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






                     AN EXAMINATION OF REGULATORS' 
                    EFFORTS TO PRESERVE AND PROMOTE 
                    MINORITY DEPOSITORY INSTITUTIONS

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

                                HEARING

                               BEFORE THE

                  SUBCOMMITTEE ON CONSUMER PROTECTION
                       AND FINANCIAL INSTITUTIONS

                                 OF THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                     ONE HUNDRED SIXTEENTH CONGRESS

                             FIRST SESSION

                               __________

                           NOVEMBER 20, 2019

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 116-67





[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]











                             _________
                             
                              
                 U.S. GOVERNMENT PUBLISHING OFFICE
                 
42-475 PDF               WASHINGTON : 2020




















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

                   Charla Ouertatani, Staff Director
     Subcommittee on Consumer Protection and Financial Institutions

                  GREGORY W. MEEKS, New York, Chairman

NYDIA M. VELAZQUEZ, New York         BLAINE LUETKEMEYER, Missouri, 
DAVID SCOTT, Georgia                     Ranking Member
WM. LACY CLAY, Missouri              FRANK D. LUCAS, Oklahoma
DENNY HECK, Washington               BILL POSEY, Florida
BILL FOSTER, Illinois                ANDY BARR, Kentucky
AL LAWSON, Florida                   SCOTT TIPTON, Colorado, Vice 
RASHIDA TLAIB, Michigan                  Ranking Member
KATIE PORTER, California             ROGER WILLIAMS, Texas
AYANNA PRESSLEY, Massachusetts       BARRY LOUDERMILK, Georgia
BEN McADAMS, Utah                    TED BUDD, North Carolina
ALEXANDRIA OCASIO-CORTEZ, New York   DAVID KUSTOFF, Tennessee
JENNIFER WEXTON, Virginia            DENVER RIGGLEMAN, Virginia 

























                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on:
    November 20, 2019............................................     1
Appendix:
    November 10, 2019............................................    33

                               WITNESSES
                      Wednesday, November 20, 2019

Cole, Beverly, Deputy Comptroller for the Northeastern District, 
  and Designated Federal Officer (DFO) for the Minority 
  Depository Institutions Advisory Committee (MDIAC), Office of 
  the Comptroller of the Currency (OCC)..........................     5
Lindo, Arthur, Deputy Director, Division of Supervision and 
  Regulation, Board of Governors of the Federal Reserve System 
  (Federal Reserve or Fed).......................................     8
Ninichuk, Martha, Director, Office of Credit Union Resources and 
  Expansion (CURE), National Credit Union Administration (NCUA)..    10
Rudolph, Betty J., National Director for MDIs and CDFIs, Federal 
  Deposit Insurance Corporation (FDIC)...........................     7

                                APPENDIX

Prepared statements:
    Cole, Beverly................................................    34
    Lindo, Arthur................................................    47
    Ninichuk, Martha.............................................    53
    Rudolph, Betty J.............................................    63

 
                     AN EXAMINATION OF REGULATORS' 
                    EFFORTS TO PRESERVE AND PROMOTE 
                    MINORITY DEPOSITORY INSTITUTIONS 

                              ----------                              


                      Wednesday, November 20, 2019

             U.S. House of Representatives,
                Subcommittee on Consumer Protection
                        and Financial Institutions,
                           Committee on Financial Services,
                                                   Washington, D.C.
    The subcommittee met, pursuant to notice, at 10:04 a.m., in 
room 2128, Rayburn House Office Building, Hon. Gregory W. Meeks 
[chairman of the subcommittee] presiding.
    Members present: Representatives Meeks, Scott, Foster, 
Lawson, Tlaib; Luetkemeyer, Barr, Tipton, Williams, Loudermilk, 
Kustoff, and Riggleman.
    Ex officio present: Representative Waters.
    Chairman Meeks. The Subcommittee on Consumer Protection and 
Financial Institutions will come to order. Without objection, 
the Chair is authorized to declare a recess of the subcommittee 
at any time. Also, without objection, members of the full 
Financial Services Committee who are not members of this 
subcommittee are authorized to participate in today's hearing.
    Today's hearing is entitled, ``An Examination of 
Regulators' Efforts to Preserve and Promote Minority Depository 
Institutions.''
    I now recognize myself for 4 minutes to give an opening 
statement.
    To my good friend, Ranking Member Luetkemeyer, and the 
members of the subcommittee, welcome to this hearing on the 
examination of regulators' efforts to preserve and promote 
Minority Depository Institutions (MDIs). This hearing follows 
our October 22nd hearing during which we heard the testimony of 
small minority banks giving a voice to the challenges of these 
small community banks which overwhelming serve minority 
communities, typically low-income communities, that are 
underbanked, and that data shows continue to suffer from 
financial services discrimination.
    We welcome today a panel of witnesses from each of the 
principal banking regulators with oversight of the nation's 
banks and credit unions. Section 308 of FIRREA (the Financial 
Institutions Reform, Recovery, and Enforcement Act of 1989) 
establishes several goals for prudential regulators as it 
relates to MDIs. These include to preserve the present number 
of Minority Depository Institutions, preserve the minority 
character in cases of merger or acquisition, provide technical 
assistance to prevent insolvency of institutions not now 
insolvent, promote and encourage creation of new Minority 
Depository Institutions, and provide for training, technical 
assistance, and educational programs.
    Despite this mandate, the number of MDIs has fallen from 
215 banks in 2008 to fewer than 150 today. According to the 
FDIC, following the financial crises, MDI banks were 2\1/2\ 
times more likely to fail than other banks. Today, MDIs 
represent 2.8 percent of the FDIC's insured banking charters 
and 1.3 percent of assets, while minority credit unions 
represent 10 percent of total credit unions, and 87 percent of 
minority credit unions report fewer than $100 million in 
assets, and 58 percent report fewer than $10 million in assets, 
being credit unions built around churches, community centers, 
et cetera.
    So whether credit unions or depository institutions, 
because of their small size and as a perverse burden for their 
focus on underserved minority communities that are often 
discriminated against, MDIs struggle to attract capital, 
recruit talent, mobilize deposits, invest in technology, and 
scale. MDIs play an important role in our communities. MDIs are 
important to the very fabric of the banking landscape, and I 
want to hear from the regulators today what they are doing to 
fulfill their mission, and also hear what they are doing or 
what more should be done to increase the number of de novo 
minority banks.
    Finally, the Treasury Department and other government 
agencies have an important role to play in utilizing MDIs for 
deposits and partnering with them on local projects. I am 
finalizing legislation to address the core challenges faced by 
minority banks and banks that serve the unbanked and 
underbanked poor.
    I look forward to the testimony of our witnesses here 
today, and to working with my colleagues on both sides of the 
aisle to move legislation that addresses these urgent needs. I 
now recognize the ranking member of the subcommittee, Mr. 
Luetkemeyer, for 5 minutes for an opening statement.
    Mr. Luetkemeyer. Thank you, Chairman Meeks, and especially 
for holding this important hearing.
    Today marks the second hearing in this subcommittee on 
Minority Depository Institutions (MDIs). In the previous 
hearing, we got a firsthand look from minority institutions 
describing the health of MDIs across the country and burdens 
they face on a day-to-day basis. Many of the issues brought up 
by the witness panel mirror what we are seeing for community 
banks across the country. These concerns include the lack of de 
novo institutions, additional regulatory burdens, and 
competition with larger institutions, particularly with 
evolving technologies. However, MDIs do serve a different role 
than many community banks.
    MDIs are often exceptionally small and predominantly serve 
their immediate communities. In addition, MDIs often serve low-
income communities with a higher underbanked and unbanked 
population. I look forward to hearing from the witnesses 
regarding what the regulators are doing to combat some of the 
issues we see with minority institutions.
    That being said, there is a glaring absence from the panel 
today. At a hearing focused on the preservation of Minority 
Depository Institutions, the committee appears to be, once 
again, ignoring what each of our witnesses just a few weeks ago 
acknowledged as an imminent threat to MDIs and the financial 
system as a whole: the Financial Accounting Standards Board's 
(FASB's) new accounting standard, Current Expected Credit 
Losses (CECL).
    Representatives from multiple MDIs echoed industrywide 
concerns regarding CECL. One witness called CECL, ``a 
tremendous regulatory burden and compliance cost.'' Another 
witness said CECL, ``costs money and time.'' And yet another 
witness said, ``If we have to adhere to CECL, it would create 
even more pressure for institutions.''
    Although FASB is not by law a regulator, they do create 
accounting standards enforced by regulators across the 
financial services industry which affect our economy and our 
citizens. They, in my judgment, should appear in front of this 
committee and defend those standards.
    In 2008, as the chairman just stated, the number of MDI 
banks peaked at 215. In the second quarter of 2019, in the wake 
of the financial crisis Dodd-Frank Act regulatory burdens, that 
number is now 148, a decrease of almost a third. Furthermore, 
MDI credit unions have declined by more than one-third since 
2013.
    It is clear these institutions cannot withstand more 
unnecessary burdens. Small institutions do not have the ability 
to raise capital in the way larger institutions can. In order 
to raise capital, they would be forced to increase the cost of 
a loan, disproportionately impacting the low- to moderate-
income (LMI) consumers they serve. This is particularly 
troubling for Minority Depository Institutions specializing in 
serving LMI consumers within their community.
    I believe the Center for Responsible Lending is accurate 
when they called for delaying implementation of CECL, and said, 
``CECL creates a significant disincentive for lenders to 
originate loans to low- and moderate-income families and 
communities of color.''
    In October, I introduced an amendment in a markup in this 
committee that would force FASB to regularly appear before 
Congress to discuss their impact on depository institutions in 
our economy. However, my colleagues on this side of the aisle 
unanimously defeated this amendment. It is unfathomable to me 
that the committee is not demanding that FASB explain why it is 
enacting an accounting standard disproportionately impacting 
low- and moderate-income consumers and minorities, particularly 
when it is the focus of this hearing. It is unfathomable to me 
in hearing after hearing, that this committee, which is 
focusing on low- to moderate-income individuals, has yet to 
have a hearing on CECL and have FASB explain itself to us.
    These witnesses who are here today represent the regulators 
that would be responsible for implementing this standard. In 
addition, the Financial Institutions Reform, Recovery, and 
Enforcement Act, FIRREA, established goals for certain 
regulators to preserve and promote minority financial 
institutions. Given the amount of concern we have heard from 
minority institutions, I look forward to questioning you on 
what your respective agencies are doing to protect these 
institutions from this terrible accounting standard and other 
threats.
    With that, Mr. Chairman, I yield back.
    Chairman Meeks. The gentleman yields back.
    The Chair now recognizes the distinguished Chair of the 
full Committee on Financial Services, the gentlelady from 
California, the Honorable Maxine Waters, for 1 minute.
    Chairwoman Waters. Thank you very much, Mr. Chairman. I am 
so pleased that you are holding this hearing today. This is an 
issue that you and I and others have been working on for a long 
time.
    Minority Depository Institutions play a vital role in 
serving low- to moderate-income and underbanked communities. 
However, we have been losing far too many MDIs over the past 
decade, especially Black-owned banks. Since 2008, the number of 
Black-owned banks has decreased by more than 50 percent. Just 
this month, we saw yet another Black-owned bank forced to close 
its doors, leaving the total number of Black-owned banks in 
this country at just 18.
    This is a crisis, and regulators have failed to live up to 
their statutory obligations to preserve and promote MDIs. I 
look forward to discussing the tools available to regulators so 
that this committee can immediately address this crisis and 
pass legislation that is needed to help MDIs, both existing and 
hopefully, new ones, better serve their communities.
    So I thank you so very much, and I look forward to working 
with you on this issue.
    Chairman Meeks. Thank you.
    Today, we welcome the testimony of some distinguished 
witnesses. First, Ms. Beverly Cole, who is a Deputy Comptroller 
for the Northeastern District, and designated Federal Officer 
for the Minority Depository Institutions Advisory Committee, 
Office of the Comptroller of the Currency. Ms. Cole oversees 
more than 200 community banks and Federal savings associations, 
15 independent data service providers, and 6 independent 
national trust companies. She manages a staff of more than 350 
bank examiners and other professionals and support personnel 
located in the northeastern district in my beloved City of New 
York, as well as in Massachusetts, New Jersey, North Carolina, 
Pennsylvania, Virginia, and Washington, D.C. She was appointed 
to this position in August of 2019.
    Ms. Cole is also the designated Federal Officer for the 
OCC's Minority Depository Institution Advisory Committee, and 
Ms. Cole started her OCC career in 1979. During her career at 
the OCC, Ms. Cole has served in a variety of supervision roles 
overseeing banks in all sizes.
    Second, Ms. Betty Rudolph, who is the National Director for 
MDIs and CDFIs, for the Federal Deposit Insurance Corporation 
(FDIC). Ms. Rudolph was appointed as the Federal Deposit 
Insurance Corporation's National Director for Minority and 
Community Development Banking in April of 2018. In this role, 
she leads the FDIC's efforts to preserve and promote the work 
and the important mission of Minority Depository Institutions 
(MDIs) and Community Development Financial Institutions (CDFIs) 
in serving their communities.
    Ms. Rudolph most recently served as the Assistant Director 
in the Division of Risk Management Supervision, and since 2012, 
as part of her portfolio, she served as Program Manager for 
Minority and Community Development Banking. Ms. Rudolph's FDIC 
experience of nearly 30 years includes serving in a number of 
executive, managerial, and special advisory roles.
    Third, Mr. Arthur Lindo, who is the Deputy Director in the 
Division of Supervision and Regulation at the Board of 
Governors of the Federal Reserve System. Mr. Lindo is the 
Senior Associate Director for Policy in the Federal Reserve 
Board's Division of Supervision and Regulation. His principal 
responsibilities include the development and assessment of the 
effectiveness of board regulations and policy matters affecting 
the domestic financial services sector. He also advises the 
Board on emerging policy matters that have implications for the 
supervision and regulation of the global financial services 
sector.
    He serves on the operating committee for the Board's Large 
Institutions Supervision Coordinating Committee, and the 
oversight committee for the Board's Partnership for Progress 
program. He is the Chairman of the Appraisal Subcommittee of 
the Federal Financial Institutions Examination Council (FFIEC), 
the Chairman of the FFIEC's Task Force on Supervision, and is a 
member of the G-7 Cyber Expert Group.
    And last, but not least, Ms. Martha Ninichuk, who is the 
Director of the Office of Credit Union Resources and Expansion 
for the National Credit Union Administration (NCUA). And with 
more than 25 years of credit union experience, Ms. Ninichuk 
held a number of leadership positions in both the United States 
and international credit union systems. She joined the NCUA in 
April of 2012 as a Deputy Director of the then-Office of Small 
Credit Union Initiatives.
    Prior to joining the NCUA, she worked at the Michigan 
Credit Union League, the Maryland and D.C. Credit Union 
Association, and the World Council of Credit Unions. She is 
also the manager of St. Cletus Credit Union, a small, faith-
based institution located in Warren, Michigan.
    The witnesses are reminded that your oral testimony will be 
limited to 5 minutes. And without objection, your written 
statements will be made a part of the record.
    Ms. Cole, you are now recognized for 5 minutes to give an 
oral presentation of your testimony.

     STATEMENT OF BEVERLY COLE, DEPUTY COMPTROLLER FOR THE 
NORTHEASTERN DISTRICT AND DESIGNATED FEDERAL OFFICER (DFO) FOR 
    THE MINORITY DEPOSITORY INSTITUTIONS ADVISORY COMMITTEE 
    (MDIAC), OFFICE OF THE COMPTROLLER OF THE CURRENCY (OCC)

    Ms. Cole. Chairman Meeks, Ranking Member Luetkemeyer, and 
members of the subcommittee, I am Beverly Cole, Deputy 
Comptroller for the Northeastern District and designated 
Federal Officer for the OCC's Minority Depository Institutions 
Advisory Committee. I am responsible for coordinating 
activities across the OCC to promote the health and vitality of 
OCC-supervised Minority Depository Institutions.
    I am pleased to appear today to discuss the OCC's efforts 
to preserve and promote Minority Depository Institutions. In my 
37 years at the OCC, I have seen firsthand the valuable 
contributions MDIs provide to the communities they serve and to 
the Federal banking system overall. Today, the OCC supervises 
47 minority and women-owned institutions. We supervise 20 MDIs 
owned by Asian Americans or Pacific Islanders, 7 owned by 
Hispanic Americans, 5 owned by African Americans, and 3 are 
Native-American or Alaska Native-owned.
    Uniquely, the OCC includes women-owned institutions in our 
MDI definition, and 12 of our MDIs are women-owned. OCC-
supervised MDIs are located in 19 States with combined assets 
of $17.1 billion. These banks range in asset size from $46 
million to over $2 billion. More than 75 percent have assets of 
$500 million or less.
    MDIs play unique roles in their communities and frequently 
serve populations who are underserved by the mainstream banking 
sector. Immigrants who face language and cultural challenges, 
Indian Country, which may be subject to banking deserts, and 
historically underserved urban and rural areas are just a few 
examples. We believe MDIs are uniquely positioned to create 
positive change in the communities they serve.
    The OCC is engaged in a range of activities to preserve 
MDIs, consistent with the agency's mission of ensuring a safe 
and sound Federal banking system and providing fair treatment 
and fair access to customers.
    In addition to the technical assistance our subject matter 
experts provide to MDIs, the OCC chartered an MDI advisory 
committee in 2012. The advisory committee provides a forum to 
discuss the condition of MDIs and regulatory changes affecting 
them. One outcome of our advisory committee dialogue has been 
the creation of a dedicated and successful bank collaboration 
program.
    In April 2016, the OCC hosted its first collaboration 
event, which included a group of OCC-supervised MDIs and 
majority-owned midsized banks to facilitate relationship-
building and information-sharing. That initial meeting led to 
successful partnerships. These collaborations can provide MDIs 
access to expertise, technology, and financial services and 
products to further serve their communities that the MDIs would 
not be able to access on their own.
    The most common form of collaboration has involved MDIs 
receiving deposits from larger institutions that provide a 
stable funding source, but has also resulted in equity 
investments and technical assistance, including training, 
support for new product development, and assistance with 
compliance programs. The larger banks also report business 
benefits from these transactions. To date, we have hosted 12 
regional collaboration roundtables, and additional roundtables 
are scheduled for next year.
    The OCC has been deliberate in communicating that the 
primary focus of these engagements is to build a long-standing, 
mutually beneficial business relationship. The success of these 
collaborations is based on a sense of mutual trust resulting in 
more sustainable and beneficial partnerships. My written 
statement provides more detail on our collaboration initiative 
and the range of technical assistance, training, and outreach 
activities we provide to MDIs.
    I would like to close by recognizing Chairman Meeks' draft 
legislation, the Ensuring Diversity in Community Banking Act of 
2019, and applaud the chairman for his leadership in this area. 
The OCC is pleased to see the range of ideas reflected in the 
bill, and we look forward to working with the subcommittee as 
the bill proceeds through the legislative process.
    Thank you, and I look forward to answering your questions.
    [The prepared statement of Deputy Comptroller Cole can be 
found on page 34 of the appendix.]
    Chairman Meeks. Ms. Rudolph, you are now recognized for 5 
minutes.

 STATEMENT OF BETTY J. RUDOLPH, NATIONAL DIRECTOR FOR MDIs AND 
      CDFIs, FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC)

    Ms. Rudolph. Chairman Meeks, Ranking Member Luetkemeyer, 
and members of the subcommittee, the FDIC appreciates the 
opportunity to testify today on our efforts to preserve and 
promote Minority Depository Institutions. I serve as the FDIC's 
National Director for Minority and Community Development 
Banking, managing MDI programs across the FDIC. Support for the 
program starts at the top. Chairman McWilliams set a goal to 
increase our engagement with and support for MDIs. We appointed 
additional minority bankers to our advisory committee on 
community banking and created a new MDI subcommittee that holds 
its first meeting in 2 weeks.
    We publish a research study exploring changes in the MDI 
industry. From 2001 up to the 2008 crisis, the number of MDIs 
increased from 164 to 214, before declining to 149 as of year-
end 2018. The number of African-American MDIs declined by more 
than half during this period, from 48 in 2001, to 23 at the end 
of 2018. This year, one merged with a nonminority institution 
and another recently failed, reducing the number to 21. The 
number of Native American, Hispanic, and Asian MDIs increased. 
Overall, MDIs declined more modestly compared to the banking 
industry consolidation overall.
    MDI's financial performance has improved over the past 5 
years. In 2019, the number of profitable MDIs increased to its 
highest level since before the crisis, but the percentage of 
unprofitable MDIs is significantly higher compared to the 
industry overall. Unprofitable MDIs are generally smaller 
institutions and located in economically distressed areas.
    MDIs are vital service providers for minority and low- to 
moderate-income populations, which have higher percentages of 
unbanked households than other groups. MDIs originate a greater 
percentage of home mortgages and Small Business Administration 
loans to these borrowers than non-MDIs.
    The FDIC Board of Directors adopted a policy statement to 
guide the agency's efforts to support MDIs, and we are 
currently updating the policy to strengthen our commitment. The 
FDIC also carries out an active program of regular outreach, 
technical assistance, and training and education. In 2018, we 
provided technical assistance 149 times upon request. In 2019, 
we held six roundtables and hosted an interagency conference. 
Topics discussed at these events include the new current 
expected credit losses accounting methodology, Bank Secrecy Act 
compliance, cybersecurity, and innovation.
    We aim to build financial capacity and MDI expertise by 
promoting collaboration within the broader banking industry. In 
June, we welcomed 10 large banks and 7 MDIs to a roundtable in 
Washington to discuss potential partnerships. Following the 
roundtable, several large banks expressed an eagerness to begin 
working with MDIs. We held similar events in Atlanta and 
Chicago this year, and plan to host additional events next 
year.
    To support our goal to preserve the minority character of 
an MDI in the event of failure, MDI bankers asked for 
additional training, and over the past year, we have hosted 
several workshops to share information about the bidding 
process and provide one-on-one technical assistance. We also 
updated our process for marketing failing MDIs. At the start of 
a new marketing initiative, we now provide a 2-week window 
exclusively for MDIs to review bid information before other 
banks. We successfully used this approach to preserve the 
minority character for the MDI that failed earlier this month.
    Another initiative is to facilitate MDI participation and 
economic revitalization in the Opportunity Zones created by the 
2017 tax law. Nearly 31 percent of MDI branches are located in 
Opportunity Zones compared to less than 15 percent for non-
MDIs. MDIs can partner with investors and others, offering debt 
financing to complement revitalization projects. MDIs know 
these communities and can broker projects with investment funds 
and help to structure transactions. We recently drafted a paper 
outlining these roles and developed a website to serve as a 
clearinghouse of useful information for banks, investors, and 
opportunity fund managers. We will launch the site in January.
    In conclusion, many MDIs face challenges from the evolving 
financial services landscape. As a supervisor of two-thirds of 
all MDIs, the FDIC is committed to promoting and sustaining the 
vibrant role these banks play in their communities. Increasing 
our engagement with MDIs helps us to understand their unique 
needs and provide tools and resources so they can help create 
jobs, grow small business, and build wealth in their 
communities.
    Thank you for the opportunity to testify today, and I look 
forward to answering your questions.
    [The prepared statement of Director Rudolph can be found on 
page 63 of the appendix.]
    Chairman Meeks. Mr. Lindo, you are now recognized for 5 
minutes.

    STATEMENT OF ARTHUR LINDO, DEPUTY DIRECTOR, DIVISION OF 
 SUPERVISION AND REGULATION, BOARD OF GOVERNORS OF THE FEDERAL 
            RESERVE SYSTEM (FEDERAL RESERVE OR FED)

    Mr. Lindo. Thank you, Chairman Meeks, Ranking Member 
Luetkemeyer, and members of the subcommittee. I appreciate the 
opportunity to be here today to discuss the Federal Reserve's 
program to preserve and promote Minority Depository 
Institutions.
    The Federal Reserve's Partnership for Progress (P for P) 
program was created in 2008 in recognition of the importance of 
MDIs. The P for P works to preserve and promote these 
institutions, and recognizes the challenges inherent in 
providing access to credit and other financial services in 
traditionally underserved areas. We support an inclusive 
financial system.
    At the Board of Governors, the P for P program is jointly 
overseen by the Division of Supervision and Regulation and the 
Division of Consumer and Community Affairs. This joint 
management allows us to pair our community banking expertise 
with our community development expertise to most effectively 
support MDIs and help them fulfill their missions and address 
the challenges facing their communities. This unique 
arrangement leverages the creativity of the outreach of 
community development programs and our forward-looking approach 
to supervision.
    In addition, each of the 12 Federal Reserve Banks has a 
designated P for P coordinator, whom we communicate with 
regularly and who provides technical assistance to the MDIs in 
their district to fulfill the mission of the P for P program.
    The Federal Reserve has primary supervisory responsibility 
for 15 State member MDIs. We provide a full range of technical 
assistance and outreach to our regulated MDIs through the P for 
P, but we also view our congressional mandate in Section 308 of 
FIRREA to preserve and promote MDIs as more than simply 
supervising these institutions. In this regard, we work with 
our colleagues at the other agencies with Section 308 
responsibilities to ensure a coordinated approach in support of 
all MDIs. In addition, we are able to leverage the many 
resources available to us as the central bank of the United 
States to support MDIs consistent with the goals of the P for P 
program.
    First, as you know, the Federal Reserve is a research-
driven institution, and we have engaged the internal and 
external stakeholders on a range of research to enhance our 
understanding of the business models of MDIs and how they serve 
their communities.
    Second, Federal Reserve leadership, including Board Members 
and Reserve Bank Presidents, has spoken publicly about the 
importance and positive impact of MDIs in our underserved 
communities. The Board also publishes an annual report on MDIs, 
which is included in my written testimony.
    Third, through the tremendous convening power of the 
Federal Reserve, we have been able to bring together 
individuals and institutions to form partnerships that will 
assist the MDI sector. For example, in August of 2018, we 
hosted a meeting of Native American financial institutions on 
the Flatland Reservation in Montana. This meeting provided an 
opportunity for Native American banks, credit unions, and 
Community Development Financial Institutions to talk about how 
to better serve their communities.
    Moreover, this month, we collaborated with the FDIC to host 
a roundtable in Chicago for MDIs and larger financial 
institutions to discuss partnerships that could be mutually 
beneficial to both types of institutions. We continue to seek 
creative ways to address the range of concerns we hear from our 
MDIs, such as the challenge to attract and retain talent at all 
levels of their organizations. For example, this September, the 
Federal Reserve hosted its fourth annual forum for minorities 
in banking, which is a leadership gathering for minorities at 
any banking institutions, not just specific MDIs. The forum is 
designed to provide minority bank leaders with industry 
leadership and professional development resources that will 
enhance their careers and networks. We had 171 attendees this 
year and the agenda included items such as the history of 
America's first Black banks, inclusive leadership, 
cybersecurity, the housing market, and our P for P program.
    We also know that it is important for leadership at the 
Board to hear directly from MDIs. Therefore, starting in 2018, 
the Board began hosting a biennial MDI leadership forum where 
executives of our supervised MDIs are invited to meet with 
Federal Reserve governors and senior staff in Washington, D.C. 
In 2018, they provided fairly frank perspectives in a meeting 
with Vice Chair for Supervision Randal Quarles on their 
concerns.
    Finally, at the Federal Reserve, we make every effort to 
ensure that MDIs are taken into consideration when we are 
formulating regulatory and supervisory policy. Staff from our 
Supervision and Consumer Divisions provide insights to Federal 
Reserve leadership, staff, and examiners about the unique 
attributes and contributions of MDIs so that we can tailor 
regulatory and supervisory frameworks where it is appropriate 
to do so.
    In summary, the Federal Reserve remains strongly committed 
to identifying and carrying through on all opportunities to 
support MDIs.
    I would like to thank you for inviting me to testify today, 
and I look forward to your questions.
    [The prepared statement of Deputy Director Lindo can be 
found on page 47 of the appendix.]
    Chairman Meeks. Thank you.
    Ms. Ninichuk, you are now recognized for 5 minutes.

STATEMENT OF MARTHA NINICHUK, DIRECTOR OF THE OFFICE OF CREDIT 
  UNION RESOURCES AND EXPANSION (CURE), NATIONAL CREDIT UNION 
                     ADMINISTRATION (NCUA)

    Ms. Ninichuk. Good morning. Chairman Meeks, Ranking Member 
Luetkemeyer, and members of the subcommittee, as the Director 
of the National Credit Union Administration's Office of Credit 
Union Resources and Expansion, also known as CURE, thank you 
for inviting me today to testify about the state of Minority 
Depository Institution credit unions and NCUA's efforts to 
support them.
    The CURE office, which I lead, is responsible for 
administering the MDI Preservation Program. We offer support 
services to foster credit union development with a particular 
focus on low-income credit unions and MDIs. Credit unions are, 
by design, different from other financial institutions. They 
are member-owned and controlled, not-for-profit cooperative 
entities. Their boards of directors are compromised entirely of 
volunteers. Their central mission is to give groups of people 
access to affordable financial services and the ability to 
participate in their institution's management. MDI credit 
unions, more specifically, serve the financial needs of racial 
minorities because such populations traditionally have been 
underserved by the financial system.
    Today, I will summarize my written testimony by first 
discussing the state of MDI credit unions before turning to 
NCUA's initiatives to assist and preserve them.
    As of June 30, 2019, there are 526 federally-insured MDI 
credit unions, representing approximately 10 percent of all 
federally-insured credit unions. MDI credit unions tend to be 
smaller institutions, which by NCUA's definition, is less than 
$100 million in assets. In fact, 87 percent of MDIs report 
total assets of $100 million or less, with 58 percent of all 
MDI credit unions having less than $10 million in assets. These 
credit unions are generally located in church, factory, and 
even home office locations. As with many of the smallest credit 
unions, a number of MDI credit unions are run and staffed by 
volunteers.
    In 2018, mergers accounted for 62 percent of the decrease 
in the number of MDI credit unions. The merging MDI credit 
unions cited four primary reasons for their merger: their 
desire to offer expanded services to their members; poor 
financial condition; inability to attract leadership; and 
finally, lack of growth.
    In 2015, in an effort to support MDI credit unions, the 
agency created the MDI Preservation Program. Through this 
program, we provide assistance in a variety of ways. NCUA 
examiners in the field and CURE office staff provide ongoing 
assistance to MDIs by working directly with them, sharing their 
knowledge of the credit union system and best practices, 
coordinating mentor relationships between large and small 
credit unions, and generally acting as a knowledgeable point of 
contact and resource.
    Earlier this year, the NCUA created a new pilot mentoring 
program for small, low-income MDI credit unions. The purpose of 
the program is to encourage stronger and more experienced 
credit unions to provide technical assistance to small MDI 
credit unions, such as building staff capacity through 
training, improvements to credit union operations, and 
assistance with modernization processes.
    Access to training is another aspect that is important to 
the preservation of MDIs. The NCUA offers an online training 
portal that is available at no cost. Training topics are 
relevant to the challenges faced by MDIs, including high-impact 
community partnerships, serving the credit invisible, and 
strategies for providing digital services. Additionally, the 
NCUA administers a grant and loan program to low-income credit 
unions, and it is important to note that 80 percent of MDI 
credit unions are designated as low income.
    As NCUA looks to strengthen the MDI credit unions, it is 
important to note that the designation as an MDI credit union 
is voluntary and does not bestow specific benefits. A credit 
union may qualify for the MDI designation but may not have 
chosen to seek it. On the other hand, credit unions seek the 
low-income designation, because by statute, it confers a number 
of benefits, such as access to secondary capital and the 
ability to accept non-member deposits.
    The NCUA is committed to doing everything it can to help 
MDI credit unions continue to grow and thrive. As you consider 
further legislation of initiatives in this area, please keep in 
mind the unique structure of credit unions, a number of which 
have volunteer staff and are among the smallest of all 
financial institutions.
    Thank you for this opportunity today, and I look forward to 
your questions.
    [The prepared statement of Director Ninichuk can be found 
on page 53 of the appendix.]
    Chairman Meeks. Thank you. Thank you all for your 
testimony.
    I now recognize myself for 5 minutes for questions.
    Before I get into my direct questions, I have to get 
something off my chest, which is very important to me. And I 
have to raise this once again, because I have serious concerns 
about the collective agency's work on CRA modernization. I have 
been very vocal at every opportunity possible about the 
critical importance of a serious, thorough approach to CRA 
modernization that is very specifically focused on outcomes for 
the communities for which CRA legislation was first drafted.
    Discrimination in banking is a very real problem. Banking 
deserts are growing, and the legacy of redlining continues to 
hold back minority communities across the country, including in 
districts like mine where there was a big expose in the local 
newspaper. I was, frankly, disappointed to read, once again, 
that the OCC is abandoning the interagency process and looking 
to go it alone on CRA modernization.
    CRA is a priority for me and this committee, and I 
discussed it at great length with your respective agencies, 
with civil rights groups and consumer advocacy groups, and with 
banks. There is a strong alignment among them all that the best 
approach is one where the regulators move together.
    The banks are not asking for a dilution of CRA, yet the OCC 
appears obstinate on meeting some manufactured deadline, 
forcing a process and going it alone, if necessary, and is not 
fully internalizing the comprehensive feedback received from 
the Advance Notice of Proposed Rulemaking (ANPR). This is wrong 
and will not achieve a good outcome and risks creating an 
unlevel playing field and a regulatory arbitrage.
    So I am going to urge you, once again, to work together, to 
listen to Congress, to civil rights groups, and community 
advocacy organizations before moving forward with any new CRA 
rulemaking.
    My other problem is we have all talked here already about 
the number of MDIs that are out of business, and I don't feel a 
sense of urgency from the regulators as to what to do to save 
them. And I listened to all of your resumes. You have been 
working for a long period of time.
    I don't understand, and I guess I will direct this to you, 
Ms. Cole, in the time that you have been with the OCC, why 
there aren't there more de novo minority banks? Where is the 
creativity and initiativity? Are you helping some of these 
banks get the capital that is needed? Is there an opportunity 
where you are putting people together in a roundtable? What 
creativity is happening with the regulators so that we can make 
sure that we save these banks? Because what is happening is, 
where these communities are being further victimized, because 
obviously somebody is banking in there and, generally, it is 
the payday loaners and other folks who come in, who give these 
products that are ripping off many of the folks in these 
communities.
    So can you tell me what is being done, how it is being done 
that we are going to--what effort, what creativity is being put 
forward so that we can make sure that we are not losing more 
MDIs in these underserved communities that desperately need 
financial services? Ms. Cole?
    Ms. Cole. I will say that, for OCC, what we did was, once 
we chartered our MDI advisory committee, we have used that 
committee to hear from the MDIs themselves about what their 
needs are. And in that, one of the things that we realized was, 
one of the big things that they said is they wanted the larger 
institutions at the table.
    Chairman Meeks. So is there a program that put the larger 
institutions at the table? What are you doing?
    Ms. Cole. That is our collaboration initiative. Because 
what we realized was that the minority bankers and the bankers 
from larger institutions did not necessarily know each other. 
And so, while they might be successful from time to time in 
getting a transaction done, it was one and done, but not a 
continuing relationship.
    We wanted to establish something where they got to know 
each other and could talk, collaborate, and work together so--
    Chairman Meeks. Can you show me an example where that has 
succeeded, where you put them together?
    Ms. Cole. Yes. I won't name particular names, but we have 
had instances where some of the larger institutions--one 
institution in particular has opened up its ATM network free of 
charge to all of the minority institutions' customers. We have 
had another institution where their executive management team 
got together and took a look from a strategic standpoint of 
what they could do to help minority institutions.
    Chairman Meeks. Thank you. I am out of time, so I will get 
back to you on this.
    Ms. Cole. Oh, I'm sorry.
    Chairman Meeks. I am out of time.
    I now recognize the distinguished ranking member, Mr. 
Luetkemeyer, for 5 minutes for questions.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    I am going to center most of my questions, as you probably 
guessed from my opening testimony, with regards to CECL. I 
think this is a paramount issue that we need to be discussing, 
especially when you are talking about low- and moderate-income 
folks here, especially because all of you are regulators and 
you have to enforce this rule. This is going to be front and 
center for you for the next several years, and so I want to get 
some comments from you.
    Ms. Rudolph, in 2018, the FDIC ombudsman annual report 
conducted outreach visits to 472 industry stakeholders: banks; 
trade associations; and state banking authorities. In those 
outreach visits, many stakeholders listed constructive 
criticism of the FDIC and listed areas of concern. The number 
one area of concern in this report was regulatory issues, and 
the number one regulatory issue was CECL.
    Do you find similar feedback with regards to your outreach 
to MDIs?
    Ms. Rudolph. Yes. We do an extensive outreach program with 
MDIs, and CECL is one of the issues we hear them speak about. 
The FDIC is bound to follow FASB rules. I know our Chairman has 
said that we are open if FASB changes their approach and if 
Congress takes action, but what we have done is significant 
training. And in 2020, when the rule rolls out for more larger 
institutions, we are studying the best practices and issues 
that come up with that so we can apply them when the rule 
applies to community banks in 2023.
    Mr. Luetkemeyer. Okay. The FDIC published this report, the 
Minority Depository Institutions Structure, Performance, and 
Social Impact report back in June. According to your testimony, 
this study demonstrates the essential role that MDIs play in 
serving LMI customers and minority customers.
    Given this finding, are you concerned about the statement 
from the Center for Responsible Lending that CECL will make 
institutions less inclined to lend to LMI and minority 
communities?
    Ms. Rudolph. I think that regulatory challenges are always 
top of mind for MDIs, and I believe that we are prepared to 
work with institutions to provide technical assistance and 
training to comply with--
    Mr. Luetkemeyer. Let me ask this question, because I don't 
know that we are getting to the heart of it here, and your 
answers are not getting where I want to go here. Do you think 
CECL is going to impact low- and moderate-income communities, 
and communities of color in a negative way?
    Ms. Rudolph. I think CECL will impact all communities, all 
bankers, all communities, yes.
    Mr. Luetkemeyer. Okay. Do you think it is going to impact 
small banks more than larger banks?
    Ms. Rudolph. I think smaller banks definitely have 
challenges when it comes to rules like CECL.
    Mr. Luetkemeyer. Okay. So, let's go further. If it is a 
small bank, they have less income streams to be able to offset 
the required additional capital, and they are going to have to 
put in a reserve, is that correct? Would you agree with that?
    Ms. Rudolph. Yes.
    Mr. Luetkemeyer. So if their income streams are restricted, 
where are they going to have to go to get the additional 
income, do you think?
    Let me help you. I am going to guess they are going to 
increase the cost of a loan. What do you think?
    Ms. Rudolph. So--
    Mr. Luetkemeyer. It is a yes-or-no question, ma'am.
    Ms. Rudolph. I am not prepared to answer that question 
today.
    Mr. Luetkemeyer. Oh, my gosh. Okay.
    Ms. Ninichuk, you represent the credit unions, and you just 
said 80 percent of credit unions are designated low income.
    Ms. Ninichuk. Correct.
    Mr. Luetkemeyer. To me, CECL is going to hit right square 
in the middle of your institutions. This is going to be 
devastating to your business model.
    I have in my possession a study from one of the trade 
associations that shows that the credit union folks are going 
to have to figure out how to come up with $14 billion in 
additional capital to be able to afford to implement CECL. Are 
you concerned about that?
    Ms. Ninichuk. Yes. If I were a small MDI credit union, I 
would be very concerned about that. As an agency with NCUA, 
even though I am not a CECL expert, the agency is concerned 
about the impact CECL will have on net worth as well as 
operational expenses, costs.
    Mr. Luetkemeyer. Okay. It is very concerning. I have asked 
two questions of individuals here, and they are not really 
versed on CECL, and yet you guys are going to be enforcing this 
rule very shortly on big banks. There is a delay, of course, on 
small banks.
    When are you going to get trained on this to understand 
what is going on? Do you have any training in mind? Have you 
had any training at all?
    Ms. Ninichuk. We have an entire division, Examinations and 
Insurance, that is fully up-to-speed on CECL.
    Mr. Luetkemeyer. You don't represent the regulator today 
that is doing this?
    Ms. Ninichuk. I represent MDIs and their credit union 
resources and expansion that provides outreach and support--
    Mr. Luetkemeyer. The number one issue that MDIs have, as 
well as all small banks and small credit unions, is CECL, and 
you guys aren't up-to-speed on that. That is concerning.
    I yield back.
    Chairman Meeks. The gentleman's time has expired.
    I now recognized the distinguished chairwoman of the full 
Financial Services Committee, the gentlelady from California, 
the Honorable Maxine Waters.
    Chairwoman Waters. Thank you very much, Mr. Meeks.
    Let me just say to the panel, if you are wondering about 
our frustration, it is because this issue has plagued us for so 
long, and we are watching the Black banks, in particular, that 
are literally going out of business to the point where--I said 
18, but the other day, I heard 16.
    So how many Black banks have gone out of business since you 
have been working on this issue, Ms. Cole?
    Ms. Cole. I don't have that exact number.
    Chairwoman Waters. Ms. Rudolph?
    Will each witness right down the row answer for me, how 
many Black banks have gone out of business since you have been 
working on the issue?
    Ms. Rudolph. Twenty-seven.
    Chairwoman Waters. I beg your pardon?
    Ms. Rudolph. Twenty-seven.
    Chairwoman Waters. Twenty-seven.
    Okay. Next?
    Mr. Lindo. Sorry. That is about right. We went from 43 
overall to about 23 recently.
    Chairwoman Waters. Next?
    Ms. Ninichuk. I don't have the racial breakdown, but we 
lose about 30 MDI credit unions a year.
    Chairwoman Waters. As I look through your testimony and I 
listen to you talk about efforts that you have made one way or 
the other, mostly technical assistance. You talked about 
partnerships, et cetera.
    When this meeting took place with the big banks and the 
MDIs, how many big banks did you have present? Ms. Cole?
    Ms. Cole. Yes.
    Chairwoman Waters. All of you were involved in that, is 
that right? FDIC?
    Ms. Rudolph. Yes. We had an initiative as well.
    Chairwoman Waters. How many big banks?
    Ms. Rudolph. We invited 31 and 29 showed up.
    Chairwoman Waters. What about Ms. Cole?
    Ms. Cole. We had 20 mid-sized institutions and another 7 
larger institutions.
    Chairwoman Waters. When you invite the big banks to come, 
are you aware of all of their lines of business? Do you know 
what lines of business your big banks have?
    Ms. Cole. Yes.
    Chairwoman Waters. Any of you, please?
    Ms. Rudolph. Yes, we do.
    Chairwoman Waters. Okay. Give me an example.
    Ms. Cole. Commercial lending, is that what you are talking 
about?
    Chairwoman Waters. I don't care what it is, line of 
business.
    Ms. Cole. Small business. Investments.
    Chairwoman Waters. Investments? Do they have any 
investments in Black banks?
    Ms. Cole. Some do.
    Chairwoman Waters. Who?
    Ms. Cole. I can't name specific institutions.
    Chairwoman Waters. Can anybody name an institution, a large 
bank that is invested as a line of business in a Black bank?
    Ms. Cole. Oh, sorry. Not invested as a--not a line of 
business. I didn't mean to say that they have a line of 
business where they specifically invest--
    Chairwoman Waters. No, I am really, really trying to get to 
investments. Because this is all about money. This is about 
access to capital in order to stay alive. So tell me what you 
have done on the issue of putting big banks and MDIs together 
to talk about investing in those banks.
    Ms. Cole. From an OCC standpoint, what we did was we 
brought the institutions together and let the MDIs tell the 
other institutions what they needed. The larger institutions 
were conversing on what they had available. In addition to 
that--
    Chairwoman Waters. All right. That is good, Ms. Cole.
    Ms. Rudolph?
    Ms. Rudolph. Yes. We actually had the large banks fill out 
a questionnaire before they came to the roundtable--
    Chairwoman Waters. Did any of those banks that you had in 
that meeting commit to investments in Black banks, for example?
    Ms. Rudolph. This was a start-up partnership--
    Chairwoman Waters. Okay. That is a startup. Nothing 
happened.
    Mr. Lindo?
    Mr. Lindo. Chairwoman Waters, what I would point out is 
that when a large bank invests in one of these MDIs or any 
other community bank, there is a ramification for that in their 
capital calculation. So because the amount of capital in the 
regulatory system is maintained in such a way, an investment by 
one bank in another bank kind of gets reduced from the banks' 
perspective that made the contribution. That is a structural 
issue.
    Chairwoman Waters. That is okay. Whatever the issue is, I 
am trying to find out what you know about the possibility of 
capital being available, because that is what it is all about. 
They go out of business because they don't have capital.
    Who can tell me that you know that the work that you have 
done has encouraged in any way the investment in minority 
banks, Black banks in particular?
    Mr. Lindo. Can I answer that? You may know a woman by the 
name of Kim Saunders, and she has been developing a partnership 
type of arrangement, more like a mutual fund, where entities 
can invest in that, and then those funds would be invested 
directly into MDIs. That is one we have been working on for a 
while. The biggest impediment there was getting through our--
    Chairwoman Waters. My time is up. Let me just conclude by 
saying, you need to get to work on capital. You need to get to 
work on encouraging big banks to invest in small banks. Until 
you do that, your technical assistance, your conferences, and 
your papers that you write mean nothing.
    I yield back.
    Chairman Meeks. The gentlelady's time has expired.
    The Chair now recognizes the gentleman from Texas, Mr. 
Williams, for 5 minutes.
    Mr. Williams. Thank you, Mr. Chairman.
    I wasn't going to mention this, but I do want to say 
something. I want to support my colleague, Mr. Luetkemeyer. I 
am a small business owner back in Texas, and I have a real 
concern when I hear the comments today about supporting this 
untested manner of accounting that I will tell you will 
directly affect Main Street employment and the economy. So I 
hope you were listening, as you were asked to please understand 
what you are doing and the damage it could cause.
    During the first part of this hearing back in October, I 
asked one of the witnesses about the potential negative 
consequences of Section 1071 of Dodd-Frank. As a refresher, 
Section 1071, of course, requires the CFPB to undergo a 
rulemaking on the collection of small business lending data 
similar to the way HMDA collects mortgage data on borrowers.
    My concern, which is shared by many industry participants, 
is that this type of data collection will increase the cost of 
credit to small businesses, again, Main Street America, and 
will not transmit meaningful data since these two types of 
loans are fundamentally different. Because mortgages are much 
more standardized at 90 percent of being 30-year fixed, and 
there is a uniform residential application that every borrower 
receives, the data gathered can expose bias in the mortgage 
market. Small business loans, however, are much less consistent 
from loan to loan, and data would not transmit an accurate 
picture of the small business lending space.
    In the October hearing, witness Jill Sung of the Abacus 
Federal Savings Bank, stated that HMDA reporting requirements 
take up to 3 months of the lending season and that implementing 
a similar process would be even more difficult for small 
business lending. This difficulty would lead to a heavier 
compliance burden on institutions, which we have many now, that 
will ultimately raise the cost of credit for businesses and it 
does trickle down to consumers.
    So my question is to you, Ms. Cole. Do you share Ms. Sung's 
concerns that she expressed back in October that Section 1071 
could negatively impact small business lending from community 
institutions and MDIs?
    Ms. Cole. I think what our experience has been with banks 
collectively is that many of them have smaller--they have 
software systems or packages that help them in the collection 
of that data that is relatively inexpensive. Some institutions 
do have resource-intensive processes that their management team 
has chosen to implement.
    Mr. Williams. More regulations requires more compliance 
officers and loan officers, and that is a real problem.
    The banking industry has experienced a lot of changes over 
the past 30 years, and there have been significant 
technological advancements, new business models, and regulatory 
changes within the industry. As a way to adapt to the times, 
banks can now utilize third parties to help develop their user 
interfaces, deliver mobile apps, offer rewards and incentive 
programs, and market their capabilities to their communities.
    Ms. Rudolph, can you talk about the effects of third-party 
partnerships within the MDI and community banking space?
    Ms. Rudolph. Yes. Minority banks, similar to community 
banks, can benefit from third-party relationships to deliver 
products and services, including technology partners. At the 
FDIC, our Chairman has taken a very proactive stance on 
innovation in the banking industry, and she has announced the 
creation of an FDIC technology organization that will help 
community banks experiment, including MDIs, with new products 
and technologies, including by third-party providers, looking 
at some of the regulatory uncertainty that might surround 
those, and working together to find solutions. We are seeking a 
Chief Innovation Officer now to lead that organization.
    Mr. Williams. Okay. Thank you for that.
    I believe that modernizing the broker deposit rules will 
have a great impact on the ability for smaller institutions to 
compete against larger competitors. Just this week, the 
American Bankers Association (ABA) sent a letter to Chairman 
Meeks that stated a fundamental role of banks is to provide 
financial services, including deposit taking, lending, access 
to payment systems, wealth management, trust and custody 
services, and cash management services. Modern technology also 
allows banks to offer these services, gather stable deposits, 
and obtain access to potential depositors via new mechanisms. 
Going forward, it is imperative that Section 29 be restructured 
to accommodate these advances in banking, and ensure that banks 
are not penalized for engaging in practices that are well 
within the bounds of their normal course of business and 
traditional consumer relationships.
    I could not agree more with the ABA's comments. I hope that 
the broker deposit rules can be updated, either legislatively 
through this committee, or through agency action at the FDIC. 
We want Main Street America to stay strong. They stay strong 
when the banks are able to do business with them.
    I yield back the balance of my time.
    Chairman Meeks. The gentleman yields back the balance of 
his time.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Scott, for 5 minutes.
    Mr. Scott. Thank you, Mr. Chairman. And, again, I 
congratulate you on really bringing forth this very timely 
hearing.
    I am very concerned, and I want you all to understand the 
power that you have. I want you to understand, and to 
understand very thoughtfully, that we have to save these 
African-American-owned banks. In order to do that, we have to 
look at this the same way that Franklin Delano Roosevelt looked 
at the nation when we went into the Depression, because these 
communities are in a depression.
    Now, we have to use all of you as the point of the spear in 
saving these African-American banks. It's very vital, because 
you have the power. You are the regulators of our banking 
system.
    If we know, for example, how many banks are failing, and 
you said, 27, that is a terrible indictment on all of you. You 
all should have been up here hollering a long time ago about 
what is happening in the African-American community.
    These folks who are registered as unbanked and 
underbanked--you all gave us the numbers: 8.9 million unbanked 
households in this country. Which means, if you know how many 
there are, you know who they are, and you know where they are. 
And an alarm bell should have been rung. Well, this committee 
is ringing the alarm bell now.
    But you are the regulators. So why not entertain--and let's 
be bold. You all have the big banks, and we talked about that. 
You bring the big banks in with the smaller banks, and then, if 
one can't make the meeting, the other--no. We need to establish 
joint ventures and give these very large banks who say they are 
concerned about helping the capitalization of our African-
American-banks--okay. Let's do some joint ventures here.
    And we are doing everything we can to address the reasons 
why, but we have to get some incentives going within the 
banking industry right now. Let me ask you this. From a 
standpoint of, we know that these banks in the African-American 
community have a big problem in establishing their capital 
structure. Now, could you all tell us, what unique hurdles do 
we have in raising capital for the African-American banks? What 
are they?
    Can we start with you, Mr. Lindo?
    Mr. Lindo. Thank you.
    The biggest impediment is, in fact, what they would turn 
around and invest that in. The communities that you are talking 
about, communities such as the African-American community, we 
are under, as you know, economic pressure in those 
environments, where the money might come in but it might not 
stay for a long period of time. We had Black Lives Matter for a 
matter of minutes, effectively. Money came in through the 
deposit network, but it went right back out the door.
    Mr. Scott. Why?
    Mr. Lindo. Because in terms of the stickiness of those 
types of deposits and investments, if you will, the Black Lives 
Matter just being one example, the money came in really 
quickly, but those are low-deposit accounts. So, if a bank gets 
those, it has a higher cost to maintain that type of account. 
Those aren't large-dollar accounts that we can actually now go 
and reinvest into loans in the community.
    So, the hot type of money or the money that doesn't stick 
in the organization is one thing.
    The other thing you talked about was capital. Now, that is 
fundamentally the problem facing African-American banks, 
whether it comes from large banks, as Chairwoman Waters was 
saying, or whether it comes through other partnership-type 
interests, that is where we have to focus on.
    Mr. Scott. Could we not come up with a way--
    Chairman Meeks. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Georgia, Mr. 
Loudermilk, for 5 minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman.
    Two Georgians back-to-back, and I think it is appropriate, 
because I am greatly concerned about this issue. And I think it 
is really good that we have actually had two hearings now on 
MDIs.
    And I want to apologize. I don't know why, but it seems 
like any hearing that we have today ends up being contentious, 
even if it is something that we all agree on. So I want to 
apologize if there has been some stress and tension here today.
    One of the concerns I have, being from Georgia, is that we 
lost more banks than any other State in the financial crisis, 
and we have been very slow to restore those. The small 
community bank that I banked with, both personally and my 
business, has now changed hands 3 times. But we haven't seen an 
increase of de novo banks, whether MDIs or other banks, 
especially the small community banks. We still have at least 
three counties in the State of Georgia that have no bank branch 
whatsoever.
    So the lack of de novo banks is a huge concern in the State 
of Georgia. And I think Representative Scott was getting to 
something there, that it is really important to get to the root 
of the problem if we are going to find a solution, not just 
address symptoms. And I think Mr. Lindo was getting to one of 
the issues.
    In the previous hearing that we had, I asked, what are the 
biggest barriers that we face for creating new banks and 
especially de novo MDIs? And I received three responses from 
the witnesses there. One, the charter bank application process 
is very difficult. Again, overregulation. Two, the capital 
requirements for a de novo bank or credit union are too high. 
And I think that is what Mr. Lindo was getting at. And, three, 
compliance with the Bank Secrecy Act and anti-money-laundering 
requirements is a major challenge. Those are the three areas 
that we are consistently seeing.
    I have a question for each of you, if I can get through it, 
but I will start with Ms. Rudolph.
    I understand that the FDIC is working on ways to assist 
minorities with starting new banks. How can the de novo bank 
charter process be streamlined to make it simpler to start a 
bank?
    Ms. Rudolph. The FDIC has undertaken a number of 
initiatives over the past couple of years to make the de novo 
process simpler. We reduced the de novo period of heightened 
supervision a couple of years ago from 7 years to 3 years.
    We went out to a number of stakeholders, people interested 
in forming institutions. We held a number of roundtables around 
the country to gather their feedback on the process and talk 
about the difficulties that they had.
    In 2017 or 2018, we issued a new handbook, very simple, 
plain English, explaining the requirements for creating a de 
novo. And we continued late last year with requesting 
additional input.
    We have delegated responsibility for approving those 
transactions back to our regions. And we track and have 
significant accountability over the timetables we have left for 
our regulators to approve those.
    And we have actually started a new process where we 
encourage organizers to come in with a draft proposal, and we 
will talk with them about their draft proposal and--
    Mr. Loudermilk. So you are assisting them, really, in 
getting--
    Ms. Rudolph. Providing some consultation. That is right.
    Mr. Loudermilk. Okay.
    Ms. Rudolph. And 2 weeks ago, I met with an organizing 
group for an African-American MDI, and they said that process 
had been very helpful to them in going through the--
    Mr. Loudermilk. Okay. I don't want to cut you off, but I 
want to make sure I get to Mr. Lindo, especially.
    Mr. Lindo, the last time that you were here, I believe you 
testified that, on the capital requirements, we should have a 
tiered approach, with less capital requirements at the 
beginning. Is that still your thought, as one of the barriers?
    Mr. Lindo. You hit capital on the head. That is a barrier 
to entry into this industry. The tiering, though, you would 
have to do it in some sort of way that it doesn't increase risk 
in the system.
    Mr. Loudermilk. Right.
    Mr. Lindo. And that will be one of the challenges, I think, 
you--
    Mr. Loudermilk. Initially, a new bank isn't going to be 
making huge loans, right? So, the risk is going to be lower in 
the beginning. Is that kind of the idea of a tiered approach?
    Mr. Lindo. The tiering would be based on the fact--when the 
money comes in, it has to be put to work, correct?
    Mr. Loudermilk. Right.
    Mr. Lindo. And so you are going to make decisions as to 
what loans you are going to put in. They could be riskier loans 
if you think about that, or they could be lower-risk 
investments if you did that. So how do you pair that in terms 
of risk-tiering, would be the obstacle that you need to 
address.
    Mr. Loudermilk. Okay. Thank you.
    And I see I am running out of time before I can ask the 
other two questions, but mostly it is about regulation and the 
BSA, and I am working to raise those thresholds.
    Ms. Ninichuk, really quick, do you think raising the 
threshold would be helpful?
    Chairman Meeks. The gentleman's time has expired.
    Mr. Loudermilk. May she respond to the question, Mr. 
Chairman? It was just a ``yes'' or ``no.''
    Chairman Meeks. Go ahead.
    Mr. Loudermilk. Do you feel that would be appropriate?
    Ms. Ninichuk. Yes, I do.
    Mr. Loudermilk. Okay. Thank you.
    Thank you, Mr. Chairman.
    Chairman Meeks. The Chair now recognizes the gentleman from 
Florida, Mr. Lawson, for 5 minutes.
    Mr. Lawson. Thank you, Mr. Chairman.
    And witnesses, welcome to the committee.
    Ms. Cole, can you describe the economic state of minority 
depository institutions from pre-financial-crisis to that of 
today?
    Ms. Cole. I believe the minority depository institutions, 
African-American institutions in particular, are in an improved 
state today.
    Mr. Lawson. That is all? Are you finished?
    Ms. Cole. Yes.
    Mr. Lawson. Okay.
    Mr. Lindo, explain to me or explain to the committee, when 
you say the deposits don't stay very long and that causes a 
very big impact on the institution for investment purposes, 
could you go into a little bit more detail on that?
    Mr. Lindo. Certainly, Congressman.
    The idea is, some deposits are core deposits or more sticky 
in nature. They stay with the organization over longer periods 
of time, and they tend to be higher balance. In minority 
communities of note, when we have looked at what those deposits 
looked like, in some cases, they are not as sticky.
    I used the Black Lives Matter as just a recent indication 
of something through social media increased the volume of 
dollars, if you will, of deposits at minority, Black-owned 
banks in particular. That shot up, and then it shot right down.
    The idea is that, if deposits don't stay, then how do you 
put the money to work? Because then the institutions have to 
come up with other means to fund their loans and their other 
investments. So, that is what I generically meant by that.
    Capital, in comparison, is there on a more permanent basis, 
and that doesn't really come in and out of the institution. 
That gets reduced by the profitability of the firm, that gets 
reduced by dividends going out, that sort of thing.
    So I just wanted to make the distinction on things that 
were brought up, like moving certain types of broker deposits 
in. We call that hot money that comes in, stays a little while, 
and it moves on. So that was the point I was trying to make.
    Mr. Lawson. Okay.
    And anyone can respond to this. With the change in our 
society and those institutions that are located in minority 
communities, African-American communities, and with the new 
trend of all of the, I guess, technology that goes along with 
the young people who are coming through, how does that affect 
minority institutions if they haven't adjusted?
    And I understand you all have said that you have workshops 
and so forth to bring them up to date. Because the younger 
generation, no matter what it is, they want things fast, and 
they want to do things. And I don't know whether some of these 
institutions--Ms. Ninichuk, can you comment on that, please?
    Ms. Ninichuk. Yes. For MDI credit unions, we realize that 
some of these institutions have been in their communities for 
10, 20, 30 years-plus, and, at the same time, the financial 
industry has evolved quite considerably, and MDIs, some of 
them, have not been able to maintain the same momentum.
    So what we are finding is that one of the reasons that the 
credit unions start to have challenges is because they can't 
offer the electronic services that consumers want at this time, 
so we see membership leaving these institutions.
    Mr. Lawson. Is there any way that we can bring them up to 
date so that they can face those challenges? Would anyone like 
to respond to that?
    Ms. Cole. I think the OCC has been helping its MDIs and 
community banks partner with some of the fintech firms to 
support their front- and back-room operations and the delivery 
of new products and services. And we are supportive of that as 
long as they do it in a safe and sound and responsible manner.
    But we do recognize, in talking to our MDI advisory 
committee members, that is a concern for the MDI population 
across-the-board and for many community banks, actually.
    Mr. Lawson. Okay.
    Ms. Rudolph, do you feel the same way?
    Ms. Rudolph. Yes, I think partnerships are a good way, and 
we have been encouraging those partnerships--
    Mr. Lawson. I could hardly hear you. Can you speak up?
    Ms. Rudolph. I'm sorry. Yes, we do believe that it is 
important for partnerships to take place. And we have been 
sponsoring roundtables to bring together larger institutions to 
partner with MDIs on topics like that.
    Mr. Lawson. Okay.
    My time has run out. I yield back, Mr. Chairman.
    Chairman Meeks. The gentleman's time has expired.
    The Chair now recognizes the gentleman from Tennessee, Mr. 
Kustoff, for 5 minutes.
    Mr. Kustoff. Thank you, Mr. Chairman.
    And I thank the witnesses for appearing this morning.
    I represent a part of Memphis, Tennessee, which has a 
historic bank, Tri-State Bank in Memphis, which is an MDI. And 
as I think about Tri-State and other de novo banks, I want to 
ask about the issue of compliance, which has been talked about 
some this morning.
    Ms. Cole and Ms. Rudolph, I will direct the first question 
to you, if I could. And that is, as we hear talk this morning 
about de novo banks, whether they are MDI, or what-have-you, 
one concern that we have, or that we are hearing about is the 
cost of entering the marketplace as it relates to 
profitability. And with those de novo banks, as they seek to 
receive their charter, we are also seeing smaller institutions, 
as you all have talked about this morning, consolidate and 
merge, frankly, to avoid the onerous regulatory burdens that 
they are facing. Obviously, that is true for all banks, MDIs, 
et cetera.
    Can you describe, Ms. Cole and Ms. Rudolph, if you could, 
some of the compliance costs for the MDIs and what they are 
facing, and how that may limit or inhibit their ability to 
serve their customers and consumers?
    Ms. Rudolph. One of the compliance costs you might be 
speaking of is the Bank Secrecy Act/anti-money-laundering. And 
the regulators have taken a number of steps over the past year 
to take a look at that.
    We issued a statement last year to encourage institutions 
to partner on BSA operations on sharing resources and 
information and technical assistance. And just a couple of 
months ago, we issued another statement looking at focusing 
examinations on the risk that those types of compliance would 
pose to the institution to better tailor the compliance with 
those regulations to the risk posed by the institution.
    Mr. Kustoff. Thank you.
    Ms. Cole?
    Ms. Cole. And I would echo that. In 2015, OCC issued a 
collaboration paper, and, again, that was in response to 
concerns that our MDIAC committee had brought forth, as well as 
our mutual advisory committee, wanting just clarity from the 
regulator, from us as their regulator, on would we be 
supportive of those kind of collaborative efforts, where banks 
could partner their human resources and other resources to fund 
their operations, as well as look at their compliance 
platforms. So, that was a primary purpose of that paper.
    In addition, our Comptroller has been adamant about leading 
an effort on the BSA front to make it more risk-focused and 
hopefully reduce the compliance burden on the BSA/AML front.
    Mr. Kustoff. Thank you.
    Going in a different direction, I would like to talk about 
the Community Reinvestment Act (CRA). We all know that the CRA 
was designed to encourage financial institutions to invest in 
the communities that they serve. And I am certainly interested 
in that with my part of the district in Memphis.
    I know that many financial institutions and MDIs have 
expressed interest in the effectiveness of the CRA. As we look 
as a committee and a Congress to modernize the CRA, what 
specific recommendations would you have that would also benefit 
the MDIs?
    Ms. Cole. From a CRA standpoint, OCC has also been very 
interested in modernizing the CRA, along with our regulatory 
partners. And one of the things that--for larger institutions, 
when they help the MDIs, they get consideration for that in 
CRA. I think that is important to keep in the forefront.
    The other things that we are kind of focused on is 
clarifying what counts and qualifies, where it counts, and 
providing some objective measures for it, as well as making the 
CRA fees more transparent and timely. And I think, at that 
point, we could look across the industry at any point in time 
and see how people are really helping their communities or not. 
And I think bringing more clarity to what counts would 
hopefully have people invest more because there would be more 
certainty--
    Chairman Meeks. The gentleman's time has expired.
    Ms. Cole. --about the products that they--
    Mr. Kustoff. Thank you.
    Chairman Meeks. The Chair now recognizes the gentlewoman 
from Michigan, Ms. Tlaib, for 5 minutes.
    Ms. Tlaib. Thank you, Mr. Chairman.
    And thank you all so much for being here.
    I have these mini-townhalls throughout my district, and, 
recently, a constituent attended one of my coffee hours, 
talking about the lack of lending for a community. And she 
talked about how difficult it was to find lending to fund her 
small business and the lack of options for communities and all 
that.
    And I think you all know, my district, 13th District 
Strong, is the third-poorest congressional district in the 
country. We are probably the frontline community of why MDIs 
are really critically important. We have lost more Black home 
ownership than any other State, Michigan has, and are 
increasingly seeing this movement around development only for 
some, not those that have been in the community for 
generations.
    And so, just hearing the frustration of Chairwoman Waters 
and others about your role as regulators but also the 
responsibility in trying to get the bigger banks to work with 
some of our what I would call community banks. And I call them 
community banks because my residents don't know what MDIs are.
    I hear, also, some of my colleagues here talking about, 
what can we do to modernize or, really, to update CRA? Because 
I do think there are a lot of loopholes there, especially 
around--and I've seen this over and over again--mortgages being 
given to people who move into the City of Detroit. They are 
getting credit for that loan, but it is going to people who are 
not from communities of color, but they are getting credit for 
it. And, to me, that has been--I would call it a loophole to 
gentrification that is happening in a predominantly Black city.
    And so I want to hear from you, Ms. Cole, Ms. Rudolph, and 
Mr. Lindo, a little bit more about how you can see our role in 
trying to at least adjust the Community Reinvestment Act, which 
has been a big topic of conversation throughout Michigan, 
especially southeastern Michigan, and the importance of really 
trying to put more enforcement or teeth to it and making it as 
it was originally intended. It came about because of situations 
that we see now in Michigan.
    Mr. Lindo. I will start for once.
    First, a few things about the CRA. I think you hear about 
assessment areas. That has to be defined in such a way as to 
give the firms that you are talking about the incentives to 
move the money into those areas that we have been talking 
about.
    The second thing we would think of doing is risk-tiering 
this. If you are a smaller institution, if you are a minority 
institution, you shouldn't have to struggle to meet those 
expectations. There should be some sort of tiering along those 
lines to get benefits to the smaller institutions that are 
actually trying to do that.
    And the third thing, it should be obviously targeted toward 
low- and moderate-income people in those areas. And if, in 
fact, you can do some amendments around those sorts of things, 
that would be the most important.
    Ms. Tlaib. Just for clarification, Mr. Lindo, do you think 
it should be geographic, or do you think it should be about 
individuals?
    Mr. Lindo. I think the problem with geographic is, if you 
are not actually in that, if that isn't your footprint and the 
banker wants to lend in that, you don't get credit for it. So 
that is what I meant by the geographic element there.
    Ms. Tlaib. Anyone else?
    Ms. Cole. I would just say that CRA is not a fair-lending 
regulation and it is not tied to discrimination. It is really 
more tied to low- to moderate-income individuals collectively.
    Ms. Tlaib. Okay.
    Ms. Rudolph, what programs do you have in place right now 
that you can really talk about a little bit more that foster 
partnerships between MDIs, like Liberty Bank, Independent Bank, 
and midsized and larger banks? What specific things--and when 
you say, ``technical assistance,'' just for me--I am new--what 
does that really mean?
    Ms. Rudolph. Technical assistance can be anything from, 
``Can you help me understand this regulation?'' to, ``Could you 
take a look at our strategic planning policy? Could you help 
offer some suggestions?'' We can provide advice; we just can't 
do the work for the institution. But we provide significant 
technical assistance at the request of an MDI on pretty much 
any topic that they ask for.
    Ms. Tlaib. Ms. Rudolph, the frustration I hear from 
Chairwoman Waters is that doesn't go far enough in trying to--
because it is about capital. And I think Mr. Lindo agreed with 
that.
    Ms. Rudolph. Yes.
    Ms. Tlaib. So what are we doing just to--
    Ms. Rudolph. I do want to share about the partnerships that 
we are encouraging between large banks and MDIs, so--
    Ms. Tlaib. How do you encourage them?
    Ms. Rudolph. So, 2 weeks ago, for example, in Chicago, we 
had the CEO of the MDI in your area, First Independent Bank, 
and a number of other MDIs with 10 large banks. And we had the 
10 large banks fill out a little survey about financial 
assistance including direct investment, deposits, lending 
participations that they could have, and all kinds of 
expertise, sharing services--
    Ms. Tlaib. And then what?
    I know my time has run out, Mr. Chairman.
    So, after you get there, what happens?
    Chairman Meeks. I can let her finish the answer, but that 
is it.
    Ms. Tlaib. And then I am done, I promise, Mr. Chairman.
    Ms. Rudolph. We had several MDIs report after the end of 
that, at the meeting, that they got commitments from 
institutions for deposit support. But we are following up 90 
days after these roundtables to find out what worked, and what 
barriers there might be. And this is the beginning of building 
a relationship with these banks. That is what we are 
encouraging them to do, to build these relationships.
    Chairman Meeks. The gentlelady's time has expired.
    The Chair now recognizes the gentleman from Virginia, Mr. 
Riggleman, for 5 minutes.
    Mr. Riggleman. Thank you, Mr. Chairman.
    And thank you to all the witnesses for being here today.
    Before I got started, I wanted to look at my district to 
see how many MDIs there were. So my question might be a little 
different, because my district is about 10,000 square miles; it 
is bigger than the State of New Jersey. And I wanted to see how 
many MDIs were in my district. And then, I started to look at 
the entire State of Virginia.
    So, in the entire State of Virginia, there is not a single 
bank MDI, or at least not according to the FDIC's data. And 
according to the National Credit Union Administration (NCUA), 
there are only seven credit unions in the entire State of 
Virginia that are listed as MDIs. And only one of those, the 
Brunswick County Teachers Credit Union, is in my district. This 
credit union has 388 members, and the assets total a little 
more than $520,000.
    The reason that I talk about this is, from the northern 
part of my district to the southern part of my district, 
Brunswick County has the highest unemployment--it is double in 
the northern part of my district--and also has the largest 
minority population. So, it was interesting to me, to do that 
type of analysis.
    And if you look at my district, it won't take you long to 
realize that one MDI serving 388 individuals accounts for a 
very small percentage.
    So, my first question to each of these witnesses--and, 
again, it is based on the district that I have is, what are 
your agencies doing to encourage MDIs or de novos to increase 
membership or participation especially in rural districts such 
as mine, when there is clearly a disconnect between MDI 
availability and the population at large?
    I will start with Ms. Ninichuk, because when I looked at 
your bio, it had the word ``expansion'' in it. So I will start 
with you, and I will go right to left, if that is okay, on 
these questions.
    Ms. Ninichuk. Sure.
    Mr. Riggleman. Thank you.
    Ms. Ninichuk. What we are doing in NCUA is taking a look at 
our overall chartering process. And part of that chartering 
process is an education process. So we have coordinators who 
are specifically--that is their job, to work with organizing 
groups, educating them about what it is and what it takes to 
start a new credit union. And part of that is also an education 
on MDIs.
    And what we are finding is that the majority of organizing 
groups that are coming through are associated with faith-based, 
Native Americans. So we are really working to educate those 
organizing groups about MDIs, and we hope to have some success.
    But, again, for credit unions and their uniqueness, the 
most difficult part is finding that capital, which is 
donations. And they never get that money back. So when we talk 
to organizing groups, there is a little bit of a balk there, 
like, ``Oh, no.'' But, still, we have been able to open up 13 
new credit unions, I think, within the last 5 years, and 4 of 
them have been MDIs. But the latest one is still not self-
designating as an MDI.
    Mr. Riggleman. Thank you.
    Mr. Lindo?
    Mr. Lindo. And then quickly, on top of what Ms. Ninichuk 
just said, some of the barriers to entry are what we talked 
about before. You have to develop enough capital. But we can 
ease things. Like, what does the application process look like? 
How do you get through it? And all that.
    But you come, fundamentally, in a rural area, like you have 
described yourself, you don't have that many people in that one 
geographic area, so you have to be more creative. In short, you 
have to figure out how to deliver that service to a broader 
geographic layout. And you are going to have the same types of 
cost, start-up costs, and the like.
    So that is really the biggest obstacle, how you assimilate 
that capital and get it applied in such a broad geographic 
area. Rural communities tend to be more challenging, to be 
blunt with you.
    Mr. Riggleman. Thank you, sir.
    Ms. Rudolph?
    Ms. Rudolph. In addition to the streamlining of our 
application process I mentioned earlier, I think one of the 
barriers to de novo creation has really been the interest-rate 
environment that we are in ever since the crisis. And it is 
very difficult to start an institution with low interest rates 
when you are starting out with a portfolio that doesn't have 
any assets on the books or deposits.
    Mr. Riggleman. Yes, ma'am.
    Ms. Cole?
    Ms. Cole. I agree with what the other panel members have 
said. But capital, getting capital, is crucial for those 
institutions.
    But what OCC has also been doing is, we are supportive of 
streamlining the application process. And as individuals have 
come to talk to us, we try to do a lot of technical assistance 
to help them understand the application process and what is 
needed. And then, if someone submits an application, we help 
them with that application as it moves through the process.
    Mr. Riggleman. Thank you.
    I wish we had a little bit more time, and I am sure you 
guys wish we had all the time in the world. But as we go 
forward, thank you. Because Mr. Lindo and Ms. Cole, all of you 
sort of segued into what my next questions were going to be, 
which was about barriers to entry for these specific types of 
institutions.
    And the fact is--and I will tell you in my last 10 
seconds--we want MDIs in our district. The massive rural 
footprint that we have, I think, is something that would be 
well-served. Thank you.
    And I yield back the balance of my time.
    Chairman Meeks. The gentleman yields back.
    The Chair now recognizes the gentleman from Colorado, Mr. 
Tipton, for 5 minutes.
    Mr. Tipton. Thank you, Mr. Chairman, and I appreciate you 
holding this hearing today.
    Several important points have been brought up that are 
important in my district in regards to the CRA reform that 
needs to take place, but also to help small community banks.
    We have a very similar circumstance to my colleague, Mr. 
Riggleman. I happen to have 54,000 square miles of the State of 
Colorado. We don't have one MDI that is in our district. The 
lone one in Colorado is actually in Denver, Colorado, to be 
able to provide that service.
    But the connectivity that we have with the MDIs is, we have 
low- to moderate-income people in the vast majority of our 
district. And access to capital, access to banking services is 
something that is critically important.
    And I do want to lend my support to the comments of the 
ranking member in regards to CECL and to be able to answer, 
actually, the question we didn't get the answer to, in terms 
of, where are they going to be able to get the money to be able 
to have that compliance when CECL gets down to our smaller 
community banks? And it is going to be--you are going to have 
to increase the interest rate to the people who are trying to 
access that capital.
    Maybe, we can just run down the line. If we are going to be 
increasing the interest rate to low- to moderate-income people, 
is that going to be a benefit to that MDI or to that community 
bank or, most importantly, to the people that we are trying to 
serve?
    Ms. Cole?
    Ms. Cole. I am not certain that will be the impact, because 
right now--
    Mr. Tipton. Is there another way to pay for it?
    Ms. Cole. I don't know what the impact will be at this 
point. The results of various studies have been very different. 
There are conflicting studies or results or conclusions from 
those studies. So, I don't know at this point.
    And that is one of the reasons, I think, the FASB agreed to 
delay the implementation for other institutions. They are 
implementing it for the larger institutions at the current 
moment, and then we, as an agency, plan to study what happens 
and whether there is an adverse impact on credit or not.
    Mr. Tipton. And I think that has probably been one of the 
ultimate challenges. We have had Jamie Dimon here, who, when we 
were talking about Dodd-Frank, said that it was basically a 
moat around the big banks. They can afford it. But what we 
experienced after Dodd-Frank was that trickle-down effect in 
terms of regulations that do ultimately flow.
    And, Mr. Lindo, you, in response to Ms. Tlaib, had talked 
about being able to actually tailor some of the requirements. 
Can you maybe speak to that?
    Mr. Lindo. Yes. The tailoring is generally used if, in 
fact, we have discretion. On this particular case, the FASB 
standard would apply to all institutions, and we don't have the 
ability to say, you can't apply CECL. Tailoring works when it 
is our rules. If these are the FASB's rules, I don't see how 
tailoring would work in this particular case.
    Mr. Tipton. Would that maybe speak to the importance, 
frankly, of being able to make sure that we can--for MDIs, for 
community banks to be able to tailor regulations, for small 
credit unions to be able to tailor those to be able to meet the 
size, the risk portfolio of the institution?
    Ms. Ninichuk. NCUA does work to make sure that they 
consider the complexity of the institution as well as the size 
when they determine the regulations, yes.
    Mr. Tipton. Okay.
    Mr. Lindo, would that be a solution?
    Mr. Lindo. That would be. But, again, we are back to what 
our rules are, as opposed to FASB's.
    What we could do in a case like this is, there are less 
costly ways for a firm to implement the accounting standard, 
and that would be the focus. So, rather than hire a consultant 
to come in and explain how to apply these standards, we would 
come up with some proxy for that, that a firm could use, a 
small bank.
    We have kicked this around in our shop, what would it look 
like if we came up with some estimating tools that a small bank 
could use in lieu of going out to a consultant and getting them 
to come in.
    Mr. Tipton. I did want to be able to get a little more 
information from you, because you had indicated that you had 
started a program in 2018 to be able to give the opportunity 
for MDIs to meet with Federal Reserve Governors to express 
their concerns.
    Mr. Lindo. Yes.
    Mr. Tipton. What concerns did they express to you?
    Mr. Lindo. They brought up CECL, and they brought up the 
overhanging burden of regulation in general.
    For example, we talked about BSA already. It doesn't 
discriminate on the size of institution. If you have a 
transaction over $10,000, it applies. And it applies 
throughout.
    So, things like that were brought up as compliance-type 
issues that don't necessarily, from a business standpoint, have 
much benefit. They brought those to our attention a bit.
    Mr. Tipton. Great.
    My time has expired, Mr. Chairman. Thank you again for 
holding this hearing.
    Chairman Meeks. Thank you.
    The gentleman's time has expired.
    I now recognize the ranking member, Mr. Luetkemeyer, for 2 
minutes for a closing statement.
    Mr. Luetkemeyer. Thank you, Mr. Chairman. I appreciate the 
hearing today.
    I think that we have covered a lot of things with regards 
to the challenges that MDIs have. I think we need to, again, 
understand the pressure that they are under. Having lost 
basically a third of them in the last 10 years, it is 
indicative of the entire financial industry. How they are being 
regulated and the forces that are sometimes outside their 
circumference here is actually having an impact on them.
    And so it is also concerning, as I indicated in one of my 
questions, that even the FDIC's own study shows that the 
number-one regulatory issue is CECL, as my friend and a couple 
of other friends here on the--one from Colorado, and another 
one from Texas--indicated.
    This is, in particular, an issue that is going to put a lot 
more pressure on the MDIs. And this is exactly what we don't 
need to have happen. You want to have access to credit for low- 
and moderate-income folks.
    We had the Home Builders Association here a couple of times 
over the last year, and they indicated that if you raise the 
cost of the loan by $1,000, 100,000 people across this country 
no longer had access to home mortgage money. That is dramatic. 
And it is going to have a dramatic effect on small community 
banks and credit unions. It is going to hit them right between 
the eyes and their customers right between the eyes.
    And I am very disappointed in the quality of the answers 
coming back this morning from the panel. I was underwhelmed, 
quite frankly, from the standpoint that anybody who has watched 
the hearings over the last year knows where I am going to be, 
and what kind of questions you are going to get when I talk to 
regulators and people who are in the regulatory business here, 
and for you to be unable to answer my questions is very 
disappointing.
    So I want to stress to you again, when you go back to your 
bosses, I want you to go find out what the effects are going to 
be on the low- to moderate-income folks, especially MDIs, and 
be able to address those and be able to help us push back 
against FASB and this unfortunate accounting standard.
    Thank you, Mr. Chairman, for your leadership on this 
subcommittee and for your leadership on this issue.
    Chairman Meeks. The gentleman's time has expired.
    I now recognize myself for 2 minutes for a closing 
statement.
    First, let me just thank the witnesses for their testimony 
today.
    And some of you may know that I am working on a piece of 
legislation to deal with the minority banks and that we drafted 
legislation, and I thank those agencies for some initial 
comments on the draft. Similarly, I want to thank the minority 
banks that testified last month, that also provided feedback on 
the legislation. I am grateful for that.
    It is very uncommon for a committee or a subcommittee to 
hold two back-to-back hearings on the same topic to gain a full 
perspective of the issue. And I hope that our doing so makes 
abundantly clear our resolve to address the issues identified 
and take action to pass legislation that will materially move 
the needle for protecting and preserving minority banks and 
banks that serve the poor and the underbanked.
    We have an urgent national problem with rapid and dramatic 
concentration of our banking system and the rapid growth of the 
non-bank financial system and expansion of banking deserts 
across urban and rural America.
    And while I plan to introduce my legislation in the coming 
weeks, and I sincerely hope it will gain broad, bipartisan 
support to become law, I also firmly believe that a significant 
component of the solution lies not in legislation but in a 
renewed and more urgent commitment by the regulators to think 
creatively about what more they can do for a broader coalition 
of Executive Branch agencies and departments to make a serious 
commitment to work with minority and small community banks and 
for the lenders and the banking sector and fintech to engage 
with these institutions.
    Congress has an important role to play, but a great share 
of the accountability and opportunity lies outside of this 
body. And I urge all of us to take on this challenge with 
urgency to protect and preserve the unique fabric and diversity 
of our banking system, which reflects the diversity of the 
country as a whole and serves this diverse nation without 
prejudice or exclusion.
    I would like to, again, thank our witnesses for their 
testimony today.
    The Chair notes that some Members may have additional 
questions for this panel, which they may wish to submit in 
writing. Without objection, the hearing record will remain open 
for 5 legislative days for Members to submit written questions 
to these witnesses and to place their responses in the record. 
Also, without objection, Members will have 5 legislative days 
to submit extraneous materials to the Chair for inclusion in 
the record.
    This hearing is now adjourned.
   [Whereupon, at 11:42 a.m., the hearing was adjourned.]
 



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