[House Hearing, 116 Congress]
[From the U.S. Government Publishing Office]


                  OVERSIGHT OF PRUDENTIAL REGULATORS:
                  ENSURING THE SAFETY, SOUNDNESS, AND
                    ACCOUNTABILITY OF MEGABANKS AND
                     OTHER DEPOSITORY INSTITUTIONS

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

                                HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               ----------                              

                              MAY 16, 2019

                               ----------                              

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-26
                           
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]  

                               __________
                               

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
37-928                      WASHINGTON : 2020                     
          
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                 HOUSE COMMITTEE ON FINANCIAL SERVICES

                 MAXINE WATERS, California, Chairwoman

CAROLYN B. MALONEY, New York         PATRICK McHENRY, North Carolina, 
NYDIA M. VELAZQUEZ, New York             Ranking Member
BRAD SHERMAN, California             PETER T. KING, New York
GREGORY W. MEEKS, New York           FRANK D. LUCAS, Oklahoma
WM. LACY CLAY, Missouri              BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            SEAN P. DUFFY, Wisconsin
ED PERLMUTTER, Colorado              STEVE STIVERS, Ohio
JIM A. HIMES, Connecticut            ANN WAGNER, Missouri
BILL FOSTER, Illinois                ANDY BARR, Kentucky
JOYCE BEATTY, Ohio                   SCOTT TIPTON, Colorado
DENNY HECK, Washington               ROGER WILLIAMS, Texas
JUAN VARGAS, California              FRENCH HILL, Arkansas
JOSH GOTTHEIMER, New Jersey          TOM EMMER, Minnesota
VICENTE GONZALEZ, Texas              LEE M. ZELDIN, New York
AL LAWSON, Florida                   BARRY LOUDERMILK, Georgia
MICHAEL SAN NICOLAS, Guam            ALEXANDER X. MOONEY, West Virginia
RASHIDA TLAIB, Michigan              WARREN DAVIDSON, Ohio
KATIE PORTER, California             TED BUDD, North Carolina
CINDY AXNE, Iowa                     DAVID KUSTOFF, Tennessee
SEAN CASTEN, Illinois                TREY HOLLINGSWORTH, Indiana
AYANNA PRESSLEY, Massachusetts       ANTHONY GONZALEZ, Ohio
BEN McADAMS, Utah                    JOHN ROSE, Tennessee
ALEXANDRIA OCASIO-CORTEZ, New York   BRYAN STEIL, Wisconsin
JENNIFER WEXTON, Virginia            LANCE GOODEN, Texas
STEPHEN F. LYNCH, Massachusetts      DENVER RIGGLEMAN, Virginia
TULSI GABBARD, Hawaii
ALMA ADAMS, North Carolina
MADELEINE DEAN, Pennsylvania
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
DEAN PHILLIPS, Minnesota

                   Charla Ouertatani, Staff Director
                            
                            
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    May 16, 2019.................................................     1
Appendix:
    May 16, 2019.................................................    73

                               WITNESSES
                         Thursday, May 16, 2019

Hood, Hon. Rodney E., Chairman, National Credit Union 
  Administration (NCUA)..........................................     5
McWilliams, Hon. Jelena, Chairman, Federal Deposit Insurance 
  Corporation (FDIC).............................................     7
Otting, Hon. Joseph M., Comptroller, Office of the Comptroller of 
  the Currency (OCC).............................................     8
Quarles, Hon. Randal K., Vice Chairman, Supervision, Board of 
  Governors of the Federal Reserve System (Fed)..................    10

                                APPENDIX

Prepared statements:
    Hood, Hon. Rodney E..........................................    74
    McWilliams, Hon. Jelena......................................   107
    Otting, Hon. Joseph M........................................   132
    Quarles, Hon. Randal K.......................................   157

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the Center for American Progress........   166
Hood, Hon. Rodney E.:
    Written responses to questions for the record submitted by 
      Chairwoman Waters..........................................   208
    Written responses to questions for the record submitted by 
      Representative Posey.......................................   222
    Written responses to questions for the record submitted by 
      Representative McAdams.....................................   225
    Written responses to questions for the record submitted by 
      Representative Hill........................................   227
McWilliams, Hon. Jelena:
    Written responses to questions for the record submitted by 
      Chairwoman Waters..........................................   228
    Written responses to questions for the record submitted by 
      Representative Foster......................................   263
    Written responses to questions for the record submitted by 
      Representative Jesus ``Chuy'' Garcia.......................   266
    Written responses to questions for the record submitted by 
      Representative Posey.......................................   267
    Written responses to questions for the record submitted by 
      Representative McAdams.....................................   269
    Written responses to questions for the record submitted by 
      Representative Hill........................................   272
Otting, Hon. Joseph M.:
    Written responses to questions for the record submitted by 
      Representative Foster......................................   273
    Written responses to questions for the record submitted by 
      Representative Hill........................................   275
    Written responses to questions for the record submitted by 
      Representative McAdams.....................................   276
    Written responses to questions for the record submitted by 
      Representative Posey.......................................   278
    Written responses to questions for the record submitted by 
      Chairwoman Waters..........................................   281
Quarles, Hon. Randal K.:
    Written responses to questions for the record submitted by 
      Chairwoman Waters..........................................   362
    Written responses to questions for the record submitted by 
      Representative Barr........................................   382
    Written responses to questions for the record submitted by 
      Representative Foster......................................   384
    Written responses to questions for the record submitted by 
      Representative Jesus ``Chuy'' Garcia.......................   387
    Written responses to questions for the record submitted by 
      Representative Gottheimer..................................   388
    Written responses to questions for the record submitted by 
      Representative Hill........................................   390
    Written responses to questions for the record submitted by 
      Representative Huizenga....................................   394
    Written responses to questions for the record submitted by 
      Representative McAdams.....................................   396
    Written responses to questions for the record submitted by 
      Representative Posey.......................................   400
    Written responses to questions for the record submitted by 
      Representative Riggleman...................................   403

 
                  OVERSIGHT OF PRUDENTIAL REGULATORS:
                  ENSURING THE SAFETY, SOUNDNESS, AND
                    ACCOUNTABILITY OF MEGABANKS AND
                     OTHER DEPOSITORY INSTITUTIONS

                              ----------                              


                         Thursday, May 16, 2019

             U.S. House of Representatives,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:02 a.m., in 
room 2128, Rayburn House Office Building, Hon. Maxine Waters 
[chairwoman of the committee] presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Meeks, Clay, Scott, Green, Perlmutter, 
Himes, Foster, Beatty, Vargas, Gottheimer, Gonzalez of Texas, 
Lawson, San Nicolas, Tlaib, Porter, Axne, Casten, Pressley, 
McAdams, Ocasio-Cortez, Wexton, Lynch, Adams, Dean, Garcia of 
Illinois, Garcia of Texas, Phillips; McHenry, Wagner, Lucas, 
Posey, Luetkemeyer, Huizenga, Duffy, Stivers, Barr, Tipton, 
Williams, Hill, Zeldin, Loudermilk, Davidson, Budd, Kustoff, 
Hollingsworth, Gonzalez of Ohio, Rose, Steil, Gooden, and 
Riggleman.
    Chairwoman Waters. The Financial Services Committee will 
come to order. Without objection, the Chair is authorized to 
declare a recess of the committee at any time.
    Today's hearing is entitled, ``Oversight of Prudential 
Regulators: Ensuring the Safety, Soundness, and Accountability 
of Megabanks and Other Depository Institutions.'' I now 
recognize myself for 4 minutes to give an opening statement.
    Today, this committee convenes for a hearing with our 
nation's prudential regulators. Last month, we held a hearing 
with the CEOs of seven of our nation's largest banks.
    In March, we held a hearing specifically focused on Wells 
Fargo and its pattern of harming its customers. Now, we have 
with us today, the regulators responsible for overseeing those 
institutions, as well as other financial institutions.
    For some time, I have voiced concerns that the fines levied 
by our regulators against megabanks that break the law 
ultimately just amount to the cost of doing business for these 
institutions and do not effectively lead them to change their 
behavior.
    In the last 10 years, the U.S. Global Systemically 
Important Banks, that is the G-SIBs, have collectively paid at 
least $163.7 billion in fines for consumer abuses and other 
violations of the law. Over the same period, they made $780 
billion in profits.
    In the last decade, Wells Fargo alone paid more than $11 
billion in fines, but has raked in over $197 billion in 
profits. That institution has been engaged in widespread 
consumer abuses, including the creation of millions of 
fraudulent, unauthorized accounts. While Wells Fargo remains 
under an asset cap imposed by the Federal Reserve, and has 
recently been publicly rebuked in statements by regulators, 
these steps do not appear to have gone far enough. Today, 
Chairman Quarles, Comptroller Otting, and Chairman McWilliams 
must describe what additional steps they are prepared to take 
to rein in abusive megabanks like Wells Fargo.
    I am also very concerned that the Federal Reserve, the OCC, 
and the FDIC have proposed weakening capital stress-testing and 
other requirements for the largest financial institutions, and 
appear to be kowtowing to Trump's harmful deregulatory agenda, 
checking items off of the to-do list provided by Trump's 
Treasury Department in a series of reports they have released.
    I want our witnesses to know that Congress is paying 
careful attention to your actions, and we will not tolerate 
actions that threaten the stability of our financial system.
    Additionally, in the wake of the passage of S. 2155 last 
Congress, bank consolidation is accelerating, as I previously 
warned it would.
    The proposed BB&T and SunTrust merger would create the 
sixth largest bank in the United States. But while thousands of 
banks have proposed to merge between 2006 and 2017, not a 
single bank merger application was formally rejected by the 
Federal Reserve.
    Bank mergers should not simply be rubber-stamped by our 
regulators. They should provide a clear public benefit for the 
communities the banks serve.
    That is why I have called for additional public hearings in 
States that would be affected by the proposed merger, as well 
as for regulators to defer a decision on the merger until this 
committee has an opportunity to thoroughly review the matter.
    I look forward to discussing these and other matters with 
our witnesses today.
    The Chair now recognizes the ranking member of the 
committee, the gentleman from North Carolina, Mr. McHenry, for 
4 minutes for an opening statement.
    Mr. McHenry. Thank you, Chairwoman Waters, for holding 
today's hearing. And I want to thank the regulators for being 
here.
    Almost a decade ago, the Dodd-Frank Act resulted in more 
than 400 new regulations and nearly 28,000 new restrictions. 
That is more than the cumulative number of restrictions 
resulting from all other laws passed during the Obama 
Administration.
    It was such a massive undertaking that the Federal 
financial regulators have yet to promulgate some of these rules 
10 years post-crisis.
    Dodd-Frank was sold as an answer to consumer protection and 
financial stability. But it has resulted in increased costs for 
financial institutions and more headaches and paperwork for 
Americans as they try to open a bank account, get a mortgage, 
or save for retirement.
    One year ago, we enacted a bipartisan bill to balance the 
need for financial stability and consumer protection with 
regulatory right-sizing.
    The passage of the Economic Growth, Regulatory Relief, and 
Consumer Protection Act brought the proverbial pendulum back 
toward the center, offering targeted relief to put financial 
institutions back in the business of serving their customers 
and, by the way, the American economy.
    Last week, I wrote to three of you on the panel about the 
faithful and swift implementation of this change in public law, 
notably the Volcker Rule, community bank capital 
simplification, tailoring for banks with more than $50 billion 
in assets and improvement to the supplemental leverage ratio 
for custody banks, among others.
    These four alone have the potential to provide billions of 
dollars in banking services for institutions and retail 
customers. I urge you to swiftly and faithfully implement the 
contents of what we commonly call S. 2155.
    Chairwoman Waters and I both agree that consolidation is 
being driven by regulation. And the failure to swiftly 
implement this new law will drive more consolidation and the 
closure of more community institutions if it is not done. That 
is why we have provided that right-sizing in relief for 
community banks and credit unions, as well.
    The comment period is closed on these provisions, and it is 
critical that you work to implement this law without delay.
    Aside from new congressional mandates, many of the rules in 
which you are currently supervising merit modernization. Take, 
for example, the Community Reinvestment Act (CRA). CRA was 
enacted the same year Apple was incorporated to sell one of its 
first personal computers.
    Today, Americans conduct the overwhelming majority of their 
financial transactions by smartphone. Yet, the CRA hasn't seen 
even modest reform in more than a decade. That is problematic. 
And it no longer reflects the realities of a revolutionized 
banking sector. This needs to be updated. Better regulation can 
fix that.
    Finally, it is vital that you prioritize innovation and 
financial technology. Fintech holds considerable promise for 
institutions and consumers alike and will play a significant 
role in compliance and risk management as well.
    It is important to ensure that banks can have the sound 
legal footing to partner with technology companies. The bank 
fintech partnership holds considerable promise for institutions 
and consumers alike. But if bedrock legal principles such as 
valid-when-made and true lender are not resolved by the 
regulators, the next wave of digital banking will be for 
naught.
    I look forward to your testimony and to the questions 
today.
    Chairwoman Waters. The Chair now recognizes the Chair of 
our Subcommittee on Consumer Protection and Financial 
Institutions, Mr. Meeks, for 1 minute.
    Mr. Meeks. Thank you, Chairwoman Waters, for calling this 
timely hearing. And I wish to briefly flag some issues I hope 
to engage on with the witnesses who are here today and going 
forward.
    First, I am very concerned about CECL. My main concern is 
the real-world impact on small community banks, minority banks, 
and access to credit by the underbanked. I believe that we 
should seek to confirm and quantify the expected impact on 
these groups before implementing an accounting rule that has 
material real-world consequences.
    Second, minority banks are disappearing at an alarming 
rate. And following the financial crisis, black homeownership 
is down to pre-civil rights numbers. We absolutely need to do 
more to promote MDIs and support minority communities' access 
to affordable credit.
    Third, I remain very concerned about leveraged lending.
    And finally, I have been encouraged to hear the progress 
and collaboration across regulators on CRA modernization, and I 
intend to continue to monitor those issues.
    I thank you, and I yield back.
    Chairwoman Waters. Thank you.
    The Chair now recognizes the subcommittee's ranking member, 
Mr. Luetkemeyer, for 1 minute.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    The biggest news in the last few years has been our great 
economic progress. We have made unbelievable strides by 
overhauling our tax system, unleashing our economic potential, 
and fundamentally shifting towards a responsible regulatory 
environment. To get this momentum going, we need cooperation 
between Congress and Federal financial regulators, which is 
imperative.
    Today, we have before us four regulators who are charged 
with overseeing our financial system and ensuring all Americans 
have the economic freedom to participate in our growing 
economy.
    I would first urge all of you to implement the statutory 
changes included in S. 2155 without delay, specifically, 
tailoring for regional banks, community bank capital 
requirements, and supplemental leverage ratio for custody 
banks.
    Additionally, financial institutions across this nation are 
facing the most significant accounting change in decades. I 
have expressed my strong concerns over the broad potential 
impacts of FASB's CECL standard and I urge delayed 
implementation until you all have thoroughly studied CECL and 
understand the consequences.
    Together, we must work towards smarter streamlined 
regulatory regimes that promote not just transparency but also 
effective taxpayer and systemic protections.
    I thank the panel for their willingness to work alongside 
Congress and for appearing before us today.
    Thank you very much, and I yield back.
    Chairwoman Waters. Thank you.
    I want to welcome today's distinguished panel: the 
Honorable Rodney Hood, Chairman, National Credit Union 
Administration; the Honorable Jelena McWilliams, Chairperson of 
the Federal Deposit Insurance Corporation; the Honorable Joseph 
Otting, Comptroller, Office of the Comptroller of the Currency; 
and the Honorable Randal Quarles, Vice Chair of Supervision, 
Board of Governors of the Federal Reserve System.
    I want to extend a special welcome to Chairman Hood and 
Chairman McWilliams. Neither of you has testified before the 
committee, and we look forward to hearing from you.
    It has been over 3 years since NCUA or FDIC has appeared 
before the committee, so your appearances are long overdue.
    Without objection, all of your written statements will be 
made a part of the record.
    And each of you will have 5 minutes to summarize your 
testimony. When you have 1 minute remaining, a yellow light 
will appear. At that time, I would ask you to wrap up your 
testimony so we can be respectful of both the witnesses' and 
the committee members' time.
    Chairman Hood, you are now recognized for 5 minutes to 
present your oral testimony.

  STATEMENT OF THE HONORABLE RODNEY HOOD, CHAIRMAN, NATIONAL 
               CREDIT UNION ADMINISTRATION (NCUA)

    Mr. Hood. Good morning, Chairwoman Waters, Ranking Member 
McHenry, and members of the committee.
    Thank you for the opportunity to testify today about the 
state of America's federally insured credit unions and the 
NCUA's efforts to maintain a safe and sound credit union 
system.
    Federally insured credit unions are vital to the economic 
stability of communities across America. More than one-third of 
all U.S. households are members of credit unions.
    In 2018, the credit union system continued to perform well. 
By year's end, credit union membership grew to more than 116 
million members and assets increased to $1.45 trillion. The 
credit union system is well-capitalized, with an aggregate net 
ratio of 11.3 percent, well above the 7 percent statutory 
requirement.
    The share insurance fund is strong, so strong, in fact, 
that we have been able to issue nearly $900 million in share 
insurance fund dividends over the last 2 years. Credit unions 
are using these funds to improve the financial capability of 
people of modest means, support small businesses, and 
strengthen communities across the country.
    My priority is to strengthen the vitality of the credit 
union industry by doing even more to bolster underserved 
communities, including those in rural areas, persons with 
disabilities and low- to moderate-income households.
    To that end, I am working closely with the agency's senior 
leadership, especially the Offices of Minority and Women 
Inclusion, and Credit Union Resources and Expansion to ensure 
that NCUA is doing everything we can to assist small and low-
income-designated credit unions, including encouraging the 
formation of de novo minority depository institutions.
    For example, we are helping credit unions navigate the 
certification process for becoming community development 
financial institutions. We are also providing grants to low-
income-designated credit unions through our community 
development revolving loan fund.
    Last year, NCUA awarded over $2 million in technical 
assistance and urgent-needs grants to 211 credit unions to help 
them develop new products and services, recover from natural 
disasters, and offer financial services to unbanked and 
underserved populations.
    Just last month we entered into a partnership with the 
Small Business Administration (SBA) to help credit unions 
better utilize the SBA's various lending programs.
    I further intend to leverage my expertise and experience as 
a former Rural Housing Administrator at the U.S. Department of 
Agriculture in order to seek additional opportunities to 
connect credit unions and their members in rural areas to 
existing public sector lending programs.
    And next week, I have the honor of presenting a new Federal 
credit union charter that will serve a Native American 
community. This low-income-designated credit union will provide 
much-needed financial services to individuals and businesses in 
one of the nation's most underserved areas.
    On the regulatory front, we are constantly evaluating our 
regulatory framework to ensure that our rules are effective, 
but not excessive.
    For example, we are in the process of providing federally 
chartered credit unions more flexibility under our payday 
alternative loan program, allowing them to safely offer less 
expensive small-dollar loan options with a sound fidelity to 
consumer protection.
    Wherever we have the authority to improve the regulatory 
system and create a safe environment for credit unions and 
their members, we are doing our level best to do so.
    While the credit union system is strong, and the NCUA is 
faithfully executing its mission, I remain focused on the 
various risks posed by the rapidly changing financial services 
landscape.
    Frankly, one of them, cybersecurity, keeps me up at night. 
Cyberattacks pose an enormous threat to the entire financial 
system, including credit unions. The credit union system is 
especially vulnerable to this risk because the NCUA lacks 
sufficient legal authority to directly identify and address 
systemic security risk within the system.
    However, strengthening our cyber defense is one of the 
NCUA's top priorities. And we collaborate regularly with our 
peer regulators on how best to address the challenges.
    As chairman, I intend to employ the resources necessary to 
combat cybersecurity threats and ensure data protection for the 
agency, the credit union industry, and its members.
    I want to close by highlighting an area where congressional 
action would help credit unions better serve their members and 
communities, especially those of modest means.
    Amending the Federal Credit Union Act to permit all types 
of federally chartered credit unions to add underserved areas 
to their fields of membership or promote financial inclusion 
and shared prosperity and underserved and distressed 
communities.
    I look forward to working with members of this committee on 
these and other legislative issues.
    Finally, I will just note that my written testimony today 
details the information requested in the invitation to appear 
before you. Thank you for the opportunity to testify today.
    I look forward to your questions.
    [The prepared statement of Chairman Hood can be found on 
page 74 of the appendix.]
    Chairwoman Waters. Thank you, Chairman Hood.
    Chairman McWilliams, you are now recognized for 5 minutes 
to present your testimony.

STATEMENT OF THE HONORABLE JELENA MCWILLIAMS, CHAIRMAN, FEDERAL 
              DEPOSIT INSURANCE CORPORATION (FDIC)

    Ms. McWilliams. Thank you. Good morning, Chairwoman Waters, 
Ranking Member McHenry, and members of the committee and staff.
    Thank you for the opportunity to testify today about the 
FDIC's efforts to strengthen our oversight of depository 
institutions of all sizes and ensure that our regulated 
institutions are serving their communities.
    The nation's banks are at the center of economic activity 
in their communities. And this is especially true of minority 
depository institutions and community banks. The ability of 
community banks to provide safe and secure financial products 
and services forms the backbone of a strong national economy.
    For these reasons, the FDIC's oversight of banks is 
critical to financial stability and consumer protection. It is 
incumbent upon us to exercise our oversight judiciously and in 
a manner that recognizes each institution's unique business 
model and risk profile.
    My written statement details the many actions the FDIC has 
taken over the past year, both independently and in cooperation 
with our regulatory partners, to ensure that we are 
appropriately addressing risks to the system and are not 
imposing unnecessary regulatory burdens that might impede safe 
and secure banking activities.
    My written statement also contains an update on the 
progress we have made in implementing the Economic Growth, 
Regulatory Relief, and Consumer Protection Act.
    In addition to our supervisory role, the FDIC is tasked 
with resolving failed banks, and if called upon, large bank-
holding companies and other systemically important financial 
institutions.
    The FDIC reviews bankruptcy planning requirements for the 
largest U.S. bank-holding companies and the resolution plans 
filed by larger insured depository institutions.
    This work, along with other measures, has improved our 
readiness for these resolutions and helps ensure that market 
participants and not taxpayers bear the risks of loss in the 
event of a large bank failure.
    Most of my professional and personal life has been focused 
on the financial services industry. Before my tenure at the 
FDIC, I intuitively understood how important our nation's banks 
were to the economy.
    But until I had real conversations with bankers, their 
customers, the communities that they serve, and State 
supervisors on my 50-State listening tour, I did not fully 
appreciate how our banks, particularly community banks and 
minority depository institutions, are so intimately involved in 
the fabric of their communities' and customers' lives.
    I am nearly halfway through my nationwide listening tour. 
Across the country, these banks help fund a town's grocery 
store, barber shop, restaurants, local libraries, and small 
businesses.
    In rural communities, urban settings, and low- and 
moderate-income communities, our banks provide a critical 
lifeline for low- and moderate-income customers, while 
supplementing infrastructure and social services. It is the 
FDIC that provides consumers with the confidence to trust these 
banks with their deposits.
    And I would be remiss if I did not mention the 6,000 
dedicated FDIC employees who go to work every day laser-focused 
on protecting the stability and integrity of our financial 
system. I am proud to stand with them as we fulfill our mission 
to preserve and promote public confidence in the U.S. financial 
system.
    Thank you again for the opportunity to testify, and I 
welcome your questions.
    Chairwoman Waters. Thank you very much. And I did refer to 
you as ``Chairman'' McWilliams. I understand that is your 
preference. I don't want to hear from the public that I 
incorrectly addressed you. Is that correct?
    Ms. McWilliams. Madam Chairwoman, any which way you call me 
is fine.
    Chairwoman Waters. All right. Thank you very much.
    [The prepared statement of Chairman McWilliams can be found 
on page 107 of the appendix.]
    Comptroller Otting, you are now recognized for 5 minutes to 
present your oral testimony.

 STATEMENT OF THE HONORABLE JOSEPH OTTING, COMPTROLLER, OFFICE 
            OF THE COMPTROLLER OF THE CURRENCY (OCC)

    Mr. Otting. Thank you very much, Chairwoman Waters, Ranking 
Member McHenry, and members of the committee.
    I am honored to be here today to share my perspective on 
the condition of our nation's banking system and efforts to 
ensure that banks serve their customers and promote economic 
opportunity for all, while still operating in a safe, sound, 
and fair manner.
    The nation's banking system's financial performance 
improved in 2018 and early 2019, driven primarily by strong 
operating performance. Capital and liquidity remained near 
historic highs. Return on equity is near--
    Chairwoman Waters. Excuse me. Could you pull your 
microphone a little bit closer to you? Some of our Members are 
having a difficult time hearing you. Thank you.
    Mr. Otting. How is that? Is that better?
    Chairwoman Waters. Yes, thank you.
    Mr. Otting. Yes. I apologize. That increased 25 percent for 
banks with less than $1 billion in assets and nearly 50 percent 
for the Federal banking system as a whole. Asset quality, as 
measured by traditional metrics such as delinquencies, non-
performing assets and losses, is strong and stable.
    While the condition of the Federal banking system is 
strong, the OCC monitors risk to the system on a continuing 
basis and summarizes those risks in our semi-annual risk 
perspective. Key risks highlighted in the most recent report 
include credit, operational compliance, and interest rate risk.
    These areas continue to evolve in the context of a changing 
economically, technological and banking operating environment. 
Examiners will be paying close attention to these risks in the 
supervisory strategies for the banks they supervise.
    Maintaining the viability of the nation's economy depends, 
in part, on the ability of financial institutions, particularly 
community and mid-sized banks and savings associations, to 
operate efficiently, effectively, and without unnecessary 
regulatory burden.
    The Economic Growth, Regulatory Relief, and Consumer 
Protection Act of 2019 provided a commonsense, bipartisan 
framework to reduce regulatory burden for small and mid-sized 
banks, while safeguarding the financial system and protecting 
consumers.
    The Act exclusively tasks the OCC with implementing 
regulatory changes that afford Federal savings under $20 
billion in assets greater business flexibility within the 
burden of changing charters. In 2018, the OCC issued a proposed 
rule to implement this law. We plan to issue a final rule in 
the near future.
    In addition to this exclusive responsibility, the OCC is 
working with other regulators to implement additional 
commonsense reforms, which we believe will be completed by the 
third quarter of 2019, and all are scheduled before the end of 
the year.
    In addition to the Economic Growth Act, the OCC has acted 
to promote economic opportunity and eliminate unnecessary 
burden by working to modernize the Community Reinvestment Act 
to increase investments in communities that need it most.
    In addition, we are focused with the other agencies to make 
the banks' security compliance more efficient and effective, 
promote responsible short-term lending, and also support 
responsible innovation that provides more choices to consumers 
and businesses.
    The OCC has been a leader and recognizes significant 
contributions our diverse workforce has made in our achieving 
our goal. Towards this end, we work to enhance diversity within 
every level of our agency and among the institutions we 
regulate. The OCC has had a diverse strategy for more than 10 
years and regularly aligns its diversity goals with its 
strategic plan.
    Our recruiting efforts include Hispanic-serving 
institutions, Historically Black Colleges and Universities, and 
outreach to minority student organizations to develop 
relationships and gain access to diverse applicant pools.
    We offer paid intern programs to minority students at the 
college level. And for the first time in many years, we will be 
doing that at the high school level this year to provide 
exposure and opportunity in financial regulation and financial 
services.
    I am also very proud to say the OCC has a number of 
employee network groups that promote diversity, including 
PRIDE, dedicated to the LGBT community, the Coalition of 
African American Regulatory Employees, the Hispanic 
Organization for Leadership and Advancement, the Women's 
Network, the Veterans' Employee Network, the Network of Asian-
Pacific Americans, and Generational Crossroads, which fosters 
communication across generations in the workplace.
    The OCC is equally committed to minority- and women-owned 
businesses at all levels of the agency's business activities. 
Payments to minority or women-owned businesses represented 
north of 43 percent of the OCC's contractor payments in 2018.
    The OCC's actions to promote diversity amongst the banks it 
regulates includes regular technical assistance opportunities 
for minority depository institutions and convening a Minority 
Depository Institutions Advisory Committee to advise the OCC on 
conditions of the MDIs and steps that support their viability.
    Additionally, the OCC encourages MDI directors to attend 
agency workshops on governance, credit risk, compliance risk, 
and other important banking issues by waiving their 
participation fees.
    My written testimony provides additional details on all of 
these topics.
    Thank you for the opportunity to discuss these important 
issues, and I look forward to answering your questions.
    [The prepared statement of Comptroller Otting can be found 
on page 132 of the appendix.]
    Chairwoman Waters. Thank you, Comptroller Otting.
    Vice Chairman Quarles, you are now recognized for 5 minutes 
to present your oral testimony.

  STATEMENT OF THE HONORABLE RANDAL QUARLES, VICE CHAIRMAN OF 
 SUPERVISION, BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM 
                             (FED)

    Mr. Quarles. Chairwoman Waters, Ranking Member McHenry, 
members of the committee, thank you for your time and for your 
invitation to testify today on the Federal Reserve's regulation 
and supervision of the financial system.
    Our visit today comes 10 years, almost to the day, after 
the Federal Reserve released the results of its first 
supervisory stress test. That exercise was an invention of both 
urgency and necessity and a tool to move the country's largest 
financial institutions towards safety and stability.
    Many innovations from that period are now regular elements 
of the Federal Reserve's supervisory and regulatory work. These 
innovations have helped strengthen firms that were damaged by 
the crisis. They have given supervisors and the public a 
clearer view of risks in the financial system. They have 
provided a solid foundation for the nation's economic recovery.
    Now, when the financial system and economy are in good 
health, is the time to consolidate the insights we have gained 
with experience with these measures and to better the 
regulatory framework that we have built.
    Today, I will briefly review the Federal Reserve's steps to 
improve this framework since my last appearance, outline the 
supervision and regulation report that accompanies my 
testimony, and discuss our other engagement on community, 
consumer, and financial stability issues, both at home and 
abroad.
    Almost a year ago, Congress passed the Economic Growth, 
Regulatory Relief, and Consumer Protection Act. The cornerstone 
of this legislation was a directive to the regulatory agencies 
to tailor oversight of institutions to ensure that our 
regulations matched the character of the firms we regulate, 
with specific congressional direction for firms between $100 
billion and $250 billion in total assets.
    The core of the resulting regulatory efforts were the 
tailoring proposals for domestic institutions that the agencies 
issued last year. Those proposals share a common goal: To focus 
our energy and attention on both the institutions that pose the 
greatest risk to financial stability, and the activities that 
are most likely to challenge safety and soundness.
    A more recent proposal addresses prudential requirements 
for the U.S. operations of foreign banks. Like last year's 
tailoring proposal for domestic institutions, it categorizes 
firms according to their size, business model, and risk 
profile.
    The proposal differs from the domestic proposals to account 
for the unique structural differences of foreign banks and asks 
for input on a number of important issues. I look forward to 
reviewing the comments we receive.
    We also have been providing targeted regulatory relief, 
especially for community banks and other less complex 
organizations. The community bank leverage ratio would give 
community banking organizations a more straightforward approach 
to satisfying their capital requirements, for example.
    We also propose to expand community banking organizations' 
eligibility for both longer examination cycles and exemptions 
from holding company capital requirements.
    The report accompanying my testimony provides more details 
on these and other recent regulatory steps, as well as on the 
overall condition of the banking system.
    In the past half year, the Board also took steps to 
consolidate the role that stress-testing plays in our work. 
Following the directive from S. 2155, we began to transition 
less complex firms to an extended testing cycle reflecting the 
lower risks they pose relative to their larger and more complex 
peers.
    We published new details of our methodology and models, 
improving public understanding of the program and maintaining 
the integrity of its results.
    We announced the new stress-testing conference that will 
take place in July to receive additional input on our 
practices. And while maintaining a rigorous evaluation of 
capital planning, we committed to addressing qualitative 
deficiencies at most firms through supervisory ratings and 
enforcement actions, rather than through a standalone 
qualitative objection.
    As detailed in my written testimony, we have taken other 
steps that support our supervisory and regulatory framework by 
making it simpler and more transparent.
    We also continue to engage with our regulatory counterparts 
overseas through standard-setting bodies and the Financial 
Stability Board, where I recently began a 3-year term as Chair.
    The strength of our financial system today rests on the 
insight, patience, and persistence of a decade's work on post-
crisis reforms. Only by thoughtfully evaluating the reforms we 
have made and adjusting our approach when appropriate can we 
preserve and improve the efficacy and efficiency of our 
regulatory framework.
    Thank you. I look forward to answering your questions.
    [The prepared statement of Vice Chairman Quarles can be 
found on page 157 of the appendix.]
    Chairwoman Waters. I now recognize myself for 5 minutes for 
questions. Over the last decade, bank merger applications have 
been approved at record speed and with little opposition from 
regulators.
    According to the Federal Reserve, the median time it takes 
to approve a bank merger receiving opposition from community 
groups dropped to less than 4 months in the first half of 2018. 
And that compares to 7 months for all of 2015.
    From 2006 through 2007, over 3,300 merger applications were 
approved by the Federal Reserve and the agency did not formally 
reject any merger application they received.
    Regarding the proposed BB&T-SunTrust merger I received 
letters yesterday from the Federal Reserve and the FDIC that 
were non-responsive to my recommendation that additional public 
hearings in other States be held beyond the two hearings 
previously held.
    Yesterday, I also learned from the CEOs of BB&T and 
SunTrust that the banks held six additional listening sessions 
in other States, though it is unclear how public those meetings 
were.
    Vice Chairman Quarles and Chairman McWilliams, given the 
banks themselves have done additional listening sessions, what 
is the harm in your agency scheduling additional public 
hearings in other States that will be affected to ensure your 
agencies receive as much feedback as possible about the 
benefits and drawbacks before deciding on this proposed merger?
    Vice Chairman Quarles?
    Mr. Quarles. Thank you. We have had an active process of 
seeking public input. In addition to the two public hearings in 
the two key areas where the banks operate, we have received 801 
public comments on the merger. There is really no shortage of 
public input and we are in the process of evaluating that.
    Chairwoman Waters. In talking with the CEOs, they said they 
have no problem with having additional hearings. If they have 
no problem, why are you hesitant to have more public hearings?
    Mr. Quarles. As we look at approving any merger, including 
this merger, we are mindful that we do have a congressional 
framework that establishes what it is that we look at and the 
timeframes in which we are to look at them.
    We are trying to balance, and I think we are doing a good 
job of balancing the need for public input, particularly on a 
merger of consequence like this. And we have gotten a lot of 
public input, with the congressional mandate to act in 
timeframes and with the considerations that we were directed to 
use.
    Chairwoman Waters. I have been around for quite some time 
and I can recall the days when we had many public hearings on 
proposed mergers. And I want to just continue with asking 
Chairman McWilliams, do you have any problem with having 
additional hearings?
    Ms. McWilliams. We have held two hearings at which we have 
received a sizeable number of comments. And frankly, I pulled 
the numbers: We have heard from groups and individuals from 24 
different States and the District of Columbia, and heard from 
individuals from 14 different States and Washington, D.C., at 
those two public hearings.
    We have covered the majority of the markets that both BB&T 
and SunTrust serve at those hearings with representatives. It 
is my understanding from being briefed by my staff on how the 
hearings went and what was said at those hearings that over 90 
percent of the groups speaking at those hearings were speaking 
positively of the merger.
    What we heard at those hearings and what we are looking at 
throughout the process do not seem to imply that we need to do 
more hearings.
    Chairwoman Waters. So, how many States are we talking about 
this merger impacting? How many States do they have banks in?
    Ms. McWilliams. The hearings were held in the two home 
States--
    Chairwoman Waters. I know. Only two of how many?
    Ms. McWilliams. Well, I don't know exactly what they are. 
We can get you the numbers on the footprint for both banks but 
representatives--
    Chairwoman Waters. I am trying to--
    Ms. McWilliams. --from 24 different States from--
    Chairwoman Waters. --make the point that while there were 
two hearings, you have any number of other States that are 
impacted by this merger. How many other States, if the staff 
can give me that number?
    Ms. McWilliams. I have the numbers. Individuals from 12 of 
the 16 markets that BB&T serves appeared at a hearing, and 
individuals from 9 out of 11 markets served by SunTrust.
    Chairwoman Waters. And so, I am questioning why you don't 
have more hearings? This is an important merger. This will be, 
I suppose, the sixth largest bank in this country.
    We are concerned about consolidation, and we are concerned 
about making sure that the public is involved in understanding 
what is happening. And so, I am going to insist on asking you 
again in a formal way by way of a letter about consideration 
for additional hearings.
    Twelve States, all right. Thank you very much. I will now 
yield to the gentleman from North Carolina, Ranking Member 
McHenry, for 5 minutes.
    Mr. McHenry. Thank you.
    Vice Chairman Quarles, Comptroller Otting, and Chairwoman 
McWilliams, thank you all for your interagency response to my 
letter. I have never seen such a timely interagency response, 
and I am grateful for that.
    I appreciate the clarity you gave me on the questions I 
outlined. As a matter of congressional oversight of the 
implementation of public laws, that ongoing process is the 
insurance that we will have faithful implementation of our laws 
in a way that conforms with congressional intent.
    And you outlined in your responses that there are a number 
of comment periods that have closed. But also, there is a 
significant amount of work to be done on your part and your 
staff. What I have heard around town is there are bandwidth 
issues which is, we don't have the capacity to get these things 
done.
    It is a lot of work, then I look back at the Obama 
Administration. I never heard complaints about bandwidth 
issues, and there were a lot more regulations to implement 
then. And so, I just want to ask you: Do you currently have 
within your capacity, the staff, the necessary ingredients to 
get these rules enacted in a timely fashion?
    Vice Chairman Quarles, I will ask you and Mr. Otting and 
Ms. McWilliams.
    Mr. Quarles. Yes. Yes, we do. As I think we indicated in 
response to our letter, the bulk of the the core proposal which 
came out last October was, and we don't keep the detailed 
records of this, but I feel quite confident in saying that that 
was the fastest proposal of an implementing regulation of a 
major congressional action in the history of the Federal 
Reserve, certainly, in the modern history of the Federal 
Reserve.
    Mr. McHenry. We had 10 years to prepare, so that helps.
    Mr. Quarles. And we are on track to complete the 
implementing actions for S. 2155; we had the bulk of the 
implementing actions completed by the third quarter of this 
year and all of them completed by the end of this year.
    Mr. McHenry. Thank you.
    Mr. Otting?
    Mr. Otting. I think there has been a tremendous amount of 
communication. We also divided the rules. The common process is 
that one of the agencies will take a lead on a particular rule, 
so we have divided these rules.
    So-called having the pen. What has worked effectively is 
the three of us speak almost every week and any items that are 
outstanding on S. 2155, we bring them right to the top.
    All of us probably carry in our briefcase the matrix of 
where we are. So, we are acutely aware of the necessity to move 
those rules through the process. And I actually think we have 
had good cooperation and have had no bandwidth issues as we 
have tried to move both this and some other legislation 
forward.
    Ms. McWilliams. The FDIC has highly capable staff who will 
complete the rulemakings in due time, and we work very well 
with our partner agencies.
    Mr. McHenry. That is good. So to you, Ms. McWilliams and 
Mr. Otting, there is the ongoing question in the Madden v. 
Midland case of the question of valid when made. And my 
question to both of you is will you commit to providing clarity 
to banks and nonbank third parties as it relates to the 
foundational legal principle valid when made? Mr. Otting?
    Mr. Otting. Well, first of all, we do think that that was 
an inaccurate conclusion in that case. We had hoped for perhaps 
some legislative fixes to that, but it does appear now we will 
have to have some regulatory fixes to that, and we have begun 
the discussions within the agency.
    Ms. McWilliams. The issue of Federal versus State law in 
banking cases is not new. What is new is that it comes at a 
time of great innovation that could stifle entrepreneurship and 
progress in how banks are able to conduct business. We are 
currently examining at the FDIC the appropriate role of the 
agency as this case unfolds.
    Mr. McHenry. Well, time is ticking, and I will follow up 
with both of you on that.
    Ms. McWilliams. I understand.
    Mr. McHenry. Mr. Quarles, I will have a number of questions 
for the record about this switch from LIBOR to SOFR. The 
concern here is the disruption in the marketplace. Is that a 
concern you share in the shift from LIBOR to this new benchmark 
standard?
    Mr. Quarles. It is. That is the reason that we began 
catalyzing the private sector response to this really beginning 
7 years ago. The Federal Reserve was indicating that this 
needed to be done. I think as people think about the LIBOR 
transition question, it is important to remember that this is 
not a result of regulatory action.
    We are not mandating the transition from LIBOR. We are 
recognizing that private sector banks that are responsible for 
determining LIBOR will no longer do so certainly, very well, 
may no longer do so after a period.
    Mr. McHenry. I will submit more questions for the record on 
LIBOR versus SOFR.
    Chairwoman Waters. Thank you.
    The gentlewoman from New York, Ms. Velazquez, is recognized 
for 5 minutes.
    Ms. Velazquez. Thank you. Thank you, Madam Chairwoman. 
Comptroller Otting, last month I questioned Citigroup CEO 
Michael Corbat on his $24 million compensation package for 
2018.
    This outstanding package means the Citigroup CEO makes $486 
for every dollar that the median employee at the firm is paid. 
When I asked him if he thought this ratio was fair, he 
responded by saying that his compensation is set by the board 
and voted on by shareholders.
    Section 956 of the Dodd-Frank Act was created to prohibit 
excessive compensation packages in the financial industry that 
encourage inappropriate risk-taking.
    However, a rule has never been finalized. Last month, you 
stated that the OCC was planning to take the lead and propose a 
rule on executive bonuses for bankers. What steps is the OCC 
currently taking to move forward with this rule?
    Mr. Otting. I am actually pleased to make some comments on 
this because I know it has been a very topical issue. If you 
may recall in 2011, there was a notice of proposed rulemaking 
that was introduced that stalled, and then in 2016--
    Ms. Velazquez. Yes, I know that history but my time is 
limited.
    Mr. Otting. There was a detail to that history. I would say 
where we are right now is we are doing in a succession of this. 
Right now the OCC has put a draft together. We have shared it 
with the SEC. We have met with them.
    The next plan once the two of us sign off is to engage the 
other four regulators and we are hopeful that this year we can 
introduce a notice of proposaed rulemaking.
    Ms. Velazquez. Can you share with us regarding that draft 
if it contains any specific restrictions? We need a rule that 
contains actionable requirements.
    Mr. Otting. There are provisions in Dodd-Frank, and we 
intend to fully include all of the provisions in Dodd-Frank as 
required.
    Ms. Velazquez. So it is going to be strong enough?
    Mr. Otting. I can't comment on specifics of the rules until 
I get feedback from the other agencies. This is a six-agency 
process, as you probably recall, and it is our intent to try to 
get this cleared with the principles based of the rule 
incorporated into the document.
    Ms. Velazquez. So we hope that he has and it contains 
strong requirements because if we see what happened recently 
with Wells Fargo, if you don't come out with a strong rule, 
then you are failing the American people. You are failing the 
thousands of families who lost their homes.
    Comptroller Otting, your desire to update and modernize the 
Community Reinvestment Act has been well-publicized. You have 
stated that a proposed rule could be released by December. Do 
you still believe this is a realistic timeframe?
    Mr. Otting. As you know, this is a very complicated rule, 
with a lot of public input. I think we have 2,500 comments from 
meetings and public input. We are in the stages, right now, of 
discussion with the Federal Reserve and the FDIC and ourselves. 
I am hopeful of that, but--
    Ms. Velazquez. Okay.
    Mr. Otting. This is a highly complex regulation that hasn't 
been looked at since 1977. Clearly, we want to be able to 
measure what gets measured, where it gets measured, how it gets 
measured, and more importantly, what is the aggregation in the 
industry that gets done on an annual basis.
    Ms. Velazquez. Sir, do you believe that this proposal will 
be a joint proposal?
    Mr. Otting. I do.
    Ms. Velazquez. Mr. Quarles, what is your opinion on that?
    Mr. Quarles. Yes, I agree the--
    Ms. Velazquez. It is going to be a joint proposal?
    Mr. Quarles. The agencies are working well together. I 
expect it to be a joint proposal.
    Ms. Velazquez. Chair McWilliams, how would you respond to 
what Comptroller Otting and Chairman Quarles just said?
    Ms. McWilliams. I am in agreement that this should be a 
joint rulemaking, and we are working very hard. We are meeting 
every week at the principal level to discuss the issues and 
make sure the agencies are aligned. It is always good to have a 
joint rulemaking for matters that are this important to the 
communities, and we hope to proceed--
    Ms. Velazquez. Are there any stumbling blocks that remain, 
from your perspective?
    Ms. McWilliams. As a former regulatory attorney of the 
Federal Reserve who used to draft regulations, I can tell you 
once you start working on the nuances of each line, that is 
where you kind of jump into some of the difficult issues, but 
so far we are aligned.
    Ms. Velazquez. Thank you. I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Missouri, Ms. Wagner, is recognized 
for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman.
    On May 24, 2018, almost a year ago, President Trump signed 
into law what we have been speaking about as S. 2155, the 
Economic Growth, Regulatory Relief, and Consumer Protection 
Act. These reforms will improve economic growth and 
competitiveness for financial institutions and their customers, 
and I am eager, as are many of my constituents, for them to 
move forward.
    I am going to ask each of you for a very fast, lightning 
round update on the implementation of proposed rulemakings from 
S. 2155 that have a closed comment period. There are 
approximately eight of them. I am glad you have that matrix, 
Comptroller Otting. Here we go.
    Number one, Section 214, promoting construction and 
development on Main Street, Mr. Quarles, Mr. Otting, Ms. 
McWilliams?
    Mr. Otting. Congresswoman Wagner, you are asking us when do 
we think that would get commenced?
    Mrs. Wagner. Yes. I want the status, the update. What is 
the status currently?
    Mr. Otting. I would say 60 days.
    Mrs. Wagner. Mr. Quarles, Ms. McWilliams, yes?
    Ms. McWilliams. Sounds correct, yes.
    Mr. Quarles. Yes.
    Mrs. Wagner. Okay. Next, number two, Section 401, enhanced 
supervision and prudential standards for certain bank holding 
companies, Mr. Quarles?
    Mr. Quarles. Anything on which the comment period is 
closed, I think we will have a final rule on within 60 to 90 
days.
    Mrs. Wagner. Within 60 days, 90 days?
    Mr. Quarles. Sixty to 90, yes.
    Mrs. Wagner. Sixty to 90. Section 201, capital 
simplification for qualifying community banks, Mr. Quarles, Mr. 
Otting, Ms. McWilliams, 60 days, 90, 30, 10?
    Mr. Otting. Sixty.
    Mrs. Wagner. Going with 60. Number four, Section 203, 
Community Bank Relief Act, Mr. Quarles, Mr. Otting, Ms. 
McWilliams?
    Mr. Otting. Final rule expected August 2019.
    Mrs. Wagner. August 2019. All right, good. Number five, 
Section 103, the rural area appraisal exemption, Mr. Quarles, 
Mr. Otting, Ms. McWilliams?
    Mr. Quarles. 60 to 90 days.
    Mrs. Wagner. Oh, come on. I need better than that.
    Mr. Otting?
    Mr. Otting. I am trying to find it in my chart.
    Mrs. Wagner. I love your matrix. Can I just get a copy of 
your matrix, sir, no.
    Mr. Otting. Pardon me?
    Mrs. Wagner. No, sorry, I am teasing.
    Mr. Otting. As I said in my opening statement, almost all 
of these will be done by September 30th. A couple are going to 
move into the fourth quarter, but all are expected to be--
    Mrs. Wagner. Which ones will move into the fourth quarter 
do you think?
    Mr. Otting. Pardon me, ma'am?
    Mrs. Wagner. Which ones will move into the fourth quarter 
do you think? Look at the staff working behind you. This is 
great. Team effort. So as not to waste time, Section 103, rule 
area appraisal exemption.
    Mr. Otting. I don't know why I don't have that.
    Mrs. Wagner. Mr. Quarles, Mr. Otting?
    Mr. Otting. Final rule expected by July 2019.
    Mrs. Wagner. All right. Section 204--
    Mr. Otting. We would be more than happy to provide all of 
these dates to you.
    Mrs. Wagner. That is outstanding. I thank you very, very 
much and I will then--
    Mr. Otting. Mr. McHenry could provide you a copy of our 
letter.
    Mrs. Wagner. That would be just dandy. Thank you very, very 
much. It is very important that we get these done, especially 
those that have closed the comment period and move forward with 
this tremendous piece of bipartisan legislation.
    Let me ask another question here. Pursuant to the Dodd-
Frank Act, you promulgated the Volcker Rule in 2013, a highly 
complex and burdensome regulation restricting banks in engaging 
in proprietary trading or investing in covered funds despite 
the fact that propitiating in commercial banks was not central 
to the economic crisis.
    Last year, you proposed amendments to the rule to address 
some of the burdens. And finally, last May, as part of Senate 
2155, Congress acted to alleviate some of the harmful aspects 
of the Volcker Rule. Where do things stand on comprehensive 
Volcker Rule reform as well as with regard to implementing the 
provisions in S.2155?
    Mr. Quarles. I can address that. We have received hundreds 
of comments on the Volcker Rule proposal as both the Volcker 
Rule itself and the comments are extremely complex. The 
relevant agencies, there are five affected agencies, together 
have been reviewing those comments.
    Our expectation is that we will have responses to those 
comments and a conclusion as to how to respond to them soon, I 
would say within the next couple of months.
    Over the course of the summer, certainly, we will have that 
response. Necessarily because on the covered funds issues, as 
you know, in the proposal last year we asked questions as 
opposed to having a specific proposal on covered funds, there 
will be at least an initial proposal on what to do on covered 
funds and therefore an additional comment period with some 
process on that afterwards
    Mrs. Wagner. Thank you. My time has expired.
    I yield back.
    Chairwoman Waters. The gentleman from California, Mr. 
Sherman, is recognized for 5 minutes.
    Mr. Sherman. It has been a pleasure to sit next to my 
colleague, Mr. Meeks, for the last 20 years, and I join him 
with concern about CECL but I think it is up to us to solve the 
problem, although I would like you folks to respond for the 
record as to what we can do to solve it. As Mr. Meeks points 
out, it will be bad in its effect.
    I am here to tell you it is bad accounting theory and the 
process that the FASB took to get this far is less democratic, 
less open, and less transparent than any other government 
agency I am aware of, although they will tell you it is better 
than the way they did other things.
    So it is up to this committee to step in and get the FASB 
to delay, and if they don't, to actually pass legislation 
withdrawing this CECL regulation.
    Mr. Hood, I couldn't agree with you more that credit unions 
need to be allowed and, in fact, encouraged to serve the 
underserved. And of course all regulators should be not only 
allowing but encouraging their institutions to do just that.
    I have another question for the record but I would like you 
all to respond for the record and that is, what can you do so 
that we can make small business loans beyond those guaranteed 
by the SBA?
    Because I remember when Jamie Dimon was here and he said, 
``We couldn't find any U.S. businesses, small and medium-sized 
business to make loans to. We had this capital so we sent it to 
London where it was eaten by the whale.'' You remember the 
whale.
    So the fact is nobody is making a prime plus five loan. 
They say it is your fault. It could be quite reasonable for a 
bank to make some of those loans because there are businesses 
that have a significant risk but are the small business that 
will eventually be very important to our economy.
    LIBOR is an index used in $400 trillion worth of 
instruments that are out there--$400 trillion here, $400 
trillion there, it eventually adds up to real money. Of those, 
only about $2 trillion are what I call legacy LIBOR.
    That is to say, they are going to be outstanding after 2021 
when the LIBOR index is no longer published, but they reference 
LIBOR and they don't have a provision in there to say what is 
the backup reference.
    And I wonder if you could work together to give us proposed 
legislation to say, okay, this is a matter of contractual 
interpretation. We will simply mandate that for the $2 trillion 
of legacy LIBOR, this is how you do the math. And I hope that 
you would respond to the record for that.
    About 10 years ago, we had TARP. Mr. Quarles, I think you 
probably regulate the biggest of the big, can you guarantee us 
that no one institution will be able to call the White House or 
Congress and say, ``We are going down and when we go down we 
will bring down a chunk of the economy with us''? They did that 
10 years ago.
    Can we just hang up on them now if they make that call? And 
don't tell me it is unlikely to happen because, trust me, your 
predecessor's predecessor told us in 2007 it wasn't going to 
happen. Go ahead.
    Mr. Quarles. Yes. There have been substantial improvements 
in the resolvability of all of the large institutions.
    Mr. Sherman. So can you guarantee that if they call, we can 
hang up the phone? You are not going to be here saying, ``Oops, 
you better pass TARP II''?
    Mr. Quarles. What I can guarantee is that the changes that 
have been made will give policymakers, including the Congress, 
more options than existed 10 years ago which could end up 
being--
    Mr. Sherman. For those of us who lived through it, that is 
not a whole lot of comfort. What I tell you we can guarantee 
that if we break up the too-big-to-fail institutions and I am 
still looking for co-sponsors, particularly bipartisan co-
sponsors, on that effort.
    Let us see, let me go back to Mr. Hood. I believe that the 
nominal operating level for your reserve fund is 1.3 percent, 
but as a result of recent changes, you are now up to 1.38 
percent. Is it your intention to go back down to 1.3 percent?
    Mr. Hood. Yes, sir. I am looking at this with agency 
leadership and staff. In the month that I have been at the 
NCUA, I have had two briefings on the matter. I am pleased to 
report that we have been able to issue over $900 million in 
dividends through back to the credit unions. So we are 
continuing to assess and address operating levels.
    Mr. Sherman. Thank you.
    Chairwoman Waters. The gentleman from Oklahoma, Mr. Lucas, 
is now recognized for 5 minutes.
    Mr. Lucas. Thank you, Madam Chairwoman.
    And panel, I would like to turn to an issue that I think is 
close enough at hand and something you can do something about 
in short order. I have raised the issue of inter-affiliate 
margins several times to each of you. By now I think you all 
know the reasons why regulators should clarify the treatment of 
inter-affiliate transactions when it comes to initial margin.
    Just to reiterate, you are the only G20 regulators who 
still require initial margin for these transactions. I also 
know you have heard from my colleagues both on this committee 
and in the Senate about this issue. So I will not belabor the 
point.
    Chair McWilliams, can you update us on the progress in 
harmonizing your rules with the CFTC, as Treasury recommended 
to you in 2017?
    Ms. McWilliams. Thank you for that question. On the 
interagency level we are working together to update the rule 
and we expect to seek comment in the near future on how to 
proceed.
    There are several ways to proceed. One would be an 
interagency rulemaking. One of the other regulators has sole 
authority to act as well. So it is a question of how exactly we 
are going to proceed, but we are committed to proceed in the 
near future.
    Mr. Lucas. I will ask Chairman Quarles and Comptroller 
Otting, can you offer any thoughts or updates on this 
situation?
    Mr. Quarles. Yes. So the inter-affiliate margin question 
should be considered in the context of the existing provisions 
of the Federal Reserve Act and Federal Reserve regulations that 
provide protections to affiliates at transactions between 
depository instructions and their affiliates, 23A and 23B and 
Reg. W. And I think that existing framework should give us 
comfort as we look at removing the potential redundancies in 
the inter-affiliate margin rules.
    Mr. Lucas. I am pleased to hear that we are making progress 
on some of this or at least some movement. It has been a long 
time coming and will lead to a healthier derivates markets for 
everyone.
    That said, I believe the time for change is now, quicker 
being more important than later. And I have been discussing 
this issue for almost 5 years and I would charge you to 
continue the forward momentum that we have right now.
    Now, I understand there is some discussion of adopting this 
rule in a larger notice and comment review of the margin rules 
or prudential regulations. I fear however warranted these 
broader efforts may be, incorporating a fix in an inter-
affiliate margin will only delay a badly needed police change.
    Instead, I encourage you to address this issue through a 
discrete--yes, sometimes in Congress we advocate discrete 
actions--change in the margin rules that can advance 
independent of a larger undertaking. You have made such changes 
before these rules so please let us do that again here. Let us 
make this happen and bring us into balance of the rest of the 
G20.
    Now that said, I sent a letter yesterday to the Fed, the 
FDIC, and the OCC on the SCRA proposal. Specifically, I am 
worried that the higher capital charges under SCRA will cause 
banks to pass those costs on to end users engaged in OTC 
transactions.
    As a member of both the Agriculture Committee and this 
committee during the Dodd-Frank process, I can tell you that we 
did not intend for legitimate hedging by end users in the 
derivates markets to be penalized in this way. End users should 
have access to these markets to engage in prudent risk 
management practices.
    Vice Chairman Quarles, we have discussed this in person. 
Have you heard these same comments from end users, and if so do 
you intend to address them in the final rule?
    Mr. Quarles. I have heard those comments from end users, 
and I am meeting with a coalition of end users again in a few 
days where I expect to hear additional details on them. And we 
are giving that careful consideration as we consider how to 
respond to comments on our proposal.
    Mr. Lucas. I am proud that the constituents are making it 
clear to both you and I. Another SCRA question for you all is 
related to an offset for client margin and supplemental 
leverage ratio.
    In February all of the CFTC Commissioners, Democrat and 
Republican, sent a comment letter to the Fed, the FDIC, and the 
OCC raising concerns about the SLR. Specifically, not 
offsetting client margin has had bad effects on the derivatives 
market for end users seeking to hedge risk. Are each of you 
aware of the CFTC comment letter and have any of you discussed 
it further with the CFTC?
    Mr. Quarles. Yes and yes. All of us, we work quite closely 
with Chris Giancarlo on these issues on how bank regulation 
affects trading in the derivates markets.
    Mr. Lucas. My final comment simply is I would encourage you 
to heed the CFTC's advice before publishing a final rule. They 
all agree on this regardless of partisan affiliation and 
directly oversee those markets.
    I yield back, Madam Chairwoman.
    Chairwoman Waters. Thank you very much.
    The gentleman from New York, Mr. Meeks, who is also the 
Chair of our Subcommittee on Consumer Protection and Financial 
Institutions, is recognized for 5 minutes.
    Mr. Meeks. Thank you, Chairwoman Waters.
    First, I have two letters, one from the National Bankers 
Association and the other from the Abacus Bank in New York, and 
I would like to submit those letters for the record.
    Madam Chairwoman, I would like to submit these two letters 
for the record.
    Chairwoman Waters. Without objection, it is so ordered.
    Mr. Meeks. Let me start with Chairman McWilliams. These are 
two small MDIs, one is a small MDI bank serving underbanked 
Chinese communities and these MDIs expressed their concern that 
CECL implementation may increase the cost and availability of 
loans to their core clients, mainly minority communities of 
low- and moderate-income.
    So my question to you is, do you believe that there is any 
credence to these concerns and can we confidently dismiss this 
risk without conducting a quantitative study?
    Ms. McWilliams. Thank you for that question. I have made it 
a point to go to different States and meet with bankers and I 
have to tell you, the first question that comes out in these 
meetings from community bankers, including MDIs, is CECL and 
their concerns about implementing it.
    As you know, that rule is promulgated by FASB. So long as 
U.S. banks have to follow U.S. GAAP, which is a statutory 
requirement, and FASB is in charge of U.S. GAAP measures, our 
hands are somewhat tied. I do believe that banks are faced with 
uncertainty about how to implement it.
    There are many different ways of implementing it. The FDIC 
has held workshops to help banks navigate this process without 
having to hire outside consultants and pay a lot for the 
implementation systems.
    We will do whatever we can to ease the implementation 
burden on the banks but the rulemaking itself, including the 
studies et cetera, is outside of our review. It will have to be 
done by FASB.
    Mr. Meeks. I have tremendous concerns because there is a 
rapid disappearance of MDIs, and that is a major concern of 
mine also. And your organization generally tracks this also, I 
believe.
    So what are you doing to increase the number of de novo 
MDIs, to support and provide technical assistance to existing 
MDIs, and importantly, to prioritize MDIs in acquiring branches 
or operations for many of the failing banks?
    Ms. McWilliams. I have made minority depository 
institutions a priority since I came to the FDIC last June. We 
now have a dedicated coordinator for MDIs across the country. 
We have done a lot of additional technical assistance.
    I have also increased their membership on our Community 
Bank Advisory Committee from one MDI to three, so now one-sixth 
of the Committee is MDIs. I have met with a number of MDIs 
throughout the country, including in States like California, 
Georgia, et cetera.
    We are also holding roundtables. We have a roundtable with 
110 MDI CEOs scheduled for June of this year where we will 
allow them to engage with each other on exchanging best 
practices as well as providing technical assistance and 
workshops. The workshops will focus as well on how to train 
MDIs to prepare a successful bid for some of these branches and 
mergers and acquisition of other banks.
    Mr. Meeks. Thank you. I would like to follow up with you at 
some other time. My time is limited here--
    Ms. McWilliams. Thank you.
    Mr. Meeks. --but I would love to follow up because that is 
a tremendous concern of mine also.
    Ms. McWilliams. It is of mine as well. Thank you for that.
    Mr. Meeks. Let me go to Mr. Quarles really quick, the 
general argument right now is that leveraged lending may be a 
recession amplifier but does not pose a systemic risk, in part 
because only 12 percent is held in the banking system and much 
of it is held by patient capital.
    But isn't there a model correlation risk, specifically 
asset quality or concentration rules, that may force CLO's 
funds into synchronous sell off of these debts than of a 
general credit downgrade of the underlying assets?
    Mr. Quarles. Our analysis of the CLO holding structure is 
that there is not a risk of sort of a financially destabilizing 
run from those institutions, even if there were a significant 
repricing of the leveraged loan assets that the CLOs hold.
    Mr. Meeks. Even if the economy was softening?
    Mr. Quarles. Yes, even if the economy were softening. But 
as you said at the outset, a separate and important question is 
that a repricing of those assets could have a magnifying effect 
on a business downturn.
    We don't think that would turn into a financial stability 
problem, but if these assets were to reprice substantially, 
given the increase in volume there has been of them, the 
investors in them would lose money, clearly. And that could 
exacerbate a business downturn.
    Mr. Meeks. Thank you. My time has expired.
    Chairwoman Waters. Thank you.
    The gentleman from Missouri, Mr. Luetkemeyer, is recognized 
for 5 minutes.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman.
    Thank you all for being here today, and you certainly have 
brought a breath of fresh air from the standpoint of your 
positions, from the standpoint of having some real-world 
experience besides being a bureaucrat. So now you are bringing 
some of that expertise in and we appreciate that.
    Mr. Hood, my first question is for you. I am very concerned 
about CECL. I have requested from numerous associations and 
entities with regards to the effect on it. And two of your 
credit union associations, NAFCU and CUNA, have given me some 
information here. And let me just read from their studies.
    NAFCU says that almost everyone's capital is going to be 
negatively impacted in some way. There is going to be a rise in 
the cost of credit to consumers. There is going to be 
constraint in the amount of the credit available.
    The credit unions are going to be making fewer loans to 
members, primarily in the mortgage and personal loan space, and 
the real kicker to the whole thing here is there is a chart on 
the back that shows there is going to be a $30 billion hit to 
the capital accounts of the members of this association. That 
is significant.
    CUNA did a study. Their numbers came back completely 
eliminates specific loan offerings or to reduce the CECL 
impact, 15 percent likely will do that. To tighten credit 
standards to offset or reduce CECL's impact, 31 percent, and 
increased loan rates or increased loan fees to offset or reduce 
CECL's financial impact, 35 percent. Would you like to comment 
on that?
    Mr. Hood. I share the concerns that have been raised by the 
industry groups you have cited. We, as an industry, or we, as 
an agency, are also doing our own internal studies with our 
chief economist. I find the operational burdens that are going 
to be imposed by CECL to be really difficult for a lot of our 
smaller credit unions to manage and operate in that 
environment.
    We, though, will need more assistance from FASB to address 
some of these issues. I do have a little bit of comfort in that 
a lot of our institutions, whether they be credit unions or 
community banks, will be exempted from doing a lot of the 
complex formal forecasting that is required.
    Mr. Luetkemeyer. This will affect their customers, will it 
not? In fact, when you start talking about raising costs--
    Mr. Hood. It could have a deleterious impact on our 
ability--
    Mr. Luetkemeyer. --and restricting credit?
    Mr. Hood. Yes, sir. It could have a deleterious impact on--
    Mr. Luetkemeyer. We had the Home Builders in here twice 
already and they made a comment that for every $1,000 increase 
in the cost of a home loan, 100,000 people across the country 
will no longer have access to funds. That is a devastating 
number.
    Mr. Quarles and Mr. Otting and Ms. McWilliams and Mr. Hood, 
one quick question here for each one of you. FASB admits they 
did not study this. They did not do a cost-benefit analysis. 
They didn't study the economic impact across the country or on 
consumers.
    This is a huge rule that they are proposing, similar to 
what they did with mark-to-market, and look at the disastrous 
result of exacerbating the downturn, in my mind, is what 
happened on mark-to-market, before they had to pull it.
    Would you, Mr. Quarles, Mr. Otting, Ms. McWilliams, and Mr. 
Hood, would your agencies go out and make a rule of that nature 
and not study it and not have a cost-benefit analysis on it?
    Mr. Quarles?
    Mr. Quarles. We are required, and I think it is good 
practice, to have a good cost-benefit analysis of any rules 
that are propose.
    Mr. Luetkemeyer. Mr. Otting, would your agency do that?
    Mr. Otting. We would not.
    Mr. Luetkemeyer. Ms. McWilliams?
    Ms. McWilliams. It is always good practice to provide and 
conduct analysis before you finalize a rule.
    Mr. Luetkemeyer. Mr. Hood?
    Mr. Hood. We would also agree. We will conduct an analysis 
and use our chief economist to come up with a cost-benefit 
analysis.
    Mr. Luetkemeyer. So wouldn't it be great if all of you 
would ask them to pause on this and do a study to see that 
impact, because it is going to have dramatic impact on all of 
the entities that you regulate?
    Mr. Hood. Yes, sir. I would be willing to work with them on 
that accord, especially because of credit being managed to 
underserved communities.
    Mr. Luetkemeyer. Ms. McWilliams, Mr. Dimon from JPMorgan 
Chase was here last week and I asked the question with regards 
to the impact, and he came back with this comment. He said, 
``Look, my bank is big enough that we don't have to worry about 
this. We can absorb the costs. But there are a lot of small 
banks and credit unions that can't. You are going to see a huge 
problem with them with regards to pricing on this.'' And then 
he said, ``Some will virtually have to stop lending because of 
the procyclical nature of this thing when we have an economic 
downturn.'' Would you agree with that?
    Ms. McWilliams. Based on my exposure and interactions with 
community bankers, that seems to be a prevailing opinion among 
the community banks as well.
    Mr. Luetkemeyer. Fantastic. With that in mind, here we have 
a situation where we have a rule that is being implemented. It 
has not been studied. It is going to have a dramatic impact on 
the economy, on the very entities that you all are reviewing 
and regulating or they are going to have the procyclical 
nature. This to me, the procyclical nature of this thing, is 
what is devastating.
    Because whenever we have a downturn in the economy, they 
are going to have to find a way to raise more money, more 
capital and have to probably cut back on services and lending 
to the very people whom we want to be able to help.
    I would hope that you would be working with me to put some 
pressure on FASB to just stop and study this. And I appreciate 
your continued studying of this and working with us. Thank you 
very much.
    I yield back.
    Chairwoman Waters. The gentleman from Georgia, Mr. Scott, 
is recognized for 5 minutes.
    Mr. Scott. Thank you very much, Madam Chairwoman.
    We need to put a stop right now on FASB's ruling in terms 
of CECL. This ruling is absolutely devastating to our smaller 
banks without question and our credit unions. The larger banks 
don't have to worry about it. They have the capital.
    Now, I have been on this issue for quite some time. In 
December, I even brought up the issue of comparability. As you 
know, CECL does not prescribe to the use of specific methods to 
estimate loss allowances. And what this does is it allows these 
banks to be able to use their own judgment in developing 
methods that are appropriate and practical under those 
circumstances.
    And this is done to allow these banks who are smaller to 
have flexibility, and I agree we need to respond to that. But 
here is the situation. It brings into this a conflict, an 
inherent conflict.
    And I want Chairman McWilliams and Chairman Hood, if you 
would, to explain to us how do you balance flexibility against 
comparability? Meaning, how can you ensure the judgment banks 
use in developing their methods does not impede upon the 
ability of regulators, like yourselves, and investors to 
compare the health of the banks across the industry and will 
not limit the smaller banks and credit unions from being able 
to make loans? If they can't lend, they go out of business.
    Ms. McWilliams?
    Ms. McWilliams. It is a great question, Congressman, and I 
have to tell you, I met with an MDI in California, which was 
one of the last MDIs de novo charters granted before the 
crisis, and they said, ``Looking at historic losses, we don't 
have that data. We will actually have to borrow data from our 
peers to estimate.'' So it highlighted for me the issue of how 
complicated this is going to be for some of the smaller banks, 
especially the ones that don't have a long history, to do 
exactly what FASB is asking them to do.
    Mr. Scott. And that is why there are times, and FASB has 
wonderful people there, but they are off target here. This 
thing is very devastating.
    Our community banks, our credit unions, they are the ones. 
They are the backbone of our towns and our cities, communities, 
not the larger banks. The JPMorgans, the Goldman Sachs, it is 
not going to affect them. But it will put our credit unions and 
our small banks out of business.
    Mr. Hood?
    Mr. Hood. Yes, sir, I share that very same concern. We, as 
an agency, currently regulate 529 MDIs. I would like to see 
them continue. As I mentioned in my opening statement, I will 
be presenting a new de novo minority depository institution 
with a new credit union charter on Monday of next week.
    I want to make sure it has the resources to succeed, but in 
this age of what is taking place with CECL, it does keep me up 
at night. And it is going to take a lot of research and 
studying with all the stakeholders such as you and others to 
really make sure our communities don't suffer.
    Mr. Scott. That is great.
    I hope, Chairwoman Waters, that if necessary we may need to 
pass legislation or something to put a stop to this.
    Mr. Otting, it is good to have you with us and I appreciate 
you and I sitting together over the last couple of years, and 
then your appointment and concerning the fintechs. And we have 
discussed our Fintech Act as a bipartisan act that myself and 
Congressman Barrett, a lot of them have been working on and it 
deals with the regulation there.
    It would be good if you could tell us the status. The last 
we heard was that you are extending a special order to the 
fintechs for regulation. Can you bring us up to date on the 
status of that special order?
    Mr. Otting. Sure, Congressman, thank you very much. First 
of all, we think the ability to bring new concepts and choices 
for consumers are important to the future of banking.
    What we found is a big part of the small ticket consumer 
and small business lending is being done by the Internet and a 
lot of those entities want the ability to operate across a 
national platform to bring those services.
    So what started under Comptroller Curry in 2015 was, could 
we create a national banking charter to allow those entities to 
be regulated, to be supervised, to have capital and liquidity 
and risk management like other banks?
    And so we went through that journey, and last year we 
announced that we would consider taking applications for a 
national bank fintech for a special purpose--
    Chairwoman Waters. The gentleman's time has expired.
    The gentleman from Wisconsin--
    Mr. Scott. Thank you very much.
    Chairwoman Waters. --Mr. Duffy, is recognized for 5 
minutes.
    Mr. Duffy. Thank you, Madam Chairwoman.
    I just want to make a quick comment on the chairwoman's 
questions to the panel in regard to the BB&T and SunTrust 
merger. I guess it would be my opinion that you should gather 
all the appropriate information, have as many public hearings 
as you think are necessary, gain as many comments as possible, 
and then make an appropriate decision.
    But the thought that I want to go through the process 
maybe, like, how we build roads where it takes 5 or 10 years to 
get an approval, I don't think that should be your model for 
approving mergers. Get the information, make a decision, and I 
trust that you all are doing that.
    But in regard to the chairwoman's comments in regard to 
consolidation, I agree with that. That is happening all across 
rural America and you start to move decisions out of small 
communities that were vested in those communities and decisions 
are made in some farther-off town and I don't think that serves 
our communities as well.
    We tried to lift the burden on small community banks with 
S. 2155, and the chairwoman voted against that, many of my 
colleagues across the aisle voted against that bill to help 
small community banks. And I was disappointed in that.
    I didn't think it was a perfect bill, but the credit unions 
and the small bankers all were in our offices saying how 
important it was to lift the burden off their backs. So I just 
wanted to make a comment on that.
    But, Mr. Quarles, quickly to you, obviously, we have a 
private sector faster payment system. You are working on 
Fedwire.
    It seems like the innovation has happened in the private 
sector with regard to faster payments.
    If the Fed steps in with Fedwire and we start to have some 
competition, I don't see how that plays out. Why not just let 
the private sector take this? Or what role do you see with 
Fedwire? Thoughts and opinions?
    Mr. Quarles. So, we are considering whether there is or 
ought to be a role for the Federal Reserve in the faster 
payment system. We received a lot of comments about that, as 
you have said. There are strong reasons to want the private 
sector to be the area where there is innovation and we have 
seen innovation there.
    If the Federal Reserve were to have an offering in the 
faster payments area, there are statutory standards that we 
have to meet to ensure that it would be on a level playing 
surface with the private sector. But no decision has been made, 
and we are considering the various comments that have--
    Mr. Duffy. And I should correct myself, the real time 
payment network. Do you have a timeline on that?
    Mr. Quarles. No. We don't have a concrete timeline, but it 
is under active consideration how we ought to respond.
    Mr. Duffy. Okay. I just want to switch gears. We had a 
hearing yesterday on the accountability and pay act. To the 
panel, who do you think should set the pay for CEOs? Should you 
all set the pay for bank CEOs or credit union CEOs? Should the 
Congress set their pay? Who should set their pay?
    Mr. Otting. I believe the boards should do that.
    Mr. Duffy. The board should, yes. Anyone disagree with the 
board should set the pay? And we are trying to look at ratios 
in pay with regard to the highest paid and the lowest paid. And 
my concern is that that is used probably to bludgeon banks and 
I look at pay and disparity.
    So what, Citibank CEO makes $25 million, a lot of money. 
But I will also point out that LeBron James makes $85 million a 
year, and I imagine the towel boy, and if you look at the pay 
disparity there, it is pretty extreme.
    George Clooney makes over $200 million a year, right? And I 
am sure the P.A. on the set and the pay ratio is extreme. Aaron 
Rodgers, you know, a great Packer, what around $30 million?
    There is pay disparity everywhere and I think the point is, 
don't we pay for performance? Doesn't the private sector say 
LeBron James, some will say, and we will argue about it, he is 
worth $85 million.
    Some will say he is not worth $20 million. Some will say he 
is worth $150 million. We will debate that, but the market sets 
his pay; George Clooney, Aaron Rodgers.
    I get concerned when we want to start playing politics with 
pay. I believe the private sector, the boards, should compete 
for the best talent possible, whether it is in their bank 
branches or it is for their CEO pay and pay for the talent that 
the market demands.
    Am I wrong on that? Or should we start talking about not 
just CEOs, but also talk about athletes and actors and 
everybody who makes a lot of money?
    Mr. Otting?
    Mr. Otting. As as a lifelong Lakers fan, I am concerned 
about LeBron's pay, if that is--
    [laughter]
    Mr. Duffy. Well-played, sir.
    Mr. Quarles?
    Mr. Quarles. I completely agree with that and particularly 
as to the level of pay. There is an appropriate regulatory 
interest in ensuring that incentives are set properly. But that 
is separate from the level of pay.
    Chairwoman Waters. The gentlemen from--
    Mr. Duffy. And I am sure the Laker fans would agree with 
that, too.
    I yield back.
    Chairwoman Waters. --Illinois, Mr. Foster, is recognized 
for 5 minutes.
    Mr. Foster. Thank you, Madam Chairwoman, and I thank our 
witnesses.
    I would like to raise the issue of the ongoing merger of 
banking and technology, and whether we are ready for it and 
what you are preparing for that? The giant bank CEOs that I 
talk to tell me almost to a person that they are in the process 
of converting their banks into tech firms over the next decade.
    Small banks are very worried about competition from fintech 
and banking by cellphone. Less visible is the encroachment of 
giant tech firms into things that we would consider traditional 
banking. If you look at, for example, Amazon offers what 
appears to me to be a pretty complete line of business credit 
options, as well as consumer financing options.
    These are things that would have traditionally been handled 
by banks before, but our regulatory system doesn't seem to be 
matched to this.
    This is not a small effect. The market capitalization of 
our giant banks is roughly $2 trillion. The market 
capitalization of our giant tech firms is about twice that.
    And so the legitimate question arises given the--for 
example, is Amazon too-big-to-fail? Is it too interconnected to 
fail?
    What would be the implications to our economy of a giant 
disruption, either due to capitalization problems or cyber-
attacks or so on? Should the standards that we hold our giant 
banks to also be applied to the tech firms as they more and 
more move into this space?
    And so I would, first off, applaud Chairwoman Waters for 
recognizing this and setting up task forces on both fintech and 
artificial intelligence, which I will be chairing, along with 
French Hill, my colleague from Arkansas. And so what steps are 
you taking to deal with this over the next decade?
    I will just go down the line starting with--
    Mr. Hood. We are evaluating the emergence of financial 
technology and its ability to really bring other folks into the 
financial mainstream. The area, though, that I have the most 
concern about, sir, is cybersecurity, protecting the data of 
our consumers. So that is an area that we are remaining 
vigilant in as we embrace fintech.
    Mr. Foster. Yes.
    Ms. McWilliams. At the FDIC, we are in the process of 
creating the Office of Innovation to look at exactly those 
issues. I have personally met with dozens of fintech companies 
and just asked, ``How are you prepping banks? Are there any 
regulatory obstacles in the way?''
    Fintech used to be almost a dirty word in the banking world 
and, frankly, banks have been innovating for a long time. 
However, the agility with which the technology companies can 
move and offer products and services to consumers has bypassed 
and surpassed what the banks are able to do, partly because of 
the regulatory requirements.
    We are looking through our Office of Innovation, how we can 
modernize both our systems and how we look at technology 
companies, third-party providers, vendor management, as well as 
how can we modernize technology for the FDIC as we supervise 
this now.
    Mr. Foster. Yes. No, you are also responsible for the 
resolution of giant failed firms.
    Ms. McWilliams. Correct.
    Mr. Foster. Have you started to think about resolution 
plans that may become necessary for giant tech firms as they 
play increasingly in banking without an as-clear capital rules, 
for example, and many other issues?
    Ms. McWilliams. Those are not really in our statutory 
jurisdiction, sir.
    Mr. Foster. So that at present, you are unaware of anyone 
that is looking at comparable?
    Ms. McWilliams. It wouldn't be the FDIC.
    Mr. Foster. All right.
    Mr. Otting. Congressman Foster, as we discussed when I came 
over and spent some time with you, I think our biggest 
challenge that we continue to focus on is the partnerships that 
these technology firms are establishing with banks and making 
sure that we have clear standards around what those 
relationships should look like.
    I do echo Rodney's comments that cybersecurity is one area 
that keeps us up at night. All of the agencies want to ensure 
that we are on top of that and the impact that that has on 
consumers today in the event that they couldn't go and get 
access to their ATM or credit cards in this environment for the 
lack of cash.
    So we also have an Office of Innovation that I know has 
been over to speak many times with your people and we are using 
that as an inflow of resources when people want to consider 
either entering the banking industry or partnering with the 
banks.
    Mr. Foster. Yes.
    Mr. Quarles?
    Mr. Quarles. Thank you. In addition to endorsing everything 
that my colleagues on the panel have said, the Federal Reserve, 
in thinking about these questions and particularly the long-
term implications of these questions, has an unparalleled 
research capacity.
    And we have used that capacity to think about how the 
growth and evolution of technology can and is affecting the 
growth and evolution of the financial sector, both in immediate 
ways, but also in longer-term ways. And that will eventually 
inform our supervisory approach.
    Mr. Foster. The Federal Reserve also chairs FSOC, which is 
supposed to look at non-bank sources of systemic risk, and so I 
think that is an important area that I think everyone has to 
look at here. Thanks very much. My time is up.
    I yield back.
    Chairwoman Waters. Without objection, I would like to enter 
into the record a letter from the Center for American Progress 
on the various deregulatory proposals advanced by Trump-
appointed regulators.
    The gentleman from Kentucky, Mr. Barr, is recognized for 5 
minutes.
    Mr. Barr. Thank you, Madam Chairwoman.
    And to our witnesses, thank you for your service and for 
working for the financial stability and safety and soundness of 
our financial system while at the same time calibrating 
regulation so that we encourage and maintain economic growth.
    My first question is to Vice Chairman Quarles, in your 
capacity as the chairman of the Financial Stability Board, are 
you concerned that any of the large European banks are 
inadequately capitalized and do you see or discern any safety 
and soundness issues with those institutions?
    Mr. Quarles. I think that the capitalization of the 
European banks actually has continued to rise. So as I look at 
the European banking system generally, the U.S. banking system 
is more heavily capitalized. But that difference has been 
closing over time, and so the system as a whole is not one that 
gives me systemic concerns.
    Mr. Barr. Given that it doesn't give you concerns, given 
that European banks are improving in terms of their 
capitalization, and given that in our conversations you have 
acknowledged the need for a level playing field in terms of 
American competitiveness, why is it appropriate for U.S. 
regulators to exceed standards set by the Basel Committee and 
impose more stringent capital and liquidity requirements on 
U.S. firms?
    And obviously, I am referring to the gold plating with 
respect to the G-SIB surcharge.
    Mr. Quarles. That is something that I think we need to 
consider. We need to consider it particularly in the context of 
additional capital regulation that has been generally agreed 
upon internationally but not yet implemented domestically that 
could, depending on how it is implemented, significantly 
increase existing capital levels.
    Both I and Chairman Powell have said that we think that the 
loss-absorbing capacity of our system is probably about right. 
And so as we think about how to calibrate the various elements 
of our existing system, as well as what may come in the future 
or will be coming in the future, we need to think about that 
holistically.
    So I would just say we are considering quite actively how 
to calibrate each of these elements but we shouldn't do it 
piecemeal but to look at it all together.
    Mr. Barr. One editorial comment in your response to a 
letter that I sent with my colleagues, 28 of my colleagues, 
expressing concern about the G-SIB surcharge surcharge and 
American competitiveness, your response did reference the 
profitability of U.S. banks.
    And I just would encourage the Fed as it looks at this to 
not use profitability of U.S. banks with or conflating 
profitability with ensuring that capital requirements are 
appropriately calibrated.
    Let me move on to Chairwoman McWilliams on industrial hemp. 
Just yesterday, more industrial hemp businesses in Kentucky 
lost access to card services when their card providers stopped 
offering payment services to businesses designated as CBD and 
hemp dry product merchants.
    I have had constituent businesses tell me that their access 
to financial products, specifically card services, has actually 
deteriorated since we de-scheduled industrial hemp in the Farm 
Bill, and this obviously conflicts with congressional intent. 
We obviously de-scheduled in the Farm Bill but also we had 
pilot programs that were legal under Federal law in the 2014 
Farm Bill.
    What is the FDIC doing, and frankly the OCC and the Fed, 
what are all of you all doing to provide guidance and clarity 
to banks operating under a pilot program who are now operating 
legally under the 2018 Farm Bill to make sure that banks have 
the confidence that they can offer their services to hemp 
businesses that are legal under both State and Federal law?
    Ms. McWilliams. Thank you for that question. There is a lot 
of uncertainty in this space as you know because of the State 
and Federal laws differing on marijuana versus hemp throughout 
the United States.
    We are conducting extensive training with our examiners to 
make sure that they are appropriately regulating these banks 
and making sure that our examiners are not applying undue 
pressure and understand what is legal. We tell banks, in 
general, follow FinCEN guidance on marijuana banking and hemp 
banking as well, and, if necessary, file SARs.
    We believe the FinCEN guidance provides a clear path for 
banks on what to do and I generally say if in doubt file a SAR. 
But in reality they should be also making sure that legitimate 
businesses, lawful businesses, have access to credit.
    Mr. Barr. I am running out of time. Let me just say it 
would be helpful to have a unified statement from all of the 
regulators clarifying that industrial hemp is different than 
marijuana. It is legal under Federal law and State law and 
therefore these businesses should have access to financial 
services.
    I yield back.
    Chairwoman Waters. Thank you.
    The gentlewoman from Ohio, Mrs. Beatty, who is also the 
Chair of our Subcommittee on Diversity and Inclusion, is 
recognized for 5 minutes.
    Mrs. Beatty. Thank you, Madam Chairwoman.
    And to the panel, thank you for being here and thank you 
for your presentations.
    I have three questions I am going to try to get through 
quickly, so in advance I am going to tell you some of the 
questions. I will simply ask you to say yes or no or agree.
    I will start with a venture capital question that deals 
with geographical diversity. And this question is for most of 
the panel. As you will recall, in 2018 we were told, and it was 
noted that 4 States saw more than 80 percent of venture capital 
investment. Those States were California, New York, 
Massachusetts, and Texas.
    While I realize many of our Members come from those States, 
I am from the great State of Ohio, and oftentimes, in certain 
parts of the country, we feel that we are left behind, and I 
believe that we need geographic diversity when it comes to 
venture capital.
    With that said, in my district we have some very successful 
venture capital incubator organizations that are in their 
infancy stage like Rev1 Ventures, and another one, Drive 
Capital, and I would like to see more of them.
    And let me just say to you, Senator Chris Dodd said on the 
Senate Floor during the debate on Dodd-Frank, ``Properly 
conducted venture capital investment will not cause the harms 
at which the Volcker Rule is directed. In the event that 
properly conducted venture capital investment is excessively 
restricted by the provisions of Section 619, I would expect the 
appropriate Federal regulators to exempt it using their 
authorities under 619(J).''
    With that said, your agencies are currently looking at 
changes to the Volcker Rule. Are you considering exempting 
venture capital from the definition of covered funds as it 
applies to the Volcker Rule? And do you believe this could help 
to spread venture capital investment more evenly around the 
country, reminding you I come from Ohio, and it is not listed?
    And we will start with you, the Honorable Mr. Quarles.
    Mr. Quarles. Thank you, Congresswoman.
    We have received a lot of comments with respect to the 
treatment of venture capital under the Volcker Rule, under the 
covered funds provisions of the Volcker Rule.
    We are actively considering them. We haven't come to final 
conclusions on exactly how to address that issue but it is a 
serious issue that is under active consideration.
    Mrs. Beatty. I am going to move on.
    Mr. Otting. I agree it should be opened up and I am 
supportive. As a banker, we did make those kind of investments, 
so I am supportive. And also I just want to thank you for going 
to the OCC yesterday in the Office of Diversity and attending 
that; you were well-received. I was behind you a couple of 
hours on the podium, but thank you.
    Mrs. Beatty. Thank you so much. Thank you.
    Let me go to another question because the clock is ticking 
down and I want to get something in for the Honorable Mr. Hood 
and Ms. McWilliams. Welcome. This is your first time coming 
before the committee.
    As our chairwoman stated, I am the Subcommittee on 
Diversity and Inclusion's chairwoman. I have asked this 
question to everyone who has come here, and you will see your 
two colleagues there are nodding, and it deals with OMWI.
    So yes or no, do you know what OMWI is?
    Mr. Hood. Yes, ma'am.
    Mrs. Beatty. Okay.
    Ms. McWilliams. Absolutely.
    Mrs. Beatty. Okay. Can you tell me, do you know who your 
OMWI Director is?
    Mr. Hood. Monica Davy is mine and she reports directly to 
me.
    Mrs. Beatty. And she said that yesterday at the hearing 
very proudly.
    Ms. McWilliams. Saul Schwartz, and I am very supportive of 
his efforts at the FDIC and we have ongoing discussions about 
how to improve.
    Mrs. Beatty. And as you know it has been very difficult for 
them to present data to us because many of the agencies looked 
at it and made it voluntary. Diversity and inclusion is huge. 
It is not about checking the box. It is about changing the 
culture of not only your organizations but across America.
    Do you have any idea, and this is back to all of the panel, 
do you have any idea of what your response rate at your agency 
is when we ask the questions in those reports that they send 
with your name on it as approving it?
    Mr. Hood. With my first month in as NCUA's Chair, I have 
not seen those reports yet.
    Mrs. Beatty. Okay. Then, we will give you a pass.
    We will go down here to Mr. Quarles.
    Mr. Quarles. I believe that the institutions we are 
responsible for supervising have about a 6 percent response 
rate.
    Mrs. Beatty. Okay. You are right exactly, thank you.
    Mr. Otting. I don't know the exact number. We did find that 
one of the problems was the way we were asking for that 
information was going through the portals. And Joyce may have 
spent time with you yesterday. We have talked about a new way 
to do that, but I thought the percentage was much higher.
    Mrs. Beatty. My time is up. Thank you.
    Chairwoman Waters. Thank you very much.
    The gentleman from Colorado, Mr. Tipton, is recognized for 
5 minutes.
    Mr. Tipton. Thank you, Madam Chairwoman, and I appreciate 
all of you being here. It is heartening to be able to hear some 
of the comments that you have made in your opening statements.
    Ms. McWilliams, when you had noted on your tour that you 
came to appreciate how intimately involved community banks are 
in the success of so many local communities, and Mr. Otting, 
your comments in regards to the CRA making investments in 
communities that need it most.
    The issue I would like to be able to address a little bit 
today is the need for increasing broadband connectivity into a 
lot of our rural communities and that I believe that it should 
qualify fully as a category under community development as it 
regards to CRA.
    Investments into rural buildout meet the call of the 
nation's most underserved populations. And unfortunately in my 
home State of Colorado, we still have a lack of connectivity 
primarily within those rural areas.
    Each of your agencies recognize that broadband investment 
can be folded in under CRA requirements, but as you move 
forward in the process to be able to modernize the CRA 
regulations, I would like to be able to encourage you to state 
it as explicitly as possible that broadband investment for 
underserved communities is qualifying as a CRA activity.
    So would you say that it is accurate that your agency, and 
Ms. McWilliams, I will just start with you, is a qualifying 
investment for CRA activity?
    Ms. McWilliams. I honestly don't know exactly under what 
circumstances it would be or would not be but it is an issue 
that has been brought to my attention. I know some of our 
community banks are struggling, especially in rural counties.
    It is a double whammy because in a lot of these counties, 
that one bank is the only banking presence. It is something 
that is high on my list of making sure we enable these entities 
to have access to broadband services.
    Mr. Tipton. Great, and if you wouldn't mind following up 
with--
    Ms. McWilliams. I will follow up.
    Mr. Tipton. --us on that, I would appreciate it.
    Mr. Otting?
    Mr. Otting. We do have an expertise in this in the OCC. It 
is on our website where people go in and see the conditions 
that serve low- to moderate-income areas. And I do think one of 
the points you are making is in the new look at the CRA, we 
plan to identify all the qualified and have those on all of our 
websites so it is not even a question of what qualifies in CRA 
going forward.
    Mr. Tipton. Okay.
    Mr. Quarles?
    Mr. Quarles. Yes. I don't think that it qualifies 
currently, but as Comptroller Otting said, it underscores the 
importance of the CRA review that we are doing because we hit 
the themes that we have had in that review have been two.
    One, that rural areas are particularly underserved and that 
the CRA has not worked as well for them, and that expanding the 
category of investments that can qualify for a CRA is a theme 
that we have heard both from communities and from bankers as 
well.
    Mr. Tipton. Because I have heard, with respect now, ``We 
are looking at it. We are focused on it, and we haven't really 
made a determination whether it qualifies.'' Is there 
interagency communication on this topic?
    Mr. Otting. As we plan to introduce the revisions to the 
CRA, all of us will concur with public input on what should 
qualify.
    Mr. Tipton. Yes.
    Mr. Otting. I wouldn't say on this particular topic we have 
it.
    Mr. Tipton. Okay.
    Ms. McWilliams. Now it is.
    Mr. Tipton. Okay. Thank you.
    Chair McWilliams, your agency just closed an ANPR comment 
period for broker deposit rulemaking. From your analysis would 
you say that that was robust and comprehensive?
    Ms. McWilliams. The rulemaking process?
    Mr. Tipton. Right.
    Ms. McWilliams. Yes, we have received a number of comments. 
And I thought it was important when I joined the FDIC that to 
the extent regulations have not been revisited in a decade or 2 
decades, that we are able to take a look at them given the 
changes in the banking channels and the digital channels that 
are now available that weren't available back then.
    Mr. Tipton. Good. Thanks, I appreciate that. And many of us 
on this panel do hope that the rulemaking process will be 
constructive and to be able to provide more certainty for many 
segments of the industry that have advanced since the savings 
and loan crisis from prepaid accounts to sweep deposits between 
affiliated institutions to online services.
    Institutions and consumers together I believe would benefit 
from moving away from an overly broad definition of broker 
deposits and toward one that is going to be reflective far more 
of the current banking landscape that we have.
    Chair McWilliams, is modernizing broker deposits definition 
a top priority for your agency?
    Ms. McWilliams. Yes, it is.
    Mr. Tipton. Great.
    I am just going to follow up on something that we have been 
focused on out of our office for an extended period of time and 
spoke to it in some of the opening statements in terms of 
tailoring regulations. Have we fully implemented the tailoring 
that was going to be required, particularly for small community 
banks under S. 2155?
    Mr. Quarles?
    Mr. Quarles. The implementation is not complete but it is 
proceeding apace.
    Mr. Otting. Yes, as we indicated, most should be completed 
by September 30th, and all are anticipated to be completed by 
the end of the year.
    Ms. McWilliams. I agree.
    Mr. Tipton. Thank you. I yield back.
    Chairwoman Waters. The gentlewoman from New York, Ms. 
Maloney, who is also the Chair of our Subcommittee on Investor 
Protection, Entrepreneurship, and Capital Markets is recognized 
for 5 minutes.
    Mrs. Maloney. Thank you very much, Madam Chairwoman, and 
welcome to all our panelists. Thank you for holding this 
important hearing.
    There are a great deal of issues that I want to talk about 
with all of you and I won't be able to get to all of them. I 
think they are legitimate questions around the new CECL 
accounting standard for financial institutions, which I know 
Mr. Luetkemeyer and many others on this committee care a great 
deal about and that we need to explore in detail.
    And I would like to follow up with all of you in writing 
with specific questions so I can get on to some other questions 
today. Thank you.
    First, I want to ask Mr. Quarles about the overhaul of the 
Volcker Rule that the agencies proposed last year. As you know, 
when the regulators finalized the Volcker Rule in 2013, they 
required banks to report a significant amount of data on their 
trading activities to the regulators so that the regulators 
could monitor whether banks were complying with this rule.
    You have now been collecting detailed trading data from all 
of the banks for over 5 years so if there were problems with 
the Volcker Rule in practice almost all these problems would 
have shown up in the data.
    But when you proposed an overhaul of the Volcker Rule last 
year, you cited virtually no actual data to support any of the 
sweeping changes you are proposing to the rule, not even 
aggregated high-level data. None. Zippo.
    Instead, the proposal justified nearly every significant 
change by citing, ``experience with the rule,'' with no further 
explanation, no further evidence whatsoever.
    By my count, the agencies cited their experience with the 
rule rather than actual data a total of 37 times in last year's 
proposal. I know it was 37 because I actually counted it up and 
that is simply unacceptable.
    There is nothing in the law prohibiting the agencies from 
disclosing this trading data on an aggregated basis to provide 
transparency into this critically important rule. So my 
question is, before the agencies finalize any changes to the 
Volcker Rule will you commit to disclosing aggregated trading 
data to the public and in a way that properly protects 
confidential supervisory information and that demonstrates the 
need for any overhaul for the rule?
    Mr. Quarles?
    Mr. Quarles. Yes, thank you, Congresswoman. That is a very 
reasonable request. We have received it from others as well as 
part of the comment process. We are actively looking into how 
to aggregate this data.
    The data as we collect it is, as you have noted, 
confidential supervisory information. Determining how to 
disclose it in an aggregated way that doesn't disclose the 
underlying confidential information is not an easy task but we 
are actively looking at it.
    Mrs. Maloney. When will we be able to have this data to 
look at?
    Mr. Quarles. As part of our response to the comments as we 
receive them, we are looking at how we could make some of this 
aggregated data public.
    Mrs. Maloney. But when would that be?
    Mr. Quarles. We are expecting to complete this next step in 
the Volcker Rule process over the next 60 to 90 days.
    Mrs. Maloney. 60 to 90 days. Okay. As you know, I look 
forward to seeing it even if it has to be in a classified 
environment or whatever. We need to see it. Personally, I think 
it should be formatted in a way the public can also see it, 
too.
    Mr. Quarles, as you know, Fed researchers have shown that 
the risk to banks from climate change could be substantial. And 
I know you and Chairman Powell have both said that the Fed is 
using its supervisory authorities to prepare banks for climate 
change.
    But I have to say, based on what I have read, I am a little 
concerned that the Fed's supervisory program doesn't rely on 
the most accurate and up-to-date data on climate change. So can 
you just clarify how the Fed actually supervises banks for 
climate risks?
    Mr. Quarles. Certainly. I think it is important to separate 
our supervisory program, which focuses on immediate and near-
term risks to institutions, from our research program, which 
focuses on the longer and that is mostly severe weather events 
and how banking institutions are prepared for responding to 
severe weather events and the risk management of that.
    I'm sorry, my time, or your time has expired. I'm sorry.
    Mrs. Maloney. Thank you.
    I yield back.
    [laughter]
    Chairwoman Waters. The gentleman from Ohio, Mr. Stivers, is 
recognized for 5 minutes.
    Mr. Stivers. Thank you, Madam Chairwoman.
    I would like to go down the line with everybody, and I know 
this has already been beat to death a little bit, but I have a 
little different take on it.
    Let us assume for a second that the FASB moves forward with 
CECL standards, and since you can't change FASB's independent 
decisions, are your agencies considering how to count CECL as 
part of regulatory capital or other capital in the context of 
the total capital that you are looking for of your 
institutions?
    Mr. Hood, and all the way down.
    Mr. Hood. We are evaluating those options, yes sir.
    Ms. McWilliams. As the CECL implementation is phased out we 
will have the feedback from the initial stages of 
implementation and we can make that decision at that time, sir.
    Mr. Otting. Yes, and I think, as we discussed in your 
office, we are proposing a 3-year phase-in period of that and 
there is no magic to that number. We said if there are other 
issues we will be happy to consider that.
    Mr. Stivers. Great.
    Mr. Quarles. And similarly, as we see the consequences of 
CECL during the phase-in period, we do have the tools to 
respond on the capital side.
    Mr. Stivers. Great. And I know various people have various 
levels of concern. I am concerned because I know that you have 
all responded to required capital. And while FASB is an 
important organization, they move so slowly that they just now 
got to it. So I just want to make sure that it is all done in 
context. So, thank you all for that.
    Chair McWilliams, as you know, Dodd-Frank's resolution 
planning requirements are very complex and burdensome for 
financial institutions. We are almost a year into and since 
passage of Senate Bill 2155 that had provisions providing 
relief from resolution requirements for some financial 
institutions.
    Can you tell me what timeline you expect for banks under 
$100 billion and under $250 billion to get some clarity on what 
the resolution requirements are for them?
    Ms. McWilliams. We are well under way in that process, sir. 
After several years of being able to take a look at the whole 
in a comprehensive plan, in some cases tens of thousands of 
pages, we are now able to focus more precisely on the issue 
areas and that is where we are targeting our relief.
    Mr. Stivers. Yes, I understand. I am asking when. I just 
asked for a timeline.
    Ms. McWilliams. Soon.
    Mr. Stivers. Soon. That is a great timeline. If you could 
give me anything more specific, I would love it.
    Ms. McWilliams. Do we have a date? Not yet, but I will--
    Mr. Stivers. Try to give all of us more clarity. ``Soon'' 
is great, but I don't know exactly what ``soon'' means. It 
might mean one thing to you; to me, ``soon'' means really soon. 
So I--
    Ms. McWilliams. I understand.
    Mr. Stivers. I hope you will move forward.
    Vice Chair Quarles, the Fed is moving closer to 
implementing the tailoring provisions of Senate Bill 2155. How 
do you plan to address industry growth and preserve the spirt 
of tailoring over time with inflation and economic growth?
    As you know, those thresholds are eaten into every year and 
would you maybe incorporate some type of inflation adjustment 
so that we are not here debating this again in 2 or 3 years?
    Mr. Quarles. In the comment process we have received a 
number of comments that suggest that. It is a very reasonable 
suggestion, and we are certainly taking it under consideration.
    Mr. Stivers. Thank you. I hope you will take a serious look 
at that. I have a little time left.
    Vice Chair Quarles and Comptroller Otting, you guys are 
modernizing and doing an interagency process on the Community 
Reinvestment Act and you probably know that many banks don't 
know before they make a Community Reinvestment Act investment 
whether they are going to get any credit for it.
    Do you expect the process to provide more clarity so that 
as institutions are making CRA investments, they will know 
whether they think they can get a credit for it or not?
    Mr. Otting. Absolutely. You point out a very complicated 
thing among the agencies and geographically that financial 
institutions, when they don't know what qualifies, have a 
tendency to go to the mean and be in the most conservative. 
Generally, those are mortgages.
    We intend in the rewrite that one of the four principles is 
to be able to provide a list of financial institutions would 
occur, but more importantly to allow people to come to their 
primary regulator when they have something they think is unique 
and be able to get a kind of a read on whether we think that 
would qualify.
    Mr. Stivers. I love that idea. Innovation is going to be so 
important in that space. Do you think, Mr. Otting, that that 
could actually result in more investment in low- and moderate-
income communities?
    Mr. Otting. I do.
    Mr. Stivers. I do, too. Thank you. And are there--are you 
considering CRA credits for partnerships with nonfinancial 
institutions because of so many unbanked people out in this 
country?
    Mr. Otting. CRA credit for the partnerships or the products 
that come out?
    Mr. Stivers. The products as a result of those 
partnerships. I am sorry if I wasn't clear.
    Mr. Otting. Yes. Generally, banks partner and they receive 
CRA credit for those originated products that are in low- to 
moderate-income areas. Our new model does give them CRA credit 
on their balance sheet for that activity.
    Mr. Stivers. Great. And there have been some claims that 
CRA examinations are too subjective. Is there going to be a 
move to try to make CRA examinations as objective and 
consistent as possible, because obviously you sometimes have 
two different people who say different things.
    Mr. Otting. It is our goal to make the vast majority of it 
objective so everybody--
    Mr. Stivers. I will submit more question in writing. Thank 
you.
    I yield back.
    Chairwoman Waters. The gentlewoman from Michigan, Ms. 
Tlaib, is recognized for 5 minutes.
    Ms. Tlaib. Thank you, Chairwoman Waters. The Community 
Reinvestment Act is extremely critical in combating housing 
discrimination, and also ensuring that all Americans, every 
single American has access to economic opportunities. If you 
look at the history of why it was created, you understand the 
importance of continuing it on.
    I know that the CRA statute requires that, ``The banks have 
continuing and affirmative obligations to help meet the credit 
needs of the local communities in which they are chartered.''
    So, Mr. Otting, you are considering removing the assessment 
of branches within low- and moderate-income communities for CRA 
exams, is that correct?
    Mr. Otting. That is not accurate.
    Ms. Tlaib. It isn't?
    Mr. Otting. No.
    Ms. Tlaib. Okay. Then one of the things that it also says 
is that you are proposing to move CRA exams to a ``single 
metric.''
    Mr. Otting. That is not accurate either.
    Ms. Tlaib. Would remove ability for communities to provide 
comments?
    Mr. Otting. Oh, absolutely.
    Ms. Tlaib. No, you would be allowed to be able to do that.
    Mr. Otting. We would, just as a point of fact, we met with 
1,000 different organizations. The Fed went out for comment in 
23 geographic markets. We got 1,500 comments in the ANPR.
    We have taken that now into context. We are in the process 
of looking at writing the notice of proposed rulemaking, and 
then that product will also go out for 75 days of public 
comment.
    Ms. Tlaib. Okay. So, Mr. Otting, one of the things that 
some of the partner organizations that I am hoping you are 
meeting with is in the National Community Reinvestment 
Coalition, which has been really critical for communities like 
the 13th Congressional District, we saw huge drops in black-
owned homeownership, branches disappearing from every corner, 
and communities in what we call credit deserts.
    And so one of the things that came back to me is that they 
estimated that there would be a loss of up to about $105 
billion in home and small business lending nationally over some 
of the changes in the advance notice of proposal making, the 
ANPR you are familiar with.
    In my district alone, I would be losing about $63 million 
and in my State, the State of Michigan, about $1.9 billion. So 
some of these changes are obviously leading to some sort of 
impact, negative impact, in regards to some of those changes. 
But I want to talk about your background.
    Mr. Otting. Can I just comment on that for a quick second?
    Ms. Tlaib. Sure.
    Mr. Otting. Actually, collectively, our analysis is we 
expect somewhere between a 15 and a 40 percent increase in CRA 
investments.
    Ms. Tlaib. I understand. And I have to tell you--
    Mr. Otting. So there would be no decrease though this.
    Ms. Tlaib. The largest component of the CRA is its ability 
to block mergers that can harm consumers and endanger the 
financial system. Is that correct, Mr. Otting?
    Mr. Otting. Say that one more time?
    Ms. Tlaib. The largest part of the CRA is its ability to 
block mergers that can harm consumers.
    Mr. Otting. No. I think the largest part of CRA is that it 
serves low- to moderate-income communities across America.
    Ms. Tlaib. Mr. Otting, while you were CEO of OneWest Bank, 
the merger with CIT Bank wasn't approved originally because it 
didn't meet the CRA examination, correct?
    Mr. Otting. No, that is not correct.
    Ms. Tlaib. It met the--
    Mr. Otting. No, we passed our CRA. We have a satisfactory 
CRA.
    Ms. Tlaib. Okay. And Vice Chairman Quarles, the Fed didn't 
support the OCC's ANPR for CRA's modernization. Can you briefly 
tell me why?
    Mr. Quarles. I hate to make it a theme, but that is 
actually not correct.
    Ms. Tlaib. Oh.
    Mr. Quarles. We didn't go out with them, but that is not in 
any way unprecedented for one agency to go out with an ANPR. 
They were going out asking questions. We went out 
complementarily to seek the same sort of input on potential 
improvements to the CRA through roundtables that were held by 
the various reserve banks.
    We held 29 different roundtables all around the country. So 
we were engaged really in the same process as the OCC. We just 
did different processes because we were different agencies, but 
we are working together to take all of that input and to come 
up with a proposal to the CRA that meets the community input 
and actually improves the regulation.
    Ms. Tlaib. So, are BB&T and SunTrust trying to merge? Mr. 
Otting?
    Mr. Otting. The OCC is not involved in regulating--
    Ms. Tlaib. No, do you know that they are trying to merge 
right now and there is--
    Mr. Otting. Absolutely.
    Ms. Tlaib. And it would be the largest bank under FDIC 
supervision, correct?
    Mr. Otting. Yes. That would be Chairman McWilliams.
    Ms. Tlaib. Is that correct?
    Ms. McWilliams. That has not been determined yet.
    Ms. Tlaib. It hasn't been determined.
    Ms. McWilliams. Correct.
    Ms. Tlaib. Is the CRA playing a role in that?
    Ms. McWilliams. Yes.
    Ms. Tlaib. And are they meeting the requirements of the 
CRA?
    Ms. McWilliams. When the application process is under way, 
we don't comment on specific applications. They would have to 
submit a plan to us as to how they are going to tackle 
different issue areas and statutory requirements under the Bank 
Merger Act, and that is certainly one of the areas that we will 
consider.
    Ms. Tlaib. Okay. Thank you.
    I yield back the rest of my time.
    Chairwoman Waters. The gentleman from Texas, Mr. Williams, 
is recognized for 5 minutes.
    Mr. Williams. Thank you, Madam Chairwoman, and I thank all 
of you for coming before this committee to answer questions 
that are important to our constituents back home.
    The other day, I was back home and I was speaking with a 
Vietnam War Veteran, and he was in disbelief that in 2019, we 
are having to push back against socialist proposals within our 
own government. It is hard to believe.
    I would like to go straight down the line, starting with 
you, Mr. Hood, and ask each of you a simple question: Are you a 
capitalist or are you a socialist?
    Mr. Hood. I support the free markets.
    Mr. Williams. Are you a capitalist or a socialist?
    Mr. Hood. Capitalist.
    Mr. Williams. Thank you.
    Chairman McWilliams?
    Ms. McWilliams. Sir, I grew up in communism, spent some 
time in socialism, and I choose capitalism.
    Mr. Quarles. Capitalism.
    Mr. Williams. Mr. Otting?
    Mr. Otting. I wish I could give you Jelena's answer. I am a 
capitalist.
    Mr. Williams. Capitalism wins again. Thank you very much.
    Chairman McWilliams, I would like to talk about the pending 
SunTrust and BB&T merger. There's nothing inherently evil or 
wrong about two businesses merging together. That's sometimes a 
great thing.
    There are many potential benefits, whether it be tapping 
into economics of scale or economies of scale, increasing 
efficiency or greater growth opportunities that private sector 
management considers when deciding to combine businesses. And 
you know what? They may even make--don't say it too loud--a 
profit, and that is a good thing.
    So the FDIC is statutorily required to review these bank 
mergers before they are finalized, yet some of my colleagues 
from the other side of the aisle are calling for greater 
congressional control over the process in this particular 
instance.
    So, Madam Chairman, can you talk about the rigorous review 
process that is undertaken by the FDIC and what you believe 
that Congress doesn't need to get involved in anymore?
    Ms. McWilliams. Absolutely. We have statutory requirements 
we are supposed to go through and meet under the Bank Merger 
Act for the size and the complexity of this merger.
    Those requirements require us to take a look at and review 
the effect of the merger on bank competition, the financial and 
managerial resources of the existing and proposed institutions, 
the future prospects of the existing and future institutions, 
the convenience and need of the community to be served, the 
risk to the stability of the United States banking or financial 
system, and the effectiveness in combating money laundering 
activities by the existing and future institutions.
    Mr. Williams. All right.
    Ms. McWilliams. And those are just the substantive 
requirements that you gave us.
    Mr. Williams. Thank you. On May 13th, Treasury Secretary 
Mnuchin spoke before the National Association of Insurance 
Commissioners and recognized the challenges in implementing an 
international capital standard for insurance companies in the 
United States that are supposed to go into effect later this 
year.
    So, Chairman Quarles, as you know, the United States has 
the largest insurance market in the world which has been able 
to flourish under the state-based regulatory regime. Can you 
explain why the U.S. and foreign regulators are planning on 
finalizing a new, unproven insurance capital standard in 
November if our insurance companies are currently well-
capitalized, well-regulated, and thriving and customers are 
benefiting?
    Mr. Quarles. There has been--the Fed participates on behalf 
of what we call Team USA, which includes the National 
Association of Insurance Commissioners as well, and the Office 
of Insurance at the Treasury, has participated in those 
discussions.
    And we have created space in that international discussion 
about a holding company capital standard for our system, for a 
building block approach that would allow our system of 
insurance capital regulation to be recognized as equivalent.
    It is now incumbent on us and we are close to presenting a 
concrete regulation to effect that building block approach. The 
NAIC is also working diligently to develop their group capital 
approach. And the IAIS, the relevant international body, has 
recognized that there is space for that in what is being done.
    Mr. Williams. Okay. Thank you. Technology is a wonderful 
thing and when used correctly it makes a profound impact on our 
everyday lives. I have been in the car business for 50 years 
and I have seen a lot of changes.
    When I began, we had to call different banks for financing 
offers which was a long, laborious process for our customers, 
but today you can be approved for auto financing in real time, 
almost instantly.
    There are many similar stories in other industries as well 
and there are now online small business lenders who can provide 
loans, as you know, in under 24 hours that traditional banks 
cannot offer. The OCC and the FDIC have committed to help drive 
innovation in these spaces.
    So, Comptroller Otting, how is the OCC playing a role in 
helping community and mid-sized institutions partner with 
technology companies for the betterment of the economy and Main 
Street businesses?
    Mr. Otting. Right. Thank you for the question. First of 
all, in 2015, we introduced an Office of Innovation at the OCC 
that staffed a lot of incoming calls and comments. In addition 
to that, last year we announced that we would allow a national 
banking fintech charter, a special purpose charter. We produced 
the criteria for that.
    But just as important to your point about a lot of 
relationships, we're finding a lot of non-banks are able to 
provide products and services, automobile lending most 
particularly--
    Chairwoman Waters. The gentlewoman from California, Ms. 
Porter, is recognized for 5 minutes.
    Mr. Otting. You need a balance sheet to be able to supply 
that and that is where banks--
    Ms. Porter. Mr. Otting, I don't know if you know this, but 
we have something in common, which is that we both grew up in 
small towns in rural Iowa: you in Maquoketa; and me in Lorimor. 
And we all draw on our life experiences to do our jobs, which 
is reasonable.
    The Equal Credit Opportunity Act, ECOA, makes it unlawful 
for any creditor to discriminate against any applicant for any 
credit transaction on the basis of sex, race, color, national 
origin, religion, age, receipt of income from a public 
assistance program, or the applicant's exercise of rights under 
the entire Consumer Credit Protection Act.
    Tell me, should we add to that list of protected classes 
under the Equal Credit Opportunity Act ``friends from the inner 
city?''
    Mr. Otting. From the inner city, ma'am?
    Ms. Porter. Friends from the inner city.
    Mr. Otting. I don't believe so.
    Ms. Porter. Last June you appeared in front of this 
committee and you were asked if you believe that discrimination 
exists and you said, and I quote, ``I have personally never 
observed it, but many of my friends from the inner city across 
America will tell me that it is evident today.'' When you said, 
``friends from the inner city,'' what did you mean?
    Mr. Otting. When I was in California, I had tremendous 
outreach in communities across the greater Southern California 
community. And as I was out visiting with those people, people 
would tell me there were instances of discrimination. You may 
not know, Ms. Porter, my background, but my in-laws are first 
generation Hispanic people for this country.
    Ms. Porter. I know.
    Mr. Otting. And so as I meet with--
    Ms. Porter. Do they live in the inner city?
    Mr. Otting. Pardon me?
    Ms. Porter. Since you have raised the issue of your in-
laws--
    Mr. Otting. Yes.
    Ms. Porter. Do they live in the inner city?
    Mr. Otting. They do. My wife--
    Ms. Porter. So by, ``friends in the inner city''--
    Mr. Otting. My wife was born in the inner City of Los 
Angeles.
    Ms. Porter. You are referring to--
    Mr. Otting. I was referring to my entire experiences, as 
you referenced, with friends and family and people that I 
interact with on a consistent basis.
    Ms. Porter. Who are some of your friends from the inner 
city besides your in-laws?
    Mr. Otting. John Bryant is one of my closest friends and 
John, as you know, grew up in Compton, California, and has done 
an incredible job with his organization of being able to build 
something that gives back to his community. And I have been a 
longtime supporter of those activities that John conducts.
    Ms. Porter. So by, ``friends from the inner city'', you 
meant black people, poor people, brown people. Why didn't you 
say, my experiences with--
    Mr. Otting. I just chose--
    Ms. Porter. --those who suffer discrimination in this 
country?
    Mr. Otting. I chose those words at that particular point in 
time.
    Ms. Porter. Okay. When I wrote to you on April 1st, I asked 
you to answer questions about the Community Reinvestment Act. I 
sent you this letter. It is four pages long, and this is the 
letter that I got back. ``Dear Representative Porter, thank you 
for your letter dated April 1, 2019. I intend to carry out my 
duties as Comptroller of the Currency.'' Would you like to 
expand upon your reply?
    Mr. Otting. I would not.
    Ms. Porter. Let me continue. This is the entirety of the 
letter after you say, ``I intend to carry out my duties as 
Comptroller of the Currency'', you say, ``On a related note, it 
is disappointing that you have repeated on Twitter unfounded, 
inaccurate allegations.''
    And you go on to say, ``As a Member of Congress, you have a 
responsibility to avoid repeating misinformation. Such 
misinformation undermines both public and private dialogue to 
make CRA regulations work better for everyone.''
    So since you don't want to expand upon your letter, and you 
didn't reply to my substantive questions, I am now going to ask 
you those questions in this hearing.
    Bank of America, JPMorgan Chase, Wells Fargo, and other 
banks have the same relationship pricing promotions that 
Citibank used. Citibank had a fine, which you then dropped, 
levied against them for preferential treatment of white 
borrowers in offering home loan discounts.
    What have you done, drawing on your experience with friends 
from the inner city, to examine potential fair lending 
violations with regard to relationship pricing arrangements at 
other financial institutions?
    Mr. Otting. We have a fair lending examination at all the 
major institutions on an annual basis, and we validate and look 
at all of their processes and programs. And we expect the 
institutions to do an end-to-end analysis of that. And where 
there are instances where we find they are in violation of fair 
lending, we refer those to the Department of Justice.
    Chairwoman Waters. The gentleman from Arkansas, Mr. Hill, 
is recognized for 5 minutes.
    Mr. Hill. I appreciate the Chair's time.
    And I appreciate the panel. I want to thank this panel for 
their devoted service to the United States. I appreciate 
Chairman McWilliams being a distinguished citizen of our 
country now having survived the fall of the Berlin Wall and her 
experience growing up in Central Europe so it is an honor to 
have you here before us.
    And I want to commend the FDIC and the OCC on recent 
innovation initiatives that I believe will be of benefit to our 
depository institutions and to non-banks alike. I appreciate 
your leadership on that.
    Chair McWilliams, your FDIC Innovation Lab is a great step 
forward and I encourage you to select someone from that office 
to be managing it as soon as possible.
    Mr. Lynch and Dr. Foster and I look forward to 
collaborating together on issues surrounding fintech and 
artificial intelligence as it relates to the financial services 
industry and so much of that is exactly what you are doing in 
each of the regulatory agencies to maintain a level playing 
field, maintain access to customers, businesses, and consumers, 
as well as facilitate innovation inside a giant bureaucracy 
like our regulatory agencies. So, I appreciate that.
    And, Comptroller Otting, I appreciate also your innovation 
pilot program, which is a strong step forward in fostering a 
good dialogue between our banks and those other regulators, so 
thank you for that.
    I was interested in the CECL discussion. I won't belabor it 
but I just want to call your attention, Mark Zandi, who is a 
frequent testifier before Congress. I am not sure actually how 
he gets any work done. He is on the Hill weekly.
    But when he testified on the subject of CECL under a number 
of questioners he said, ``I don't anticipate the banks actually 
having to make any adjustment to comply with CECL.'' That just 
begs the question, why is FASB proposing this?
    And that really sent, I think, a lot of confusion in our 
committee on a bipartisan basis that we have changed FASB, we 
are supposed to go to expected losses, bankers don't really 
know quite what that means. And we would say, and I think Mr. 
Luetkemeyer would say we are not sure Fannie Mae and Freddie 
Mac know what that means or any other entity required to comply 
with CECL.
    But a lot of us don't agree with the question I heard about 
creating a regulatory form of capital and a GAAP definition of 
capital. That is something we got away from after the savings 
and loan crisis in the 1990s.
    So while I can't encourage that, I can certainly echo the 
encouragement from Mr. Luetkemeyer that we, among our 
regulatory agencies, press FASB for that cost-benefit analysis 
and a delay, if necessary, in implementing this proposed 
pronouncement, including checking in with your friends who are 
Commissioners at the Securities and Exchange Commission that 
oversees FASB.
    One thing I am concerned about, having read the Treasury 
Report on financial innovation that came out last summer, on 
behalf of Chair Lynch and Chair Foster and myself, I hope you 
will spend some staff time and prioritize for us--I know you 
contributed to that study, but if you would prioritize issues 
in lending and payments and reg tech and submit those to our 
fintech task force I think that would be helpful.
    And one thing that is concerning I think to banks of all 
size is standards in innovation, that you all get on the same 
page. We love that you are doing sandboxes and that you are 
going to try to facilitate sandbox testing within your 
regulatory agencies.
    We encourage you to move faster on that, Mr. Quarles, as it 
relates to AML sandbox that I know you have a request pending 
on, but we need you on the same page when it comes to exam 
guidance. So I would encourage that FFIEC participates, the 
FFIEC, also meet and see what they can do now to harmonize on 
exam guidance for vendor due diligence for fintech companies.
    I think it is pretty good if you are at JPMorgan Chase. I 
think it is very difficult at the non-member State bank exam at 
the FDIC to get through a vendor due diligence on an emerging 
technology. That was a big part of the Treasury study.
    So will you each commit that you will devote some FFIEC 
time to exam guidance, even now as we are just on the front 
end?
    Mr. Hood. Yes, sir, I commit. And I am the incoming Chair 
of FFIEC, so I especially look forward to it.
    Mr. Hill. Good.
    Chair McWilliams?
    Ms. McWilliams. Yes. And I am an outgoing Chairman of 
FFIEC, and I intend to continue--
    Mr. Hill. Hand the baton off correctly.
    I yield back, Madam Chairwoman. My time has expired.
    Chairwoman Waters. Thank you.
    The gentleman from Utah, Mr. McAdams, is recognized for 5 
minutes.
    Mr. McAdams. Thank you, Madam Chairwoman, and good morning. 
I am happy to have you all before us today and thank you for 
your testimony.
    My question starts with Chairwoman McWilliams, and I want 
to ask you about a type of bank regulated by the States and by 
the FDIC: industrial loan companies (ILCs), known as industrial 
loan banks in my State of Utah.
    For decades, the FDIC quarterly call reports document that 
ILCs are among the safest and soundest financial institutions 
in the country, yet some suggest that ILCs are underregulated 
and that the FDIC does not have the authority to provide ILCs 
or their parent companies with the necessary supervision to 
ensure that they operate in a safe and a sound manner.
    So, Chairwoman McWilliams, does the FDIC have the authority 
it needs to properly regulate ILCs and can you describe for us 
what powers you have to examine an ILC and take action against 
it or its parent company if necessary?
    Ms. McWilliams. Yes, thank you for that question. The short 
answer is yes, we have the appropriate authorities to 
appropriately examine and supervise ILCs. We also work with the 
State supervisors.
    In fact, I have met with a great gentleman from your State, 
who is the superintendent, and we feel that we are 
appropriately positioned to be able to enforce the existing 
laws and regulate ILCs.
    Mr. McAdams. And would you approve an ILC's application for 
deposit insurance if you believed it would put the deposit 
insurance fund or the financial system at risk?
    Ms. McWilliams. I don't engage in hypotheticals, and that 
one is absolutely no.
    Mr. McAdams. Okay. I want to move to a different topic 
then. I want to ask a few questions regarding the Community 
Reinvestment Act and CRA reform for whomever on the panel may 
feel inclined to respond.
    As the Fed, the OCC, and the FDIC work on proposing updates 
to CRA regulations, I hope that you can all preserve the spirit 
and intent of the CRA to benefit low- and middle-income 
communities and individuals while also updating the CRA for a 
21st Century financial system.
    So a couple of points that I hope to see in CRA reform and 
then some questions, as you consider CRA reform I hope that you 
all look for ways to push financial institutions to innovate, 
to try new data-driven projects while giving those institutions 
the certainty they need that innovation will be permitted under 
the CRA for credit.
    And I hope that we can reform the CRA to be more outcomes-
driven rather than input-driven. And I hope that we don't lose 
the community-driven purpose of the statute.
    So as I said, a couple of questions. The advancement of 
technology is widely cited as one of the drivers of CRA reform.
    How can regulators balance widespread adoption of 
electronic and mobile banking with the CRA statues--statutes 
focused on local communities? And how should branches, banks or 
bank light banks be addressed?
    Mr. Otting. I would be happy to address that. Thank you 
very much for that question. I appreciate your insight on this 
and I would love to follow up and have dialogue on this.
    Mr. McAdams. Thank you.
    Mr. Otting. As we look at the branchless institution, and a 
lot of those are located in Utah, we have talked to them about 
what their thoughts were, and a lot of times they say, we want 
to be able to serve more where our customers are.
    So giving them the flexibility not only to serve at their 
headquarters or where their charter is but looking through 
their customer base and being able to serve those communities 
across America. And that is one of the goals that we are trying 
to accomplish.
    Mr. McAdams. Thank you. I have spoken to many banks about 
the Community Reinvestment Act. Traditional banks, banks that 
do--bank fintech partnerships, and many of Utah's industrial 
banks.
    And one of the things they tell me is that it takes also 
too long to receive feedback from regulators after a CRA 
examination has taken place.
    Does it make sense to get word back to banks sooner so they 
can make needed adjustments and so they can better focus on 
serving the credit needs of their communities? And will CRA 
reform efforts touch on this point?
    Mr. Otting. I absolutely 100 percent agree with you. I 
think across all three regulators, we can do a better job of 
that.
    And partly, it is the subjective and the good way that it 
is done today. And if we can bring a more objective way that it 
is measured, I think we can dramatically accelerate that 
feedback.
    But also put institutions in a position where they know 
what the criteria is, and they can be managing that so they 
know that they are satisfactory or outstanding before we show 
up.
    Mr. McAdams. Thank you. I just want to, I guess, reiterate 
my points then.
    As we move to adapt the CRA for 21st-Century technology, I 
hope that we can still maintain a focus on those communities 
that are impacted and those communities where those banks may 
be physically located. Because even if they are serving clients 
in a mobile and online fashion, they are located in a 
particular jurisdiction.
    But also, as we work to increase our understanding and 
opportunities to benefit those communities that CRA is intended 
to benefit or those populations that it is intended to benefit, 
that we might find ways to encourage better innovation and more 
data-driven ways rather than the safe ways that have just been 
kind of cookie cutter in the past.
    And with that, I yield back.
    Mr. Otting. Just one comment, one of the core elements of 
CRA is serving those communities where there are branches not 
benefitting from that.
    Chairwoman Waters. The gentleman's time has expired.
    Mr. Otting. Thank you.
    Chairwoman Waters. The gentleman from Georgia, Mr. 
Loudermilk, is recognized for 5 minutes.
    Mr. Loudermilk. Thank you, Madam Chairwoman. I appreciate 
everybody being here. This is an important dialogue that we are 
having. And I have a series of questions on various topics that 
I think are very important to our customers and constituents 
back home.
    But first, Mr. Quarles, you and I have had the conversation 
in the past about the Fed's investigation or consideration of 
getting involved in the real-time payments settlement system.
    I have expressed my concerns of the government competing 
with private industry. But Chairman Powell testified to this 
committee that--he said if the Fed does get engaged in this 
activity, that the system would be fully interoperable with the 
private sector network.
    My question is, we are not hearing many details, and I 
don't know that there are many details on this proposed system. 
Without the details, how do we know that it would be fully 
interoperable? And have you made any progress in that 
direction? Do you have any updates?
    Mr. Quarles. We don't have details on the specifics of how 
it would be interoperable because it is still a proposal that 
is under consideration and we are considering whether it is 
something that we would do at all.
    But if we were to proceed down that road, it would be a 
very transparent process. And the Fed is committed to ensuring 
that people would understand both what we were doing and why we 
were doing it.
    Mr. Loudermilk. Thank you. Moving on to another subject, 
the State of Georgia many years ago passed legislation that 
effectively outlawed payday loan operations in Georgia.
    But what has happened recently is, we have left a portion 
of our customer base without the ability to get small-dollar 
loans. And usually that is a segment of society that finds it 
difficult to find a place to borrow money that they need. In 
fact, a statistic came out recently that said 40 percent of 
Americans cannot afford a $400 emergency without borrowing 
money.
    But we have this gap of where people can't borrow money. 
And Comptroller Otting, I appreciate the OCC encouraging banks 
to get back into the small-dollar consumer loan market. I 
appreciate that.
    My question, Chairwoman McWilliams, is will the FDIC 
explicitly state that banks can make these loans, and when may 
we expect that to happen?
    Ms. McWilliams. It is one of my priorities at the FDIC to 
make sure that we can reach the unbanked and the underbanked. A 
lot of that fragment of the population is low- and moderate-
income communities that actually need small-dollar credit.
    We have a request for information that was available for 
public comment. We have received a number of letters. We have 
worked with different groups to understand what are the needs 
of the communities.
    It is my personal belief as well as, I think, good 
regulatory policy that these products be offered by banks where 
we can monitor for consumer protection, and we can look for the 
other signs of weaknesses in the marketplace and what the banks 
are offering. My preference would be that banks offer these 
products.
    Mr. Loudermilk. Do you have any idea of when we may see 
some activity in that direction?
    Ms. McWilliams. Is ``soon'' good enough?
    Mr. Loudermilk. The same definition of ``soon'' that you 
gave my colleague, Mr. Stivers. Okay.
    Ms. McWilliams. We will get back to you. We had an RFI 
report closed under the Administrative Procedures Act.
    We need to move forward under a certain timeline. And as 
soon as I have a little bit more information, I will circle 
back.
    Mr. Loudermilk. Okay. Thank you. I would appreciate it, if 
you would follow up. And in my remaining time, I want to touch 
on one other issue: the Bank Secrecy Act.
    I have a proposed bill that would increase the CTR 
threshold from $10,000 to $30,000. As you all know, 15 million 
CTRs are submitted ever year, and less than one-half of 1 
percent are used by law enforcement.
    And what I am hearing when I am back in the district from 
small banks and credit unions is this is a huge burden on these 
institutions.
    Mr. Hood, can you comment? Is this a significant problem 
that you are seeing in the credit union world?
    Mr. Hood. It is a significant issue, sir. Credit unions are 
burdened by it, and I appreciate the role that you are playing 
in indexing that $10,000 up to $30,000 in today's dollars.
    And I also believe that you are looking at doing it over 5 
years. They would appreciate, especially credit unions, having 
the 5-year cycles, because they would have to adjust if there 
are tweaks made. So I thank you for what you are proposing.
    Mr. Loudermilk. But can I follow up on that? One of the 
issues that we have, and I appreciate the bipartisan nature 
with which we have addressed this, but we don't provide any 
immediate relief under the proposal.
    How much benefit would it be to maybe go to $20,000 within 
indexing? Would that provide significant relief?
    Mr. Hood. Anything beyond what is there today we would 
greatly appreciate, and I am sure the credit unions would as 
well.
    Mr. Loudermilk. Okay. Thank you. I yield back.
    Chairwoman Waters. Thank you. The gentlewoman from 
Virginia, Ms. Wexton, is recognized for 5 minutes.
    Ms. Wexton. Thank you, Madam Chairwoman, and thank you to 
the witnesses for appearing today.
    I represent tens of thousands of government employees and 
Federal contractors who were hurt by the 35-day government 
shutdown that started in December of last year.
    I was encouraged to see banks and credit unions of all 
sizes respond by waiving fees and offering low- to no-interest 
loans to help Federal workers affected by the shutdown.
    However, regulatory guidance from the prudential regulators 
was slow to come. Not until the 20th day of the shutdown did 
guidance come, and then only after Chairwoman Waters sent a 
letter asking for it. During the shutdown in 2013, it wasn't 
until the 9th day of the shutdown that similar guidance was 
released.
    And let me tell you why this matters. It matters because, 
while much of the banking industry took proactive steps to 
assist consumers who were affected by the shutdown, others did 
not.
    I received many letters and e-mails from constituents who 
were affected by the shutdown in bad ways, and I want to share 
with you a portion of a letter from a constituent that I 
received in the middle of the shutdown:
    ``My husband and I recently sold our home and put an offer 
in on another home in the area. The profits from the sale of 
our old home are sitting in our bank account and are sufficient 
for us to afford our new home and survive for several months.
    ``The mortgage financing for our new home was all set 
before the government shutdown. Our closing date is set for 
January 28, 2019, on our new house. Today, we learned our 
mortgage company is denying our mortgage application because I 
am furloughed. They consider me unemployed and too much of a 
risk to finance.''
    Now, this constituent was able to work through it all, and 
eventually the mortgage was able to go through and she was able 
to buy the house. But it really never should have happened in 
the first place.
    So I introduced the Shutdown Guidance for Financial 
Institutions Act, which would require regulators to issue 
guidance to encourage financial institutions to help consumers 
and businesses affected by government shutdowns.
    I am loath to admit that this will be the new normal, but 
there is a concern that it will be. We could be looking at 
another shutdown this year. And I think that, rather than 
having to reinvent the wheel each time, I would prefer that we 
have some preparation.
    For the panel, are your agencies okay with issuing guidance 
prospectively that would require that banks or suggest that 
banks and credit unions work with their holders in order to 
avoid some of the bad consequences of a shutdown that was not 
their fault?
    Mr. Otting. Personally, I commend you. I do think it is a 
great way to look at this and be able to put this in place for 
people ahead of time.
    We would be supportive. We were also a supporter of 
Congresswoman Waters' initiative, and we did communicate with 
financial institutions, via the OCC, those guidelines.
    Ms. Wexton. Very good.
    Mr. Hood. And I support Mr. Otting's approach.
    Ms. Wexton. Okay.
    Ms. McWilliams. I support it both as a regulator and as a 
public servant who lives in Virginia. Thank you.
    Mr. Quarles. That seems very sensible.
    Ms. Wexton. Thank you. Now, I know that it has been 
addressed pretty exhaustively by other members of the 
committee, but I do want to add my name to those expressing 
concern about CECL and FASB's decision to forego a cost-benefit 
analysis before implementing those requirements.
    I am especially concerned about the impact on credit 
availability for low- to moderate-income borrowers and small 
businesses. And I, like many other members, have heard from 
banks and credit unions of all sizes, both in my district and 
in my State.
    And I do have a letter here from Capital One for the 
committee to add to the record if there is no--
    Chairwoman Waters. Without objection, it is so ordered.
    Ms. Wexton. Thank you.
    Now, I am concerned because FASB has created this new 
standard. They are requiring that there be perfect foresight on 
the part of the various depository agencies.
    And it will have significant and widespread impacts on what 
you guys are supposed to be regulating, but it doesn't appear 
that there was much communication going on with you on what the 
impact will be.
    So I know it is FASB's purview, but have any of your 
agencies done a rigorous analysis of the impact of CECL on 
credit availability?
    Mr. Hood. We are continuing with our Office of Chief 
Economists to look into that very issue.
    Ms. Wexton. Okay.
    Ms. McWilliams. It is difficult, because there are so many 
ways of implementing CECL that our hope is that, with a phase-
out and a phase-in period, actually some of the smaller banks 
have the latest compliance date.
    We will be able to get the information from that first 
tranche of banks that are complying and understand--
    Ms. Wexton. But you haven't been able to do that yet?
    Ms. McWilliams. No.
    Ms. Wexton. Okay. And Mr. Otting?
    Mr. Otting. The large banks are going to run parallel. They 
are running parallel now. We are starting to see the first 
output of that.
    And what people have said is everybody's portfolio is 
slightly different, depending upon what products you offer and 
the length of those products and the type. For example, credit 
cards are definitely much more affected than small auto loans.
    And I think we are supportive. A number of us have met with 
FASB to try to see if there is a solution. That is why we came 
up with that 3-year roll-in period to it.
    Ms. Wexton. Phase-in.
    Mr. Otting. And we would be more flexible on that, I think, 
as we move forward.
    Ms. Wexton. Thank you very much. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from North Carolina, Mr. Budd, is recognized 
for 5 minutes.
    Mr. Budd. Thank you, Madam Chairwoman, and thank you to our 
witnesses for your time again this week.
    Earlier this week, along with every one of my Republican 
colleagues on this committee, I sent you all a letter, again, 
with all of our signatures. And it asked that your agencies 
move forward in implementing several critical recommendations 
included in the June 17th Treasury report.
    The report, as you know, included recommendations for 
modifying financial regulations to increase efficiency and 
promote access to capital and credit.
    However, 18 months later, many key items remain unfinished. 
And these are regulations that your agencies have full 
authority to change.
    I realize that under the new Administration it took some 
time to make sure you had the right people in the right places, 
but you sit here today, and in each of your roles, you have 
been in each of these roles for many months. And as far as I 
can tell, the agencies have pending proposals laid out by the 
previous Administration.
    Additionally, two proposals were issued by the Fed a year 
ago: one, the enhanced supplementary leverage ratio, and two, 
the stress capital buffer, were left over from Governor 
Tarullo's time here. But they still have not been finalized.
    I look forward to each of your responses to the letter, the 
one, again, that I sent this week. But I know that many of us 
are frustrated with the lack of action. Since my time is 
limited today, I want to focus on one item.
    Mr. Quarles, can you please explain quickly and give us an 
update on when the Fed will reexamine the G-SIB surcharge and 
other international standards placed on U.S. firms?
    Mr. Quarles. There is not a specific timeline with respect 
to the G-SIB surcharge.
    But we are actively looking because it has to be considered 
in the whole complex of regulation and capital regulation, 
including some that have only recently been agreed upon 
conceptually and require significantly detailed implementing 
work to ensure what we don't want to do is make some amendment 
to one element of the capital regime, be that the G-SIB 
surcharge or any other element, and discover that we have set 
that at a level that is too high given something else that 
could be coming in later.
    So we want to look at this comprehensively and that 
requires a great deal of work, but it is active work that is 
going on.
    Mr. Budd. Thank you. Sticking with you, Mr. Quarles, you 
received a letter earlier this week from 42 Senators regarding 
concerns about the development of the International Capital 
Standards (ICS), and that was by the International Association 
of Insurance Supervisors (IAIS).
    It is my understanding that the IAIS is both a member of 
the Financial Stability Board (FSB), and also claims to act at 
the direction of the FSB. The Senate letter you received 
specifically asked you as Chair of the FSB to call on the IAIS 
to alleviate regulatory uncertainty that the ICS or the 
International Capital Standards project has created.
    And also to ask you to issue a public statement that the 
ICS is not intended to be a global mandate, and that 
aggregation approaches to capital such as those being developed 
by the NAIC and the Federal Reserve as well as other well-
developed and proven capital regimes are acceptable for the 
purposes of the ICS. So, quickly, what is your plan to 
implement this request?
    Mr. Quarles. So I think the most effective way to ensure 
that the U.S. capital regime is recognized as part of the 
International Capital Standard that is being developed by the 
IAIS, we have accomplished half of that goal, which is to have 
conceptual agreement at the IAIS at a building block approach, 
an approach that recognizes the U.S. system, is an appropriate 
equivalent approach to be included.
    Now, the next step really to be effective is for us at the 
Fed and for the National Association of Insurance Commissioners 
(NAIC) here in the United States, to develop our building block 
approach, our group capital approach.
    The building block approach at the Fed, and the group 
capital approach of the NAIC to put that forward in that 
international discussion to fill the space that has been 
created for a U.S. compliance regime to be included in that.
    We are actively doing that. We expect to have a proposal 
out, as Chairman McWilliams would say, ``soon.'' But we will 
have one soon because we recognize that the process is aiming 
at a November timeline, and in order to have the appropriate 
influence on it, we need to have our concrete proposal out 
soon, and we will do so.
    Mr. Budd. Thank you. In just the few seconds I have left, 
what studies and analyses have you reviewed to inform your 
views about how the ICS in its current form--about how that 
might impact the U.S. economy or other jurisdictions?
    Mr. Quarles. We have staff at the Fed that is devoted to 
these issues and they have looked at a broad range of data. I 
can provide you some of the specific data as a follow up.
    Mr. Budd. Thank you. I yield back.
    Chairwoman Waters. The gentleman from Massachusetts, Mr. 
Lynch, is recognized for 5 minutes.
    Mr. Lynch. Thank you, Madam Chairwoman. Thank you for 
holding this hearing.
    I also want to thank the witnesses for your willingness to 
help the committee with its work. I do want to follow up on the 
question asked by my friend from Illinois, Mr. Foster, and it 
was also raised by my colleague and friend, French Hill, 
regarding the special purpose national bank charters around 
fintech, and I happen to be the incoming Chair of the Fintech 
Task Force.
    So I guess the question in principle is addressed to 
Comptroller Otting. I have been following with keen interest 
this case out of New York, Vullo v. OCC. I know that Judge 
Marrero just issued an opinion on that.
    A few takeaways just from that case is that they disagreed 
with the OCC's interpretation of the National Bank Act, and 
they also pointed to the long history that State regulators 
have had in terms of regulating non-bank financial service 
companies. And I think that they are on pretty solid ground 
there.
    The OCC proposal, the White Paper that you put out and also 
your position in court would basically wipe out the State 
regulatory scheme there for consumers, and I worry about that. 
They have done a pretty good job for about 100 years, maybe a 
little longer.
    And so your proposal would basically exempt these fintech 
charters from inquiry by Secretaries of State like the one in 
my State who does a great job, and State attorneys general 
across the country. It would basically wipe out that entire 
regulatory framework, and that is not a good thing.
    So as the incoming Chair of this task force, I am just 
curious why you tried that approach? Why not come to us? You 
are going to need a legislative fix.
    You have a lot of people here who are very, very much 
interested in this topic, and I think you are wasting time by 
trying to ram this through without our input or through a 
creative reading of the Act.
    I think your time would be better spent in dealing with the 
task force. We will come back to the full membership of this 
committee and try to work this balance out. We want to create 
an innovative space where innovation can actually occur. But we 
also want to protect the consumer. That is the balance here.
    And I think, based on the history, the States have done a 
very, very good job, and they are quick to respond. We are 
rather slow up here, because of the scope of interests and the 
nature of Congress, I guess.
    So, you tell me, why not come to Congress? Why not try to 
work something out that would satisfy the concerns of the 
States' regulatory systems, but also creates that innovative 
space that we all want to provide consumers with better 
choices?
    Mr. Otting. Yes, first of all, congratulations on your new 
role. I do hope to have many interactions with you on this 
topic because I do think it is important. I have always been a 
supporter of the dual banking system, both the State and the 
Federal. While I do respect that judge's decision, I don't 
think he got that decision right, and we can debate that maybe 
over a cup of coffee some morning when--
    Mr. Lynch. I will be happy to, yes, yes.
    Mr. Otting. And I also don't feel that--
    Mr. Lynch. I think Jefferson and Hamilton debated this a 
long time ago, but on this one, I am probably with Jefferson. I 
think the States have a role to play. But we can talk about 
that.
    Mr. Otting. Maybe we will go to the play together. But I 
also think it opens up a lot of dialogue that, at least from 
our perspective, that the bank, the national bank does have 
that right. We also feel it doesn't wipe out the way that you 
described, that it does make them subject to capital, 
liquidity, infrastructure, and consumer laws associated with 
this. So it isn't a black or white, I think, situation.
    I have a goal to help consumers have access to small ticket 
credit, and I would be happy to sit down with you and talk 
about how can we work together. This wasn't an intent not to 
work together. I think if Mr. Meeks was still sitting here he 
would say I have spent an enormous amount of time here up on 
the Hill talking to people about this over the last year and a 
half.
    So it hasn't been done in isolation. But in your new role, 
I look forward to interacting with you on this topic.
    Mr. Lynch. So do I. And I think there is a wider 
conversation we can have, and you have offered some other White 
Papers that have talked about something like a regulatory 
sandbox where we can try some of these ideas out before we 
expose the investing public to any unnecessary danger.
    So I yield back to the Chair, and I appreciate the 
indulgence. Thank you.
    I yield back.
    Chairwoman Waters. Thank you very much.
    The gentleman from Indiana, Mr. Hollingsworth, is 
recognized for 5 minutes.
    Mr. Hollingsworth. Good afternoon. I want to welcome 
everybody here. I really appreciate the investment of time that 
has been made in this hearing.
    And specifically, Mr. Quarles, I wanted to come back to 
something that Representative Budd talked about, the G-SIB 
surcharge, and I know you and I have had several conversations 
about this in my office, in hearings, via letters and whatnot.
    But I just want to come back to the central point of making 
sure that we get to recalibrating this rule. And I think as you 
well put and well-articulated that you want to make sure that 
this is situated inside this holistic approach, right?
    But the original G-SIB surcharge rule was put forth in 
2015. You, to your credit and your predecessor's credit, have 
done a lot of work since then in revising the regulatory 
framework such that the probability of a firm encountering 
issues is much less. And the cost to the system will be much 
less. You should get great credit for that work.
    But inside that framework because of those changes, I think 
that necessitates us taking a look at the G-SIB surcharge. As 
you said, you don't want to make sure that you revise this on 
its own, but the other factors have already changed making 
revising this all the more important and all the more timely.
    And I know we have had this conversation, but I wanted to 
reiterate to you how important I think it is that we take a 
look at that, and I know that you have a holistic view, and you 
want to approach this in all parts. But even a really big 
number times zero progress equates to zero progress, right?
    So I really wanted to ask you, when do you think that you 
will be able, or others on your team will be able to undertake 
the review of the G-SIB surcharge and understand how we might 
recalibrate that, whether it is coefficients or otherwise, to 
reflect today's external environment and the regulatory changes 
that have since been made since 2015?
    Mr. Quarles. Those are all very fair points, but as far as 
the timeline, all I can say is that we are looking now at the 
complex of capital regulations as a whole and trying to 
determine where to calibrate each element. That includes the G-
SIB surcharge, but I don't have a timeline for when that 
process will be done.
    Mr. Hollingsworth. Well, know that it is important to 
Hoosiers back home that it be done quickly, and I know that you 
will do it thoughtfully. I know you will do it artfully. But 
doing it quickly matters as well.
    And I have been disheartened on occasion by what I think 
are specious arguments in saying, oh, the economy is good, or 
profits are good, and somehow that excuses us from doing the 
right thing in terms of building the regulatory framework. The 
right regulatory regime is right irrespective of where bank 
profits tend to be today, right? And so I want to make sure 
that we are thoughtful about that as well.
    Mr. Quarles. I completely agree with you that those are not 
good arguments.
    Mr. Hollingsworth. Thank you. I appreciate that.
    Transitioning topics, a really big jump but sticking with 
you, I know that one of the other things that is really, really 
important, and you and I have talked about this before, is 
ensuring that all of our banks compete on a level playing 
field, and they compete on a level playing field including 
their foreign counterparts who may be headquartered abroad but 
have an important role to play in our financial system, have an 
important role to play in Indiana back where I live.
    And so I wanted to just ask and better understand some of 
the reasoning behind this because I just didn't quite get it.
    Given that branches and IHCs are separate legal entities, I 
am just unclear how the liquidity requirements take that into 
account in ensuring that we get to the right outcome where 
banks that are headquartered domestically and banks that are 
headquartered abroad but play domestically have the opportunity 
to do so on that level playing field, the teeter totter being 
equal?
    Mr. Quarles. Our proposal is to basically base the 
tailoring rules, the size element of the tailoring rules on the 
combined--on the consolidated U.S. operations, the combination 
of the IHC and the branch was driven by our experience 
particularly during the financial crisis, but also our 
experience since. The branches of the foreign banks did require 
a lot of liquidity support from the Federal Reserve during the 
crisis and we have seen since the development of the IHC 
structure and totally appropriately, totally--I mean one would 
expect it, totally legally. But activities that were 
accomplished in an IHC moved into the branch because of 
regulation that has been put on to the IHC. Those activities--
if there is some future period of stress that requires 
liquidity support from the U.S. through the Federal Reserve, 
that support will now be provided in the branch. So as we look 
at what is the riskiness of the U.S. operations of these 
foreign banking organizations, I do think that for us to put 
out a proposal, the right place to start was to look at the 
consolidated U.S. operations rather than just the IHC, but we 
are actively considering comments that we received on it.
    Mr. Hollingsworth. Great. I appreciate that. I know that 
you will be thoughtful and diligent about that, and I know--I 
just wanted an affirmation that the goal is parity between the 
two, foreign and domestic, is that correct? However, the 
mechanics are to get there and the addition or subtraction, the 
goal is parity?
    Mr. Quarles. Absolutely correct.
    Mr. Hollingsworth. Right.
    Mr. Quarles. National treatment for the foreign operations.
    Mr. Hollingsworth. All right, thank you.
    Mr. Quarles. Operations of the foreign banks.
    Mr. Hollingsworth. Thank you so much. I yield back.
    Chairwoman Waters. The gentleman from Illinois, Mr. Garcia, 
is recognized for 5 minutes.
    Mr. Garcia of Illinois. Thank you, Madam Chairwoman.
    And I thank all of the panelists for their patient 
testimony and Q&A engagement.
    I do have a question for Mr. Quarles. The Fed issued its 
financial stability report last week noting a 20 percent 
increase over the last year in leveraged lending. The report 
stated that credit standards for these loans have diminished 
since last fall and highlighted that loans to firms with high 
amounts of debt now above previous peaks in 2007.
    Help us understand what a leveraged loan is when private 
equity firms like KKR, Bain, and Vornado drove Toys ``R'' Us, 
everyone remembers that, into bankruptcy. Didn't they use 
leveraged buyouts and debt to do so? Correct?
    Mr. Quarles. I don't know that it was excessive. I don't 
know all the details of the Toys ``R'' Us story, but I don't 
know that there was excessive leverage. That was an investment 
that was made by private equity firms, and retailers in general 
have struggled with the move to online commerce that I think 
was as important a factor as the particular financing structure 
for Toys ``R'' Us, but I don't know all the details there.
    A leveraged loan is a loan that is made to an institution, 
to a firm that has high borrowing levels, generally secured by 
its assets. It is a similar economic concept but differs in 
legal detail from a high-yield bond.
    Mr. Garcia of Illinois. In the Toys ``R'' Us scenario, I 
think it was pretty simple. Private equity loaded up Toys ``R'' 
Us with excessive debt. This is a great example of corporate 
debt gone wrong.
    Moving on, these risky moves by corporations in debt 
prompted your colleague, Lael Brainerd, as well as former Fed 
Chief Janet Yellen, five reserve bank presidents, and a host of 
regulatory experts to advise activation of the countercyclical 
capital buffer. Yet, the Fed declined to activate the 
countercyclical capital buffer on March 6th.
    Mr. Quarles, why have you chosen to ignore experts and 
colleagues while simultaneously warning of the risks posed by 
leveraged lending?
    Mr. Quarles. That is a decision of the Board of Governors. 
The majority of the Board of Governors, with only one dissent, 
determined that our framework for considering financial 
stability risk would not call for turning on the 
countercyclical capital buffer currently.
    Mr. Garcia of Illinois. Do you agree with their decision?
    Mr. Quarles. Yes, very much so.
    Mr. Garcia of Illinois. Okay.
    Mr. Quarles. We have a comprehensive and disciplined 
methodology for considering financial stability risks every 
quarter we meet as a Board to consider leverage in households, 
leverage in businesses, asset valuations, leverage in the 
financial sector. Consider all of that together and you look at 
all of that together and financial stability risks are not high 
enough now to turn on the CCYB under our framework.
    Mr. Garcia of Illinois. So you agree and you are moving in 
that same direction. When questioned about leveraged lending at 
Yale University following the financial stability report's 
release, you noted that, ``While leveraged lending has 
increased, banks are not keeping these loans on their books.'' 
Can you please translate what that means? Are you saying you 
are less concerned about leveraged lending because non-banks 
are involved?
    Mr. Quarles. No, that is one element of understanding the 
potential for financial stability risks. So as opposed to the 
potential for leveraged lending being an element of a future 
business downturn.
    You would expect financial stability risk if a change in 
the price of a particular asset or asset class could be 
amplified through the financial system in a destabilizing way, 
and that generally occurs when there are investors in an 
institution or a vehicle that is exposed to that asset that can 
run from that asset essentially.
    That the holding institution has liabilities that are 
shorter than the maturity of the asset to which it is exposed. 
Banks are a paradigmatic example of that.
    The leveraged loans, however, are being originated by the 
banks but sold into more stable holding structures, principally 
collateralized loan obligations, or CLOs, that have obligations 
with maturities that are longer than the maturity with the 
underlying assets which makes them more stable institutions. So 
from a pure financial stability concern, that reduces the 
concern.
    Mr. Garcia of Illinois. Well, you have pretty much run the 
clock down.
    So, Madam Chairwoman, I yield back.
    Mr. Quarles. But in a fascinating way.
    Chairwoman Waters. The gentleman from Ohio, Mr. Gonzalez, 
is recognized for 5 minutes.
    Mr. Gonzalez of Ohio. Thank you, Madam Chairwoman.
    And thank you to everybody for being here and for your 
attention.
    I was captivated, Mr. Quarles.
    But I want to kind of piggyback on some of the comments 
from Mr. Hill and Mr. Lynch earlier. So, a recent PwC report 
estimated that by 2030, AI and machine-learning technologies 
could increase North American GDP by $3.7 trillion and could 
increase global GDP by $15.7 trillion.
    A July 2018 Treasury report on fintech and innovation 
recommended that regulators should not impose unnecessary 
burdens or obstacles to the use of AI and machine learning and 
should provide greater regulatory clarity that would enable 
further testing and responsible deployment of these 
technologies by regulated financial services companies as they 
develop.
    So my first question is for Mr. Quarles and Mr. Otting, how 
do your agencies view the advancements made in machine learning 
and AI, and what sorts of barriers do you think are currently 
in place that prevent financial institutions from expanding 
their use?
    Mr. Quarles. There are a few things I would say. One is 
that it is relatively early-stage technology but is 
increasingly developing very rapidly and is increasingly 
broadly available. Two, it is costly and that is something 
that--
    Mr. Gonzalez of Ohio. But that is going down, right, 
significantly?
    Mr. Otting. It is going down but the amount that the 
financial sector has to spend on technology is going up, so the 
cost of any particular element. But the amount that we--in part 
for cyber prevention, in part for keeping up with competition, 
is very, very costly.
    Third, from a purely regulatory viewpoint, one of the 
points of machine learning is that you develop algorithms so 
that it can improve their predictive capacity over time in ways 
that you are not directly.
    And that, indeed, even the creator of the algorithm may not 
perfectly understand, simply know that the predictive capacity 
is improving over time. And from a regulatory point of view 
there are consumer protection and other aspects that we need to 
ensure that we can appropriately regulate even while allowing 
that technology to develop.
    I think Randy's comments are accurate. I have a couple of 
other observations. We have seen it start to come into the AML 
BSA space where they will feed in a hundred violators in 
particular institutions and then go through their entire client 
base very quickly and identify characteristics, generally high 
volatility of money.
    We have also seen it be used in the underwriting of credit 
processing. And as Randy said, there is a little bit of, we are 
used to seeing what is the FICO? What is the VTI? What is the 
loan-to-value? And the machine is making decisions on the fly.
    And so, the ability to go in and examine that is a 
complicated aspect to that, but we do see lots of institutions, 
especially in the model area, looking at how that technology 
can be used. I think it has tremendous applications in the 
future.
    Mr. Gonzalez of Ohio. Great. Thank you.
    And then on the issue of data privacy, which you kind of 
alluded to, there is an evolving framework, a regulatory--
regulatory requirements, financial institutions have a 
responsibility and obligation to protect customer data. And to 
be clear, subject to Federal data protection privacy laws 
including Gramm-Leach-Bliley.
    A complicating factor is we have a mess of international, 
Federal, and State standards. I would love to hear, again, Mr. 
Quarles, what regulatory framework would you propose with 
respect to data and privacy? Because I think that is one of the 
big factors that are limiting us here.
    Mr. Quarles. It is a great question. I don't have a great 
answer for you. It is a very complex question because it plays 
internationally and domestically.
    I think the best I could do for you today is that I would 
be glad to work with you on this because I think it is a very 
important question.
    Mr. Gonzalez of Ohio. Great. Sort of shifting then to ask 
it a little differently, GDPR, how would you say that is done 
and where would you, if you could recalibrate that or use that 
as it appears there is a line in the sand, how do you evaluate 
that?
    Mr. Quarles. One of the issues that we have run into with 
GDPR, to just give an example, is that purely from a regulatory 
point of view it actually has impeded some of our regulation of 
the safety and soundness of firms because of our inability to 
access some data under the GDPR standard.
    We are working through that. I think we will be able to 
work through that, but it is just an example of the unintended 
consequences of some data protection regulation.
    Mr. Gonzalez of Ohio. Okay, thank you. And I will 
definitely be taking you up on your offer to have deeper 
discussions on this. I think this is one of the most important 
and interesting questions that this committee and all 
committees, frankly, are going to be dealing with over time.
    So thank you, and I yield back.
    Chairwoman Waters. The gentlewoman from Pennsylvania, Ms. 
Dean, is recognized for 5 minutes.
    Ms. Dean. Thank you, Madam Chairwoman. In my limited time I 
am going to try to do three things: one, is going to be a 
request regarding language; two, is going to be to ask one of 
you about what we should think about the massive fines that 
have been imposed upon the banks; and three, if I can, payday 
lending.
    So, number one is a request. Before I got here to Congress, 
before I came to public service, I was a teacher of writing at 
LaSalle University. And one of the things I told my students to 
be aware of was euphemism. Euphemism in your language can be 
very dangerous. It can fog over what--those whom you regulate.
    So I will just read you a couple of sentences and ask you 
to take the lead when you are writing so you can make sure that 
we as consumers, as Members of Congress, and those whom you 
regulate understand. Sentences like, ``Operational risk is 
elevated as banks respond to evolving in increasingly complex 
operating environments. Additional factors contributing to 
elevated operational risk are the expected increase in mergers 
and acquisitions activities, as well as rising trends in fraud 
and attempted fraud. Operational disruptions underscore the 
need for effective change management when implementing.''
    You can see there is a lack of nouns and verbs and things 
we can see in there. I ask you to take the lead and make it 
clearer for us, and clearer for our consumers.
    We had the big banks in here a couple of weeks back. It was 
a very enlightening hearing. And I don't even have a current 
tally, but one of the themes that kept recurring was that since 
2008, the banks have suffered or have been imposed upon with 
more than $300 billion worth of fines.
    And I am wondering, what is your reaction as very important 
regulators to that climate? That while they came in and said 
they are healthy and they have reduced risk and they have 
streamlined and they are profitable, they have suffered fine 
after fine after fine. And so consumers think, well, is that 
just the costs of doing business?
    So what do you as regulators think of $300 billion-plus in 
fines on the big ones, Bank of America, JPMorgan Chase, 
Citigroup, Deutsche Bank, Wells Fargo, and I can go on and on 
and on. Your thoughts, the alarm bells that you hear?
    Mr. Otting. For me, the fine is the output of actions that 
we have found in those institutions we found unacceptable. And 
while people may say the fines are just the cost of doing 
business, I can assure you all of us as primary regulators are 
in the institutions making sure that if a bank is not in 
compliance with consumer laws or regulations, that they are 
getting consent orders and matters requiring attention.
    And so I would say to you that at least from the OCC-
regulated banks, I am very comfortable that we are onsite. We 
are regulating those institutions and fines are the byproduct 
of when we find harm in activities. And often what that is is 
it is the output and it is a couple of years down the path when 
those actually occur.
    Ms. Dean. I appreciate that, and don't get me wrong. I 
think you are doing your job. It is just incredibly grave that 
these are the massive fines with industry that comes in and 
says we are good, we are streamlined, we are doing well. And 
what does the consumer actually see when a massive fine is 
imposed?
    So I am gravely concerned about that. If that just 
continues, it means that you are doing your job, but they are 
not doing their job since you have to impose these kinds of 
fines. So I worry about that.
    I don't know if anybody else wants to say something, but 
maybe I will switch to payday lending, and try to get 
everything in. I am concerned about payday lending. Again, with 
the notion of language, I am worried that we now have these 
things called PALS. Short-term loans may not be a pal to us.
    I am very worried about it. I appreciate the FDIC and 
others saying they want to make sure that there are important 
terms and regulations. What are you looking at in terms of the 
guidelines, the requirements, the regulations for short-term 
lending, as in interest rates, terms, amounts, those kind of 
things to protect consumers?
    Mr. Hood. Representative Dean, that is an issue that we are 
looking at, at NCUA. We are looking at low-dollar loan amounts 
to see how we can bring more people into the economic 
mainstream. We are looking at, are these products at a good 
interest rate? Are they also able to build credit so they can 
really have a credit score so they can be permanently part of 
the banking system?
    Ms. Dean. What kind of interest rates would be appropriate 
for short-term lending so that people don't get into a debt 
trap?
    Mr. Hood. At NCUA, we have a statutory cap of 15 percent on 
loan balances. Our current payday alternative loan product was 
priced up to 28 percent.
    Ms. Dean. Yes. Does anyone else want to talk about payday 
lending? It is a growing market. I think it is an incredibly 
dangerous market, so your thoughts as regulators?
    Mr. Otting. While the short-term payday lending is under 
the jurisdiction of the Consumer Financial Protection Bureau 
(CFPB), most of the banks where we would be involved is when 
they have a short-term loan. And we have come out with a 
bulletin on that and I would be happy to send that over to you 
so you could take a look at that.
    Ms. Dean. That would be great, thank you. Thank you all.
    Chairwoman Waters. The gentleman from Wisconsin, Mr. Steil, 
is recognized for 5 minutes.
    Mr. Steil. Thank you very much, and thank you all for being 
here today. I want to spend my limited time on two questions. 
First, Mr. Quarles, I know that many of my colleagues have 
already raised concerns about the international capital 
standards being developed by the International Association of 
Insurance Supervisor.
    I want to echo those concerns. I also want to point out 
that both of my State's Senators, a Republican and a Democrat, 
sent you a letter expressing their concerns.
    To me, this shouldn't be a partisan issue. It is not really 
a Democrat or Republican, liberal or conservative issue. I 
think it is about defending our insurance markets from imported 
and sometimes incompatible regulations.
    I listened to your speech you gave earlier this year and 
you said that much of ICS's evolution has been in the direction 
of evaluation method and overall framework that reflect 
approaches used elsewhere in the world.
    And then you said, ``This may not be optimal for the United 
States insurance market.'' Can you elaborate on what you meant 
there? And would importing incompatible capital standards from 
Europe or elsewhere harm American consumers?
    Mr. Quarles. We have a particular capital regulation regime 
in the United States that has supported a healthy industry over 
a long period of time. It is quite different from the capital 
regulation regime in Europe and in other parts of the world.
    And the IAIS's effort to develop a global capital standard 
is a perfectly worthy one, but all of that is voluntary. They 
are developing a voluntary standard so it couldn't be directly 
imported into the United States.
    But it also wouldn't be effective in achieving its 
objective if it leaves out the U.S. system, an approach that 
would work for the U.S. system. So they recognize that and the 
negotiating team, staff from the Fed and from the Treasury and 
from the NAIC have, as I have said, created space in the 
process for a U.S. group capital standard to be equivalent to 
anything the Europeans might use.
    It is now incumbent upon us to come up with the concrete 
implementation of that and we are in the process of doing that. 
It should come out very shortly.
    Mr. Steil. I appreciate that, and I would appreciate it if 
you would continue to keep us updated as you work on that 
important topic.
    I want to shift gears, Mr. Quarles, and touch base here on 
some of the international bank tailoring. In particular, the 
Fed recently released a proposal on capital and liquidity 
requirements for banks that have a foreign parent.
    I have heard from some concerns that this rule may 
unreasonably raise liquidity requirements for foreign banks 
operating in the United States. And it seemed like maybe your 
comments at the Senate earlier this week confirm that point.
    Meanwhile, the Fed is proposing to reduce liquidity 
requirements on many domestic firms of a similar size. There 
are several foreign banks in Wisconsin that are active, in 
particular for consumers across the State, agriculture, small 
business lending, so it kind of comes to the forefront.
    And with multiple firms competing in the market, ultimately 
consumers in Wisconsin and across our nation benefit from that 
competition choice and ultimately lower prices.
    So with that in mind, I am concerned about what the higher 
liquidity requirements may have in the Fed's proposed for 
foreign banks may ultimately end up hurting consumers in 
Wisconsin and across the United States. Could you just take a 
moment to explain the Fed's proposal on the higher liquidity 
requirements for foreign banks?
    Mr. Quarles. I think that the comment that I gave was with 
respect to the aggregate. I think we do have a calculation that 
in the aggregate across all of foreign bank operations in the 
U.S. that there would be an increase in liquidity requirements.
    But there is a much greater variety of business models 
among foreign banks of a particular size than there are among 
domestic banks of a particular size. And there are banks such 
as some of the foreign banks that are operating, they are 
active in Wisconsin, that are pure commercial banks really.
    And then there are banks of a similar size with respect to 
their U.S. operations but that are trading banks. They are 
investment banks. They have much more complicated securities 
operations.
    And so our system for banks of--given that diversity of 
business model, the system we have proposed will result in much 
different treatment of firms of the same basic asset size than 
they would for domestic banks of that same basic asset size, 
which will--that, again, at the size of most of these foreign 
banks in the U.S. would have business models that are much more 
similar to each other.
    So I would be happy to get into the discussion of the 
specifics of the banks that are operating in Wisconsin, but I 
wouldn't assume because of the aggregate effect that those 
banks would be affected in the same way.
    Mr. Steil. I appreciate your clarification.
    And I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Connecticut, Mr. Himes, is recognized 
for 5 minutes.
    Mr. Himes. Thank you, Madam Chairwoman.
    And thank you all for being here. I want to pick up on a 
line of questioning that Mr. Garcia started around leveraged 
lending. I will remind you that when the CEOs of the big banks, 
all but Wells Fargo, were here, I asked them one question, 
which was, what financial product or mechanism worries you the 
most?
    And I did not hear the economy, not cybersecurity, not 
financial instruments or mechanisms. There was near unanimity 
around leveraged lending and in particular it was paired with 
shadow banking. A number of them said that.
    So I want to hear a little bit more on that topic. I have 
had the opportunity to talk to Mr. Quarles about this, so Mr. 
Otting, I will start with you. but I also want to leave time 
for Ms. McWilliams to address the question.
    Mr. Quarles was soothing in addition to being captivating, 
and Mr. Otting, there was a change in tone that you have had on 
this issue. You, in Las Vegas years ago, said, ``As long as 
banks have the capital I am supportive of them doing leveraged 
lending, but you have the right to do what you want.'' I am 
sure you remember that speech.
    A year later in your testimony today you say that a 
specific credit risk that warrants attention involves the 
leveraged loan market. I detect a slight change in tone there. 
So I hve two very specific questions, and I will ask Ms. 
McWilliams the same questions.
    First, I understand that you are monitoring, but are you 
considering doing anything with respect to banks on their 
balance sheets? And if not, what would it take to actually do 
something, take some regulatory action?
    Second, I am almost more discomfited by the shadow banking 
question. And I heard Mr. Quarles. I understand that CLOs get 
bought by what he calls more stable holding structure by non-
banks. The problem is non-banks borrow from banks.
    So question number two for both of you is, what kind of 
visibility do you have into that exposure, that transmission 
line into from the shadow banking or non-banks?
    Mr. Otting?
    Mr. Otting. First of all, on the first question really 
quick, I still have the same position that a bank's board and 
management get to make a decision on their leveraged lending. A 
couple of items got left off that quote. I said that they have 
to have the people, the risk management, the policies, the 
capital, and the liquidity to play in that particular space.
    I still feel that today. However, I would also say that the 
guidance that we put out as an industry, as a group of 
regulators, I think has helped the banking industry to stay at 
acceptable levels from an underwriting perspective of stuff 
they are putting on their balance sheet.
    The national banks that we regulate have about $100 billion 
of leveraged lending on their balance sheet, and they have 
about $100 billion of CLO. So that is $200 billion on $12.2 
trillion so it is a little bit less than 2 percent.
    But where we are concerned, I don't have this concern as 
much about the banks that we regulate as that product is 
created and pushed into the market.
    And that is what Randy commented on earlier is we have all 
done an enormous amount of work as primary regulators and as 
members of FSOC and we continue to do that work about trying to 
understand the risk if in the event there was a 30 percent 
reduction, or a lack of liquidity in that market segment.
    So that is my comment. I hope I addressed your issue on the 
leverage--
    Mr. Himes. And I don't disagree with your words. It was 
just a change in tone I was pointing out. And you got to the 
second part of my question, and it sounds like you understand 
that in addition to the balance sheets there may be indirect 
transmission--
    Mr. Otting. That is right.
    Mr. Himes. --out of this product. I do want to leave Ms. 
McWilliams a little bit of time to answer the same questions, 
but with what degree of urgency are you looking at that?
    Mr. Otting. The other thing that we have come out and had 
dialogue with the banks on is the indirect process. And you had 
commented on some, but we also have asked the banks to look at 
kind of the food chain in their--in the corporations that they 
deal with that their companies are doing business.
    And what I mean by that is suppliers--are they 
overleveraged that you could disrupt your business? Because if 
you have a very successful banking relationship with a company 
and then you don't know their supplier is highly leveraged then 
they go out of business, it is going to impact your company. It 
goes all the way down from distribution to end customer.
    And then the sideline, which you touched on I think, is, a 
lot of these funds--some of them are leveraged, some are not. 
That is where you also have additional exposure of these funds 
are investing into CLOs that you understand the volume of that 
activity also within the balance sheet of the banks.
    Mr. Himes. Thank you.
    Let me see if Ms. McWilliams has anything to add to that?
    Ms. McWilliams. I will talk very fast. Most of our small 
banks would have CLO exposure or shared national credit 
exposure to the extent that they are engaged in leveraged 
lending.
    We have just undertaken the shared national credit, the so-
called SNC review among the agencies to understand exactly what 
the underwriting terms are and what the exposures are. With 
respect to the CLO exposures at small banks, they are not that 
great and we are able to monitor those through our supervisory 
channels.
    With respect to your second question as to how are we 
looking at the non-banks in this space, we are talking to the 
market regulators on a consistent basis, specifically the 
Securities and Exchange Commission as well, to make sure that 
they can monitor and tell us what feedback they have from their 
participants.
    And then just kind of having the aggregate picture as to 
where the exposures are and where we need to be concerned.
    Mr. Himes. Thank you, Madam Chairwoman.
    Chairwoman Waters. Thank you.
    Mr. Himes. I think the shadow banking question is 
important. I will take this up with the SEC, but I worry about 
that.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. Thank you.
    The gentleman from Virginia, Mr. Riggleman, is recognized 
for 5 minutes.
    Mr. Riggleman. Thank you, Madam Chairwoman. As you can see, 
I am dismayed that I can't have more than 5 minutes with you, 
but you are probably ecstatic.
    So I just want to--I don't want to scare you right off the 
bat, but I have done this for a while, so I did read the actual 
2015 DHS SSP. Also, the 2017 Treasury Report and Section 105 of 
the Cybersecurity Act.
    And the reason I did is because I think you guys have some 
real challenges. So this is not a ``stump the dummy'' thing at 
all as far as questions are concerned.
    As I go into this, just know that earlier, when we were 
here with the CEOs, they agreed that cybersecurity is their 
biggest risk and concern.
    I think we talked about A.I. and M.L., and I will tell you, 
I would love to talk about that, but I think there is a bigger 
concern based on my background. And this is what I want to get 
to the heart of. And I think you guys might find this, too.
    I find my biggest challenge in multi-intelligence or 
combined operations, when I did that in the military and also 
as a CEO, was information sharing. And I know that there could 
be some rice bowl protections or stovepipes of excellence that 
we deal with as we go forward in information sharing.
    So when I was reading the 2015 DHS SSP, since we are near 
the end, to have a little bit of fun, I wanted to see how many 
groups were actually involved in that SSP. I thought it wasn't 
too bad at first.
    There was the Department of the Treasury, the Financial 
Services Sector Coordinating Council for Critical 
Infrastructure Protection and Homeland Security, the FSSCC, and 
the FBIIC, which is the Financial and Banking Information 
Infrastructure Committee.
    So I started looking under the FBIIC and it had the Fed, 
the OCC, the FDIC, the NCUA with Treasury, the CFPB, the CFTC, 
the CSBS, the FCA, the FHFA, Fed Chicago, Fed New York, NAIC, 
the NASAA, SEC and the CIPSEA.
    When I look at the type of challenges that you might have 
with information sharing, reading the 2015 Act, the 2017 Act, 
reading Section 105 in the Cybersecurity Act, I do have some 
questions and I do want to--I know I was 2 minutes, but you 
don't have to answer it for long.
    Again, this is not a quiz, I promise you this. Looking at 
what they were supposed to do with harmonizing regulations, 
when I was looking at that I think harmonization is really 
streamlining and getting our information sharing in place and 
as far as sharing technologies.
    My first question to you, and you can each answer for 30 
seconds, which is not very long and that is why I wish I had 
more than 5 minutes with you, is how are you collectively 
working to harmonize cybersecurity requirements? And I can talk 
to you, we can start with you, Mr. Quarles, and go right down 
the line.
    Mr. Quarles. So we meet regularly through--principally 
through or most frequently through the FBIIC, as you said, the 
FBIIC. All of those agencies do meet to discuss cybersecurity 
regulations, cybersecurity risks also other Federal Government.
    We also regularly interact with the bank regulatory 
agencies frequently on issues concerning regulation and a 
number of those will be cyber regulation. We work with the 
Treasury as well under the President's working group on some of 
the cyber risks.
    You are absolutely right, it is a big task but it is one to 
which a lot of resources are being devoted.
    Mr. Otting. I would echo Randy's comment and then I would 
also say, we talked in your office. We have also done a number 
of drills with Treasury where we have taken various aspects of 
the industry that would be taken over by cybersecurity and what 
would be the playbook that all of us as regulators and the 
Treasury would be able to execute on.
    Mr. Riggleman. Yes, ma'am?
    Ms. McWilliams. Likewise, I would echo those comments as 
well. Internally at the FDIC, we take a look at that at our 
institutions very carefully and make sure that they understand 
what would happen in a cyber incident.
    Mr. Hood. And in my first month at NCUA I will now make 
this another priority. Cybersecurity is an issue that keeps me 
up at night. I will be hoping to address some of these issues 
through my membership on FBIIC.
    Mr. Riggleman. Sir, do you think there are too many cooks 
in the kitchen when it comes to enough regulatory agencies? 
That is a very sensitive question and you guys don't have to 
answer that. I understand if you don't want to.
    I don't want anybody to get sort of scared out there, but 
do you think there are too many cooks in the kitchen when it 
comes to this?
    Mr. Otting. Are you asking all of us?
    Mr. Riggleman. I would ask--actually I can ask all of you. 
I was just asking the last person to answer the question, so--
    Mr. Hood. I think it is great to have a number of sets of 
eyes looking at this where you all come from such differing 
points of view and perspectives. My looking at credit unions 
all the way up to the Federal Reserve, looking at some of the 
largest institutions among us. So I think it is healthy to have 
differing viewpoints and differing items for debate and 
discussion.
    Mr. Riggleman. It has been 4 years since the SSP. Do any of 
you think it is time to rewrite it? You know, 4 years ago we 
were still using relational databases. Now, we are using graph 
analytics in a way that we have never used them before.
    Do you guys think it is time for a re-look at the DHS SSP 
from 2015 and also the 2017 Treasury Report?
    And I will have Mr. Otting actually answer that question.
    Mr. Otting. Have we looked at it?
    Mr. Riggleman. Yes, do you think it is time for a rework of 
the 2015 SSP?
    Mr. Otting. I think that is a long period of time like most 
things, especially as fast as that is moving that you should do 
a re-look.
    Mr. Riggleman. Yes, I think harmonization, and I know we 
talk about integration is probably one of the most important 
things. We can talk about A.I. and M.L. and technology, but I 
think once we get our information sharing under control and 
harmonize our cyber defense posture, I think we have a good way 
forward. Thank you.
    Chairwoman Waters. The gentlewoman from North Carolina, Ms. 
Adams, is recognized for 5 minutes.
    Ms. Adams. Thank you, Madam Chairwoman.
    And thank you for being here today.
    Madam Chairwoman, thank you for convening the hearing. I 
won't go into so much preliminary because I think I have heard 
a lot of that from some of my colleagues.
    I did want to follow up though on Chairwoman Beatty who 
talked about diversity and inclusion and how important that is 
and not just simply checking the box.
    Mr. Hood, you indicated that you are the new kid on the 
block. Even though you haven't had a report from your person, I 
am assuming that all of you are probably aware that your 
numbers are low as of this reporting, so I guess my question 
is, what are your plans to increase participation in providing 
diversity self-assessments? That is my first question.
    Mr. Hood. Monica Davey, who reports to me, runs our Office 
of Minority and Women Inclusion, so I will be working with her 
to see how we can really raise the level of participation.
    Ms. Adams. All right.
    Anyone else?
    Ms. McWilliams. I have made this a priority of mine as 
well. We have a diverse workforce and we will continue to 
increase those numbers.
    Mr. Otting. Congresswoman, your question was, how do we get 
greater participation?
    Ms. Adams. Right.
    Mr. Otting. One thing that we found as we explored with 
Joyce Cofield, is we are sitting the data to the portal of the 
banks, and we would recommend next year that the leaders of the 
agencies sign the letters with the administrators of the 
program. And we think that would help the participation.
    Ms. Adams. Yes, sir?
    Mr. Quarles. Yes, I agree with you that the participation 
is too low, and we would make that a focus of our supervision 
examination of the banks to encourage them to increase that 
participation. We think that is important.
    Ms. Adams. Okay. I taught for 40 years, and sometimes when 
I would give students things to do on a voluntary basis, they 
wouldn't do them, so we would make it mandatory. So you don't 
think we should make it mandatory that you do it?
    Mr. Hood. Yes, ma'am.
    Ms. McWilliams. I would have to figure out exactly how it 
would be done.
    Ms. Adams. Okay.
    Mr. Otting. I think we should look at what data we are 
asking for, and could we get that, so I would agree with that.
    Mr. Quarles. Our interpretation of the law is that we can't 
make it mandatory, that it is a voluntary program.
    Ms. Adams. All right. Thank you. So of the scarce diversity 
data that has been shared, what type of analysis or trends have 
you noticed about regulated entities' diversity and inclusion 
efforts? Anybody can answer that.
    Mr. Otting. We have noticed that in the upper levels of the 
organization, there is much more representation of both female 
and minorities at the upper levels of those organizations.
    Ms. Adams. Okay. Anyone else? Okay. Has any guidance been 
provided to bank examiners on how to evaluate or assess 
diversity and inclusion practices at regulated entities? Does 
anybody want to respond?
    Mr. Otting. I am not personally familiar with it.
    Mr. Hood. Not to my knowledge, either.
    Ms. McWilliams. I would have to go to our policy statements 
to understand exactly what is--
    Mr. Hood. I would be happy to follow up.
    Ms. Adams. Okay. Now, most of you indicated that you have 
an OMWI Director and that that person reports, I think you all 
said to you directly. Are there other entities or people at 
your agency that may be accountable for the diversity results 
or is it just that one person?
    Mr. Otting. I think our entire organization is accountable.
    Mr. Hood. For us as well, the entire organization bears a 
responsibility for fostering a culture of diversity and 
inclusion.
    Ms. McWilliams. Likewise at the FDIC, and it is an emphasis 
for senior management to increase diversity.
    Mr. Quarles. And similarly at the Federal Reserve.
    Ms. Adams. Okay. Thank you.
    Thank you, Madam Chairwoman. I yield back.
    Chairwoman Waters. The gentleman from New York, Mr. Zeldin, 
is recognized for 5 minutes. We have a hard stop at 1:30, and 
we are not going to hold the panel over, so--
    Mr. McHenry. The Minority has actually communicated about 
the hard stop and that is why I raised it with you. We don't 
want to hold people here longer.
    Chairwoman Waters. No, no, no, we don't. We are going to 
move ahead with Mr. Zeldin and then we will talk about it 
later, please.
    Mr. Zeldin, you are recognized for 5 minutes.
    Mr. Zeldin. Thank you, Madam Chairwoman, and thank you to 
our panel for being here today.
    Chairman Hood, congratulations on your recent appointment. 
As you know, back in March, I introduced H.R. 1661, legislation 
that would provide the NCUA Board flexibility to increase 
Federal credit union loan maturities.
    Since the current regulations on maturities for credit 
union lending are stuck in the 1940s, this is making it 
difficult for hard-working families on Long Island, where I 
live, to get a loan for a new home or a new business at their 
credit union.
    In my district, we know who the credit unions serve. 
Overwhelmingly, it is our public servants such as teachers, 
first responders, nurses, and law enforcement.
    I introduced this legislation in a bipartisan manner with 
another member of this committee, Congressman Vicente Gonzalez. 
We are also proud to have added five additional co-sponsors to 
this bill on both sides of the aisle, including another member 
of this committee, Congresswoman Joyce Beatty.
    Chairman Hood, I was excited to see in your written 
testimony that you stated this bill is a top legislative 
priority for NCUA. Can you highlight some of the benefits of 
this legislation as well as the potential consequences that our 
hard-working families who are credit union members may face as 
a result of Congress not acting?
    Mr. Hood. I think for some of the issues you raise, 
Congressman, the fact is that the shorter maturities that we 
have now is preventing many of these individuals from having 
access to mortgage lending opportunities, and I daresay perhaps 
even business lending opportunities.
    The more we can do to get the regulatory relief that we 
need to serve hard-working men and women, I am for it. I would 
be happy to work with our members at our agency to really see 
if we can get more attention to the bill that you have 
proposed.
    Mr. Zeldin. Thank you for your powerful message today, 
including your written testimony, and for being here.
    I would like to pivot to Vice Chairman Quarles. I represent 
the east end of Long Island, which I would argue is the 
greatest congressional district in America. This time of year, 
it is not that hard to make that argument. It is a little more 
difficult in February during the nor'easters, but it is pretty 
nice right now. You should come visit.
    When it comes to many policies, especially regulatory 
policy, what makes sense for my constituents when it comes to 
insuring their businesses, their automobiles, their families, 
and their homes may not make sense for constituents in a 
different State, or in a different community.
    For example, almost all of my constituents live in coastal 
communities, so the insurance products they need are going to 
be different than the insurance products that someone might 
need who, say, is 1,000 miles away inland.
    Vice Chairman Quarles, I commend you for your leadership on 
the FSB, and I agree that it is important for the U.S. to lead 
and to coordinate with our global economic partners. But I want 
to be clear that it is essential in any of those negotiations 
that you preserve our State-based system of insurance 
regulation.
    Can you clarify if you believe a European-style system of 
insurance regulation and capital standards would work in the 
U.S.?
    Mr. Quarles. I think it would be difficult to make it work 
in the U.S., but there is nothing that is being discussed by 
IAAS that would be required to be implemented in the United 
States.
    Mr. Zeldin. And just for those who are trying to understand 
the dynamics of different directions that could go with, 
different debates that are before the committee, would you be 
able to talk through some of the consequences of those 
policies, how they would impact the insurance markets if we did 
go in a different direction?
    Mr. Quarles. Probably the most concrete is that the 
European-style capital regulation has made it very difficult 
for those companies to write annuities, which is a product that 
is both common in the United States and is really not able to 
be offered in Europe anymore.
    Mr. Zeldin. Would premiums increase? Would it be more 
difficult for a working family on Long Island to get auto 
insurance, homeowners' insurance, or other products to protect 
their families?
    Mr. Quarles. It could. It is complicated calculations 
requiring a number of assumptions.
    Mr. Zeldin. And I appreciate that. We are having a debate 
that happens over the course of multiple hearings, different 
topics, and it is a good conversation for us to be having, a 
good debate to be had to flush out the consequences of the 
policies enacted by this committee.
    I am happy that the chairwoman held today's hearing, and I 
appreciate the time.
    I thank the ranking member for his leadership on all of 
these issues as well, and I yield back.
    Chairwoman Waters. I would like to thank our distinguished 
witnesses.
    Mr. Huizenga. Madam Chairwoman, point of inquiry.
    Chairwoman Waters. Yes.
    Mr. Huizenga. The fact that I am not going to be able to 
have my 5-minute allotted time apparently, I am curious if this 
negotiated hard stop was something that was negotiated from the 
panel, or is this a hard stop for yourself?
    Chairwoman Waters. A stop for the panel. We made the 
commitment and we are going to keep it. If a mistake was made 
and you were not notified, we will deal with that later. I 
would like to thank our distinguished--
    Mr. Huizenga. Would you, Madam Chairwoman, could I request 
of our panel that they would at least--
    Chairwoman Waters. --witnesses for their testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    The hearing is adjourned.
    [Whereupon, at 1:31 p.m., the hearing was adjourned.]

                            A P P E N D I X



                              May 16, 2019
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