[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]







                         THE DODD FRANK ACT AND
                          REGULATORY OVERREACH

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

                                HEARING

                               BEFORE THE

                       SUBCOMMITTEE ON OVERSIGHT
                           AND INVESTIGATIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED FOURTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 13, 2015

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 114-21


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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                    JEB HENSARLING, Texas, Chairman

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

                     Shannon McGahn, Staff Director
                    James H. Clinger, Chief Counsel
              Subcommittee on Oversight and Investigations

                   SEAN P. DUFFY, Wisconsin, Chairman

MICHAEL G. FITZPATRICK,              AL GREEN, Texas, Ranking Member
    Pennsylvania, Vice Chairman      MICHAEL E. CAPUANO, Massachusetts
PETER T. KING, New York              EMANUEL CLEAVER, Missouri
PATRICK T. McHENRY, North Carolina   KEITH ELLISON, Minnesota
ROBERT HURT, Virginia                JOHN K. DELANEY, Maryland
STEPHEN LEE FINCHER, Tennessee       JOYCE BEATTY, Ohio
MICK MULVANEY, South Carolina        DENNY HECK, Washington
RANDY HULTGREN, Illinois             KYRSTEN SINEMA, Arizona
ANN WAGNER, Missouri                 JUAN VARGAS, California
SCOTT TIPTON, Colorado
BRUCE POLIQUIN, Maine
FRENCH HILL, Arkansas


















                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 13, 2015.................................................     1
Appendix:
    May 13, 2015.................................................    29

                               WITNESSES
                        Wednesday, May 13, 2015

Mahoney, Paul G., Dean and Professor of Law, University of 
  Virginia School of Law.........................................     5
Peirce, Hester, Director, Financial Markets Working Group, and 
  Senior Research Fellow, Mercatus Center, George Mason 
  University.....................................................     7
Stanley, Marcus M., Policy Director, Americans for Financial 
  Reform (AFR)...................................................     8

                                APPENDIX

Prepared statements:
    Mahoney, Paul G..............................................    30
    Peirce, Hester...............................................    39
    Stanley, Marcus M............................................    65

              Additional Material Submitted for the Record

Ellison, Hon. Keith:
    New York Times editorial entitled, ``Saddling Homeowners With 
      Risky Loans,'' dated April 29, 2015........................    75
    Wall Street Journal article by John Carney entitled, 
      ``Harboring Doubts on Bank Home Loan Rules,'' dated May 15, 
      2015.......................................................    77
    New York Times article by Paul Krugman entitled, ``Wall 
      Street Vampires,'' dated May 11, 2015......................    79

 
                         THE DODD-FRANK ACT AND
                          REGULATORY OVERREACH

                              ----------                              


                        Wednesday, May 13, 2015

             U.S. House of Representatives,
                          Subcommittee on Oversight
                                and Investigations,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 9:30 a.m., in 
room HVC-210, Capitol Visitor Center, Hon. Sean P. Duffy 
[chairman of the subcommittee] presiding.
    Members present: Representatives Duffy, Hurt, Fincher, 
Wagner, Tipton, Poliquin, Hill; Green, Cleaver, Ellison, 
Delaney, Beatty, Heck, Sinema, and Vargas.
    Ex officio present: Representatives Hensarling and Waters.
    Chairman Duffy. Good morning. The Oversight and 
Investigations Subcommittee will come to order. The title of 
today's subcommittee hearing is, ``The Dodd-Frank Act and 
Regulatory Overreach.''
    Without objection, the Chair is authorized to declare a 
recess of the subcommittee at any time.
    Also, without objection, members of the full Financial 
Services Committee who are not members of this subcommittee may 
participate in today's hearing for the purpose of making an 
opening statement and asking questions of the witnesses.
    The Chair now recognizes himself for 3 minutes for an 
opening statement.
    Good morning, and thank you for being here. This morning's 
hearing will critically examine a major assumption underlying 
the Dodd-Frank Act, that the primary cause of the financial 
meltdown was misbehavior by market participants exacerbated by 
lax regulatory oversight. This hearing will also explore the 
inadvisability and/or inefficiency of overhauling financial 
regulations, as was done in the Dodd-Frank Act, in the 
immediate aftermath of a financial crisis.
    The Obama recovery has been the slowest recovery in modern 
times, and the question is, why? Well, it is simple. This 
Administration is more focused on growing government than 
growing the economy. Those who supported Dodd-Frank have been 
more concerned with helping special interests in Washington 
than their constituents back home, and the proof is in the 
numbers. Numbers don't lie. Fewer people have returned to the 
workforce than in any other modern recovery. Banks are closing 
every week, and the number one cause that I hear from people 
back in Wisconsin is the excessive, crushing regulatory burden 
imposed by this Administration, and Dodd-Frank is a major cause 
of that burden.
    The crushing regulatory regime created by Dodd-Frank 
continues to keep people out of work, to keep businesses from 
hiring, and makes it harder for my constituents to get the 
loans they need to finance the expansion of their business or 
to buy their first home. Dodd-Frank makes it worse. It doesn't 
end too-big-to-fail. And, as Jamie Dimon put it, ``Dodd-Frank 
is the moat that keeps new banks from entering the market. It 
stifles innovation, access to capital, and economic growth.''
    A 2014 survey by the American Bankers Association found 
that 80 percent of respondents expected Dodd-Frank regulations 
to measurably reduce their credit availability. The people hurt 
by this oppressive regulatory regime are the poorest among us: 
a student who graduates with a mountain of debt and no job 
prospects; a mother working two part-time jobs and still 
struggling to make ends meet. Dodd-Frank costs the average 
American $334 a year in lost wages. Unfortunately, the affected 
people can't see the cause of the distress, which was written 
right here in this building by the very people who sit in this 
panel and refuse to make changes to that law that are hurting 
the poorest among us who are struggling to make ends meet.
    I hope we have a thoughtful conversation today about what 
kind of reform can be offered to make Dodd-Frank work better, 
make our markets work better, and make our banks work better to 
serve growing businesses and American families.
    With that, I yield 2 minutes to the ranking member of the 
full Financial Services Committee, Ms. Waters from California.
    Ms. Waters. Thank you very much.
    Before I begin, I would like to remind my Republican 
colleagues that after today, there will be just 23 legislative 
days left until the Export-Import Bank closes its doors, and 
this committee has yet to hold a hearing on reauthorization. I 
think it is important that we remind everybody that we are 
approaching that date.
    When the market crashed in 1929, it sent shockwaves through 
the world economy. Stock prices plummeted. About a third of all 
U.S. banks failed. A quarter of Americans were out of work. 
Shantytowns filled with desperate roving workers sprung up, 
often next to soup kitchens.
    Knowing that something had to be done to restore 
confidence, the Congress and President Roosevelt ushered in 
bold and smart financial reform. We created the SEC. We had to 
reassure depositors with FDIC insurance, and we separated 
speculative activity from retail banking.
    In the post-war period that followed, things weren't always 
great, especially for African-Americans and others who were 
unconstitutionally denied access to the fruits of American 
productivity. But we didn't experience any more devastating 
financial crises.
    In the 1980s, the deregulation of our financial system 
started to gain steam. Congress deregulated thrifts. Banking 
regulators slowly allowed retail banks to encroach into more 
investment banking. And Congress sealed the deal by passing 
legislation, tearing down that wall completely, legislation I 
voted against. Eventually, these many small actions, combined 
with regulators' failure to act, culminated in the largest 
financial crisis since the 1929 crash.
    I won't be able to finish my statement here today. But, of 
course, Dodd-Frank was all about reform. It was about 
protecting consumers, and so we created the Consumer Financial 
Protection Bureau (CFPB). We dealt with making derivatives more 
transparent, and on and on and on. And this is what we have 
people railing against: the fact that we created reform in the 
financial system.
    I yield back the balance of my time.
    Chairman Duffy. The gentlelady yields back.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Hurt, for 2 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    Mr. Chairman, I want to thank you for holding today's 
hearing. I am pleased that this subcommittee has taken the time 
to analyze regulatory overreach in the Dodd-Frank Act.
    I am also pleased that this subcommittee has extended an 
invitation to a constituent of mine, Paul Mahoney, dean of the 
University of Virginia School of Law, to testify before us 
today on this critical issue. And I am pleased to have the 
privilege to introduce him.
    I am certain that his expertise in the field of securities 
regulation will provide insight into the financial crisis of 
2008 and the ongoing effects of the regulatory response 
implemented with Dodd-Frank.
    Mr. Mahoney received his bachelor's degree in electrical 
engineering from the Massachusetts Institute of Technology in 
1981, and his law degree from Yale in 1984. Before his career 
in academia, Mr. Mahoney worked in private practice and clerked 
for the United States Supreme Court. He has been published in 
several law reviews, as well as finance and economics journals, 
and recently had his book, ``Wasting a Crisis: Why Securities 
Regulation Fails,'' published this year by the University of 
Chicago Press. He joined the University of Virginia law school 
faculty in 1990 and became its dean in July 2008.
    I hope that today's hearing bears testimony that provides 
guidance on potentially harmful regulatory overreach and ideas 
on how to best promote safe and efficient financial markets. I 
look forward to Mr. Mahoney's testimony and the testimony of 
our other two distinguished witnesses today. I thank them for 
their appearance.
    Mr. Chairman, I thank you for the time, and I yield back 
the balance of my time.
    Chairman Duffy. The gentlemen yields back.
    The Chair now recognizes the ranking member of the 
subcommittee, the gentleman from Texas, Mr. Green, for 3 
minutes.
    Mr. Green. Thank you, Mr. Chairman.
    The title of the hearing is, ``The Dodd-Frank Act and 
Regulatory Overreach,'' which begs the question--because 
indicated in the title is the conclusion. So the hearing is 
really not about acquiring empirical evidence. It is really 
about substantiating a proposition that has already been 
assumed.
    ``How Soon We Forget'' is probably a more appropriate title 
for this hearing. How soon we forget, because there are some 
lessons that we should have learned from the 2008 Great 
Recession/Depression that we seem to be forgetting. How soon we 
forget.
    Let's talk for just a moment about some of the lessons that 
we should have learned. One, capital markets don't regulate 
themselves. The Great Depression/Recession would not have 
occurred if capital markets regulated themselves. If we had had 
self-regulation, we wouldn't have had 327s, 228s, liars loans, 
no-doc loans. If they regulated themselves, we wouldn't have 
had teaser rates that coincide with prepayment penalties. 
Capital markets don't regulate themselves.
    Two, too-big-to-fail is the right size for constant 
observation to spot potential crises. That is why we have FSOC, 
so that we can watch, so that we can do what we did not do that 
allowed the 2008 Great Recession/Depression to occur without 
our catching it and preventing it. Prudential regulation to 
protect the consumer and the economy is necessary. You have to 
have prudential regulation because, if you don't, you will end 
up with another Great Recession/Depression. This is why we have 
the CFPB. This is why we have FSOC. We have to find ways to not 
only catch but also to regulate.
    Three, judicious elimination to prevent economic chaos is 
important. We have to make sure that we are constantly, 
constantly looking for a means by which we can prevent this 
economic chaos that occurred before.
    And finally, I would say this, that success of legislation 
does not prevent the elimination of legislation because if it 
did, we wouldn't be about the business of trying to eliminate 
the Ex-Im Bank. The Ex-Im Bank is a great American success 
story. Jobs have been created, money sent to the Treasury, a 
great American success story. Yet, we are on the eve of the 
elimination of the Ex-Im Bank. So there are some lessons 
learned that we ought not repeat.
    My hope is that the title of the hearing will not cause us 
to focus solely on what we already believe to be the case, but 
rather let us look for empirical evidence so that we can have 
logical reasoned arguments about the status of Dodd-Frank.
    I yield back.
    Chairman Duffy. The gentleman yields back.
    Thank you, Ranking Member Green.
    We will now turn to the witnesses.
    Our first witness is Mr. Paul Mahoney. I would give you a 
great introduction, but you have already had one from your 
Member of Congress, Mr. Hurt.
    But just to reiterate, Mr. Mahoney is the dean of the 
University of Virginia law school, with a very long and 
accomplished record. Thank you for being here today.
    Our second witness, Ms. Hester Peirce, is the director of 
the Financial Markets Working Group and a senior research 
fellow at the Mercatus Center at George Mason University. 
Before joining Mercatus, Ms. Peirce served on Senator Richard 
Shelby's staff on the Senate Committee on Banking, Housing, and 
Urban Affairs. In that position, she worked on financial 
regulatory reform following the financial crisis of 2008, as 
well as oversight of the regulatory implementation of the Dodd-
Frank Act.
    Ms. Peirce also served at the U.S. Securities and Exchange 
Commission as a Staff Attorney and a Counsel to Commissioner 
Atkins. Before that, she clerked for Judge Roger Andewelt on 
the Court of Federal Claims and was an associate at a 
Washington, D.C., law firm. She earned her B.A. in economics 
from Case Western Reserve University, and her J.D. from Yale 
Law School.
    Thank you for being here, Ms. Peirce.
    Our third witness, Dr. Marcus Stanley, is the policy 
director of Americans for Financial Reform. Dr. Stanley has a 
Ph.D. in public policy from Harvard University and previously 
worked as an economics and policy advisor to Senator Barbara 
Boxer; as a senior economist at the U.S. Joint Economic 
Committee; and as an assistant professor of economics at Case 
Western Reserve University.
    Thank you, too, for being here.
    The witnesses will now be recognized for 5 minutes to give 
an oral presentation of their testimony.
    And without objection, the witnesses' written testimony 
will be made a part of the record.
    Once the witnesses have finished presenting their 
testimony, each member of the subcommittee will have 5 minutes 
within which to ask the witnesses questions.
    On your table, there are three lights: green means go; 
yellow means you are running out of time; and red means stop. 
The microphones are very sensitive, so please make sure you are 
speaking directly into your microphone.
    And with that, Dean Mahoney, you are recognized for 5 
minutes.

   STATEMENT OF PAUL G. MAHONEY, DEAN AND PROFESSOR OF LAW, 
              UNIVERSITY OF VIRGINIA SCHOOL OF LAW

    Mr. Mahoney. Chairman Duffy, Ranking Member Green, and 
members of the subcommittee, I appreciate the opportunity to 
speak with you about regulation and financial crises.
    Effective and cost-efficient regulation is essential to the 
health of financial markets. Unfortunately, the way in which 
major financial reforms are created almost guarantees 
ineffective and inefficient regulation that curtails 
competition and thereby harms investors.
    Major reforms always follow a stock market crash. Elected 
officials and regulators hoping to avoid blame for the crash 
claim that misbehavior by market participants created the 
problem and that more regulation will solve it. They ignore the 
unintended consequences of prior regulations and policies.
    The Dodd-Frank Act fits this description. Bad policy likely 
contributed to the subprime crisis. From 2002 to 2006, the 
Federal funds rate was lower than recommended by the Taylor 
Rule. Federal housing policies encouraged mortgage lending to 
homeowners with poor credit. And the government's history of 
stepping in to protect certain creditors of insolvent financial 
institutions from loss to avoid systemic risks, a phenomenon 
called ``too-big-to-fail'' created moral hazard.
    Dodd-Frank's proponents, however, argued that the crisis 
was a consequence of too little regulation. They did so by 
selectively focusing on over-the-counter derivatives, which 
were less regulated than exchange-traded derivatives, and on 
the so-called shadow banking system, consisting of non-bank 
financial intermediaries.
    But the crisis, in my opinion, was largely the consequence 
of large and highly leveraged investments in mortgage-related 
assets by heavily regulated commercial and investment banks. 
Many commentators have noted that the implicit government 
guarantee of the too-big-to-fail banks created moral hazard, 
but the way in which that guarantee interacted with 
securitization and derivatives has not gotten the attention it 
deserves.
    Financial innovation reduces the cost of transferring risk 
from one party to another. In a normally functioning system, 
this would disperse risks, but our system was not functioning 
normally. The implicit government guarantee enabled large banks 
to take on risks that their creditors would otherwise not have 
stood for. After all, the creditors believed they would be 
protected in the event the bank became insolvent.
    Thus, risks in the form of mortgage-related assets became 
concentrated in the too-big-to-fail banks in the run-up to the 
subprime crisis. Dodd-Frank's proponents, therefore, have the 
causation wrong. Financial innovation was not the primary cause 
of the build-up of risk. The implicit guarantee was the primary 
cause. The use of securitizations and derivatives to 
concentrate risk was not mindless gambling facilitated by lax 
regulation but a purposive and rational attempt to maximize the 
private benefits of the implicit government guarantee. Choosing 
to see the origins of the financial crisis in insufficient 
regulation rather than in the unintended consequences of prior 
government policies has important practical consequences.
    Dodd-Frank subjects non-deposit-taking institutions to 
regulation by the Federal Reserve, which, in practice, may mean 
that they will be regulated like banks or bank holding 
companies. If so, a likely consequence is that there will be 
fewer and larger financial intermediaries in the United States. 
Some insurance companies, private equity funds, and 
institutional asset managers operate under the umbrella of a 
bank holding company, but most do not.
    If the stand-alone entities are regulated as if they were 
banks, a possible result is that bank holding companies will 
begin acquiring them to economize on regulatory costs. This 
would be good news for the largest U.S. banks and for the 
regulatory agencies that oversee them, both of which would 
become larger and more powerful. But there is no reason to 
think it would be better for investors, depositors, and 
taxpayers. And it is exactly the opposite of the model that 
many Dodd-Frank proponents say they favor, which is a model of 
smaller, more focused banks.
    Time and again, regulated industries and their regulators 
have used financial crises to pursue their private goals, which 
are not congruent with the public interest and often result in 
decreased competition and innovation. My recently published 
book describes how this occurred in the aftermath of numerous 
past financial crises.
    To avoid this phenomenon, financial reform should be made 
incrementally, preferably during noncrisis periods. For 
example, careful observers of the financial markets warned 
about excessive leverage for many years before the subprime 
crisis. It would have been useful to focus regulatory attention 
on capital requirements for commercial banks and their holding 
companies and to impose appropriate capital requirements on 
investment banks and other financial intermediaries.
    Instead, Congress waited until after the crisis and 
designed a statute that increases the reach of bank regulators 
and will likely increase the market share, size, and political 
clout of the too-big-to-fail banks.
    [The prepared statement of Mr. Mahoney can be found on page 
30 of the appendix.]
    Chairman Duffy. Mr. Mahoney, thank you for your testimony.
    Ms. Peirce, you are now recognized for 5 minutes.

STATEMENT OF HESTER PEIRCE, DIRECTOR, FINANCIAL MARKETS WORKING 
  GROUP, AND SENIOR RESEARCH FELLOW, MERCATUS CENTER, GEORGE 
                        MASON UNIVERSITY

    Ms. Peirce. Chairman Duffy, Ranking Member Green, and 
members of the subcommittee, thank you for the opportunity to 
be here today.
    The crisis was a welcome wake-up call that what happens in 
the financial sector affects the rest of the economy. The 
crisis was built on flawed regulation, and the response to the 
crisis is built on a flawed narrative that regulation--that 
market failure was to blame. And so the flawed narrative led to 
a solution that was built on additional flawed regulation.
    The consequences are serious. Not only is a future crisis 
likely, but in the interim, our economy is not living up to its 
full potential. A well-regulated financial system is the key to 
a strong economy. It directs funds to individuals and 
businesses that could best use them, and it disciplines those 
that fail.
    Poor government regulation can distort the financial 
system's ability and inclination to respond to the signals that 
it gets from consumers, Main Street companies, and investors. 
We saw the results of that kind of distortion with the crisis 
in 2007-2009. And when the bubble burst, many people suffered 
tremendously as they lost their homes, jobs, and retirement 
savings. But even before the dramatic failures of 2008, think 
of all the sectors that didn't get funds because funds went 
into the housing market because of regulatory inducements.
    As the last financial crisis unfolded, there was 
understandable outrage. We needed to do something fast, and the 
result of that was Dodd-Frank. Dodd-Frank was developed on a 
false narrative that the crisis was the product of inadequate 
regulation. If only we had regulated the financial system more 
tightly, the story goes, we wouldn't have had the crisis. But 
the role of the regulatory system in provoking and deepening 
the crisis was ignored in the post-crisis frenzy to set things 
right.
    Regulations played an important role in the crisis. As Dean 
Mahoney just outlined, there are multiple government policies, 
from government housing finance policy to the regulation of 
credit rating agencies to bank regulation, that helped to 
encourage markets to look to regulatory signals instead of to 
market signals to dictate their behavior. The result of the 
false narrative, as one might expect, was a statute that 
doubles down on regulation. A blanket of new regulatory 
agencies and new regulations was thrown around the financial 
system, from the CFPB to the Volcker Rule to a whole new regime 
for credit rating agencies to the Financial Stability Oversight 
Council.
    The post-Dodd-Frank regulatory system makes regulators even 
more important movers and shakers in the financial system than 
they were before the crisis. They are determining how financial 
firms are structured, what activities they are engaged in, and 
how they are funded. They are even trying to attend bank board 
meetings.
    Strategic decisions are being made by regulators, not by 
firms, their managers, and their shareholders. Our financial 
sector is turning into a set of public utilities with the 
characteristic high prices, poor service, lack of creativity, 
and lack of entry. Government regulators are removed from day-
to-day reality. No matter how much data they collect, they 
cannot receive the important signals that the marketplace 
offers. These regulators have good intentions, but so did the 
pre-crisis regulators.
    So what can we do to make the regulatory system provide 
clear, strong rules without inhibiting the market's unique 
ability to reward success and punish failure? First, we should 
ensure that regulators are looking back to see what worked and 
what didn't in the past. It is often easier just to slap on a 
new rule rather than to look at whether the ones in place are 
working.
    Second, when regulators adopt new rules, they should 
understand what problem they are trying to solve. It is not 
enough just to make the assertion that this rule will prevent 
another crisis.
    And third, we should rethink the approach taken by Dodd-
Frank. The desire to place key decisions in the hands of 
regulators is a natural reaction to a narrative that markets 
failed. But the new system depends so heavily on regulators to 
get things right that if they don't, things could go terribly 
wrong.
    As it is played out, for example, the systemic designation 
approach is designed mostly to give the Fed more regulatory 
power rather than to address systemic risk, which was its 
purpose. If we really wanted to address systemic risk, there 
would be clear guidance for firms to get out of the systemic 
risk designation.
    Another example is derivatives clearinghouses. We assume 
that pushing lots of derivatives into highly regulated 
clearinghouses would be an easy way to de-risk the derivatives 
markets. But more and more, people are recognizing that these 
clearinghouses themselves might be the source of future 
troubles or even of a future crisis.
    Dodd-Frank was built on a false narrative about the crisis. 
It failed to deal with key issues in the last crisis that 
covered many unrelated topics, and it created a new set of 
problems. If we are willing to rethink it, we will be rewarded 
with a strong, dynamic economy.
    [The prepared statement of Ms. Peirce can be found on page 
39 of the appendix.]
    Chairman Duffy. Thank you, Ms. Peirce.
    And Mr. Stanley, you are recognized for 5 minutes.

STATEMENT OF MARCUS M. STANLEY, POLICY DIRECTOR, AMERICANS FOR 
                     FINANCIAL REFORM (AFR)

    Mr. Stanley. Chairman Duffy, Ranking Member Green, and 
members of the subcommittee, thank you for the opportunity to 
testify before you today.
    I would like to make several broad points in my testimony. 
First, the Dodd-Frank reform should create very large benefits. 
The 2007-2009 financial crisis led to over $10 trillion in lost 
economic output and 8 million lost jobs.
    My written testimony includes a report that is based on a 
comprehensive regulatory review of all existing studies of the 
costs of financial crises. Based on this study, we conclude 
that financial regulations, which reduced the probability of a 
systemic crisis by 50 percent, would produce $2.9 trillion in 
economic benefits over the next decade. Reducing the 
probability of crisis by just 25 percent would produce almost 
$1.5 trillion in benefits. These figures include only financial 
stability benefits and do not even count the benefits of 
improved fairness for consumers and investors due to Dodd-Frank 
reforms. We believe that the Dodd-Frank Act will succeed in 
reaching these goals and that the benefits will far exceed its 
costs.
    Second, the 2008 crisis revealed comprehensive issues in 
our financial system that demanded a comprehensive solution. 
This financial crisis was the first crisis of the post-Glass-
Steagall era. It revealed that the fusion of commercial banking 
and capital market activities created major new issues in the 
oversight of financial risk. These included the creation of an 
originate-to-distribute model that concealed poor underwriting, 
abusive lending, and securities fraud; the growth of large 
universal mega-banks that combined commercial and investment 
banking and had become both too-big-to-fail and too-big-to-
manage; and a failure by both regulators and bank management to 
track, understand, and control financial risk.
    Due to the post-Glass-Steagall interpenetration of lending 
securities and derivatives markets, the crisis also featured a 
prominent role for non-bank entities. The American political 
system, with its many veto points, creates strong reasons for 
legislators to pursue comprehensive change through the vehicle 
of a single bill.
    Third, while the Dodd-Frank Act is lengthy and 
comprehensive, it is a product of compromise and pursues 
incremental improvements in our regulatory system. Mr. Mahoney 
has stated his belief that it is wiser to engage in incremental 
rather than radical improvements. Examining the actual 
regulatory tools used in Dodd-Frank, tools such as increased 
capital requirements, stress testing, the use of central 
clearinghouses to manage risks, greater regulatory reporting 
and transparency, and better enforcement of consumer 
protections shows that they are traditional elements of 
financial regulation that have been used for many decades, if 
not centuries. These tools have been tested over many years and 
are hardly radical departures. In fact, if one looks at the 
three major financial crises over the last century--the 1907 
crisis, the 1929 crisis, and the 2007 crisis--Dodd-Frank is 
probably the most moderate and incremental response to a crisis 
out of those three.
    Furthermore, Dodd-Frank grants very extensive discretion to 
regulators to adjust the use of these regulatory tools as they 
are applied to different segments of the market.
    Finally, we believe that rolling back Dodd-Frank would be a 
serious error. We have supported changes in the Dodd-Frank Act 
where we believe such changes are called for. We have 
particularly supported changes to address one of the areas Mr. 
Mahoney highlights in his testimony: ending too-big-to-fail and 
the associated practice of government bailouts.
    While we believe that elements of Dodd-Frank, such as 
graduated capital standards and Title I resolution planning, if 
forcefully implemented, can themselves address too-big-to-fail 
effectively, we have also supported additional changes. For 
example, AFR has joined Representatives Hensarling and Garrett 
in criticizing the Federal Reserve's implementation of new 
restrictions on emergency lending, and we have supported 
Senators Warren and Vitter in their call for Congress to act if 
the Federal Reserve does not place stronger conditions on these 
loans. However, changes that roll back Dodd-Frank rules or 
create major new exemptions to them would, in most cases, have 
a negative impact on financial stability or consumer 
protection.
    Dodd-Frank also grants regulators extensive discretion to 
accommodate reasonable concerns without statutory change, and 
they have shown great willingness to use this discretion. In 
practice, the great majority of the statutory changes we have 
seen proposed to the Dodd-Frank Act would not build 
constructively on the advances made by the legislation but 
would instead roll back the clock by stopping regulators from 
responding to the issues revealed in the financial crisis as 
well as new emerging issues in the financial markets. We 
believe that interfering in the regulatory process in this way 
would be a grave error and would restore the failed status quo 
that gave us the 2007-2009 crisis.
    In conclusion, I would also like to point out, just in 
response to some of the things that Ms. Peirce said, that 
significant parts of the Dodd-Frank Act are, in fact, 
instructions to regulators to do their jobs better and to do a 
better job handling issues like leverage, with which they have 
traditionally been entrusted. Most of Title I does this, 
essentially.
    Thank you for the opportunity to testify. I am happy to 
answer further questions.
    [The prepared statement of Dr. Stanley can be found on page 
65 of the appendix.]
    Chairman Duffy. Thank you, Mr. Stanley.
    The Chair now recognizes himself for 5 minutes.
    Mr. Stanley, I would have to disagree with calling a 23-
page Dodd-Frank bill moderate reform. I think that is pretty 
extensive, even when all the rules have not been written.
    At the time that Dodd-Frank was written, we weren't in the 
middle of a financial crisis. The crisis had passed. We had 
time, as a Congress, to sit back and reflect on what the root 
causes of the crisis were and to try to address the root 
causes. Instead of reflecting and waiting and thinking, there 
was a rush to judgment in this institution to pass a massive 
bill, and I would argue that a lot of folks in this town opened 
up their drawers, dusted off 30 years of old folders of bills 
that they wanted passed that they knew they could get into a 
package that was going to move through the Senate and the 
House, which gave us the Dodd-Frank bill, which has, I would 
argue, wreaked havoc on our financial sector.
    I guess to you, Mr. Mahoney, I get concerned when I hear my 
friends across the aisle talk about how we have ended too-big-
to-fail. Do you think that the Dodd-Frank Act has ended too-
big-to-fail?
    Mr. Mahoney. I don't, unfortunately. I think that--and this 
is a point Ms. Peirce made in her written statement--Dodd-Frank 
really puts bank regulators in the driver's seat in a lot of 
decisions that the largest financial institutions will make. It 
is going to be very hard for the government the next time to 
step back and say, ``This wasn't our doing, this wasn't our 
problem,'' when the regulators are driving so much of what is 
going to happen in the market.
    It is also, I think, important to note that by, in effect, 
pre-identifying the too-big-to-fail institutions in the guise 
of declaring them systemically important, the government is 
going to encourage the markets to think of them in the way the 
markets thought of Fannie Mae and Freddie Mac before the 
crisis, that is to say, as institutions that are government-
guaranteed in all but name. And it is going to be extremely 
difficult for the government, again, to say ``not our problem'' 
when a crisis comes.
    Chairman Duffy. So with this new package, if it is not the 
fault of the markets, arguably, the markets could come and say, 
``Listen, this is the fault of the regulators. They didn't get 
it right.''
    Is it fair to say that those institutions that may fail 
will come to the regulators and say, ``Well, it is your fault; 
we want a bailout?''
    Mr. Mahoney. Absolutely. Yes. I agree.
    Chairman Duffy. Okay. In regard to the financial crisis, 
was it your testimony that two portions of the root cause were 
from housing and monetary policy? Was that your testimony?
    Mr. Mahoney. I think both certainly contributed.
    Chairman Duffy. And what did Dodd-Frank do to address 
monetary policy?
    Mr. Mahoney. Dodd-Frank really does not address monetary 
policy.
    Chairman Duffy. I would agree with that.
    When we have more rules and regulations in the financial 
sector, does it help small startups get into the marketplace or 
does it help keep larger institutions at the top? Do more rules 
and more regulations help small businesses or help large 
businesses?
    Mr. Mahoney. My research--and I have looked at a lot of 
regulations, primarily in securities markets, but I don't think 
the insight is limited to securities markets--shows that if you 
look at the actual effects, often what happens is that the 
regulated industry, particularly after a crisis, is able to, in 
effect, cut a deal. They come to hearings like this one, hang 
their heads in shame, and are pilloried. And meanwhile, their 
lawyers and lobbyists are working with the people who are 
writing the new regulations, whether it be Congress or 
regulators. And they write them in ways that entrench the 
position of leading firms and make it very much harder for new 
firms to enter the market, and often drive out smaller firms 
from the market.
    Chairman Duffy. Okay.
    Mr. Mahoney. This is very clear, I think, in the case of 
the New Deal financial reforms. They were great for the leading 
investment banks. They were great for the leading stock 
exchanges. They were great for the leading mutual fund 
complexes. They drove smaller regional stock exchanges out. 
They drove smaller broker-dealers out.
    Chairman Duffy. Wonderful. Thank you.
    I don't have time to fully get your answer. But, Mr. 
Stanley, you talked about the cost of the financial crisis, and 
I share your concern in that cost. Maybe we can follow up later 
to see if you have calculated the cost of overregulation, 
putting the clamps down on our financial sector and what that 
does to growth and opportunity in the country, and also, what 
does it do if we send our capital markets from America to other 
parts of the world, what does that do for the security of the 
country if you have calculated that as well? But I am out of 
time.
    With that, I yield 5 minutes to Mr. Cleaver.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Ms. Peirce, I am just curious, and this is a serious 
question, what do you think we should have done in this 
committee when the Secretary of the Treasury came in, and the 
head of the SEC, and the FDIC, and explained where we were 
headed, if nothing was done?
    Ms. Peirce. I agree with you that was a terrible time, and 
it was a terrifying time. And having them come in and say, ``We 
need to do something,'' was a big weight toward pushing 
Congress to do something. But they did not have a clear plan on 
what to do, and things were bad, even though there was a rescue 
put in place. Things would have been bad if there hadn't been a 
rescue put in place. But I argue that not having the government 
step in at that time would have made for a shorter crisis and a 
healthier recovery.
    Mr. Cleaver. So, because we took action, we lengthened the 
recession?
    Ms. Peirce. Yes.
    Mr. Cleaver. Now, I am really a little confused.
    So what did we do to the housing market? I mean, the 
housing market actually collapsed. And I think you and Mr. 
Mahoney both were saying that we misread the state of affairs, 
and we played--we actually responded to a narrative that was 
incorrect. Did I understand you correctly?
    Ms. Peirce. Yes, sir.
    Mr. Cleaver. Okay. So there was nothing going on in the 
housing market?
    Ms. Peirce. I'm sorry if I was unclear on that. What I 
meant to say was that the problems in the housing market were 
driven by regulations and not only housing policy that 
encouraged people to lend to people who couldn't afford the 
size houses they were buying, but it also--
    Mr. Cleaver. Excuse me. Say that one more time. I don't 
want to misunderstand you.
    Ms. Peirce. So there are different elements of government 
policy that led to the housing crisis.
    Mr. Cleaver. Okay.
    Ms. Peirce. One was that we encouraged loose underwriting 
standards, but a second--
    Mr. Cleaver. How?
    Ms. Peirce. --important one--there were--I should actually 
have put the other one first because the first thing is bank 
regulations that encouraged banks to hold certain types of 
securities, in this case mortgage-backed securities, which 
drove a demand for mortgages, which then drove to the writing 
of a lot of subprime mortgages and so that would have been done 
right then--
    Mr. Cleaver. The large banks were heavily invested--
    Ms. Peirce. Yes.
    Mr. Cleaver. --into mortgages.
    Ms. Peirce. They were.
    Mr. Cleaver. And so when the housing crisis--you do agree 
that we had a housing crisis?
    Ms. Peirce. I agree with that.
    Mr. Cleaver. Okay. So that impacted the balance sheets of 
the banks. Am I correct?
    Ms. Peirce. It did. Right.
    Mr. Cleaver. So you are saying that, with that going on, 
the responsibility of this committee was to do nothing?
    Ms. Peirce. If you are asking me whether TARP was a good 
idea, I don't think that TARP was a good idea. It was a bailout 
that perpetuated this notion that the government would step in 
when there is a problem. It--
    Mr. Cleaver. I'm sorry. Go ahead.
    Ms. Peirce. It perpetuated the idea that people who make 
bad decisions are not responsible for the consequences. And I 
am talking about the banks who made bad decisions. They should 
have been responsible for the consequences of their decisions.
    Mr. Cleaver. Yes. I agree with you on that, but I am not 
sure that I understood the answer.
    Either you or Mr. Mahoney, what I am getting at is, so the 
response we had was to walk into the committee room where we 
met and say, ``We are in the midst of the greatest financial 
crisis since the Great Depression and let us together hold 
hands and do nothing?''
    Ms. Peirce. Restraint is sometimes the best indicator of 
wisdom.
    Mr. Cleaver. So you are saying that is what we should have 
done?
    Ms. Peirce. I am not saying that the crisis wouldn't have 
been bad, but the crisis was bad even with the emergency 
programs that were put in place. There are certain things that 
could have been done to help homeowners, for example, to soften 
the blow. But to take this big action of putting money into 
banks was not a wise response. And I understand what drove it, 
but I would argue that it perpetuated the problems that we 
have.
    Mr. Cleaver. Thank you.
    Chairman Duffy. The gentlemen yields back.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Hurt, for 5 minutes.
    Mr. Hurt. Thank you, Mr. Chairman.
    Dean Mahoney, I was intrigued by your testimony and what 
you have to say as you sit before a committee of Federal 
policymakers--that your study has shown, over the course of 
history, that so often the effect or the underlying problems 
that we have had in terms of stock market crashes, that so 
often Federal policymakers respond in a big, bold way in order 
to, frankly, cover themselves politically. And I think that is 
interesting when you consider Dodd-Frank and why it was passed 
in the way that it was and what the consequences have been.
    And I guess what I would ask you to comment on is sort of 
the irony that Federal housing policy was, in my mind--and, I 
think, in the minds of many well-respected people--very much 
the cause of what happened in 2008. And what an irony it is 
that here we are, 7 years later, and we still haven't put a 
glove on Federal housing policy and Fannie Mae and Freddie Mac. 
Dodd-Frank does not do anything about that. And I was wondering 
if you could comment on that irony, and why is that? Is that 
consistent with what you have found as it relates to policy 
responses to previous crises?
    Mr. Mahoney. Yes. Thank you.
    I think that there are two underlying problems, and I think 
they are surfacing in some of the discussions we are having 
here. First is the notion that it is just about the quantity of 
regulation; should we have more or less? And that is a very 
easy way for policymakers to avoid responsibility and just say, 
``Well, we layered on more stuff and so we have done what we 
are supposed to do.''
    The second big problem is to see regulation as, in some 
sense, a punishment of the financial industry for what it did 
in the past as opposed to looking forward at, how do we prevent 
problems in the future? And that makes it very easy for the 
regulated industry, again, to come in, hang its head in shame 
but in the meantime work on shaping the regulations in ways 
that benefit them.
    If you want to punish banks that are too-big-to-fail, don't 
layer on more authority for bank regulators.
    Mr. Hurt. Thank you.
    I come from a district, a rural district in Virginia. I 
think that, if you look at the trends over the last 30 years, 
you see that community banks have taken a real--have seen real 
losses. I think we have gone from somewhere around 15,000 
community banks to today about 6,000, and a lot of that decline 
has happened in the last 7 years, 6 years since Dodd-Frank was 
enacted and, I guess, enacted with the idea that it was going 
to end too-big-to-fail. I would suggest that it has only 
enshrined it.
    And I was wondering, Mr. Stanley, if you could--when you 
hear community banks talk about the tremendous and profound 
challenges that they face in implementing Dodd-Frank, do you 
think they are lying, or do you think that they are being 
sincere?
    Mr. Stanley. I think that there has been a long-term trend 
toward a decline in the number of community banks that dates 
back to the 1980s, that is driven by many different factors. I 
think that--
    Mr. Hurt. Do you think it is specifically the effect of 
Dodd-Frank?
    Mr. Stanley. I think it is too early to conclude as to 
whether Dodd-Frank has actually changed that trendline. I do 
think that--
    Mr. Hurt. Do you think that having fewer community banks 
contributes to a healthy economy where there is more 
competition, where you have more innovation, and consumers have 
more choice and lower costs?
    Mr. Stanley. No. We are supportive of the community banking 
model and the relationship lending that is included in the 
community banking model. We believe in assisting community 
banks to comply with regulations. It can be more burdensome on 
smaller entities to comply with regulation. We understand that.
    We do also feel, however, that competition with large banks 
and changes in economies of scale have both contributed to the 
decline in the number of community banks.
    Mr. Hurt. Okay.
    Mr. Stanley. And we feel that Dodd-Frank makes many 
accommodations to community banks. Regulators have been willing 
to exempt community banks in many cases. And Dodd-Frank does 
specifically call for regulators to be tougher on larger banks 
than smaller banks, and we support that.
    Mr. Hurt. Thank you, Mr. Stanley.
    My time has expired.
    Chairman Duffy. The gentlemen yields back.
    The Chair now recognizes the gentleman from Minnesota, Mr. 
Ellison, for 5 minutes.
    Mr. Ellison. Thank you, Mr. Chairman. And, Ranking Member 
Green, I appreciate the time.
    I would also like to thank you, Dr. Stanley, because this 
committee is thankful to receive the incredibly important 
feedback that Americans for Financial Reform provides .
    Mr. Stanley. Thank you.
    Mr. Ellison. And I also want to say publically that your 
colleagues and your partners have been reliable and responsive 
to legislation and hearings on topics that would help and 
weaken consumer protection and investor protections. And I am 
glad to be able to benefit from the work that you all do by 
knowing a little bit more and being a little more informed.
    The Americans For Financial Reform budget is tiny, 
particularly compared to other players in this space, but you 
all still show up every day and try to look out for the 
consumer. And I just want to say publically that I appreciate 
it.
    Mr. Stanley. Thank you.
    Mr. Ellison. So I wonder if you would offer your views on a 
New York Times editorial from yesterday entitled, ``The Title 
Insurance Scam.'' I don't know if you saw this article. It is 
actually not really fair for me to spring it on you, but I know 
you review the literature. And so I wonder, did you have a 
chance to see this particular article?
    Mr. Stanley. I did see it, yes.
    Mr. Ellison. I wonder if you wouldn't mind just offering 
your candid views on how title insurance is routinely handled?
    Mr. Stanley. I think that editorial was citing new evidence 
from New York that, frankly, adds to a mountain of evidence 
that title insurance, particularly affiliated title insurance, 
is a broken market, that it is marked by kickbacks between the 
lender and the title insurer, that consumers don't and often 
aren't able to shop around for less expensive title insurance 
so they are exploited through title insurance that is massively 
overpriced and that charges excessive fees. And I think that 
this really underlines the importance of controls on title 
insurance and not making exemptions for title insurance in the 
legislation in the consumer protections that we have.
    Mr. Ellison. Thank you.
    Before Dodd-Frank--and I know we are talking about Dodd-
Frank around here quite a bit--what we saw quite a bit was 
predatory lending. We saw securitization. We saw a lot of 
problems in the consumer market. And I just hope that some of 
our critique of Dodd-Frank keeps in mind what Dodd-Frank was 
passed to try to fix.
    We now have a Consumer Financial Protection Bureau taking 
steps to lower costs, provide access to high-quality mortgages, 
and ensure that home buyers get early notice of their actual 
closing costs. Yet we--I am sure you are aware and many people 
in this room are aware that Congress voted to weaken those 
protections recently and most recently to enable steering to 
affiliated title insurance firms to hire cost manufactured home 
loans. And that is a concern of mine.
    Let me ask you this, Dr. Stanley: Are you concerned that if 
we do not try to step into the affiliated title space, that 
consumers and home buyers could be hurt?
    Mr. Stanley. Yes. As I said, the New York Times editorial 
highlighted evidence of precisely that kind of harm that came 
out of New York State. The GAO has highlighted some of the same 
issues at a national level. I think the cap on points and fees 
that was associated with the Qualified Mortgage rule would have 
done a great deal and should do a great deal to protect 
consumers from this kind of exploitation. But if we put in 
exemptions for some of the most problematic areas, such as 
title insurance, it is going to lose its effectiveness.
    Mr. Ellison. Now I have a little while, so I just want to 
ask you a question. I have a bill out there called the Ensure 
Fair Prices in Title Insurance Act. It is H.R. 1799. Have you 
had a chance to review it?
    Mr. Stanley. I regret to say I have not had the chance to 
review that bill.
    Mr. Ellison. Fair enough.
    Mr. Stanley. But some of my colleagues in AFR may have.
    Mr. Ellison. Okay. Well, no problem. I am not going to ask 
you to offer an opinion on it. And, by the way, I wouldn't be 
sensitive if you didn't like it. But if you knew anything about 
it, I thought I would ask.
    And, with my last moments, can you offer your views on some 
of the investor protections put in place by Dodd-Frank?
    Mr. Stanley. Yes. I think the registration of private 
equity and hedge funds, which creates a fiduciary duty--we saw 
when the SEC did a follow-up investigation based on that, they 
found violations at up to 50 percent of private equity funds. I 
think there are other protections in the securities markets in 
terms of asset-backed securities and the underlying data there 
that are valuable, though I think they could be better--
    Mr. Ellison. That was--I think that little click noise 
means--
    Mr. Stanley. Yes. Sorry.
    Mr. Ellison. --that I am way out of time, so I do want to 
thank you again and thank the Chair.
    Mr. Hurt [presiding]. The gentlemen yields back.
    The Chair now recognizes Mr. Fincher from Tennessee for 5 
minutes.
    Mr. Fincher. Thank you, Mr. Chairman.
    I appreciate you having this important hearing, addressing 
the concerns we all have about Dodd-Frank and the impact it is 
having on our districts across the country.
    I was just making a few notes listening to the testimony of 
the witnesses and listening to the conversations from the other 
Members as to how many problems that Dodd-Frank has actually 
solved since it has been passed.
    When I go back home to my district every week and talk to 
my local community bankers, they tell me, ``You know, Stephen, 
Washington just doesn't get it because the people at the top 
are not being harmed as much as the folks at the bottom.'' They 
are the ones who can't get loans anymore because Dodd-Frank has 
made it impossible for the banks to be able to loan these guys 
money.
    Crushing banks through unnecessary regulation crushes the 
consumer. This is not about making community banks pay for 
something they had nothing to do with back a few years ago.
    And to reiterate something that Mr. Hurt said a few minutes 
ago, government had a big hand in what happened with telling 
banks who to loan money to and who not to loan money to, to 
loan money to people who couldn't pay it back. They had a heavy 
hand in how all of this started and how all of this unfolded. 
And it is almost to the--I don't want to read too much into it. 
But some of the comments that the opponents or the proponents 
of Dodd-Frank make, it is almost like they want to do away with 
the community banking industry and all of the competition and 
just have one or two big banks run everything.
    Back home in our districts, something that is the overall 
theme is that ``Big Government'' is good for ``Big Business,'' 
but it does nothing to help the small guy. It crushes the small 
guy.
    And then you look at Dodd-Frank and how it is being carried 
out. Congress doesn't appropriate money. It gets its money from 
the Fed. We have very little when it comes to holding them 
accountable for what they are doing. They make the rules. They 
write the rules themselves. They regulate how they see fit with 
almost no oversight--at the CFPB, it is Director Cordray who 
actually makes the decisions on what is happening and who is it 
affecting--not a panel of people but one guy.
    So, what is wrong with trying to fix all these unnecessary 
burdensome regulations that are hurting our constituents on 
both sides of the aisle? We have a bill, a manufactured housing 
bill, something that was unintended in Dodd-Frank that former 
Chairman Barney Frank addressed, that needed to be taken care 
of. Ranking Member Waters also, just a few months ago, signaled 
that we needed to fix this problem. But now it has become a 
very partisan issue. We can't touch it because it is part of 
Dodd-Frank. This is the problem. We need to do what we can to 
make sure we are working for our constituents, not more 
government and more burdensome regulation.
    Mr. Maloney, would it be beneficial--and I know the answer, 
but I want to hear your feedback--if we allowed these rules and 
these regulations to sunset a lot of it? So we could go back--
we had a jobs bill last Congress, and it was dealing with the 
IPO process and Sarbanes-Oxley. And if some of that would have 
been allowed to sunset, we would not have had to do what we did 
to fix that problem. So comment, please.
    Mr. Mahoney. I agree with that. And I recognize the 
pressure that any policymaker feels in a time of crisis to do 
something. I agree with Ms. Peirce that it is often the right 
thing not to give into that pressure, but I understand the 
pressure.
    One way of reducing the cost would be to have automatic 
sunset provisions in legislation so that once things have 
cooled down, we can go back and say, what is it that actually 
needs to be done here.
    And I just want to make the observation that one of the 
things that Dodd-Frank clearly does is it increases the 
authority of the bank regulators over non-bank entities.
    But if you say, okay, so let's go back to roughly, say, 
2006, what did the Fed know at the time? It could see that the 
default rate on subprime loans was rising. It could see that 
housing prices were beginning to fall in many areas of the 
country. Why didn't it do something at that point? Was it 
because there was no statute that said, ``think about systemic 
risk?'' Or was it that the Fed, just like the banks that it 
regulates, figured the ultimate experience with losses here is 
going to look like it has always looked and that is not going 
to be--
    Mr. Fincher. My time has expired, but the answer is more 
government is not the answer.
    I yield back.
    Chairman Duffy. Thank you.
    The gentleman's time has expired.
    The Chair now recognizes Mrs. Beatty, the Congresswoman 
from Ohio, for 5 minutes.
    Mrs. Beatty. Thank you, Mr. Chairman. Thank you, ranking 
members, and thank you to our witnesses for coming in today.
    In reviewing the testimony, and in my short time here 
listening to both sides of the aisle, it is very interesting to 
me that one document, the Dodd-Frank Act, has so many different 
interpretations and opinions and purposes. But one common 
thread that I have listened to from my colleagues on both sides 
of the aisle is, going back to our districts, how do we explain 
this? Consumers have been mentioned by everyone, so--and 
problems.
    So for me, I put in achievements of Dodd-Frank. I am not 
sure if you are aware of this, but since the passage of it in 
February of 2010, nearly 12.3 million private sector payroll 
jobs have been created. That is something pretty good to take 
back to your districts. Further, our economy has added 3 
million new jobs over the past 12 months, nearly the fastest 
growth in more than a decade. Yes, those are achievements of 
Dodd-Frank because I think it also created the Consumer 
Financial Protection Bureau. Since its inception, the Bureau 
has returned $5.3 billion to 15 million consumers who have been 
subjected to unfair and deceptive practices.
    So where I am going with this, since I repeatedly hear 
attempts to block the appointment of having a Director or to 
move it toward an independent funding source, Mr. Stanley, 
first with you, as this committee moves forward with its 
oversight and financial regulatory agency in drafting financial 
services legislation, what do you think we can do to ensure 
that the CFPB is able to continue its legislative mandate and 
be fully funded?
    Mr. Stanley. Frankly, I think the structure that currently 
exists in the Dodd-Frank Act, which provides it with dedicated 
funding from the Federal Reserve, as the other financial 
regulators receive, with the exception of the CFTC, they are 
self-funded and not within the appropriations process; I think 
maintaining that is very important. And, frankly, I think that 
structure of a single director helps the CFPB act quickly and 
forcefully when it sees problems. So I think that maintaining 
that structure in the Dodd-Frank Act would be--is very 
valuable.
    Mrs. Beatty. And to the other witnesses, if there were no 
Dodd-Frank Consumer Protection Bureau as it is, how would you 
counter these achievements and wonderful statistics that it has 
been provided to do?
    Mr. Mahoney. It is, of course, hard to run the experiment 
and go back and say, ``What would the economy look like today 
without Dodd-Frank?''
    We, unfortunately, lack the ability to do that. And I would 
just say that everyone believes that it would be wonderful if 
we could come up with a way to reduce the likelihood of future 
financial crises.
    Mr. Stanley, I think, did a very good job of quantifying 
what it would be like if we could reduce the likelihood of 
future financial crises.
    Mr. Mahoney. Unfortunately, I see no evidence whatsoever 
that Dodd-Frank is going to do that. I think, in fact, there is 
a very good chance that it will make future financial crises 
more likely because it is concentrating risk, for example, of 
derivatives transactions in a new too-big-to-fail entity, a 
centralized counterparty. It is going to, I think, inevitably 
force more activities under the umbrella of the too-big-to-fail 
banks.
    And I think by doing that--
    Mrs. Beatty. Because my time is short, let me piggyback and 
ask you a question on that.
    I think you said in your testimony that Dodd-Frank 
misunderstands the causes of the financial crises and 
particularly blames monetary policy, Federal housing policy, 
and moral hazards created by government bailouts.
    So, in your opinion, what were the main causes of the 
recent twin housing and financial crises?
    Mr. Mahoney. I think the cause of the housing and financial 
crises had, in part, to do with government policy. They had, in 
part, to do with the fact that banks that tried out new forms 
of mortgage loans that were not very well-tested, which turned 
out to not work as effectively as the banks thought they would. 
And in a well-functioning market, the banks that did that would 
have been allowed to fail. That wasn't what happened here.
    Chairman Duffy. The gentlelady's time has expired.
    The Chair now recognizes the gentlelady from Missouri, Mrs. 
Wagner, for 5 minutes.
    Mrs. Wagner. Thank you very much, Mr. Chairman.
    And thank you, panelists, for being here.
    I would like to discuss the Dodd-Frank Act and the 
regulatory overreach that has resulted from it. Now that we are 
5 years out from the law's enactment and have seen many of the 
over 400 separate rulemakings required under the law go into 
effect with many more in queue, we are starting to be able to 
more accurately see the long-term consequences from such a 
massive piece of legislation. I believe many of the 
consequences are unintended.
    A recent research paper released last week from the 
American Action Forum estimates that the burden of compliance 
under Dodd-Frank will result in a reduction of nearly $900 
billion in GDP over the next 10 years. The study goes on to say 
that this will, in turn, result in a cost of over $330 per year 
for each working-age person over the next decade: $330 per year 
per working-age person. For families, this is a--for many of 
them, it is a car payment. It is a whole month's worth of 
groceries.
    Mr. Mahoney and Ms. Peirce, these are some general 
questions. Has how regulatory overreach from Dodd-Frank 
contributed to increased costs for working Americans?
    Ms. Peirce. I think that is a great question. And the focus 
on compliance costs is one thing to look at, but there are 
actually costs that are deeper than compliance costs--
    Mrs. Wagner. Correct.
    Ms. Peirce. --which are the structural problems that the 
changes are creating in the economy. And so I think what we are 
seeing is we are seeing--we had the example of community banks. 
We are seeing a lot of community banks close their doors, and 
it is, in part, due to Dodd-Frank and, in part, due to other 
regulations.
    And that means that a local community who depended on that 
bank for loans to their small businesses, for example, is going 
to be in trouble. They are going to have to go somewhere else 
for that funding, and it is more difficult to get outside of 
the community.
    So that is one example of how Dodd-Frank has affected the 
economy.
    Mr. Mahoney. I agree with that.
    And I would also just point to another cost that I think 
really has not been quantified and would be very hard to 
quantify, and that is the notion that because we have now given 
the regulators the power to look for systemic risk, this is a 
solved problem and that we have banished systemic risk from the 
market.
    We have not done that. When it comes back, it is going to 
come back even more vigorously, and that will impose 
substantial costs.
    Mrs. Wagner. And this leads almost exactly into my next 
question, Mr. Mahoney, which is: Despite the adverse effects of 
Dodd-Frank both on costs and economic growth, has it fully 
protected us from future financial crises?
    Mr. Mahoney. No. I think not at all. Again, I think it does 
some things that could make a crisis more probable, as I 
mentioned, the provisions on over-the-counter derivatives--
    Mrs. Wagner. Right.
    Mr. Mahoney. --and the designation of systemically 
important institutions. I think that the regulators ought to 
focus on risks rather than institutions. And I think Ms. Peirce 
made the very important point that by just identifying these 
institutions and accepting them as too-big-to-fail rather than 
trying to reduce their risk, the statute goes in the wrong 
direction.
    Mrs. Wagner. And speaking of new institutions, as both of 
you know, Dodd-Frank created a number of new institutions also 
within itself, such as FSOC, the OFR, and the CFPB, that have 
very little oversight and operate with very, very limited 
transparency.
    What further unintended consequences could these new 
institutions pose in the future beyond what was included in 
Dodd-Frank?
    Ms. Peirce. One concern that I have, for example with the 
CFPB, with the lack of accountability, is that consumers are 
actually losing out on opportunities. It is really important 
for--I think Mr. Stanley mentioned that competition can be very 
helpful for consumers. It ensures that they get a better deal.
    And if you have an agency that is focused on putting a lot 
of regulations in place, it keeps new entrants out, and that 
limits competition and it limits options for consumers and it 
can hurt the consumers who are most deeply in need of options.
    Mrs. Wagner. Thank you.
    I believe my time has run out. I yield back, Mr. Chairman.
    Chairman Duffy. The gentlelady yields back.
    The Chair now recognizes the gentleman from Washington, Mr. 
Heck, for 5 minutes.
    Mr. Heck. Thank you, Mr. Chairman.
    I would like to use my time today to talk about markets. 
Markets are great and powerful, and I firmly believe that the 
strength of our markets is what led us to win World War II and 
the cold war and served as a shining example for a lot of other 
countries who set up their post-war economies.
    But just because the markets are better--and they are--in a 
command economy does not mean they are perfect or 100 percent 
reliable. And no reading of history could conclude thusly. 
Frankly, I feel like that is being lost in the service of 
ideology.
    When we were contesting a philosophical battle with the 
Soviet Union, we were very aware of market shortcomings. In the 
early days of communism spread a century ago--I remember it 
well--we recognized that financial markets are prone to panics. 
And so we set up commissions to regulate the futures market and 
stock markets.
    We recognized that money markets are the same way and that 
they drive boom and bust cycles in the broader economy. So we 
set up the Federal Reserve to smooth out the money supply and 
try to promote economic stability.
    We set up the FDIC to try to bring an end to bank runs that 
happen in a free market for deposits. We set up a whole host of 
agencies to smooth out the market for home mortgages, and the 
list goes on and on.
    It took a while for all those systems to evolve and be put 
in place and work, but 75 years after the Great Depression, it 
is fair to say, and it is accurate to say, that economic growth 
has been steadier and more broadly shared than it was in the 75 
years prior to the setting up of some of those entities to 
help.
    We recognize now that there is inherent volatility and to, 
in fact, harness the power of markets and to enable growth that 
is shared by the masses, if you will, we need to have these 
entities functioning. And I miss those days.
    We are having a fight lately over another one of those 
agencies that was set up to address market failures 80 years 
ago. We all agree, everybody in this room, that in a perfect 
world, the Export-Import Bank wouldn't exist.
    Of course, in a perfect world, neither would the FDIC, 
neither would the Federal Home Loan Banks. In a perfect world 
with perfect markets, we wouldn't need to respond to market 
failures, but markets aren't perfect.
    In our world, we recognize that even if we could somehow 
get China and Russia to play by the same rules as everybody 
else so that we had a level playing field internationally, 
trade financing markets would still fail in predictable ways. 
International financing markets would still have panics and 
would still freeze from time to time.
    Good customers in countries with poor legal systems would 
still struggle to get loans to buy products. Small companies 
who use community banks would still not be able to get working 
capital for products to be sold out of country. Private credit 
insurance would still only be available at scales too large to 
be useful to small manufacturers.
    These are predictable market failures, and they will 
reappear if the Export-Import Bank goes away. Even the banks 
that compete and function in trade financing acknowledge it.
    We used to be dedicated to addressing the failures of 
market so that everyone could benefit from capitalism 
strengths. Maybe we did this because we were committed to 
helping all Americans share in capitalism's success. Maybe we 
did this because we were worried about being embarrassed by 
communist propaganda. Either way, we seem to have lost our way.
    The Export-Import Bank is good for capitalism, but 
capitalism's self-appointed defenders frankly seem to have lost 
sight of that. And I frankly hope we can reverse that mistake 
before it is too late. And to put a fine point on it, ``too 
late'' is defined here today, now, in this moment, as 23 more 
legislative days. I pray that does not happen.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman.
    I would like to thank our panelists for joining us here 
today. It has been interesting hearing your comments.
    I come from the private sector, a small businessman. And 
the best definition of that, I guess, is you are working on a 
high wire without a net. There is nobody there to catch you. 
And that is actually the best incentive to be able to perform 
and to be accountable and responsible with the dollars that you 
currently have.
    And I share, I think, a great concern with many of my 
colleagues that with the institutionalization of Dodd-Frank, we 
are seeing an incredible overreach that is going to be 
impacting the freedom that this country has been built upon to 
be able to have great entrepreneurialism, to be able to create 
jobs. When I am hearing comments that we are having a recovery, 
I am strictly reminded that we have the lowest labor 
participation rate in 4 decades.
    We are seeing $2 trillion in costs now that are coming onto 
businesses nationwide. For the first time since we have kept 
records, we are seeing more small businesses shut down than 
there are new business startups in this country. And are we 
seeing the government becoming a platform off of which to be 
able to launch entrepreneurialism, to be able to put people 
back to work, or has it become a stumbling block?
    That is my concern and something, Mr. Mahoney, I would like 
you to be able to speak to when we are looking at the FSOC.
    Given the broad definitions that are put forward for the 
FSOC--that they can work on anything that is a threat to the 
financial stability of the United States--do you have some 
concerns that we could see the Federal Government moving into a 
variety of different areas, instruments, in terms of financial 
liquidity, that can hurt economic growth in this country and 
something that is critically important in my district for young 
people to be able to live that American dream?
    Mr. Mahoney. Yes. I agree with that.
    And I think that the very vagueness of the concept is 
itself going to be a problem. Because, ultimately, when you 
have something affect the financial stability of the United 
States that does not have any recognized meaning, its meaning 
is going to be determined ultimately by lobbying, to put it 
bluntly.
    Because businesses that want to see their competitors 
harmed are going to go to the regulators and say, ``What that 
person is doing is a bad idea. What we do is the best 
practice.''
    And I think it is very important to note that a lot of 
regulation, a lot of discretion exercised by regulators, tends 
to be because, obviously, they are not involved in the markets 
day to day.
    They have to get their information from somewhere else. So 
they turn to so-called best practices, which typically are just 
what the very largest firms do because they can afford to do 
it. And smaller businesses can't afford to do it, and they are 
the ones that are harmed.
    Mr. Tipton. I appreciate that comment, and I think it comes 
to a specific point.
    And, Ms. Peirce, you might want to speak to this as well.
    We often talk about the big institutions, we need to be 
able to regulate them so they are autonomous from the rest of 
the economy. And I am worried about the folks back home who are 
trying to put food on the table for their families.
    As we increase these regulations--and no one argues that 
there shouldn't be some regulations; I think many of us are 
just hoping we can find some sensible, commonsense regulations 
to be able to apply--are these costs impacting the people who 
are ultimately paying the bills?
    Ms. Peirce. Yes, absolutely. When we talk about imposing 
costs on financial institutions of any size, ultimately, a lot 
of those will get passed on to the consumers and companies that 
rely on those financial institutions. So it is something that 
we really do need to be concerned about.
    And if we focus on--I think, as Dean Mahoney laid out 
really nicely, one of the problems is that regulation can 
entrench certain regulatory schemes that work very well for 
certain institutions and keep out new entrants. The best way to 
lower prices for consumers and to increase their options is to 
have more competition.
    Mr. Tipton. More competition.
    Mr. Mahoney, you were pointing out and have spoken to the 
fact that we are seeing more small banks being shut down. I 
have cited in this committee a bank in Delta, Colorado, $50 
million, a small bank, saying that they don't know if they want 
to continue because they are working not for their customers, 
but for regulators and for the Federal Government.
    Is this helping the American consumer?
    Mr. Mahoney. Not at all. And I would just note in the few 
seconds left that virtually all of the bank failures since 2010 
have been small institutions. Only a handful of those have had 
assets of more than $1 billion.
    Mr. Tipton. Thank you.
    I yield back, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Texas, Mr. 
Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman.
    Please allow me to address the notion that the ``do 
nothing'' solution was the best or better solution. The ``do 
nothing'' solution assumes that things couldn't have gotten 
worse. The recession of 1929, which was the Great Depression, 
disproves this.
    Things could have been worse. How soon we forget Bear 
Stearns, Lehman, AIG. Banks were not lending to each other. I 
was here. I saw it unfold before my very eyes. Banks refused to 
lend to each other. How soon we forget. Rush to judgment. 
Somehow we went to bed one night, came to work the next day, 
and created Dodd-Frank. Not so.
    Amendments: 120 Republican amendments considered, 46 roll 
call votes for Republican amendments, 51 Republican amendments 
accepted, 134 Democratic amendments, 24 bipartisan amendments, 
debate time a total of 15 hours and 41 minutes, and this is 
with reference to the Financial Stability Improvement Act. 
There was careful, considerable deliberation before this 
legislation passed.
    Small banks: There is a deep abiding affinity for small 
banks among the members of this committee. Unfortunately, when 
we try to do something for small banks--by the way, 90 percent 
of all banks in this country are small banks. 90 percent plus, 
and they are under $1 billion. We could pass legislation for 
small banks but for the fact that, when we try to do something 
for the small banks, it becomes legislation that will also 
impact $50-billion banks, huge banks.
    I support doing something for small banks and will work 
with anyone who wants to do something for small banks, but I 
refuse to allow the facade of small banks to become what is 
called a community bank that is worth $50 billion to $100 
billion or even more. We have had one witness who said that any 
bank could be a community bank. So I no longer use the term 
``community bank'' because we are not talking about the mega-
banks.
    I agree with the concern for small banks, and want to do 
something about it. But we can't do it if we continue to allow 
the mega-banks to drive the legislation. And that is what is 
happening here. The mega-banks want legislation. So they use 
the small banks to accomplish their end. This is the real deal. 
This is what is going on. How soon we forget.
    I think another appropriate title for the hearing would be, 
``Let's Get Back to Business as Usual.'' Let's get back to no 
Financial Stability Oversight Council. It is not perfect. What 
is? But it does provide us at least an opportunity to look for 
the next crisis.
    Ending too-big-to-fail? Why not have a means by which you 
can wind down the next AIG? That doesn't mean that you won't 
have a bank that is so big or some institution that is so big 
that it can't have an impact, but it does mean that we have a 
way now to deal with it. We didn't have that before Dodd-Frank. 
Let's get back to business as usual.
    Stock market's at an all-time high. Big investment banks 
and the companies are making lots of bucks. We are here trying 
to help them make more money when we have people working at 
minimum wage who can't take care of their families.
    When are we going to hear something about raising the 
minimum wage? We take care of those at the top at the expense 
of those at the bottom.
    I yield back, Mr. Chairman.
    Chairman Duffy. The gentleman yields back.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill, for 5 minutes.
    Mr. Hill. Thank you, Mr. Chairman.
    And thanks to the panel for participating in this hearing. 
I appreciate it very much.
    Mr. Mahoney, I am interested in your thoughts. And the 
panel, please join in as well.
    The Financial Crisis Inquiry Commission was well-conceived 
and well-designed right after the 2008 crisis, and it put 
forward a very thoughtful report and yet, Dodd-Frank was passed 
6 months before that report ever came out, which really struck 
me, as a business guy, as putting the cart before the horse.
    But, of course, the President asked for a deficit panel to 
be impaneled when he first became President to try to reduce 
our chronic budget deficit and our chronic debt, and he ignored 
that report as well.
    So I am interested in what your thoughts are that were 
contained in that commission that were ignored or not contained 
in Dodd-Frank that are good ideas and should have been 
considered.
    Mr. Mahoney, do you want to start?
    Mr. Mahoney. I think I would just start by saying the 
report tried to have a little something for everyone in the 
sense that it pointed out some of the policy issues that we 
have discussed today, the monetary policy questions, the 
government housing policy questions, but it also pointed out 
some of the market issues that have widely been blamed for the 
crisis: securitization; over-the-counter derivatives; combining 
banking and capital markets activities into the same 
institution.
    The thing that has always puzzled me is, if those things 
were so destabilizing, it is a little bit strange that the 
financial crisis didn't occur much sooner. Those things were 
all under way in the 1980s. The financial crisis happened in 
2007, 2008. Why did it take so long if those things were so 
incredibly destabilizing? So I find the sort of smorgasbord 
approach of the report a little bit puzzling.
    Mr. Hill. Ms. Peirce?
    Ms. Peirce. I would point to Peter Wallison's dissent, 
which talked about housing policy. And while I don't think 
housing policy was the only cause of the crisis, I do think 
that he does a nice job explaining the roles that Fannie and 
Freddie played in the crisis. And that, of course, was left out 
of Dodd-Frank entirely.
    Mr. Hill. Mr. Stanley?
    Mr. Stanley. I do think that many elements of the FCIC 
report were addressed in Dodd-Frank, and many of the people who 
testified before the FCIC also testified before Congress in 
helping to frame the Dodd-Frank Act.
    And I also think that Dodd-Frank included many things in it 
that came directly out of the regulatory response to the 
crisis. For example, the regulators were already working on the 
new Basel capital rules, which contained many changes in the 
rules to respond to the problems that were seen in the crisis.
    And a lot of the time, when people talk about Dodd-Frank, 
they are actually referring to those new Basel capital rules. 
They are referring to the continuation of the Federal Reserve 
stress testing started in the crisis. A lot of things in Dodd-
Frank emerged directly out of what was learned in the crisis in 
that response.
    Mr. Hill. I would like to ask each of you: Would you 
support a single prudential regulator that was not the Federal 
Reserve, that was a separate independent regulator that had 
bank authority--I'm not talking about securities, but bank 
authority--and put it in the hands of one non-Fed prudential 
regulator?
    Mr. Mahoney?
    Mr. Mahoney. I think either a single prudential regulator 
or simply ending the problem that we did have--and it was a 
regulatory problem that we should have solved before the 
crisis, which is that you had holding companies that had 
individual functional regulators at various regulated entities.
    But there may not have been a single regulator that had a 
complete picture of everything that was going on within the 
holding company. I think that was particularly true in the 
investment banks.
    And I think having a regulator at the holding company level 
that is looking at everything is a perfectly fine idea. Now, 
that could be the Fed for banks, the SEC for investment banks. 
It could be a new prudential regulator. But I do think that is 
a sensible reform.
    Ms. Peirce. I think pulling the regulatory responsibility 
out of the Fed is a very important step. Putting it in one 
prudential regulator for banks could be a good idea.
    Of course, the structure would matter. You would want to 
make sure that it was subject to appropriations and had the 
proper oversight, not that it had a commission structure, for 
example. I think that would be very important.
    Chairman Duffy. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Maine, Mr. 
Poliquin, for 5 minutes.
    Mr. Poliquin. Thank you, Mr. Chairman. I appreciate it very 
much.
    And thank you, folks, for sitting through this for a couple 
of hours now--or going on that. I appreciate it.
    Part of the American dream is everybody wants to own a 
home. That is good. However, up until roughly 2006 or 2007, it 
seemed like there were Washington regulators who were putting 
lots of pressure on banks to make sure they enticed families to 
buy homes even though they couldn't afford those homes.
    Sometimes they pressured banks to offer no money down. Some 
folks who applied for homes didn't have jobs, but they were 
still given credit in order to entice them to take on more than 
they could chew off.
    And then, when these folks couldn't make their mortgage 
payments, the housing market collapsed. And with that, it took 
the financial services industry of the financial markets that 
collapsed.
    So here you have these families who are now going through 
this process of losing their homes. They are going through 
bankruptcy, and some of the reasons for this happening were the 
bank regulators here in Washington.
    Now, in my district, which is western, central, northern, 
and Down East Maine, some of the hardest working people you 
could possibly find, they saw the value of their homes plummet 
40, 50 percent subsequent to the market crash. And folks who 
were saving for their kids' college education or their 
retirement saw their savings and mutual funds and 401(k) plans 
plummet 20 or 30 percent.
    So now they are in a position where they have to work 
longer, the nest egg has shrunk, and now they are more and more 
dependent on the government, not to say that we have a Social 
Security system that is a $15 trillion unfunded defined benefit 
pension plan with no real plan to take care of that.
    So, of course, after this happened--Washington knows best--
the big brother government sort of ran to everyone's rescue. 
Even though they helped create the problem, they imposed this 
huge Dodd-Frank net over the entire financial services 
industry.
    I come from Maine, and we do a lot of fishing up there. And 
sometimes a net should have holes in it big enough for the 
small fish to get through.
    So we have a real problem here in our district with small 
banks. And as my colleague, Mr. Green, mentioned, he may not 
want to call them small banks. I call them community banks.
    But whatever it is, we have a lot of small credit unions 
and small financial institutions, small banks, that are the 
backbone of our economy. And they want to lend money to 
individuals who want to buy a new truck or maybe put a new 
diesel in a lobster boat, and they are unable to do it because 
some of these regulations.
    So what happens is the cost of regulations goes up. Bank 
fees go up. You talk to Larry Barker, who runs the Machias 
Savings Bank in Down East Maine, and they have about 100, 120 
employees, and they are putting more people on the payroll to 
deal with regulations instead of lending money to folks who 
need it.
    So I am really concerned about this Dodd-Frank net, which 
has started to smother our small banks that are the backbone of 
our community. Jobs are being lost. Credit is not being 
extended. And then, if you go over to the investment management 
space, you have fees going up and rates of return on retirement 
savings going down.
    So I would like to ask you, Ms. Peirce, first, if you don't 
mind: Do you think and can we agree that this is happening, 
there should be reforms to this regulatory burden? And, 
specifically, what would you recommend? How can we help our 
small community banks keep money flowing to our families, grow 
businesses so they hire more people?
    Ms. Peirce. The Mercatus Center did a study a couple of 
years ago on small banks and found that, indeed, they were 
suffering very heavily, and it was this concept that you 
mentioned of spending a lot more time on compliance, trying to 
hire more compliance employees.
    But even more important than that is the manager's time is 
now going towards thinking about compliance and regulation 
instead of consumers.
    The answer, I think, lies in simplifying bank regulations. 
You could have a simple capital standard, for example, and 
then, in return for that, you eliminate the other regulations 
that require a lot more time to think about complying with.
    So I think the simple regulations can benefit banks of all 
sizes, but I think especially small banks will benefit from 
that chain.
    Mr. Poliquin. So you do believe that there should be and 
could be reforms to Dodd-Frank?
    Ms. Peirce. I believe that reforms are necessary to make 
the economy work better.
    Mr. Poliquin. Mr. Mahoney, what do you think?
    Mr. Mahoney. I agree with that.
    I have been struck by the number of bankers that I have 
spoken to from banks of all sizes who now say, ``My primary 
constituent is no longer my customer. It is Washington, D.C.''
    Mr. Poliquin. I hope you folks speak up. You have a 
tremendous amount of authority and influence here in Washington 
with your experience in this area. So I hope you speak up. And 
I am very grateful that you are here today. Thank you.
    My time has expired. Thank you. I yield back.
    Chairman Duffy. The gentleman yields back.
    I believe that concludes all of our questions for today. I 
want to thank the witnesses for their testimony, and for taking 
time out of their busy schedules to provide their insight on 
this important issue.
    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.
    Without objection, this hearing is adjourned.
    [Whereupon, at 11:08 a.m., the hearing was adjourned.]












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