mr. Carney. I want to thank the chairman and the ranking 
member for holding the hearing today and thank all the 
panelists for coming, bringing your expertise and your 
opinions, particularly former Chairman Frank for--
notwithstanding the fact that you don't miss us here, that you 
are coming back. And we certainly miss you.
    You were very helpful to me, as a junior Member, a freshman 
Member in the last Congress, and now I feel like you are 
looking over my shoulder at everything I say and ready to slap 
me on the side of the head with your hand extended.
    Recently my father passed away, and recalling all the 
wonderful things that he did for me and my family, I recall 
that he, when I got my first home, signed the loan for the 
mortgage for my brother and me. And it was a 30-year fixed-rate 
mortgage because that was the only way that he and I could 
afford the monthly payments.
    And I know, Mr. Wilson, that a lot of first-time homebuyers 
and people with modest means use the 30-year fixed-rate 
mortgage to get that first home and to be able to build up 
equity. You mentioned that your bank doesn't do many of those, 
but you are here on behalf of the Texas Bankers Association. I 
read through your testimony. There is a lot of concern in there 
about housing finance reform.
    Former Chairman Frank, on a regular basis, in my first 
term, would talk about the unfinished business of GSE reform. I 
have been fortunate enough to work with Mr. Himes and Mr. 
Delaney on a bill that we think addresses a lot of the concerns 
and would preserve the 30-year fixed-rate mortgage: H.R. 5055. 
And in the Texas Bankers--on their Web site, they mention GSE 
reform as a priority.
    One of the concerns they have is that the compensation paid 
to the GSEs previously and now for what amounts to a full 
government backing is simply not priced correctly and that it 
becomes a barrier for entry for private capital.
    Our bill would do that. We believe it would place that risk 
appropriately. It would give an explicit government guarantee, 
the same terms as the private capital.
    Are the Texas bankers concerned about the availability of 
the 30-year fixed in proposals to reform GSEs?
    Mr. Wilson. The 30-year fixed rate is a viable--it is not a 
product I have ever offered, although I would offer a 20-year 
amortization with a 5-year balloon. But, yes, the access to 
credit is important to Texas bankers.
    Mr. Carney. So that is the primary goal of our piece of 
legislation, to preserve that instrument of affordability, and 
we think that we do it.
    Chairman Frank, you have said a number of times this 
morning you are concerned about securitization, and that being 
a significant problem.
    What are your concerns going forward as we look at reform 
and particularly reform of Dodd-Frank?
    Mr. Frank. I think it is time to get rid of Fannie Mae and 
Freddie Mac. As I said, we were the first ones in 2007 to put 
them into severe constraints and stop the bleeding, and they 
began to make some money.
    I think there was this question: Do we want to preserve the 
option of a 30-year fixed-rate mortgage? And I am convinced by 
people I have talked with in the banking industry, the real 
estate industry, and the homebuilding industry, that absent 
some government involvement, that is not sustainable, because 
nobody is going to lend--or very few people are going to make a 
30-year fixed-rate loan with no protection against interest 
rate, that there needs to be some protection not against credit 
risk--that should not be a public function--but against 
interest rate risk.
    Mr. Carney. And, by the way, that has been the testimony of 
all the people who have come before--
    Mr. Frank. Yes. So I think your approach, the approach in 
the Senate with Senator Crapo--Corker-Warner, Crapo and 
Johnson, and--I think, frankly, that is where we are.
    And Chairman Hensarling said, ``We are going to do Fannie 
and Freddie.'' But the fact is that bill hasn't gone to the 
Floor. I understand it was a real chairman's job to get it 
through. I know what those are like.
    But we have about, what--you have about 3 or 4 weeks left 
in the total session, or 5 weeks. I think it's pretty clear 
that bill couldn't pass the House because it represents a 
viewpoint that is a valid, intellectual viewpoint, but that is 
a minority, that more people agree with you, Mr. Carney, that 
you need to have some involvement to protect people against the 
credit risk on a 30-year fixed-rate mortgage.
    So my prediction is that the Republicans are going to 
complete their fourth year in a row of controlling the House 
and having passed no legislation in the House on the GSEs. I 
wish that weren't the case.
    Mr. Carney. I would be interested--my time is running out, 
but I would be interested in the panelists' views on the 
various bills that are before this committee.
    We have had a lot of discussion today about differentiating 
banks by regulations. So Chairman Tarullo has come up with some 
thoughts, and I would like to explore that with several of you.
    Thank you very much, Mr. Chairman.
    Chairman Hensarling. The Chair wishes to make an 
announcement that it is the Chair's intention to recognize the 
Members who are currently in the room. Those who may be 
monitoring this in their offices, tough luck. This has the 
blessing of the ranking member.
    Mr. Frank. And of the former chairman.
    Chairman Hensarling. Well, I am always happy to have the 
gentleman's opinion.
    The Chair now recognizes the gentleman from New Mexico, Mr. 
Pearce. Would you yield to the Chair for just a brief moment?
    Mr. Pearce. Yes.
    Chairman Hensarling. I thank the gentleman for yielding.
    Apparently, the Democratic-controlled Senate might be 
having a little problem with their GSE bill. I would like to 
note that for the record.
    And we have a disengaged President on the subject as well. 
I look forward to him changing his mind, perhaps, in the last 2 
years of his Administration.
    I thank the gentleman for yielding.
    Mr. Pearce. Thank you, Mr. Chairman.
    And at this time, I would appreciate if we would post the 
chart that everyone has in front of them.
    Mr. Wilson, your testimony aligned most closely with the 
people in my district because we have a very rural district, 
with a lot of small community banks, and they are telling us 
similar stories.
    And we were told that Dodd-Frank was only for the big 
banks, in other words, there was this bifurcation that would 
cause small banks not to have to go through everything.
    Now, it is my understanding that you would have to go 
through each step of this chart. First of all, you have to fit 
the small creditor qualifications, then look at the loan 
features, then the balloon payment features, the underwriting 
features, the points and fees, portfolio, and then the type of 
compliance presumption, the higher price--on the higher-price 
loan.
    Is that pretty well the regulatory process that you would 
have to go through to originate a loan?
    Mr. Wilson. Yes, sir.
    Mr. Pearce. Yes. And so you have 17 employees at the bank.
    How many employees would it take for you to accomplish all 
of this?
    Mr. Wilson. I have--
    Mr. Pearce. Don't go over 100 or anything.
    I understand it is--you would not be able to accomplish it 
with the number of people that you have right now.
    Mr. Wilson. Yes, sir.
    Mr. Pearce. Yes. And so we are led to believe that there 
are two different kinds of regulators that are going to come in 
and, if you are a big institution, they use one set of values.
    Are you finding that they actually come in, or do they just 
enforce the same set of values all the way down to the small 
guys?
    Mr. Wilson. The regulations apply to us in the--we have 
always been regulated by the FDIC and they--and our Texas 
Department of Banking, and they have done a really good job of 
regulating us.
    The problems that are being addressed in Dodd-Frank, a lot 
of those occurred by nonregulated people. And the CFPB, I would 
argue, ought to be regulating those folks and leave us with the 
guys that have always regulated us.
    Mr. Pearce. So the problems did not originate on Main 
Street, but we transferred the punishment down to Main Street 
and actually left out Fannie and Freddie--two of the bigger 
offenders left completely out--and Wall Street itself has more 
capabilities than to perform the regulatory tasks than do the 
small banks.
    And that is the reason that--you said you have lost 80 
banks out of the State of Texas?
    Mr. Wilson. Yes, sir.
    Mr. Pearce. That is an amazing number.
    Now, if you consider--let's say that in your small town of 
San Diego, Texas, that there are--along the spectrum there are 
people with better means and people of lesser means.
    Now, which group is going to be most punished by shutting 
down local community banks? Do the people on the low end of the 
income ladder in San Diego understand where else they could go 
for a loan? Do they have the capability, the wherewithal, to go 
to Dallas or Houston or Hobbs, New Mexico, or somewhere like 
that?
    Mr. Wilson. No, sir. But there are some payday lenders 
there in San Diego, but for the smaller piece of that.
    Mr. Pearce. Yes. So what we are going to do is leave a 
vacuum there and people who are not monitored, who are not 
regulated, are going to show up and fill that vacuum.
    Is that the way you would read it?
    Mr. Wilson. Unfortunately.
    Mr. Pearce. And you said that you don't give mortgage loans 
anymore just because of the high risk.
    What risk do you find involved in giving mortgage loans?
    Mr. Wilson. There is the compliance risk and it is the--
being told what kind of mortgages I can make and then going 
through and trying to do the qualified mortgage--
    Mr. Pearce. Yes. That whole list of things, the full two 
sheets.
    Mr. Wilson. --the escrowing--having to escrow taxes and 
insurance. We are just not staffed or equipped for that type. I 
have never in my 35 years done that.
    Mr. Pearce. And so, again, we are going to make it harder 
for people in the rural areas, especially on the lower-income 
spectrum, to get loans for houses or trailer houses.
    Do you ever find any competition coming in from Wall Street 
to loan money for houses in your district?
    Mr. Wilson. No, sir.
    Mr. Pearce. Yes. So, basically, what we are telling rural 
America with Dodd-Frank is that if you live in the rural part 
of the country, you are just going to be up the creek without a 
paddle or--there are other descriptions we could use, but we 
will probably leave it to that one.
    Mr. Chairman, I yield back the balance of my time.
    I appreciate, Mr. Wilson, that you are providing a service 
that is desperately important for the low-income part of this 
Nation. Thank you very much.
    Mr. Wilson. Thank you.
    Chairman Hensarling. The gentleman yield backs.
    The Chair now recognizes the gentlelady from Alabama, Ms. 
Sewell.
    Ms. Sewell. Thank you, Mr. Chairman. I want to thank you 
and Ranking Member Waters for bringing this panel and all of 
our guests who are here today.
    I wanted to continue the line of questioning that 
Congressman Carney started with respect to SIFI--the 
designation for SIFIs and I wanted to know, Chairman Frank, is 
there some magic to the $50 billion number or would you--there 
are lots of bills that are floating around, including one that 
I am signed on to with Mr. Luetkemeyer, and it suggests maybe a 
$100 billion capitalization size-wise would be preferable.
    And I wanted to know your thoughts on--
    Mr. Frank. As I said before you were able to get here, I do 
agree that there is room for that. I was at the meeting at the 
Chicago Federal Reserve conference when Governor Tarullo talked 
about doing that, talked about exempting the smaller banks 
from--
    Ms. Sewell. Sure did.
    Mr. Frank. --Volcker and the compensation explicitly. I 
think that is a very good set of ideas. And, yes, I think that 
should be revisited.
    I think you find some absolute number below what you can't 
go and then you look at some other factors. You don't want too 
much uncertainty, I think, or you run into the problems Mr. 
Carfang has talked about.
    But, yes, I think--you said is it a magic number. No. But 
you always have to have a number. Is 21 the magic number for 
voting? Is 435 the magic number for the House of 
Representatives?
    You always have to pick a number, and it will always be 
somewhat arbitrary. Calling it a magic number denigrates the 
process that is inevitable.
    But, yes, I think that we should look at that $50 billion 
again, although, again, the problem was here, Lehman Brothers 
started the last thing.
    And, Mr. Carfang raised a good question about what is it 
that we are talking about when we say ``systemically 
important.'' And it is a degree of interconnectedness. It is a 
degree to which, if you can't pay your debts, that is going to 
reverberate throughout the economy. And that is the focus, I 
think, of the analysis.
    Ms. Sewell. Can you elaborate a little bit--I was here when 
you were talking about nonbanks being sort of caught in that 
definition of SIFIs. Your thoughts about asset management 
companies--
    Mr. Frank. I will again repeat what I said. I said a 
comment to the FSOC, saying, as a general principle that I 
don't think asset managers or insurance companies that just 
sell insurance, as it is traditionally defined, are 
systemically important. They don't have the leverage. Their 
failure isn't going to have that systemic reverberatory effect.
    On the other hand, you had AIG, which was an insurance 
company, and the insurance business was so good they made more 
money literally than they knew what to do with.
    And, with AIG--and you go about the causes--the Federal 
Reserve--Mr. Bernanke came to us in September of 2008 and said, 
``I have just given $85 billion to AIG.'' We have changed the 
law. He couldn't do that again because they weren't solvent. 
And, therefore, he could not have done that under our current 
bill.
    But a week later they were telling us that they needed so 
much for the TARP, and they included another $85 billion for 
AIG. We said, ``You already told us that.'' They said, ``No. 
That is an additional $85 billion for AIG.'' AIG not only 
didn't have the money to pay off, they had no idea how much 
they owed.
    But that is my view on that. Asset managers' insurance, as 
a general rule, no, but there might be activities they engage 
in that say yes.
    Ms. Sewell. What would you say to the line of conversation 
that Mr. Wilson just had with my colleague about rural America 
not being able to benefit from Dodd-Frank and being--
    Mr. Frank. It is not what I would say. It is what I have 
said, again.
    I do think I would like to see a very sharp distinction in 
loans. I would like the main safeguard against bad loans to be 
risk retention, because that leaves the decision in the hands 
of whomever's making the loan or securitizing it. And I would 
give much more leeway for portfolio loans.
    Again, if you say that portfolio loans aren't subject to 
some of these rules, you are not saying they are unregulated. 
Banks still have to go to their primary regulator. But I think, 
if people would hold loans in portfolio, that would be fine.
    When we had the Fannie-Freddie fight, I was one of the ones 
who said, ``Make them keep their loans in the portfolio. Don't 
have them securitizing much.'' By 2005, I was convinced that we 
had to pass legislation and change it.
    Ms. Sewell. Yes. The reason I ask is because I represent a 
large swath of rural Alabama and wanted to thank you for your 
leadership when you were chairman on manufactured housing as an 
option for maintaining affordable housing.
    And I yield back the rest of my time.
    Mr. Pearce [presiding]. The gentlelady yields back.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Westmoreland.
    Mr. Westmoreland. Thank you, Mr. Chairman.
    Dr. Kupiec, we have heard from financial regulatory 
agencies that they conduct thorough cost-benefit analyses as 
they implement Dodd-Frank.
    You have been on the front lines of this effort because you 
led the FDIC's Office of Financial Research under Chairman 
Bair.
    Do you feel the FDIC and other domestic and global 
regulators have objectively measured the cost and benefits of 
the Dodd-Frank reforms they implement?
    Mr. Kupiec. Absolutely not. The FDIC, to the best of my 
knowledge--and I was the line officer for all the economists--
never did any cost-benefit analysis for any rule internally, 
and they were scared to death that it would become a 
requirement.
    The Federal Reserve on Basel, I never saw any cost-benefit 
analysis that came out of the Federal Reserve, nor did I see 
any that came out of the OCC.
    I was the chairman of the Basel Research Task Force for the 
last 3 years. When the Basel Committee put out its cost-benefit 
analysis on the effects of adopting Basel III, I was on the 
group who was going to write the paper.
    The paper assignment came from the chairman of the Basel 
Committee right before the Icelandic volcano erupted in March 
of that year and the meeting was canceled. There was no meeting 
of the group ever held.
    A draft paper arrived in my email box in June. I was not 
involved in any of the analysis. I don't know where the 
analysis came from.
    I provided comments, which were very critical in the 
analysis, not knowing where it came from and knowing very many 
holes in the analysis. The comments were ignored.
    And a final draft came in my mailbox in August for me to 
sign off on because they wanted my name on the paper because I 
have some academic standing as a well-known banking economist 
and I was chairman of the Basel Research Task Force.
    I refused to put my name on the paper because I did not 
know where the analysis came from. It was not supported. It was 
built off of six or seven different modeling approaches cobbled 
together all over the world with no data analysis provided to 
anybody on the group.
    I declined to put my name on the paper, which subsequently 
caused me significant difficulties in the FDIC.
    Mr. Westmoreland. Dr. Kupiec, let me ask you: Who stopped 
you from doing this analysis and--
    Mr. Kupiec. There was never a meeting to plan how there 
would even be an analysis of how the implementation of Basel 
III should even be measured. A fully drafted paper appeared in 
my mailbox in June for me essentially to agree to. I don't work 
like that.
    Mr. Westmoreland. So would you say that they were trying to 
inflate the benefits and underestimate the--
    Mr. Kupiec. Oh, absolutely. And I could give you many 
specific examples of that if you wanted to go into details, and 
my comments were exactly to that effect.
    And it is interesting that subsequently, in the fall, when 
there was a negotiation among the Basel Committee membership to 
try to figure out what the capital ratio should be in the final 
rule, Chairman Bair was trying to get the Fed to get the ratio 
higher than they wanted. The Fed wanted a lower, more lenient 
ratio, and Chairman Bair referred to this Basel study as 
evidence that it didn't hurt things to raise the ratio.
    And Governor Tarullo and Pat Parkinson actually called 
Chairman Bair and presented my critique of the paper, asking 
her how she could use that discussion to strong-arm for higher 
capital when her own banking economist who is on the committee 
wouldn't sign on to the result. So I do not think this was 
done, in general.
    Mr. Westmoreland. Thank you very much.
    And I want to read something into the record. The American 
Action Forum places the price tag for annual compliance with 
the Dodd-Frank Act at $21.8 billion and 60.7 million paperwork-
burden hours, the equivalent of 30,370 employees working full-
time to complete annual paperwork. These burdens are up from 
$15.4 billion and 58.3 million hours last year. That is an 
increase of 41 percent for the cost and a 4 percent increase 
for the paperwork hours.
    The Bureau of Labor Statistics and Occupational Outlook 
Handbook said employment of financial examiners is projected to 
grow 27 percent from 2010 to 2020, faster than the average for 
all occupations. And it is hard to say that this does not 
create any burden on our financial institutions.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Indiana, Mr. 
Stutzman.
    Mr. Stutzman. Thank you, Mr. Chairman.
    And thank you to the witnesses for being here today and for 
sharing with this committee.
    I would like to, first of all, say, Mr. Chairman, that I 
know, for Hoosiers back home who are having to deal with the 
rules from Dodd-Frank and the new standards that they have to 
be held to, it is definitely a burden to them in ways that they 
have never seen before.
    Mr. Chairman, I am sure you remember the young man who is 
here and--a couple of months ago that the gentleman from 
Kentucky, Mr. Barr had invited, who was a fifth-generation 
banker, shared with this committee how that a small bank in 
Central Kentucky, fifth generation--he was the fifth 
generation, had survived the Civil War, had survived World War 
I and II, survived the Depression, wars in between, the 
Recession, but didn't know that this bank would survive Dodd-
Frank.
    And I think that sums it up in a lot of ways in what small 
banks, community banks, mid-sized banks, are dealing with today 
and that we are seeing a consolidation in a way that I don't 
believe should have ever been the intention of any policy 
passed here in Washington.
    I know that, as we look--I heard from others on the other 
side of the aisle about how Washington saved our economy from 
going over the brink.
    And I will tell you there are a lot of folks back in 
Northeastern Indiana who felt like they did go over the brink, 
that they never were able to recover, they still haven't 
recovered.
    And the fact that food stamps are at an all-time high today 
should reflect on the policies that this Administration--that 
Congress in 2009, 2010, passed, part-time labor is at an all-
time high.
    What Dodd-Frank has done to not only just rural America, 
but to urban America, suburban America, has tied the hands 
remarkably in ways that many people don't even understand. They 
just know that things are not getting better.
    And when they go to their bank in LaGrange, Indiana, and 
all of a sudden they can't get a loan when before they were 
able to--they paid their bills, always made sure that their 
credit was solid--they are trying to figure out what has 
happened.
    I would like to touch a little bit on the Volcker Rule. 
What does that do? How do I explain to people back home the 
effects of the Volcker Rule?
    And, Mr. Carfang, there was a study done by Oliver Wyman 
which states that the impact of the Volcker Rule will be 
similar to the financial crisis, which disrupted liquidity and 
credit availability.
    Can you describe how the Volcker Rule will have--what 
impact it will have on liquidity and credit availability? Will 
it be a positive or a negative impact?
    Mr. Carfang. The Volcker Rule will reduce the amount of 
proprietary training done by a bank--or, actually, eliminate 
proprietary trading or ring-fence that so that the depositors 
are protected.
    What you have, then, is less liquid markets. So there is 
less trading in the securities. There will be a wider bid-and-
ask spread.
    So when you go to sell, there are fewer buyers; and, 
therefore, you will sell at a lower price. When you go to buy, 
there are fewer sellers and you will buy at a higher price.
    This would be--in Indiana, the same is true in farming. If 
there is not a big market in the product, the spreads are wider 
when you buy and sell.
    Mr. Stutzman. What will be the combined impact? Can you 
talk about that a little bit on interest rates? What other 
effects could we see?
    Mr. Carfang. I have actually testified to this committee on 
that topic, and I likened it to an experiment--a chemical 
experiment where we are putting in Basel III, we are putting in 
bank capital requirements, we are putting in the Volcker Rule 
and a number of other things.
    And, frankly, we don't know what the outcome will be except 
that it is a deer in the headlights on the part of corporate 
treasurers and medium-sized and small bankers.
    Mr. Stutzman. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The last Member to be recognized is the gentleman from 
Ohio, Mr. Stivers, and he is recognized now.
    Mr. Stivers. Thank you, Mr. Chairman.
    I want to thank the chairman for holding this hearing.
    I want to thank all the witnesses for bearing with us 
through what has been a long hearing.
    The first question I have is for Mr. Deas. But before I 
give you a question, I want to thank Gwen Moore for her 
leadership on the Centralized Treasury Unit. She and I have 
worked together to try to get that issue fixed.
    Can you tell me what will happen if we don't actually get 
that bill fixed today? I know there are no action letters. 
There has been some regulatory relief. But what happens if we 
don't actually get that passed for end users like you?
    Mr. Deas. It will increase the--so it just increases the 
uncertainty of the end-user margin exemption. To the extent 
that then those transactions would be ineligible for the 
exemption, then companies like my own would have to post cash 
margin, which would subtract from money we would otherwise 
invest in our business.
    Mr. Stivers. And if you had to do that, would you continue 
to manage your risk in a centralized way that is smarter and 
allows you to offset risks that offset each other or would you 
probably move to a less active form of risk management?
    Mr. Deas. We would either have to do that in a completely 
different way with uncertain costs or we would have to retain 
the risk ourselves. Either way would likely cause an increase 
in cost.
    Mr. Stivers. And risk for your business.
    Mr. Deas. And risk.
    Mr. Stivers. Thank you.
    The next question I have is for Mr. Kupiec. This issue has 
been beat several times, but I think it is really important to 
hit it again.
    The Dodd-Frank Act set the asset level of systemically 
important institutions at $50 billion. Do you know if there is 
any relevance to the selection of this arbitrary number? Is it 
cross-referenced anywhere else?
    Mr. Kupiec. No. It is an arbitrary number. There is no 
scientific basis for $50 billion.
    Mr. Stivers. I think Congressman Luetkemeyer did a great 
job of talking about the American Banker article yesterday that 
talked about two banks that are now approaching $50 billion and 
what has happened to their stock price, what has happened to 
them just as a result of potentially moving closer to that 
number.
    Even Governor Tarullo--and I know that Ms. Sewell 
referenced this--has said that a $100 billion number would be 
acceptable to him.
    But isn't there now an acceptance that $50 billion is 
absolutely too low among almost everybody who is out there?
    Mr. Kupiec. $50 billion, I think, is too low for all the 
intrusive regulations that come along with it. My 
recollection--and it could be a bit fuzzy--was that the $50 
billion came out because, at the time, CIT, which was a nonbank 
financial institution, decided not to bail out, and it was 
slightly below $50 billion.
    And I think, if my recollection is--that tied people's 
hands at the time, that they couldn't go. So they said, ``That 
has to be bigger than CIT. So let's call it $50 billion.''
    But I think it is reasonable to think that regional banks, 
if you fixed the resolution mechanism so that didn't cause 
bigger banks if they fail--that you could exclude regional 
banks.
    And regional banks, ones that do primarily commercial 
banking, are as big as $200 billion right now. You would need 
to leave some growth room.
    So I personally, knowing a fair bit about banks, wouldn't 
be shy at all and would shoot for some number like that.
    If it was a regional regular run-of-the-mill commercial 
bank with not a lot of capital markets, not a lot of the risky 
operations, I don't think that would be unusual at all.
    But I think you need to fix the resolution process so that 
if they do get in trouble, if they fail and they are broken 
apart, that has to be fixed in the FDIC Act.
    Mr. Stivers. That was clear in your comments earlier and 
your original testimony. So I appreciate that testimony.
    So, essentially, every witness here today, even Chairman 
Frank, has agreed that $50 billion is too low a number.
    And, by the way, congratulations on the beard, Mr. 
Chairman. It is coming along fine. Five or ten more years--
    Mr. Frank. It has grown more than I had hoped it would in 
this hearing.
    Mr. Stivers. So--you know, and I know that--my other 
question to all of you is--and I think Chairman Frank 
acknowledged it earlier--while we have to pick some number, 
that is absolutely true, but it is the risk that these--the 
activities that these institutions engage in that create risk, 
not necessarily the asset size that makes that happen. But I 
understand there has to be some number.
    Does everybody agree that it is really activity that 
generates risk?
    Mr. Frank. Not just that--activity generates risk, but 
impact is generated by interconnectedness.
    Mr. Stivers. Absolutely.
    Mr. Frank. To both sides of the equation.
    Mr. Stivers. And that is why the five standards created for 
nonbank financial institutions really focuses on 
interconnectedness, and that is what the Luetkemeyer bill 
really focuses on. You are absolutely right.
    But I guess my point in my last 8 seconds is these regional 
banks that have been pulled into this are really a lot like Mr. 
Wilson's bank. They just got a little bigger. And they do 
exactly what Mr. Wilson's bank does. They serve Main Street. 
And I hope we can fix it.
    I yield back my nonexistent time, Mr. Chairman.
    Chairman Hensarling. The time of the gentleman has expired.
    I would like to thank all of our witnesses for their 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing stands adjourned.
    [Whereupon, at 2:01 p.m., the hearing was adjourned.]
                            A P P E N D I X


                             July 23, 2014
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]