[House Hearing, 115 Congress]
[From the U.S. Government Publishing Office]



 


                     FINANCIAL INDUSTRY REGULATION:
                          THE OFFICE OF THE
                      COMPTROLLER OF THE CURRENCY

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED FIFTEENTH CONGRESS

                             SECOND SESSION

                               __________

                             JUNE 13, 2018

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 115-99





[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]









                                   ______
		 
                     U.S. GOVERNMENT PUBLISHING OFFICE 
		 
31-475 PDF                WASHINGTON : 2018                 













                 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
STEVAN PEARCE, New Mexico            GREGORY W. MEEKS, New York
BILL POSEY, Florida                  MICHAEL E. CAPUANO, Massachusetts
BLAINE LUETKEMEYER, Missouri         WM. LACY CLAY, Missouri
BILL HUIZENGA, Michigan              STEPHEN F. LYNCH, Massachusetts
SEAN P. DUFFY, Wisconsin             DAVID SCOTT, Georgia
STEVE STIVERS, Ohio                  AL GREEN, Texas
RANDY HULTGREN, Illinois             EMANUEL CLEAVER, Missouri
DENNIS A. ROSS, Florida              GWEN MOORE, Wisconsin
ROBERT PITTENGER, North Carolina     KEITH ELLISON, Minnesota
ANN WAGNER, Missouri                 ED PERLMUTTER, Colorado
ANDY BARR, Kentucky                  JAMES A. HIMES, Connecticut
KEITH J. ROTHFUS, Pennsylvania       BILL FOSTER, Illinois
LUKE MESSER, Indiana                 DANIEL T. KILDEE, Michigan
SCOTT TIPTON, Colorado               JOHN K. DELANEY, Maryland
ROGER WILLIAMS, Texas                KYRSTEN SINEMA, Arizona
BRUCE POLIQUIN, Maine                JOYCE BEATTY, Ohio
MIA LOVE, Utah                       DENNY HECK, Washington
FRENCH HILL, Arkansas                JUAN VARGAS, California
TOM EMMER, Minnesota                 JOSH GOTTHEIMER, New Jersey
LEE M. ZELDIN, New York              VICENTE GONZALEZ, Texas
DAVID A. TROTT, Michigan             CHARLIE CRIST, Florida
BARRY LOUDERMILK, Georgia            RUBEN KIHUEN, Nevada
ALEXANDER X. MOONEY, West Virginia
THOMAS MacARTHUR, New Jersey
WARREN DAVIDSON, Ohio
TED BUDD, North Carolina
DAVID KUSTOFF, Tennessee
CLAUDIA TENNEY, New York
TREY HOLLINGSWORTH, Indiana

                     Shannon McGahn, Staff Director
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                     
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    June 13, 2018................................................     1
Appendix:
    June 13, 2018................................................    53

                               WITNESSES
                        Wednesday, June 13, 2018

Otting, Hon. Joseph, Comptroller, Office of the Comptroller of 
  the Currency...................................................     4

                                APPENDIX

Prepared statements:
    Otting, Hon. Joseph..........................................    54

              Additional Material Submitted for the Record

Otting, Hon. Joseph:
    Written responses to questions for the record submitted by 
      Representative Beatty......................................    81
    Written responses to questions for the record submitted by 
      Representative Hultgren....................................    85
    Written responses to questions for the record submitted by 
      Representative McHenry.....................................    88

 
                     FINANCIAL INDUSTRY REGULATION:
                           THE OFFICE OF THE
                      COMPTROLLER OF THE CURRENCY

                              ----------                              


                        Wednesday, June 13, 2018

                     U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:05 a.m., in 
room 2128, Rayburn House Office Building, Hon. Jeb Hensarling 
[chairman of the committee] presiding.
    Present: Representatives Hensarling, Royce, Lucas, Posey, 
Luetkemeyer, Huizenga, Duffy, Stivers, Hultgren, Ross, 
Pittenger, Wagner, Barr, Rothfus, Tipton, Williams, Poliquin, 
Love, Hill, Emmer, Zeldin, Trott, Loudermilk, Davidson, Budd, 
Kustoff, Tenney, Waters, Maloney, Velazquez, Sherman, Meeks, 
Capuano, Lynch, Scott, Green, Cleaver, Perlmutter, Foster, 
Kildee, Delaney, Sinema, Vargas, Gottheimer, Gonzalez, Crist, 
and Kihuen.
    Chairman Hensarling. The committee will come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time. And all members will have 
5 legislative days within which to submit extraneous materials 
to the Chair for inclusion in the record.
    The hearing today is entitled, ``Financial Industry 
Regulation: The Office of the Comptroller of the Currency.'' I 
now recognize myself for 3-1/2 minutes to give an opening 
statement.
    So today, we will welcome Joseph Otting, the 31st 
Comptroller of the Currency, who took his office approximately 
7 months ago. We will welcome him for our first appearance 
before the committee.
    What a difference 17 months make in the life of the Nation, 
and what a difference public policy makes. Working together 
with the Administration, this Congress has made a huge 
difference and perhaps produced the most booming economy in 
many people's lives.
    Unemployment now is recorded at the lowest in a generation, 
tied for the lowest in almost a half a century. Also, African-
American unemployment is the lowest on record, the lowest on 
record, and the gap has narrowed. Last month, there were 
actually more job openings than there were unemployed. The 
first time since recordkeeping began in the year 2000 that that 
has occurred. After years and years and years of press reports 
that unemployed people are seeking factories, we now have press 
reports that factories are struggling to find workers instead.
    We have reports of robust wage growth as well, the best 
wage growth in 11 years. And in the last wage report, 49 of 50 
States had positive wage growth.
    The National Federation of Independent Businesses said the 
highest number of businesses are increasing worker pay that 
they have ever recorded in their survey. The University of 
Michigan reports that consumer confidence is at the highest 
level in 14 years. And even, even The New York Times has had to 
admit, quote, ``The economy is humming.''
    Again, this did not happen by accident. It is a result of 
the Tax Cuts and Jobs Act and the effort, particularly of the 
Administration and our banking regulators, to right-size 
regulation, to properly calibrate regulation, to ensure that it 
is working for working people, because all regulation, 
regardless of its intent, regardless of its purpose, can 
ultimately have a cost on access and cost, cost to credit of 
hardworking Americans.
    And so it is an incredible achievement that once again we 
are seeing average 3 percent economic growth. And that is so 
important because when one looks at the data, one sees that in 
American history the greatest employment, probably almost 80 
percent of job gains, of income gains, of poverty reduction 
take place in 3 percent growth years. And so how wonderful it 
is to have regulators who are committed to growth in our 
economy.
    And so, again, the greatest boost to our economy is not a 
government economic stimulus plan, it is not quantitative 
easing, but it is business confidence that comes from good 
public policy and smart regulatory efforts.
    So I look forward to hearing from our witness. I know that 
he has been quite active on a number of fronts, including 
fintech charters and Volcker and BSA (Bank Secrecy Act) and AML 
(Anti-Money Laundering). I look forward to getting into all of 
that and seeing what is it we can do to make sure that 3 
percent economic growth continues for all working Americans.
    The Chair now recognizes the Ranking Member of the 
committee, the gentlelady from California, for 5 minutes for an 
opening statement.
    Ms. Waters. Thank you, Mr. Chairman.
    I am looking forward to hearing Comptroller Otting's 
testimony and asking him about his activities at and plans for 
the Office of the Comptroller of the Currency (OCC).
    Mr. Chairman, I believe that Congress has a responsibility 
to ensure that our economy and laws work fairly for everyone. 
And yet at a time when banks are posting record profits, the 
Trump Administration and its allies in Congress have taken 
banking regulation in this country in the wrong direction.
    Last month, congressional Republicans pushed through S. 
2155. The legislation was championed and signed into law by 
Donald Trump, who made an early promise to, quote, ``do a big 
number,'' unquote, on Dodd-Frank.
    S. 2155 rolled back protections Democrats put in place 
following the 2008 financial crisis to strengthen oversight of 
Wall Street and ensure that risky activities do not bring down 
the economy again.
    Since taking office, the Trump Administration has 
consistently taken actions that hurt Main Street and benefit 
Wall Street. Mick Mulvaney, who was illegally installed, is 
Acting Director of the Consumer Financial Protection Bureau 
(CFPB) by Trump, is hard at work weakening the agency from the 
inside. His latest act of anticonsumer aggression was to fire 
all 25 members of the Consumer Bureau's Consumer Advisory Board 
and then to insult them on their way out the door.
    It is in this context that we have Comptroller Otting here 
before us today, testifying here for the first time. The 
American public has the right to know if he plans to follow in 
the deregulatory and anticonsumer footsteps of this 
Administration.
    I am particularly interested in hearing his perspectives on 
the direction in which he will guide the OCC on three important 
issues: The Community Reinvestment Act; the opening of 
fraudulent accounts by our Nation's banks; and the regulation 
of the fintech industry.
    It has been widely reported that the Federal banking 
agencies, including the OCC, plan to update their 
implementation of the Community Reinvestment Act, that is CRA. 
I agree that the CRA could benefit from modernization to 
reflect the changing bank landscape which now includes online 
banking, which is not solely based on brick and mortar bank 
branches, but any modernization process must not be focused on 
making CRA exams easier for banks. Ninety-nine percent of banks 
already receive a passing grade from regulators on their exams. 
Rather, any update to the implementation of the law must be 
focused on ensuring that banks are responsibly meeting the 
credit needs of their communities.
    A recent report by Reveal news found modern day redlining, 
the discriminatory practice where minority communities are 
denied mortgage loans and have less access to credit across 61 
metropolitan areas in our country. That is unacceptable.
    So it is absolutely critical that the CRA, which was 
designed to combat redlining, is not weakened to let banks off 
the hook from their obligations.
    I am also very concerned regarding reports that the OCC has 
found that more banks open accounts without the consent of 
their customers in a review conducted following Wells Fargo's 
egregious fraudulent account scandal. I am looking forward to 
hearing from Comptroller Otting today on the details of the 
OCC's findings on this subject and their plans to prevent such 
practices moving forward.
    I would also like to hear the Comptroller's views on 
fintech and the way their technology is rapidly changing the 
banking landscape, and how the OCC is responding as Americans 
are banking and accessing credit in new ways in this market. It 
is important that we encourage responsible innovation and, 
also, that we ensure that fintech companies are providing 
credit fairly to all communities.
    I yield back the balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, Chair of our Financial Institutions Subcommittee 
for 1-1/2 minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Comptroller Otting, thank you very much for joining us 
today. And I certainly can't tell you how great it is to have 
somebody that actually has banking experience running the OCC. 
Welcome.
    As a former banker and bank examiner, I felt incredible 
frustration over the last 8 years. We experienced failed 
economic policies that led to the slowest recovery in the 
modern era and a regulatory pendulum that swung too far after 
the financial crisis. Our financial system needs stability. It 
needs rigorous supervision, but it also needs certainty. 
Institutions need clear rules of the road.
    Despite a recent financial renaissance and changes at the 
most senior levels of government, I remain concerned that there 
are legacy supervisory issues that need to be addressed. That 
is particularly true when we look at the troubling trend of de-
risking, which is still an issue I hear about on a near weekly 
basis. I urge you to take steps to ensure that the decisions 
you make are clearly communicated to the field, and that OCC 
examiners use their positions to promote safety and soundness 
in our financial system and not to advance any sort of 
political agenda. With your leadership and experience, I am 
confident that we will be witness to a more effective and 
responsible supervisory regime, one that upholds rule of law 
rather than thumbing its nose at it.
    My colleagues and I thank you for being here today and for 
taking on this responsibility. Look forward to your testimony.
    With that, Mr. Chairman, I yield back the balance of my 
time.
    Chairman Hensarling. The gentleman yields back.
    Today we welcome the testimony of the Honorable Joseph M. 
Otting, Comptroller of the Currency. Again, this is the first 
time that Mr. Otting has appeared before this committee as he 
was sworn in, again, as the 31st Comptroller of the Currency on 
November 27 of last year. Mr. Otting holds a bachelor of arts 
in management from the University of Northern Iowa and is a 
graduate from the School of Credit and Financial Management, 
which was held at Dartmouth College in New Hampshire.
    Mr. Otting brings to the job a wealth of banking 
experience. Prior to becoming Comptroller, Mr. Otting was, 
again, a long-time executive in the banking industry. He served 
as president of CIT Bank and copresident of CIT Group from 
August 2015 to December 2015. He also was president, chief 
executive officer, and a member of the board of directors of 
OneWest Bank.
    Without objection, the witness' written statement will be 
made part of the record.
    Mr. Otting, you are now recognized for 5 minutes to give an 
oral presentation of your testimony. And again, welcome to the 
committee.

                   STATEMENT OF JOSEPH OTTING

    Mr. Otting. Thank you very much.
    Good morning, everybody. Chairman Hensarling, Ranking 
Member Waters, and members of the committee, thank you for the 
opportunity to share my priorities as Comptroller of the 
Currency and my views on reducing unnecessarily regulatory 
burden and promoting economic growth.
    The Office of the Comptroller of the Currency's mission is 
to ensure our Federal banking system operates in a safe and 
sound manner, provides fair access, treats their customers 
fairly, and complies with applicable laws and regulations. We 
accomplish that mission and rationalize our regulatory 
framework so that the system creates more jobs and economic 
opportunity.
    My written testimony details the conditions of the Federal 
banking system, risks facing that system, and my priorities. 
These priorities include modernizing the Community Reinvestment 
Act to increase lending, investment, and financial education to 
where it is needed most. And encouraging banks to meet short-
term, small-dollar credit needs to provide consumers with 
additional safe, affordable credit choices.
    My priorities also include enhancing the Bank Secrecy Act, 
and any anti-money laundering compliance so that banks can 
provide a more effective means to support law enforcement and 
comply with statutory and regulatory requirements more 
efficiently. I also support simplifying regulatory capital 
requirements, recalibrating the Volcker Rule, and ensuring that 
agencies operate effectively and officially.
    Today, I also want to discuss the importance and quality of 
the work accomplished at the OCC. Since becoming Comptroller, I 
have been struck by the professionalism and caliber of the 
agency staff. The agency's 4,000 employees serve our Nation by 
performing the important task of supervising more than 1,300 
national banks, Federal savings associations, and Federal 
branches of foreign banks. While the vast majority of 
institutions we oversee are small community banks, the system 
also includes the largest, most globally active banks in our 
country. Successful supervision requires a corps of 
professionals supported by lawyers, economists, information 
technology specialists, policy experts, and many others.
    Few Americans know the OCC, but the majority of them have a 
relationship with at least one of the banks we supervise. It is 
not an overstatement to say our Nation's banking system is the 
most respected in the world due, in large part, to the quality 
of the supervision the OCC provides.
    The OCC is unique among Federal banking regulators. It is 
the sole regulator exclusively dedicated to prudential 
supervision. Undistracted by multiple mandates, we have a laser 
focus on bank safety, soundness, and compliance. The agency 
takes a risk-based approach to supervision, tailoring its 
oversight to the risk and business models of each individual 
bank. At the same time, its broad national perspective provides 
value in identifying the risks and concerns that may face 
similar banks or the broader system. Our risk-based approach 
allows us to adapt the economic opportunity and continue core 
safeguards necessary to protect the safety and soundness of our 
financial system and prevent consumer abuse.
    I am fully committed to implementing the changes in the law 
as quickly as possible. I will work with my fellow regulators 
on a collaborative interagency basis where appropriate. Where 
existing rules may conflict with the Economic Growth Act, where 
the statute provides transition periods or where the law 
requires agency rulemaking for implementation, the OCC plans to 
supervise institutions consistent with the intent of the law, 
including with respect to amendments to these stress testing 
requirements and will not enforce requirements on banks that 
the bill intends to eliminate.
    As a bank executive, I relied heavily on the judgment, 
expertise, and counsel of the OCC examiners. They helped me 
identify issues and address them effectively before the 
concerns turned into serious problems. I felt the OCC examiners 
understood what we as bankers were trying to achieve, and we 
worked to meet the financial needs of our customers. I slept 
better knowing that the OCC supervised my bank, and you can 
sleep better knowing that the men and women of the OCC are on 
the job overseeing the national banking system.
    In closing, I want to congratulate you, Chairman 
Hensarling, on your leadership of this committee. And thank you 
again for allowing me to share my perspective as Comptroller. I 
look forward to answering your questions.
    [The prepared statement of Mr. Otting can be found on page 
54 of the Appendix.]
    Chairman Hensarling. Thank you.
    The Chair now yields himself 5 minutes for questions.
    So, Mr. Otting, we all know, prior to your tenure, Wells 
Fargo ripped off far too many people for far too long a period 
of time. The OCC launched a horizontal review of all retail 
banks' sales practices after the Wells Fargo scandal. And by 
the way, I hope and believe the new Wells Fargo management is 
still in the process of cleaning up prior messes.
    But the question has occurred, what has happened on this 
horizontal review? How extensive was it? There hasn't been a 
public report. Some press reports. So my question is, how 
extensive has the review been? How long did it take? How many 
banks were examined? And what are the takeaways from that? And 
what can be presented to the public? And what is still part of 
a confidential supervisory matter? If you would please comment 
on this.
    Mr. Otting. Thank you very much for the question. In 2016, 
the OCC launched a horizontal review. We concluded that 
examination in the fourth quarter of 2017. More than 40 
national banks were involved in the lookback. We looked at the 
new account opening activities in the following areas: 
Mortgages, auto, credit card, checking, savings, and money 
market.
    This lookback was a 3-year period that included hundreds of 
millions of new accounts each year, which, on a 3-year basis, 
probably was somewhere between 500 and 600 million accounts. We 
concluded that, as I said, in the fourth quarter.
    On June 4, we sent letters to the banks' CEOs wrapping up 
the horizontal review. On June 11, we sent letters to the 
Chairman and Ranking Members of the House and Senate Banking 
Committees to provide you an overview. I am here to report 
today that we did not find pervasive or systemic issues in 
regards to improper account openings. We did find the needs for 
banks to improve their policies, procedures, and controls.
    With this, we issued 252 matters requiring attention 
(MRAs). And 20 percent of those have been closed, with the 
remaining being under supervisory review.
    Through this entire process, we found less than 20,000 
accounts, out of the hundreds and hundreds of activities of 
opening of new accounts, with less than half of that 20,000 
being due to unauthorized account openings.
    So we feel that this report is conclusive. We feel there 
are ways for banks to improve their policies, procedures, and 
controls. But at no point in time did we find pervasive or 
systemic items associated with this review.
    Chairman Hensarling. So, Mr. Otting, how long did the 
review take?
    Mr. Otting. The review took, roughly, 18 months.
    Chairman Hensarling. It took 18 months. And how many 
personnel were involved? How would we look upon--how extensive 
was this review?
    Mr. Otting. I couldn't give you the exact number in the 
agency, but it was the number one issue over the last 18 months 
that we took most of our examination staff to focus on.
    Chairman Hensarling. And did I understand you to say that 
there are roughly 500 to 600 million bank accounts within the 
Federal banking system?
    Mr. Otting. No. Those are the accounts that have been 
opened over the last 3 years.
    Chairman Hensarling. Just opened over the last 3 years?
    Mr. Otting. That is correct.
    Chairman Hensarling. And you--out of that universe, this 
horizontal review found roughly 20,000 questionable?
    Mr. Otting. We found 20,000 accounts that we felt half of 
those were due to unauthorized account openings. The point that 
I would make here is that, as we have gone in, we didn't find 
good, documented policies and procedures associated with the 
account openings. And so the core takeaway from this is that 
banks are working on these issues through the MRAs. And matters 
requiring attention are very consistent in the industry when we 
go in and examine and if they are not up to a certain standard, 
then we will issue an MRA. And the key takeaway here is that we 
are asking banks to improve their policies, procedures, and 
controls around account openings.
    Chairman Hensarling. Thank you, Mr. Comptroller. As you 
well know, on May 24, right before Memorial Day, the President 
signed into law the Economic Growth, Regulatory Relief, and 
Consumer Protection Act, which was a bipartisan bill in both 
the House and the Senate, largely viewed as the most pro-growth 
banking bill in a generation since Gramm-Leach-Bliley. But it 
does direct the OCC and other Federal regulators to change its 
rules undertake rulemakings.
    Can you outline the schedule to implement this law?
    Mr. Otting. Yes. We have quickly assembled resources within 
the OCC, and we are looking at the legislation from three 
particular ways. One is what can we quickly implement. The 
second bucket is what requires a rule for us to write. And the 
third is what will require coordination amongst the Federal 
agencies.
    And so I would tell you that we are actively on it right 
now trying to create critical paths to accomplishment, but it 
is receiving the highest priority in the agency.
    Chairman Hensarling. That is what I like to hear, Mr. 
Comptroller. Otherwise, my time has expired.
    The Chair now recognizes the gentlelady from New York, Mrs. 
Maloney, Ranking Member of our Capital Market Subcommittee for 
5 minutes.
    Mrs. Maloney. Thank you, Mr. Chairman.
    Comptroller Otting, I would like to ask you about the 
horizontal review of banks' sales practices that you conducted 
in the wake of the Wells Fargo fake accounts scandal. You said 
in your letter that you sent on Monday that this review 
included more than 40 banks. And you said that the review 
identified a staggering 250 deficiencies that required the OCC 
to issue matters requiring attention to the banks on review. 
That is an average of over six matters requiring attention per 
bank.
    So my question is, did you find problems at every one of 
the banks included in the review?
    Mr. Otting. Ma'am, what I would say to you is, first of 
all, I don't view it as staggering, using that word.
    Mrs. Maloney. Just answer my question, please. My time is 
very limited.
    Mr. Otting. I know 250 out of 4,000 MRAs that are currently 
active in the industry. When we observed--
    Mrs. Maloney. Did you find something in every single bank?
    Mr. Otting. I don't have the details of that in front of 
me.
    Mrs. Maloney. OK. How many of those 40 banks had problems 
that you identified?
    Mr. Otting. When we issue an MRA, it is an item that we ask 
people to take specific action, and we give that to them in 
writing.
    Mrs. Maloney. OK. So let me follow up on that. If you found 
over 250 problems at just 40 banks in your review, doesn't that 
suggest that you should expand the review to all banks 
supervised by the OCC now that you have identified such 
widespread problems?
    Mr. Otting. You continue to use the word ``problem.'' And I 
would say that we--
    Mrs. Maloney. I would say opening up--I would say opening 
up bank accounts is a problem. I would say that is a big 
problem to consumers.
    Mr. Otting. But you are correlating the MRA with opening 
accounts and I think that is a false way to look at it.
    Mrs. Maloney. Well, your letter indicated that you did in 
fact find individual banks that had opened accounts for 
customers without their consent. That is what Wells Fargo did. 
They opened fake accounts for their customers.
    So let me ask you, have you taken any public enforcement 
actions as a result of your review of sales practices?
    Mr. Otting. We have not taken a public--these are 
confidential supervisory activities that we have in place that 
we will track adherence with the MRA activities.
    Mrs. Maloney. So let me get this straight. Your examiners 
found evidence that there were banks that had opened accounts 
for customers without their consent, and you decided not to 
take any public enforcement actions against them, instead gave 
them a warning. I have to say I find that deeply disturbing, 
especially in light of the Wells Fargo scandal, but let's move 
on.
    You said that your agency's going to make a decision soon 
about whether to allow financial technology firms to obtain a 
special national charter. As you know, the so-called fintech 
charter that your predecessor proposed would have allowed 
fintech companies to operate with a national charter, without 
being subject to the same regulations and supervisory regime 
that banks are subjected to. And this was concerning to many of 
us on this committee. I was also very concerned about 
preempting all the State laws for fintech companies which the 
OCC's proposal would do.
    If your agency moves forward with a fintech charter, will 
fintech companies be subjected to the same supervision and 
regulation of banks?
    Mr. Otting. They would be subject to the same supervision 
of national banks.
    Mrs. Maloney. But not Federal banks. It would be--it would 
have the same supervision.
    Mr. Otting. That is correct.
    Mrs. Maloney. All right. Thank you.
    I yield back.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Luetkemeyer, Chairman of our Financial Institutions 
Subcommittee.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Otting, I read both your testimony and the OCC bulletin 
on short-term, small-dollar installment loans. Quite frankly, I 
am left a little bit puzzled over some of the language you 
used, specifically by your mention of applicability of State 
laws. I read this to infer that the OCC is retreating from 
strong preemption, which would be a major shift in policy.
    Can you please clarify your position and the position of 
your agency?
    Mr. Otting. Yes. We are not retreating from preemption. It 
wasn't intended to confer that we would require national banks 
to adhere to the interest rates of each individual State, but 
the interest rate to which they are headquartered.
    Mr. Luetkemeyer. OK. So you are basically saying that you 
still have preemption, but you're saying that there are, in 
certain instances, State laws that are applicable that would 
still be there?
    Mr. Otting. Well, no, the State laws are applicable to 
interest rates based upon where the banks are headquartered. So 
that is the concept. And if we misinterpreted that in either 
our bulletin or letter, we would happily provide clarification 
to that.
    Mr. Luetkemeyer. OK. I was certainly concerned about the 
way I read that, but I appreciate your clarification.
    OK. With regards to another issue, I sent to you this 
morning a letter that outlined my concerns over guidance being 
treated by examiners as treating binding obligations on 
financial institutions. Essentially, examiners are treating 
guidance as rule without subjecting anything to the process 
outlined in the congressional review process.
    Are you willing to communicate your--to your exam force 
that, in the words of Federal Reserve Chairman J. Powell and 
Vice Chairman Randy Quarles, rules are rules and guidance is 
guidance?
    Mr. Otting. Not only would I be willing to do that, I have 
done that since I have been at the agency. We have issued memos 
within the agency to make sure that all examiners are aware of 
that. And so I am fully supportive. The agency issues Q&A and 
guidance from time to time internally, and our people clearly 
recognize that, as you said, rules are rules and guidance is 
guidance.
    Mr. Luetkemeyer. One of the concerns is, as you well know, 
especially happened at the CPB during Director Cordray's reign, 
that we would have guidance and then enforce that and wound up 
being your rule of law out of that. And so I think it is 
important that if you can do this when you are trying to 
explain the guidance is guidance, also have in there something 
that would really clarify to the banks that this is guidance, 
and if you decide not to adhere to the guidance or to vary from 
that, there will be no punitive action taken, because I think 
that is a real concern of the financial industry from the 
standpoint of how things have been done in the past. So that 
would be a great clarification and an added addition to put 
with your guidance.
    Mr. Otting. Right. We will take that under advisement. I 
know you made that recommendation.
    Mr. Luetkemeyer. Thank you very much.
    Also, Chairman Pearce and I have a piece of legislation 
that is getting ready to--that we have been working on here to 
modernize BSA/AML, and you have outlined in your testimony a 
need for some reforms. Can you elaborate on why you think 
modernization of BSA/AML is necessary?
    Mr. Otting. Yes, I would. First of all, I would say, 
everybody would not want bad money and bad people to take those 
items into the banking system, and so we have designed the 
system today with BSA/AML which is very labor intensive, very 
paper intensive. We produce 10 million pieces of paperwork in 
the national banks today, and I am not sure all that effort is 
really getting to our ability to catch those bad people. And so 
I think that we have made 14 recommendations to FinCEN 
(Financial Crimes Enforcement Network).
    There is an interagency group of people trying to work to 
aleve some of the overregulatory burden on banks. I know you 
have some in your bill that we are supportive of. And we think 
a collective effort can hopefully allow us to move to a spot 
where we can be better at detecting bad activity while 
lessening the burden to financial institutions.
    Mr. Luetkemeyer. Now, as I have talked to a lot of banks 
about this, what their CTRs (currency transaction reports) and 
SARs (suscpicious activity reports), they are literally, 
literally giving millions and millions of documents to FinCEN. 
And it takes thousands, literally thousands of people to 
prepare those documents. And so if you think about it a little 
bit, it is going to take thousands of people to actually look 
at those documents. So it begs the question are they even 
looked at? Are they even reviewed?
    So if they are spending all this money and all this time in 
having all these people do this, there has to be some sort of 
benefit from it, and I really don't see that at this point. So 
this is one of the reasons we are working on this.
    And also, beneficial ownership is a very controversial part 
of this. Can you explain a little bit, if you think that there 
is a--do you have a plan to change the definition or to give 
some sort of delay before implementing--it has been 
implemented.
    Mr. Otting. On beneficial ownership, I think it has its 
merits. I think the issue of having that data readily available 
is very problematic for the banking industry, and I think we 
are going to have to work through those issues.
    Mr. Luetkemeyer. Thank you.
    I see my time is up. I yield back. Thank you, Mr. Chairman.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from New York, Mr. 
Meeks.
    Mr. Meeks. Thank you, Mr. Chairman.
    Mr. Comptroller, I am somewhat favorable of fintechs. I 
think that they could be some good into--availability into 
communities of color, et cetera. And I am glad that the OCC 
recently came out with strong language against abusive 
charters' schemes there. The sole goal is to evade State law. 
And I share your views that bank fintech partnerships--as I 
said, there are benefits, but there still seems to be some 
legal uncertainty on the difference between legitimate 
partnerships and sham relationships.
    So what I want to know is what is your opinion on the 
difference between the two? And will the OCC come out with 
guidance, specific guidance to clearly distinguish between true 
partnerships and rent-a-charter schemes? Because to me, if we 
don't--the bad can hurt the good and the potential that I think 
fintech has. So can you give us an indication of how you see it 
and what the OCC's role will be?
    Mr. Otting. Yes. Congressman Meeks, I appreciate your 
interest in this. I was in your office and we had a chance to 
discuss this. I think this is an important part of the 
evolution of banking in America today.
    I would add a third equation to your point, which is how 
vendors are coming in and helping financial institutions to 
reach more customers. As a general rule, we have looked--when 
you say bad or sham or people ridding the charter, we generally 
looked at financial institutions, where they are actually using 
their underwriting and putting those loans on their books? We 
don't view someone who can channel or referral those 
opportunities to the bank as a sham, but we definitely hold the 
banks responsible as to evaluate those relationships, make sure 
customers are being treated fairly.
    I think where most of the activity in the future will be 
into where they will use those people as vendors, where they 
have a great portal or a great way to reach customers and the 
bank has a desire to achieve those customers, and then we will 
hold those financial institutions to their vendor standards.
    Mr. Meeks. So will you come out with some clear guidance? 
That is what I think it needs. If the OCC would come out with 
some clear guidance that individuals can understand and see, 
and then we would be able to really determine shams from 
nonshams. So do you think you will come out with some actual 
language?
    Mr. Otting. We actually talked about this yesterday at the 
agency, there were 20-some people around the room. And it was 
an area we spent a lot of dialog. We would be happy to involve 
your staff. I think it is something that will be needed. And we 
would be happy to come out with some thoughts on what is a true 
vendor relationship, what is a true relationship. And we would 
welcome you and your staff's input on that.
    Mr. Meeks. I look forward to working with that, because I 
think that is absolutely key and essential. The potential is 
there, but it can easily be destroyed if it goes the wrong way, 
and I think guidance will help that.
    You also talked about and I am interested in CRA and the 
role that fair lending should play in CRA examinations. And as 
you know, and I will try to do this real quickly, there are 
basically like three thoughts. One interpretation is that fair 
lending violations should always impact the CRA rating. Another 
one is that fair lending reviews are sometimes relevant to CRA 
examinations. And the third, of course, is that CRA 
examinations are completely separate and have no difference on 
each other.
    I know where I am. Where are you?
    Mr. Otting. I am probably somewhere in the middle. As you 
know, CRA never included fair lending components. It is the 
bank serving the community--the entire community in which they 
operate, with a general emphasis today on low- to moderate-
income communities. But I don't see how a bank personally who 
is not doing fair lending can't have some impact.
    Mr. Meeks. Because it is important to note that one of the 
founding reasons when CRA was enacted was because of redlining.
    Mr. Otting. Right.
    Mr. Meeks. And they unfair--cutting out districts and, 
therefore, it was not fair lending. So that, to me, should be 
very much a part of one CRA ratings. Because if there is 
discrimination going on, that is a problem. And CRA is supposed 
to be--help to be inclusive therein. Correct?
    Mr. Otting. Right.
    Mr. Meeks. So I would hope that we look at that very, very, 
very closely. Well, I don't think I have time for another 
question because there is somebody over there that is going to 
bang a gavel on me and you won't have time to answer.
    So I yield back.
    Chairman Hensarling. The gentleman yields back his 3 
seconds.
    The Chair now recognizes the gentleman from Michigan, Mr. 
Huizenga, the Chairman of our Capital Market Subcommittee.
    Mr. Huizenga. Thank you.
    Comptroller, we appreciate you being here. I am going to 
move quickly because I have a number of things.
    Just first and foremost, is increasing liquidity in the 
markets important?
    Mr. Otting. Absolutely.
    Mr. Huizenga. And has the Volcker Rule, as it sits today, 
impaired that liquidity, especially in times of stress?
    Mr. Otting. I don't think we have been in a time of stress 
to be able to test that, to be honest with you.
    Mr. Huizenga. But as you look forward to it, this 
concentration, is that a possibility there?
    Mr. Otting. It could have the potential.
    Mr. Huizenga. OK. So to be clear, have important market-
making functions being unacceptably chilling--or chilled by how 
the Volcker Rule has been both drafted and implemented?
    Mr. Otting. I don't believe so.
    Mr. Huizenga. OK. Now, the OCC and other regulators tasked 
with the Volcker Rule implementation have proposed some 
changes, while still implementing section 619 of the Volcker 
Rule. I think you had used the word you support recalibrating 
the Volcker Rule. And I am curious, how do these reforms 
clarify or streamline or encourage more efficiencies in market 
places?
    Mr. Otting. So in our notice of proposed rulemaking, which 
I am sure you have seen, we had taken the under $10 billion and 
fragmented between $1 billion and less and made assumed 
compliance. In $1 to $10 billion, we said if there was $25 
billion or less, and over $10 billion, we would go to 
accounting methodology for that. And what I meant by that is, 
is we can look at the accounting methodology to look at 
individual trades to see if there was proprietary trading, that 
brings great clarity both, I think, to the financial 
institutions and the examiners. Because of where we have been, 
we haven't been able to issue, I think, good examination 
guidelines on how to provide overview to proprietary trading.
    Mr. Huizenga. OK. While we are on that, though, under the 
current regulatory framework, Volcker-affected entities might 
encounter Volcker-related examinations from multiple regulators 
such as yourself who have different legal supervision and 
enforcement regimes and who might not, frankly, traditionally 
regulate them. And this committee has heard instances of 
Volcker-affected entities receiving conflicting guidance from 
multiple regulators on this. And does a regulatory framework 
that results in industry participants not knowing which 
regulators to listen to in order to even comply? You are 
talking about bringing clarity, but we still have this alphabet 
soup of regulators that are out there at times giving 
conflicting direction, correct?
    Mr. Otting. I think that has been the case. And I think it 
was, I would say, a pretty remarkable task in a short period of 
time that we were able to bring the five agencies together and 
agree on a path forward. And I would hope in the future that 
would eliminate the situation that you are describing.
    Mr. Huizenga. Well, I think it has to.
    Mr. Otting. I would agree.
    Mr. Huizenga. Has that been a goal, is to harmonize?
    Mr. Otting. Yes.
    Mr. Huizenga. How have you been doing that?
    Mr. Otting. Well, I think it starts with that we all agree 
now what the rules should look like. And we sent that out for 
comments, if we can implement that with the provisions of the 
Economic Act. I think that will create that harmonization.
    Mr. Huizenga. OK. Would the regulatory framework be simpler 
if the primary regulator for Volcker-affected entities was 
charged with examining the entities' compliance with the 
Volcker Rule?
    Mr. Otting. It would, but I think the problem you have is 
really between the Fed and the OCC. We split evenly those 
activities. So I think if you said--
    Mr. Huizenga. Are you kindly saying it is a bit of a turf 
war?
    Mr. Otting. No, it is not a turf war at all.
    Mr. Huizenga. OK.
    Mr. Otting. It is like where those activities are within 
that financial institution. Some entities do it in the bank, 
some do it in the holding company, and so it is split evenly. 
So if you ask my recommendation, I would suggest that the Fed 
and the OCC, where most of that activity is domiciled, could 
partner to provide the rules or the feedback.
    Mr. Huizenga. So let me pursue this, because this is where 
the rubber hits the road. How are you working with the Fed then 
to do that?
    Mr. Otting. We have an excellent relationship. Randy 
Quarles has been an incredible partner since he has been put in 
that role.
    Mr. Huizenga. And you are meeting regularly?
    Mr. Otting. We meet every week, the FDIC (Federal Deposit 
Insurance Corporation), Randy Quarles, and myself are on a 
conference call, and once a month we meet for lunch. And any 
issues amongst the regulatory agencies are discussed. There is 
an open forum.
    Mr. Huizenga. Well, I want to encourage that. And anything 
that we can do to make sure that that happens. Because, 
frankly, this committee needs to look at what those next steps 
are to make sure that that harmonization is happening. And 
whether it is taken care of in-house with yourselves or whether 
we need to be involved in that, it will happen. So thank you.
    I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the Ranking Member for 5 minutes.
    Ms. Waters. Thank you very much.
    President Trump supported both the Volcker Rule and 
reimposing Glass-Steagall on the campaign trail, but the 
Administration has quickly backed away from those positions and 
is now pursuing Wall Street's agenda to roll back the Volcker 
Rule.
    Do you support the Volcker Rule's prohibition on 
proprietary trading so that banks that benefit from the Federal 
safety net do not gamble with deposits? And additionally, why 
did the OCC join with our regulators to propose a major 
overhaul to basically undermine the Volcker Rule, making life 
easy for very profitable Wall Street banks and opening the door 
to risky trading practices?
    Mr. Otting. I do support the Volcker Rule. I don't think 
our actions open the door to risky trading. I think it brought 
clarity to what was defined in the ability to measure and 
monitor activities within the banks.
    Ms. Waters. When we debated a recent piece of legislation, 
I think there was some talk about the community banks and the 
fact that community banks were being penalized in some way 
because they had to, basically, follow the rules of the bigger 
banks as it relates to Volcker.
    Do you have some discussion on that? Because my 
understanding, of course, is that the community banks were not 
involved in the kind of trading that they would have to be 
concerned about the Volcker Rule.
    Mr. Otting. Yes. So in the notice for proposed rulemaking, 
we put out--before the economic act was approved, we assume 
compliance for all financial institutions $1 billion or below, 
and between $1 billion and $10 billion we excluded those that 
had net earnings on trading of $25 million or below. So it was 
our viewpoint, we agree with you, I am not aware of any small 
community bank that is active in proprietary trading.
    Ms. Waters. In addition to that, I would like to get your 
take on the fintech. I don't know, since I have been gone, 
whether or not some other people have talked about it. We have 
met with some of the leaders in the fintech community trying to 
understand exactly how they see going forward and what they 
understand about the expectations from OCC and Members of 
Congress. Have you been--gotten deeply involved with fintech 
and what your predecessor was attempting to do prior to 
leaving?
    Mr. Otting. I have been directly involved. We publicly said 
that in July we will make a decision about whether we will 
accept applications for fintech.
    But if I could just take 10 seconds of your time, the world 
has changed dramatically over the last 2 years since 
Comptroller Curry went out. Fintechs used to think that they 
wanted to be banks, and now, most are realizing, because of the 
capital liquidity and commitment to the community they have to 
provide, they really don't want to be--most don't want to be 
banks anymore, but they want to be providers of services to 
banks. And so we see more and more coming in and talking to us 
about how they partner with banks to be able to provide portals 
and things where they can reach customers.
    So while some will still want to be banks, more and more 
are moving toward saying, I want to be partner with banks and 
offer our services.
    Ms. Waters. So this participation with banks that you are 
alluding to, how would they see that working?
    Mr. Otting. Well, the fintechs have great portals or ways 
that they can approach certain communities. Generally, credit 
is a big driver of that, that they think they can help banks 
reach into communities, and then they will use that to funnel 
opportunities to the financial institutions. And generally, the 
fintechs didn't have the capital and liquidity to be able to do 
that.
    And so what you are finding is a lot of small banks don't 
have that technology tool. And the analogy I would use, in the 
1960's and 1970's, most banks used to do their own data 
processing and have their own computers, and now, they 
outsource that. And so the interior parts of banks are being 
done by large FIS (financial information servicers) and various 
others--I think you are going to see the next evolution is 
where banks will use various fintechs to help them approach the 
marketplace to get customers.
    Ms. Waters. Thank you very much. And I yield back the 
balance of my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Wisconsin, Mr. 
Duffy, Chairman of our Housing and Insurance Subcommittee.
    Mr. Duffy. Thank you, Mr. Chairman.
    And, Mr. Otting, welcome to the Financial Services 
Committee. I am back here on the back row if you can't find me; 
only one, besides the Chairman, back here on our side.
    I want to talk about small-dollar lending. I think this 
happens all across America, but especially in rural America, 
people come into hard times. And in times of need, if you don't 
have a relative to borrow money from or if they don't have a 
knee-breaking Vinny down the street, they are in tough shape. 
And I know you put out a bulletin encouraging banks to make 
responsible short-term, small-dollar loans that are amortized 
in equal payments. I commend you for that. And I know that you 
recognize this, but 63 percent of Americans don't have enough 
in their savings account to cover a $500 emergency expense. So 
making sure that Americans have access in times of need is 
incredibly important.
    There weren't a lot of specifics, though, on your bulletin. 
Do you anticipate that you are going to provide guidance in 
regard to the bulletin?
    Mr. Otting. We do not plan to issue guidance. It was our 
intention to signal to financial institutions that we are 
supportive of them entering that space. Most of them design 
products, and then we will, through our examination process, 
determine that what they are doing is fair and safe. So we have 
given the latitude of financial institutions to enter that 
space with indications that--
    Mr. Duffy. If it is not fair and safe, then what happens?
    Mr. Otting. Then we would examine that and make a 
determination if consumers are--
    Mr. Duffy. Doesn't it make sense to give them some 
guidance, though? Doesn't it make sense to offer guidance, 
instead of saying, listen, we want you to do it, but if you do 
it wrong, our jaws are going to clamp around you?
    Mr. Otting. Yes, I don't think that would be the case. What 
we want to do is for banks to be creative in that case and to 
look at ways to serve their community. And I am afraid 
personally if we issued some guidance, we may be too 
restrictive.
    Mr. Duffy. OK. Obviously, people are concerned about--we 
are concerned about individuals and families who have low 
credit scores, and when they access these small-dollar loans, 
their rates are high. But isn't there normally a correlation 
between risk and a rate of return?
    Mr. Otting. Yes, sir.
    Mr. Duffy. And are you going to be able to change what is 
happening in the current industry, whether it is current short-
term lenders or the payday lenders, are we going to be able to 
change that if we go through credit unions and banks?
    Mr. Otting. First of all, just clarification, there are two 
product segments in here. There is the up to 45 days and there 
is a 46 days and above. But we were addressing the 46 days and 
above.
    I personally feel that one of the reasons this was a big 
initiative of mine is that we forced banks out of that space in 
2013. And for the life of me, on a supply and demand basis, if 
you take a big segment of supply out, what generally happened 
is that consumers got the wrong end of that deal. And by 
getting banks back in that space, I think they get fair, more 
economically efficient for them pricing on loans and there is 
more supply. But more importantly is the banks have to use that 
as a stairstep if they perform well on those to report to the 
credit agencies that then they can get back into the mainstream 
of banking. And that is another one of my clear goals.
    Mr. Duffy. And I would agree with that goal. I think it is 
important.
    I want to switch gears on you in my 1.5 minutes. I have 
received more questions recently about an idea that would 
transition our post offices into a new banking system. Some 
have complained that rural America doesn't have enough banks or 
credit unions. I share that concern, but the problem is we have 
so many rules and regulations, our small banks and credit 
unions can't survive, so they go out of business or they have 
to consolidate. And so the regulation and laws that have come 
from this town have caused a problem, and so we are now going 
to come up with a new solution which is post offices and 
banking? Good idea or bad idea?
    Mr. Otting. I think it is a creative idea if it increases 
the ability for consumers to have access to financial services. 
I am supportive of most activities that--
    Mr. Duffy. So the government should be involved in lending? 
We say, listen--
    Mr. Otting. No, I am not saying that. I said it is a 
creative idea.
    Mr. Duffy. But we are talking about government lending, Mr. 
Otting, right? We are talking about the Federal Government is 
going to step in and lend through our post offices. You like 
that idea?
    Mr. Otting. Generally not. But my viewpoint is, I think you 
have to increase the supply. If there is--
    Mr. Duffy. Is there not enough supply right now?
    Mr. Otting. There is not enough supply right now.
    Mr. Duffy. And so do you think political lending is a good 
thing?
    Mr. Otting. Do I think what lending is?
    Mr. Duffy. Political lending. That if we make decisions 
based on politics and whether it is in housing or in student 
loans or in just everyday lending, is that a good thing for the 
American economy and the American consumer?
    Mr. Otting. I think my own personal viewpoint is, is if we 
can educate people about financial services and that they can 
go to their phone and they can get a loan, or they can make a 
deposit, or they can open up a checking account, that is a 
better alternative.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Capuano.
    Mr. Capuano. Thank you, Mr. Chairman. And thank you, Mr. 
Otting, for being here.
    Mr. Otting, I don't know you at all. I just want to ask you 
a few questions generally what you believe in.
    Do you believe that homeownership is probably the most firm 
and sound and most used way for relatively poor or moderately 
poor working class people to move into the middle class? Do you 
believe that assessment?
    Mr. Otting. I do, but I wouldn't say all.
    Mr. Capuano. Not all, but it is the best way. You are 
talking to one of them who did that. Every bit of middle class 
ability I have is because I bought a house 30 years ago and 
stayed there.
    At the same time, do you believe that discrimination, 
either--never mind the legal obvious one, but even 
institutional discrimination, do you believe discrimination 
exists in America today?
    Mr. Otting. I have personally never observed it, but many 
of my friends from the inner cities across America will tell me 
that it is evident today.
    Mr. Capuano. Do you believe that it exists?
    Mr. Otting. I believe it--like I said, I have never 
personally observed it. People have told me it exists, and so I 
trust those people when they tell me that.
    Mr. Capuano. So you believe it exists? I understand you 
have never--and you are very lucky to have never experienced 
it.
    Mr. Otting. That is right.
    Mr. Capuano. Do you believe that it exists?
    Mr. Otting. Here is what I would say: I believe the people 
who tell me that it exists.
    Mr. Capuano. So discrimination in America exists today?
    Mr. Otting. Again, I stand by my answer.
    Mr. Capuano. Well, that means you probably don't believe a 
lot of things, because you haven't personally experienced 
nuclear war either. So does nuclear war exist--I am not going 
to get into that. That is a ridiculous answer, but that is OK.
    Do you believe that discrimination exists along racial, 
ethnic, gender, socioeconomic lines?
    Mr. Otting. I, again, have never observed that, but people 
who are close to me have said that they have experienced that.
    Mr. Capuano. You have never experienced it. Have you ever 
read about it?
    Mr. Otting. Yes, I have read about it.
    Mr. Capuano. Do you believe that the writers are stating a 
truth or just using it for political purposes?
    Mr. Otting. My experience with writers is they are right 
half the time.
    Mr. Capuano. So there is no discrimination in America?
    Mr. Otting. No, I am not saying that.
    Mr. Capuano. What are you saying?
    Mr. Otting. I am saying that I have personally never 
observed it.
    Mr. Capuano. Geez, that is--I don't even know how to 
respond to that, if you want the truth. I think you finally got 
me.
    Mr. Otting. That wasn't my intent.
    Mr. Capuano. Well, it was OK. Not too many people can get 
me. I just--certain things stun me.
    Do you believe, in America today, that economic disparity 
exists?
    Mr. Otting. I do believe that.
    Mr. Capuano. Do you believe it is expanding or do you 
believe it is not expanding? The difference between the wealthy 
and the poor.
    Mr. Otting. I believe that it is not expanding now with 
what we are seeing with employment and economic opportunities 
in America.
    Mr. Capuano. You do not believe that the rich are getting 
richer and the poor are getting poorer?
    Mr. Otting. I think what I was saying is I believe that 
people on the lower economics end of the society are seeing 
more economic opportunities with jobs.
    Mr. Capuano. That is not my question. I asked very simply, 
are the wealthy getting wealthier and the poor getting poorer?
    Mr. Otting. I don't have those statistics in front of me, 
so I can't answer that question.
    Mr. Capuano. I really think you need to get out a little 
bit more, Mr. Otting. Again, you can disagree with it. I 
understand there are people that disagree with it. That is why 
I am trying to assess your beliefs. It is awfully hard to ask 
you questions if I don't know what you believe in. I have to go 
right back to what I think--
    Mr. Otting. --to your office and I will come by and we 
can--
    Mr. Capuano. No, that is--you are welcome to come by any 
time but this is a public hearing, and I figured I would ask 
some questions. But I guess I have to just revert to what I 
think of the Trump Administration, then, if you refuse to 
answer my questions about what you believe. Because I do 
believe discrimination exists. I do believe economic disparity 
is growing. I didn't blame you. I didn't blame the Trump 
Administration, but I believe it exists and I do believe it is 
expanding.
    Last year, do you agree or disagree with the Wall Street 
Journal's assessment that the OCC made it harder--this is a 
quote, ``made it harder for banks to be penalized under the 
CRA.''
    Do you agree or disagree with that statement?
    Mr. Otting. I disagree with that statement.
    Mr. Capuano. Great. So The Wall Street Journal, the well-
known, pro-business magazine newspaper of the world is wrong in 
their assessment about business.
    When you were at Hanover, did you ever eat at Lou's?
    Mr. Otting. No, I did not.
    Mr. Capuano. Do you know where Lou's is?
    Mr. Otting. I don't. I ate at the Hanover Inn.
    Mr. Capuano. Well, Lou's is right down the street. It is 
where working class people--and the Hanover Inn is where the 
alumnae, that is where they eat. When you are in school, you 
eat at Lou's because you generally don't have enough money to 
eat at the Hanover Inn, but I am glad you did.
    When you were at the Hanover Inn, did you observe the speed 
limit along South Main Street?
    Mr. Otting. I did not drive.
    Mr. Capuano. It was about 30 miles an hour.
    Do you know that there were some people there--I guess I am 
going to run out of time and I am going to give it up, because 
I have to give you credit, Mr. Otting, you got me. Never having 
seen discrimination, you are a very lucky man.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair recognizes the gentlelady from Missouri, Mrs. 
Wagner, Chair of our Oversight and Investigations Subcommittee.
    Mrs. Wagner. Thank you, Chairman Hensarling.
    Comptroller Otting, I am over here. I know that the OCC is 
working on reevaluating the Community Reinvestment Act as is 
the U.S. Treasury Department, so let me start there. In past 
remarks, you noted, and I quote, ``community groups don't like 
the way CRA is today. The banks don't like the way CRA is 
today, the regulators don't like it.''
    In addition, Treasury Secretary Mnuchin said at a hearing 
just last June, banks--I quote again, ``banks spend billions 
and billions and billions of dollars fulfilling their CRA 
obligations. I want to make sure it is absolutely going to help 
communities and isn't just a check the box to satisfy 
regulators.''
    Comptroller, what is the OCC's overlying diagnosis of the 
problems with the CRA?
    Mr. Otting. I think there are three core problems that we 
would like to solve for. One is we need a more objective way to 
measure a bank's success in CRA. Today, we have a very 
subjective points process. I have been putting forth an ability 
to look at a balance sheet item that deposits total assets or 
tier one capital, add up all the activities that a bank does. 
And an example of that, of $100 million of CRA at a billion 
dollar bank, they would be at 10 percent. We could apply that 
universally across the industry and it would be easy to 
understand a bank's commitment to CRA.
    Second of all, today, we have a very narrow description of 
where people are doing their CRA activities, and it is 
predominantly residential mortgages and multifamily and low- to 
moderate-income areas. I think we need to expand the definition 
of what qualifies. I think we have a cap on $1 million over 
revenue for a small loan. In East Los Angeles, if a company is 
$1.5 million in revenue and creating 30 jobs, then I think that 
should qualify. I also know the difference between State and 
church. But in the Black and Latino communities in America, 
that is where people go for job counseling, that is where they 
go for helping them get ahead. And so the minute a church is 
identified with the CRA thing, it is disqualified. I think that 
part should be--
    Mrs. Wagner. And the third? Because I have other questions.
    Mr. Otting. And the third is we have a process where we do 
examinations every 3 years; it takes us 6 to 24 months to 
complete the exam. If we can fix the first one where we can be 
more economic, we can almost perpetually be able to say a bank 
is in compliance with their CRA activities.
    Mrs. Wagner. Sounds like there are many areas and avenues 
of reform and betterment to actually reach these communities 
that have occurred since the 1970's.
    Mr. Otting. I would agree.
    Mrs. Wagner. In your spring 2018 rulemaking agenda, you 
provided the date of May 2018 as the anticipated date for an 
advance notice of proposed rulemaking, ANPR, for the CRA 
reforms, but we still have not seen anything as of today, 
Comptroller. When do you expect the OCC to finalize its 
recommendations for that ANPR?
    Mr. Otting. I get up every day trying to advance that ANPR.
    Mrs. Wagner. Timeframe?
    Mr. Otting. A lesson learned of coming to Washington, D.C., 
is you put yourself out there a little bit, and I would tell 
you I am hopeful now in the next couple weeks that we can get 
that out.
    Mrs. Wagner. Next couple of weeks. That is great. Well, we 
look forward to it also.
    Mr. Otting. Thank you very--so does everybody else in 
America.
    Mrs. Wagner. Does the OCC have plans to issue in 
conjunction with other agencies? And what has been the OCC's 
involvement with other Federal agencies and financial 
regulators to this point?
    Mr. Otting. It has been an attempt to be a multiagency 
effort. The OCC has been ready since March to issue the ANPR, 
and we are hopeful that we can make this a joint agency action.
    Mrs. Wagner. Do you anticipate any major differences 
between the Treasury report and the OCC's vision for CRA 
reform? And if so, what are they and why?
    Mr. Otting. I do not. I follow the Treasury closely. 
Obviously, Secretary Mnuchin and I teamed up to have a CRA 
plan. We worked within the confines of the CRA, and we are both 
very energetic about creating more opportunities for banks to 
serve low- to moderate-income areas across America.
    Mrs. Wagner. What areas for CRA reform can be accomplished 
primarily through agency rulemaking and guidance, and what 
areas of CRA reform will require congressional legislation, do 
you think?
    Mr. Otting. A hundred percent can be done through the 
agencies.
    Mrs. Wagner. Wow. That is fantastic.
    Well, as Chairman of the Oversight and Investigation 
Committee, I look forward to your report, I look forward to 
reforms that perhaps have been decades and decades overdue and 
bringing this up to date to make sure that we are taking good 
care of our low- and moderate-income communities and giving 
them the chance at the American Dream.
    I thank you for your hard work on this, Comptroller.
    Mr. Chairman, I am about to run out of time, and I yield 
back.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Massachusetts, 
Mr. Lynch.
    Mr. Lynch. Thank you, Mr. Chairman.
    And thank you, Mr. Comptroller, for helping the committee 
with its work.
    I want to go back to the Chairman's earlier question, and 
also Mrs. Maloney's. In response to the Wells Fargo situation, 
where Wells Fargo actually robbed their own customers by 
opening up accounts and charging them fees for which they were 
not authorized to do so, we had this horizontal review that you 
described in your opening remarks, 40 banks. And it is your 
estimate, based on that, that there are about 20,000 
questionable cases.
    I was wondering, of these 40 banks, is it fair to assume 
that some of them had strong new account policies?
    Mr. Otting. I would say yes.
    Mr. Lynch. And some did not, right?
    Mr. Otting. That is correct.
    And it wasn't that we found violations; it was that there 
weren't specific policies that were part of their risk 
management process. So I want to just be clear--
    Mr. Lynch. Yes, I understand what an MRA is, a matter 
requiring attention. I--
    Mr. Otting. Right.
    Mr. Lynch. --understand that. But here is what I am getting 
at: Our goal is to try to hold the bad actors accountable, if 
possible. And so you did this whole study, and then you never 
named anybody, even though you found 20,000--or, 10,000, I 
guess, were without authorization, but 20,000 cases in general.
    How do we hold people accountable when you treat the good 
guys--and you say there are some people that had strong 
policies--the same as the ones that had less so?
    It is just, we are trying to hold people accountable. I 
think doing the investigation and then not holding people 
accountable publicly is creating a moral hazard. We did the 
right thing with respect to Wells Fargo, with the fines and all 
that, and went after them, but I just think, in that industry, 
there is a lot of ``me too''-ism, and you will see activities 
in one bank, if they are successful, will be copied by other 
banks. And I am not seeing an approach from OCC that would 
curtail other banks from following in this type of conduct if 
we are not going to hold them responsible.
    Mr. Otting. I don't think you can say that the institutions 
did not hold the individuals responsible. There were actions 
with certain employees. And I think, does that mean that you 
announce which employees were being--
    Mr. Lynch. I guess what I am saying is hold them publicly 
responsible.
    Mr. Otting. Yes. So I think I mentioned in my comments that 
these were currently under supervisory activities, and we are 
following these MRAs.
    Mr. Lynch. OK.
    Mr. Otting. And so to announce these during that process I 
think would be inappropriate.
    Mr. Lynch. OK. Fair enough. No, that is a good point.
    Let me ask you, there is some talk about amending, 
reforming the Bank Secrecy Act, and there is talk specifically 
about reducing the amount of information. I am talking about 
CTRs, cash transaction reports, and suspicious transaction 
reports that go to FinCEN. What do you think about that?
    Mr. Otting. I think it should be open for review.
    There are nine million CTRs that are produced today from 
the national banks, and the viewpoint, the question--it is 
$10,000. I think we produce a lot of paper, and I am not sure 
it gets to the point where we are catching the right people. 
Often, businesses that have been working with banks for a long 
period of time get caught structuring at that lower dollar 
amount.
    Mr. Lynch. Yes.
    Mr. Otting. And so there is an estimate that 20 to 25 
percent of those are good American citizens with businesses 
trying to move money back into the system illegally and they 
get caught in that current lower level of CTR.
    Mr. Lynch. Yes. Well, I trust you are talking with FinCEN?
    Mr. Otting. We are. We have a joint--
    Mr. Lynch. We talk to--just so you know, we on the 
committee, we have sat with the Financial Crimes Network, and 
they expressed a need for the data. It gives them a--if you are 
looking for a needle in a haystack, you need the haystack, in 
terms of what they look for.
    So I am just cautious about doing that. We have a lot of 
bipartisan interest in protecting our banks and making sure 
that people of nefarious intent do not abuse that for terrorist 
purposes or money laundering. And I would just advise you or 
caution you to share that caution with us in terms of making it 
easier for someone, perhaps, to use the legitimate banking 
system for terrorism or money laundering purposes.
    Mr. Otting. Yes, Congressman Lynch, I agree with you. I 
think there are some things around the edge that we can 
improve. But the long term, I think, is how we take a database 
of all the transactions and make that available to law 
enforcement. And what we are finding when there are some pilots 
doing that, the hit rates are much higher and there is less of 
that other activity. You may be familiar with some of those.
    Mr. Lynch. I am.
    Thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Kentucky, Mr. 
Barr, Chairman of our Monetary Policy and Trade Subcommittee.
    Mr. Barr. Thank you, Mr. Chairman.
    And, Mr. Otting, welcome to the committee. Good to see you 
this morning.
    Your predecessor began an effort to provide special-purpose 
charters to fintech companies, as you know, and my 
understanding is that a number of critical policy questions 
remain unanswered.
    Will you commit to ensure that the public, including 
Congress, has an opportunity to weigh in on these critical 
questions?
    Mr. Otting. We have been on a process to review whether we 
would issue a special-purpose charter in July, and that is the 
track that we are on at this point in time. I would be happy to 
work with your staff or any other Members of Congress that 
would like me to come by and have some dialog on that topic.
    Mr. Barr. That would be great. I appreciate that. We would 
like to know what the OCC is thinking on this topic and what 
types of fintech companies might be eligible for such a 
charter.
    Obviously, there has been much debate and discussion 
concerning fintech lenders and the challenges of serving a 
national marketplace with a 50-State patchwork of confusing and 
conflicting State regulations, and this includes the topic of 
the OCC fintech charter. Yet multi-State-focused brick-and-
mortar-based lending offices, which also use financial 
technology, seem to have been left out when discussing 
solutions and the need to modernize regulations.
    These so-called click-to-brick lenders cover a market 
segment that online lenders cannot fully serve, especially for 
those consumers who have the greatest need for more hands-on 
underwriting and servicing. And these consumers include many 
hardworking families as well as entrepreneurs and small-
business startups.
    So it seems to me that, to the extent that the OCC does 
move forward on a national charter, that we would need a 
comprehensive approach so that we don't leave out important 
market segments that continue to struggle with an antiquated 
regulatory model.
    How can the OCC or any Federal regulator, for that matter, 
address the need for modernization of the nonbank lending 
regulatory environment, especially for those delivering their 
services across multiple State lines and having to contend with 
this patchwork of conflicting and sometimes contradictory 
regulations?
    Mr. Otting. So, Congressman Barr, regarding nonbank, that 
is generally not an area that the OCC is involved in. The 
Bureau is involved in that. Those that would want to become a 
bank through any kind of charter application would have to go 
through capital liquidity and serving their community. So I 
think to answer your question, I am not sure I am in a position 
to do that.
    Mr. Barr. So is it your position that the OCC is not the 
appropriate regulator for nondepository institutions? If 
Congress, for example, were to offer that opportunity for you 
to expand your regulatory jurisdiction, would that be something 
that you would say would be outside of the expertise or 
capabilities of your agency?
    Mr. Otting. I wouldn't say it is outside the expertise. And 
I do think, Congressman Barr, that some fintechs will elect not 
to have deposit-taking capabilities; they will fund through 
another source. And we do think that some of those institutions 
have sufficient liquidity and capital to do that.
    Mr. Barr. Well, to the extent that there would be a 
national charter, whether it would be OCC or the Bureau or 
another regulator--
    Mr. Otting. Well, the Bureau would not have the authority 
to issue a charter.
    Mr. Barr. Under current law, correct. Right.
    Would it be important in terms of leveling the playing 
field with an optional national charter to include not just the 
click-to-click but also the so-called click-to-brick? Would 
that, in your mind, be an appropriate response to addressing 
the national charter concept?
    Mr. Otting. That they could apply for a national banking 
charter? Yes.
    Mr. Barr. And, obviously, the special-purpose fintech 
charter has received lukewarm interest because of a number of 
factors, including the threat of litigation from States and the 
fact that a charter won't offer the ability to raise cost-
effective funding through deposits. But, at the same time, the 
special-purpose charter would offer substantial benefits in 
preempting these conflicting State laws.
    If the OCC does not move forward with a charter, what can 
it do to support innovators that make loans over the internet 
and either have an interest in becoming a bank or partnering 
with a bank?
    Mr. Otting. So a number of the State banking agencies have 
been in to talk to us, and a lot of them are trying to create 
coalitions where they can standardize the State banking laws.
    We see that with the MSBs, with a number of States coming 
together and standardizing their MSB laws. So if somebody wants 
to operate in multiple States, they don't just have one choice, 
which is a national banking charter, but they can actually 
operate within those States with common laws.
    Mr. Barr. Thank you. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from California, Mr. 
Sherman.
    Mr. Sherman. Mr. Chairman, I would like to respond just a 
little bit to the economic picture you painted in your opening 
statement. And I focus on annual statistics. Monthly statistics 
just jump up and down.
    In terms of jobs, since Dodd-Frank became effective or was 
enacted, the first full year was 2011, we have had 7 years of 
strong economic growth, and we have created in that 7 years 17 
million new jobs, 2 million of them created while Mr. Trump was 
in the White House. That is 2 out of 17.
    Economic growth last year was 2.3 percent. That is somewhat 
lower than the average of the prior 3 years. It is still good 
to have some economic growth. We look forward to higher levels 
of economic growth.
    And, of course, our trade deficit with China last year was 
at an all-time high of $375 billion.
    We all hope that America is successful, but, in evaluating 
a Presidency, a President like President Obama, who inherited a 
plane that was careening toward the ground and turned it around 
so it is headed up, deserves substantial credit. A President 
who inherits a national economy that is on its way up and is 
able to continue that increase at perhaps a slightly lower rate 
than he inherited does not, thereby, win a Nobel Prize.
    I will ask Comptroller Otting: Back when I was young, banks 
didn't always just lend to triple-A-rated giant institutions, 
they took some risks. They didn't take risks on subprime, 
financially engineered, super-default-swaparoo things; they 
lent to the small businesses in our community. And they didn't 
even get a government guarantee to do it.
    And in order to take those risks, they charged prime-plus-
2, prime-plus-3, prime-plus-4 on loans to smaller businesses 
because there is always a 1- or 2-percent chance that such a 
business goes under.
    In more recent times, banks have been able to take enormous 
and catastrophic risks on the giant, financially engineered 
products, but they tell me that they are constrained in taking 
the moderate risk associated with a loan to a local pizzeria 
unless they can get it SBA-approved.
    How will your auditors react if they see that a bank has 5 
or 10 percent of its portfolio lent to small businesses in its 
community at rates of prime-plus-3 or prime-plus-4 precisely 
because those very businesses have a credit risk that justifies 
a prime-plus-4 loan? Can they devote a chunk of their portfolio 
to that kind of loan, or is it basically a world in which they 
can't take those kinds of risks?
    Mr. Otting. As long as it is within their risk tolerance 
and their risk statement, then the examiners would not offer 
any issues associated with that portfolio.
    Mr. Sherman. Within their risk--I have been told by every 
small-bank officer that I have talked to that if they had 
prime-plus-4 loans your folks would come down on them very, 
very hard.
    Do you find that banks are able to make non-government-
guaranteed loans, without demanding the owner pledge his or her 
house, to small businesses?
    Mr. Otting. Well loans are made based upon a primary and 
secondary source of repayment, and that is the way the risk 
rating is determined. So if a small business has cash-flow that 
can cover their obligations plus--
    Mr. Sherman. What if the business' economic position was 
such that it would be fair to charge them prime-plus-4, even 
prime-plus-5? Does that disqualify--that means that there is 
some risk with the loan.
    Mr. Otting. Pricing is not the factor when we are looking 
at the safety and soundness of the loan. It is--
    Mr. Sherman. So, basically, you are saying that the loan 
has to--
    Mr. Otting. There has to be a primary and secondary source 
of repayment on the loan.
    Mr. Sherman. And if there is a 5-percent risk or a 2-
percent risk that it will not be repaid according to its terms, 
what do your people do?
    Mr. Otting. You are saying the loss given defaults and the 
losses associated with that loan? Is that what you are saying?
    Mr. Sherman. I am saying that there is a significant risk 
that the loan will not be repaid according to its terms, the 2- 
to 5-percent risk that is--
    Mr. Otting. Well, I think it would be the level of reserves 
that someone has against that particular loan based upon the 
expected default and loss factor.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Florida, Mr. 
Ross.
    Mr. Ross. I thank the Chairman.
    When it comes to CRAs--I was just reviewing your testimony 
again--you note in your testimony the stakeholders involved are 
extremely dissatisfied with both process and results.
    What is the underlying problem with CRAs?
    I also note that you mention in there about incentivizing 
banks to take more interest in their neighborhoods. And as we 
move to more and more online banking and less and less branch 
banking, my concern is that there are neighborhoods, 
communities under the CRA that are going to be overlooked. And 
I know you have addressed this.
    And so my first question is: What is the problem with the 
CRA as we know it today with allowing for this incentive for 
banks?
    Mr. Otting. Yes. I am not sure I said incentives for 
banks--
    Mr. Ross. Encourage banks. You used the word ``encourage.'' 
I am sorry.
    Mr. Otting. Yes. So I think today we have a subjective way 
that we measure banks' success under CRA. Second of all, we 
have a very narrow product that is being deployed to achieve 
CRA results. And the third issue is that we have a very complex 
examination process every 3 years that is difficult to turn 
that around.
    Mr. Ross. When do you think the OCC will begin its formal 
process for revising the CRA on behalf of national--
    Mr. Otting. I arrived on November 27, and on November 28 I 
began the process.
    Mr. Ross. Thank you. Thank you.
    One of the things I also noticed was, you are going through 
a rulemaking process that would allow banks to provide short-
term, small-dollar loans, I guess payday loans. Is that what we 
are talking about?
    Mr. Otting. No, we are not going through a rulemaking. We 
issued a bulletin. There are two segments. There is the 0 to 45 
days, which is normally defined as a payday loan, where there 
is one source of repayment. We issued a bulletin to encourage 
banks to get into the market that is 46 days or longer--
    Mr. Ross. OK. I appreciate that clarification.
    Mr. Otting. Yes, which generally is paid from multiple 
paychecks over a period of time. And banks had exited that 
business in 2013, and we have encouraged them to go back into 
that space.
    Mr. Ross. Would that also include overdraft lending?
    Mr. Otting. It would not.
    Mr. Ross. OK.
    With regard to the Bank Secrecy Act and anti-money-
laundering legislation, one of the ways in which you have 
phrased the current BSA/AML examination is a ``gotcha'' system, 
in which an institution's compliance regime can be deemed 
deficient based on a single or isolated incident.
    What steps is the OCC going to take to ensure that the BSA 
compliance is geared primarily toward deterring illicit 
activities and not just assessing fines?
    Mr. Otting. Well, first of all, I don't know if you were 
here when I made the comment--
    Mr. Ross. I was not.
    Mr. Otting. --that the OCC led an interagency effort, which 
included the Fed and the FDIC. Our staffs and the principals 
that got together, and we came up with 14 items that we thought 
could improve the current system that banks are using. We 
submitted that to FinCEN at the beginning of May.
    Last Friday, they came back to us with some edits. We plan 
to use that as our control document and create a group of 
people that will work on BSA and similar matters. There are 
some things that we can do, some things we will need--
    Mr. Ross. It is more proactive?
    Mr. Otting. That is right. Right.
    And I would say our viewpoint is we have a very cumbersome, 
paper-oriented process, producing lots of documents that I am 
not sure gets to the core of stopping people from using our 
banking system inappropriately.
    Mr. Ross. Under the current BSA framework, do you believe 
that financial institutions are required to collect information 
on their customers that are of no use to law enforcement?
    Mr. Otting. They are required to comply with the currency 
transaction reports. And when they identify suspicious 
activity, they are required to complete SARs.
    Mr. Ross. Right. But, otherwise, collection of information 
other than for that purpose would be inappropriate under the 
Bank Secrecy Act.
    Mr. Otting. You would have to give me a specific example, 
but, yes, as a general rule, I would agree with you.
    Mr. Ross. OK.
    Is the OCC currently working to improve the type and amount 
of information required to be collected and how that 
information is communicated to law enforcement or regulators?
    Mr. Otting. I think through the initiative with the BSA, I 
think we can get there.
    One of the key things, I think, is an important element of 
stopping bad people is that we make that information available. 
I think it is really critically important for us to be able to 
have dialog with what is important to law enforcement to be 
able to stop an illegal activity.
    Mr. Ross. And what protects the privacy of the customer.
    Mr. Otting. That is correct.
    Mr. Ross. Thank you.
    That is all I have. I yield back the balance.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott.
    Mr. Scott. Thank you, Mr. Chairman.
    Mr. Otting, let's go back. I want to talk to you about the 
possibility, first, of the fintech special order. Are you going 
to offer it, or are you not?
    Mr. Otting. We have not concluded a decision at this point.
    Mr. Scott. You are aware that, when your predecessor 
offered that, that the Conference of State Banking Supervisors 
filed suit against you, against the OCC. What is the 
disposition of that?
    Mr. Otting. My disposition is that the National Banking Act 
gives us the authority to issue that charter.
    Mr. Scott. So, legally, where is that suit? Has it been 
dismissed?
    Mr. Otting. No. The judges in those cases found that there 
was not cause at this particular point in time on those 
lawsuits because we had not actually entertained any 
applications.
    Mr. Scott. Well, for the very nature of that suit, and when 
you look at it from the standpoint of the fintechs themselves, 
unless we can find a way to satisfy some of the concerns that 
the State banking regulators--who certainly have first call on 
this. Because these fintechs don't call just one State home; 
they operate across the Nation in 50 States. So there is a role 
for the State banking supervisors. If that is not resolved, 
then we are putting the fintech companies in a very untenable 
position.
    Now, that is one point. The other point is that--you came 
by my office, and thank you for that. We had a wonderful visit. 
And at that office, I shared with you legislation that my staff 
is working on, in conjunction with both the Democratic staff on 
this committee and the Republican staff, to come up with a 
bipartisan piece of legislation that clearly needs to be put 
forward first.
    These fintechs are faced with a plethora of regulators. You 
have yourself, and you have this problem with the State 
supervisors. You also have the FDIC. Some fintechs may even go 
for that charter for industrial loan companies. And if they do 
that, they fall under a very serious benefit of being able to 
compete in a way that puts the smaller banks at a disadvantage 
because they won't have to jump through the same hoops to get 
that Federal Reserve insurance for their deposits. You have 
that. And then you have the CFPB with project catalysts, and 
they have offered only one letter of action--of no action over 
all their period. And then you have LabCFTC.
    My whole point is that it is my hope that you have had a 
chance to--as we said, you were going to chat with my staff and 
get the idea of the legislation that we are proposing. It is so 
important that, as we move to find out how we are going to 
regulate this burgeoning industry, that we don't move so 
haphazardly that we suffocate the innovation of this industry.
    And so did you get a chance to contact my staff and get a 
look at it?
    Mr. Otting. Yes. Our Office of Innovation staff met with 
your staff as a follow up to that meeting.
    Mr. Scott. So they have that. So what do you think?
    And just as a prelude, the legislation would require 
something first before we really get in this, which--we know 
all these different agencies are biting at the bit to regulate 
this industry. So our legislation will be to set up and require 
that these regulatory agencies harmonize and coordinate, make 
that a requirement going forward. Because you got so many 
wanting to get into them. If not, we are going to be very 
destructive to this burgeoning industry.
    And I asked you, I said, I hope that you will be with us on 
this. So you agree with us, right, for the record, that that is 
what we want to do?
    Mr. Otting. I don't disagree with you, but it really 
depends upon where the fintech decides they want to be 
domiciled, in what regulatory agency. If they are going to 
operate in a particular State, then most will choose to be 
regulated by that State banking group or a multi-State--
    Mr. Scott. And that is why another part of the bill will be 
to get the fintechs a point of entry.
    So I am just saying we have to look at it from the 
standpoint of how do we effectively regulate this new, 
burgeoning industry.
    Chairman Hensarling. The time of the gentleman has expired.
    Mr. Otting. I would be happy to come by and have further 
dialog with you.
    Mr. Scott. All right. Thank you.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Illinois, Mr. 
Hultgren.
    Mr. Hultgren. Thank you, Chairman.
    Thank you, Comptroller Otting. Appreciate you being here.
    Mr. Otting. Thank you.
    Mr. Hultgren. As you noted in your written testimony, S. 
2155 includes a provision requiring the Federal banking 
regulators to permit for a short-form call report every other 
quarter for institutions with less than $5 billion in assets. 
Obviously, Congress would not have called for this change if we 
were satisfied with the relief from the call report being 
considered via the EGRPRA process.
    I sponsored the stand-alone bill in the House with Terri 
Sewell and also Andy Barr. So I am very interested in your 
plans on implementation of this legislation. What is a 
reasonable timeline for banking regulators to propose and 
finalize regulations? And I wondered if you have thought at all 
about what a short-form call report might include.
    Mr. Otting. First of all, earlier in my comments, I said we 
have organized a group of people within the agency, a task 
force, to focus on the entire bill. We have narrowed things 
into what can we do short-term very quick, what are medium-term 
that we have to write a rule, and then what will require 
interagency.
    This is an area that we think we can implement very 
quickly--
    Mr. Hultgren. Great.
    Mr. Otting. --and I can tell you that we have all of our 
resources moving fast on this particular issue. I can't give 
you an exact timeline, but I would be happy to follow up as we 
get further along the path.
    Mr. Hultgren. Thanks. That would be great.
    I also would ask or would recommend you and those who are 
specifically tasked with that to take a closer look at what the 
Independent Community Bankers of America has proposed as a 
reasonable short-form call report. This includes ``Schedule 
RI--Income Statement,'' ``Schedule RI-A--Changes in Equity 
Capital,'' and ``Schedule RC--Balance Sheet.''
    If I can move a little bit, I wanted to ask briefly and see 
if I could ask you to discuss with you the treatment of 
centrally clear options as it relates to our risk- and 
leverage-based capital rules.
    The Treasury Department's October 2017 report on capital 
markets notes, and I quote, ``The CEM may be responsible for a 
corresponding reduction in banks' ability and willingness to 
facilitate access for their market-maker clients, who are the 
primary liquidity providers in these markets,'' end quote.
    I understand this concern was realized by some market 
makers during some of the volatility incurred by the markets 
earlier this year. I have talked with dozens of market 
participants and many of my friends on the other side of the 
aisle, and there seems to be strong agreement that our capital 
rules should be tweaked in order to improve liquidly in listed 
options markets. Our challenge has been getting the undivided 
attention of the banking regulators to address this.
    I wondered, would you commit to work with your colleagues 
at the Fed and FDIC to address this issue?
    Mr. Otting. Yes, I would.
    Mr. Hultgren. Great. Thank you.
    I also want to thank you for your work to reconsider 
aspects of section 619 of the Dodd-Frank Act, the so-called 
Volcker Rule. One specific topic I would like to raise with you 
is the Volcker Rule's detrimental impact to venture capital 
funds and the startup companies that they support.
    Before the Volcker Rule, banks provided 7 percent of 
dollars invested in venture capital funds and were a reliable 
source of funding for smaller venture capital funds, as they 
are not as attractive to larger, institutional investors.
    I wonder, do you believe that venture capital funds should 
fall within the definition of private equity funds, first? And 
has the OCC studied how a change to the covered-funds 
prohibition that exempts venture capital would permit for more 
investment in startup companies and overall economic growth?
    Mr. Otting. I do believe it does fall under the current 
definition. I personally have sat on two boards of financial 
institutions that did those type of equity investments. I did 
view it as a legitimate, stable source of proceeds to funds 
that invested in small companies across America. And we did put 
out in a notice of proposed rulemaking at least for people to 
comment on the definition.
    Mr. Hultgren. Great. Yes, I would agree that this really is 
the backbone, and we want to continue to encourage small 
companies to grow but also to go public. It is something that 
we talk about all the time here, of really the harm that is 
done to mom-and-pop investors by not having more of these 
smaller companies grow to become public and choose to become 
public.
    Also, I am sure as you are probably aware, this change that 
I have talked about is recommended by the Treasury Department's 
October 2017 report on capital markets.
    And, again, thank you. I would just continue to ask that 
you and your colleagues at the other financial regulators 
prioritize this when considering changes to the Volcker Rule.
    Last question, in the last few seconds: The OCC has begun 
consideration of a special-purpose charter for fintech 
companies. This was a priority of Comptroller Curry. However, 
this process seems to have stalled over the last year.
    Where is the OCC on the process? And how do you envision a 
fintech charter working? Do you believe your views differ from 
Comptroller Curry on this?
    Mr. Otting. Once I arrived on November 27, I have spent a 
significant amount of time internally with a number of the 
agencies' people. We have done a lot of work.
    We have publicly said that in July we will make a decision 
whether we will formally allow applications to come in for a 
fintech charter, which we call a special-purpose charter. It is 
our expectation that that will require capital liquidity and 
serving the community like any bank across America.
    Mr. Hultgren. Thanks again. Appreciate your time.
    My time has expired. I yield back.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Missouri, Mr. 
Cleaver, Ranking Member on the Housing and Insurance 
Subcommittee.
    Mr. Cleaver. Thank you, Mr. Chairman.
    Comptroller Otting, here in Congress, we can choose, pretty 
much, what we are going to be, and I have chosen to be 
respectful. I have to say your earlier response to Mr. Capuano 
was stupefying, even jaw-dropping, as it relates to 
discrimination.
    If you believe polling data, the Washington Post-Harvard 
study shows, first of all, that the level of racial animus is 
at the highest level today that it has been since 1997.
    And it is a little disconcerting to me, because the United 
States has never eliminated any of its problems by denying that 
it existed. You did not deny that it existed; you said you just 
had never seen it.
    I was wondering if you were aware of what happened recently 
in Charlottesville.
    Mr. Otting. I only observed that from what I was able to 
see in the news.
    Mr. Cleaver. So you wouldn't be in a position to know 
whether or not there were people who were wrong or right, or 
the supremacist who spoke, who acted. Based on what you saw on 
TV, I guess, and read, you don't attribute one side as having 
way more than discriminatory feelings. What did you witness?
    Mr. Otting. To be honest with you, I don't watch TV. If it 
is not on ESPN or CNBC--I am not a TV watcher. I saw what was 
across the headlines, but I didn't spend specific time to study 
or analyze what took place.
    Mr. Cleaver. So you didn't read any of the articles in the 
newspaper?
    Mr. Otting. I don't read a newspaper.
    Mr. Cleaver. This is very difficult for me. One of 
questions the I wanted to ask was about the charter and whether 
or not you believed that there needed to be something in the 
charter about minority inclusion. But there would be no reason 
for minority inclusion if there is no exclusion. So I am 
assuming that that is not going to be anything you would 
address, since you are not aware that it even exists on the 
planet.
    Mr. Otting. Well, no. I would say I am a big believer in 
minority inclusion. I think my track record through my banking 
industry--there are many people who would say that Joseph 
Otting spent more time in the inner cities of America than most 
banking executives across the world.
    Mr. Cleaver. Yes, well, that is--yes.
    Mr. Otting. But on a particular example like you are 
describing, I don't have a personal opinion on that.
    Mr. Cleaver. And you don't have a personal opinion on 
whether there has been any discrimination in banking?
    Mr. Otting. Again, I have not personally observed that.
    Mr. Cleaver. Mr. Chairman, I yield back. I can't go any 
further.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from California, Mr. 
Royce, Chairman of the Foreign Affairs Committee.
    Mr. Royce. Thank you, Mr. Chairman.
    On May 23, you issued a bulletin encouraging banks to make 
responsible short-term installment loans. Are you tracking 
whether banks have reentered the market since the bulletin came 
out?
    Mr. Otting. Congressman Royce, we communicated with banks 
shortly after my arrival that this was one of my priorities.
    Most banks had shelved any products that they had after 
2013. I have personally met with all of the large-bank CEOs and 
asked them to take a look at being involved in this. And I 
think it will take a period of time.
    Most of the regional banks, I think, are reacting quicker, 
because they had products that they thought they could bring to 
market. It will take a longer period of time for banks to work 
through their products and then go through their risk process 
before they offer those products into the market.
    Mr. Royce. Maybe we could look at what metrics there are to 
date in a week or 2, and you could get back to me with some 
more specifics on that.
    Mr. Otting. Yes. I would be happy to. I think it is going 
to take a period of time to--
    Mr. Royce. Yes, I understand your argument there. I see 
your point.
    One area where there has been some confusion based on the 
recent bulletin are bank-fintech partnerships, such as 
marketplace lending programs. Some have construed a provision 
clearly targeted--it looks to me like it is targeted to rent-a-
bank schemes. But they view that as undermining bona fide 
partnerships between banks and fintech lenders.
    And some have wondered about a clarification on this--I 
think there was some in the press--that this is not the 
intention of the small-dollar guidance, but I was hoping we 
could hear you out today on the OCC's views on these 
arrangements.
    Mr. Otting. We are supportive of these arrangements with 
fintechs, where they are bringing technology to financial 
institutions that can do outreach to communities, customers, 
prospects. And so we are supportive of that.
    We would expect them to go through their normal vendor 
management programs to assess the risk associated with those 
entities, but we are supportive.
    Mr. Royce. OK. OK.
    When looking at reform of the Community Reinvestment Act, 
you said that you are a big believer that we should stretch it 
to more small business, more community development.
    The local bankers who I met with last week in southern 
California are frustrated that more small-business lending is 
not included. The classification of some loans doesn't get a 
complete picture of the impact banks are having in their 
communities, including, of course, in job creation.
    So could small-business loans with a community-development 
purpose be classified as a community-development loan? Would 
that be an option, where you have that or as a loan under the 
general test?
    Or maybe, going to some of the remarks you made this 
morning, when you talked about we need to develop a metrics-
driven approach to evaluating performance, would adding these 
in a way into the standard metrics that you are trying to 
develop, would that be a way for the small banks and others to 
meet that test?
    Mr. Otting. Congressman Royce, I think the measurement 
element is different than the qualification element.
    Mr. Royce. OK.
    Mr. Otting. And it is my belief we should broaden the 
category that includes--
    Mr. Royce. Broaden the category.
    Mr. Otting. Right.
    Mr. Royce. All right. And I will yield back then. I 
appreciate--
    Mr. Otting. You are welcome.
    Mr. Royce. --that information.
    Chairman Hensarling. The gentleman yields back.
    The Chair now recognizes the gentleman from North Carolina, 
Mr. Pittenger.
    Mr. Pittenger. Thank you, Mr. Chairman.
    And thank you, Mr. Otting, for being with us today and for 
your testimony and expert witness.
    I would like to ask you, what could be done today by 
regulators to encourage banks to offer short-term credit to our 
constituents?
    Mr. Otting. I am sorry, I missed your--
    Mr. Pittenger. What could be done by the regulators to help 
encourage banks to offer more short-term credit to our 
constituents?
    Mr. Otting. I think the guidance that we have been 
discussing goes a long way in doing that. I think the next big 
chunk of that is to look at the 45-day-and-under that is 
currently controlled by the rule that is going to go into place 
in the BCFP. And we would like to work toward--can we come up 
with a solution in that space that would allow banks to get 
back in there and do that in a fair and, I think, economic way 
for consumers.
    Mr. Pittenger. Could you speak, in addition, some more to 
what could be done to help increase greater transparency and 
investments in our communities that need it the most?
    Mr. Otting. You are talking about low- to moderate-income 
communities?
    Mr. Pittenger. Yes.
    Mr. Otting. What could be done more?
    Mr. Pittenger. In terms of just increasing transparency in 
this, the investments in these communities.
    Mr. Otting. Well, two things that I think are important is 
to identify more categories that can qualify by broadening the 
products that would receive credit under CRA. And, as I said 
earlier, I think there are parts of church activities that 
should qualify for CRA. I think in a lot of communities, people 
go to their church to get financial counseling.
    Mr. Pittenger. I agree.
    Mr. Otting. I think, also, our assessment areas, the way 
that they are often defined restrict a bank to a particular 
area. And I have seen examples where on one side of the street 
it qualifies as CRA and the next side of the street it doesn't 
qualify for a bank. So I think taking a hard look at how we 
narrowly define the assessment areas would broaden banks' 
perspective of where they can do their investment and lending 
activities.
    Mr. Pittenger. I appreciate your clarification on that.
    In your testimony, you said, quote, ``Bank regulators, law 
enforcement, national security personnel, and bankers must 
continually adapt to increasingly sophisticating criminals and 
other illicit actors who take advantage of the Nation's banks 
and financial system,'' end of quote.
    If developments and advancements are critical to success, 
then why has the current BSA regime failed to undergo any 
significant changes since the 1970's?
    Mr. Otting. Why has it not?
    Mr. Pittenger. Yes, sir.
    Mr. Otting. I think it has. We have added to the process. 
And I think, with current technologies today, there are ways 
that we can take databases and scan those databases and use 
artificial intelligence to be able to go through them that are 
better than individuals looking at a currency transaction 
report and then filling out a SARs.
    If you think about it, if you have one bank in a vertical 
and you are providing that SARs, but that bad person goes bank 
to bank to bank, we don't tie that all together. And I think 
with technology we can start to tie that together and it is not 
a paper flow.
    Mr. Pittenger. In terms of compliance cost and related 
privacy issues that are of concern to many, would you think 
that the system would be better served if the government 
provided access to those accounts, that data that they are most 
concerned about, to banks, financial institutions, in lieu of 
the tremendous amount of SAR reporting that is required?
    Mr. Otting. It is probably halfway--that would be, I think, 
a valuable thing, if we knew what entities or individuals that 
are under the microscope that we could help.
    But I do think that then you get into some issues along the 
lines of--there has been some legislation proposed that hold 
the bank harmless in the event that they continue those 
relationships with those accounts that they are not unduly 
criticized--
    Mr. Pittenger. Sure. They need a safe harbor.
    Mr. Otting. Yes, as long as they are holding those accounts 
open for the benefit of law enforcement.
    Mr. Pittenger. Yes, sir.
    It seems to me that the process would be better served if 
the banks were responding to the concerns of law enforcement, 
rather than just providing innumerable numbers, millions, to 
the effect of SARs reports. And for responding, instead, to 
what they are looking for, we would have, it seems to me, a 
much better grasp of the privacy and security and civil liberty 
concerns by the public.
    Do you have a comment on that?
    Mr. Otting. Well, today, we produce all this information. 
As I said earlier, there are about 10 million documents--9 
million CTRs, a million SARs--that are produced. Generally, 
when there is a hit by law enforcement, they do go seek that 
additional information out from the banks today. So banks 
generally are contacted when there is some event associated 
with an individual.
    But I think to your point is 97 or 98 percent of the 
information that we produce, very rarely do the banks hear back 
from law enforcement on the data that they are providing.
    Mr. Pittenger. Thank you. My time has expired.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Velazquez.
    Ms. Velazquez. Thank you, Mr. Chairman.
    Comptroller Otting, when the House considered S. 2155, I 
expressed concerns on many aspects of the legislation, 
particularly the increase in the SIFI threshold from $50 
billion to $250 billion.
    One of my concerns is that this new threshold continues to 
fail to take into account the actual risk posed by the largest 
institutions. Some over this new line continue to pose little 
risk to the system, while some below could pose substantial 
risk. This has been shown time and again by the Office of 
Financial Research under both President Obama and President 
Trump.
    How do you propose to tailor regulations to a firm's actual 
systemic risk on both sides of the new $250 billion threshold 
in order to continue to protect our Nation against systemic 
risk?
    Mr. Otting. I am actually supportive of those new 
guidelines that were issued. I do think banks' risk management 
is the best it has ever been in the 35 years.
    It doesn't mean just because that guideline has been lifted 
that banks will not continue to perform some of those 
functions, and we will review those in our annual examinations 
of those financial institutions.
    Ms. Velazquez. So I expect that you regulate banks on both 
sides of the $250 billion with equal weight and scrutiny, those 
that are above 250 and those that are below. That would include 
most of the banks.
    Mr. Otting. We use a risk-based system to do the annual 
examinations. And so we look at all of those institutions and 
understand where we think there is risk, and based upon that, 
we provide resources to those supervised institutions.
    So, to your point, if we observed significant risks being 
imminent or deployed in an institution, we would allocate 
resources to that institution appropriately.
    Ms. Velazquez. OK.
    I understand that leverage lending often serves as an 
important financing tool for many businesses across the 
country. However, I also believe that banks shouldn't be left 
without a regulatory roadmap to guide how such transactions can 
be made without compromising the safety and soundness of our 
financial system.
    Earlier this year, you commented that, and I quote, 
``institutions should have the right to do the leverage lending 
they want as long as it doesn't impair their safety and 
soundness.''
    Can you elaborate on that statement and talk about what 
steps, if any, the OCC and other Federal banking regulators are 
taking to revise the 2013 interagency guidance on leverage 
lending, particularly in light of the GAO's (Government 
Accountability Office's) determination that the guidance was a 
rule for the purposes of the Congressional Review Act?
    Mr. Otting. First of all, thank you for allowing me to 
clarify my comments.
    What was left out of that quote was the lead-up to it, 
where I said that banks would have to have the appropriate 
level of capital, they would have to have the people to 
properly analyze that risk, they would have to have a risk 
statement that was approved both by management and the board. 
And those were left off before they put the punch line in 
there, so to speak, so--
    Ms. Velazquez. Was that CNN that reported that?
    Mr. Otting. No, it was not.
    Ms. Velazquez. Oh, OK. Oh, so, then, you watch CNN.
    Mr. Otting. I don't watch CNN.
    Ms. Velazquez. So how do you answer? OK.
    Mr. Otting. I know the particular--
    Ms. Velazquez. All right.
    Mr. Otting. --news agency that produced that.
    So your second question regarding the OCC's guidance on 
leverage lending, I am sorry, I missed the point you wanted me 
to address on that.
    Ms. Velazquez. Well, the GAO determination, particularly in 
light of the GAO's determination that the guidance was a rule 
for the purposes of the Congressional Review Act.
    Mr. Otting. Yes. We have gone out of our way since that 
ruling to educate and make sure that our examiners understand 
the difference between rules and guidance. And we have issued 
documents within the OCC that clearly spell that out. And as 
part of that comment that you were quoting me on, I made that 
comment as well.
    Ms. Velazquez. So are you going to appeal the guidance?
    Mr. Otting. No. We had put that guidance out for comment. 
Maybe you are saying are we going to reproduce that guidance 
for comment, and at this point we are not.
    Ms. Velazquez. I yield back.
    Chairman Hensarling. The time of the gentlelady has 
expired.
    The Chair now recognizes the gentleman from Pennsylvania, 
Mr. Rothfus.
    Mr. Rothfus. Thank you, Mr. Chairman.
    Welcome, Comptroller. I want to thank you for your 
continued help and support for our Federal Savings Association 
Charter Flexibility legislation.
    As you mentioned in your testimony, the reform that 
Congressman Himes and I have championed will provide Federal 
savings associations with the flexibility to operate with the 
same rights and duties as a national bank without having to go 
through a costly and time-consuming rechartering process.
    This was recently signed into law as part of the bipartisan 
financial regulatory reform package.
    Why is this specific provision so important?
    Mr. Otting. That provision, from my perspective--you may 
know that when I went to OneWest Bank we were a thrift, and 
part of my mission was to diversify the balance sheet for the 
institution. And so we grew our commercial loans and commercial 
real estate, and we quickly hit the cap at that point in time. 
And so we felt we were servicing the community.
    And so our ability, like those particular entities, are 
looking to service their communities in a diversified manner, 
and often they hit those caps in a relatively quick period of 
time.
    Mr. Rothfus. So, looking at the impact of this reform, what 
do you see happening in a community that has a thrift?
    Mr. Otting. I think they will broaden their support of the 
communities to which they operate.
    Mr. Rothfus. Could you provide an update on the timeline 
for implementation?
    Mr. Otting. Earlier, I said we have created a bucket of 
things we think we can do quickly, things that we need to write 
rules on. And the third being, where we have to have 
interagency, that falls into the first bucket, that we think we 
can move very quickly on that.
    Mr. Rothfus. Great. Thank you.
    In your testimony, you discussed a number of possible 
avenues for reforming our outdated BSA/AML regime. Our 
committee has held several hearings on this issue, and I have 
had the opportunity to meet with a wide range of financial 
institutions and practitioners. It is clear that this system 
needs to be modernized to account for the ever-evolving nature 
of the threat.
    New technologies, like artificial intelligence, show 
considerable promise in helping financial institutions and 
regulators better combat illicit finance. I am proud that 
western Pennsylvania institutions like Carnegie Mellon 
University are leading the way in this field.
    Could you explain how new technologies, like artificial 
intelligence, can help improve our approach to disrupting 
illicit finance?
    Mr. Otting. Sure. I think the way new technologies are 
going to work is that we are going to be able to go through 
interbank connectivity between bad-person activity.
    Today, if you think about our CTR and other SARs process, 
it is generally a vertical within one institution. The bad guys 
are smart. They know the rules. They move money in, they move 
it amongst the organizations, and then they flush it out the 
door. If we can track that interconnection with those proceeds, 
I think technology will play a big, important role there.
    Mr. Rothfus. Do you think there is anything that regulators 
or law enforcement can do to facilitate the continued 
development and adoption of these new technologies?
    Mr. Otting. I think there has been a lot of discussion 
about whether that should be a government or a private 
enterprise venture. And I think what you are seeing now is 
movement toward that being a private enterprise, and I think 
that will accelerate the activity.
    Mr. Rothfus. I understand the OCC is continuing to study 
ongoing developments in the fintech space. What are some of the 
key principles that guide the OCC's approach to ensuring that 
we facilitate pro-consumer innovation while protecting the 
safety and soundness of the financial system?
    Mr. Otting. It is our expectation that a fintech would have 
similar capital liquidity requirements to serve their community 
as a regular national bank.
    Mr. Rothfus. How can we guard against regulatory arbitrage?
    Mr. Otting. The way that I think we would guard against 
that is that those that want to serve multiple markets either 
have a choice, A, being that they go and they find States that 
will synchronize their regulation process, or that people will 
have to use the national bank.
    Mr. Rothfus. In your testimony, you discuss the need to 
reexamine assessment areas for the purposes of bank compliance 
with the CRA. As you know, the current approach is largely 
based on an institution's retail branch footprint.
    Mobile banking products are becoming increasingly popular. 
How should this development impact the way we evaluate future 
CRA compliance?
    Mr. Otting. Yes. I would argue, in some regards, the 
assessment areas have restricted banks' ability. As an example, 
when I ran OneWest Bank, we were in L.A. County; L.A. County 
was our assessment area, but we had branches in Inland Empire, 
Riverside, and Orange County. But those particular areas were 
not part of our assessment area, but we wanted to make 
investments in those areas, and we had to satisfy our Los 
Angeles needs first.
    So I think looking at, more broadly, where are your 
customers, which would include mobile banking, and asking 
institutions to support those communities where their customers 
are, or their employees, I think will be important going 
forward.
    Mr. Rothfus. I was intrigued with your conversation with 
Congresswoman Wagner about any kind of interplay or integration 
with faith-based organizations and CRA. Can you go over that a 
little bit?
    Mr. Otting. Could you ask that question again?
    Mr. Rothfus. Whether faith-based organizations--how they 
can be integrated or helpful.
    Mr. Otting. I have lots of experience with faith-based 
organizations across the Nation. My observation is in the Black 
and Latino communities. Most of the families go to those church 
organizations for their financial counseling, job development--
    Mr. Rothfus. My time has expired. I may want to follow up 
with you offline on that.
    Mr. Otting. I would be happy to do that.
    Chairman Hensarling. The time of the gentleman has expired.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton.
    Mr. Tipton. Thank you, Mr. Chairman.
    Comptroller Otting, a pleasure to be able to see you here, 
and thanks for appearing before the committee.
    One thing that you and I have had the opportunity to be 
able to visit about was--and I know you do understand this 
well, is the time from your time in the private sector is a 
need for certainty in terms of regulation and supervisory 
expectations for the banks that are under your supervision. And 
if you would, I would like you to be able to take a moment to 
speak about some of the controls that are in place to prevent 
that uncertainty from entering the examinations process in the 
event of a negative economic impact, and what steps your agency 
takes to prevent the potential of supervisory retaliation.
    Mr. Otting. Yes. We have very well defined controls. We 
have, obviously, an examination process that takes place. 
Generally outside that direct examination we have resident 
experts that also review the data associated with any 
examination. Then we have a deputy company comptroller that is 
generally involved in that. At any point in time that a bank 
would feel that they are not being treated fairly or their 
regulations are not being applied appropriately, they have a 
formal appeal process. And if they are unsatisfied with that 
formal appeal process, they can come through the ombudsman 
process, and that person reports directly to me and I meet with 
him on a weekly basis and we cover any of the items that have 
been brought up.
    Mr. Tipton. OK. Thank you for that.
    I did want to express, one banker from my home State of 
Colorado observed that the regulatory environment of the past, 
specifically between the OCC and what we call the Consumer 
Protection Bureau, now the BCFP, presented the risk of double 
jeopardy, and has concerns that the regulatory agencies didn't 
coordinate with each other in terms of examinations.
    Would you describe briefly how your conversations with the 
Federal Financial Institutions Examination Council informed you 
and the examiners' decisionmaking and how they determined that 
supervisory action is needed?
    Mr. Otting. First of all, I do meet with the FDIC and the 
Fed on a weekly basis, and we talk about all kinds of issues 
like this. And then I also meet with Acting Director Mulvaney. 
And where we have had actions that it has been generally at the 
principal level with staff and principal to resolve issues like 
that. And I would encourage you if any CEOs or banks that you 
are familiar with or interact with that have that issue, that 
they can call me directly, and I would be happy to have dialog 
and discussion with them on that.
    Mr. Tipton. Great. And so you are comfortable that the 
agency's ombudsman that handles the appeals process for the 
supervisory decisions regularly communicates and coordinates 
with the other regulators on the appeals to prevent double 
jeopardy?
    Mr. Otting. I knew you were going to ask me that question 
and there is a formalized structure where they meet frequently 
to have dialog about any particular issues as well.
    Mr. Tipton. OK.
    Mr. Otting. And as I indicated, I meet with OCC Ombudsman 
Larry Hattix every week and we talk about any items like this.
    Mr. Tipton. OK. And when we are talking a little bit about 
the in-house dialog that is going on, and I know that you can 
appreciate this from the private sector end of it; from a 
business standpoint, when you were in the private sector, would 
you have found it agreeable to be able to appeal a material 
supervisory determination that you felt was unfairly or 
erroneously determined back to the same agency that handed down 
the determination in the first place?
    Mr. Otting. I think it depends upon the leadership and the 
agency. But I would definitely feel comfortable in today's 
environment for a CEO to want to do that. And like I said, he 
would have the option to call me directly if he felt impaired 
by that process.
    Mr. Tipton. OK. And I guess just to follow up on that, I 
have a piece of legislation called the Examine Fairness Act, 
that I think you are probably aware of, to be able to have some 
independent examination for an appeal process. Is there a 
conflict? And again, I would just like to emphasize that point 
from when you were in the private sector, to appeal back, you 
may not always be in this position.
    Mr. Otting. Yes. I found when I was regulated by the OCC, I 
was totally comfortable with that process and always received, 
I think, satisfactory results when I appealed a decision of the 
EIC up into the agency. I never, at any time, had to go to the 
ombudsman because I felt that generally it was fair and 
complete, and oftentimes it was my misunderstanding of the 
rules or the regulations.
    Mr. Tipton. OK. Thank you. I appreciate your comments.
    Mr. Chairman, I yield back.
    Mr. Hill [presiding]. The gentleman from Colorado yields 
back. The gentleman from Maine is recognized.
    Mr. Poliquin. Thank you, Mr. Chairman very much.
    Thank you Mr. Otting very much for being here. I appreciate 
it. I congratulate you on your new position. I am sure it is 
stressful, and I want to remind you that Maine is Vacationland 
and this is a great place to go and have a summer vacation. I 
am sure your family would appreciate going up there and 
enjoying our 3,000 miles of coastline, blueberry pie, and 
lobster and moose and everything else. So when you want to go 
up there, make sure you give us a call, we will set you up.
    Mr. Otting. OK. Thank you.
    Mr. Poliquin. You are very welcome.
    Sir, I represent the rural part of Maine. Now, some people 
think that that is unusual, but there are parts of Maine that 
are not rural, not much, but there are parts. In the Second 
congressional District, we have about 400 small towns. We are a 
district of small businesses, small savers for the most part. 
And what I am concerned about is identity theft and other types 
of cybersecurity.
    When you have folks in Maine living their lives and they 
have a credit card and a checking account, a savings account, 
maybe an IRA, and they are buying some property and casualty 
insurance, and it seems like every place they go, Mr. Otting, 
they are giving out their personal information. And this is a 
real issue, for the families that I represent, if something 
happens and there is a breach.
    Now, I know that there are financial institutions 
throughout that sector of our economy that are regulated by 
different agencies. And sometimes you have the same financial 
institution that is regulated by the--by multiple agencies, 
like you folks at the Comptroller of the Currency or the CFPB 
or maybe the Federal Reserve. It is expensive. It is time 
consuming for these smaller financial institutions to do that 
work and at the same time making sure they are fighting those 
that are trying to rip off their personal information.
    So do you folks coordinate with other regulators that are 
focusing on the same institution such that we can become very 
efficient and coordinated and not shore up time and resources 
you need to catch bad actors?
    Mr. Otting. I would say probably not as good as we should--
    Mr. Poliquin. Why not?
    Mr. Otting. --would be the right answer. I would say, I 
think at the Federal level we have a much better level of 
coordination in conjunction with Treasury. There is a lot of 
activity. Obviously that when we go out and we do our 
examination on an annual basis, part of the normal exam is to 
look at the security parameters, look at the hardware, look at 
the software, make sure patches are up to speed. And we also do 
assessment of the recovery. As you know, somebody might have a 
product with us and have a product with a State bank, and the 
question that you have there often is coordinating when 
entities are not interconnected.
    Mr. Poliquin. How do you fix that?
    Mr. Otting. I have heard the mention of national standards, 
and that is probably the way I think you ultimately get to that 
is some kind of national standard.
    Mr. Poliquin. Has this been attempted in the past, Mr. 
Otting?
    Mr. Otting. Not that I am aware of.
    Mr. Poliquin. And have you received these sort of inquiries 
in the past?
    Mr. Otting. I wouldn't say I have received inquiries in the 
past. I would say that the Treasury Department is trying to 
coordinate an approach amongst the Federal financial agencies 
to make sure that there is interconnectivity across the 
agencies.
    Mr. Poliquin. And is this an ongoing loose, informal 
discussion or do you actually have an agenda item that you are 
working on to make sure this is addressed?
    Mr. Otting. I do not have an agenda item.
    Mr. Poliquin. What would it take to get one?
    Mr. Otting. Probably knock out CRA, BSA, knock out small-
ticket lending. And I would be happy, once we get the capital 
and the Dodd-Frank issue done, to put it in the queue.
    Mr. Poliquin. I appreciate very much that forthrightness 
and also the interest in working with us on that. Thank you 
very much on that, Mr. Otting.
    You mentioned earlier today on a different topic that you 
are considering a new charter for fintech, and you mentioned 
that that decision will be made in July. Are you comfortable 
and confident that all the stakeholders have had the time they 
need to weigh in on this issue?
    Mr. Otting. I think there has been a lot of dialog and 
discussion on this particular topic. Am I comfortable at all? I 
don't know if I could define the word ``all'' correctly, but I 
think a lot is the way I would describe that.
    Mr. Poliquin. Are you comfortable enough to make a 
decision?
    Mr. Otting. Yes, I would be comfortable enough to--and we 
haven't made the decision yet, because this is somewhat unique 
that if you think about it, if they don't have deposits and we 
would be the resolution of a failure of one of those 
institutions. So we have had to look at the whole linear 
approach to that process. But we have also said that we expect 
capital liquidity in serving the community to be part of any 
charter.
    Mr. Poliquin. Thank you very much, Mr. Otting. I appreciate 
very much you being here, sir.
    I yield back my time. Thank you.
    Mr. Hill. The gentleman from Maine yields back.
    The gentleman from Minnesota, Mr. Emmer, is recognized for 
5 minutes.
    Mr. Emmer. Thank you, Mr. Chair.
    Thank you, Mr. Otting, for being here. I don't know if we 
crossed paths while you were in Minnesota.
    Mr. Otting. I don't believe so.
    Mr. Emmer. I think you were on your way out a few years 
ago, but 2010 maybe?
    Mr. Otting. Yes, that is correct.
    Mr. Emmer. Well, you are welcome back any time. Mr. 
Poliquin waxes poetic about this mystery land up in the 
northwest--east part of our country, but Minnesota is--
    Mr. Otting. I have been northern fishing up there.
    Mr. Emmer. I just want to ask you a couple of questions in 
a couple different areas. One, first, because of your 
background in banking in the financial services industry, is it 
safe to assume that you are familiar with the concept of de-
risking?
    Mr. Otting. Yes.
    Mr. Emmer. To what extent does the complexity or 
uncertainty surrounding our current Bank Secrecy Act/anti-money 
laundering regulatory regime contribute to the practice of de-
risking?
    Mr. Otting. I am not sure that that regime necessarily 
contributes to it. I think what it does is it identify--helps 
identify entities that are conducting those kind of activities.
    Mr. Emmer. And then from your experience, where does it go 
from there?
    Mr. Otting. And then, generally, a financial institution 
will evaluate the risk and the controls of a particular entity 
and a segment of the industry. And I think where we have had 
some problems is the amount of controls that they need, perhaps 
the company won't provide those, or they can find another 
alternative that doesn't require those controls, or the cost in 
the institution to provide oversight is greater than what the 
revenue is being generated off of the account.
    Mr. Emmer. I am interested in the second one that you 
mentioned, which is they find an alternative--
    Mr. Otting. That is right.
    Mr. Emmer. --that doesn't require those controls. Because, 
in fact, when you start doing this de-risking, the people that 
we are trying to discover are going to find other ways to deal 
with the cash they are trying to move. That is your experience?
    Mr. Otting. I would say more frequently they work it out 
with their existing financial institution, but there are 
exceptions where they will leave that financial institution and 
seek alternatives.
    Mr. Emmer. How can we coordinate or improve the 
coordination between FinCEN, who is writing the BSA 
regulations, and the examiners like OCC, like yours, to 
streamline the regulatory landscape of our current BSA/AML 
structure to ultimately address issues like de-risking and 
improve the transparency of certain financial transactions?
    Mr. Otting. It is my number two priority behind CRA. And I 
will tell you, I have dedicated an enormous amount of time in 
the last 5-1/2 months to BSA. I think we are at the table now 
with the right issues identified. And I think with the working 
group we are creating with FinCEN, the FDIC, the Fed, and the 
National Credit Union Association, I think that we will move 
that dial over the next 3 to 6 months.
    Mr. Emmer. Fantastic. Last, although I might have something 
that leads from this, in your opening remarks today, you 
mentioned exploring the expanded use of technology as a means 
to lessen the reporting burden and improve the efficiency of 
our BSA/AML efforts.
    How do you see technological innovations like blockchain? 
And artifical--you have talked about artificial intelligence a 
little bit in your testimony today. And people have asked the 
question, but nobody has gone directly at it. Blockchain 
technology has some--appears to have major promise in terms of 
the transparency and the ability to track where things are 
going. And I am just wondering, how do you see a technological 
innovation like blockchain technology impacting this space?
    Mr. Otting. I agree with you, it does have promise. The 
question will be how we use it in applications going forward.
    Mr. Emmer. This is--and I guess what I am going to ask, it 
is--there is an issue here in Congress, not enough people with 
election certificates understand what this is. They seem to be 
focused totally on cryptocurrencies every time they talk about 
this technology, and that is an issue. But blockchain is a lot 
more than cryptocurrencies, which is why folks in your 
position, the more that you are learning about it, the more 
that you are looking at the potential applications.
    Have you done any of that yet or is this part of the group 
that you are getting together?
    Mr. Otting. It is not part of that initiative. We focused 
on 14 items that we thought could improve the efficiency of 
financial institutions complying with BSA and AML. We have not 
focused on blockchain. I, like most people, am learning more 
about this as it evolves. I had not even heard the word 
``blockchain'' 6 months ago. And now, it is almost--
    Mr. Emmer. Now it is the rage.
    Mr. Otting. That is right.
    Mr. Emmer. I guess going forward, I would love to be in 
touch with you about the group that you put together for the 
BSA/AML effort. And then also, as you get up to speed on 
blockchain, how it might apply. Thank you very much.
    I yield back.
    Mr. Hill. The gentleman from Minnesota's time has expired.
    The gentleman from Georgia, Mr. Loudermilk, is recognized 
for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    Thank you, Mr. Otting, for being here. As you and I have 
discussed before, one of my key issues is cybersecurity and the 
protection of data. And I appreciate my colleague from way up 
north bringing up the blockchain as we have discussed. I think 
it is imperative that we decouple the conversation of 
blockchain from cryptocurrency. And it is something that we 
need to investigate as a method of secure communications and 
data transactions.
    But what I would like to focus on as far as cybersecurity 
goes, can you briefly explain what are you doing in the OCC and 
private sector to ensure that the data that, quite frankly, the 
government forces businesses and individuals to pass along and 
maintain, what are we doing to ensure the safety and security 
of that data?
    Mr. Otting. On an annual basis as part of our annual 
examination of financial institutions--and generally, these are 
the larger because we have some exemption for the smaller 
institutions, we actually, as part of that, do an examination 
of their data security and their technology. And there is a 
formulaic approach to that examination. I would be happy to 
have some of our people come over and walk you through that so 
you understand it.
    But, for the most part, we are checking security 
parameters, we are checking hardware, we are checking their 
software, their patchwork. All of that activity goes into that 
final analysis. And then, if there are obvious actions that 
need to take place, mostly they would result in an MRA, where 
we would request certain actions associated with that 
institution.
    Mr. Loudermilk. OK. And I appreciate that.
    One of the issues that I think hurts us, ultimately hurts 
the American people, is we have a multiplicity of regulations 
regarding cybersecurity. There doesn't seem to be a 
consistency. Are we doing anything to actually coordinate with 
other banking agencies to ensure that we are operating from the 
same rule book basically?
    Mr. Otting. The Department of Treasury is coordinating 
amongst the agencies. In fact, I have a meeting this Friday 
afternoon. They have taken on a role to coordinate and lead 
amongst the agencies. We have been studying, analyzing, 
providing data, and trying to get some more consistency to the 
process within the agencies today.
    So I would say, I have been here 5 or 6 months and I don't 
know if that was going on before I arrived, but I would tell 
you it is like full steam ahead at this point.
    Mr. Loudermilk. Well, I appreciate that. And one thing to 
keep in mind as we move forward, and I would like to continue 
our engagement that we have already had with this issue, is one 
of the areas of weakness I see is how many points of data we 
have within the Federal Government. When you look at the PII of 
individuals, do we have that same information in various 
different agencies, which means the more instances you have of 
the same data, the more likelihood that it is going to be 
released? Is there something that we can do to centralize that 
to give common access to that?
    If I could shift gears real quick in the time we have 
remaining and talk about the Bank Secrecy Act for a moment. I 
know I have been advocating that since, what, the 1970's is 
when we set the $10,000 limit for the currency transaction 
report. And if we were to span that out over the course of time 
with the rate of inflation, it should be at about $60,000 
today, which is something I have been advocating for. But we do 
have legislation that brings it to that from $10,000 to 
$30,000.
    Can you briefly explain why it is so important we modernize 
the BSA by increasing these thresholds?
    Mr. Otting. Well, the issue is we found 9 million currency 
transactions reports on an annual basis out of the U.S. banking 
system. Often, what we are finding is real legitimate 
businesses that banks have been doing business with for a long 
period of time, are tripping the currency structuring filters. 
And that structuring then causes us to produce paper that I 
think in the end really is unwarranted.
    Mr. Loudermilk. More paperwork, red tape as the people know 
it, and little of it actually leads to--
    Mr. Otting. Right.
    Mr. Loudermilk. --actually accomplishing the goal at hand. 
So are you comfortable--final, with the 30 seconds I have, do 
you think the threshold of $30,000 will provide adequate relief 
of the overburdensome paperwork?
    Mr. Otting. I think it is a great step in the right 
direction.
    Mr. Loudermilk. We could go a little further?
    Mr. Otting. I think that is a fair place to start.
    Mr. Loudermilk. OK. All right. Thank you.
    And I yield back the remainder of my time, Mr. Chairman.
    Mr. Hill. The gentleman from Georgia yields back the 
balance of his time.
    The gentleman from Tennessee, Mr. Kustoff, is recognized 
for 5 minutes.
    Mr. Kustoff. Thank you, Mr. Chairman.
    And thank you, Comptroller Otting, for being here this 
morning and this afternoon. If I could, I would like to follow 
up with some questions asked by Congressman Emmer as it relates 
to the BSA/AML reform. I agree with your testimony where you 
said that we need to reform the BSA/AML to be more efficient, 
while improving the ability of the Federal banking system and 
law enforcement to safeguard the Nation's financial system from 
criminals.
    If you could, could you discuss some of the most burdensome 
components that banks face under the current BSA/AML structure?
    Mr. Otting. Yes, I think there are three I would say core 
things. It is the number of CTRs that need to be filed, which 
is around 9 million. It is the SARs which is about 1 million. 
And then today, the way we do examinations, we do not have a 
risk-based examination process; it is a one size fit all. And 
you may have missed it, but I said, if you have a management 
team that is highly rated with a very strong compliance 
department, a very strong BSA, and a low-risk customer base, we 
examine that entity the same as we have a weak management, a 
weak compliance, a weak BSA, and a high-risk. And we need to 
bring balance, because when these entities are showing we have 
good solid programs in place, to put them through all of those 
same activities, in my mind, is duplicative.
    Mr. Kustoff. As it relates to the SARs, do you have a 
recommendation? If you could wave a magic wand, what that level 
would be?
    Mr. Otting. Well, on the currency transaction report or the 
SARs?
    Mr. Kustoff. Let's talk about the SARs first.
    Mr. Otting. OK. So I think the question that we have with 
SARs is there is a million SARs being filed a year, and I think 
a lot of the SARs, we have gotten banks to the point where they 
are so nervous that they file a SARs on anything just to get--
so no one ever can come back.
    I think we need to be able to introduce some flexibility in 
there that we are not--if we are only looking at a very small 
percentage of the SARs, then having a high standard of 100 
percent accuracy is difficult. So there are some estimates that 
15 to 20 percent of all SARs being filed, which would be 
200,000 SARs, are just being filed because people are saying I 
don't want the risk of the regulator coming in and saying I 
didn't fill the SARs out. And I just think we need to have a 
little bit more flexibility with financial institutions in that 
regard.
    Mr. Kustoff. Thank you.
    I know that there have been a fair number of questions 
today about the Community Reinvestment Act, and you have 
certainly testified about that. And I do appreciate and applaud 
your commitment to updating these policies.
    When it comes to reforming CRA, can you address or describe 
some of those most pressing needs that you see in terms of 
reforming CRA?
    Mr. Otting. Yes. First of all, I want financial 
institutions to do more in the communities across America that 
need it. And I think in some regards, we haven't created the 
on-ramp for them to do that. And we have done that by not 
allowing certain products and services to be counted as CRA, 
and they just fundamentally should. That is number one.
    Number two is I think we have to create a measurement 
system that, in my mind, allows us to look at financial 
institutions and be consistent across the size and complexity 
of the system of what is their commitment to the communities to 
which they operate.
    And then the third is we have to be able to turn exams and 
processes around quicker. And if we can standardize the 
measurement process, then we can almost have perpetual 
observation. I believe in the future people will choose--just 
like they do entities that are green or do something specific, 
I think people will choose to bank with people that they think 
are investing in their communities.
    Mr. Kustoff. Well, as it does relate to the exams, that is 
probably one of the biggest complaints that I hear from my 
financial institutions back in my district. What can you do to 
reduce the time that it takes to complete the examination or--
    Mr. Otting. I think if we can simplify the measurement 
method. And you may have been out of the room but, we are 
proposing a framework where you either take deposits tier one 
capital or total assets. And then you take all the CRA 
activities that someone is doing and you just divide that. So 
you have $100 million in CRA activities, you have $1 billion 
balance sheet, that says that you have 10 percent of that 
activity committed. And we can take a small community bank or a 
large JPMorgan and be able to make a determination. That, I 
could do in about an hour. Instead, we spend these 120 days 
doing the CRA exams that are very complex, very subjective, and 
are relative as opposed to absolute in their ability to define 
what a company is doing in CRA.
    Mr. Kustoff. Thank you very much. And I yield back the 
balance of my time.
    Chairman Hensarling [presiding]. The time of the gentleman 
has expired.
    The Chair now recognizes the gentlelady from New York, Ms. 
Tenney.
    Ms. Tenney. Thank you, Mr. Chairman.
    And thank you, Mr. Otting, for being here. We appreciate 
your work you are doing. And unfortunately, I get to be last, 
so many of my questions have been already asked. But I do want 
to just say a little bit about the Community Reinvestment Act 
to get into and finish up what my colleague, Mr. Kustoff, was 
talking about. And we do appreciate your looking at finding 
alternatives and moving banks more in the realm of investing in 
their communities and also focusing on, not just on the 
residential side, but on the community side.
    Can you tell me just a couple of the issues where--
enhancing what your answer was to Mr. Kustoff--where we can--as 
you know, we have national and community banks--but where we 
can focus some of those banks on reinvestment in our local 
communities, especially in my region where agriculture is our 
No. 1 industry and dealing with small business development? 
Because we actually have--almost 98 percent of our businesses 
in our district and our community are small, and how you would 
do that from your position as the Comptroller?
    Mr. Otting. Well, I think it is often making what people 
are doing in the community to be CRA qualified. And as you 
know, the CRA plan also extends itself into the agricultural 
community. So I think when you think about--I have used 
examples where churches are doing things for certain people 
that is not religious but it is community building. I think 
those should qualify. I think businesses that are above $1 
million in revenue, that today are blocked by being qualified, 
that we can make those available to CRA. So I think--and then 
there are a lot of activities that institutions do around 
financial literacy, that I think those should be included and 
counted as in the service test as well.
    Ms. Tenney. OK. Thank you.
    And when it comes to the Bank Secrecy Act and the anti-
money laundering act, I know one of the biggest complaints that 
I get, and you have talked about this a little bit, but if you 
could just enhance--we have a lot of small and community banks, 
and this is a burden, this compliance cost. They don't look--
they look very small on the larger scheme of things, but when 
you are dealing with a small bank, you have suggested there are 
other ways that we can maybe pool these resources or come up 
with a solution to make it more affordable in terms of 
compliance.
    Can you just elaborate on some of that that you might have 
mentioned?
    Mr. Otting. Yes. I think there are the short-term things 
that we can do to make it less burdensome without reducing our 
ability to catch the bad people, and that is probably what we 
are working on with the interagency group. And then I think 
long term, we have to think through the large banks have their 
own infrastructures and they can combine data pools with other 
banks. But most of the small banks use actually third-party 
servicers. And my thought is, is that third-party servicer can 
begin to look at ways that they can help banks look across a 
multitude of institutions to help them identify when there are 
bad people using a multitude of banks, and then alert those 
banks the reverse--alerting those banks that we see irregular 
activity amongst your customer base, as opposed to waiting for 
a CTR or a SARs to cause that to be identified.
    Ms. Tenney. That would be great. Now, in terms of 
determining what would be a SAR, do you agree or disagree--I am 
curious about your opinion on should we have arbitrary numbers 
that determine whether we are investigating or looking into 
suspicious activity reports? And what is your opinion on that? 
Should it be an arbitrary number or should we look at more, 
like, the activity, the other--the frequency--
    Mr. Otting. There is a floor on the SARs of $5,000. There 
is not a floor for any employee-related activity, and we have 
talked within the agency about raising the floor. If a teller 
who takes $200, should you really have to fill out a SARs for 
that? But above that floor, generally what we are asking people 
to do is if there is foreign money coming into an account, and 
if all of a sudden somebody opens up an account and money 
starts flowing in from one of the countries that we have 
concerns about; I am not sure when you say there are good 
descriptors of what is expected to be high risk. People look at 
that and when you see those kind of activities, that is what 
justifies a SAR.
    Ms. Tenney. I am just thinking frequency. Sometimes they 
might be smaller dollar amounts and maybe suspicious in another 
realm, which, again, these are all compliance issues. But I 
appreciate your willingness to look in and help our smaller 
regional--and especially in New York where we have not too many 
New York banks left that are really able to function in this 
highly regulated space because we have a very aggressive 
regulatory regime coming out of the State.
    But I appreciate your work in trying to help us and give us 
some relief on the Federal side, because we really are--as we 
see the economy getting a little more vibrant, we are 
definitely looking to our banks for more loans and lending and 
adding jobs. So we appreciate your hard work over there.
    Mr. Otting. Thank you very much
    Ms. Tenney. Thank you so much. I yield my time.
    Chairman Hensarling. The gentlelady yields back.
    The Chair now recognizes the gentleman from Arkansas, Mr. 
Hill.
    Mr. Hill. I thank the Chairman.
    As a former community banker for over 2-1/2 decades in my 
home State of Arkansas and also a former Treasury official in 
the ancient days of the Bush 41 Administration, I want to thank 
you for accepting this appointment and serving us as our 
Comptroller of the Currency. I want to commend you for your 
effectiveness in developing your budget and looking out for, 
not only the goals of the agency, but taxpayers, by actually 
proposing a reduction in how much money you are able to spend, 
yet carry out the mission of the OCC. And I want to commend you 
for the ideas you have on CRA reform and regulatory burden, 
generally, by tailoring regulatory burden. So thanks for being 
with us.
    First thing I want to raise is, as you know, I am not a fan 
of the rule that has now been promulgated, the so-called CDD 
rule that is to enhance the disclosure of information on 
beneficial ownership. I think it still has a long way to go. I 
think I have made those views clear. I think it is going to be 
the most costly rule probably promulgated in the Trump 
Administration this year, potentially.
    So one thing that I noted that was concerning that FinCEN 
issued some relief from was this idea of rollover CDs. So you 
come in the bank, you buy a CD, you fill out, Know Your 
Customer rule requirements, but then it is on a rolling basis 
every 6 months annually. FinCEN granted temporary relief from 
having to refill out and reascertain the beneficial ownership.
    Would you support that being considered a permanent change 
in the rule or permanent waiver, if you will, to that on a 
rollover CD that was properly opened?
    Mr. Otting. It would seem to be prudent, especially if they 
did the documentation on the front end of that.
    Mr. Hill. Right. My question assumes absolute appropriate 
documentation for the account. Thank you for that.
    Something else that you and I have talked about, just 
putting our banker hats back on, philosophically, do you agree 
that banks, when they set an interest rate for a credit, either 
a consumer credit or commercial credit, they are trying to 
price that credit for risk, the credit risk embedded in that 
transaction, you agree with that?
    Mr. Otting. I do.
    Mr. Hill. And do you agree that local economic conditions 
are a factor, a parameter in which a bank loan committee or 
loan officers would take into account in order to set that 
pricing? You think that is--would that be generally true? In 
other words, local economic conditions are relevant to the 
pricing for risk for a loan?
    Mr. Otting. They do in the event that it would impair the 
source of repayment.
    Mr. Hill. Right. Yes, I agree too. And yet I would really 
urge you, in your new role as our Comptroller of the Currency, 
to look at that in the context of consumer compliance laws on 
lending where I don't believe that pricing for risk is really 
permitted. And I am talking about geographic risk or a local 
industry risk on those sources, where the sources of repayment 
really could be compromised. I think there is a lot of demand 
by the regulatory agencies that you can only have one loan 
price, no matter how big the territory of the bank for a 
consumer loan. I would invite you to look at that.
    On the Volcker proposal, we have also talked about that 
before, and you know my strong feelings about harmonizing the 
interpretation of the Volcker act. I was very pleased in 2155, 
enacted into law now, that we exempt our community banks from 
the vagaries and confusion and complexity and inconsistency of 
Volcker for our community banks. And I know you will be 
adjusting your Volcker Rule as it proceeds for that new law.
    But when I read the Volcker 2.0 proposal summary section by 
section, I have to tell you, I found it more complex, less 
clear. In fact, it posed over 1,000 different court of 
inquiries for more information or questions, meaning that our 
regulators are just as confused as they were 8 years ago about 
trying to come up with a commonsense definition for Volcker. 
Things like the revised definition on the trading account. I 
didn't find that more clear. Covered funds, which was the whole 
point, really, if you go back to the legislative intent, it 
just seemed their proposed rule punted on that and basically 
said it is in the too-hard stack that people have and it 
couldn't be solved. And then their metrics and reporting and 
recordkeeping look more burdensome to institutions subjected to 
it.
    So we don't have time to discuss it today. I know we will 
have a chance to talk about it, but I really urge you as you 
review these comments, I don't think you are on the right 
track.
    And thank you, Mr. Chairman. I yield back.
    Chairman Hensarling. The gentleman yields back.
    The Chair observes no other Members in the queue, thus we 
are prepared to release the witness.
    I want to thank the witness for his testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    I would ask, Mr. Otting, that you please respond promptly 
as you are able.
    Now this hearing stands adjourned.
    [Whereupon, at 12:40 p.m., the committee was adjourned.]




                            A P P E N D I X



                             June 13, 2018



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