[House Hearing, 117 Congress]
[From the U.S. Government Publishing Office]


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

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

                             VIRTUAL HEARING

                               BEFORE THE

                    COMMITTEE ON FINANCIAL SERVICES

                     U.S. HOUSE OF REPRESENTATIVES

                    ONE HUNDRED SEVENTEENTH CONGRESS

                             FIRST SESSION

                               __________

                              MAY 19, 2021

                               __________

       Printed for the use of the Committee on Financial Services

                           Serial No. 117-25
                           
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]

                              __________

                    U.S. GOVERNMENT PUBLISHING OFFICE                    
45-077 PDF                 WASHINGTON : 2022                     
          
-----------------------------------------------------------------------------------   

                 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             FRANK D. LUCAS, Oklahoma
GREGORY W. MEEKS, New York           BILL POSEY, Florida
DAVID SCOTT, Georgia                 BLAINE LUETKEMEYER, Missouri
AL GREEN, Texas                      BILL HUIZENGA, Michigan
EMANUEL CLEAVER, Missouri            STEVE STIVERS, Ohio
ED PERLMUTTER, Colorado              ANN WAGNER, Missouri
JIM A. HIMES, Connecticut            ANDY BARR, Kentucky
BILL FOSTER, Illinois                ROGER WILLIAMS, Texas
JOYCE BEATTY, Ohio                   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
CINDY AXNE, Iowa                     TED BUDD, North Carolina
SEAN CASTEN, Illinois                DAVID KUSTOFF, Tennessee
AYANNA PRESSLEY, Massachusetts       TREY HOLLINGSWORTH, Indiana
RITCHIE TORRES, New York             ANTHONY GONZALEZ, Ohio
STEPHEN F. LYNCH, Massachusetts      JOHN ROSE, Tennessee
ALMA ADAMS, North Carolina           BRYAN STEIL, Wisconsin
RASHIDA TLAIB, Michigan              LANCE GOODEN, Texas
MADELEINE DEAN, Pennsylvania         WILLIAM TIMMONS, South Carolina
ALEXANDRIA OCASIO-CORTEZ, New York   VAN TAYLOR, Texas
JESUS ``CHUY'' GARCIA, Illinois
SYLVIA GARCIA, Texas
NIKEMA WILLIAMS, Georgia
JAKE AUCHINCLOSS, Massachusetts

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

                              ----------                              
                                                                   Page
Hearing held on:
    May 19, 2021.................................................     1
Appendix:
    May 19, 2021.................................................    61

                               WITNESSES
                        Wednesday, May 19, 2021

Harper, Hon. Todd M., Chairman, National Credit Union 
  Administration (NCUA)..........................................     5
Hsu, Hon. Michael J., Acting Comptroller of the Currency, Office 
  of the Comptroller of the Currency (OCC).......................     7
McWilliams, Hon. Jelena, Chairman, Federal Deposit Insurance 
  Corporation (FDIC).............................................     8
Quarles, Hon. Randal K., Vice Chairman of Supervision, Board of 
  Governors of the Federal Reserve System (Fed)..................    10

                                APPENDIX

Prepared statements:
    Harper, Hon. Todd M..........................................    62
    Hsu, Hon. Michael J..........................................    82
    McWilliams, Hon. Jelena......................................    96
    Quarles, Hon. Randal K.......................................   113

              Additional Material Submitted for the Record

Waters, Hon. Maxine:
    Written statement of the Credit Union National Association 
      (CUNA).....................................................   121
    Written statement of the National Association of Federally-
      Insured Credit Unions (NAFCU)..............................   132
Harper, Hon. Todd M.:
    Written responses to questions for the record from 
      Representative Beatty......................................   137
Hsu, Hon. Michael J.:
    Written responses to questions for the record from 
      Representative Beatty......................................   140
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   143
    Written responses to questions for the record from 
      Representative Rose........................................   146
    Written responses to questions for the record from 
      Representative Timmons.....................................   147
McWilliams, Hon. Jelena:
    Written responses to questions for the record from 
      Representative Beatty......................................   150
    Written responses to questions for the record from 
      Representative Davidson....................................   155
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   156
    Written responses to questions for the record from 
      Representative Rose........................................   167
    Written responses to questions for the record from 
      Representative Timmons.....................................   160
    Written responses to questions for the record from 
      Representative Williams....................................   168
Quarles, Hon. Randal K.:
    Written responses to questions for the record from 
      Representative Hill........................................   175
    Written responses to questions for the record from 
      Representative Hollingsworth...............................   178
    Written responses to questions for the record from 
      Representative Luetkemeyer.................................   180
    Written responses to questions for the record from 
      Representative Rose........................................   183
    Written responses to questions for the record from 
      Representative Timmons.....................................   185

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

                              ----------                              


                        Wednesday, May 19, 2021

             U.S. House of Representatives,
                   Committee on Financial Services,
                                                   Washington, D.C.
    The committee met, pursuant to notice, at 10:04 a.m., via 
Webex, Hon. Maxine Waters [chairwoman of the committee] 
presiding.
    Members present: Representatives Waters, Maloney, 
Velazquez, Sherman, Meeks, Scott, Green, Cleaver, Perlmutter, 
Himes, Foster, Vargas, Gottheimer, Lawson, Axne, Casten, 
Torres, Lynch, Adams, Tlaib, Dean, Garcia of Illinois, Garcia 
of Texas, Williams of Georgia, Auchincloss; McHenry, Lucas, 
Posey, Luetkemeyer, Huizenga, Stivers, Wagner, Barr, Williams 
of Texas, Hill, Emmer, Zeldin, Loudermilk, Mooney, Davidson, 
Budd, Kustoff, Hollingsworth, Gonzalez of Ohio, Rose, Steil, 
Gooden, and Timmons.
    Chairwoman Waters. The Financial Services Committee will 
come to order.
    Without objection, the Chair is authorized to declare a 
recess of the committee at any time.
    As a reminder, I ask all Members to keep themselves muted 
when they are not being recognized by the Chair. The staff has 
been instructed not to mute Members, except when a Member is 
not being recognized by the Chair and there is inadvertent 
background noise.
    Members are also reminded that they may only participate in 
one remote proceeding at a time. If you are participating 
today, please keep your camera on, and if you choose to attend 
a different remote proceeding, please turn your camera off.
    Before we begin today's hearing, I would like to take a 
moment to congratulate Representative Jake Auchincloss, who has 
recently been elected by committee Democrats to serve as the 
committee's Vice Chair for this Congress. Mr. Auchincloss has 
dedicated his career to public service, having served in the 
Marines and then as a three-term city councilman in Newton, 
Massachusetts. I know he shares my passion for affordable 
housing, and I have been very impressed with his level of 
engagement and thoughtfulness on committee issues. So, I am 
pleased that he will be serving, as of next week, as the 
committee's Vice Chair, and I look forward to working with him 
in his new role.
    I now recognize myself for 4 minutes to give an opening 
statement.
    Welcome, Chairman Harper and Acting Comptroller Hsu, and 
welcome back, Chairman McWilliams and Vice Chairman Quarles. A 
major focus of this committee continues to be the economic 
impacts of the COVID-19 pandemic crisis. Today, I expect to 
hear from our witnesses about what their agencies are doing to 
respond to this ongoing crisis and that they are going to make 
sure that banks and credit unions are not further harming 
consumers, especially people of color who are already facing 
challenges through no fault of their own as a result of the 
pandemic, and that those institutions are, instead, helping 
consumers and supporting the recovery of communities and people 
of color whenever possible.
    I have long been critical of the long list of harmful 
deregulatory actions taken by the last Administration's 
appointees, and, particularly, their actions to roll back key 
Dodd-Frank Act reforms and other consumer protections. So, I am 
pleased that the Senate has taken bipartisan action to reverse 
the OCC's so-called True Lender Rule which would allow non-bank 
lenders to skirt State interest rate protections, and I have 
called on House leadership to take up that Congressional Review 
Act resolution as soon as possible.
    I am also pleased that the Biden Administration's 
appointees are bringing a better approach to regulation that 
prioritizes consumers, and that regulators are starting to take 
steps to protect the financial stability of our system against 
climate risk and other threats.
    Vice Chair Quarles, I am alarmed by reports that the Fed is 
planning to weaken its bank merger review process, one that 
already amounts to a rubber-stamping process. Additionally, Fed 
Governor Brainard has expressed concerns about concentration in 
the $250 billion to $700 billion asset size category. And I 
would note that this should not be surprising, given the 
various rollbacks we have seen on large bank capital, 
liquidity, and other safeguards. Regulators must reverse course 
immediately to promote financial stability, so I look forward 
to hearing about what prudential regulators are doing about 
banking deserts, where bank branches have closed, leaving 
communities with less access to traditional banking services.
    I was pleased to learn that the OCC, under Acting 
Comptroller Hsu's leadership, announced yesterday that they are 
reconsidering Joseph Otting's harmful Community Reinvestment 
Act (CRA) rule. Modern-day redlining has left communities of 
color with limited access to much-needed financial services, so 
policymakers must act with urgency to address these issues.
    I am also eager to hear from the members of the panel 
regarding their Agency's efforts on diversity and inclusion in 
the banking sector, including their work to support Minority 
Depository Institutions (MDIs) and Community Development 
Financial Institutions (CDFIs) during this pandemic.
    Lastly, I want to make clear that temporary regulated 
exemptions or delays for banks that were put in place for the 
pandemic must come to an end and be allowed to expire. The 
previous Administration attempted to use the pandemic as a 
cover to delay or weaken key financial safeguards and 
regulations, and those efforts must not be allowed to stand.
    I want to thank you, and I look forward to the testimony 
from all of our witnesses. And I will now recognize the ranking 
member of the committee, the gentleman from North Carolina, Mr. 
McHenry.
    Mr. McHenry. Thank you, Madam Chairwoman. I would like to 
start by welcoming the regulators back today, some familiar 
faces and some new. Chair McWilliams, Vice Chair Quarles, I 
would like to, again, thank you for your work throughout the 
pandemic to ensure our financial system remained strong. Your 
quick and decisive actions to provide appropriate flexibility 
for financial institutions and consumers set up for us a very 
strong economic rebound here in the United States.
    Mr. Hsu, I also want to welcome you to the committee in 
your new role as Acting Comptroller of the Currency. However, I 
think it is safe to say that many of us expected to hear from a 
confirmed Comptroller of the Currency at this point. There has 
been a lot of speculation about who President Biden's nominee 
will be. It seems to be a Goldilocks approach here. First, 
Michael Barr was deemed too conservative, if you can call 
somebody who helped write Dodd-Frank a conservative. I don't 
think so. Then, Mehrsa Baradaran, who advocates for socialized 
banking and opposes innovation, well, she seemed to appease the 
far left progressives, but still no formal nomination. So, we 
are left to wonder who will be deemed as, ``safe and sound,'' 
at least in the eyes of President Biden, to permanently fill 
the role.
    But indecision has real-world consequences. As President 
Biden tries to cater to his party's political whims at the OCC, 
our financial institutions are left without a clear path 
forward. That is problematic. Former Comptroller Otting and 
former Acting Comptroller Brooks made great strides in a 
nonpartisan, nonideological way to remove regulatory roadblocks 
and to support financial inclusion through innovation. But now, 
these positive steps forward are stuck in limbo, or worse, in 
danger of being scrapped altogether for political optics.
    This is not the right way to regulate, but I fear this is 
just the start of the Democrats' one-party-rule mentality in 
practice. We know that Democrats' tendency is to overregulate 
when they feel like they need to do something. We saw this in 
2009 and 2010 with Dodd-Frank, and we know the negative impact 
it had on our financial institutions and our economy. We are 
already seeing Democrats treat the COVID pandemic just like the 
financial crisis, but the two are not comparable, and our 
economy is in a much different place now.
    What my Democrat colleagues should take away from the 
pandemic is that outsized regulation is problematic, and that 
financial technology plays a really important role in our day-
to-day lives and should be embraced. We should use advances in 
technology to help bring more unbanked and underbanked 
Americans into the fold and to close banking deserts, just as 
the Chair says.
    The OCC, and the FDIC under Chair McWilliams, worked to 
address the overly-burdensome mandates that hindered financial 
technology by issuing rules to address the so-called valid-
when-made doctrine. That was positive and helpful to our 
economy. The OCC also moved to finalize its True Lender Rule, 
creating a much-needed framework for providing affordable 
credit to all consumers, particularly those who need it most, 
through banks and non-banks. Together, these rules helped bring 
more Americans under the banking umbrella. That is good. We 
should build on these gains rather than trying to re-litigate 
2009. I don't think that is the right approach. So, I look 
forward to hearing from each of you on how we can best 
accomplish that.
    Madam Chairwoman, I yield back.
    Chairwoman Waters. Thank you very much.
    Mr. Perlmutter. Madam Chairwoman, you muted yourself. Did 
you recognize me?
    Chairwoman Waters. Yes, Mr. Perlmutter. You are now 
recognized for one minute.
    Mr. Perlmutter. Thank you very much, and I want to thank 
our witnesses for appearing today, and thank you for your 
service to the United States of America.
    The pandemic served as the ultimate stress test for the 
financial system, and I believe, unlike my friend from North 
Carolina, that it demonstrated how important Dodd-Frank is for 
the stability of our economy. Capital liquidity and other 
regulatory requirements we require of financial institutions 
helped to weather a period of historic uncertainty and fear, 
but I would caution that we are not out of the storm yet. Many 
families are struggling to find childcare as parents reenter 
the workforce. Supply chain disruptions have slowed outputs, 
and we still need to get more Americans vaccinated. Meanwhile, 
there has been some volatility and recklessness in the 
financial markets. Multiple banks just lost billions by 
allowing Archegos to gamble with their money. Retail traders 
are battling hedge funds over GameStop, and a $75 billion 
cryptocurrency's value fluctuates based on, ``Saturday Night 
Live'' guest performances.
    Maintaining stability in our financial sector is critical 
to a strong and far-reaching recovery, and I urge all of our 
witnesses today to keep a close eye on their supervised firms 
to ensure that operations of banks and credit unions are safe 
and sound. I look forward to the discussion today, and I yield 
back.
    Chairwoman Waters. I now recognize the gentleman from 
Missouri, Mr. Luetkemeyer, for one minute.
    Mr. Luetkemeyer. Thank you, Madam Chairwoman. I thank all 
of the witnesses for being here as well today, and the four of 
you are testifying at a very interesting time in our economy 
and within the banking system. As the economy is set to recover 
from the pandemic, I have a number of concerns. The enormous 
stimulus bill recently passed and continued unemployment 
benefits have created threats of inflation in an environment 
where small businesses cannot find workers.
    Throughout the pandemic, banks have been providing 
forbearance to customers to ensure that they can make it 
through the pandemic. As much of this forbearance is set to 
expire, it is critical that we examine how regulators will 
treat these assets going forward. The rise of fintechs has 
raised specific questions on the chartering of financial 
institutions, the identity of the true lender of a loan, and 
whether these entities should be regulated on a Federal level. 
Banking regulations are also shifting with a focus on risk 
mitigation related to climate risk, which, if unchecked, could 
result in a choke-point style impact on legally-operating 
companies in the energy sector.
    These are just a few of the issues I look forward to 
discussing with you today. And with that, Madam Chairwoman, I 
yield back.
    Chairwoman Waters. Thank you. It is now time to welcome 
today's distinguished witnesses to the committee. First, we 
have the Honorable Todd Harper, the Chairman of the National 
Credit Union Administration. And I understand that today 
happens to be Mr. Harper's birthday, so I want to take a moment 
to say happy birthday, and to thank you for being with us on 
your very special day. I hope this isn't the only celebration 
you are planning for today.
    Second, we have Mr. Michael Hsu, the Acting Comptroller of 
the Currency. Third, we have the Honorable Jelena McAdams, the 
Chair of the Federal Deposit Insurance Corporation. And last, 
we have the Honorable Randal Quarles, the Vice Chairman of 
Supervision for the Board of Governors of the Federal Reserve 
System.
    Each of you will have 5 minutes to summarize your 
testimony. You should be able to see a timer on your screen 
that will indicate how much time you have left, and a chime 
will go off at the end of your time. I would ask you to be 
mindful of the timer and quickly wrap up your testimony if you 
hear the chime.
    And without objection, your written statements will be made 
a part of the record.
    Mr. Harper, you are now recognized for 5 minutes to present 
your oral testimony.

 STATEMENT OF THE HONORABLE M. TODD HARPER, CHAIRMAN, NATIONAL 
               CREDIT UNION ADMINISTRATION (NCUA)

    Mr. Harper. Chairwoman Waters, Ranking Member McHenry, and 
members of the committee, thank you for inviting me to discuss 
the credit union industry's performance and NCUA's operations. 
As a former Hill staffer who spent more than a decade working 
for this committee, I am deeply honored to join you today.
    Despite the COVID-19 pandemic's many economic blows, the 
overall credit union system has remained on a solid footing 
with strong capital levels and sufficient liquidity. If past 
recessions are indicative, it seems likely that credit union 
performance will trail any labor market improvements by up to 2 
years. The NCUA and credit unions should, therefore, prepare 
for that eventuality. Once forbearance programs expire, we will 
likely experience decreases in credit quality and increases in 
delinquencies and charge-offs, which will affect credit union 
financial statements, and, if failures occur, could impact the 
Share Insurance Fund.
    Tragically, the pandemic has disproportionately affected 
low-income households, communities of color, and minority-owned 
businesses. The NCUA has encouraged credit unions to work with 
members experiencing hardship. The NCUA has also instructed 
examiners to refrain from criticizing a credit union's efforts 
to provide prudent relief for members. Through the Community 
Development Revolving Loan Fund, the NCUA is supporting low-
income credit unions during these uncertain times. Although 
relatively small, these grants and loans make a big difference. 
In all, the NCUA awarded $3.7 million last year to 162 credit 
unions to assist in their pandemic response efforts. Although 
many more applied for a grant, the Agency could not fund the 
demand because of limited appropriations.
    The pandemic has also prompted a heightened cybersecurity 
stance at our Agency. As part of the larger government-wide 
effort, the NCUA will continue bolstering its cybersecurity 
posture and provide guidance and resources to assist credit 
unions with strengthening their cyber defenses, including 
grants, and completing a pilot project to harmonize IT and 
cybersecurity exam procedures.
    The NCUA is further working to strengthen its Consumer 
Financial Protection Program to ensure fair and equitable 
access to credit. This year, there is an increased emphasis on 
fair lending compliance, and Agency staff are studying methods 
for improving consumer financial protection supervision for the 
largest credit unions not primarily supervised by the Consumer 
Financial Protection Bureau (CFPB). Additionally, since opening 
its Office of Minority and Women Inclusion (OMWI) a decade ago, 
the Agency has made steady progress in advancing diversity. 
Last year, 2 out of every 5 new hires at the NCUA were people 
of color, and the Agency achieved parity and executive gender 
diversity. The NCUA will continue to invest in diversity and 
inclusion by enhancing support from minority depository 
institutions and fostering initiatives that close the wealth 
gap. These efforts will advance economic equity and justice 
within the system and ensure a more equitable recovery.
    Finally, I want to highlight three areas where legislative 
action would aid the Agency in fulfilling its mission. First, 
the Financial Stability Oversight Council (FSOC), the 
Government Accountability Office (GAO), and the NCUA's 
inspector general have each called for the NCUA to have 
examination and enforcement authority over third-party vendors. 
The continued transfer of operations to credit union service 
organizations and other third parties diminishes the NCUA's 
ability to assess risks within the system, leaving thousands of 
credit unions, millions of their members, and billions of 
dollars in assets potentially exposed to unnecessary risks. 
Congress should close this growing regulatory blind spot.
    Second, Congress should provide the NCUA with greater 
authority to proactively manage the Share Insurance Fund. 
Adopting a countercyclical approach to charging premiums would 
allow for an increase in insurance reserves during economic 
upturns to cover losses during downturns.
    And third, Congress should permanently adopt the temporary 
enhancements granted to the NCUA's Central Liquidity Facility 
(CLF) in the CARES Act. Because of these reforms, the CLF's 
borrowing capacity has grown greatly, and 4 out of every 5 
credit unions now have access to liquidity if other sources 
freeze up. Permanence will strengthen the shock absorbers for 
future liquidity events. We will provide the committee with 
more information on each of these matters in the coming weeks.
    In conclusion, the NCUA remains focused on addressing the 
needs and best interests of credit union members, ensuring the 
safety and soundness of credit unions, and protecting the Share 
Insurance Fund. I look forward to working with the committee in 
support of these endeavors. Thank you.
    [The prepared statement of Mr. Harper can be found on page 
62 of the appendix.]
    Chairwoman Waters. Thank you, Mr. Harper.
    Next, we will go to Mr. Hsu. You are now recognized for 5 
minutes to present your oral testimony.

 STATEMENT OF THE HONORABLE MICHAEL J. HSU, ACTING COMPTROLLER 
  OF THE CURRENCY, OFFICE OF THE COMPTROLLER OF THE CURRENCY 
                             (OCC)

    Mr. Hsu. Chairwoman Waters, Ranking Member McHenry, members 
of the committee, thank you for the opportunity to testify 
today. I am honored by Secretary Yellen's confidence to appoint 
me to this post of Acting Comptroller of the Currency.
    I am a career public servant and a bank supervisor at my 
core. During my 19 years of experience in multiple agencies, I 
have seen periods of growth, crisis, reform, and recovery. I 
have seen benefits that financial innovation and competition 
can bring, as well as the harm that excessive risk taking can 
inflict on families, businesses, and the economy.
    My written testimony shares in more detail my priorities in 
the review of key regulatory actions that I initiated upon 
taking office. I see four urgent problems requiring immediate 
attention: first, guarding against complacency; second, 
reducing inequality; third, adapting to digitalization; and 
fourth, acting on climate change. Let me briefly describe each.
    First, I believe the banking system is at risk of becoming 
complacent, especially the large banks. Banks deserve credit 
for weathering the pandemic well. I am concerned, however, that 
as the economy recovers and pressure to grow returns, 
overconfidence leading to complacency is a risk when prudent 
risk management is set aside in pursuit of profit. I see the 
losses related to Archegos primarily through this lens as 
reflective of the broader environment. This requires bank 
leaders, boards of directors, and us as supervisors to be 
especially vigilant.
    Second, reducing inequality must be a national priority. As 
the recently-published Survey of Household Economics and 
Decisionmaking (SHED) report from the Federal Reserve shows, 
the pandemic has had a disproportionate impact on vulnerable 
groups, especially minority households and businesses. The 
recovery threatens to leave them, and rural communities, even 
further behind. Historically, many low-income individuals have 
been treated by banks as credits to be avoided or credits to be 
exploited. The OCC can help address that problem. We must work 
to strengthen regulations, in implementing the Community 
Reinvestment Act. I have asked staff to review the OCC's 2020 
final rule. All options are under consideration, including 
rescinding or substantially revising it and working with the 
Federal Reserve and the FDIC on a joint proposal.
    We must also use all of our supervisory tools to ensure 
that banks comply with fair lending and anti-discrimination 
laws. Predatory lending has no place in our national banking 
system. Finally, we have an opportunity to expand Project 
REACh, an OCC-sponsored effort that brings together leaders of 
banks, civil rights and community groups, tech companies, and 
businesses to solve problems like credit invisibility, the 
homeownership gap, and access to capital for minority-owned 
businesses.
    Third, we, as financial regulators, must collectively adapt 
to the digitalization of banking and finance. I am concerned 
that the regulatory community is taking a fragmented, agency-
by-agency approach to the technology-driven changes taking 
place today. At the OCC, the focus has been on encouraging 
responsible innovation. For instance, we updated the framework 
for chartering national banks and trust companies, and 
interpreted crypto custody services as part of the business of 
banking. I have asked staff to review these actions.
    With regard to charters, some are concerned that providing 
charters to fintechs will convey the benefits of banking 
without its responsibilities. Others are concerned that 
refusing to charter fintechs will encourage growth of another 
shadow banking system outside the reach of regulators. I share 
both of these concerns. Recognizing the OCC's unique authority 
to grant charters, we must find a way to consider how fintechs 
and payment platforms fit into the banking system. And we must 
do it in coordination with the FDIC, the Federal Reserve, and 
the States.
    Finally, we must act on climate change. I believe the OCC 
can help with this if it adopts a two-pronged approach. First, 
we must engage with and learn from others. I have asked staff 
to explore joining the Network for Greening the Financial 
System, a group of central banks and supervisors from across 
the globe who share best practices.
    Second, we must support the development and adoption of 
effective climate risk management practices at banks. The OCC's 
approach today has been focused on monitoring. I have asked 
staff to develop options for taking more concrete action. We 
will be proactive in this space and act with a sense of 
urgency.
    Finally, my testimony outlines the review of key regulatory 
standards in pending matters that I initiated upon becoming 
Acting Comptroller. Those items include the 2020 CRA final 
rule, interpretive letters and guidance related to 
cryptocurrencies and digital assets, and pending licensing 
decisions. At all stages of the review, I will keep an open 
mind. I expect the review to conclude this summer. We will 
evaluate findings and determine our next steps.
    Thank you again for this opportunity, and I look forward to 
your questions.
    [The prepared statement of Acting Comptroller Hsu can be 
found on page 82 of the appendix.]
    Chairwoman Waters. Thank you, Mr. Hsu.
    Ms. McWilliams, you are now recognized for 5 minutes.

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

    Ms. McWilliams. Thank you. Chairwoman Waters, Ranking 
Member McHenry, and members of the committee, thank you for the 
opportunity to testify today.
    While banking-sector income for 2020 declined from 2019, 
primarily due to higher provision expenses resulting from 
climate change implementation and economic uncertainty 
associated with the pandemic, 4th quarter net income rose, 
reflecting higher non-interest income and lower provision 
expenses for credit losses, consistent with economic 
improvement and a more optimistic economic outlook. Despite the 
challenges of the pandemic, banks increased their capital 
levels in 2020 and continued to accommodate a sharp increase in 
deposits, reflecting persistently-high savings rates and lower 
spending. Banks of all sizes have also continued to support 
their communities, including by originating the overwhelming 
majority of approximately $800 billion in Paycheck Protection 
Program (PPP) loans.
    While the rollout of the COVID-19 vaccination program and 
the reopening of the economy make us cautiously optimistic that 
things will return to normal, whatever this new normal may look 
like, we continue to carefully monitor conditions in the 
banking sector, from commercial real estate, to agricultural 
and consumer lending, to cybersecurity. While we have focused 
heavily on ensuring that consumers have access to credit during 
the pandemic and that banks continue to operate in a safe and 
sound manner, we have continued several regulatory initiatives 
along the way as well.
    Last December, the FDIC Board approved a final rule 
updating our broker deposits regulations to address the 
evolution of how banks offer services and products since the 
original broker deposits rules were promulgated 30 years ago. 
We also finalized a rule to codify legally-enforceable 
commitments of insured industrial banks and industrial loan 
companies (ILCs) and their parent companies. The rule ensures 
that the parent company serves as a source of financial 
strength for the ILC, while providing clarity about the FDIC's 
supervisory expectations of both of the ILC and its parent 
company. And this past January, we finalized guidelines 
establishing a new Office of Supervisory Appeals to help 
promote consistency among examiners and ensure accountability 
at the FDIC.
    We continue to promote innovation at the Agency and across 
the banking sector because it is necessary. The pandemic has 
only amplified how critical innovation is in our everyday 
activities, from the way we procure food, to our social 
contact, to how and where we work. Our focus on innovation is 
aimed at ensuring that American banks remain competitive in a 
rapidly-changing world, that American consumers have access to 
a broad array of financial products and services, that our 
supervisory and risk-monitoring functions can appropriately 
align with technological changes in the industry, and that we 
can bring unbanked Americans into the financial fabric of this 
country and do so in a way that will promote a path to economic 
and social inclusion.
    My focus on economic inclusion is informed, in no small 
part, by my personal experience as a struggling immigrant in 
this country. This July will mark my 30th anniversary in the 
United States. I can assure you that not a day has gone by 
without me thinking of those early years, when putting food on 
my table and having a roof over my head required working three 
to four minimum wage jobs. It is from this perspective that the 
uneven impact of the pandemic and its recovery on different 
populations throughout the United States has been especially 
worrisome.
    Notwithstanding meaningful improvements in recent years in 
reaching the last mile of unbanked households in this country, 
we know that much remains to be done. To help address these 
disparities, the FDIC is using its authorities to support a 
safer, fairer, and more inclusive banking system. We have 
recently launched a targeted public awareness campaign, 
#GetBanked, to inform consumers about the benefits of 
developing a banking relationship. In addition, we announced 
the establishment of the Mission-Driven Bank Fund to channel 
private sector investments to support MDIs and CDFIs. We have 
also recently released a new diversity strategic plan with 
actionable steps that will guide our work and help measure our 
progress over the next few years, and support economic 
inclusion in our communities.
    As the FDIC makes progress on these issues, we will 
continue to fulfill our critical mission of maintaining 
stability and public confidence in the nation's financial 
system. Thank you again for the opportunity to testify today, 
and I look forward to your questions. And happy birthday, Todd.
    [The prepared statement of Chair McWilliams can be found on 
page 96 of the appendix.]
    Chairwoman Waters. Thank you, Ms. McWilliams.
    Mr. Quarles, you are now recognized for 5 minutes to 
present your oral testimony.

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

    Mr. Quarles. Last May, my colleagues and I came before you 
to discuss our actions to maintain a strong banking sector as a 
source of support for consumers, households, and businesses. My 
remarks at that time came after the onset of sudden and 
pervasive financial stress. Early turmoil in overseas markets 
quickly crossed borders, and within days, had reached almost 
every asset class and corner of the financial system. A year 
ago, the full implications of COVID still remained unclear, and 
the costs would continue to mount.
    Today, the storm waters are receding. The economy is 
beginning a strong recovery to the other side of the COVID 
event. And as the Federal Reserve's recent reports detail, 
banking organizations have remained an important source of 
strength in this recovery, with higher levels of capital and 
liquidity, better risk management, and more robust systems.
    But banking organizations absorbed an unprecedented shock, 
while providing refuge from market instability, delivering 
essential public aid, and working constructively to support 
borrowers and communities. In short, the full set of post-2008 
reforms, as refined and recalibrated by the work of the last 4 
years, ensured that this time truly would be different than the 
last. Today, the U.S. banking system is actually more liquid 
and better-capitalized than it was a year ago, and, on top of 
that, has over $100 billion in additional loan loss reserves, 
leaving it well-positioned to weather future shocks.
    While a strong recovery is underway, it is not yet 
complete. Our role as policymakers is to support the financial 
system and the economy through the end of this transition back 
to normal operations. Our challenge is to do so as 
circumstances change and the nation's need for that support 
evolves. Most immediately, we have worked to align our 
emergency actions with other relief efforts as the economic 
situation improves, maintaining or extending some measures, 
where appropriate, to preserve household assistance, to promote 
continued access to credit, and starting the transition back to 
our normal activities, normal supervisory posture, and our 
normal rule book.
    However, our role and responsibility extends much further 
than merely returning to normal. We have an obligation to look 
closely at the last year to understand how the financial system 
came to experience such severe stress, and to identify and act 
on any lessons we find. Any list of lessons must begin with the 
strong performance of supervisory stress testing. The Stress 
Testing Program not only prepared banks for a period of 
prolonged hardship, it also clarified their health and 
resilience as the COVID event progressed. This role affirmed 
the ways that stress testing has evolved in recent years into a 
more flexible, more transparent anchor for the Federal 
Reserve's broader capital program.
    For example, while it was sensible, given that this was the 
first real-world test of the post-2008 system, for us to impose 
temporary capital distribution restrictions beyond those that 
are built into this system, we now know that the system works, 
especially when supplemented and informed by a real-time stress 
testing machine. In the future, having learned the lessons of 
this real-world test, we will be able to rely on the automatic 
restrictions of our carefully-developed framework rather than 
impose ad hoc and roughly-improvised limitations.
    Other areas, however, are ripe for closer examination. 
These include strains in short-term funding markets and the 
second destabilizing run on prime money market mutual funds in 
roughly a decade, Treasury markets where last year's selling 
pressures overwhelmed dealers' willingness or ability to 
intermediate, and changing patterns in the use of financial 
services by consumers and businesses. These trends pre-date the 
COVID event, but the past year accelerated them dramatically, 
with important implications for financial stability, safety, 
soundness, consumer protection, and underserved communities' 
access to safe and fair financial services.
    In our work to understand each of these trends, we have 
valuable and willing partners in our fellow regulators in other 
agencies and in our colleagues abroad, and we are committed to 
keeping Congress closely and actively informed of our efforts. 
This work is critical, but only in service of a more 
fundamental goal: A safe, transparent, and efficient approach 
to supervision and regulation, which ensures that the financial 
system can withstand even historic shocks. Those values are of 
perennial importance. They continue to be the bedrock of the 
Federal Reserve's work, animating two of our highest priorities 
for this year: finalizing the post-crisis Basel III reforms; 
and completing the long-overdue transition away from the London 
Interbank Offered Rate (LIBOR).
    The COVID event is not behind us, and the vulnerabilities 
it exposed are not gone. But as we now follow the path out from 
this event, the Fed is working to ensure that the financial 
system is resilient enough to support consumers, households, 
and businesses, and we recommit ourselves to supporting the 
economy through the completion of the recovery. Thank you, and 
I look forward to your questions.
    [The prepared statement of Vice Chairman Quarles can be 
found on page 113 of the appendix.]
    Chairwoman Waters. Thank you, Mr. Quarles. I now recognize 
myself for 5 minutes for questions.
    Chair Harper, I appreciate that early in your tenure at the 
NCUA, you stressed the importance of consumer financial 
protection. You recently gave a speech cautioning credit unions 
to consider the reputational risk they face when they garnish 
portions of stimulus checks being deposited in a customer's 
account. Specifically, you said, ``As we saw with stimulus 
payments last year, some credit unions decided to garnish those 
funds instead of stepping up and working with their members. 
Credit unions that do this again, should consider the 
reputational issues that will come from these practices.'' Have 
credit unions been responsive to your message to help their 
customers who have been hurt through no fault of their own 
during this pandemic?
    Mr. Harper. Thank you, Madam Chairwoman, and what I would 
say is that in this latest round of the economic stimulus 
package, credit unions have been indeed stepping up. I am aware 
that both major trade groups within the industry have called on 
Congress to: one, work to close the problems related to 
garnishment; and two, ensure that individual credit unions are 
working to make sure that people can use these funds in order 
to pay for shelter, food, and medical needs, which is what 
Congress intended.
    Chairwoman Waters. Thank you very much. I think I heard you 
say that you were concerned about post-pandemic foreclosures 
and the possibility that the credit unions are going to be 
faced with the situation of homeowners not being able to pay 
their mortgages. But what I did not hear was you talk about 
loan modifications and how you are going to deal with that.
    Mr. Harper. That is a really important question, Madam 
Chairwoman. The latest data that we have internally at the 
Agency is that there have been 1.3 million forbearance efforts 
that have gone on since the start of the pandemic, and that we 
have actually worked to modify about $38 billion in loans. 
Going forward, we are going to continue to stress to our 
examiners and credit unions the need to work with members, and 
that prudent workouts can be a win-win both for the consumer as 
well as for the credit union, who might have to charge off on 
foreclosure costs.
    Chairwoman Waters. Thank you very much.
    Chairman McWilliams, banks have garnished wages also. Is 
that correct?
    Ms. McWilliams. I am sure there is a bank that has 
garnished wages. I don't know that we have broad data points on 
that. But we have encouraged banks to work with their 
customers, and we have also identified some activities, such as 
waiving fees through process, as eligible for consideration 
under the Community Reinvestment Act. As a general matter, we 
do not base recommendations on reputational risk, so we have 
not, to your point in the question to Mr. Harper, issued any 
guidance on that. But we did issue a number of guidance 
documents telling banks that they should work with their 
borrowers, and also making sure that we, and our examiners, do 
not criticize the banks for working with borrowers affected by 
COVID in a safe and sound manner.
    Institutions generally have not needed to categorize COVID-
related loans and modifications, such as Delinquency and 
Default Reasons (DDRs). We have done a number of things to make 
sure that borrowers can stay in their homes, and that the issue 
of forbearance and loan modifications is not something that 
would, I guess, force consumers out of their homes.
    Chairwoman Waters. Thank you.
    Chair Harper, I am concerned about reports that banks are 
closing branches at a record pace, and now, in some areas, the 
nearest bank branch might be over 10 miles away. While many 
customers bank online, the FDIC found that 83 percent of 
customers still met with a teller or bank employee at least 
once during 2019, and more than 40 percent of rural customers 
made at least 10 visits to a bank. What are these customers 
supposed to do when the bank leaves town?
    Mr. Harper. Thank you, and I share your concern about 
financial deserts, and the need to step in and make sure that 
those communities have access to financial services. When a 
financial institution leaves a town, it can be really 
debilitating. And what I am aware of is many credit unions have 
been stepping up through adding underserved areas, particularly 
one charter type, multiple common bond, to provide services in 
those areas where they might have been left behind. And I think 
that is something that we should be continuing to work on with 
you, and we are doing that through our Advancing Communities 
through Credit, Education, Stability and Support (ACCESS) 
initiative currently.
    Chairwoman Waters. Quickly, for example, should we allow a 
credit union to expand its field of membership to set up a 
branch in areas where there are no physical branches?
    Mr. Harper. That is something that would certainly be 
helpful. The NCUA board and its members have long called upon 
Congress to allow not just multiple common bond credit unions 
to add underserved areas, but also single common bond, and 
community charters. That would be a good way potentially to 
help provide service to those areas.
    Chairwoman Waters. Thank you very much. The gentlewoman 
from Missouri, Mrs. Wagner, is now recognized for 5 minutes.
    Mrs. Wagner. Thank you, Madam Chairwoman, and I thank our 
prudential regulators. I only wish that we were all in person 
in the committee room. It would make this much easier since we 
are actually all on the Hill just above or next to the hearing 
room in our offices. I have a number of questions, so I would 
ask you to please keep your questions brief.
    Vice Chair Quarles, as we start to move out of this 
pandemic, my constituents are seeing an increase in the cost of 
groceries, gas, and many, many other household items. 
Manufacturers and other industries are dealing with supply 
shortages, workforce shortages, and unprecedented costs for raw 
materials. What economic signals give you reason to believe 
that these price spikes are only temporary?
    Mr. Quarles. The emergence from any sort of a natural 
disaster or a suddenly-imposed constraint on economic activity 
is historically, generally, accompanied by temporary increases 
in prices, sometimes quite significant, in the emergence from 
those types of events. This is a very large one, and so we 
would expect those types of temporary dislocations to be 
substantial. You have asked me to be brief, so I can leave it 
at that and see if you want to follow up.
    Mrs. Wagner. Yes. I said the supply chain and raw material 
costs being so backed up and demand so high, we are questioning 
the temporary nature of this, and I would like the Fed to 
consider that.
    Acting Comptroller Hsu, could you briefly explain your 
views on climate change and bank supervision?
    [No response.]
    Mrs. Wagner. Okay. This isn't going to work, so Comptroller 
Hsu, hang on.
    Vice Chair Quarles, back to you. What data is necessary to 
understand climate risks for supervisory purposes?
    Mr. Quarles. There is a range of data, and I can't give you 
a comprehensive answer to that question because we are in the 
process of sort of very analytically and comprehensively 
looking at that question inside the Federal Reserve right now.
    Mrs. Wagner. Really?
    Mr. Quarles. Yes, we think that the question of risk should 
be an analytical one. It should not be solved by a priori 
concerns. We should look very closely at what the data actually 
show. We are in the early stages of developing a framework in 
order to determine what is the right data, how should--
    Mrs. Wagner. If I could interrupt, Vice Chair Quarles. How 
will an increased focus on climate change impact the Fed's 
ability to fulfill its dual mandate of price stability and 
maximum employment?
    Mr. Quarles. I wouldn't say there has been an increased 
focus on climate change. There has been an increased focus from 
the outside of the Fed on how we are looking at climate change 
as one of the many risks, potential risks to the financial 
system that we evaluate. But we have--
    Mrs. Wagner. I'm glad to hear that. Thank you. I will leave 
it at that.
    Chairman McWilliams, in your testimony, you mentioned that 
the FDIC will continue to monitor the impact of climate and 
other emerging risks on the financial sector. I am wondering 
what sort of risk management structure the FDIC has in place to 
support a financial institution's risk management practices? In 
other words, does the FDIC have the proper tools to assess risk 
on climate events, such as hurricanes, tornadoes, droughts, and 
floods, to the financial performance of the banks you examine 
and supervise?
    Ms. McWilliams. Congresswoman Wagner, that is a great 
question. FDIC supervisors have long expected financial 
institutions to consider and appropriately address potential 
climate risks that could arise in their operating environment 
as a meaningful safety and soundness--
    Mrs. Wagner. If I could interrupt, what is the risk 
management structure that you have to support these management 
practices?
    Ms. McWilliams. We look at whether or not the institutions 
and their borrowers have appropriate insurance coverage. Are 
they addressing borrowers' cash flow estimates based on reduced 
agricultural yields or adverse business conditions? Are they 
complying with applicable rules, regulations, and building 
codes, especially in areas, for example, where peril of wind 
may be a concern? Are economists and financial analysts 
conducting internal analysis of factors that affect economic 
banking conditions, including the potential implications of 
changing environmental conditions? So, we look at all of that. 
We also have FDIC regional risk committees that include the 
environmental impact--
    Mrs. Wagner. I think my time has expired.
    Comptroller Hsu, I will try and submit my questions to you 
in writing. Hopefully, you can work out your technical 
difficulties. This is why we should be in the committee room. I 
yield back.
    Chairwoman Waters. Thank you very much. Mr. Lynch, you now 
have the gavel.
    Mr. Lynch. [presiding]. Thank you, Madam Chairwoman. The 
Chair now recognizes the gentlewoman from New York, Ms. 
Velazquez, for 5 minutes.
    Ms. Velazquez. Thank you, Mr. Chairman. The reason why we 
don't have in-person hearings is right here, the list of 
Republicans who have not been vaccinated, 97 out of 211. I have 
a responsibility, and we all have a responsibility to protect 
ourselves and to protect our staff.
    Vice Chair Quarles, the Fed's most recent Financial 
Stability Report, published earlier this month, found that 
vulnerabilities arising from business debt has fallen since the 
middle of last year. How have government support programs, like 
the PPP, the Fed's Paycheck Protection Program, Liquidity 
Facility, and those in the American Rescue Plan, helped to 
reduce this vulnerability, stabilize businesses, and improve 
the overall economy?
    Mr. Quarles. I think it is clear that the various programs 
that have been put in place, given the size of the shock that 
was experienced last March, we would have experienced a much 
deeper and more durable economic contraction, and would have 
had more lasting economic scarring with closed businesses and 
defaulting obligations had those programs not been put in 
place. I think that's inarguable.
    Ms. Velazquez. Thank you. Unfortunately, Mr. Quarles, the 
report also points out that many small businesses and 
households remain financially drained, and job losses over the 
past year have been heavily concentrated among our most 
financially vulnerable, including many lower-wage workers and 
racial and ethnic minorities. What threats does a K-shaped or 
uneven recovery pose to financial stability?
    Mr. Quarles. I would say to that precise question, what 
threat does it pose to financial stability? Obviously, if there 
is a significant portion of the populace who experience 
economic stress even as the overall economy is doing well, that 
can feed into losses on a cohort of exposures in the financial 
system that could have consequences. I would say right now, 
that question is probably less of a financial stability 
question, however, given the nature and size that we see of 
that possible effect, and more a question of fairness and 
policy as to what should be done about those exposures.
    Ms. Velazquez. Do you agree that we need to address 
systemic inequities in many aspects of our economy, don't you?
    Mr. Quarles. Yes, I think that we do need to ensure that 
opportunities are equal and that access to financial services 
is fair and equal across the country. That is a high priority 
for the Federal Reserve in our supervision of financial 
systems.
    Ms. Velazquez. Thank you. Acting Comptroller Hsu, 
yesterday, the OCC announced that it will reconsider last 
year's rule implementing the Community Reinvestment Act, and 
that lenders should also start preparing for the regulation to 
take effect. Can you explain this decision, and do you plan to 
pursue a joint rulemaking with the Fed and the FDIC?
    Mr. Hsu. Sure. Can you hear me? I just want to make sure 
the audio is okay.
    Ms. Velazquez. Yes, I can hear you.
    Mr. Hsu. Okay. Great. Upon taking office, we had identified 
several standards and pending matters that I thought would be 
ripe for some review. And with regards to the CRA specifically, 
due to the effects of the pandemic on populations, and due to 
the comments on the Federal Reserve's Advance Notice of 
Proposed Rulemaking (ANPR) on CRA, and due to some of our 
experience with partial implementation of the 2020 rule, we had 
enough information to say that this seems like the right time 
to reconsider where we are. I initiated a review, but the 
review has not been completed yet, so I don't want to get in 
front of the conclusions of that. I am saying that I want to 
take all of the facts and all of the perspectives into account 
before deciding what to do. That could include rescission. That 
could include joining the Fed and the FDIC, the overwhelming 
comments that we got. So, we are open to those things.
    Ms. Velazquez. I would appreciate if you would consider it. 
I yield back.
    Mr. Lynch. The gentlelady yields back. The Chair now 
recognizes the gentleman from Oklahoma, Mr. Lucas, for 5 
minutes.
    [No response.]
    Mr. Lynch. Mr. Lucas?
    [No response.]
    Mr. Lynch. Okay. Mr. Lucas or Mr. Posey, do you want to 
speak or no?
    Mr. Posey. I will step up here.
    Mr. Lynch. Okay. Great. Thank you.
    Mr. Posey. Thank you, Mr. Chairman. Mr. Quarles, just last 
week, the April inflation rate was reported at 4.2 percent, the 
highest since 2009. The rate in March was 2.6 percent. Are we 
paying the price of monetizing a huge debt with what the late 
Dr. Friedman and former Chair Bernanke both call, ``helicopter 
money?''
    Mr. Quarles. I don't think so. If you look at the example 
you gave, that the inflation rate last month was the highest 
since 2009, I think that is an example of when you come out of 
a shock, you can see volatility in the inflation rate. And that 
volatility we would generally expect to be temporary and 
transitory, given that the size of the shock that we are coming 
out of from the COVID event is even larger, materially larger, 
than from the financial crisis of 2008. With those sorts of 
dislocations, it would not be surprising if they were both 
sizable and lasted for some period of time. I believe that is 
the correct analysis of the situation.
    If we are wrong, do we have the tools to address it as we 
see that the world is evolving differently than we expect, and 
that is absolutely the case. The Federal Reserve has the tools 
to address inflationary concerns should they prove to be more 
durable and higher than we currently analyze them to be.
    Mr. Posey. Thank you. Given the Fed's commitment to 
independence, please describe the condition or scenarios under 
which the Fed stops monetizing the debt. How would you make 
that decision?
    Mr. Quarles. Obviously, I should begin by saying I don't 
think we are monetizing the debt currently because of 
dislocations that occurred in the Treasury market over the 
course of 2020. We are purchasing Treasury debt. We have said 
that we will be examining, over the course of this year, the 
conditions of the financial markets and when it will be 
appropriate for us to end those asset purchases. The Federal 
Open Market Committee (FOMC) discusses that regularly, and that 
will be the mechanism through which we would make that 
decision.
    Mr. Posey. Mr. Hsu, the Senate recently made the True 
Lender Rule subject to a Congressional Review Act resolution. 
How does allowing States to regulate interstate loans promote 
interstate commerce, payer choice, and economic welfare?
    Mr. Hsu. I'm sorry, Congressman Posey. You broke up a 
little bit at the end. Can you repeat the question?
    Mr. Posey. I'm sorry. I am having a hard time hearing you. 
What was that again now?
    Mr. Hsu. You broke up at the end there. Could you repeat 
the question quickly?
    Mr. Posey. Sure. The Senate recently made the True Lender 
Rule subject to a Congressional Review Act resolution. How does 
allowing States to regulate interstate loans remote interstate 
commerce, greater choice, and economic welfare?
    Mr. Hsu. Okay. When I took office, I included the True 
Lender Rule as part of the review that we are going to do. And 
when the Senate voted to repeal it under the Congressional 
Review Act, we paused that review because of the congressional 
deliberation, and we are monitoring how the House's 
deliberation is going. I don't want to say too much more than 
that, given the posture.
    Mr. Posey. Right.
    Mr. Harper, could you share your experience with us? Will a 
higher corporate tax rate attract or discourage investment in 
crop growth?
    Mr. Harper. Thank you for the question, Congressman. Credit 
unions are not subject to taxation, as they are structured as 
nonprofit cooperatives that are member-owned, so there would 
not be a change for credit unions.
    Mr. Posey. Ms. McWilliams, should the prudential regulators 
require financial institutions to increase their capital to 
protect against the risk of climate change?
    Ms. McWilliams. I'm sorry, Congressman. I missed the first 
part of your question. I apologize.
    Mr. Posey. I am running out of time. Should prudential 
regulators require financial institutions to increase their 
capital to protect against the risk of climate change?
    Ms. McWilliams. Generally, we approach the capital 
regulations by basing it on quantitative measures to understand 
what is going on, and I think it is premature to make any 
conclusions in this space.
    Mr. Posey. Thank you. Mr. Chairman, I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from California, Mr. Sherman.
    [No response.]
    Mrs. Wagner. I rest my case.
    Mr. Lynch. Yes, yes. Let us go back. Mrs. Maloney, would 
you like 5 minutes for questioning? I see you--
    Mrs. Maloney. Yes, please. Thank you.
    Mr. Lynch. Okay. You are now recognized.
    Mrs. Maloney. I thank you, Mr. Chairman, and Chairwoman 
Waters and Ranking Member McHenry.
    Acting Comptroller Hsu, I was planning to ask about the 
Community Reinvestment Act (CRA), our nation's law that 
requires financial institutions to invest in and meet the 
credit needs of all communities, particularly low- and 
moderate-income communities, but it is good news. Yesterday, 
the OCC announced it would reconsider the 2020 final rule, a 
rule that I believe would significantly weaken the CRA and 
leave our most-vulnerable communities behind.
     I just want to thank you, to begin with. I think that this 
is a very positive development.
    But Acting Comptroller Hsu, as a follow-up to yesterday's 
announcement and to Congresswoman Velazquez's question, do you 
believe that our communities would be best served by having one 
uniform standard across the banking regulators rather than 
different standards for each regulator and their related 
financial institutions?
    Mr. Hsu. As a general matter, yes. I think that is 
definitely the case. I think there are a lot of devils in the 
details here, and I am awaiting the review to get that 
confirmed. I just want to make sure that I think when the 
agencies act together, the effects are stronger and more 
sustained. And I think that has been proven many times. So, as 
a general matter, yes.
    Mrs. Maloney. Okay. And I would like to ask you, what 
deficiencies in the final rule led the OCC to make its decision 
to reconsider the 2020 rulemaking?
    Mr. Hsu. I think it really comes back to those three 
factors I cited before, which is that the impacts of the 
pandemic have become much more clear, and so the need is 
sharpened, and you have more data to support that. The comments 
on the Fed's ANPR--I think there are a lot of comments there 
that we have been following very closely. So, there is new 
information there.
    And again, part of our experience with the partial 
implementation of the rule, which has had its ups and downs, I 
don't know all of the details around that. But the combination 
of those factors really prompted me and the staff to say to 
say, okay, we need to reconsider this.
    Mrs. Maloney. Okay. Changing topics, I want to talk to you 
about climate change and gun violence, and particularly the 
OCC's so-called, ``fair access rulemaking.'' In the closing 
days of the Trump Administration, Acting Comptroller Brooks 
rushed through a rule to effectively require financial 
institutions to lend to and support manufacturers responsible 
for producing the firearms that have devastated our 
communities. The rule would also have the effect of requiring 
financial institutions to support the fossil fuel industry with 
access to banking services, even if those institutions have 
voluntarily chosen to stop supporting the financing of carbon 
pollution.
    On January 19th, I wrote to then-President-Elect Biden, 
urging him to block this rulemaking and the harm it would cause 
to our communities. I was pleased to see that this rulemaking 
was paused the following week. Do you intend to rescind the 
OCC's fair access rule?
    Mr. Hsu. I have no intent to revisit that rule. It has been 
paused. It is not live. I have no intent to revisit it.
    Mrs. Maloney. I would say the former Acting Comptroller 
used his authority to rush this through, and now it is paused. 
But I hope you will use yours to rescind this rulemaking that 
will devastate communities.
    My time has expired, and I yield back. And I look forward 
to further questions and comments on this and more 
clarifications on it. I think it should totally be overturned.
    Anyway, I yield back. Thank you.
    Mr. Lynch. The gentlelady yields back. The Chair now 
recognizes the gentleman from Missouri, Mr. Luetkemeyer, for 5 
minutes.
    Mr. Luetkemeyer. Thank you, Mr. Chairman.
    Mr. Quarles, a minute ago, you said that there was about 
$100 billion of additional loan loss reserves in the system 
today, which is good news. Then you made the comment that the 
vulnerabilities to our system are not gone. So, I would like 
for you to expand on what you think those vulnerabilities are, 
number one.
    And then, in order to somehow corral those vulnerabilities 
or to quantify those vulnerabilities, how effective do we need 
to be with regards to forbearance? It would seem that with the 
additional reserves that we have, you could take two different 
approaches.
    One is where you would say, well, we have enough reserves 
here, so let's ride this out, let's work with the banks and our 
customers because even if things go south, there are plenty of 
reserves there. It is not going to impact the quality of the 
banks. Or you could go back to a more punitive approach and 
say, we have plenty of reserves there. Therefore, let's go in, 
clean these things up, and take all of this and apply it to the 
reserves, and then we have a clean slate.
    Which approach do you think you want to go with, and what 
vulnerabilities, I guess, do you believe are still out there?
    Mr. Quarles. With respect to the approach to borrowers who 
may be under pressure as we emerge from the COVID event, we are 
continuing our supervisory stance of saying that banks should 
work with those borrowers. It is your former option rather than 
the second option of saying since you have the reserves on your 
books, take the losses and clean up the loans. That is 
definitely not our approach.
    We began the pandemic by saying that banks should work with 
their borrowers, and that supervisory stance continues to be in 
place even as forbearance ends. The information we have from 
our supervision of the banks is that the majority of 
forbearance hasn't, and customers have resumed paying their 
loans.
    Mr. Luetkemeyer. I'm sorry to interrupt you, but what 
vulnerabilities do you see?
    Mr. Quarles. The vulnerabilities, potential vulnerabilities 
are that, again, certain cohorts of borrowers might have 
difficulty paying their loans as forbearance ends. We haven't 
seen that to be an actual fact, as opposed to a potential fact 
yet. But if it becomes an actual fact, we are encouraging banks 
to continue to work with those borrowers and not simply close 
out the loan, where that could be done safely and soundly.
    Mr. Luetkemeyer. Very good. Thank you for that.
    Chairwoman McWilliams, the FDIC is tasked with reviewing 
and approving applications for industrial loan companies 
(ILCs). In February of this year, the FDIC issued a final rule 
that codified the ILC process and requires nonfinancial 
companies applying for an ILC to meet certain conditions 
prescribed by the FDIC and enter written agreements with the 
FDIC.
    I think many members on this committee have concerns with 
the commingling of banking and commerce that ILCs represent. Do 
you think the rule as written today will prevent the 
commingling of banking and commerce in the future?
    Ms. McWilliams. I think that our final rule certainly goes 
a long way to impose source of strength requirements on the 
parent company, which has been a longstanding concern, and this 
is consistent with the statutory requirement in Section 616 of 
Dodd-Frank. We are confident that we can adequately supervise 
ILCs. We have imposed heightened expectations as warranted. We 
have higher capital levels in traditional banks on these ILCs. 
We have capital liquidity maintenance agreements. And we have 
agreements that require the parent company to support the ILC 
at a time of distress.
    Now, I would say that the same statutory requirements for 
all deposit insurance applicants apply, as Congress gave them 
to us. I would say we have finalized a rule to require more of 
ILCs once they get approved and prior to final approval from 
the parent company, and we require supervision of the parent 
company. But in the end, we are only working with the rules 
that Congress gave us, and those rules are the same whether 
applying for a de novo banking charter, insurance--deposit 
insurance, or for the ILC charter deposit insurance.
    Mr. Luetkemeyer. Your expectation is then to be able to 
have some oversight over the parent company as well?
    Ms. McWilliams. That is what we codified in our rulemaking. 
Again, wanting to make sure that the parent company is liable 
to support the ILC and serves as the source of strength, both 
as required by Section 616 of Dodd-Frank as well as by our 
internal understanding of how ILCs function, et cetera, et 
cetera.
    I would say that we are comfortable with where we are. 
Again, it is up to Congress to decide if that is sufficient or 
not. But as a regulator, I am comfortable where we are.
    Mr. Luetkemeyer. Thank you for that.
    Just a quick question with regards to the proposed tax plan 
by the Administration. This plan is going to have devastating 
effects on small businesses with regards to doubling capital 
gains, and raising the tax rate. A million companies are 
structured C Corps. You are looking at the estate tax, the 
second estate tax--
    Mr. Lynch. The gentleman's time has expired.
    Mr. Luetkemeyer. We will submit that for the record then. I 
am just curious as to your concerns about the tax plan with 
regard to small businesses. So, thank you for that.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from California, Mr. Sherman, for 5 
minutes.
    Mr. Sherman. Thank you.
    We have gone through 2 great domestic crises in the last 2 
decades. In 2008, the crisis was caused by the financial 
system. This most recent crisis, the financial system didn't 
cause it. It was caused by a virus. And the financial system 
has shown remarkable resiliency in part because of the 
regulatory authorities and rules that we are dealing with here 
today and in part because of the tremendous response by 
Congress. So, we got something right. The financial rules that 
we had in place in 2008, I don't think would have survived the 
virus of 2019.
    And Mr. Quarles, I want to thank you for mentioning LIBOR, 
and I especially want to thank you and the Fed for working with 
me to craft legislation to deal with that problem hopefully 
well before the problem affects trillions of dollars of 
outstanding adjustable rate debt instruments.
    As to credit unions, I am pleased that Chairman Harper is 
with us. I want to thank Chairwoman Waters for including as 
part of today's hearing the discussion draft of a bill that 
would expand credit unions' ability to lend to their member 
businesses in underserved areas, and the chairwoman's mention 
of the fact that perhaps we ought to have credit unions be able 
to establish branches in our unfortunately growing financial 
deserts.
    I want to focus a little bit on the industrial loan 
companies, which is a matter of prudential regulation but is 
more important than just prudential regulation. We have had a 
rule in our economy for a long time of separating financial 
services from commerce and industry. Japan went the other 
direction, and if you look at their stagnation, particularly in 
the 1980s and 1990s, Japan was not served well by mixing the 
two together.
    While the courts and then Congress have allowed the mixing 
of this financial activity with that financial activity, we 
have not allowed the mixing of banking and commerce. But we 
have had the ILCs. They played a very modest role in our 
economy. They are historic. They are doing fine, unless they 
are used as a way to blow a hole in what has been this wall for 
100 years, or nearly 100 years between commerce and banking. 
And we then could end up with Walmart, Amazon, et cetera.
    I believe the FDIC should be looking at a moratorium on new 
ILC charters to give Congress time to look more closely at the 
ILC issue. Would you be open to considering either a temporary 
moratorium on ILCs or a temporary moratorium on any ILC that 
mixes banking and nonfinancial services?
    Ms. McWilliams. Thank you for that question. And I will say 
I am open to whatever Congress tells us to do.
    Congressman, I want to make sure that you don't 
misinterpret my tenacity in making sure that the FDIC follows 
the law that Congress gave us for either my love or hate of the 
ILCs. I don't have feelings about them. I don't think they are 
great. I don't think they are bad. I just look at the statutory 
requirements, and I know what Congress has given us. And should 
you give us the mandate to put a moratorium in place, we will 
do so. Should you give us a mandate to do something different 
with the ILCs, we will absolutely do so.
    In the meantime, we have done what we can with our 
supervisory tools to make sure that there is safety and 
soundness in the system, that the parent is on the hook for the 
subsidiary for the insured depository institution. And if you--
    Mr. Sherman. I doubt very much whether Amazon or Walmart 
will be as regulated by the FDIC as banks and bank holding 
companies.
    I do want to turn to Mr. Quarles. It is critical that we 
enforce our anti-money laundering and know-your-customer rules, 
especially in light of President Biden's efforts to collect the 
hundreds of billions of dollars of uncollected taxes from the 
top 1 percent. Chairman Powell has said that the Fed would not 
proceed with creating a--
    Mr. Lynch. The gentleman's time has expired.
    Mr. Sherman. I will make this a question for the record. 
Thank you.
    Mr. Lynch. I thank the gentleman. The Chair now recognizes 
the gentleman from Michigan, Mr. Huizenga, for 5 minutes.
    Mr. Huizenga. Thank you, Mr. Chairman.
    And I guess I just want to point out with respect to this 
one thing from my colleague from New York, another fine piece 
of journalism where a non-answer is actually an answer when 
they are talking about vaccinations. It's none of their 
business.
    But I digress. I want to move on to the ILCs. I know this 
has suddenly gotten a lot of discussion. And Ms. McWilliams, I 
have a quick question for you, I guess. I want to expand on 
this a little bit. Is there a widespread problem of the rules 
not being followed by ILCs currently?
    Ms. McWilliams. I'm sorry. Do you mean with respect to our 
rules, the FDIC-mandated rules?
    Mr. Huizenga. Yes, I guess so. There are some implications 
that somehow there are rules that are currently in place that 
aren't being followed. Or I guess maybe the question is, is 
there a problem that needs to be solved here by Congress or by 
you, as the FDIC? I know you have just finalized the rules on 
that. Is there a real problem with ILCs as we currently are 
dealing with them?
    Ms. McWilliams. I will tell you from a regulatory and 
supervisory perspective, we do not see a problem with our 
authorities to appropriately supervise the ILCs. Again, as I 
mentioned, we impose the same standards as they get approved as 
we do for banks, and then once they are approved, we actually 
impose heightened expectations as warranted based on the risk 
model and the business profile of the entities themselves.
    This can include significantly higher capital levels than 
traditional banks. We also add them to entering the so-called 
Capital and Liquidity Maintenance Agreements (CALMA), where the 
parent has to not only agree to our supervision, but also be 
willing to put in money, capital to support the insured 
depository, and we also have the parent company agreements 
along the same lines.
    So, I would say that you have given us adequate tools to 
appropriately supervise ILCs from that perspective.
    Mr. Huizenga. Okay. Let us move on to LIBOR. Vice Chair 
Quarles, I would like to follow up on our various conversations 
that we have had on LIBOR. I am hearing from a number of 
financial institutions of various sizes across the country 
regarding this transfer away from LIBOR. Many have expressed 
concerns with the Secured Overnight Financing Rate (SOFR) and 
what that means, this sort of one-size-fits-all benchmark that 
may be out there.
    What are the specific challenges facing the Federal Reserve 
regarding LIBOR to SOFR transfer, and does the Fed still 
believe that SOFR is actually the best fallback rate?
    Mr. Quarles. The fundamental position of the Fed with 
respect to the LIBOR transition is that LIBOR is ending. It 
will not be able to be used. We believe it is a safety and 
soundness concern for it to be used for new contracts after the 
end of this year. We will supervise firms so that their new 
contracts cannot be written on it.
    Firms have to be prepared for that transition. There will 
be a significant amount of legacy contracts that will need 
transition. Federal legislation is likely to be appropriate in 
that context to help with the legacy.
    As for SOFR--
    Mr. Huizenga. With all due respect, we know all that. I 
need to know--my time is very short here.
    Mr. Quarles. As for SOFR, SOFR is a robust rate developed 
by a comprehensive--
    Mr. Huizenga. Is it the best way? Because I am hearing from 
some others that they think that there may be some different 
directions that this should go.
    Mr. Quarles. The position of the Federal Reserve is that 
banks need to prepare for the transition, not that they must 
transition to a particular rate.
    Mr. Huizenga. Okay. Acting Comptroller Hsu, what is going 
on at the OCC? The Administration can't seem to get it quite 
right on the appointments. But the OCC finalized a rule, the 
True Lender Rule, and then a few weeks ago, your predecessor 
came out and supported that rule. And then, shortly after your 
appointment, the Senate and the White House opposed the rule.
    Is the changing position suggesting that this is a 
political decision, or is this decision based on data and what 
is right for consumers?
    Mr. Hsu. With regard to True Lender, we were going to 
review it. But once the Senate voted to repeal it under CRA, we 
basically stepped back, because now it is under congressional 
deliberation. So, we are just monitoring Congress' 
deliberations on the matter.
    Mr. Huizenga. Okay. We will follow up on some questions as 
well. Thank you.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Georgia, Mr. Scott, for 5 
minutes.
    Mr. Scott. Thank you very much. The first thing I want to 
say is, happy birthday to Chairman Todd Harper. Happy birthday, 
my friend.
    Mr. Chairman, yesterday, the House of Representatives 
passed my bill on financial inclusion, thanks to a helping hand 
from Reverend Cleaver, and my good friend, French Hill of 
Arkansas. And I am deeply concerned about our consumers, as you 
are, unbanked and underbanked who are just out here subject to 
the whims and the ravages of payday lenders. And I was 
interested to learn of NCUA's payday alternative loan program 
that you have, which allows Federal credit unions to offer 
lending products that are safer and more affordable than payday 
lenders. I want you to give me an update on these lending 
products.
    Mr. Harper. Certainly, Congressman. The payday alternative 
loan rule, or PALS for short, has been part of the NCUA's rules 
for more than a decade now. And what we have found is that many 
credit unions are using it quite prudently. They can lend up to 
28 percent, which is slightly higher than the 18 percent cap 
imposed for all loans, and they also need to work these loans 
into an amortized basis.
    Our payday alternative loan program is working well, and it 
is something that we have certainly seen a number of credit 
unions use during this crisis. I will also just note very 
quickly that many credit unions are offering small dollar loans 
well under the 18 percent cap outside of the payday lending 
program, so they are stepping up to serve their members.
    Mr. Scott. Let me ask you this, because I have sort of an 
Achilles Heel in this moment, and my concern comes back to the 
unbanked and underbanked. And although this product that you 
have is available to credit union members, how do consumers who 
are not members of a credit union have access to a product like 
this? How do we get it down to those who need it the most?
    Mr. Harper. I appreciate the question and the desire to 
expand access to financial services. I know that former 
Chairman Hood, now Board Member Hood at the Agency, has spoken 
often about financial inclusion.
    One of the ways and things we could do is to step up--and 
we have Agency staff working on this right now--to improve our 
database to help consumers find a particular loan or an 
institution, a credit union which they could join. That is 
certainly one way in which we can attack this problem.
    Mr. Scott. And certainly, our bill passing the House 
yesterday brings in the consumer financial protection services. 
And I would like for you to help us to get the word out on 
that, getting our bill passed, because while yours is targeted 
to folks who need the help, it is exclusive only to credit 
union members, correct?
    Mr. Harper. That is correct, if I understand the question, 
yes.
    Mr. Scott. Okay. Now, Ms. McWilliams, let me ask you this, 
I think I may have a moment. How are your regulated banks 
preparing to handle loans emerging from forbearance? We have 
passed the American Rescue Plan, and we have a piece in there 
that would allow loan forbearance for those impacted from the 
pandemic hardships. What steps are you taking to ensure that 
these loans remain sound?
    Ms. McWilliams. Thank you for that question. We have done a 
number of things at the FDIC to make sure that banks actually 
appropriately modify loans, and we also went to great lengths 
to make sure that loans modified for the purposes of the 
pandemic that were performing before the pandemic that were 
modified in a safe and sound manner actually do not qualify as 
troubled debt restructuring.
    Mr. Scott. Thank you, ma'am.
    Mr. Lynch. The gentleman's time has expired. The Chair now 
recognizes the gentleman from Kentucky, Mr. Barr.
    Mr. Barr. Thank you, Mr. Chairman.
    And I want to thank Chairwoman Waters--I don't know if she 
is still here--but I want to thank her for raising a question 
about the decline in physical bank branches in rural and 
underserved areas. That may be why the Majority attached to 
this hearing a bill requiring a study on de novo bank 
formation.
    I think we can all agree that reversing the trend in 
lackluster de novo formation is a worthy policy goal and could 
address the decline in rural bank branches, as Chair McWilliams 
knows very, very well. But we can do better than a study.
    My bill, the Promoting Access to Capital in Underbanked 
Communities Act, is a straightforward solution endorsed by the 
Independent Community Bankers of America (ICBA), allowing for a 
phase-in of capital requirements for de novo institutions, 
including some provisions targeted toward underserved rural 
areas and several other common-sense provisions to promote bank 
access in unbanked communities.
    Rather than simply study the issue, let's do something 
about it. I will put my request to Chairwoman Waters formally 
in a letter, but I would encourage the Majority, everyone on 
this Zoom call in the Congress, to consider my bill at the next 
markup. There is no reason why this shouldn't be a bipartisan 
effort.
    Now, my first question is to Vice Chair Quarles. As you and 
I have discussed, vocal advocates on the left and some members 
of this committee continue to push the Fed to inject climate 
scenarios into stress tests and capital requirements. Earlier 
this month, the Center for American Progress suggested that 
regulators could address climate change by risk-weighting 
carbon-intensive assets and capital requirements.
    Proponents suggest that regulators should use bank capital 
requirements to make the financial system more resilient and 
force the transition away from fossil energy. The problem is 
that will do nothing to change the demand side of the equation. 
People will still need to drive cars, turn on their lights, and 
heat their homes. It will just disrupt the supply side by 
shifting financing for those industries to less regulated, 
nonbank lenders, drive up the cost of capital, and in turn, 
raise prices for consumers.
    Vice Chair Quarles, is the Fed's role to devise and 
implement climate change policy, and more specifically, is it 
the Fed's job to accelerate the transition away from fossil 
energy?
    Mr. Quarles. Our role is to ensure that the financial 
system is resilient to risks. Those logically could include 
climate risks, and so we need to analyze how that could happen. 
But it is not our job to use the financial system as a tool of 
broader climate policy. That is, we don't have that mandate.
    Mr. Barr. It is encouraging to hear that confirmation on 
the record, and I would encourage you to share that with Mr. 
Stiroh and the Supervision Climate Committee. And I would 
encourage you to continue to vocally express that viewpoint to 
Governor Brainard and others at the Fed, that you do not have 
the legal authority to implement environmental policy.
    Let me turn to Acting Comptroller Hsu. I continue to be 
troubled by the trend of politicization of access to capital, 
whereby perfectly legal businesses are denied financing because 
they are industries that are politically unfashionable. That is 
why I was pleased to see the OCC finalize the fair access rule 
in January.
    Acting Comptroller Hsu, given that the OCC announced that 
it will not enforce the fair access rule, how do you intend to 
prevent national banks from discrimination and redlining? How 
do you intend to ensure that regulated entities extend 
financing on a fair and equitable basis without regard to 
political or public relations pressure?
    And in the context of your prepared testimony, sir, your 
emphasis on reducing inequality in banking sounds like hollow 
rhetoric and an empty gesture, considering your decision to not 
enforce fair access. Can you comment on that and the 
inconsistency of that testimony with your decision and the 
OCC's decision to not move forward and implement fair access?
    Mr. Hsu. Sure. I will start with reducing inequality. The 
components of reducing inequality really focus, first and 
foremost, on the Community Reinvestment Act. So, I am not going 
to take up time with that.
    Mr. Barr. Yes, I hear you. But you know what I am talking 
about. It is a philosophically-inconsistent position to say 
that you are for equality in banking when you will not enforce 
a fair access rule and you will not prevent discrimination 
against whole categories of customers because of the 
politically-incorrect status. It is intellectually 
inconsistent.
    Mr. Hsu. I guess I would disagree with that.
    Mr. Barr. I can tell.
    Mr. Hsu. We are not in the business of telling banks whom 
to bank. We are in the business of safety and soundness, of 
treating customers fairly, and of ensuring that there is access 
to financial services, especially to those who are underbanked 
and unbanked. That is our mission.
    Mr. Barr. Right. My time has expired. But if redlining is 
wrong, redlining is wrong. End of story.
    I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from New York, Mr. Meeks, for 5 
minutes.
    Mr. Meeks. Thank you, Mr. Chairman.
    Let me address my first question to Chair McWilliams. There 
are approximately 250 FDIC-insured MDIs and CDFIs that serve 
minority, low- and moderate-income communities. These 
institutions are pillars for the communities that they serve 
because unlike traditional larger banks, CDFIs or MDIs provide 
a significantly larger percentage of lending and services to 
these communities. While MDIs and CDFIs are assisted in 
receiving deposits, without the necessary capital investment, 
these entities are unable to fully serve their communities to 
the best of their ability.
    The FDIC's mission-driven fund seeks to help in this area 
by providing a framework for an investment fund that will 
support these crucial financial institutions. The fund will 
allow for investment pitches for banks and help set up fund 
management.
    However, what is puzzling to me is that it is my 
understanding that the FDIC will be taking a hands-off approach 
after setting up the framework. If that is the case, how will 
the FDIC ensure that the fund is actually successful at 
achieving its mission?
    Ms. McWilliams. Thank you for that question, and I welcome 
the opportunity to talk about the mission-driven bank fund 
because that is something that, frankly, is novel to us. It is 
something that we came up with as a result of extensive 
outreach with minority depository institutions to understand 
what particular issues they are facing.
    And to your point, because they do disproportionately serve 
the low- and moderate-income communities, it is important that 
they have good access to capital. And almost inevitably, most 
of them define capital, access to capital, as one of the 
greatest impediments to their ability to serve their 
communities.
    The mission-driven bank fund is going to be set up in a way 
that we as a Federal Government Agency can set it up, which is 
basically to put our name, our brand behind it. We have worked 
extensively with our MDIs as well as with outside consultants 
to understand how to structure this fund.
    I am not sure that we have the requisite authorities 
necessarily to manage the fund and be the fund manager, per se, 
as you would think about a fund manager in the financial sense. 
But we are hoping that the fund manager that gets picked by the 
anchor investors is focused on kind of the benefits of the 
investments, and has a long-term strategy of understanding the 
nature of these institutions and making sure that the capital 
deployed to the fund is actually producing even more benefits 
on the ground than dollar for dollar.
    That is something that we are going to completely continue 
to work on and stress about to make sure that people understand 
this, to make sure that the anchor investors understand that. 
Our hope, and this is why I appreciate the opportunity to talk 
about it in a public forum, is to actually attract between $250 
million to $500 million in this fund and get it started. We 
have a $100 million commitment from Microsoft, for which we are 
very grateful. And we are hoping that is going to be a 
significant fund with meaningful long-term benefits to the very 
communities that I believe you are concerned about.
    Mr. Meeks. Yes, and I am hoping the same. I just want to 
make sure that you don't take a hands-off approach, because we 
just have to stay hands-on to make sure we accomplish the 
mission. And we are dependent upon the FDIC to not just not 
take your hands off, but to stay focused on it, because this is 
tremendously important and could be groundbreaking.
    So, we will be watching, and I hope that you stay actively 
involved in that regard with the FDIC. Thank you for that.
    Ms. McWilliams. Congressman Meeks, I can assure you that I 
am not a hands-off regulator.
    Mr. Meeks. Thank you.
    And let me go to Mr. Hsu. Mr. Hsu, I am hearing that you 
have been punting this question recently. But you know that the 
Senate recently voted to overturn the OCC's True Lender Rule--
and I know you are punting on True Lender--which was introduced 
to clarify the status of loans made through bank-fintech 
partnerships. However, the Trump Administration's process for 
promulgating the rule was rushed and lacked adequate 
stakeholder input, including input from Congressional Democrats 
like me.
    Still, the rule did attempt to address a legitimate public 
policy problem. If the House votes to overturn the rule and the 
President signs, will the OCC have the legal authority to put 
forth a new rule that brings long called-for legal supervisory 
certainty and enhanced consumer protections to the bank 
partnerships model?
    Mr. Hsu. Congressman Meeks, if the True Lender Rule is 
repealed, I cannot say at this time exactly what we would do 
and how much litigation would actually come with that. But what 
I can say is that we are fully committed to the mission of the 
agency, which is to ensure access to financial services, 
especially to those who are underbanked and unbanked, and that 
customers are treated fairly, which includes not having a place 
for predatory lending in rates charters.
    I think we still we need to review that. We need to study 
that carefully. I can't speak to that, but I can commit to the 
mission.
    Mr. Meeks. Thank you. My time has expired.
    Thank you. I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Texas, Mr. Williams, for 5 
minutes.
    Mr. Williams of Texas. Thank you, Mr. Chairman.
    Chairman McWilliams, it is good to see you again. I want to 
thank you for all of the work that you and your team at the 
FDIC have done regarding the brokered deposits rulemaking. As 
you know, that is something that I have been working on for 
many Congresses, and it is nice to see the regulatory regime 
moving in the right direction.
    And while you have done your job at the Agency level, I 
think we should have a legislative solution. I want to give you 
the opportunity to briefly discuss the brokered deposits 
rulemaking and the benefits it will have within the banking 
space, and that I would hope to secure a commitment on if you 
are willing to work with my office in crafting a more permanent 
legislation fix, which I think is very important.
    Ms. McWilliams. Thank you, Congressman. I really appreciate 
an opportunity to talk about the broker deposit rule. As you 
well know, and I know I have spent a lot of time thinking about 
this issue, the rule, the original rule was about 30 years old. 
And there has not been a meaningful update to that rule, even 
though the way consumers bank now and the way that banks 
interact with their customers and the products they offer have 
been vastly different than they were in the past when the rule 
was initially promulgated.
    What we did with our framework is we tried to create 
something that can have a longer-lasting impact to accommodate 
the flexibility in the technological changes that may not even 
be anticipated by us at this time. Our rule provides more 
certainty as to who is a deposit broker. It basically provides 
a roadmap to how one can be a deposit broker, as well as 
provides certainty to the marketplace as consumers look to 
engage with different financial institutions.
    I will say that however great our rule is, it is not 
perfect. And namely, it is not perfect because we can never 
adequately appreciate and anticipate technological changes that 
are going to be developing in the world of banking and how 
consumers and banks interact. And I believe, as I mentioned in 
my written testimony, that congressional action would be 
beneficial and preferred, frankly, to the current approach, 
including putting an asset growth cap on troubled institutions 
versus putting restrictions on broker deposits and labeling an 
entire category of assets in a negative light.
    I am more than willing to work with you on coming up with a 
permanent and lasting congressional solution that would allow 
us to move forward with technological advances and innovation 
in the banking sector, while making sure that consumers are 
protected, and banks understand how these things are done, and 
that gives us an ability as a regulatory agency to 
appropriately monitor the risk in the system.
    Mr. Williams of Texas. Thank you for that, and we will work 
together.
    Ms. McWilliams. Thank you.
    Mr. Williams of Texas. Acting Comptroller Hsu, a few weeks 
ago, I asked your predecessor, Brian Brooks, while he was in 
front of this committee, about the True Lender Rule and if it 
would be a good deal to repeal it through the Congressional 
Review Act. He told us he disagreed with not only the 
justification behind repealing it from a policy standpoint, 
since the rule specifically prohibits a rent-a-bank scheme, but 
he also said that it would hamstring the OCC from crafting a 
substantially similar rule in the future.
    Our colleagues on the Senate side did not listen to your 
predecessor and went ahead and passed the CRA anyway. 
Comptroller Hsu, how do you plan on proceeding if the rule is 
overturned and industry participants are left without the 
clarity that they need to continue serving their customers?
    Mr. Hsu. I am not exactly sure. I can't say exactly at this 
time how we would proceed, and I can't--we don't know right now 
what litigation risks that would attach to how we would 
proceed. But I can commit that we would pursue our mission, and 
the mission is to ensure that there is access to financial 
services for everybody and that everybody is treated fairly.
    And that is our compass that we would be utilizing, and we 
will do that in accordance with the law.
    Mr. Williams of Texas. Okay. Vice Chairman Quarles, the 
Federal Reserve took some extraordinary actions when the 
pandemic began, since there was so much uncertainty surrounding 
the virus. Now that we are finally seeing the light at the end 
of the tunnel in some places, and life seems to be getting back 
to normal, I am concerned that some of the temporary measures 
are going to become common practices at the Federal Reserve.
    It is hard to show restraint and not pull out every tool at 
your disposal when the economy begins to look a little shaky. 
Vice Chairman, what checks are in place at the Federal Reserve 
so that they only take these extraordinary measures during true 
emergencies?
    Mr. Quarles. The governance around the use of these actions 
is designed to ensure that. There needs to be a majority on the 
Board to institute--you have to get a majority of the Board for 
a number of special actions during a crisis.
    Mr. Williams of Texas. Okay. I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Texas, Mr. Green, for 5 minutes.
    Mr. Green. Thank you, Mr. Chairman, and I thank the 
witnesses for appearing. I especially thank Chairwoman Waters 
for deciding to hold this hearing. It is exceedingly important.
    Mr. Quarles, as Vice Chair of the Fed, I am concerned about 
your desire to work with MIT--the Boston Reserve working with 
MIT to create a central bank digital currency pilot project. I 
think that is a great idea. My concern, however, emanates from 
knowing that if you are successful, we still have the other 
cryptocurrencies that will be available to those who seem to 
see this as a means of facilitating a criminal enterprise.
    You might recall that with the Colonial Pipeline, there was 
a request and a requirement that the ransom, as it were, be 
paid in a certain cryptocurrency. We will still have this 
problem to deal with, assuming you are successful in creating a 
central bank digital currency.
    I am curious, and would like to know, how do you see us 
managing these other currencies? Do we go so far as to declare 
them unconstitutional in some way, ban them in some way, make 
them counterfeit? What do we do with these other currencies 
that will still be available to us?
    Mr. Quarles. It is a complicated question because there are 
a range of types of instruments that count as cryptocurrencies.
    Mr. Green. If I may, then to help us narrow it, let us just 
talk about the type that is used by these criminal enterprises 
to facilitate the transaction of money in an anonymous fashion.
    Mr. Quarles. The use of those payments mechanisms for 
illegal purposes is illegal and should be prosecuted. We are in 
the process at the Fed of studying the various ways to try to 
address this issue, whether a central bank digital currency, 
although that is very early on, thinking about the proper 
regulatory framework for these cryptocurrencies, which I do 
believe, as with any payment mechanism, it is possible to craft 
regulatory frameworks that--
    Mr. Green. Give me some sense of how we can regulate them, 
please?
    Mr. Quarles. I think it would be premature to say that, but 
to give a concrete regulatory framework, we have developed--
    Mr. Green. Excuse me. Give me an example that is not 
concrete. I am trying to get some sense of what we can do. This 
is a serious issue for those of us who are charged with the 
responsibility of making hard choices about these issues. So, 
we need your expertise. Give us some sense, please?
    Mr. Quarles. Financial institutions that engage with these 
cryptocurrencies will need to comply with all applicable 
requirements, including anti-money laundering requirements. We 
supervise them for that currently.
    MR. Green. How do you know your customers?
    Mr. Quarles. We require the bank to know their customer, 
and if the instrument itself doesn't allow that, they need to 
have another mechanism. It is as if the person comes in with 
cash, the cash itself doesn't identify the customer, but the 
bank needs to know the customer, and we have rules around that.
    There is more work that needs to be done, and we are eager 
to engage with those who are interested in the question. But I 
do think the question is thinking through a right regulatory 
framework, and that central regulatory framework can be 
creative.
    Mr. Green. And assuming that we succeed with a central bank 
digital currency, is that currency going to be one that will be 
readily available to those who not only want it for legitimate 
means, but also for some untoward means? Meaning, will we be 
able to, in your opinion, circumvent the use of it for paying 
ransom, for want of better terminology?
    Mr. Quarles. Were we to have a central bank digital 
currency, we would clearly design it to prevent its use for 
those purposes. However, whether we would have a central bank 
digital currency is too premature to say at this point.
    Mr. Green. My time is up, and I thank you for indulging me.
    I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Arkansas, Mr. Hill, for 5 
minutes.
    Mr. Hill. Thank you, Mr. Chairman, and thanks for having 
our Agency heads come before us today for this discussion. It 
is very helpful.
    Let me start with my friend, the Vice Chairman of the Fed, 
Mr. Quarles. Our community banks in Arkansas have raised this 
issue among themselves quite a bit, which is with the 28 
percent increase in the money supply over the last year and so 
much liquidity, both from monetary policy action and fiscal 
action pouring into the banks, a lot of our community banks are 
concerned about the impact of this liquidity on their capital 
ratios.
    How are you looking at that, and what kind of regulatory 
problems does that create?
    Mr. Quarles. We are monitoring the evolution of that 
phenomenon across the banking system. The principal issue is 
that the capital ratio constraint that arises when you have 
this large increase in deposits is from the leverage ratio, 
which is a non-risk sensitive ratio.
    And if the binding capital constraint on an institution is 
not risk-sensitive, then that will encourage risk taking by the 
institution at the margins. We want the leverage ratios to be 
backstops, but not the capital ratio that institutions look at 
in the first instance.
    That is as the amount of reserves in the banking system, as 
the amount of deposits in the banking system grow, and they 
will continue to grow over the course of this year and have 
grown substantially over 2020, that is something that we have 
to be taking a look at. We are monitoring it closely.
    Right now, it doesn't seem to call for a change, but that 
is something we will be looking at very closely in the coming 
months.
    Mr. Hill. Thank you.
    Chairwoman McWilliams, you have testified before Congress 
before and expressed your concerns about credit unions buying 
community banks. And obviously, that is something that 
community banks in Arkansas have raised with me. Recently, a 
$1.6 billion bank was purchased by an out-of-State, $10 billion 
credit union.
    Do you still have those concerns, and how does the FDIC 
look at this from an approval point of view, and do you have 
the tools to adequately assess it?
    Ms. McWilliams. Thank you, Congressman, for that question.
    I have heard about the same concerns from banks, which is 
why I commented to a question that was presented to me in a 
prior hearing. I would say that we always have a lot of 
questions when there is an acquisition of a community bank, in 
particular, and I would say especially if that community bank 
is located in a rural area or an area where the banking deserts 
are more likely to exist than not.
    During my first year as Chairman of the FDIC, in what I 
like to call the peace time, when the economy was doing 
superbly well, we had 220 banks merged into other banks and/or 
credit unions, which is a large and significant number of the 
community banks that disappeared from America's landscape. And 
if that trend continues during my 5 years as Chairman, we would 
have over 1,000 fewer banks in the United States of America.
    Now as you know, consolidation has been a longstanding 
issue. It has been going on for 30-plus years now. I don't know 
what the appropriate number of banks is in the United States, 
but I do have concerns that some communities--farming 
communities, inner-city communities, rural communities, et 
cetera--are not necessarily appropriately served by the number 
of entities in their area, and any consolidation, any merger 
presents an issue for us from that perspective.
    I would say my concerns have not changed. If anything, we 
have just even been more alerted to consolidation, given the 
pandemic and its disproportionate impact on those communities.
    Mr. Hill. Thank you. Thank you for that.
    Let me turn quickly to one final topic. Let me go back to 
you, Mr. Quarles. I talked to the OCC at a Capital Markets 
Subcommittee hearing recently, and this was about the 
transition away from LIBOR. And some community banks are 
concerned about going to SOFR versus another rate.
    My question is, in looking at Mr. Sherman's draft bill, he 
seems to imply that SOFR is the only legal certainty default in 
a contract to LIBOR. Does the Fed support a variety of 
alternatives in that approach to replace LIBOR?
    Mr. Quarles. I think that we don't support every 
alternative because the rate has to be essentially not readily 
susceptible to manipulation. But we don't support a single 
alternative.
    Mr. Hill. Thank you. I yield back, Mr. Chairman.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Missouri, Mr. Cleaver, for 5 
minutes.
    Mr. Cleaver. Thank you, Mr. Chairman, and I appreciate this 
hearing, and it is very timely. Let me try to get into it and 
get as much as I can in here.
    Mr. Harper, I am very pleased and excited about the update 
that OCC did or issued a new rule so that now banks can get 
credit for digital inclusion, and that is an update which meets 
one of our needs. Some of us, like me--I represent Kansas City, 
Missouri, which is the largest City in the State of Missouri. 
But then, I also represent Mayview, which has 225 people, and 
we obviously have some digital needs there. So, I am pleased 
with that.
    What is the flexibility that banks would have to do a CRA-
like digital inclusion? I don't know how you came up with that 
decision or how the OCC came up with that decision, but I 
thought it was right on time. So, what is the flexibility?
    Mr. Hsu. Congressman, I am not sure if that question was 
for NCUA Chair Harper, or for me, at the OCC.
    Mr. Cleaver. Anyone can answer.
    Mr. Hsu. I guess I can say that financial inclusion is 
extremely important. This is a top priority. We have a number 
of initiatives focused on it. I would be happy to kind of talk 
through the details. I know time is limited.
    But we have both through rules, a rule reconsideration and 
programs. We have lots of things that are in the hopper that we 
would be happy to talk about with your staff.
    Mr. Cleaver. Okay. The reason I am bringing this up is 
because I think CRA--I have said this, and I think a lot of my 
colleagues agree we need a complete update on CRA. And as you 
may know, our chairperson and probably, hopefully, the 
overwhelming majority of the members of this committee are in 
strong support of trying to do something significant as it 
relates to affordable housing.
    And maybe a different way that CRA could be handled is 
making investments in some of the projects that might be 
brought forward by HUD or community organizations in concert 
with HUD. And so, maybe something new, not just making a loan 
in a difficult neighborhood.
    But do you think that there can be some creative ways in 
which CRA can be involved economically in the production of 
affordable homes?
    Any of you?
    Mr. Hsu. I will take a stab at it. Affordable housing is a 
huge problem. We have been focused on it from a couple of 
angles. One, through Project REACh, where you have to help the 
borrower, so there is a program dealing with down payment 
assistance. That can be quite helpful.
    The other is to increase the supply of available housing so 
that it is more affordable because there are supply-demand 
dynamics in the pandemic which have put things out of whack. 
These are very complicated underneath, but we would be happy to 
kind of--and we are open to all ideas on this.
    Mr. Cleaver. Okay. My time is probably about up. I don't 
think I want to do anything and I don't think anybody else 
wants to do anything that would not be consistent with safe and 
sound banking practices. But I think that if CRA is going to 
continue to be a benefit, it has to change with the issues that 
are at this time significant. And right now, affordable housing 
is a problem in just about every community, including rural 
America, which I represent.
    Anyway, thank you very kindly. I yield back, Mr. Chairman.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Minnesota, Mr. Emmer, for 5 
minutes.
    Mr. Emmer. Thank you. And thank you to all of the witnesses 
for your attendance.
    These oversight hearings are a great opportunity for 
Members of Congress to touch base with regulators and determine 
how we can best serve the financial interests of the American 
people. I look forward to advancing this interest as the 
ranking member of the Subcommittee on Oversight and 
Investigation.
    Mr. Hsu, I also greatly appreciate the mention you made in 
your testimony of the work previously done by the OCC to 
clarify crypto custody services by banks. This type of 
guidance, which allows businesses to know the rules of the 
road, is key to enabling the United States OCC Acting 
Comptroller to continue to thrive as a technology leader.
    Now to all of you--Mr. Hsu and all of the other witnesses--
countries around the world are looking to blockchain technology 
to transform industry. Consider China, for example, with its 
digital yuan. While there is much to work through as our 
government considers the benefits of this technology and 
potentially issues a digital dollar on blockchain, I hope that 
each of your agencies are developing expertise in digital 
currency policy.
    To that end, please describe briefly--if each of you will 
do this, please describe briefly for me what actions you are 
taking to increase your Agency's fluency in this emerging 
policy area. And will you please provide our office with the 
names and titles of staff in your Agency who are leading these 
efforts?
    I will start with Vice Chair Quarles.
    Mr. Quarles. I think that we have probably, as was recently 
mentioned--we have the central bank digital currency (CBDC) 
pilot with MIT, which is being led through our Boston Federal 
Reserve Bank in conjunction with MIT. There is general policy 
work around the system, in addition to that pilot project and 
thinking about central bank digital currency and what the 
approach to that ought to be, and whether it is something that 
is appropriate for the United States.
    I think those would be the major points right now.
    Mr. Emmer. Right. And if you could provide us with some 
contact folks in your office?
    Mr. Quarles. Oh, absolutely. We would be delighted to be 
engaged with your office on that.
    Mr. Emmer. Excellent. Chairwoman McWilliams?
    Ms. McWilliams. Absolutely. Thank you for that question.
    As you may know, the FDIC does not insure deposits 
denominated in a cryptocurrency, but we recognize that the use 
of virtual currencies and digital assets has been growing 
rapidly in recent years among the banks, and that some banks, 
including some of our banks, are starting to explore a number 
of different potential uses for their digital assets.
    And because this is a null area, because we need to know 
what is going on in this space, we decided to issue a request 
for information to solicit feedback regarding what banks are 
doing, and how they are doing it. What do we as a supervisor 
need to know, as a deposit insurer need to know, as a 
resolution authority need to know?
    And I have personally tasked a number of individuals at the 
FDIC with handling this issue for us, including my Chief 
Operating Officer Brandon Milhorn, Chief Innovation Officer 
Sultan Meghji, Chief Counsel Nick Podsiadly, and one of our 
attorneys, Chris Ledoux. And that is just the tip of the 
iceberg. We can provide other names, and I am sure they will be 
happy to talk to your people on this important issue.
    Mr. Emmer. Excellent. Thank you very much.
    Acting Comptroller Hsu?
    Mr. Hsu. Sure. This is a really, really important issue. I 
think that the rise of crypto has garnered a lot of attention. 
Prior to this meeting, Vice Chair Quarles, Chair McWilliams, 
and I have talked about potentially putting together an 
interagency policy sprint team just on crypto because of 
exactly the concerns you describe.
    I would be happy to share the names of the OCC leaders on 
that, and to work with your staff on that.
    Mr. Emmer. Great. Chair Harper?
    Mr. Harper. Thank you. And just as the financial services 
world innovates, we need to adjust to that. We actually, as 
part of this year's budget, created a new unit focused on 
financial technology and innovation. One of the charges of that 
unit is cryptocurrency. We are currently advertising for a 
director, and we are going to be coming out similar to the FDIC 
with a request for information on this.
    I know that this has been an important issue for Vice 
Chairman Kyle Hauptman, and the Board is going to be definitely 
working further on this matter.
    Mr. Emmer. Great. Can we get some contact information?
    Mr. Harper. Absolutely.
    Mr. Emmer. Thank you, Mr. Chairman. And thanks to the 
witnesses.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Colorado, Mr. Perlmutter, for 5 
minutes.
    Mr. Perlmutter. Thank you, Mr. Lynch. You are doing a great 
job as Chair.
    Mr. Lynch. You are very kind.
    Mr. Perlmutter. First, I would like to thank our panelists 
for your service to our country in a very difficult time. And I 
really want to salute you, your Agencies and your staff.
    That doesn't mean that at some point, I'm not going to come 
down like a ton of bricks on all of you, but I really do want 
to thank you for your service. This has been a very difficult 
time for everybody, and your staff has done a great job.
    Second, just to let you know, Mr. Davidson is on the Zoom 
with me, and he was one of my prime sponsors on the SAFE 
Banking Act, the marijuana and banking. We got it out of the 
House with a huge bipartisan number. It will be in the Senate 
Banking, and hopefully, Sherrod Brown in the Senate will take 
it up in some fashion or another, and ultimately, we can deal 
with the public safety hazards that are caused by so much cash 
being accumulated by these businesses and the robberies that 
occur. I just want to alert you all to be ready for that.
    Mr. Hsu, in your testimony, you highlighted a concern about 
overconfidence leading to complacency as a potential that risk 
regulators need to watch for in the banking sector. One of the 
examples you used was Archegos, which resulted in $10 billion 
in cumulative losses.
    Can you explain how the OCC and other regulators can 
promote stronger risk management by these financial 
institutions?
    Mr. Hsu. Sure. It is primarily, first and foremost, through 
the examination process. I think what Archegos shows was a 
lapse of risk management at a set of institutions, and that 
risk management is generally well-understood and applied in 
most cases. I think the risk is that in some instances, there 
is a bit of a looking askance or weakening of that risk 
management where there are profits to be made.
    That is not everywhere, and that is not every institution. 
Part of my call for vigilance is both within banks themselves 
and for supervisors to be vigilant in examining and calling 
that out and making sure that those weaknesses are identified 
early before they turn into big losses.
    Mr. Perlmutter. Thank you. And Mr. Harper, it is a long way 
from the Financial Services Committee to chairing the NCUA. So, 
congratulations to you, sir, and happy birthday, by the way.
    I would like to ask you about the NCUA's supervision 
ability as it relates to cybersecurity. You have answered it a 
little bit in some previous questions, but it is my 
understanding that NCUA's authority to supervise credit unions' 
third-party vendors with respect to cybersecurity may have 
expired in 2001. Is that right?
    Mr. Harper. Yes. We had temporary authority granted as part 
of the Y2K issue, where we could go in and examine and take 
enforcement actions against vendors. That authority expired 
after we got through the Year 2000 event, and we have not had 
that authority since.
    I would say this, that in juxtaposition to our sister 
Agencies, we are the only one without vendor authority, and the 
FSOC, and the GAO, as well as our own Inspector General here at 
the NCUA, have called for us to get the vendor authority so 
that we can oversee matters like cybersecurity, but also safety 
and soundness matters, AML, Bank Secrecy Act matters, as well 
as consumer financial protection.
    Mr. Perlmutter. Thank you, and I would just encourage all 
of you, there is what is called the NIST protocol from the 
National Institute of Standards and Technology that we hope to 
get many businesses, the third-party vendors, to start using to 
try to minimize the potential for hacking and cyber ransomware 
and all of that stuff.
    Again, thank you for your service, and Mr. Chairman, I 
yield back to you.
    Mr. Lynch. I thank the gentleman. The Chair recognizes the 
gentleman from Ohio, Mr. Davidson, for 5 minutes.
    Mr. Davidson. I thank the chairman, I thank our witnesses, 
and I appreciate this hearing today.
    Vice Chairman Quarles, in your testimony, you mentioned 
that the Fed is transitioning back to its normal activities and 
to its normal rulebook, of course, following substantial 
intervention to provide stability in this past year. Of course, 
the Fed's primary objectives are to promote low inflation and 
maximum employment. I would like to focus on the Fed's 
objective to achieve maximum employment.
    Vice Chairman Quarles, the latest economic data from April 
shows that the labor force participation rate is just under 62 
percent. This has been an ongoing challenge, with persistent 
declines in participation this century, and we have never 
really fully recovered to the level of participation prior to 
the 2008 financial crisis.
    Furthermore, this is 5 percentage points lower, and has 
been hard to overcome even in 2017 to 2019. Besides distorting 
the unemployment data, what are the implications about this 
lower participation rate for our economy, and how will it 
influence the Fed moving forward?
    Mr. Quarles. The participation rate is obviously one of the 
employment measures that we look at closely. For an extended 
period of time, that participation rate has been under downward 
pressure just as a result of demographics. As the Baby Boomers 
age, and age out of the workforce, the overall labor force 
participation rate is inevitably going to trend downwards.
    At the Fed, we have adopted monetary policy both before the 
COVID event and during the COVID event with an effort to try to 
support employment as much as would be possible, and we have 
succeeded in that I think the policies we have adopted 
moderated, indeed, for a period halted, even minorly reversed 
that downward trend in the labor force participation rate, 
notwithstanding the heavy downward pressure from demography.
    Mr. Davidson. I thank you for your answer, and I really 
would look forward to a more extended discussion. As you 
appreciate, time goes quickly in these hearings. But really, 
without more participation, we are having to have massive gains 
in productivity. Otherwise, we can't see GDP growth.
    I appreciate the answer, and I just think it is one of the 
underappreciated metrics that if we rightly look at the labor 
participation as one of the keys to the mandate, we can see 
maybe a different policy set. And I think it is also important 
for my colleagues to consider the implication of many of our 
fiscal policies on labor force participation.
    Some States are wisely rejecting some of the toxic Federal 
policies that are handicapping our recovery as we seek to 
rebuild our economy. Some of the bank regulatory policies put a 
handcuff on being able to make loans to otherwise creditworthy 
individuals.
    Let me transition towards that point. Mr. Hsu, in light of 
your comments about Archegos Capital today, and other comments 
today, whom do you believe that regulators should block access 
to banking or markets? Who should be blocked who would 
otherwise have lawful access?
    Mr. Hsu. I don't believe we should be in the position of 
picking who should be and who shouldn't be blocked. Our focus 
is on mismanagement and compliance. So, under sound risk 
management and compliance, we expect firms--because their 
business models differ. Different banks, different players, we 
expect them to do due diligence and know who they are dealing 
with and how they deal with them. And that should be the 
mechanism through which those decisions are made.
    Mr. Davidson. Okay. As Mr. Perlmutter highlighted, we 
needed to pass the SAFE Banking Act, which we think we did here 
in the House. We are counting on the Senate getting it across 
the finish line so that banks can bank people who are engaged 
in lawful activities in their own States. But that is just the 
tip of the iceberg.
    We have seen bank regulatory policies, under Operation 
Choke Point, block access to all sorts of markets. And sadly, 
America has this unfortunate history of people saying, 
including many regulators, well, you are not going to bank 
those people, are you? Now, this label of who, ``those 
people,'' are shifts over time, but I strongly believe that 
regulators should be, first, consolidated, so that we have one 
prudential bank regulator, not this whole panel, with due 
respect to the representation here.
    But I think, second, that regulators need to limit their 
activity to enforcing lawful practices and not creating the 
force of law with backdoor pressure tactics that might not be a 
ban or a block, but they have the same effect. We talked a lot 
about systemic practices. This is certainly systemic.
    Ms. McWilliams, as you know, the OCC has conditionally 
approved a few crypto trust banks. The next logical step would 
be for these types of institutions to eventually operate as 
depository institutions. With that in mind, Ms. McWilliams, 
could you speak to how--
    Mr. Lynch. The gentleman's time has expired.
    Mr. Davidson. --prudential regulators could be on the same 
page with regulating this space? If you could, please respond 
in writing, since my time has expired.
    Thanks.
    Ms. McWilliams. I will.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Illinois, Mr. Foster, for 5 
minutes.
    Mr. Foster. Thank you, Mr. Chairman.
    I would like to follow up a little bit more on central bank 
digital currencies and related things as it refers to the need 
for a secure digital identity. No matter what your vision is 
for what a central bank digital currency should look like--
whether they are FedAccounts, whether they are a pure crypto 
asset or whatever--you will still need to know who it is that 
is transacting.
    You need to know this not only in the United States, but if 
you intend central bank digital currencies to be transacted 
around the world, you need to have some agreement for an 
internationally-operative central bank digital currency.
    Mr. Quarles, what is the state of international 
negotiations on how that might work?
    Mr. Quarles. Extremely embryonic. These questions about a 
digital currency are important, and we are engaging in them, 
and we are engaging in them with our international colleagues 
as well through the various central bank fora that exist. But 
in any jurisdiction, they are quite embryonic, and they raise a 
number of technical questions such as the one that you have 
raised here that need to be thought through.
    I think we need to do a very careful study of that, not 
just in this jurisdiction, but globally as well before we would 
even begin to go down that path.
    Mr. Foster. But I am sort of struck by the fact that NIST 
and the international standards organizations actually have 
fairly advanced technical specifications for how a digital ID 
might work. These are often called, ``Mobile IDs,'' and that, 
in fact, some States are rolling those out, as simply a 
mechanism for putting your REAL ID-compliant driver's license 
onto your cell phone, using that as a very powerful second-
factor authentication.
    Internationally, those are working very well, so I am a 
little bit surprised that you are not trying to leverage that.
    Mr. Quarles. I would say the discussion, again, among the 
central banks as to whether that would be a mechanism for a 
central bank digital currency certainly may be sensible, but 
very premature. We have not been engaging in going down that 
road, or not going down that road. We are still considering all 
of these questions.
    Mr. Foster. Yes. I urge you to proceed with the digital 
identity problem in parallel with the technical structure of 
the central bank digital currency. They are really almost 
separable problems. You have to solve both, and solving them 
one at a time is not the most efficient way. We have to respond 
to China and their advance into this area.
    Does anyone have any other comments on digital identity? 
One near-term thing, actually, that we will have to be facing 
is when we--I think we have a bipartisan agreement to have 
essentially access to an Internet connection as a guarantee, 
and the government will be putting many tens of billions of 
dollars to make sure that is a reality, with one of the main 
benefits being that you are going to have 30 million more 
people connected to the Internet.
    And one of the big benefits from that is simply to have 
access, have them now potentially be instead of underbanked or 
unbanked, they will actually be banked. But of course, these 30 
million newbies on the Internet will be ripe targets for fraud. 
And so, again, it enforces the real need for a coherent 
approach to digital identification.
    Do any of our other witnesses have any comments on how that 
problem looks, these 30 million newly-banked individuals with 
rather thin files? Is there a plan for how that is going to 
work smoothly so we don't see just a torrent of identity fraud?
    Mr. Quarles. I think you can tell from the enthusiastic 
response of the regulators that you have identified an issue on 
which we should focus.
    Mr. Foster. Okay. I'm happy to be of service here, and I 
will be very interested in following up with your staff. I am 
surprised and pleased at how far industry has gotten ahead of 
regulators in terms of the technical standards for high-quality 
digital ID. And I urge you to try to piggyback on top of that.
    My time is now running out, and I would be happy to follow 
up.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from New York, Mr. Zeldin, for 5 
minutes.
    Mr. Zeldin. Thank you to the witnesses for being here 
today, and thank you, Chairwoman Waters and Ranking Member 
McHenry, for holding this hearing.
    I am going to start off by reading the mission statements 
taken from each prudential regulator's website. The FDIC's 
mission is to, ``maintain stability and public confidence in 
the nation's financial system.''
    The OCC's mission is to, ``ensure that national banks and 
Federal savings associations operate in a safe and sound 
manner, provide fair access to financial services, treat 
customers fairly, and comply with applicable laws and 
regulations.''
    The NCUA's mission is to, ``provide through regulation and 
supervision a safe and sound credit union system, which 
promotes confidence in a national system of cooperative 
credit.''
    The Federal Reserve System's mission is to, ``foster the 
stability, integrity, and efficiency of the nation's monetary, 
financial, and payment systems so as to promote optimal 
macroeconomic performance.''
    Chairman McWilliams, Vice Chairman Quarles, Acting 
Comptroller Hsu, and Chairman Harper, would any of you like to 
share briefly your views on fair access in financial services 
for legal businesses?
    Ms. McWilliams. I am happy to start, so long as the others 
follow. Our regulatory response, frankly, to banks serving all 
legal businesses, as mentioned earlier, has had a little bit of 
a hiccup in the past, and we have learned from that hiccup, 
frankly. Our job as regulators is to implement the laws passed 
by Congress and provide a supervisory framework that considers 
safety and soundness and consumer protection laws and 
regulations.
    We encourage institutions to serve all legal businesses and 
individuals in their communities. We have even issued a 
statement on providing banking services that encourages our 
institutions to take a risk-based approach in assessing 
individual customer relationships rather than declining to 
provide banking services to entire categories of customers 
without regard to the risks present.
    I would say that we have done a lot of work, including 
extensive examiner training in this area, to make sure that 
where our examiners look at banks and how banks provide 
services to different entities is appropriate with the 
safeguards Congress gave us. And we certainly don't want to be 
in the business of managing whom the banks choose to bank, so 
long as they follow the law.
    Mr. Zeldin. And Chairwoman McWilliams, on that point, there 
is a local business in Suffolk County, New York, my 
congressional district, the First Congressional District of New 
York is in Suffolk. They are in the firearms industry, and they 
have provided to my office letters from multiple lenders all at 
the same time right now terminating accounts, refusing to 
extend credit because of a review of business practices.
    What is the answer to a lawful business out there in 
Suffolk County, New York, having multiple lenders terminating 
their accounts because they are in the firearms business?
    Ms. McWilliams. I would think that those decisions are left 
at the level of individual banks and how they decide to manage 
their risk exposures, reputational risk, and everything else. 
That is not something that we tell them to do or not to do.
    I am more than happy to engage with your office to 
understand exactly--you don't even have to give me the name of 
the client, but maybe the names of the banks and the notices 
that have been provided with the name of the bank redacted to 
make sure that we understand whether this came from the FDIC-
supervised banks or one of our sister agencies. I am happy to 
follow up with you separately.
    Mr. Zeldin. I appreciate that. The four mission statements 
I read all mention either integrity, confidence, or fair access 
in financial markets. There can't be true integrity or 
confidence in the financial system if individuals and 
businesses are being discriminated against, whether the 
discrimination is based on an immutable characteristic or a 
decision to conduct commerce in a completely legal industry.
    The financial institutions that are indirectly regulating 
the livelihoods of legal business owners need to consider the 
irrevocable damage they are causing to the integrity and 
confidence in our financial markets, not to mention to those 
operating businesses themselves.
    The public power granted to banks and credit unions in the 
form of charters and deposit insurance makes perfect sense when 
it enables the financial services needed for lawful commerce 
and a functioning economy. But this power is being misused when 
banks try to regulate downstream markets.
    There are legitimate reasons for financial institutions to 
reassess relationships with customers. These include credit 
risks or risks related to money laundering. But a political 
difference or, worse yet, fear of progressive backlash from 
outside groups is not a good reason. The Second Amendment, as 
just one example, is not a suggestion. De-banking businesses 
that legally sell firearms in order to regulate the industry 
indirectly is wrong.
    This is an important issue that requires all of your 
attention. I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from California, Mr. Vargas, for 5 
minutes.
    Mr. Vargas. Mr. Chairman, thank you very much, and you are 
doing a great job, Mr. Lynch. I appreciate it. I can hear your 
voice quite clearly, which is great.
    I want to thank all of the witnesses again. I appreciate 
very much you being here.
    I joined this committee about 6\1/2\ years ago, and when I 
did, about the only thing that my Republican colleagues wanted 
to talk about was Dodd-Frank, how Dodd-Frank was awful, Dodd-
Frank was terrible. For a while there, I thought that they 
thought it was the spawn of Satan or something like that 
because they thought it was so terrible, horrible.
    And I wasn't able to listen to all of my colleagues today 
because there is another hearing going on in the House Foreign 
Affairs Committee, but I haven't heard Dodd-Frank come up, at 
least I don't think--I certainly haven't. Maybe it did before.
    But Mr. Vice Chairman, Mr. Quarles, you, however, I think 
bring it up without saying it. On page 1 of your testimony, 
``Entering the COVID event, the banking system was fortified by 
over 10 years of work to improve safety and soundness from both 
regulators and banks themselves.'' And you go on to describe 
how we are able to kind of go through this COVID because of 
some of the rules.
    Now what were you referring to when you were talking about 
this? Was it Dodd-Frank?
    Mr. Quarles. Principally, the higher levels of capital and 
liquidity that were put into the system post-2008. Some of that 
was work from the international regulatory community that was 
coordinated in Basel. Some of that was work at the Federal 
Reserve. Some of it was mandated in the Dodd-Frank Act.
    It was a set of measures. But really, for me, the key 
issues were the extra capital and liquidity that were in the 
banking system.
    Mr. Vargas. And I appreciate that very much. Again, it is 
interesting that we don't hear much about those requirements. 
Now, the reason I bring that up is because I think the next big 
one is not Dodd-Frank; I think it is going to be climate 
change.
    When we first started talking about climate change, my 
friends on the other side of the aisle would first deny that it 
was going on. Then they started saying, well, it is the cows 
farting, or I don't know what it was, some ridiculous thing. 
But now they are starting to accept that it is there, but I 
don't think they really understand the risk. I don't think we 
understand the risk.
    Chairwoman McWilliams, however, you talk about that. On 
page 4 of your testimony, you say, ``The FDIC expects financial 
institutions to consider the appropriately addressed potential 
climate risks that could arise in our operating environment. 
This includes physical risks associated with extreme weather 
events such as hurricanes, floods, storms, tornadoes, droughts, 
and fires.'' And you go on.
    So, you do understand some of these risks then, and you do 
think they are real?
    Ms. McWilliams. Yes. They are basic safety and soundness 
practices. And while I would like to think that we are a great 
regulator, I am pretty confident that both the OCC and the Fed 
require the same of their supervised institutions.
    Mr. Vargas. And Acting Comptroller Hsu, you wrote, 
``Climate change possesses new risks and challenges for banks, 
and we need to make sure they understand those risks and are 
capable of managing them.'' I think that is a quote from you?
    Mr. Hsu. Correct.
    Mr. Vargas. Could you expand on that?
    Mr. Hsu. Yes, of course. I think it is just as Chairman 
McWilliams noted, that for safety and soundness purposes, we 
expect banks to stay on top of these emerging risks. And I 
think, as you had noted earlier, there are many dimensions to 
this. For both physical and transition risks, it is 
complicated. And it is different for different institutions.
    I think we in the front need to spend some time investing 
and understanding what that is to identify, measure, and manage 
those risks.
    Mr. Vargas. I appreciate that. Again, I appreciate that you 
are taking this very seriously because I also think, obviously, 
there are risks and there are opportunities. In California, we 
are trying to take a look at both because there are 
opportunities in this transition to a low-carbon economy.
    But anyway, I appreciate the work that you have done. I 
appreciate very much that you are looking at this. It is a big 
issue. I do have an Environmental, Social & Governance (ESG) 
bill and others have bills working on the environment issues. 
And again, I appreciate that you are doing this because I 
think, a lot like Dodd-Frank, we are going to see that the 
risks here are real, and we are going to be able, hopefully, to 
find solutions for them so we don't run into huge problems down 
the road.
    Again, I thank you. I have 8 seconds left, so I will yield 
back--
    [Pause.]
    Mr. Vargas. --to somebody. I am yielding back to somebody.
    Mr. Lynch. Thank you. The gentleman yields back. The Chair 
now recognizes the gentleman from North Carolina, Mr. Budd, for 
5 minutes.
    Mr. Budd. Thank you, Mr. Chairman. And again, I thank the 
panel for being here.
    Acting Comptroller Hsu, the OCC has received a number of 
applications for crypto trust banks, and after conditionally 
approving three--I believe it was three, you can correct me on 
that if it is a different number; I think they were Anchorage, 
Protego, if I have pronounced that correctly, and Paxos. What 
is the timetable for approving the remaining charters that are 
out there?
    Mr. Hsu. I don't know the timetable right now. It is under 
review. It is under discussion. I just got here. This is my 
10th day, I believe. So, we have this in the pipeline to look 
at. We are not going to drag it out, that I can say. But as 
that timeline becomes clearer, we can get in contact with your 
office to let you know.
    Mr. Budd. I would love to stay in touch with you on that. I 
understand that mastery comes between Day 11 and 12, so good 
luck with the rest of this. Thanks for what you do.
    Another question, and maybe, hopefully, this isn't a Day 
11-question, but just your thoughts on blockchain? It offers 
the possibility of significantly reducing the cost of mortgage 
origination and consumer lending.
    In mortgage origination, we have a company called Figure, 
and they have applied for a bank charter. And since Figure 
proposes to take deposits, there is no issue with the 
litigation over non-depository bank charters. Is that 
application--if you know about this yet, or if not, we can 
continue to discuss a few other things. But do you know if that 
application is on course so that we can set a precedent for 
other low-cost, blockchain-based financial products?
    Mr. Hsu. That application is definitely part of the set of 
applications that are under review. We have had some 
preliminary discussions about it, but I need to learn more 
before kind of signaling where that is going. But that is very 
much under our review.
    Mr. Budd. Very good. I think there is a lot of promise from 
lowering the cost to consumers, and I look forward to this and 
to having more discussions on this.
    Switching to Vice Chair Quarles, recent media accounts 
suggest that the Federal Reserve may not grant payment system 
access to OCC-chartered banks that don't pay deposits, or in at 
least one case, to State-chartered banks that originated in the 
crypto industry. Doesn't the Fed grant access to the payment 
system to non-depository trust banks today, and if so, what is 
the basis for denying new banks of the same charter type now?
    Mr. Quarles. We do grant access to non-depository trust 
companies. We recently issued a set of principles to govern 
account access really for all institutions as a recognition 
that there is an increasing variety of institutions that are 
potentially interested in account access. We put those out for 
comment and are getting comments on them now.
    I think what is important--and we haven't made a decision 
with respect to account access until we develop this framework. 
We put these principles out. We will get input on them. We will 
be very transparent about what the rules are. I think that is 
what is important as these new institutions come for account 
access.
    Mr. Budd. Very good. Thank you.
    Second question, there is a lot of regulatory ambiguity 
revolving around crypto, and lots of different definitions used 
by all of the subagencies and respective agencies just adds to 
that ambiguity. Will you at the Federal Reserve commit to 
working on a unified definition for what is considered a 
cryptocurrency?
    Mr. Quarles. As Comptroller Hsu just mentioned, we are 
engaged with the other agencies in a joint effort to think 
through some of these crypto definitions and the application of 
our regulations in crypto areas. I am sure that will be part of 
it.
    Mr. Budd. There are a lot of joint efforts in this. Do you 
think you are going to end up coming up with a definition for 
what is a cryptocurrency? Because that is part of the problem 
right now, that people don't know exactly what it is, they have 
different definitions.
    Mr. Quarles. Yes, I think so. We are sort of focused very 
intently on these crypto issues with the aim of having answers 
fairly quickly, joint views fairly quickly. I am sure that will 
be achievable.
    Mr. Budd. I thank each of you for your time. I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Florida, Mr. Lawson, for 5 
minutes.
    Mr. Lawson. Thank you, Mr. Chairman. And I would like to 
thank Chairwoman Waters and Ranking Member McHenry for hosting 
this important hearing today.
    Mr. Hsu, in your written testimony, you noted that the OCC 
had been monitoring increasing concerns about racial bias in 
appraisals, particularly in residential lending. I understand 
the OCC is working with the stakeholders to raise awareness and 
ensure that banks have the valuation and data to fairly and 
objectively underwrite these loans. This is very concerning to 
me.
    Can you tell me more about the OCC's work to remedy 
inherent bias, and what we can do as Members of Congress to 
make sure that we provide assistance in this endeavor?
    Mr. Hsu. Thank you. This is a really important issue. I 
think it has gotten some added press recently, which I think 
really adds an important--it puts a higher profile on it.
    I think this is going to take a lot of work because it is 
not something that we, the OCC, can directly affect by 
ourselves. There have been some interagency discussions and 
some stakeholder discussions, but I don't have all of the 
details on this. I would be happy to get the folks on my staff 
who are very knowledgeable on this, who have been monitoring 
this very closely, to work with folks on your staff to explore 
options and how to make some progress on it.
    Mr. Lawson. Okay, thank you very much. Because in some 
instances where an African-American female is getting a house 
appraised, and you probably know about it--
    Mr. Hsu. Yes.
    Mr. Lawson. --and she had one of her friends who was a 
White female go over, and the appraisal was altogether 
different. And it shouldn't have been that way.
    Ms. McWilliams, the COVID-19 virus is having a profound 
impact on every aspect of American life and the U.S. economy. I 
saw much of the impact on States, counties, and municipalities. 
This landscape is to serve that is quoted by the community 
financial institutions that are part of the Federal Home Loan 
Bank System: savings and loan; credit unions; Community 
Development Financial Institutions; and some insurance 
companies.
    In looking at the funding of infrastructure, would broader 
participation by this nation's Financial Institutions improve 
the leverage of Federal funding dedicated to infrastructure if, 
for instance, aligned FDIC-insured institution to put a Federal 
infrastructure bond to the FHL banks as collateral.
    Ms. McWilliams. Congressman, I'm sorry, there was a little 
bit of a sound issue, but as far as I understood your question, 
you are asking about the bonds and how much the FDIC can assist 
in pledging it as collateral.
    It is an issue that, frankly, I don't know how much 
authority we have in this space, and I am happy to circle back 
with your office once I can explore that authority and 
understand the full crux of the question.
    Mr. Lawson. Okay. But anyway, it might be a little more 
complicated, more than I can acknowledge. It would be great if 
you can get back to me with some information.
    But I would like to go back to Mr. Hsu. I am happy to see 
in your testimony that while the OCC's 2020 final rule on the 
Community Reinvestment Act (CRA) took an important step in 
attempting to improve upon the framework put in place in 1995, 
you believe there is significant room for improvement.
    What necessary steps can the OCC take to strengthen the 
regulation implemented in the CRA, including options for 
rescinding and substantially revising the current rules and 
working with the Federal Reserve and the FDIC on a joint 
proposal?
    Mr. Hsu. Thanks for the question.
    The first thing we need to do is to carefully study our 
options. I have instructed staff to consider all options, and 
one of those options could include rescinding the rule and 
putting it back out for comment. We have some comments as to 
how to strengthen it.
    And in that process, we could join forces with the Federal 
Reserve and the FDIC so it is a joint rulemaking. But before we 
get to that stage, I need to see the analysis about how that 
can be put out and what the pros and cons of doing that would 
be.
    I want to make sure that all of this is taken into account, 
and we are just doing it in a measured, deliberative way, 
because I think everyone agrees that we want to strengthen the 
CRA. So now, it is a matter of, how do we do that, and how do 
we do that in a way that is consistent with the Administrative 
Procedure Act (APA), consistent with the process, and that we 
hear voices from everybody. It is very important.
    Mr. Lawson. Okay, thank you very much.
    And Mr. Chairman, I yield back.
    Mr. Lynch. The gentleman yields back, and the Chair now 
recognizes the gentleman from Georgia, Mr. Loudermilk, for 5 
minutes.
    Mr. Loudermilk. Thank you, Mr. Chairman. I appreciate the 
opportunity. I thank the panel for being here as well.
    And it is once again disappointing to see the Majority 
continuing its anti-fintech agenda by proposing legislation 
that eliminates the OCC's True Lender Rule. A few weeks ago, 
some of my colleagues were outraged that the Acting Comptroller 
dared to do his job and defend the Agency's rule, as any Agency 
leader would.
    But what is most ironic about this effort to eliminate the 
True Lender Rule is that it would hurt the very people whom the 
Majority supposedly want to help. The biggest beneficiaries of 
bank-fintech partnerships are consumers with subprime credit or 
a lack of credit history who don't qualify for a traditional 
bank loan.
    It appears the Majority now supports things that were 
questionable in the past, like payday loans, because without 
the fintech, that is what those consumers would be left with if 
they succeed in their attempts to eliminate marketplace 
lending. Or in States like Georgia, where payday lending is 
illegal, there may be no options for these people.
    Acting Comptroller Hsu, if the rule is overturned, I hope 
you will take action to address the legal confusion that will 
result. I just wanted to make that statement.
    Moving on to another topic, Chairman McWilliams, I would 
like to discuss the FDIC and the other agencies' request for 
intelligence, the information on financial institutions that 
used artificial intelligence (AI). I appreciate that this is 
being done on an interagency basis so that AI policy can be 
coordinated, which is extremely important in the technology 
era.
    The question is, Chairman McWilliams, what do you hope to 
accomplish with this request for information?
    Ms. McWilliams. Really, the request is pretty broad, and 
the request is aimed at understanding exactly what is happening 
in this space, what do we need to be aware of?
    I would say it is a learning expedition where we try to and 
hope to get a lot of public input to understand what we should 
be focusing on and how exactly artificial intelligence can be 
beneficial, and what risks it carries with it. I would say that 
it is a broad mandate that we hope to accomplish with this 
interagency product, and we are hoping to be able to implement 
it in our regulatory standards to allow banks to rely on 
artificial intelligence to improve their supervision policy, 
but also how they serve their customers and consumers.
    Mr. Loudermilk. I appreciate that. And artificial 
intelligence is a very beneficial tool if it is used in the 
right way, and it does give the proper results and that we can 
test those results as well.
    Former Democratic Treasury Secretary Larry Summers recently 
said that central banks are bending to political pressure and 
stretching beyond their statutory mandate by focusing on 
climate change in order to be relevant on a current political 
topic. I actually agree with him on this. The Fed is not 
supposed to be influenced by political pressure, nor is the Fed 
the proper venue for climate policy to be made.
    Vice Chairman Quarles, do you agree with former Secretary 
Summers that central banks are engaging in mission creep when 
it comes to these climate initiatives?
    Mr. Quarles. No, I don't actually think so. Again, I think 
there has been more made of what is happening on climate 
change. It is a potential risk that faces the financial sector. 
As a regulator, we should look at that risk and see what the 
potential effects on financial stability might be.
    Develop, again, an analytical framework so that we don't 
respond to political pressure, so that we don't respond to 
headlines, but develop a careful, data-driven framework for 
looking at a potential risk. That is what we are in the process 
of doing.
    Mr. Loudermilk. I would disagree with you on some of these 
issues because being on the House Science, Space, & Technology 
Committee, we have heard from many scientists saying that in 
today's era, while we have done well with climate policies, in 
the past--I remember in the 1980s, in Los Angeles, you could 
hardly breathe. It is not that way anymore.
    But it isn't the United States of America that is the 
problem. We are one of the cleanest of the industrialized 
nations. It is nations such as China and others that are the 
problem. And I think that is where our focus needs to be. If we 
are truly interested in local climate issues, then we need to 
be holding partners overseas accountable, not punishing 
American businesses in a nation that has done tremendously well 
in cleaning the environment.
    And with that, Mr. Chairman, I will yield back the balance 
of my time.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from Illinois, Mr. Casten, for 5 
minutes.
    Mr. Casten. Thank you, Mr. Chairman. And thank you to our 
panelists.
    I would like to stay with you, Vice Chair Quarles, and stay 
on the subject of climate. I am delighted to hear you are 
focused on the risk being analytical and data-driven. I want to 
put my friend Mr. Barr at easex, when he said that the Fed 
doesn't have the authority to regulate environmental policy. I 
just want to talk about numbers, and I just want to talk about 
the financial system.
    As you know, the rest of the world is leading, and we are 
now in a following mode. And it is time for us to get back into 
a leading mode. I would like to just understand a couple of 
issues, to understand what you all are going to do 
analytically.
    We know from the House Science, Space & Technology 
Committee, which I serve on with Mr. Loudermilk, that we have 
significant sea level rise measured in feet, not inches, that 
is highly likely within the time horizon of current mortgages. 
As you do your analysis, can you commit to us that you will be 
factoring in what impact that will have on the banks, on 
Government-Sponsored Enterprises (GSEs), and on the insurance 
industry?
    Mr. Quarles. The answer is, yes, because we have long taken 
into account in supervising institutions in particular 
geographic locations, the risks of those geographic locations. 
As we continue to get more data and to learn more about the 
evolution of the environment as additional risks become clear, 
we will ensure that institutions are including them in their 
risk management and that we include that in our supervision of 
their risk management.
    Mr. Casten. I just want to point out that, and I understand 
we are all being cautious because these are uncertainties, 
there is a real gap when I sit on the Science Committee, and I 
ask, ``What cities are you concerned about?'' And they say, 
``The entire Eastern Seaboard.'' And then, I move to the 
Financial Services Committee, and they say,`` We are thinking 
about it.'' These changes are coming, and we have to grapple 
with them.
    Second question, S&P announced in January that it was 
placing 13 major oil and gas companies on credit watch, 
negative credit watch due to energy transition risks. Will your 
analysis consider the debt and equity risk if that goes away, 
and what is going to happen to the holdings within the banks 
you regulate?
    Mr. Quarles. We are developing the framework currently to 
be comprehensive, but any placing of any institution's 
exposures on credit watch is and will be taken into account in 
supervision of institutions that are exposed to those firms.
    Mr. Casten. Okay. My concern, having come from the energy 
industry, is that there is some measurable cyclicality in the 
energy industry. And you can kind of watch like clockwork that 
the holdings in the regulated banks when there is a negative 
cyclicality get moved into their non-bank holdings, and all of 
a sudden, the bank says, ``I have an opportunity for you to 
invest in energy special projects Fund V.'' And we all 
understand what they are doing, but that gets it out of some of 
the areas in which you might have direct regulatory 
supervision.
    As you do this analysis, will you be looking to make sure 
that those assets that are encumbered as banks try to move risk 
into areas that may not be subject to Dodd-Frank supervision or 
the regulatory regimes, can you commit to making sure that we 
keep an eye on those non-bank actors as well to understand 
where money is moving throughout the entire economy?
    Mr. Quarles. That is because the Federal Reserve is a 
holding company, an umbrella supervisor. It does look at the 
overall organization and not only the depository institution 
subsidiary. So, yes, when we take a look at the capital 
position or the overall position of the firm, we take into 
account the risk position of the firm. We look at the overall 
firm.
    Mr. Casten. Okay. I would welcome the chance to work with 
your office on that. We are spending a lot of time thinking 
about it. And as I said at the start, I think we ought to get 
behind the eight ball.
    Acting Comptroller Hsu, you mentioned in your opening 
comments that you--I think you have been joining the Network 
for Greening the Financial System. Can you just share with us a 
little bit of why that is so important, and what kind of 
leadership you are seeing in an international framework that we 
need to get up-to-speed on in our country?
    Mr. Hsu. I think the primary purpose is to learn. That 
forum was created in order to allow and to facilitate central 
bank supervisors from around the world, and they have a lot of 
members who come and say, here is what we are seeing, here are 
some best practices, here is what we are dealing with. And the 
idea for us is we don't want to reinvent the wheel. If someone 
else has come up with a good approach to these risks that we 
have been talking about, we want to leverage that as quickly as 
possible, kind of integrate that and apply it in a tailored 
fashion to our institutions which are going to have to deal 
with these risks.
    Mr. Casten. Thank you, and I will yield 11 seconds back to 
the Chair. I appreciate your time.
    Mr. Lynch. I thank the gentleman. The Chair now recognizes 
the gentleman from Oklahoma, Mr. Lucas, for 5 minutes.
    Mr. Lucas. Thank you, Mr. Chairman. I appreciate the 
opportunity to visit with our panelists today. And I also 
appreciate the opportunity to follow a couple of my colleagues 
on the Science Committee.
    In her March testimony before this committee, Secretary 
Yellen highlighted, following along on these lines, that 
climate change is a top priority for the Biden Administration 
and that regulators should be assessing risk to financial 
institutions. As any regulator who has appeared before this 
committee for the last 26 years knows, the Third Congressional 
District of Oklahoma, which I have the proud privilege of 
representing, is a commodity-driven economy, centered on 
agriculture, and centered on energy.
    The actions of the Fed, the FDIC, and the OCC have a real 
and significant impact on the businesses in my district which 
are capital-intensive. We have to have major resources to do 
the kind of amazing things we do.
    I will start with Acting Comptroller Hsu. In your 
testimony, you explain that the OCC will act on the climate 
issue or risk with a sense of urgency. Can you describe to me 
the ways in which addressing climate risk could manifest 
themselves in your supervisory and regulatory requirements? 
What is coming toward my constituents?
    Mr. Lynch. Could the gentleman suspend?
    Mr. Lucas. Absolutely.
    Mr. Lynch. Mr. Lucas, could you turn your camera on? Under 
the House Rules--
    Mr. Lucas. I'm sorry, Mr. Chairman, and I apologize for 
that. I thought I had it on.
    Mr. Lynch. Okay.
    Mr. Lucas. Sorry, Mr. Chairman.
    Mr. Lynch. The witness may proceed. Thank you.
    Mr. Hsu. Different financial institutions will be exposed 
to climate risk differently. And what we want to ensure is that 
they are appropriately--that they know what their risks are. In 
some cases, there will be a lot. In some cases, there will be a 
little.
    It really depends--and some of these are physical risks, 
and some of these are what they call transition risks. What was 
highlighted earlier, that these are real things, and we just 
want to make sure that banks are identifying those and 
measuring those not with the desire or an eye toward putting 
the thumbs on the scale for different industries.
    Mr. Lucas. But how you identify those risks, how you put 
your thumb on the scale, all regulators, has a dramatic effect 
on the cost and availability of capital. We can drive capital 
decisions in this country away from very successful, ever more 
efficient environmentally conducting themselves sectors by how 
we do this.
    I have watched this before. That is why I asked my 
question, and I ask all of you to be very careful in what you 
do. The goal is not to use financial regulation to create 
someone's version of the world. The goal is to assess the risk 
so that the market economy can incorporate the demand from the 
public for a cleaner environment and proceed in that direction.
    That's just an observation from someone who is mildly 
sensitive about the effects of the Federal Government on his 
constituents going back to the 1930s.
    Next question, some sectors of the U.S. economy are seeing 
a surge in consumer prices. It is a result of high demand 
outpacing supply. This could be temporary, or these price 
pressures could continue to build.
    Vice Chairman Quarles, in September of last year, a market 
survey conducted by the Federal Reserve Bank of New York showed 
that less than 25 percent of the respondents cited inflation as 
a risk for economic stability. If we would do that survey right 
now, do you suspect the results might be a little different?
    And I come at this as a person who was in college in the 
late 1970s and early 1980s who was starting to farm, who went 
through that inflationary period. If you are under 40, you 
don't remember how bad it can be.
    Touch on that for a moment, if you would, Mr. Vice 
Chairman?
    Mr. Quarles. It is kind of you to implicate in any way that 
I might be under 40. I do remember that heavy inflation.
    I don't think I want to speculate on what a poll currently 
would say, but I will say that we do expect to see inflationary 
pressures over the course probably of the next year, certainly 
over the coming months. Again, I think that our best analysis 
is that those pressures will be temporary, even if significant, 
but if they turn out not to be, we do have the ability to 
respond to them.
    Mr. Lucas. I just remember the vicious correction that went 
on in the early 1980s, as the economy picked up and the 
velocity of the economy increased and the dramatic expansion of 
the monetary supply. We have only put, what, $8 trillion of 
extra money into the economy in the last year-and-a-half? You 
have to survive whatever comes.
    I yield back the balance of my time, Mr. Chairman.
    Mr. Lynch. The gentleman yields back. The Chair recognizes 
himself for 5 minutes of questioning.
    Acting Comptroller Hsu, you said in your testimony that the 
OCC will undertake a review of recent actions that the OCC has 
taken in the fintech space, and that includes actions on 
cryptocurrency assets and [inaudible] systems.
    And specifically, you state that you have a concern that 
providing the special purpose charters that were proposed by 
your predecessor in part--
    Ms. Garcia of Texas. Excuse me. Mr. Chairman, we are having 
trouble hearing you. There is an echo.
    Mr. Lynch. --will convey the benefits of banking without 
commensurate responsibility. What are your thoughts?
    Mr. Hsu. I didn't catch your whole question, but I think I 
have the gist of it.
    I believe that we do have a risk where on the one hand, 
there is a thought that if we simply charter the institutions, 
if we bring them into the regulatory prism, it will be fine, 
that that is the proper thing to do. I think there is a risk 
with that. I think that is easier said than done.
    At the same time, I do feel like there is a strand of 
thought that, well, we just won't charter any of them, right? 
We will stick by our guns as to where things are. And I don't 
think that is the right answer either because it is not going 
to make it go away. It is simply going to happen outside of the 
regulatory purpose.
    We need to figure out a way where we can do this in a safe 
and sound way, where we can adapt to the innovation. The 
innovation is happening, whether we want it to or not. So, I 
believe we need to approach that smartly, which is why we are 
kind of re-reviewing this to make sure that balance is being 
struck in the right way and that we are doing it together.
    Because this is happening not just at the OCC, it is 
happening in other spaces as well.
    Mr. Lynch. That is great to hear. That is very comforting. 
And I think I can speak for the other Members in saying there 
is a real spectrum of opinion with respect to fintech and the 
impacts of banking and how fintech fits into the existing 
banking infrastructure and how it serves our constituents.
    But one thing I do want to point out is that in the past, I 
don't think the other Comptrollers of the Currency have really 
engaged Congress. They certainly haven't engaged this 
committee. I Chair our Task Force on Financial Technology, and 
there are a lot of people on this committee who are well-
informed, I think, and excited about the possibilities. So, if 
I could just offer a bit of advice, please engage us.
    I think it would help with the thoroughness and the 
precision that we all need on that issue, and also you would 
garner the perspectives of all of the members on this committee 
in devising the solutions that we all believe we need. We have 
a wonderful financial system. The United States markets are the 
envy of the world. We would like to make progress without 
damaging the existing integrity that we have going forward.
    That is all I have, and I will yield back.
    The gentleman from Tennessee, Mr. Kustoff, is now 
recognized for 5 minutes.
    Mr. Kustoff. Thank you, Mr. Chairman, and thanks to the 
witnesses for appearing today. Vice Chair Quarles, if I could 
go back to you and maybe follow up a little bit on Congressman 
Lucas' questioning, we saw last month, in April, a 4.2-percent 
increase, pursuant to the Department of Labor report, in 
consumer prices. You all in your last discussion have termed 
inflation, ``transitory.'' Let me, if I can, follow up and ask 
you to characterize, if we see rates, inflation continue as it 
has for the next several months, at what point does inflation 
cease to be transitory or, the corollary, how long do you 
expect inflation to remain transitory?
    Mr. Quarles. I don't and we don't have a projection for how 
long is too long. I do think that it is important for us all to 
keep in mind, as was mentioned earlier in the hearing, that 
last month's very high inflation reading was the highest since 
2009, and yet after 2009, we went through an extended period of 
extremely low inflation, well under the Fed's target. I don't 
think that we can say that 1 month, or 1 quarter, or 2 quarters 
or more is necessarily too long. We do expect to see higher 
inflation for some period of time.
    Now, it is possible that going through a period even of 
transitory inflationary pressures over that kind of a period 
could lead to some change in expectations. I don't expect it, 
but if it were to happen that a change in expectations led to a 
more durable inflationary environment, then the Fed has the 
tools to address it. For me, it is a question of risk 
management. This is the best analysis we have currently: 
inflation will be temporary. What if we are wrong? If we are 
wrong, do we have the means to keep it from getting out of 
hand? We do, and history would tell us that the economy is 
unlikely to undergo these inflationary pressures for a long 
period of time.
    Mr. Kustoff. You referenced, ``some period of time,'' so I 
am going to ask you to further define what, ``some period of 
time'' is. And I will give you one particular point of context, 
and that is from my REALTOR and home building community in my 
district in West Tennessee. And I suspect this is similar to 
what 434 other Members of Congress are hearing, that their real 
estate market is red hot, that they get multiple offers for 
different listings, and that is for existing homes. The home 
builders say that lack of labor and rapidly-increasing cost of 
lumber, up 300 percent over the past year, makes it almost 
prohibitive to build homes. With the response you just gave me, 
how much longer can we expect that to continue, and at what 
point does the Fed need to say, enough is enough?
    Mr. Quarles. I can't give you a projection for how much 
longer that is going to continue because we are coming out of 
an unprecedented event. There is not sort of a series of 
historical experiences that one could point to to say, this is 
how long inflationary pressures last after you have shut down 
the economy in the face of something like COVID. The question 
is, what should the Fed do about it? Our experience over the 
course of the last decade coming out of the financial crisis is 
that a couple of times we thought we wanted to stay ahead of 
inflationary pressures, and increased interest rates. It was 
premature, and I don't think actually that it would be good for 
the industries that we want to see thriving as the recovery 
continues, for us to close off that recovery prematurely trying 
to stay ahead of inflation when, again, our best estimate is 
that we are not behind.
    But we could be wrong because this is an unprecedented 
situation. For me, the question is, are we prepared in case 
this turns out to be a more durable event, and I think the 
answer is, ``yes,'' but I do think that if we were to try now 
to stay ahead of the inflation curve, we could end up 
significantly constraining the recovery curve.
    Mr. Kustoff. That is the end of my time. I yield back, and 
I appreciate your response.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentlelady from Texas, Ms. Garcia, for 5 
minutes.
    Ms. Garcia of Texas. Thank you, Mr. Chairman, and thank you 
to all of the witnesses who are joining us today.
    Access to the banking system is a critical step in building 
access to credit and, thereby, access to wealth building, but 
there is still a high percentage of unbanked individuals. My 
district is 77-percent Latino, and it includes many people 
whose preferred language is not English. Last week, my bill 
that would make it easier for borrowers to get their mortgage 
loan service in their preferred language passed out of this 
committee. The Improving Language Access in Mortgage Servicing 
Act, is just the first step. There is much more work to be 
done. As Americans, it is important that we work to facilitate 
economic inclusion at all levels, including, but not limited 
to, language diversity. We must continue providing resources so 
that institutions can better serve their diverse populations.
    A recent study on Latino entrepreneurs found that only 20 
percent of Latino-owned businesses that applied for a national 
bank loan over $100,000 obtained funding, compared to 50 
percent of White-owned businesses. This lack of capital has 
forced many Latino-owned businesses to take on riskier loans 
against their will, and this problem must be addressed now 
because the Latino market for financial services is growing 
every single day. Latino-owned businesses have grown 34 percent 
over the last 10 years. We need to make sure that diverse 
consumers have equal access to capital.
    I look forward to seeing the enactment of Dodd-Frank 
Section 1071 and an updated CRA, but I want to take a holistic 
approach at financial inclusion in our society. My first 
question is for Vice Chair Quarles. Can you talk about the 
cultural, systematic, or language barriers that prevent large 
banks from making room for diverse consumers?
    Mr. Quarles. First, ensuring that there is broad access to 
financial services for all customers is an important part of 
our supervisory responsibilities as regulators. Language access 
is clearly an important part of that. In areas where there are 
significant parts of the population who don't speak English, we 
do that and we include that in our supervision. And we have 
data collection from small businesses as well for information 
on the overall access to the economy of those whose first 
language is not English.
    Ms. Garcia of Texas. Right. What steps are you all taking 
to make sure that there is access to capital?
    Mr. Quarles. As I said, that is part of our supervisor 
engagement with firms to ensure that all of the issues that may 
be obstacles to making financial services available on a fair 
basis to all consumers in an area are addressed, and language 
accessibility would be part of that.
    Ms. Garcia of Texas. Right. I'm sorry. I know that is your 
role and it is your responsibility. My question is, what 
exactly are you doing to meet that responsibility?
    Mr. Quarles. We supervise the firms to ensure that they 
address the question of language accessibility.
    Ms. Garcia of Texas. Okay. And in your supervision, what is 
it that you look for? What is it that you raise a red flag on? 
What is it that you use as a good model for others to follow? 
Could you give me some examples of what you do in your 
supervisory role to make sure that there is diversity in 
language inclusion?
    Mr. Quarles. It sounds as though you want a level of 
concreteness that we will send something up to you on. It is 
part of our fair lending and CRA examinations on every 
institution, but we could send you something at a more granular 
level.
    Ms. Garcia of Texas. Right, and remember--
    Mr. Quarles. I don't do supervisions myself, so we should 
have the supervisors provide you with detailed analysis and 
what it is that we do.
    Ms. Garcia of Texas. Great. I look forward to receiving it. 
And, Mr. Chairman, I only have about 20 seconds, so I just 
wanted to ask quickly, Chairwoman McWilliams, what is it that 
we could be doing more of to ensure that the programs, like the 
Mission-Driven Fund, are targeted to communities with language 
barriers?
    Ms. McWilliams. Oh, thank you for the question, and it may 
come as no surprise to you that I have a little bit of 
experience reading forms in a non-native language on a daily 
basis.
    Ms. Garcia of Texas. That makes two of us.
    Ms. McWilliams. So, you know my pain. I am happy to provide 
a response in writing to you, or even meet, if you want to meet 
on this topic.
    Ms. Garcia of Texas. Thank you. I yield back, Mr. Chairman. 
I have run out of time.
    Mr. Lynch. The gentlelady yields back. The Chair now 
recognizes the gentleman from Indiana, Mr. Hollingsworth, for 5 
minutes.
    Mr. Hollingsworth. I appreciate the attention and I 
appreciate all of the witnesses for being here today. Vice 
Chair Quarles, I wanted to come back to your answer to Mr. 
Kustoff's question earlier. I thought you put it extremely well 
in making sure that you are finding the right balance between 
not constraining the recovery, but also, down the field, paying 
attention to the inflation risk should it become durable. I 
think that is very, very important. I know there is a lot of 
concern about this right now. I hope that concern remains 
transient, but I think that your focus on ensuring that this 
robust recovery that we are seeing continues unabated is 
really, really important. So, thank you for that very 
thoughtful answer.
    I wanted to turn my attention to a potential proposal that 
is being discussed by my colleagues across the aisle. I noted 
that in your testimony, you said the banking system is more 
liquid and better capitalized compared to last year. Certainly, 
I have heard a lot of concerns from borrowers, and I have heard 
a lot of concerns from lenders over the last couple of months. 
One thing I haven't heard about, though, is the significant 
excess of bank lending that has led to a disconcerting 
weakening in the creditworthiness that they are underwriting. 
Yet, I understand that one of the bills being considered by my 
friends across the aisle is one that would tie mechanistically, 
without discretion, increases in the counter-cyclical capital 
buffer to the increases in the Fed Funds Rate.
    I really oppose this effort, and I wondered if you might 
talk a little bit about what you are seeing out in the 
environment right now, and talk a little about the variety of 
reasons you might increase the Fed funds rate, not specifically 
correlated with excess bank lending or a weakening of 
creditworthiness of sponsors, et cetera.
    Mr. Quarles. Yes, I think that both prudential and macro-
prudential supervision, while there are connections, they 
aren't algorithmically related to our monetary policy. And 
there may be circumstances in which a change in monetary policy 
could lead to developments in the financial sector that would 
cause us to say, okay, time to take some macro-prudential 
steps, but others when they would not.
    We were making changes in monetary policy in the lead-up to 
March of 2020. We have done that. It would have been a mistake 
at that time to turn on the Countercyclical Capital Buffer 
(CCyB) to be concrete because when we went into the event, the 
problem was not a shortage of capital. The problem was, in 
fact, that we needed to turn down some of our capital measures 
in order to allow the system to use the capital that it had to 
continue to support the economy through that stress.
    Mr. Hollingsworth. I think just to summarize what you very 
articulately put, though, is that moves in the rate may be 
correlated with weakening in credit standards by depository 
institutions, but that correlation is not perfectly done, and 
there are a panoply of reasons why you might raise rates that 
are unrelated to weakening credit standards or excess bank 
lending. Is that fair?
    Mr. Quarles. Yes, absolutely.
    Mr. Hollingsworth. Great. My second question I just wanted 
to ask quickly is, earlier this year I sent a letter with a few 
of my colleagues asking for an update on margin eligibility 
requirements for a segment of OTC securities. As you know--we 
have talked about it many times--these rules haven't been 
updated since 1999. I know that you sent me a response. That 
response was, ``We are going to get around to it.'' We have 
been waiting for a long time for you to get around to it. Do 
you think that we are going to see progress on updating the 
proposal for updated margin eligibility requirements?
    Mr. Quarles. We are continuing the interagency discussions 
around that. As you know, one of the elements of the statutory 
framework is that we also consult with the SEC. I think there 
are some additional recent events around sort of margin 
exposures on securities, and the general review of the 
margining framework has caused us to think that we need to 
incorporate this into that. So, it is not falling behind the 
refrigerator and been forgotten about, but it is, I think, part 
of a larger discussion.
    Mr. Hollingsworth. Great. Last question, and it may be a 
little bit lengthier one, but for the time we have, is there is 
a real reason to believe that with economic growth in excess of 
6 percent, and although we are seeing inflation on the rise, 
hopefully, in a transient sense, that the experience for the 
consumer, as wages continue to rise, even in the face of 
prices, that people are really mostly concerned about the real 
differential between their wages and inflation, not just 
concerned about kind of what the inflation rate is in an 
absolute sense?
    Mr. Quarles. I think that is part of the expectations 
question: Are inflationary expectations being affected by the 
pressures that we will see over the course of the next several 
months on prices and wages? It is a possibility. I continue to 
think that it is not the probability.
    Mr. Hollingsworth. Thank you for your time. I yield back.
    Mr. Lynch. The gentleman yields back. The Chair now 
recognizes the gentleman from New York, Mr. Torres, for 5 
minutes.
    Mr. Torres. Thank you. I have a question for the regulators 
regarding the Archegos collapse. When I think about the 
collapse, it raises the question of how so many banks can give 
so much leverage to one financial institution betting on so few 
underlying stocks. And I am wondering, in light of the Archegos 
collapse, are any of you planning to put in place rules 
requiring greater disclosure in relation to derivatives, in 
general, and credit swaps, in particular?
    Mr. Quarles. I can start on that. We certainly, in light of 
the events that we saw, are reviewing both our regulatory and 
our supervisory framework to ensure that it would be hard for 
that to happen here. I do think that it is important to keep in 
mind that the great bulk of the losses that were incurred in 
connection with Archegos occurred outside the United States. 
They were not within the U.S. regulatory perimeter. The firms 
that were within the U.S. regulatory perimeter did not lose, 
one firm did, but the great bulk of the firms did not lose 
money, which indicates that our supervisory stance, with 
respect to those firms and our regulation of those firms, is 
actually probably not materially deficient.
    But whenever you see something like that, even if it occurs 
in another part of the world, you want to make sure that you--
    Mr. Torres. If I could interject, why not have greater 
transparency? As a layperson, I ask myself, is it responsible 
as a matter of risk management for banks to enter into credit 
swaps with Archegos without knowing all of the credit swaps 
that Archegos had entered into, and without knowing that 
Archegos had bet on only a few stocks? In all of those credits 
swap contracts, it seems, to me, financial institutions have an 
interest in knowing whether a company like Archegos is 
sufficiently capitalized and excessively leveraged.
    Mr. Quarles. But that is exactly what we are looking at. 
The point that I was making is that those are perfectly 
reasonable points. We are looking at them currently. They did 
not result in material losses in the U.S. financial system. Our 
supervision and regulation of these firms did not result in 
those losses, but it's perfectly fair to ask, what can we learn 
from the fact that it happened elsewhere? Are there changes we 
should make? Those are perfectly fair questions, and we are 
looking closely at it.
    Mr. Torres. Do you think if there had been greater 
disclosure around the over-leveraged position of Archegos, that 
those losses could have been prevented?
    Mr. Quarles. As part of the risk management of the firms, I 
do think that the prime brokers should have a clear view of, 
when they are taking collateral against something, are there 
risks to that collateral position that can't be told simply 
from their own exposure? And it does appear that these firms, 
although that wasn't something that was happening, again, 
within the U.S. regulatory perimeter, that does appear to be 
something that these firms, where they took the losses, were 
not doing.
    Mr. Torres. I know that Archegos, as a family office and as 
a result of the credit swaps, was exempt from the Section 13(f) 
reporting requirements, but the banks that bought stocks on 
behalf of Archegos were subject to those requirements. Did your 
office review the 13(f) filings, and did you notice that 
multiple banks were buying an unusually large volume of the 
same stock? Did you see those red flags in advance of the 
collapse?
    Mr. Quarles. Since the exposures were not within the U.S. 
regulatory perimeter, no, it would not have been possible for 
us to. That was something that was happening elsewhere, but it 
is something that we are looking at how to ensure that were 
something like that to happen within the U.S. regulatory 
perimeter, that we are on top of it.
    Mr. Torres. And Archegos was a family office. Do you think 
the failure of Archegos should lead us to rethink how we 
approach family offices with respect to financial regulation? I 
know there was a carveout for family offices within Dodd-Frank 
based on the assumption that family offices would make 
conservative investments, but there was nothing conservative 
about the behavior of Archegos. Should our approach be re-
thought in light of this experience?
    Mr. Quarles. I would think it would be premature to say 
that. If the banks that had exposure to Archegos had themselves 
done a better job of risk management, they would have known 
what those exposures were. They would have extended less credit 
on the basis of any particular collateral. That is not within 
the Federal Reserve's sort of regulatory ambit. It would be 
something for others to look at, but I wouldn't jump to that 
conclusion from this event. I would jump more to a conclusion 
that the bank needs to manage its procedures.
    Mr. Lynch. The gentleman's time has expired. The Chair now 
recognizes the gentleman from Ohio, Mr. Gonzalez, for 5 
minutes.
    Mr. Gonzalez of Ohio. Thank you, Mr. Chairman, for holding 
this hearing today, and I certainly appreciate the testimony of 
our witnesses. Mr. Quarles, I am going to stay with you with my 
line of questions and stick to the LIBOR topic, and I know the 
Fed has a strong focus on ensuring effective transition away 
from LIBOR to alternative reference rates. As you know better 
than most, this is a fairly complex undertaking, but one that 
is proceeding, which is nice to see. I also understand the Fed 
supports the recently-announced proposed extension of U.S. 
LIBOR, which will provide us with a transition. Alongside the 
extension, I personally believe there is more that we can do 
with respect to these legacy contracts, and I think you share 
that view. Can you please elaborate on your plan, moving 
forward, to facilitate greater certainty with respect to this 
long-tail legacy issue, and do you believe that, ultimately, 
congressional action is necessary?
    Mr. Quarles. The short answer to the last question is, yes, 
I do think congressional action will be necessary. The 
extension of the provision of LIBOR that you noted will allow 
the bulk of the legacy LIBOR contracts to run off between the 
end of this year and 2023 because we are insisting now that 
firms not write new LIBOR contracts after the end of this year, 
but by bulk, that is probably about 60 percent. Maybe it is a 
little more than 60 percent, so at least 30 to 40 percent of 
legacy contracts will need to be renegotiated, and that 
renegotiation could be difficult. They may have existing 
fallback language, but fallback language may not be 
satisfactory, and there is really no way to address that other 
than legislation.
    There is New York legislation, but not every contract is 
under New York law. There are some questions about how that 
works with some contracts that raise SEC issues. Federal law 
would be an important part of how to address that tough legacy.
    Mr. Gonzalez of Ohio. Thank you. And in terms of fallback 
language, where contracts are silent or where a new reference 
rate has not been agreed to between the parties, presumably, in 
our Federal legislation, we would want one standard, correct? 
We wouldn't want a set of standards necessarily because we want 
certainty in the market, or do you have a different position on 
that?
    Mr. Quarles. We want clarity. I suppose, conceptually, you 
could obtain clarity in a number of ways. I do think that when 
you are trying to deal with something as complex as the LIBOR 
transition, a single standard is helpful just as a matter of 
logistics. I wouldn't want to say in this context that you 
can't think of another way to provide the necessary clarity.
    Mr. Gonzalez of Ohio. Thank you. And then I want to switch 
to central bank digital currency (CBDC). I would love to hear 
your perspective. Obviously, China started rolling out theirs. 
I don't know if you saw this morning--I am sure you did--their 
announcements with respect to cryptocurrencies broadly and the 
effect that is having on those crypto markets. How do you see 
the central bank digital currency question vis-a-vis the United 
States and our role as the global reserve currency, but also 
its role in the financial system?
    Mr. Quarles. Beginning with the caveat that those are 
complicated questions that I wouldn't want my answer today to 
be viewed as final or definitive on, I think that the factors 
that cause the dollar to be the world's clearly central reserve 
currency will not be significantly affected were we to develop 
a central bank digital currency. I don't think that we are 
falling behind China or having the role of our currency 
internationally threatened by the measures that China is taking 
currently to digitalize their currency. We want to stay on top 
of that. We want to understand what other jurisdictions are 
doing. We want to understand what the role of a CBDC could be 
in our own domestic economy. There are a lot of things to study 
there. We could end up doing it, but I don't think that the 
driver of that decision should be that we think that there is a 
live threat from the technology around the currency to the 
dollar's reserve status.
    Mr. Gonzalez of Ohio. What do you think would drive that 
decision ultimately?
    Mr. Quarles. I think we need to see whether there are 
efficiencies in the payment system, both domestically and 
internationally, that could uniquely be addressed or very 
usefully be addressed by the central bank providing a digital 
currency. In many cases, that might not be. We do have a very 
heavily electronic and, in many ways, [inaudible] payment 
system.
    Mr. Gonzalez of Ohio. Thank you, and I yield back.
    Mr. Lynch. The gentleman yields back. The Chair recognizes 
the gentlelady from North Carolina, Ms. Adams.
    Ms. Adams. Thank you, Mr. Chairman. Chairwoman McWilliams, 
as you know, the FDIC is known by many for its role in insuring 
deposits, but it also plays a key role in consumer protection. 
The FDIC has stated that it is responsible for evaluating 
supervised instructions for compliance with consumer 
protection, anti-discrimination, and community investment laws, 
among other duties. However, it appears that FDIC-supervised 
banks are now skirting the line of compliance with consumer 
protection. So let me ask you, given the FDIC's stated role in 
the identification and the elimination of dangerous and 
discriminatory practices, what steps is the FDIC taking to make 
sure that banks are not using partnerships with fintech 
companies as a back door to reintroduce predatory tactics?
    Ms. McWilliams. I can assure you, Congresswoman, that we 
don't take consumer protection lightly, and I would be more 
than happy to engage with your office to understand the 
specific instances where you believe that FDIC-supervised banks 
have been able to skirt consumer protection laws with impunity, 
because I can assure you, that has not been the case, at least 
not under my chairmanship.
    I think there is a lot of misinformation about the fintech 
partnerships. I think one of the prior colleagues of yours 
mentioned the benefits of having fintech partnerships in terms 
of the benefits to consumers. We have a large proportion of the 
United States population who cannot afford $400 on a monthly 
basis for family emergencies, and in those cases, you want to 
have access to credit available to them. And quite often, the 
fintechs are able to provide different methodologies to be able 
to bank consumers with lower credit scores, so I think there 
are a lot of benefits.
    What I believe you may be referring to is a rulemaking that 
we promulgated, which is the Value-When-Made Rule, and this 
particular rule, I believe there has been a lot of 
misinformation about it. It does not expand paydown lending in 
FDIC-regulated banks. It does not authorize the use of a bank 
charter for other arrangements. And we have spoken very openly 
about viewing unfavorable entities that partner with a State 
bank to evade, so if that is what you are talking about, I am 
happy to engage in explaining the rule.
    Ms. Adams. Okay. We will do that. Thank you so much. Acting 
Comptroller Hsu, as you know, the OCC plays a key role in 
ensuring that banks by the rules. However, recent reports 
indicate that banks are rapidly expanding their partnerships 
with financial technology companies that may rely on predatory 
lending practices. We have some examples, but let me ask you, 
does it concern you when a national bank you regulate teams up 
with another company to engage in risky lending that has been 
shown to generate discriminatory outcomes?
    Mr. Hsu. Yes, absolutely. Discriminatory outcomes should 
not be an outcome for any bank, especially for a national bank, 
so, yes. Now, I do think there are some partnerships that are 
healthy, and there are some partnerships that are unhealthy. 
And our role is to ensure that those partnerships that are 
healthy, that they are not leaning towards predatory lending or 
those kinds of outcomes.
    Ms. Adams. Okay. Would you be concerned if a national bank 
partnered with a fintech lender that claimed its products are 
neither loans nor credit in an attempt to evade Federal and 
State consumer financial laws?
    Mr. Hsu. I think it depends a lot on the facts and 
circumstances. If there are particular instances, we would be 
happy to look at those and make sure that they are doing the 
right thing.
    Ms. Adams. Okay. Actually, Comptroller Hsu, do you have any 
reservations that a bank under your supervision is renting out 
its charter so that tech startups can employ these risky 
practices?
    Mr. Hsu. Yes. I should reiterate, predatory lending and 
rent-a-charter, there is no place for that in the national 
banking system.
    Ms. Adams. Okay. In light of what we have discussed today, 
do I have your commitment to carefully examine partnerships 
between banks and fintech startups, and, in particular, to 
scrutinize instances in which banks and new student loan 
companies are maybe teaming up to make an end run around 
consumer protections?
    Mr. Hsu. On student loans, I need to check with my staff as 
to the specifics on that, but, in general, yes. My 
understanding is that there is guidance and there are rules 
around this, and we would expect banks to follow those, and our 
examiners would examine for that.
    Ms. Adams. Okay. Thank you.
    Thank you very much. Mr. Chairman, I yield back.
    Mr. Lynch. The gentlelady yields back. By prior agreement 
between Chairwoman Waters and the witnesses, we have a hard 
stop at 1:30, and we are just past that right now. First of 
all, I want to thank our Members for their really thoughtful 
questions. This was a great hearing. I also want to thank our 
distinguished witnesses for their insightful answers and for 
their testimony today.
    The Chair notes that some Members may have additional 
questions for these witnesses, 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.
    And with that, this hearing is now adjourned. Thank you.
    [Whereupon, at 1:35 p.m., the hearing was adjourned.]

                            A P P E N D I X

                              May 19, 2021
                              
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