[Senate Hearing 117-736]
[From the U.S. Government Publishing Office]
S. Hrg. 117-736
NOMINATIONS OF MARTIN GRUENBERG,
TRAVIS HILL, JONATHAN MCKERNAN, AND KIMBERLY ANN MCCLAIN
=======================================================================
HEARING
before the
COMMITTEE ON
BANKING,HOUSING,AND URBAN AFFAIRS
UNITED STATES SENATE
ONE HUNDRED SEVENTEENTH CONGRESS
SECOND SESSION
ON
NOMINATIONS OF:
MARTIN GRUENBERG, OF MARYLAND, TO BE A MEMBER AND CHAIRPERSON OF THE
BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
__________
TRAVIS HILL, OF MARYLAND, TO BE A MEMBER AND VICE CHAIRPERSON OF THE
BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
__________
JONATHAN MCKERNAN, OF TENNESSEE, TO BE A MEMBER OF THE BOARD OF
DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
__________
KIMBERLY ANN MCCLAIN, OF MARYLAND, TO BE AN ASSISTANT SECRETARY OF
HOUSING AND URBAN DEVELOPMENT
__________
NOVEMBER 30, 2022
__________
Printed for the use of the Committee on Banking, Housing, and Urban
Affairs
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Available at: https: //www.govinfo.gov /
______
U.S. GOVERNMENT PUBLISHING OFFICE
53-443 PDF WASHINGTON : 2023
COMMITTEE ON BANKING, HOUSING, AND URBAN AFFAIRS
SHERROD BROWN, Ohio, Chairman
JACK REED, Rhode Island PATRICK J. TOOMEY, Pennsylvania
ROBERT MENENDEZ, New Jersey RICHARD C. SHELBY, Alabama
JON TESTER, Montana MIKE CRAPO, Idaho
MARK R. WARNER, Virginia TIM SCOTT, South Carolina
ELIZABETH WARREN, Massachusetts MIKE ROUNDS, South Dakota
CHRIS VAN HOLLEN, Maryland THOM TILLIS, North Carolina
CATHERINE CORTEZ MASTO, Nevada JOHN KENNEDY, Louisiana
TINA SMITH, Minnesota BILL HAGERTY, Tennessee
KYRSTEN SINEMA, Arizona CYNTHIA LUMMIS, Wyoming
JON OSSOFF, Georgia JERRY MORAN, Kansas
RAPHAEL WARNOCK, Georgia KEVIN CRAMER, North Dakota
STEVE DAINES, Montana
Laura Swanson, Staff Director
Brad Grantz, Republican Staff Director
Elisha Tuku, Chief Counsel
Dan Sullivan, Republican Chief Counsel
Cameron Ricker, Chief Clerk
Shelvin Simmons, IT Director
Pat Lally, Hearing Clerk
(ii)
C O N T E N T S
----------
WEDNESDAY, NOVEMBER 30, 2022
Page
Opening statement of Chairman Brown.............................. 1
Prepared statement....................................... 36
Opening statements, comments, or prepared statements of:
Senator Toomey............................................... 3
Prepared statement....................................... 37
NOMINEES
Martin Gruenberg, of Maryland, to be a Member and Chairperson of
the Board of Directors of the Federal Deposit Insurance
Corporation.................................................... 7
Prepared statement........................................... 38
Biographical sketch of nominee............................... 40
Responses to written questions of:
Chairman Brown........................................... 76
Senator Toomey........................................... 80
Senator Scott............................................ 89
Senator Tillis........................................... 94
Senator Hagerty.......................................... 100
Senator Warnock.......................................... 101
Senator Tester........................................... 104
Travis Hill, of Maryland, to be a Member and Vice Chairperson of
the Board of Directors of the Federal Deposit Insurance
Corporation.................................................... 9
Prepared statement........................................... 47
Biographical sketch of nominee............................... 48
Responses to written questions of:
Chairman Brown........................................... 108
Senator Cortez Masto..................................... 118
Senator Scott............................................ 126
Senator Tester........................................... 128
Senator Warren........................................... 132
Senator Warnock.......................................... 134
Jonathan McKernan, of Tennessee, to be a Member of the Board of
Directors of the Federal Deposit Insurance Corporation......... 10
Prepared statement........................................... 54
Biographical sketch of nominee............................... 55
Responses to written questions of:
Chairman Brown........................................... 135
Senator Cortez Masto..................................... 142
Senator Scott............................................ 149
Senator Tester........................................... 151
Senator Warren........................................... 154
Senator Warnock.......................................... 155
(iii)
Kimberly Ann McClain, of Maryland, to be an Assistant Secretary
of Housing and Urban Development............................... 11
Prepared statement........................................... 66
Biographical sketch of nominee............................... 67
Responses to written questions of:
Chairman Brown........................................... 157
Senator Toomey........................................... 159
Senator Cortez Masto..................................... 162
Senator Sinema........................................... 164
Senator Smith............................................ 165
Senator Warnock.......................................... 166
Additional Material Supplied for the Record
Memorandum Opinion, FDIC......................................... 167
NOMINATIONS OF MARTIN GRUENBERG,
TRAVIS HILL, JONATHAN MCKERNAN, AND KIMBERLY ANN MCCLAIN
----------
WEDNESDAY, NOVEMBER 30, 2022
U.S. Senate
Committee on Banking, Housing and Urban Affairs
Washington, DC.
The Committee met at 10 a.m., via Webex and in room 538,
Dirksen Senate Office Building, Hon. Sherrod Brown, Chairman of
the Committee, presiding.
OPENING STATEMENT OF SENATOR SHERROD BROWN
Chairman Brown. The Senate Committee on Banking, Housing,
and Urban Affairs will come to order. Good to see Senator
Corker, who used to sit over there, over there wherever he sat,
depending on the situation. So nice to see you.
This hearing is in a hybrid format. Our witnesses are in
person. Members have the option to appear either way.
The Committee meets today to consider four nominations: the
Honorable Martin Gruenberg to be a Member and Chairperson of
the Board of Directors of the Federal Deposit Insurance
Corporation; Mr. Travis Hill to be a Member and Vice Chair of
the FDIC; Ms. Jonathan McKernan to be a Member of the Board of
Directors of the FDIC; and Dr. Kimberly McClain to be Assistant
Secretary for Congressional and Intergovernmental Relations at
the Department of Housing and Urban Development.
Welcome, all of you. We thank the nominees for appearing.
We thank them for their willingness to serve our country. We
welcome their family and friends who are in attendance as well
as those watching from home.
FDIC is responsible for ensuring deposits and supervision
of some 5,000 banks and savings associations. The agency is
governed by a board of directors which Congress has authorized
to fulfill its mission to, quote, ``maintain stability and
public confidence in the Nation's financial system.'' All five
members of the board are appointed by the President, confirmed
by the Senate. The board is tasked with governing the FDIC.
Today our Committee will consider three of these five seats
on the board, including the Chair and Vice Chair nominees.
Marty Gruenberg is the President's nominee to serve as FDIC
Chair. He is exceptionally well qualified. He has dedicated his
career to serving the public, ensuring that our banking system
is safe and strong. Since 2005, he has served as a Nation of
the FDIC board of directors in various capacities, as Chair, as
Acting Chair, as Vice Chair, as a Member. The Senate has
unanimously--unanimously--confirmed Mr. Gruenberg five times.
During his tenure on the FDIC board he has been a fierce
defender of consumers and taxpayers and small businesses, the
people who make this country run. He has also seen our banking
system at its highest and its lowest points. He has helped
ensure the stability of this system through the great 2008
recession. Under his leadership, the agency has put in place
important safeguards following the financial crisis, taken
steps to strengthen the Community Reinvestment Act. He has
worked with banks to prepare for the risks that pose threats to
our financial system, like cyberthreats and climate change.
He has the experience and dedication we need. If confirmed,
he will continue working to protect our financial systems so
that when Americans place their money in FDIC-insured banks
they know their money will be protected. At his nomination
hearing to be Chair more than decade ago, Senator Sarbanes,
whom Mr. Gruenberg staffed on this very dais, said, quote,
``Marty is extremely well prepared to serve as its Chair. He
would bring, right from the beginning, stability and continuity
to the work of the FDIC.'' Those words actually ring even more
strongly today.
It has been only a few weeks since you last appeared before
us, Mr. Gruenberg. Welcome.
Travis Hill is nominated to serve as Vice Chair of the
FDIC. More recently, Mr. Hill served as Senior Advisor to the
former Chair of the FDIC, Jelena McWilliams, and Deputy the
Chair for Policy. Before joining FDIC in 2018, he worked on the
staff of this Committee, for Senator Shelby and Senator Crapo,
both of whom are here at the beginning of the hearing. Thank
you.
Jonathan McKernan is nominated to serve as a Member of the
Board of Directors at FDIC. Since 2019, Mr. McKernan has served
as the Financial Housing Finance Agency. He is currently on
detail from FHFA to Ranking Member Toomey's Banking and Housing
Committee staff. Prior to joining FHFA, Mr. McKernan served at
the Treasury Department. Before Treasury, he worked for our
former colleague, Senator Corker. Early in his career, Mr.
McKernan worked in private law practice here in Washington.
Mr. Hill and Mr. McKernan, if confirmed as the two newest
Nations, will be joining the agency at a critical time as the
country emerges from the pandemic and the banking system faces
new challenges. I would like to hear from the two of you how
you will approach working with Mr. Gruenberg as the Chair. He
has been in your position for years also so he knows both ends
of that, how you will protect consumers, serve all Americans,
and stay ahead of risks to our financial system. I expect
financial regulators to demonstrate that they are committed to
serving Main Street, not Wall Street. You know how this
Committee has changed under this chairmanship.
Finally, our last nominee before the Committee is Dr.
Kimberly McClain, President Biden's nominee to serve as
Assistant Secretary for Congressional and Governmental
Relations at the Department of Housing and Urban Development.
HUD's programs help create equal access to opportunity for all
through responsible access to housing, credit, promotion of
fair housing assistance to help renters and those experiencing
homelessness to find safe and stable homes and support for
States, tribes, local governments as they address their housing
and community development challenges. If confirmed, Dr. McClain
will manage an office responsible for coordinating with
congressional offices and Federal, State, and local government
agencies.
Dr. McClain is an Air Force veteran. She serves currently
as Deputy Assistant Secretary for Lege Affairs at the
Department of Veterans Affairs. She possesses some 30 years of
combined legislative, international affairs, and policy
experience. Before joining the VA, Dr. McClain worked as
Director for Congressional Strategy at the Air Force. Welcome,
Dr. McClain. Thank you for your years of dedicated service to
this country also.
Ranking Member Toomey.
STATEMENT OF SENATOR PATRICK J. TOOMEY
Senator Toomey. Thank you, Mr. Chairman. I, too, would like
to welcome back our former colleague, Senator Corker. Great to
see you back at the Committee again.
As you pointed out, we are here today to consider four
nominations--Mr. Gruenberg, Mr. Hill, Mr. McKernan, and Ms.
McClain, to the posts that you listed.
The FDIC nominations represent a long-overdue return to
normal order. The agency has not been governed by a full, five-
member board since 2015, and has not had a Vice Chairman for
over 4 years. But more troubling, after former Chairman Jelena
McWilliams was virtually forced out in February, the board has
been comprised of only three members, all of the same political
party, and two of whom served in an acting capacity.
While I commend the Biden administration for finally
nominating a full slate of FDIC directors, including a
permanent Chairman and a Vice Chairman, I have several concerns
with Acting Chairman Gruenberg's nomination to again serve in
that role permanently, based on his previous actions. Last
year, Mr. Gruenberg helped to lead a partisan power grab at the
FDIC board, under which he and his fellow Democrat board
members disregarded nearly 90 years of agency precedent of
allowing the Chair to set the agency's agenda. Until this coup,
which forced out Chairman McWilliams, all FDIC board members,
Democrat and Republican, had followed this precedent.
During the Obama administration, the Department of Justice
and financial regulators launched the now-infamous Operation
Choke Point. This program attempted to coerce banks into
denying services to lawful yet politically disfavored
businesses, such as firearm manufacturers and payday lenders.
The FDIC's own inspector general found that FDIC personnel
targeted these businesses, and I quote, ``consistent with a
widely held understanding that the highest levels of the FDIC
disfavored these types of banking services,'' end quote.
Well, the highest levels of the FDIC, of course, included
Mr. Gruenberg, who led the FDIC from 2011 through mid-2018.
And we know from court documents, in Operation Choke Point-
related litigation, that Mr. Gruenberg and his team played a
role in directing banks to cease relationships with payday
lenders. I remain concerned that some of the left still believe
in Choke Point's central tenet, that financial regulators
should misuse their regulatory apparatus to debank or limit
credit to lawful yet politically disfavored businesses. As we
have seen in word and deed from other nominees, this is a very
real threat to businesses, especially in the traditional energy
sector.
I worry that this pattern of pressuring banks not to
provide services to lawful but disfavored businesses may be
again emerging at Mr. Gruenberg's direction. Earlier this year,
my office received whistleblower reports that the FDIC has been
deterring banks from doing business with crypto-related
companies. I understand that one paused activity is custody of
crypto assets. While this activity has not disappeared but
rather has simply migrated to less-regulated companies, often
in foreign jurisdictions with weaker regulatory regimes. And we
have recently seen how that can end.
Finally, based on Mr. Gruenberg's 9 months as Acting Chair
as well as the events that led to his time in that role, I am
concerned that he may continue to politicize the agency. On his
very first day as Acting Chair, Mr. Gruenberg announced that
the FDIC would join the Network for Greening the Financial
System. This is an international group committed to denying
capital to carbon-emitting industries. Now while I appreciate
his recent acknowledge that, and I quote, ``credit allocation
decisions are responsibilities of financial institutions,'' end
quote, the statement appears to be in conflict with this
action. If confirmed, I urge Mr. Gruenberg to depoliticize the
agency's work and restore the FDIC's independence.
Today we will also hear from Travis Hill and Jonathan
McKernan. Both nominees are extremely well qualified to serve
on the FDIC board. Mr. Hill's significant experience in both
the Legislative and Executive branches will deepen the FDIC's
board's expertise and enhance the quality of its deliberations.
As Senior Counsel on the Banking Committee he worked on several
pieces of bipartisan legislation, over several Congresses, and
during his time as an advisor to former FDIC Chair McWilliams
he spearheaded numerous policy initiatives, worked
constructively with agency career staff, and other board
members. I commend him for his public service and I look
forward to hearing how he will approach his role as FDIC Vice
Chair.
In a few moments Senator Corker will introduce Mr.
McKernan, an exceptional nominee with valuable private sector
experience and a commitment to public service. I have
personally worked with Jonathan during his time has an FHFA
attorney detailed to the Banking Committee. I know firsthand
that his knowledge of banking and housing finance issues will
equip him well to serve on the FDIC board, and in addition to
his substantive expertise I have been impressed by his
diligence and character, and I look forward to supporting his
nomination.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Van Hollen will introduce the Chairman, the
Chairman designee, Senator Crapo will then introduce the Vice
Chair designee Hill, and then Senator Corker will introduce the
third nominee. So Senator Van Hollen.
Senator Van Hollen. Thank you, Mr. Chairman, Ranking Member
Toomey, colleagues. Senator Corker, great to see you.
I am really pleased and privileged to say a few words on
behalf of the President's nominee to serve as Chairman of the
FDIC, Mr. Gruenberg. Now I know Mr. Gruenberg is well known to
Members of this Committee. He has served with great
distinction. He has been the longest-serving member of the
board of the FDIC. He served as Vice Chair and Chair. He played
a critical role as Vice Chair in response to the global
financial crisis, and then as Chair overseeing the recovery of
the financial industry under the jurisdiction of the FDIC.
What many may not know, although I know some do, is that
Marty Gruenberg also served with great distinction for over 20
years as a staff member on this Committee for a former Maryland
Senator, Paul Sarbanes, somebody who I respected greatly. And
at that time I also served as a staff member for another
Maryland Senator, in the late 1980s--we are dating ourselves,
Marty--Mac Mathias, a liberal Republican Senator from Maryland.
And so Marty Gruenberg and I overlapped during that period
of time. I later worked as a staff member on the Senate Foreign
Relations Committee. And I can tell you this, and I think you
know this. You can disagree with Marty Gruenberg on issues, but
I daresay nobody can question his integrity and his commitment
to public service, his determination to listen to all sides
before making up his mind and reaching a decision, and that is
exactly the kind of person we want as Chair of the FDIC.
So it is great to see you again, Marty Gruenberg, and I
commend his nomination and confirmation to all my colleagues.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Crapo will introduce Mr. Hill.
Senator Crapo. Thank you very much, Mr. Chairman, and
Senator Corker, it is great to see you back here in the room. I
appreciate the opportunity I had to serve with you. Senator
Toomey, thank you also for your remarks.
I have the privilege of introducing Travis Hill today, a
former staffer of mine and no stranger to the Members who have
been on this Committee over the past several years. Travis
joined the Senate Banking Committee in 2013, and worked on a
bipartisan basis on some very difficult, complex issues, from
housing finance reform to legislation to right-size regulation
for financial institutions, serving under both then-Chairman
Shelby and myself as Chairman.
Travis worked diligently on the Economic Growth, Regulatory
Relief, and Consumer Protection Act, or S. 2155, which tailored
regulation to risk for financial institutions in order to
promote economic lending, and also made it easier for consumers
to obtain credit, and increased important protections for
veterans, senior citizens, victims of fraud, and those who fall
on hard financial times.
This bill was the product of a thorough, robust process and
honest bipartisan negotiations, and Travis worked closely with
many Members of this Committee and their staff, from beginning
to finish. His intellect, integrity, and deep understanding of
the financial services legal and regulatory landscape have
earned him the respect of all who have had the pleasure of
working with him. Travis understands the need to balance safety
and soundness while enabling a vibrant, growing economy, and
has demonstrated this understanding at the FDIC, as the agency
faced unprecedented challenges during the pandemic.
As financial markets and the economy experienced
significant stress and volatility, he played a key role in
implementing measures to mitigate the impact of the pandemic on
the U.S. financial system and to support American households,
communities, and small businesses.
Travis has the experience and the qualifies to do this job
well, and I am confident that he will bring the same diligence,
work ethic, expertise, and respect for Congress that he
exemplified during the time he worked here for me. I am proud
to support his nomination and look forward to seeing him
confirmed promptly.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Crapo.
And Senator Corker will introduce Mr. McKernan. Bob,
welcome.
Senator Corker. Mr. Chairman and Ranking Member, Members of
the Committee, it is quite an honor, if you can imagine, to be
here, and a privilege to serve with all of you. Thank you for
what you continue to do. I know a couple of Members are
leaving. Just for what it is worth, it is not that bad on this
side of the dais. So anyway, I thought it would be.
Jonathan grew up in East Tennessee. He stayed there for
college, studying at University of Tennessee, where he received
a bachelor's and master's degree in economics and graduated at
the top of his undergraduate class. After college, he studied
in Moscow, Russia, as a National Security Education Program
Boren Fellow, and then attended law school at Duke University,
where he graduated with high honors.
Jonathan has since spent the last 15 years focused on
financial services, regulation, and policy. He started as a
banking lawyer in private practice, first at the law firm of
Hogan & Hartson and then at Wilmer Hale, where he advised
community banks and other financial institutions on a wide
range of issues under the Federal and State banking laws.
Jonathan has spent almost 6 years in Government service. He
got his start in Government as a financial services policy
advisor to our office, and in that role he supported our
bipartisan effort with several Members of this Banking
Committee, on both sides of the aisle, to negotiate housing
finance reform legislation, which I know there is still work to
do there. Jonathan then went to work as a policy advisor at the
Department of Treasury and to the FHFA, and has been on detail
from FHFA to the Banking Committee's minority staff since
January 2021.
I know all of you know the great pride in being able to
support someone's nomination that you have worked and served
with, and I do not know of anyone who has greater intellectual
curiosity and desire to get to the right answer. It was an
honor to serve with him. He will be an outstanding director at
the FDIC, if confirmed. I hope that is the case.
It is a privilege to be here. Thank you for this time. I
know I do not have to leave but I cannot stay here, so thank
you. Thank you so much.
[Laughter.]
Chairman Brown. Well said. Thank you, Bob, for being here
and for the generous introduction of your friend.
Would the four nominees come forward and please stand and I
will administer the oath.
Please raise your right hands.
Do you swear or affirm the testimony you are about to give
is the truth, the whole truth, and nothing but the truth, so
help you God?
Mr. Gruenberg. I do.
Mr. Hill. I do.
Mr. McKernan. I do.
Ms. McClain. I do.
Chairman Brown. Do you agree to testify before any duly
constituted committee of the Senate?
Mr. Gruenberg. I do.
Mr. Hill. I do.
Mr. McKernan. I do.
Ms. McClain. I do.
Chairman Brown. Thank you. Please be seated.
We will begin with Mr. Gruenberg. Any of the four of you,
if you want to introduce family members or friends with you
today, please do that at the beginning of your testimony.
Mr. Gruenberg, please begin.
STATEMENT OF MARTIN GRUENBERG, OF MARYLAND, TO BE A MEMBER AND
CHAIRPERSON OF THE BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT
INSURANCE
CORPORATION
Mr. Gruenberg. Thank you very much, Chairman Brown, Ranking
Member Toomey, Members of the Committee. It is my honor to
appear before you as the President's nominee to serve as
Chairman and Member of the Board of the Federal Deposit
Insurance Corporation. I would like to thank President Biden
for the honor of this nomination, and Chairman Brown and
Ranking Member Toomey for scheduling this confirmation hearing.
I would also like to thank Senator Van Hollen for his very kind
introduction.
I have had the privilege of serving as a member of the FDIC
board since August 2005, and as Vice Chairman, Chairman, and
Acting Chairman during that period. I served as Vice Chairman
during the global financial crisis of 2008 and its immediate
aftermath, and as Acting Chairman and Chairman during the post-
crisis recovery period.
Prior to joining the FDIC, I worked for Senator
Sarbanes on the staff of the Senate Committee on Banking,
Housing, and Urban Affairs from January 1987 to August 2005.
During that period, I had the opportunity to work on major
legislation including FIRREA, FDICIA, the Riegle-Neal
Interstate Banking Act, the Gramm-Leach-Bliley Act, and the
Sarbanes-Oxley Act.
A reasonable question to ask is why, after serving on the
FDIC board for such a long period, I would seek nomination to
serve as Chairman again?
The answer is pretty straightforward. My parents, who were
Holocaust survivors from Poland, gave me the gift of being born
in this country. Public service is a calling that has always
been most meaningful to me. The FDIC is a great agency of our
Government, whose mission of maintaining public confidence and
stability in our financial system is critical to our country's
well-being. The opportunity to serve on the FDIC board and to
provide leadership as Chairman has been the greatest honor of
my career, and I can think of no opportunity that would have
greater meaning to me than the chance to continue to serve.
As I indicated in testimony before this Committee 2 weeks
ago, the banking industry enters the current period of economic
uncertainty in a position of significant strength. The industry
is experiencing strong loan growth and continued good asset
quality measures, and remains well-capitalized and highly
liquid. However, it continues to face significant downside
risks, from inflation, rising market interest rates, and
geopolitical uncertainty. Taken together, these risks may
reduce profitability, weaken credit quality and capital, and
limit loan growth in coming quarters. These will be matters of
ongoing supervisory attention by the FDIC for the near term.
In my testimony I also outlined key priorities for the FDIC
for the remainder of this year and next, including maintaining
a strong Deposit Insurance Fund, strengthening the Community
Reinvestment Act, addressing the financial risks of climate
change, reviewing the bank merger process, evaluating the risks
of crypto assets to the banking system, and finalizing the
Basel III capital rules.
In addition, I highlighted the FDIC's efforts to support
minority depository institutions and community development
financial institutions, promote a diverse and inclusive
workplace at the FDIC, and strengthen cybersecurity and
information security within the banking industry. If I may, I
would like to conclude my statement with two acknowledgements.
First, the last time I appeared before this Committee for a
confirmation hearing I had the honor of being introduced by
Senator Sarbanes. Most of what I know about public service I
learned from him and from serving on the staff of this
Committee. His integrity, intelligence, and judgment were such
that not a day that goes by that I do not ask myself, ``What
would Senator Sarbanes do?''
Finally, I would like to acknowledge the dedication and
extraordinary capabilities of the employees of the FDIC who
have performed with such distinction during my tenure at the
agency, especially during times of crisis. They are deeply
committed to the FDIC's mission and serve our country well
every day.
That concludes my statement, and I would be glad to respond
to your questions.
Chairman Brown. Thank you, Mr. Gruenberg, especially your
comments about the staff, who does not get nearly the credit
they should from this institution.
Mr. Hill, welcome. Please proceed. Thank you.
STATEMENT OF TRAVIS HILL, OF MARYLAND, TO BE A MEMBER AND VICE
CHAIRPERSON OF THE BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT
INSURANCE
CORPORATION
Mr. Hill. Thank you Chairman Brown, Ranking Member Toomey,
and Members of the Committee. It is an honor to have been
nominated by the President to serve as a member of the Board of
Directors at the Federal Deposit Insurance Corporation, and to
appear before you today.
Joining me this morning are my wife Lauren and my son
Wesley, while my daughter Whitney is having more fun at
daycare. I am continually grateful for all their love and
support. I am also joined by my parents, John and Nicole, who
have traveled here from New York, and from whom I have learned
the importance of hard work, responsibility, and too many life
lessons to list.
Public service is something I do not take lightly. All four
of my grandparents arrived in this country as immigrants,
including two who were German Jews escaping the Nazis. Both of
my grandfathers subsequently volunteered to fight in World War
II, and in the ensuing years one of them rose to manage a chain
of restaurants despite never having attended high school, while
the other started a company importing minerals from India. I
grew up with a deep appreciation for all this country has to
offer.
I spent 5\1/2\ years working as a staff member for this
Committee. I am extremely grateful to Senators Crapo and Shelby
for the opportunity. During my time on the Committee, I worked
on a number of bipartisan bills, including the Economic Growth,
Regulatory Relief, and Consumer Protection Act, commonly
referred to as S. 2155, which was signed into law in May 2018.
I spent countless hours working with staff members on both
sides of the aisle. Through my experience on the Committee, I
developed a deep understanding of the ins and outs of banking
laws and regulations, the importance of bipartisan cooperation,
and the vital oversight role Congress plays in holding
Government agencies accountable to the American people.
After leaving Capitol Hill, I worked at the FDIC as an
advisor to Chairman Jelena McWilliams and as her deputy for
policy. In this role, I was involved in a range of FDIC
policymaking initiatives, represented the agency in a number of
different venues, and helped lead the agency through the COVID-
19 pandemic. This experience reinforced my appreciation of the
important role the FDIC plays in promoting the safety and
soundness of banks and the stability of the banking system,
while ensuring that hardworking Americans have a safe,
accessible place to leave their savings. I also saw firsthand
the exceptional expertise and experience of the FDIC staff. I
remember my time at the FDIC with great fondness, and am
excited about the potential opportunity to return, if
confirmed.
Throughout my career I have seen the importance of a well-
tailored regulatory framework that promotes economic growth,
innovation, and broad access to credit, while ensuring our
Nation's banks remain safe, sound, and resilient to shocks. I
have also grown to deeply appreciate the value of a banking
sector with institutions of all different sizes and business
models, including community banks and minority depository
institutions that play a crucial role in their communities.
If confirmed, I look forward to working with Members of
this Committee to ensure the FDIC continues to fulfill its
critical mission, as it has done for the past 89 years.
Thank you, and I look forward to your questions.
Chairman Brown. Thank you, Mr. Hill.
Mr. McKernan, welcome.
STATEMENT OF JONATHAN MCKERNAN, OF TENNESSEE, TO BE A MEMBER OF
THE BOARD OF DIRECTORS OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION
Mr. McKernan. Chairman Brown, Ranking Member Toomey, and
Members of this Committee, it is an honor to appear before you
today. I am humbled to have been nominated to be a member of
the Board of Directors of the Federal Deposit Insurance
Corporation. I am grateful to the President for entrusting me
with this nomination, to Senator Corker for giving me my first
job as a Senate staffer, and to Ranking Member Toomey for
giving me another opportunity to continue public service here
in the Senate.
My wife, Sapna Sharma, is here with me today. She and I met
on the Hill when we were both starting out as congressional
staffers. Despite serving on different sides of the aisle,
Sapna and I quickly found common ground in our shared passion
for the ideals that make this country great. Five years later,
we have two boys, 20-month-old Patrick, and 4-month-old
Jonathan, and I hope that together we will instill in our
children a love of country and public service, while also
teaching them to find common ground with others who have
different world views.
My parents, Patrick and Victoria, are here today from East
Tennessee. My father is a former Navy pilot and sales
representative. My mother is a retired schoolteacher and
homemaker. From my parents I learned the importance of hard
work and perseverance, as well as an attachment to reading and
learning, that together have provided a solid foundation for
life. My brother, Paul, and his wife Kensie are here today as
well. Both are also former Senate staffers, having met while
working for Senator Alexander. My brother, Jason, and sister,
Christine, also are with us virtually.
I believe my 15 years in financial services law,
regulation, and policy have prepared me well to support the
FDIC in its work to maintain stability and public confidence in
the Nation's financial system. My first role in Government was
as an advisor to Senator Corker on banking matters, including
this Committee' s bipartisan S. 2155 reform legislation and the
Senator's efforts to negotiate bipartisan housing finance
reform legislation. I then served as an advisor at the
Department of the Treasury and the Federal Housing Finance
Agency, and am now on detail from FHFA to this Committee. I
have immensely valued my time here and believe this Committee
represents the best of those in public service.
Before joining Senator Corker's staff, I worked for more
than 9 years as a banking lawyer. My time in private practice
began just as the 2008 financial crisis was beginning. We all
watched as hundreds of billions of taxpayer dollars were spent
bailing out ``too big to fail'' financial institutions,
millions of homeowners were wiped out by foreclosures, and
almost every American family suffered in some way through the
economic fallout that followed. The aftershocks of the crisis
still reverberate 15 years later. Many American families will
never recover the lost generational wealth. Many others remain
convinced the system is rigged against them.
That experience left me with an enduring conviction that we
as a society must have a strong financial regulatory system
that ensures we do not repeat the mistakes of the past. The
FDIC's mission, therefore, resonates deeply with me, and if
confirmed, I would be strongly committed to ensuring the FDIC
does its part to maintain a resilient financial system.
I thank you for your consideration and look forward to your
questions.
Chairman Brown. Thank you, McKernan.
Dr. McClain, welcome.
STATEMENT OF KIMBERLY ANN MCCLAIN, OF MARYLAND, TO BE AN
ASSISTANT SECRETARY OF HOUSING AND URBAN
DEVELOPMENT
Mr. McClain. Chairman Brown, Ranking Member Toomey, and
Members of the Committee, joining me today is Ambassador Cindy
Courville. I thank her for her presence. Joining me virtually
are my mother, Ms. Laurie Freeman, my husband, Stephen McClain,
and our four children--Stephen II, Kenyata, Darrien, and
Patrick, who is hopefully enjoying school and not watching
television.
Thank you once again for the opportunity to appear before
you today. I would first like to thank President Biden for
nominating me to serve as Assistant Secretary for Congressional
and Intergovernmental Relations at the U.S. Department of
Housing and Urban Development. I would also like to thank
Secretary Fudge for her support of my nomination. Thank you
also to this Committee for holding today's hearing and meeting
with me over the past few weeks.
I look forward to working with this Committee on our
Nation's housing issues.
If confirmed, you have my pledge that I will bring to bear
the same commitment to service and nonpartisanship that has
guided my 30-year career in the United States military,
private, and public sectors.
For the last 22 months, I have been blessed to serve my
fellow veterans, their caregivers, and their survivors as
Deputy Assistant Secretary for Congressional and Legislative
Affairs at the U.S. Department of Veterans Affairs. I am proud
to support VA's work on access to benefits and care for all
veterans and their families.
I bring to this role a deep knowledge of Government and
understand how to work across large organizations, agencies,
and Congress to tackle challenges and deliver results. My
leadership experience has provided me with the unique
background to serve in this role. But just as important, I have
seen firsthand the positive impact of access to affordable
housing and economic mobility on people's lives.
You see, my childhood was filled with fond memories of
going to my paternal grandmother's home on weekends. When my
Grandma Freeman could no longer live in her home due to health
issues she moved into a subsidized neighborhood in Rockford,
Illinois, called ``The Terrace.'' That same neighborhood became
home to my maternal grandmother after the death of my
grandfather, from cancer. My Grandma Williams transitioned from
being a lifelong stay-at-home mother to a high school and
college graduate, and ultimately a librarian. The Terrace
provided my grandmothers with a sense of dignity and
independence in the midst of major life changes.
Life happens to all of us, and as life is happening, nobody
should have to wonder where they will lay their head down at
night. I am keenly aware of the struggles that homeowners and
renters are facing today. I am committed to working with
Congress and the constituents it serves. If confirmed, I will
do everything within my power to ensure that those who are most
in need have an advocate and a voice at HUD.
The Office of Congressional and Intergovernmental Relations
serves as an important force multiplier for HUD and a critical
conduit for communicating HUD's initiatives, programs, and
priorities to Congress, State and local elected officials,
Tribal leaders, and the Senate and House Committees with
jurisdiction over HUD.
To successfully accomplish HUD's missions, if confirmed, I
will focus on three areas: first, ensuring that the Office of
Congressional and Intergovernmental Relations is empowered and
equipped to be agile and responsive; second, increasing the
capacity and continuity of the Office's workforce to deliver
exceptional customer service; and finally, developing strong,
trusted relationships through consistent communication and
engagement.
I am ready to take on the HUD mission and work alongside
HUD teammates in service to our Nation. If confirmed, I will
lead as I did during my career in public service and as an Air
Force officer--Integrity First, Service Before Self, and
Excellence in All I Do.
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, thank you once again for the privilege to appear
before you and the opportunity to serve my country. I look
forward to answering your questions.
Chairman Brown. Thank you, Dr. McClain, and Dr. McClain,
thank you for your work for Ohio veterans on the PACT Act and
on other issues you have worked on at the VA. You will be
joining, I hope, once confirmation is done, you will be working
with a friend of mine, a notable Ohioan, Secretary Fudge, so
thank you for joining us.
Mr. Hill, I will start with you. Is there public purpose to
crypto right now?
Mr. Hill. Senator, I think right now most of the public
promise of crypto is for the future. Most engagement with
crypto today has been speculative investments in nature. But I
do think that there are a number of crypto projects that are
intended to try to make aspects of our financial system more
efficient, but I think as of today most of that is theoretical
and not part of everyday life.
Chairman Brown. Thank you, and I appreciate your
consistency from our discussion yesterday and your answer
today. We simply--and I know you mostly subscribe to what I am
about to say--we cannot let thousands of risky and volatile
assets that are used only for speculation and sanctions evasion
into our banking system. And we know that it is a national
security issue when you look at what is happening with
sanctions. So thank you for that response.
Mr. McKernan, this Committee, for too long, was just
referred to in these halls and by many as the Senate Banking
Committee, because it was mostly about Wall Street. You have
spent much of your career representing big banks, siding with
Wall Street. Now your job, should you be confirmed, will be
that of a regulator. Regulators, as you know and as you have
publicly said, serve the American people.
If confirmed, convince me your actions at FDIC will reflect
that commitment to serve all people and communities, not just
Wall Street.
Mr. McKernan. Senator, if confirmed, I will, of course, be
committed to ensuring the--doing my part that the FDIC performs
its mission. That is all about stability and confidence in the
Nation's financial system. If the FDIC cannot do that, then it
is Main Street that is primarily going to bear the burden of
that. Wall Street is going to be fine at the end of the day if
we have another bailout, or another financial crisis. At the
end of the day I am going to stay focused on the mission,
making sure we do not ever have a repeat of the financial
crisis.
Chairman Brown. Thank you for that answer.
Mr. Hill and Mr. McKernan together, both of you said you
want to work with Chair Gruenberg on the final Basel III
capital rules. Former Vice Chair of Supervision Quarles said
these rules should be implemented without increasing capital
requirements, while Fed Vice Chair for Supervision Barr is
committed to taking a fresh look at enhanced regulatory capital
requirements.
So as brief of an answer as possible, yes or no, Mr. Hill
and Mr. McKernan, do you agree with Vice Chair Barr?
Mr. Hill. Senator, without wanting to prejudge, I certainly
would go into the position, if confirmed, with an open mind,
and I do not think there is any down side to doing a holistic
review of the current capital standards.
Chairman Brown. Thank you. Mr. McKernan.
Mr. McKernan. Chairman, I similarly support a holistic
review.
Chairman Brown. OK. Thank you both.
Mr. Gruenberg, you have served at FDIC in different
capacities under administrations of both parties. Your record
is bipartisan. Talk about, just walk through if you would, in
the last minute and a half or so of my time, how you have
worked collaboratively with Republican independent board
members to achieve the FDIC mission.
Mr. Gruenberg. Well, thank you, Mr. Chairman. First of all,
I learned some lessons working for this Committee, for Senator
Sarbanes, on the importance of working on a bipartisan basis to
move forward the public interest, and I try to bring that
experience to the FDIC.
As you know, I served as Vice Chairman under Chairman
Sheila Bair during the global financial crisis, and we worked,
if I may say, hand in hand through an extraordinary period to
try to deal with the genuine risks of financial collapse in the
United States. And after I succeeded Sheila as Acting Chairman
and then Chairman, I worked on a daily basis with all of the
members of our board to try to bring the board together on the
issues that the agency was responsible for dealing with.
I would note that during the time I was Chairman--we went
back and checked the record on this--there were 773 board votes
taken. Of those 773 votes, there were 7 dissents. The rest were
unanimous, and of those 7 dissents they were all by 4-1 votes,
which means that even on those votes they were bipartisan given
the composition of our board.
So I think the agency functions best when you can bring the
board together. I am deeply committed to working with all the
members of our board, hopefully to reach agreement and even if
we do not, to agree to disagree and be able to continue to work
together.
Chairman Brown. Thank you. My high school math would say
that is greater than 99 percent of the votes. Thank you.
Senator Toomey.
Senator Toomey. Thank you, Mr. Chairman. Mr. Gruenberg,
when you spoke with my staff last week you expressed support
for providing other FDIC board members with the resources
necessary for them to hire staff, including staff from outside
the FDIC. In fact, you noted that in your previous tenure as
Chairman you had allowed an FDIC board member to hire a non-
FDIC employee to advise him, and you remarked that this
arrangement was positive, both for the member and for the board
as a whole.
So if you are confirmed, will you commit to providing all
other FDIC board members with similar resources and hiring
flexibility?
Mr. Gruenberg. Yes. Yes, Senator.
Senator Toomey. I appreciate that because I know you
recognize the importance that staff play in the decision-making
process, so I appreciate that commitment.
It is my understanding that the FDIC has an internal policy
that requires that meeting materials be circulated to FDIC
board members at least 2 weeks prior to the board meetings. Now
I understand that has not always been observed in practice but
that is the policy. Can you commit to abiding by this deadline,
including on interagency matters, to make sure that all board
members have the opportunity to review relevant material before
board consideration?
Mr. Gruenberg. Senator, I will certainly commit to doing
our best on that. We generally meet that deadline. If we do
not, we consult with the other members of the board, and
frankly, if there is ever an issue with a board member feeling
they have not had sufficient time to consider a matter then we
would, if necessary, delay action on it until all the members
of the board feel comfortable that they have had a full
opportunity to consider the matters that the board has to act
upon.
Senator Toomey. Well, I appreciate that and I hope you will
be able to stick to that because it becomes--as you know, it
can be impossible to properly evaluate and cast the decision
about an important matter. The things you deal with are so
complex and have so many nuances that it just requires that
time for preparation.
Still with Mr. Gruenberg, now your involvement in forcing
out former FDIC Chair McWilliams was very disturbing to me, as
you know. I have talked to you about this. Are you aware of a
single previous instance in the FDIC's nearly 90-year history
in which non-chairman board members sought to take control of
the agency's agenda?
Mr. Gruenberg. We certainly have had instances when I was
Chairman when other members of the board put forward proposals,
and there have been instances in the past in which other
members of the board have proposed cases at a board meeting.
And it is common practice at board meetings, at the conclusion
of board meetings, for the Chairman to ask the other members of
the board if there are any other matters that members would
like to raise. So----
Senator Toomey. Let me--go ahead.
Mr. Gruenberg. So I think the general practice is to defer
to the Chairman on setting the agenda, but every member of the
board is obviously an independent member with the ability, and
to a certain degree responsibility, to put forward proposals
that they believe are in the public interest.
Senator Toomey. OK. But my actual question was, was there a
time when the board members took control of the agenda against
the will of the Chair, overruling, essentially, the will of the
Chair? And we have done the research and we cannot find any
such time. In fact, in 2018, the board consisted of you as
Acting Chairman, and two Republicans, Joseph Otting and Mike
Mulvaney. I am pretty sure there must have been occasions where
those two Republicans disagreed with you on various matters.
But again, there has never been an occasion where they took
control of the agenda, overruled you, and pursued their own
agenda.
So I am concerned that what you and some of your colleagues
did really undermines the FDIC and could have lasting
implications.
Let me move on quickly here to your announcement on the
very first day as Acting Chairman at the FDIC, that the FDIC
would join the so-called Network for the Greening of the
Financial System. Now this group has an explicit mission to,
and I quote, ``mobilize mainstream finance to support the
transition toward a sustainable economy,'' end quote. In other
words, their stated goal is to allocate capital in such a way
as to accelerate a transition to a low-carbon economy.
Now you recently acknowledged that capital allocations
decisions should be made by banks. So do you believe it would
be appropriate for the FDIC to seek to play a role in
determining the pace of the transition of our economy to a
lower-carbon economy?
Mr. Gruenberg. That is not our responsibility, Senator.
Senator Toomey. I am glad to hear that, but I want to
remind you that that is exactly what the mission of the Network
for the Greening of the Financial System is. So we have U.S.
financial regulators acknowledge the indisputable fact that
they do not have the authority to set climate policy but then
they join an organization that is dedicated to doing exactly
that. So I would suggest withdrawing from the group as a way to
acknowledge the limited nature of the powers of the FDIC.
I have got very little time remaining but very quickly, Mr.
Hill, this is, of course, a multimember, bipartisan board, if
you are confirmed. Could you briefly talk about some of the
bipartisan work that you have done in the past that prepares
you for this role?
Mr. Hill. Sure. Thank you, Senator.
Senator Toomey. And then I would like to ask Mr. McKernan
essentially the same question, if you can answer the same
question.
Mr. Hill. When I was a staff member for the Senate Banking
Committee I participated in the work on a number of bipartisan
bills. When I first started working for the Committee we were
working on the FDA Solvency Act, which was marked up and
approved by the Committee, I believe, by a 23-1 vote. I then
did a lot of work on the Johnson-Craping Housing Finance Reform
legislation, which also was marked up by the Committee and
passed by a bipartisan vote. And, of course, there was S. 2155,
which also was signed into law with a bipartisan vote.
Mr. McKernan. Senator, briefly, similarly, some work on S.
2155 when I was working for Senator Corker, and perhaps also of
note, there was a lot of bipartisan effort, led by Senator
Corker's office, on housing finance reform office. I think at
some part we had, as part of our working group on this, staff
from six Republican offices and six Democratic offices on this
Committee. So I think there was a lot of creative problem
solving there and learning how to work on a bipartisan basis.
Senator Toomey. Thank you, and I want to thank all of the
witnesses for their public service and willingness to serve.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey.
Senator Reed, of Rhode Island, is recognized.
Senator Reed. Well, thank you very much, Mr. Chairman.
First let me acknowledge Senator Corker, one of the most
principled and decent colleagues that I have had the privilege
to work with. And despite our party differences we always saw
eye to eye, for obviously reasons.
I also want to thank Dr. McClain for her extraordinary
service in the United States Air Force. Thank you very much.
And finally, I want to commend Wesley for his composure and
patience, which is unusual around here.
Mr. Gruenberg, we have had the privilege of working
together for many, many years, and we share in common a great
admiration for Paul Sarbanes and public service, and you, I
think, have tried to continue in that tradition. I commend you
for that.
What we discovered during the pandemic is that our
community banks were very much more effective in helping small
business than the larger institutions, and much more vital to
the communities than, again, the larger institutions. FDIC has
the principal responsibility for these banks. Could you give
comment on the state of community banking, the challenges it
faces? Please.
Mr. Gruenberg. Thank you, Senator. The FDIC, as you know,
is the lead Federal supervisor for the majority of community
banks in the United States. So not only the supervision but
maintaining a strong community bank sector in the U.S. banking
and financial systems we view as really central to the FDIC's
mission. And community banks play role in our financial system
that is really critical and not replaceable. They consistently
punch above their weight in terms of their impact on our
financial system as a whole.
Most obviously, community banks today as the FDIC defines
them account for about 12 percent of all the banking assets in
the United States. They also provide nearly 40 percent of all
the small loans to businesses and farms in the United States,
and their ability to serve a small business and small farms,
which are, as you know, very labor intensive in terms of
providing financial services to, is really the core of the
business model of the community bank, which the larger
institutions really do not have a similar interest in serving.
And we know the importance of small business and small farms to
the economy. So the sustaining of viable community bank sector
in the United States is really quite critical.
And to the other point you raised, community banks have
continued to perform quite well in the period since the global
financial crisis and during the pandemic, and played a
particular and leading role in terms of implementing the PPP
program, to get loans out to small businesses. So the basic
business model of a community bank, which is careful
relationship lending, funded by stable core deposits, focused
on the local community that the bank understands well, has
actually held up and proven to be quite competitive, and it
remains critically important to the financial system, and is
the central responsibility of the FDIC.
Senator Reed. Thank you very much.
Mr. Hill and Mr. McKernan, I have been trying to expand the
Military Lending Act, which caps interest to servicemembers at
36 percent, to all Americans. I think 36 percent, in this
climate, is a rather generous interest rate. Would you be
supportive of such a proposal, since I would assume most of the
FDIC insured institutions charge much less interest rate than
that? Mr. Hill, first.
Mr. Hill. Senator, I appreciate all the work that you have
done in this area. I do think it is critically important that
banks treat their customers fairly and that loans that banks
make to consumers are loans that are affordable and that
consumers can repay.
With respect to the interest rate cap, I think we always
want to be careful in how we balance affordability with access
to credit, but would be happy to consider taking a look at the
legislation, and certainly if it was passed would implement it
as required.
Senator Reed. Mr. McKernan, please.
Mr. McKernan. Yes, Senator. In my time working for Senator
Corker I had a number of conversations with folks at the Pew
Trust on some of the creative thinking in that area. And one
thing I did take from that is that it is a complex issue. I
understand what you are trying to get at there. It is an
important issue. And I would be very eager, if confirmed, to
work with you and your staff to provide technical assistance on
your work there.
Senator Reed. Thank you very much. And Dr. McClain, good
luck. Thank you.
Chairman Brown. Thanks, Senator Reed.
Senator Shelby, of Alabama, is recognized.
Senator Shelby. Thank you, Mr. Chairman.
First of all, congratulations to all of you, and as we say,
your willingness to serve in the public sector. A lot of you
had experience there over the years. I am sure all of you are
qualified, highly qualified.
I am here specifically to laud Travis Hill. He worked as a
senior counsel on this Committee, as has been said, and he
served us with honor and distinction. He is highly qualified.
He is highly educated--Duke, Georgetown. He has a lot to offer,
and I congratulate the President in nominating all of you, but
especially Mr. Hill.
Mr. Gruenberg I have known a long time. I have worked with
him on the Committee when I was Ranking, with Chairman
Sarbanes, and when I was Chairman, and so forth, and we worked
together in a bipartisan way on a lot of things. But I have to
associate myself with some of the concerns that Senator Toomey
has made, when went on at the FDIC that more than bothered a
lot of us, because it was unprecedented, and so forth. And
maybe, Marty, you have learned something there. I do not know.
But those reservations are with some of us on some of the
things that you were involved in there.
I know you are highly qualified, by experience off this
Committee and as Chairman and Ranking over at the FDIC. But
those are real concerns, something that you and others ought to
be thinking about deeply before that ever happens again.
Other than that I congratulate all of you, wish you well,
hope the Chairman will expedite these things where we can talk
more about you and for you on the floor. Thank you very much.
Chairman Brown. Thank you, Senator Shelby.
Senator Menendez is recognized, from New Jersey.
Senator Menendez. Thank you, Mr. Chairman. Congratulations
to all the nominees.
The collapse of several crypto asset platforms this year
has highlighted the growing economic risks of unregulated
digital assets. We have also seen the potential for contagion
when these firms collapse under the weight of risky behavior,
and bring down other firms with them. As an example, last week
New Jersey-based crypto lender BlockFi filed for bankruptcy due
to its exposure to FTX. If digital assets become further
integrated with the traditional economy and financial system
that contagion risk could be amplified.
So Mr. Hill and Mr. McKernan, if confirmed, how will you
ensure that FDIC-supervised institutions are shielded from
inappropriate risk in the digital asset space?
Mr. Hill. Senator, I guess I would start by saying I think
it is important to distinguish between different types of
crypto-related activities that banks can potentially get
involved in. I think there is a big difference between a bank
providing custody services for crypto-related activity versus a
bank using its balance sheet to engage in speculative
investments.
But I think generally the responsibility of the FDIC and
the other banking agencies is to ensure that to the extent
activities are legally permissible that they are done in a safe
and sound way.
Senator Menendez. Mr. McKernan.
Mr. McKernan. Senator, if confirmed, the way I would
approach crypto-related activities within the banking system is
really threefold. First, any crypto-related activities at an
FDIC-regulated bank need to be performed in a safe and sound
manner. Second, those activities need to be in compliance with
consumer protection and other law. And third, the activities
cannot pose a risk to financial stability.
I maybe might just amplify a bit the second point,
compliance with law. I would want to study this issue further,
if confirmed, but as I understand it there are some significant
open questions as to what is a permissible activity when it
comes to crypto at a bank. So I think that is something I would
want to understand better. And second, I do think there is a
role for the market regulators to play in continuing to define
the rules of the road in this space, and the banks will need to
similarly comply with that law.
But at a high level it is about safety and soundness,
compliance with law, and risk to financial stability.
Senator Menendez. All right. In order to manage this risk
it is important for Congress to have as much information as
possible. In April, the FDIC issued a financial institution
letter directing its supervisees to notify the FDIC of any
activity they currently engage in, or intend to engage in,
related to crypto assets.
Mr. Gruenberg, will you commit to keeping Congress up to
date on the findings of your research and the integration of
digital assets into the traditional financial system?
Mr. Gruenberg. Yes, Senator.
Senator Menendez. Thank you. I appreciate the caution FDIC
has thus far shown with regard to digital assets, and I expect
the nominees before us today to continue the scrutiny if you
are confirmed.
Chair Gruenberg, Mr. Hill, and Mr. McKernan, the latest
data from the FDIC shows that just 4 percent of the agency's
executive managers are Hispanic, virtually the same number as
the year before. Furthermore, the agency employs the lowest
number of Hispanics relative to other regulators, such as the
OCC and the NCUA, both in overall workforce and in senior
positions. This is a community that has a $1.8 trillion
domestic marketplace impact. It needs to be represented in our
financial institutions.
So why has the FDIC lagged behind its counterparts in
hiring Hispanic and Latino staff and leadership?
Mr. Gruenberg. Senator, you raised a very important point
that has been a focus of attention and priority for us. As a
general matter among minority employees, the FDIC has generally
been at or above the civilian labor force, but that has not
been the case for Hispanic employees. We have been
significantly below, as you pointed out. And for us that has
been a focus of attention in terms of our efforts to ensure
diversity and inclusion at the FDIC.
Earlier this year we established, at the FDIC, an
interdivisional task force focused on Hispanic employment,
because it really is within our diversity issues that most
significant challenge. And we are focusing, in particular, on
recruitment and hiring as well as training and promotion at the
agency. And I assure you this will be an ongoing priority, and
we will be glad to stay in touch with you and your staff.
Senator Menendez. Well, this is a priority for the
Senator--it has been for some time--and, you know, the problem
is we make no progress. So I hear all the things about, you
know, we are going to recruit, we are going to do this, we are
going to do that, but we make no progress. So I would like to
ask the three nominees to the FDIC, are you committed to having
a diverse workforce, and will you work to achieve it if you are
confirmed?
Mr. Gruenberg. Yes, Senator.
Mr. Hill. Yes, Senator.
Mr. McKernan. Yes, Senator.
Senator Menendez. And Mr. Chairman, with your indulgence, a
very quick question, a provincial question, to Dr. McClain.
Under previous administrations HUD removed key multifamily
housing staff from its office in Newark, transferred them to
the New York regional office. HUD has not had a Region 2
administrator from New Jersey in over a quarter of a century.
Now as a former mayor and a State legislator I know that
presents a challenge for residents and property owners and
managers. New York and New Jersey have very different housing
needs and issues. So it is critical that we have HUD staff in
the State that are familiar with our unique needs.
Will you ensure, if confirmed, that the Newark office has
the staff it needs and New Jersey remains a priority at HUD?
Mr. McClain. Senator, thank you for the question.
understand that this has been an ongoing conversation between
your staff and HUD, and it also came up in my conversation with
your staff. If confirmed, I am committed to continuing to work
with you and your staff on the issue surrounding New Jersey,
and will make that a priority as we continue to move forward,
sir.
Senator Menendez. OK. Continuing the work is nice, but
making a difference is nicer. I have said this to the
Secretary, who I was very supportive of. If it continues that
we do not have the appropriate staff in New Jersey then I will
not support future HUD nominees, no matter how qualified they
are. Thank you very much.
Chairman Brown. Thank you, Senator Menendez.
Senator Tillis, of North Carolina, is recognized.
Senator Tillis. Thank you, Mr. Chairman. Congratulations to
all of you for your nominations. Mr. Hill, Mr. McKernan, and
Dr. McClain, I look forward to supporting your nominations. I
want to thank you for your service in the Air Force. And Mr.
McKernan, I was glad to hear that you attended Duke. I am sad
you did not have the grades to get into Chapel Hill. I always
have to dig Duke.
Mr. Gruenberg, I did not take any pleasure in the comments
that I made a couple of weeks ago on what I consider to be a
serious problem with what occurred last year. And on April 7,
2017, when President Trump was calling on Senate Republicans to
nuke the filibuster, I signed on to a letter specifically
saying, with 61 other members, that we would not do that
because it would destroy this institution. Four years later we
had five signatories from this Committee who voted to try and
nuke the filibuster. This sort of bipartisan framework that we
work within is hard, but it is necessary.
The apolitical framework that has been the history of the
FDIC, with 20 chairmen, 9 of those chairmen, including you,
serving on a board that had a majority of the other party. I am
sure they always did not agree on matters, but they always
agreed on trying to maintain the apolitical nature of the FDIC.
So this is an unprecedented action and one that concerns me.
I know you are seeking bipartisan support, but this is not
about your credentials. I have spoken with a number of people
and I agree with Senator Shelby that you have the experience
and you have a lot of people who respect you for your technical
expertise. This has to do with leadership decision that you
conscious made that gives me concern, particularly in these
times where we are looking for ways to work together.
In a document on December 9th, you issued a request for
public comment on the Bank Merger Act, in coordination with Mr.
Chopra. This document, alleging to initiate rulemaking changes
at the FDIC, was posted to the CFPB website against the wishes
of, at that time, Chair McWilliams. I would assume since this
document was posted publicly and your name was attached, you
are knowledgeable about its origins and contents.
So my question to you is can you provide to me the names,
positions, and the agency affiliations of the individuals who
drafted the document?
Mr. Gruenberg. I believe so, Senator.
Senator Tillis. And can I get that as a follow-up or do you
have any off the top of your head now, that you can share with
us?
Mr. Gruenberg. I would be glad to do it as a follow-up.
Senator Tillis. OK. So you will commit to making any of the
staff organizations, you will make it available to us prior to
your confirmation.
Mr. Gruenberg. Yes, sir.
Senator Tillis. OK. I also assume when you considered
precedent when determining whether to issue the document, you
have been at the FDIC since 2005. Is that correct?
Mr. Gruenberg. Yes, sir.
Senator Tillis. So you are familiar with the FDIC
regulatory history since then. During your tenure, can you
identify for me other instances when another agency publicly
posted FDIC policy updates against the wishes of the FDIC
Chair?
Mr. Gruenberg. No, Senator.
Senator Tillis. OK.
Moving beyond your tenure, the FDIC's first board was sworn
in on September 11, 1933. While the CFPB had yet to be
established, the FDIC's other sister agency, the OCC, was on
the FDIC board from its inception. Can you provide me with
instances through the 89-year history when an alleged official
action of the FDIC was posted onto the OCC website or into
their public record against the objection of the FDIC Chair?
Mr. Gruenberg. We will certainly check the record on that.
I am not aware of any, but we will check the record.
Senator Tillis. I think you are going to find that it is
not--and again, as Senator Shelby indicated, I want to
associate myself with comments made by Senator Toomey. But
again, this comes down to leadership, and I feel like, in the
same way that if we voted to nuke the filibuster here, you
cannot unring that bell. So I have great concerns about how the
FDIC is going to operate in the future. Thank you.
Chairman Brown. Thank you, Senator Tillis.
Senator Tester, from Montana, is recognized.
Senator Tester. Thank you, Mr. Chairman, and thank you all
for being here at the hearing. Congratulations to all of you on
your nomination, and thank you for your service, Marty. Travis
and Jonathan, thank you for coming in to my hideaway and having
a nice visit. I do not intend to ask you three any questions. I
am going to focus on Dr. McClain, if I might, so you guys can
smoke if you have got them. OK?
Dr. McClain, you have impressive experience working in
congressional relations in the public and private sector,
including most recently for Department of Veterans Affairs and
the Air Force. In addition to your 30-year career in
congressional affairs you serve as an officer in the Air Force
Reserve. Thank you for that.
It is very clear that you are more than qualified for the
role for which you have been nominated. I especially appreciate
your leadership as Deputy Assistant Secretary for Congressional
and Legislative Affairs at VA. You and your team did a great
job of handling the transition after the election and
responding to an unprecedented number of inquiries from
Congress about priorities such as the Sergeant First Class
Heath Robinson Honoring our PACT Act that was just passed last
summer.
Given your track record I have no doubt that you will do a
great job at HUD and will work to ensure that Congress gets
timely and accurate information, which is critical in the
capacity you hopefully will be confirmed for. But if confirmed,
can you tell me, in this job, what are going to be your top
priorities?
Mr. McClain. Thank you, Senator Tester. One of the things
that I have learned over the course of my last 30 years,
regardless of whether it is in a congressional affairs
organization or in an international affairs organization, is
really focusing on, one, my staff, understanding, if confirmed,
what the needs are of the congressional and intergovernmental
relations team so that they are empowered to be able to go
forth and do their job and that I am there as a resource for
them. My second priority is ensuring that there is a consistent
flow of information to and from not just Congress but also our
State and local leaders. Because through that partnership that
really allows us to be able, at HUD, again, if confirmed, to be
able to understand what the constituent needs and address them,
because through those needs that allows us to make more
informed policy decisions.
And third, if confirmed, really understanding what the
capacity needs are, not just from a physical perspective,
growing the number of full-time equivalents, but really
understanding what the additional physical needs are of the
team. Because again, if people are empowered, they have the
resources to be able to do their jobs, that allows us to be
able to serve the American public.
Senator Tester. Thank you for that answer. What lessons
will you bring from your career in the Air Force?
Mr. McClain. Wow. I would say three things and then I will
expand upon them--humble, credible, and approachable. Being
humble enough to admit when you are wrong and when you make a
mistake. It does not matter where you are at. Credible, taking
the time that if you do not know something go learn it, whether
it is from the person that is the correspondence clerk to the
person who is your general counsel. Everyone has something to
learn and something to give to all of us.
And last but not least, Senator, being approachable. Being
approachable to me means having an open-door policy, to be
willing to listen, whether it is something related directly to
what is going on, the hot topic for that moment, or whether
that it is something that is important to that individual. We
all spend most of our time at work, so having an environment
where you have a leader that is humble enough to admit
mistakes, credible enough to understand the issues and to be
able to help guide and provide a north star, and approachable
enough to be able to have conversations. That is what makes a
great workforce to me.
Senator Tester. I appreciate those answers and hopefully we
will move you out of Committee quickly because I think you will
be a tremendous asset to HUD, as you have been to the VA, so we
thank you.
I do have 20 seconds left so I am just going to ask a
really quick question. Crypto has come up a lot since the FTX
issue, and I took it up with both Travis and Jonathan when they
were in my office. I am going to phrase the question a little
bit different because I do not think crypto passes the smell
test. At least in my book it does not. And I do not want to
give it credibility by regulation.
So if we put forth regulations on crypto how do you stop
that from inherently just giving crypto credibility? Any of the
three of you can answer that.
Mr. Gruenberg. That is something we have really tried to be
thought about, Senator, because I agree with you. From a
prudential banking regulator perspective, our first
responsibility is the safety and soundness of the institutions
and the consumers that the institution serves. And so our
approach has been to identify the activities, to understand
them well, and the risks, and to make judgments in terms of the
safety and soundness, consumer protection, BSA, AML, and even
potentially financial stability to ensure we understand what we
are doing before we allow the insured banking institutions to
get engaged in the activity. And any approach to regulation, it
seems to me, should start with that premise.
Senator Tester. Any further comment to that, Mr. Hill or
Mr. McKernan.
Mr. Hill. I would just agree that I think from the FDIC's
perspective the focus is on the safety and soundness of the
institutions that the FDIC oversees and ensuring that they are
acting in compliance with all laws and regulations. I think
there are broader questions related to crypto that Congress and
perhaps other agencies might have on their agenda, but I think
from the banking regulator's perspective it is really just
about safety and soundness and the core risks to the banking
system.
Senator Tester. Jonathan?
Mr. McKernan. I thought the chairman and Travis put it very
well. I would just echo, amplify the importance that any
activity, including any crypto activity, has to be done in a
safe and sound manner.
Senator Tester. Thanks. I look forward to supporting all
four of you. Thank you.
Chairman Brown. Thank you, Senator Tester.
Senator Lummis, from Wyoming, is recognized.
Senator Lummis. Thank you, Mr. Chairman.
As I look at these nominees to the FDIC board I am really
scratching my head because for all the talk of diversity and
inclusion that Members of this Committee have championed and
that the White House has championed, I am not seeing that kind
of diversity that seems to dominate the thinking about nominees
in front of us today.
Further, I am actually kind of angry that you, Mr.
Gruenberg, forced the resignation of your predecessor as FDIC
Chair, a first-generation American immigrant who was a woman.
So my question is this. Are there any women currently nominated
or serving on the FDIC board, Mr. Gruenberg?
Mr. Gruenberg. No, Senator.
Senator Lummis. Do you feel your nomination advances
diversity on the FDIC board?
Mr. Gruenberg. Not in that sense, no, Senator.
Senator Lummis. But so many on this Committee think it is
important to send the signal, and many qualified candidates
have been passed over by this Administration for other roles
because they are not sufficiently diverse. So why you?
Mr. Gruenberg. Well, it is a little over my pay grade,
Senator. All I can say is I have served at the FDIC, I believe
deeply in its mission, I have tried to serve it well, and I
think I have the capability to continue to provide leadership,
and it is a very important agency.
Senator Lummis. Why did you force the FDIC chair out?
Mr. Gruenberg. I would, if I may, Senator, the issue goes
to the authority of the agency, and under the Federal Deposit
Insurance Act the authority of the agency explicitly is vested
in the board of directors, and a majority of the board has the
authority to place items before the board----
Senator Lummis. But never had until this.
Mr. Gruenberg. No. Actually, Senator, there----
Senator Lummis. On a chair? On a chair? You have forced out
chairs? When there was a change of administration in the past,
was the chair forced out? Ever, before this one? I would
challenge the conclusion that this was not a unique situation.
I want to turn next to Dodd-Frank. 12 U.S.C. 1812(a)(1)
requires that the FDIC board have one member with ``State bank
supervisory'' experience. That is a quote. State bank
supervisor to defined in that same statute as being an officer
of a State with primary regulatory authority over State banks.
So this is not merely a Federal regulator that oversees State
banks.
So neither Mr. Hill nor Mr. McKernan have experience as a
State bank regulator. Mr. Gruenberg, have you worked as a State
bank regulator, for a State banking agency?
Mr. Gruenberg. I have not worked for a State banking
agency, Senator.
Senator Lummis. Have you ever written a report of
examination or issued an exam rating to a community bank, the
things that would give you a good understanding of how fair a
bank's exam rate is, for example?
Mr. Gruenberg. Well, I would point out that the FDIC
supervises, as you know, State-chartered institutions----
Senator Lummis. Have you ever written a report of
examination?
Mr. Gruenberg. No. I am not an examiner. I have just served
on the board of the agency, Senator.
Senator Lummis. Do you think someone should have been
nominated to the FDIC board with State bank supervisory
experience? Because most banks in our dual banking system are
State chartered.
Mr. Gruenberg. They are the majority of the institutions. I
understand why you asked the question, Senator, and that is
also above my pay grade. It is a judgment for the White House
in terms of the nomination.
Senator Lummis. Well, the statute requires someone who has
actually served as a State bank regulator. That is not you or
any other nominee here. So I think it is pretty clear that the
White House and this Committee think it is OK to ignore the
clear text of Dodd-Frank. And I do not think this Committee
should move forward with these nominations until we start
following the law.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Lummis.
Senator Cortez Masto, from Nevada, is recognized.
Senator Cortez Masto. Thank you, Mr. Chairman.
Congratulations. Welcome to all the nominees and all of the
family members here today.
Dr. McClain, let me start with you. My office has worked
closely with HUD staff to improve and reauthorize the largest
affordable housing block grant program, called HOME. If you are
confirmed to this position, will you commit to working closely
with my office to improve the HOME program?
Mr. McClain. Senator Cortez Masto, thank you very much for
the question. If confirmed, I will commit to working with your
staff.
Senator Cortez Masto. Thank you. And this Congress has
invested hundreds of billions of dollars to build really
hundreds of thousands of affordable homes. Will you ensure that
we receive State-level data about these investments?
Mr. McClain. Senator, if confirmed, I will work with the
appropriate administrative office and program office to ensure
that your staff gets the data that it is looking for.
Senator Cortez Masto. Thank you. And if you have not
surmised by now, affordable housing is a key issue in the State
of Nevada, and I want to make sure we are doing everything we
can, at a Federal level, to support our State and local
partners, and private partners, to make sure we are building
that affordable housing. So thank you.
Let me turn to Mr. Hill and Mr. McKernan and our Acting
Chair, Mr. Gruenberg. Mr. Hill, if confirmed to this position
what will you do to expand on the good work of the FDIC through
its BankOn collaborations and other approaches to ensure that
banks provide affordable and accessible basic banking services
to residents of their communities.
Mr. Hill. Thank you, Senator. I think financial inclusion
is an important part of what the FDIC does. The FDIC, as you
know, has done a lot of work with BankOn to promote low-cost
deposit options for consumers. I believe that there are
hundreds of banks that now offer BankOn products, and if
confirmed, I would certainly plan to engage with other members
of the board and the staff to learn more about what the FDIC is
doing and what more can be done.
Senator Cortez Masto. Thank you. And Mr. McKernan, if you
are confirmed to the FDIC board, how will you ensure that
changes to the Community Reinvestment Act preserve branch
banking so that people can open and maintain bank accounts?
Mr. McKernan. Senator, thank you. Let me just say, as
someone from East Tennessee with maybe a little bit more
experience of the unique aspects of living in rural America,
the Community Reinvestment Act really resonates personally with
me. It is critical that banks support all segments of their
community, rural and otherwise.
And so I think, you know, while there is open rulemaking
out there and I cannot prejudge the specifics, I commit to
certainly working with the Chair and the staff to make sure
that the implementing rule fully achieves that statutory
mandate.
Senator Cortez Masto. Thank you. And in many of our rural
communities in Nevada there are a lot of indigenous people and
Tribal lands. So how would you address the limited banking
service for our Tribal communities as well? I am just curious.
Mr. McKernan. Senator, I think the Community Reinvestment
Act and implementing it will have a role to play there as well.
Senator Cortez Masto. Thank you. I appreciate that.
Mr. Gruenberg, first of all let me just say thank you for
your timely response to the letter that Senators Romney,
Sinema, and myself sent regarding the industrial loan
companies, which are important to Nevada's financial sector.
In your testimony before the House Financial Services
Committee you spoke about the FDIC's work on contending with a
range of risks to ensure resiliency in our banking system. Do
you have anything to add regarding risks to the financial
sector posed by other nonbank sectors, or other issues?
Mr. Gruenberg. I think it is a key risk factor for the
agency to focus on. Bank relationships with nonbank third
parties and bank financial companies really is a significant
source of risk to our insured depository institutions, and our
supervision of those relationships and ensuring that the bank
understands that when it engages and partners with a third
party, in effect, if that third party is providing services on
behalf of the bank, from a supervisory standpoint it is as if
the bank itself is directly providing those services and the
bank is accountable for the provision of those services. So the
bank really has to manage the relationship in a way that it
ensures compliance with its basic supervisory responsibilities.
Senator Cortez Masto. Thank you. And then just touching on
a separate topic, can you just elaborate for me, I have heard a
lot of concerns from my Republican colleagues. But can you
elaborate for me? Apparently there was a DOJ slip opinion that
was responding to a question regarding whether the Chairperson
of the FDIC has the authority to prevent a majority of the FDIC
board from presenting items to the board for a vote and
decision. Can you talk about how that came about?
Mr. Gruenberg. Yes. It was requested by the general counsel
of the FDIC in order to get clarity around that issue, Senator.
Senator Cortez Masto. And the clarity is, from my
understanding of this opinion, that really the Chair cannot
prevent the other board members, if they so choose as a
majority, to present items before the board. Is that correct?
Mr. Gruenberg. That is correct, Senator.
Senator Cortez Masto. Thank you. Thank you again to all of
the nominees. Congratulations.
Chairman Brown. Thank you, Senator Cortez Masto.
Senator Hagerty, of Tennessee, is recognized.
Senator Hagerty. Thank you, Chairman Brown and Ranking
Member Toomey. It is good to be back with you after
Thanksgiving.
I wanted to start just by recognizing one of the nominees
here today, Jonathan McKernan, a fellow Tennessean, someone who
has wonderful credentials, both in the practice of private law
and working in the public sector. Mr. McKernan, I am delighted
to see you here representing Tennessee so well. Congratulations
on your nomination to this important position.
I would like to turn my question to Mr. Gruenberg. Mr.
Gruenberg, on April 7th, the FDIC sent a financial institution
letter to all FDIC-supervised entities, requiring them to
notify your agency of their crypto-related activities. So my
first question for you is if you can walk me through the
process that FDIC-supervised institutions have to undergo to
accomplish this.
Mr. Gruenberg. Thank you for the question, Senator. We were
trying to, as a starting point, to understand the engagement of
our insured institutions with crypto-related activities. It
does not require an application. So as a starting point for us
we wanted to find out which of our insured institutions that we
supervise are either engaging in crypto-related activities or
considering it.
Senator Hagerty. What form does the notification take then?
Mr. Gruenberg. So we issued a financial institution letter,
making the request of the institutions the FDIC supervises,
that if they engage in crypto-related activities or planning
to, to notify us. And they can notify us in a letter, they can
call our regional office. And if they are engaging or planning
to do so we ask them to provide, in some detail, the nature of
the activity so that we can evaluate it from a standpoint of
safety and soundness, consumer protection, BSA and AML
compliance, and then provide supervisory feedback to the
institution.
It was a way for us to do a couple of things. One, see
which of our institutions were engaging and planning to engage,
and if they were, to try to understand, with some detail, what
they were doing. Because these are generally new activities,
both for the institution, and frankly, for us as a regulator to
understand.
Senator Hagerty. The technology has great promise.
Institutions in my home State of Tennessee are engaging in this
right now. As a person who has invested in and been an
executive in small businesses, I can tell you that the
technology poses great potential, and I am concerned about any
activity that might chill it.
You and your agency continue to cite financial stability
and consumer protection as the motivation behind these sorts of
policies. You are establishing a precedent that requires
businesses to notify their supervising regulators of
involvement in sectors that you have deemed high risk. Is that
correct? Is that how you have justified this, as a high?
Mr. Gruenberg. I mean, this financial institution letter
was specific to crypto-related activities, and yes, I think in
our financial institution letter we identified, as background,
the risks we saw from a safety and soundness, potential from a
safety and soundness standpoint, consumer protection, BSA, AML,
financial stability.
Senator Hagerty. I think you can understand my concern.
whether it Operation Choke Point, whether it is the creation of
new merchant category codes for firearm and ammunition
purchases, whether it is the debanking of the oil and gas
industry, our financial system is increasingly becoming
politicized. It is becoming weaponized to achieve partisan aims
that certainly would not survive a vote here in the Senate.
I am concerned that this letter that you put forward may
certainly be the FDIC simply testing the waters to see how
other industries like this Administration might be affected,
other industries that the Administration may be ideologically
opposed to.
So my next question, Mr. Gruenberg, is whether there are
any other specific sectors of our economy that FDIC-insured
entities that are going to be required to disclose their
involvement in, and if not--well, let me ask you that first.
Are there any other sectors that you have got targeted, that
you are going to send a similar letter to, to get them to
disclose their involvement?
Mr. Gruenberg. No, Senator.
Senator Hagerty. Well, that is good to hear. Then I would
like to know if you can commit to me here today that the FDIC
will not institute similar practices, for the oil and gas
industry, for example, for the firearms and ammunition
industry, or any other politically sensitive industry that
might become a target of this Administration?
Mr. Gruenberg. I agree with that, Senator.
Senator Hagerty. OK. I am glad to hear that. Thank you.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Hagerty.
Senator Van Hollen is recognized.
Senator Van Hollen. Thank you, Mr. Chairman, and
congratulations to all of you on your nominations. I think we
have three Marylanders and one from Tennessee. Congratulations
all.
Let me start with you, Mr. Gruenberg, and just first of all
follow up briefly because you and I have had conversations
about the FDIC's role within its domain to assure that we have
prudent banking practices, including looking at the risk of
crypto. So I would say in light of recent developments in the
meltdown of FTX, your inquiry from members of the FDIC, which
of course, are federally insured depository institutions, is a
worthwhile and necessary endeavor. So I appreciate you taking
that precaution, just to get a sense of what is out there.
Just to follow up on the CRA question, and I think that was
raised in response to Senator Cortez Masto's questions. Where
are we on the timeline with respect to the new CRA rulemaking?
Mr. Gruenberg. As you know, Senator, we issued a notice of
proposed rulemaking in May. It had a 90-day comment period,
which closed on August 5th, I believe. We got quite a few
comment letters, over 1,000. The staff have been working
through them, and we are in the process of developing a final
rulemaking.
I can tell you it is the top priority of the FDIC to
complete this rulemaking, and I think our goal is to get it
done as soon as we can, if I had to guess, the early part of
next year. But it is also an ambitious rulemaking. Believe me,
we are very much focused on getting it done.
Senator Van Hollen. I appreciate that. If you were to
identify, say, three top priorities, and I know there are lots
of pieces to it, but what would the three be? And also I have
this question. Our latest look showed that about 50 percent of
uninsured personal lending comes from online operations that
are not subject to FDIC overview, and of course, therefore, not
subject to CRA. And as more and more of lending goes offline, I
assume you agree that we would also hope that those lenders
would not discriminate based on who they are lending to.
So first, if you could just identify some of the core, key
pieces of the current CRA proposal but also how we should think
about addressing all the pieces that are outside that
jurisdiction.
Mr. Gruenberg. That is a large question, Senator. I think
from the standpoint of the CRA proposed rulemaking, which is an
ambitious proposal, I think the core provision is dealing with
the fact that currently CRA is limited to the branch network of
banks, and the so-called assessment areas, which are evaluated
for CRA, are tied to their physical branch network. And as we
know, and you pointed out, an increasing portion of lending by
banks is not tied to their branches but may be done on an
online basis, and they could involve significant lending in
communities where they may not have a physical presence.
So in some sense the key challenge for the rulemaking was
to deal with this evolution in the banking industry, which I
think is only going to proceed further down this line, and in a
sense the core proposal in the rulemaking is to identify new,
what we call retail lending assessment areas, where a bank may
be having significant lending activity but does not have a
physical branch. And we have metrics to identify that if
certain thresholds are met----
Senator Van Hollen. So, Mr. Gruenberg, my time is running
short.
Mr. Gruenberg. Yes. Sorry.
Senator Van Hollen. So you are making the point why we have
to update the CRA. It also raises that broader question I had
about everybody who is not under the jurisdiction.
Mr. Gruenberg. I think if we are talking about lending by
nonbank financial institutions it is outside of our authority,
and at the end of the day to extend some community investment
obligation would be a matter for Congress to consider.
Senator Van Hollen. Right. I mean, it does, obviously,
create responsibilities for FDIC-insured institutions that are
not applied to others, which some may argue would actually
incentivize more people to go online and outside that
jurisdiction.
I thank all of you for testifying. I look forward to
supporting all your nominations. And Dr. McClain I had hoped to
get a couple of questions to you but I will follow up. I look
forward to working with you on the housing issues. I also serve
on the Appropriations Subcommittee that oversees HUD, so I look
forward to working with you on some priorities there.
Chairman Brown. Thank you, Senator Van Hollen.
Senator Daines, of Montana, is recognized.
Senator Daines. Chairman, thank you.
Mr. Gruenberg, on December 9, 2021, you and Director Chopra
issued a joint statement that the FDIC voted in favor of a
request for information and comment on the bank merger process.
This vote never happened. Instead, these actions began the
process of upending an 88-year tradition of the FDIC board
working collaboratively with its Chairman, and allowing that
Chairman to set the agency's agenda. Accordingly, then Chair
McWilliams resigned, and you became the FDIC's Acting Director.
In a letter to President Biden just last year, my Republican
colleagues and I detailed our concerns about the consequences
of these actions.
I simply want to start this morning by stating that I think
it is inappropriate for a director to continue serving on the
FDIC board long after the expiration of his term in order to
undermine its Senate-confirmed leader.
I wanted to state that, and now I want to turn to my
questions. Mr. Gruenberg, Operation Choke Point was implemented
under your leadership of the FDIC. Federal regulators at the
FDIC and DOJ used their authorities to intimidate banks into
shunning lawful but politically disfavored industries,
including firearms and ammunition dealers. You are now being
nominated to the same position. My question is, will you commit
here today, in front of this Committee, that you will actively
prevent your employees at the FDIC from criticizing,
discouraging, or prohibiting banks from lending or doing
business with any industries or customers that are operating in
accordance with the law?
Mr. Gruenberg. Yes, Senator, and that has been the policy
of the FDIC.
Senator Daines. Thank you.
Dr. McClain, you spent nearly 2 years as Deputy Assistant
Secretary for VA's Office of Congressional and Legislative
Affairs, working to fulfill Secretary McDonough's promise to
provide Congress with quick responses and accurate information.
So I have got two questions for you this morning.
First, for Dr. McClain, do you agree with Secretary
McDonough's belief that, quote, ``The lifeblood of any well-
functioning organization is accurate and timely data''?
Mr. McClain. Senator, I agree that it is critical to be
able to provide that information in an accurate and timely
manner, and if not, to be able to communicate when that
information would be available.
Senator Daines. Second, what have you learned from your
leadership experience at the VA that you would be applying at
HUD, if confirmed?
Mr. McClain. Senator, one of the things that I have learned
in my nearly 2 years at VA is truly the depth and breadth of
benefits and care that the Department of Veteran Affairs
provides to veterans, their families, their caregivers. But
even more importantly, the necessity for really not just
getting the information from our constituents, which I have
been blessed to be able to work with a number of offices
directly in taking care of constituent issues, but being able
to take that information and bring it back to the broader VA
enterprise to be able to inform some of the decisions that we
make. That is invaluable, and if confirmed, you can expect that
I will continue to work not just with the Members of this
Committee but members and staff across, to be able to really
understand what is going on locally there, within your States,
and with your constituents, so that we can better serve the
American public.
Senator Daines. Dr. McClain, thank you. Mr. Chairman.
Chairman Brown. Thank you, Senator Daines.
Senator Warren, of Massachusetts, is recognized.
Senator Warren. Thank you, Mr. Chairman, and
congratulations to our nominees.
So I just want to take a minute to respond to the baseless
attacks against Acting Chairman Gruenberg. My Republican
colleagues continue to accuse him of wrongdoing after the
previous FDIC Chair, Jelena McWilliams, tried to block a vote
to get public feedback on bank merger rules last year.
McWilliams simply announced that she was blocking the request
of the board majority without citing any legal basis
whatsoever. And when she was asked to produce a legal basis,
she resigned.
Now that seems clear enough that McWilliams was in the
wrong, but for those who insist on relitigating the issue it
turns out that the Department of Justice's Office of Legal
Counsel released a legal opinion on it in July of this year.
Mr. Hill, you worked for the previous FDIC Chair, Ms.
McWilliams, so let me ask you. In its July memo, did the Office
of Legal Counsel determine that a majority of the FDIC board
had the authority to bring items before the board for a vote?
Mr. Hill. I believe that was the opinion of the Department
of Justice in that memo.
Senator Warren. Thank you. That is exactly what the OLC
opinion states. In fact, it says, quote, ``The Chairperson of
the Federal Deposit Insurance Corporation does not have the
authority to prevent a majority of the FDIC board from
presenting items to the board for a vote and decision,'' end
quote, and that is exactly what Ms. McWilliams tried to do. In
other words, the former FDIC Chair broke the law when she
blocked a vote to help hold big banks accountable, and she got
caught, and she resigned.
So Mr. Chairman, I would like to enter into the record the
OLC opinion that makes it clear that Acting Chairman Gruenberg
and the other current FDIC board members were following the
law, while the previous Republican FDIC Chair unlawfully
exceeded her authority.
Chairman Brown. Without objection, so ordered.
Senator Warren. Thank you.
Now that we have that cleared up let me turn to another
issue, and that is crypto. The implosion of crypto platform FTX
revealed that one of the industry's major players was not much
more than a handful of magic beans. And now thousands of mom-
and-pop investors have lost their savings, and many more are
being squeezed by the contagion that FTX's collapse has
triggered throughout the crypto industry.
Mr. McKernan, your current job is advising Republicans on
the Senate Banking Committee, so I assume you have been
watching this closely. From what you can tell so far, has the
contagion that has spread through the crypto industry shaken
our traditional banking system.
Mr. McKernan. No, Senator.
Senator Warren. No, and that is the good news. But it did
not happen by accident. Our banks stayed safe even as crypto
imploded because many of President Biden's regulators, like
Acting Chairman Gruenberg, fought to keep crypto from becoming
dangerously intertwined with our banks, and he did this despite
the Trump administration's and crypto boosters' aggressive
efforts to bring crypto and all its risks into traditional
banking.
So Acting Chairman Gruenberg, if the crypto boosters had
gotten their wish and a bunch of banks that the FDIC insures
were all in on crypto, for example, holding FTX's tokens on
their balance sheets or accepting crypto tokens as collateral
for loans, would our banking system be less safe than it is
today?
Mr. Gruenberg. I would think so, Senator.
Senator Warren. Do you want to expand on that a little?
Mr. Gruenberg. Well, I mean, the evidence is clear now. We
had companies that were engaging in highly speculative
activity, highly leveraged, and vulnerable to a loss of
confidence in a run. They did not have direct exposures to the
insured financial institutions, and as a result the failure of
those firms was really limited to the crypto space and it ended
up not impacting the insured banking system.
Senator Warren. So this tells us the power of keeping a
strong line between the traditional banking system and the
crypto world.
You know, more than $1 trillion worth, and counting, of
crypto has just gone up in smoke so far this year, and reports
piled on top of reports have shown that the crypto industry is
powered by fraud and money laundering. Even some industry
boosters still argue that these toxic crypto assets should be
more integrated into the real banking system, which would mean
that the next time crypto stumbles, taxpayers would be on the
hook to bail out these banks. No thanks on that one.
Thank you, Mr. Chairman. I have done my questions.
Chairman Brown. Thank you, Senator Warren.
Senator Ossoff is recognized from his office.
Senator Ossoff. Thank you, Mr. Chairman, and thank you to
our panel. Congratulations on your nominations. Thank you for
your ongoing service.
Mr. Gruenberg, I would like to begin with you please, sir.
What do you view to be the most significant threats to U.S. and
global financial stability?
Mr. Gruenberg. That is a pretty large question, Senator. I
think the changing environment relating to the conduct of
monetary policy and the efforts of the Fed to respond to
inflation by raising interest rates. That is an action that is
not limited to the central bank in the United States but to the
central banks in other major jurisdictions of the world. I
think the risk there and effect of global tightening to deal
with inflationary pressures does also carry the risk of
significant consequence for the economies of those countries
and risks to the financial systems of those respective
jurisdictions. And if you are looking at the potential for
financial stability risks, I think that is something that we,
in this country, and I think on a global basis, are going to
have to keep a very close eye on.
Senator Ossoff. Thank you, Mr. Gruenberg. But what would be
the most concerning potential channels or mechanisms of action
by which higher rates, in your view, could threaten financial
stability? Which are the markets, the sectors, the assets, the
trades that you believe are most vulnerable to unwinding or
failing in a higher-rate environment at a scale such that there
could be contagion to the overall financial system?
Mr. Gruenberg. Probably two points I would make. One, I
think the banking system itself in the United States does have
significant exposure to interest rate risk. A lot of our banks
have made longer-term loans that are now susceptible to rising
interest rates, and there is an overhang of unrealized losses
on the books of our banks that is very substantial and that
could be problematic, depending on how the economy evolves.
And then outside of the banking system, in the nonbank
financial sector, we have a less clear line of sight, and the
potential for significant leverage accumulating there, and I
think that is a matter of attention for us. It has been a focus
of priority for the FSOC, the Financial Stability Oversight
Council, and the FDIC has been participating in that work,
along with the other Federal financial regulators.
Senator Ossoff. Thank you. Within the commercial banking
system can you please characterize in more detail that
overhang, to use your term, to which you refer? Where is the
most significant leverage that poses the most significant risk?
Who are the borrowers?
Mr. Gruenberg. Well, it is actually securities that are
being held on the balance sheets of our banks, longer-term
securities, that banks accumulated during the prolonged period
of very low interest rates. They accumulated longer-term
securities on their balance sheets to try to manage a narrow
interest rate environment. But as rates are now rising, those
securities actually have a negative value on the balance sheets
of the institutions. The most recently quarterly banking
profile that the FDIC released, we noted that there is about
$470 billion of unrealized losses on the balance sheets of our
institutions. We are going to release the QBP tomorrow for this
third quarter, and I can tell you now that number has
increased.
So that is an overhang. Right now our banks have strong
liquidity so they should not have to dispose of those assets.
But as the market evolves and banks may need to dispose of
those assets, there are substantial unrealized losses that
could impact our institutions.
Senator Ossoff. Thank you, Mr. Gruenberg. Final question.
Chair Powell, Secretary Yellen, Chair Gensler have all
expressed varying levels of concern about liquidity in Treasury
markets. What is your assessment of the level of risk there and
how might liquidity concerns in Treasury markets translate to
issues that could impact depositors and those you are entrusted
with protecting? Thank you.
Mr. Gruenberg. Well, if I may say, in the first instance on
matters such as that I defer to the Treasury Secretary and the
Fed Chair.
Senator Ossoff. Mr. Gruenberg, you must have a view on
whether, as a member of the FSOC and given your current
responsibilities, you must have a view on whether liquidity in
Treasury markets is a matter of concern for financial stability
and for the depositors that you defend. Yes?
Mr. Gruenberg. No, I think it is an issue. It has been
raised by the officials you reference. I think it has been
principally--so there is an issue there. I think it has
principally been driven by the volatility in the financial
markets and the economic uncertainty that I think is the
impetus for that volatility. And it is an issue for the Fed and
the Treasury that I know they are very focused on.
I think in terms of the banking industry, Treasury
securities are important. The industry holds large amounts of
it on their balance sheet, and it goes back to the point I just
raised in terms of the possible risks on the balance sheet of
our banks from holding those securities with unrealized losses.
Senator Ossoff. Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Ossoff.
Senator Toomey, we will close. Senator Toomey has a few
remarks, then I will make a few remarks.
Senator Toomey. Thank you, Mr. Chairman. I will be brief
but I just feel the need to respond. Chair McWilliams, the past
Chair of the FDIC, was the subject of what I think are really
outrageous allegations, and I want to make it very clear that
she is a highly reputable person who operated and served at the
FDIC with the highest legal and ethical standards, the utmost
integrity. And in the incidents that we have discussed this
morning, she was exercising the authority that every Chair of
the FDIC has had and exercised for 90 years.
And let me just say a brief word about crypto because that
has come up a lot as well. I think there is a danger that some
of us confuse bad behavior by individual people with the
instruments they use to conduct their bad behavior. There is
nothing that I am aware of, and I have studied this pretty
closely, about what happened at FTX that requires us to blame
crypto. It was the misuse of customer accounts by an individual
who controlled them, and that could have been done, and in fact
has been done, in conventional, non-crypto financial
institutions many, many times.
I think it is much more useful to think about these various
crypto projects as operating systems, software protocols on
which we are likely to see amazingly powerful apps that will
solve problems for everyday Americans, in the ordinary physical
economy, across a very, very wide range, much of which we
cannot imagine today any more than many of us were able to
imagine with the beginning of the internet, the Amazons and
Googles and Ubers and all the other apps that have completely
changed America's economy.
Thank you, Mr. Chairman.
Chairman Brown. Thank you, Senator Toomey, and I obviously
respectfully disagree. The concern about crypto increasingly is
our national security, and what we are seeing with people that
are trying to evade sanctions. And I think we have not shown a
real public purpose for crypto, especially contrasted with the
potential danger.
Briefly on the McWilliams incident, FDIC, it has never been
the tradition for a Chair to refuse to put an item on the
agenda. Mr. Gruenberg and others made several attempts to work
with the former Chair in good faith, and she chose to resign.
That is the important point there.
Thank you to our nominees for being here. We will work
together as a Committee to move forward quickly on the
nominations. For Senators who wish to submit questions, they
are due at close of business Monday, December 5th, at noon. To
nominees, we would like to have your responses by Friday,
December 9th, at 5 p.m.
Thank you again for your willingness to serve the public,
all four of you. The meeting is adjourned.
[Whereupon, at 11:57 a.m., the hearing was adjourned.]
[Prepared statements, biographical sketches of nominees,
responses to written questions, and additional material
supplied for the record follow:]
PREPARED STATEMENT OF CHAIRMAN SHERROD BROWN
The Committee meets today to consider four nominations:
The Honorable Martin Gruenberg to be a Member and Chairperson of
the Board of Directors of the Federal Deposit Insurance Corporation, or
FDIC.
Mr. Travis Hill to be a Member and Vice Chairperson of the FDIC.
Mr. Jonathan McKernan to be a Member of the Board of Directors of
the FDIC.
Finally, Dr. Kimberly McClain to be Assistant Secretary for
Congressional and Intergovernmental Relations at the Department of
Housing and Urban Development.
We thank the nominees for appearing here today and for their
willingness to serve our country at this important time, and we welcome
their families and friends who are in attendance as well as those
watching from home.
The FDIC is responsible for insuring deposits and supervision of
over 5,000 banks and savings associations. The agency is governed by a
Board of Directors, which Congress has authorized to fulfill its
mission to, ``maintain stability and public confidence in the Nation's
financial system.''
All five members of the Board are appointed by the President and
confirmed by the Senate, and the Board is tasked with governing the
FDIC.
Today, our Committee will consider three of the five FDIC seats on
the Board, including the Chair and Vice Chair nominees.
Marty Gruenberg is the President's nominee to serve as Chair of
FDIC. Mr. Gruenberg is exceptionally well-qualified and has dedicated
his career to serving the public and ensuring that our banking system
is safe and strong.
Since 2005, Mr. Gruenberg has served as a member of the FDIC Board
of Directors in various capacities: Chairman, Acting Chairman, Vice
Chairman, and Member. The Senate has unanimously confirmed Mr.
Gruenberg five times.
During his tenure on the FDIC Board, Mr. Gruenberg has been a
fierce defender of consumers, taxpayers, and small businesses--the
people that make this country run. He has also seen our banking system
at its highest and lowest points--and helped ensure the stability of
our financial system through the 2008 Great Recession.
Under his leadership, the agency has put in place important
safeguards following the financial crisis, taken steps to strengthen
the Community Reinvestment Act, and worked with banks to prepare for
the risks that pose threats to our financial system--like cyberthreats
and climate change.
He has the experience and dedication we need at the FDIC. If
confirmed as Chair, Mr. Gruenberg will continue working to protect our
financial system so that when Americans place their money in FDIC-
insured banks, they know their money will be protected.
At Mr. Gruenberg's nomination hearing to be Chairman of the FDIC
more than a decade ago, Senator Sarbanes, who Mr. Gruenberg staffed on
this very dais, said that, ``Marty is extremely well prepared to serve
as its [FDIC] Chairman. He would bring right from the beginning
stability and continuity to the work of the FDIC.''
Those words still ring true today.
It has been only a few weeks since you last appeared before us, Mr.
Gruenberg. Welcome back.
Travis Hill is nominated to serve as Vice Chairman of the FDIC.
Most recently, Mr. Hill served as Senior Advisor to the former Chair of
the FDIC, Jelena McWilliams, and Deputy to the Chairman for Policy.
Before joining the FDIC in 2018, he worked on the staff of this
Committee for Chairmen Shelby and Crapo.
Welcome back to the Committee, Mr. Hill.
Jonathan McKernan is nominated to serve as a Member of the Board of
Directors at the FDIC. Since 2019, Mr. McKernan has served at the
Federal Housing Finance Agency, or FHFA. He is currently on detail from
FHFA to Ranking Member Toomey's Banking and Housing Committee staff.
Prior to joining FHFA, Mr. McKernan served at the Treasury
Department. Before serving at the Treasury Department, he worked for
our former colleague, Senator Bob Corker from Tennessee. Earlier in his
career, Mr. McKernan worked in private law practice here in Washington.
Welcome, Mr. McKernan.
Mr. Hill and Mr. McKernan, if confirmed as the two newest board
members, you will be joining the agency at a critical time as the
country emerges from the coronavirus pandemic and the banking system
faces new challenges.
I would like to hear about how you will approach working with Mr.
Gruenberg and the other FDIC board members to protect consumers, serve
all Americans, and stay ahead of risks to our financial system. I
expect financial regulators to demonstrate that they are committed to
serving Main Street, not Wall Street.
Finally, our last nominee before the Committee today is Dr.
Kimberly McClain--President Biden's nominee to serve as Assistant
Secretary for Congressional and Intergovernmental Relations at the
Department of Housing and Urban Development.
HUD's programs help create equal access to opportunity for all
through responsible access to housing credit, promotion of fair
housing, assistance that helps renters and those experiencing
homelessness to find safe, stable homes, and support for States,
tribes, and local governments as they address their housing and
community development needs.
If confirmed, Dr. McClain will manage an office responsible for
coordinating with congressional offices and Federal, State, and local
government agencies.
Dr. McClain is an Air Force veteran who currently serves as the
Deputy Assistant Secretary for Legislative Affairs at the Department of
Veterans Affairs, or VA. She possesses over 30 years of combined
legislative, international affairs, and policy experience.
Before joining the VA, Dr. McClain worked as the Director for
Congressional Strategy at the Air Force. Dr. McClain has also
previously served at the Department of Defense and other defense
agencies in legislative affairs and policy positions.
Welcome, Dr. McClain, and thank you for your many years of devoted
service to our country.
Thank you, again, to all the nominees for being here today.
______
PREPARED STATEMENT OF SENATOR PATRICK J. TOOMEY
Thank you, Mr. Chairman. We're here today to consider four
nominations: Marty Gruenberg to be FDIC Chairman; Travis Hill to be
FDIC Vice Chairman; Jonathan McKernan to be an FDIC Board Member; and
Kimberly Ann McClain to be HUD Assistant Secretary for Congressional
and Intergovernmental Relations.
The FDIC nominations represent a long overdue return to normal
order. The agency has not been governed by a full, five-member board
since 2015 and has not had a vice chairman for over 4 years. But more
troubling, after former Chairman Jelena McWilliams was virtually forced
out in February, the Board has been comprised of only three members--
all of the same political party and two of whom serve in an acting
capacity.
While I commend the Biden administration for finally nominating a
full slate of FDIC Directors--including a permanent chairman and a vice
chairman--I have several concerns with acting Chairman Gruenberg's
nomination to again serve in that role permanently based on his
previous actions. Last year, Mr. Gruenberg helped to lead a partisan
power grab at the FDIC Board under which he and his fellow Democrat
Board members disregarded nearly 90 years of agency precedent of
allowing the chair to set the agency's agenda. Until this coup, which
forced out Chairman McWilliams, all FDIC Board members--Democrat and
Republican--had followed this precedent.
During the Obama administration, the Department of Justice and
financial regulators launched the now-infamous ``Operation Choke
Point.'' This program attempted to coerce banks into denying services
to lawful yet politically disfavored businesses, such as firearm
manufacturers and payday lenders. The FDIC's own Inspector General
found that FDIC personnel targeted these businesses ``consistent with a
widely held understanding that the highest levels of the FDIC
disfavored these types of banking services.'' The highest levels of the
FDIC included Mr. Gruenberg, who led the FDIC from 2011 through mid-
2018. And we know from court documents in Operation Choke Point-related
litigation that Mr. Gruenberg and his team played a role in directing
banks to cease relationships with payday lenders. I remain concerned
that some of the Left still believe in Choke Point's central tenant:
that financial regulators should misuse the regulatory apparatus to de-
bank or limit credit to lawful, yet politically disfavored businesses.
As we've seen in word and deed from other nominees, this is a very real
threat to businesses in the traditional energy sector.
I worry that this pattern of pressuring banks not to provide
services to lawful but disfavored businesses may be again emerging at
Mr. Gruenberg's direction.
Earlier this year, my office received whistleblower reports that
the FDIC has been deterring banks from doing business with crypto-
related companies. I understand that one ``paused'' activity is custody
of crypto assets. This activity has not disappeared, but rather has
simply migrated to less regulated companies, often in foreign
jurisdictions with weaker regulatory regimes. And we've just once again
seen how that ends.
Finally, based on Mr. Gruenberg's 9 months as Acting Chair--as well
as the events that led to his time in that role--I'm concerned that he
will continue to politicize the agency. On his very first day as Acting
Chair, Mr. Gruenberg announced that the FDIC would join the ``Network
for the Greening the Financial System,'' an international group
committed to denying capital to carbon-emitting industries. While I
appreciate his recent acknowledgment that ``credit allocation decisions
are responsibilities of financial institutions,'' this statement
appears to be in conflict with his actions. Just two months into his
tenure, Mr. Gruenberg reversed commonsense changes to the FDIC's
supervisory appeals process that provided banks with due process. The
change overhauled the independent Office of Supervisory Appeals
established by his predecessor and reinstated the previous process
under which agency insiders would hear appeals. This decision raises
questions about whether the process can operate fairly and impartially.
If confirmed, I urge Mr. Gruenberg to depoliticize the agency's
work and restore the FDIC's independence.
Today, we will also hear from Travis Hill and Jonathan McKernan.
Both nominees are extremely well qualified to serve on the FDIC Board.
Mr. Hill's significant experience in both the legislative and
executive branch will deepen the FDIC Board's expertise and enhance the
quality of its deliberations. As senior counsel on the Banking
Committee, he worked on several pieces of bipartisan legislation over
several Congresses. And during his time as an advisor to former FDIC
Chairman McWilliams, he spearheaded numerous policy initiatives,
working constructively with agency career staff and other Board
members. I commend him for his public service, and I look forward to
hearing how he will approach his role as FDIC Vice Chair.
In a few moments, Senator Corker will introduce Mr. McKernan, an
exceptional nominee with valuable private sector experience and a
commitment to public service.
I have personally worked with Jonathan during his time as an FHFA
attorney detailed to the Banking Committee. I know firsthand that his
knowledge of banking and housing finance issues will equip him well to
serve on the FDIC Board. In addition to his substantive expertise, I
have been impressed by his diligence and character, and I look forward
to supporting his nomination.
______
PREPARED STATEMENT OF MARTIN GRUENBERG
To Be a Member and Chairperson of the Board of Directors of the Federal
Deposit Insurance Corporation
November 30, 2022
Chairman Brown, Ranking Member Toomey, Members of the Committee, it
is my honor to appear before you as the President's nominee to serve as
Chairman and Member of the Board of the Federal Deposit Insurance
Corporation.
I would like to thank President Biden for the honor of this
nomination, and Chairman Brown and Ranking Member Toomey for scheduling
this confirmation hearing. I would also like to thank Senator Van
Hollen for his kind introduction.
I have had the privilege of serving as a member of the FDIC Board
since August 2005, and as Vice Chairman, Chairman, and Acting Chairman
during that period. I served as Vice Chairman during the Global
Financial Crisis of 2008 and its immediate aftermath, and as Acting
Chairman and Chairman during the post-crisis recovery period.
Prior to joining the FDIC, I worked for Senator Sarbanes on the
staff of the Senate Committee on Banking, Housing, and Urban Affairs
from January 1987 to August 2005. During that period, I had the
opportunity to work on major legislation including FIRREA, FDICIA, the
Riegle-Neal Interstate Banking Act, the Gramm-Leach-Bliley Act, and the
Sarbanes-Oxley Act.
A reasonable question to ask is why, after serving on the FDIC
Board for such a long period, I would seek nomination to serve as
Chairman again?
The answer is pretty straightforward. My parents, who were
Holocaust survivors from Poland, gave me the gift of being born in this
country. Public service is a calling that has always been most
meaningful to me. The FDIC is a great agency of our Government, whose
mission of maintaining public confidence and stability in our financial
system is critical to our country's well-being. The opportunity to
serve on the FDIC Board and to provide leadership as Chairman has been
the greatest honor of my life. I can think of no opportunity that would
have greater meaning to me than the chance to continue to serve.
As I indicated in testimony before this Committee two weeks ago,
the banking industry enters the current period of economic uncertainty
in a position of significant strength. The industry is experiencing
strong loan growth and continued good asset quality measures, and
remains well-capitalized and highly liquid. However, it continues to
face significant downside risks from inflation, rising market interest
rates, and geopolitical uncertainty. Taken together, these risks may
reduce profitability, weaken credit quality and capital, and limit loan
growth in coming quarters. These will be matters of ongoing supervisory
attention by the FDIC for the near-term.
In my testimony I also outlined key policy priorities for the FDIC
for the remainder of this year and next including maintaining a strong
Deposit Insurance Fund, strengthening the Community Reinvestment Act,
addressing the financial risks of climate change, reviewing the bank
merger process, evaluating the risks of crypto-assets to the banking
system, and finalizing the Basel III capital rules.
In addition, I highlighted the FDIC's efforts to support Minority
Depository Institutions and Community Development Financial
Institutions, promote a diverse and inclusive workplace at the FDIC,
and strengthen cybersecurity and information security within the
banking industry.
I would like to conclude this statement with two acknowledgements.
First, the last time I appeared before this Committee for a
confirmation hearing I had the honor of being introduced by Senator
Sarbanes. Most of what I know about public service I learned from him,
and from serving on the staff of this Committee. His integrity,
intelligence, and judgment were such that not a day that goes by that I
don't ask myself, ``What would Senator Sarbanes do?''
Finally, I would like to acknowledge the dedication and
extraordinary capabilities of the employees of the FDIC who have
performed with such distinction throughout my tenure at the agency,
especially during times of crisis. They are deeply committed to the
FDIC's mission and serve our country well every day.
That concludes my statement. I would be glad to respond to your
questions.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
PREPARED STATEMENT OF TRAVIS HILL
To Be a Member and Vice Chairperson of the Board of Directors of the
Federal Deposit Insurance Corporation
November 30, 2022
Thank you Chairman Brown, Ranking Member Toomey, and Members of the
Committee. It is an honor to have been nominated by the President to
serve as a member of the Board of Directors at the Federal Deposit
Insurance Corporation, and to appear before you today.
Joining me this morning are my wife Lauren and my son Wesley, while
my daughter Whitney is watching from afar. I am continually grateful
for all their love and support. I am also joined by my parents, John
and Nicole, who have traveled here from New York, and from whom I have
learned the importance of hard work, responsibility, and too many life
lessons to list.
Public service is something I do not take lightly. All 4 of my
grandparents came to this country as immigrants, including two who were
German Jews escaping the Nazis. Both of my grandfathers subsequently
volunteered to fight in World War II, and in the ensuing years, one of
them rose to manage a chain of restaurants despite never having
attended high school, while the other started a company importing
minerals from India. I grew up with a deep appreciation for all this
country has to offer.
I spent 5\1/2\ years working as a staff member for this Committee.
I am extremely grateful to Senators Crapo and Shelby for the
opportunity. During that time, I worked on a number of bipartisan
bills, including the Economic Growth, Regulatory Relief, and Consumer
Protection Act, commonly referred to as S. 2155, which was signed into
law in May 2018. I spent countless hours working with staff on both
sides of the aisle. Through this experience, I developed a deep
understanding of the ins and outs of banking laws and regulations, the
value of bipartisan cooperation, and the vital oversight role Congress
plays in holding Government agencies accountable to the American
people.
After leaving Capitol Hill, I worked at the FDIC as an advisor to
Chairman Jelena McWilliams and as her deputy for policy. In this role,
I was involved in a range of FDIC policymaking initiatives, represented
the agency in a number of different venues, and helped lead the agency
through the COVID-19 pandemic. This experience reinforced my
appreciation of the critical role the FDIC plays in promoting the
safety and soundness of banks and the stability of the banking system,
and ensuring that American workers and families have a safe, accessible
place to leave their hard-earned savings. I also saw firsthand the
exceptional expertise and experience of the FDIC staff. I look back on
my time at the FDIC with great fondness, and am excited about the
opportunity to return if confirmed.
Over the course of my career, I have seen the importance of a well-
tailored regulatory framework that promotes economic growth,
innovation, and broad access to credit, while ensuring our Nation's
banks remain safe, sound, and resilient to shocks. I have also grown to
deeply appreciate the value of a banking sector with institutions of
many different sizes and business models, including community banks and
minority depository institutions that play a crucial role in their
local communities.
If confirmed, I look forward to working with Members of this
Committee to ensure the FDIC continues to fulfill its critical mission,
as it has done for the past 89 years.
Thank you, and I look forward to your questions.
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PREPARED STATEMENT OF JONATHAN MCKERNAN
To Be a Member of the Board of Directors of the Federal Deposit
Insurance Corporation
November 30, 2022
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, it is an honor to appear before you today. I am humbled to
have been nominated to be a member of the Board of Directors of the
Federal Deposit Insurance Corporation (FDIC). I am grateful to the
President for entrusting me with this nomination, to Senator Corker for
giving me my first job as Senate staffer, and to Ranking Member Toomey
for giving me another opportunity to continue public service here in
the Senate.
My wife, Sapna Sharma, is here with me today. She and I met on the
Hill when we were both starting out as congressional staffers. Despite
serving on different sides of the aisle, Sapna and I quickly found
common ground in our shared passion for the ideals that make this
country great. Five years later, we have two boys, 20-month-old Patrick
and 4-month-old Jonathan. I hope that together we will instill in our
children a love of country and public service, while also teaching them
to find common ground with others who have different worldviews.
My parents, Patrick and Victoria, are here today from East
Tennessee. My father is a former Navy pilot and sales representative.
My mother is a retired schoolteacher and homemaker. From my parents I
learned the importance of hard work and perseverance, as well as an
attachment to reading and learning, that together have provided a solid
foundation for life. My brother Paul and his wife Kensie are here today
as well. Both are also former Senate staffers, having met while working
for Senator Alexander. My brother Jason and sister Christine also are
with us virtually.
I believe my 15 years in financial services law, regulation, and
policy have prepared me well to support the FDIC in its work to
maintain stability and public confidence in the Nation's financial
system. My first role in Government was as an advisor to Senator Corker
on banking matters, including this Committee's bipartisan S.2155 reform
legislation and the Senator's efforts to negotiate bipartisan housing
finance reform legislation. I then served as an advisor at the
Department of the Treasury and the Federal Housing Finance Agency
(FHFA), and am now on detail from FHFA to this Committee. I have
immensely valued my time here and believe this Committee represents the
best of those in public service.
Before joining Senator Corker's staff, I worked for more than 9
years as a banking lawyer. My time in private practice began just as
the 2008 financial crisis was beginning. We all watched as hundreds of
billions of taxpayer dollars were spent bailing out ``too big to fail''
financial institutions, millions of homeowners were wiped out by
foreclosures, and almost every American family suffered in some way
through the economic fallout that followed. The aftershocks of the
crisis still reverberate 15 years later. Many American families will
never recover the lost generational wealth. Many others remain
convinced the system is rigged against them.
That experience left me with an enduring conviction that we as a
society must have a strong financial regulatory system that ensures we
do not repeat the mistakes of the past. The FDIC's mission therefore
resonates deeply with me. If confirmed, I would be strongly committed
to ensuring the FDIC does its part to maintain a resilient financial
system. I thank you for your consideration and look forward to your
questions.
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PREPARED STATEMENT OF KIMBERLY ANN MCCLAIN
To Be an Assistant Secretary of Housing and Urban Development
November 30, 2022
Chairman Brown, Ranking Member Toomey, and Members of the
Committee: Thank you for the opportunity to appear before you today. I
would first like to thank President Biden for nominating me to serve as
Assistant Secretary for Congressional and Intergovernmental Relations
at the U.S. Department of Housing and Urban Development (HUD). I would
also like to thank Secretary Fudge for her support of my nomination.
Thank you also to this Committee for holding today's hearing and
meeting with me over the past few weeks. I look forward to working with
this Committee on our Nation's housing issues. If confirmed, you have
my pledge that I will bring to bear the same commitment to service and
nonpartisanship that has guided my 30-year career in the United States
military, private, and public sectors.
For the last 22 months, I have been blessed to serve my fellow
Veterans, their caregivers, and their survivors as Deputy Assistant
Secretary for Congressional and Legislative Affairs at the U.S.
Department of Veterans Affairs (VA). I am proud to support VA's work on
access to benefits and care for all Veterans and their families.
I bring to this role a deep knowledge of Government and understand
how to work across large organizations, agencies, and Congress to
tackle challenges and deliver results. My leadership experience in the
nonprofit, private, and public sectors has provided me with the unique
background to serve in this role. But just as important, I have seen
firsthand the positive impact of access to affordable housing and
economic mobility on people's lives.
My childhood was filled with fond memories of going to my paternal
grandmother's home on weekends. When my Grandma Freeman could no longer
live in her home due to health issues she moved into a subsidized
duplex in a Rockford, Illinois, neighborhood called, ``The Terrace''.
That same neighborhood became home to my maternal grandmother after the
death of my grandfather. My Grandma Williams transitioned from being a
lifelong stay at home mother to a high school and college graduate, and
ultimately a librarian. The Terrace provided my grandmothers with a
sense of dignity and independence in the midst of major life changes.
Life happens to all of us. And as life is happening, nobody should
have to wonder where they will lay their head down at night. I am
keenly aware of the struggles that homeowners and renters are facing. I
am committed to working with Congress and the constituents it serves.
If confirmed, I will do everything within my power to ensure that those
who are most in need have an advocate and a voice at HUD.
The Office of Congressional and Intergovernmental Relations serves
as an important force multiplier for HUD and a critical conduit for
communicating HUD's initiatives, programs, and priorities to Congress,
State, and local elected officials, Tribal leaders, and the Senate and
House Committees with jurisdiction over HUD. To successfully accomplish
HUD's missions, if confirmed, I will focus on three core areas:
First, ensuring that the Office of Congressional and
Intergovernmental Relations is empowered and equipped to be
agile and responsive,
Second, increasing the capacity and continuity of the
Office's workforce to deliver exceptional customer service; and
finally,
Developing strong, trusted relationships through consistent
communication and engagement.
I am ready to take on the HUD mission and work alongside HUD
teammates in service to our Nation. If confirmed, I will lead as I did
during my career in public service and as an Air Force officer . . .
Integrity First, Service Before Self, and Excellence in All I
Do
Chairman Brown, Ranking Member Toomey, and Members of the
Committee, thank you once again for the privilege to appear before you
and the opportunity to serve my country.
I look forward to answering your questions.
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Additional Material Supplied for the Record
MEMORANDUM OPINION, FDIC
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