[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
MAKING COMMUNITY BANKING GREAT AGAIN
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HEARING
BEFORE THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
FEBRUARY 5, 2025
__________
Serial No. 119-1
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
59-597 PDF WASHINGTON : 2025
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HOUSE COMMITTEE ON FINANCIAL SERVICES
FRENCH HILL, Arkansas, Chairman
BILL HUIZENGA, Michigan, Vice MAXINE WATERS, California, Ranking
Chairman Member
FRANK D. LUCAS, Oklahoma SYLVIA R. GARCIA, Texas, Vice
PETE SESSIONS, Texas Ranking Member
ANN WAGNER, Missouri NYDIA M. VELAZQUEZ, New York
ANDY BARR, Kentucky BRAD SHERMAN, California
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
TOM EMMER, Minnesota DAVID SCOTT, Georgia
BARRY LOUDERMILK, Georgia STEPHEN F. LYNCH, Massachusetts
WARREN DAVIDSON, Ohio AL GREEN, Texas
JOHN W. ROSE, Tennessee EMANUEL CLEAVER, Missouri
BRYAN STEIL, Wisconsin JAMES A. HIMES, Connecticut
WILLIAM R. TIMMONS, IV, South BILL FOSTER, Illinois
Carolina JOYCE BEATTY, Ohio
MARLIN STUTZMAN, Indiana JUAN VARGAS, California
RALPH NORMAN, South Carolina JOSH GOTTHEIMER, New Jersey
DANIEL MEUSER, Pennsylvania VICENTE GONZALEZ, Texas
YOUNG KIM, California SEAN CASTEN, Illinois
BYRON DONALDS, Florida AYANNA PRESSLEY, Massachusetts
ANDREW R. GARBARINO, New York RASHIDA TLAIB, Michigan
SCOTT FITZGERALD, Wisconsin RITCHIE TORRES, New York
MIKE FLOOD, Nebraska NIKEMA WILLIAMS, Georgia
MICHAEL LAWLER, New York BRITTANY PETTERSEN, Colorado
MONICA DE LA CRUZ, Texas CLEO FIELDS, Louisiana
ANDREW OGLES, Tennessee JANELLE BYNUM, Oregon
ZACHARY NUNN, Iowa SAM LICCARDO, California
LISA McCLAIN, Michigan
MARIA SALAZAR, Florida
TROY DOWNING, Montana
MIKE HARIDOPOLOS, Florida
TIM MOORE, North Carolina
Ben Johnson, Staff Director
C O N T E N T S
----------
Wednesday, February 5, 2025
OPENING STATEMENTS
Page
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 1
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 4
STATEMENTS
Hon. Andy Barr, Chairman of the Subcommittee on Financial
Institutions, a U.S. Representative from Kentucky.............. 5
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
Institutions, a U.S. Representative from Illinois.............. 5
WITNESSES
Mr. Patrick J. Kennedy, Jr., Founding Partner, Kennedy
Sutherland, LLP................................................ 6
Prepared Statement........................................... 8
Ms. Susannah Marshall, Bank Commissioner, Arkansas Bank
Department..................................................... 11
Prepared Statement........................................... 13
Ms. Cathy Owen, Executive Chairman, Eagle Bank & Trust Company... 29
Prepared Statement........................................... 31
Ms. Rebeca Romero Rainey, President & CEO, Independent Community
Bankers of America............................................. 39
Prepared Statement........................................... 41
Ms. Mitria Spotser, Vice President of Federal Policy, Center for
Responsible Lending............................................ 56
Prepared Statement........................................... 58
APPENDIX
ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD
Hon. Nikema Williams:
Equipment Leasing and Finance Association (ELFA)............. 136
Defense Credit Union Council (DCUC).......................... 138
Hon. Barry Loudermilk:
Government Accountability Office (GAO) December 2024 Report.. 140
Hon. William R. Timmons, IV:
CID notice to Ms. Martinez................................... 251
Hon. Maxine Waters:
Letter of documents that are Submitted for the Record........ 252
201 Consumer, Civil Rights, Labor, Legal Services, Community
Organizations and Academics................................ 254
Americans for Financial Reform (AFR)......................... 262
National Association for Latino Community Asset Builders
(NALCAB)................................................... 268
Rise Economy................................................. 270
HEAL Food Alliance........................................... 275
Small Business Majority...................................... 278
National Community Reinvestment Coalition (NCRC)............. 281
The Leadership Conference on Civil and Human Rights.......... 285
Responsible Business Lending Coalition (RBLC)................ 287
Free Speech Coalition........................................ 290
inclusiv..................................................... 295
The National Bankers Association (NBA)....................... 304
National Association of Consumer Advocates (NACA)............ 307
Hon. Zachary Nunn:
Iowa Bankers Association Priorities.......................... 309
Iowa Credit Union League Priorities (ICUL)................... 312
Iowa Community Bankers Priorities (ICBA)..................... 314
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Maxine Waters
Mr. Patrick Kennedy, Jr...................................... 323
Ms. Susannah Marshall........................................ 325
Ms. Rebeca Romero Rainey..................................... 326
Ms. Mitria Spotser........................................... 327
Written responses to questions for the record from Representative
Mike Flood
Mr. Patrick Kennedy, Jr...................................... 328
Ms. Rebeca Rainey Romero..................................... 329
Written responses to questions for the record from Representative
Gregory Meeks
Ms. Cathy Owen............................................... 331
Ms. Rebeca Romero Rainey..................................... 335
Written responses to questions for the record from Representative
Sean Casten
Ms. Susannah Marshall........................................ 338
LEGISLATION
H.J.Res. ------, a resolution of disapproval on CFPB's overdraft
rule........................................................... 339
H.R. ------, the Promoting New Bank Formation Act................ 340
H.R. ------, the Small Lenders Exempt from New Data Excessive
Reporting (LENDER) Act......................................... 346
H.R. ------, the 1071 Repeal to Protect Small Business Lending
Act............................................................ 349
H.R. ------, the Bank Loan Privacy Act........................... 352
H.R. ------, the Fair Audits and Inspection for Regulators' Exam
(FAIR) Act..................................................... 354
H.R. ------, the Small Bank Holding Company Relief Act........... 368
MAKING COMMUNITY BANKING GREAT AGAIN
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Wednesday, February 5, 2025
U.S. House of Representatives,
Committee on Financial Services,
Washington, D.C.
The committee met, pursuant to notice, at 10:04 a.m., in
room 2128, Rayburn House Office Building, Hon. French Hill
[chairman of the committee] presiding.
Members Present: Representatives Hill, Lucas, Huizenga,
Wagner, Barr, Williams of Texas, Loudermilk, Davidson, Rose,
Steil, Timmons, Stutzman, Norman, Meuser, Kim, Donalds,
Garbarino, Fitzgerald, Flood, Lawler, De La Cruz, Ogles, Nunn,
Salazar, Downing, Haridopolos, Moore, Waters, Velazquez,
Sherman, Scott, Lynch, Green, Cleaver, Himes, Foster, Beatty,
Vargas, Gottheimer, Gonzalez, Casten, Tlaib, Torres, Garcia,
Williams of Georgia, Fields, Bynum, and Liccardo.
Chairman Hill. The committee will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time. This hearing is entitled
``Making Community Banking Great Again.''
Without objection, all members will have 5 legislative days
within which to submit extraneous materials to the chair for
inclusion in the record.
I now recognize myself for a 4 minute opening statement.
OPENING STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
ARKANSAS
Chairman Hill. Welcome to the House Financial Services
Committee's first hearing for the 119th Congress. I am
delighted to serve as chair, and I look forward to working with
my subcommittee chairs, Ranking Member Waters, and all the
members of the committee to bring common sense back to
financial and economic policy that will both foster prosperity
and growth for all of our citizens. That is the change that
President Trump ran on, and that is what we are going to do in
this committee.
It has been nearly 100 years since the House Financial
Services Committee was chaired by somebody who had financial
experience before their time in Congress. Many of you know that
I was a community banker before being elected to Congress, and
I want to bring being a banker and business vision to the
committee, and one of the key pillars of that vision is indeed
to try to make community banking great again. It is no
coincidence that this is the theme for my first hearing of the
chairmanship.
Most countries have just a handful of large national banks,
but the United States has a large and diverse banking system
with thousands of banks, from small and regional institutions
to global money center banks that all coexist and work together
with each other to meet the capital access needs and depository
needs of our Americans. It is one of our great competitive
advantages.
Alexander Hamilton, our first Treasury Secretary, himself
said banks are the nurseries of the national wealth. When faced
with unprecedented uncertainty during the time of the pandemic,
it was our community banks that made an outsized share of the
paycheck protection loans to small businesses keeping millions
of Americans employed.
Community banks know their communities best, and research
shows that when they close their doors, Americans suffer. Right
now our community banks are disappearing across the country.
Back in 1999, when I first founded my Arkansas-based company
Delta Trust and Banking Corp, the United States had over 8,500
Federal Deposit Insurance Corporation (FDIC)-insured banks,
including 190 new charters that year.
Fast forward to today, the United States has 4,000 banks
while only 82 de novo charters have been issued since 2010.
Small community banks and credit unions have suffered immensely
under the regulatory requirements forcing them to devote more
and more resources to lawyers and check-the-box compliance
programs instead of serving their customers.
Back in 1995, Arkansas had 251 banks. Today it has 77.
However, our local community banks and credit unions did not
contribute to the financial crisis. They have continued to
serve the critical engines for local economies despite being
subjected to much of the same regulatory burden and regime as
the largest, most complex institutions. To form a new bank
today, Americans must submit a multiyear high-cost endeavor
with several different Federal agencies just before they can be
considered to open their doors. Initial capital requirements
can be as high as $30 million in practice, making it nearly
impossible to get started as an entrepreneur banker today. One
founder in Texas told me that regulators were asking him to
propose $50 million in paid-in capital before he could open his
doors.
Over the last year, I have met with bankers from across
America, including in Arkansas, Texas, Ohio, Florida, Oklahoma,
Louisiana, and elsewhere. These visits have reinforced my view
that we are not doing enough to ensure that banks of all sizes
remain competitive both in their business model and in their
ability to attract growth capital. That is why, last November,
I released my principles that we are starting to talk about
today, making community banking great again: 30-plus reform
ideas to enhance the ability for financial institutions to
serve their customers, attract investment, adopt and deploy
technology, and grow their communities. I look forward to
working with all my colleagues to, in fact, bring that to
fruition.
I would like to first have the ranking member and I visit
about a point of personal privilege. I want to acknowledge two
staffers for their service on our committee. First, from the
majority, Kim Betz and Larry Seyfried have done so much work to
make this committee strong and outstanding over the past few
years. Both are moving on. Friday will be their last day with
the committee.
Kim has been a key staffer here for the past 6 years. She
has been General Counsel, Policy Director, Deputy Staff
Director, and Staff Director. Chairman Cole and Subcommittee
Chairman Joyce have enticed her over to the House
Appropriations Committee, so she will not be going far. I
consider her a world-class double agent in appropriations
absolutely watching out for those of us on the authorizing
committee.
Larry has served as Director of Member Services and
Coalitions during the 118th Congress, Deputy Director of
Coalitions in this Congress. He has worked to make sure our
members, and their offices get what they need to be successful
and has been integral to the success of our committee in the
last Congress and this one. We have benefited mightily from Kim
and Larry's leadership and hard work, and I want to thank you
for your service to our committee very much. [Applause.]
Now I would like to recognize my friend the ranking member
of the committee, the gentlewoman from California, for a point
of personal privilege.
Ms. Waters. Thank you very much, Mr. Chairman.
I would like to acknowledge Esther Kahng, the Democrat's
Chief Counsel, who will be departing Congress at the end of
this week. Esther has served ably on my staff for 11 years. She
first joined the committee in 2014 as a fellow fresh out of law
school. She quickly distinguished herself with her sharp
thinking and keen sense of public policy and was soon hired
full time on to the committee staff.
As a staffer covering housing issues, Esther worked on a
variety of issues, including the reauthorization of the Native
American Housing and Self-Determination Act, the enactment of
the Housing Opportunity Through Modernization Act, and the
reforms to the National Flood Insurance Program. Later, she
became a Director of Housing Policy leading a team of housing
professionals and shepherding the committee's response to the
housing challenges caused by the coronavirus disease (COVID)-
2019 pandemic through the House and into law.
In 2020, Esther was promoted to be the committee's Chief
Counsel, and in that role, she has refined the committee's
processes and procedures, expanded our member services
operation, worked across the aisle on bipartisan legislation,
and given the Republicans a hard time every now and then. When
it comes to enforcing the rules, Esther is driven, determined,
and hardworking, but also very kind, thoughtful, and a mentor
to current and former staff, many of whom are now her close
friends outside the office.
She is a proud wife to her husband Corey, who is a teacher
in a D.C. school, and she is an even prouder godmother to
Josiah, who we see and hear in the office from time to time. We
all are going to miss Esther, and I will miss her smile, her
laugh, and her no nonsense attitude. All of us are incredibly
proud of her and wish her the best as she embarks on this next
phase of her life and thank her for her service. [Applause.]
Thank you, Mr. Chairman, and I yield back.
Chairman Hill. I thank the ranking member. I could not
agree with her more on the incredible wonderful staff we have
on both sides of the aisle and how we are grateful for their
service to the committee and on behalf of the American people.
I now recognize the ranking member for 4 minutes for an
opening statement.
OPENING STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Good morning, everyone. Today we are here to
discuss how to strengthen community banks and credit unions,
vital institutions that are lifelines for families and small
businesses all across the country, particularly in underserved
communities. This committee has a long bipartisan track record
of supporting all of these community lenders, including during
the pandemic by allocating $60 billion for them to deploy
emergency loans to small businesses and investigate--investing,
rather, $12 billion to grow minority depository institutions
and community development financial institutions, many of which
are small banks and credit unions. If it were any other day, I
would say that I hope we can build on these efforts, including
by passing my bill to expand depository insurance to protect
the payrolls of small businesses and their employees who want
to keep their money at their banks, but I cannot do so as an
unelected billionaire, Elon Musk, seizes control of the
American people's money.
While President Trump unlawfully blocks sending money
rightfully owed to Americans, imposes new import taxes on
Americans and businesses buying everyday goods, and fires the
Federal cops that go after everyone from Wall Street executives
to violent insurrectionist criminals. Each of Trump's and co-
President Musk's actions are designed to cut taxes for
billionaires and give corporations free reign to rip off
working class families. If the community banks are listening
today, if they are listening, they should be worried about what
is happening to their customers and small business clients and
what they should be doing.
Trump is waging a trade war by threatening to tax Americans
whenever they buy fruit, vegetables, gas, and even housing, and
our small businesses will indeed feel the pain when they buy
and sell their products. Even The Wall Street Journal has
called Trump's import taxes the dumbest trade war in history,
and, frankly, I agree.
Mr. Chairman, I do not have to tell you who these
hardworking people prefer to bank with them. That is right,
community banks and credit unions. I know Republicans have
noticed several so-called reform bills for bank exam appeals,
reporting requirements, and even capital levels. Completely
misses the point when community banks' customers are being
fleeced. Trump and his team are firing hundreds of Federal
regulators hired in the last 2 years. This was after Trump
imposed a hiring freeze, gutted their hiring initiatives
mandated by law, and suspended all enforcement of consumer laws
so the big banks like Wells Fargo can go right back to their
old tricks.
I know that you are sincere, and I know that you have done
a lot for community banks, and you want to continue to do. We
want to work with you, but it is difficult when the President
of the United States is offering initiatives and executive
orders that really undermine community banks.
Chairman Hill. The gentlewoman yields back. I now recognize
the Chairman of the Financial Institutions Subcommittee for Mr.
Barr of Kentucky for 1 minute.
STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE SUBCOMMITTEE ON
FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE FROM KENTUCKY
Mr. Barr. Thank you, Mr. Chairman.
I am pleased the first full committee hearing of the 119th
Congress is focused on issues I have long cared about, and it
is a credit to our chairman for focusing and prioritizing
issues related to community banks. Today we are going to
discuss how we can unbridle those community banks from the
regulatory burden of the Biden and the Dodd-Frank Act and allow
them to focus on what they do best, serving American families,
farmers, and small businesses.
Throughout my time in Congress, I have pushed for changes
to the regulatory landscape that promote competition, ensure
right sizing, and hold regulators accountable. I was proud to
reintroduce H.R. 478, a bill to reduce burdensome initial
capital requirements and lending restrictions that have made de
novo bank formation all but nonexistent over the last decade.
In addition to promoting new bank formation, we need to
repeal the disastrous 1071 rulemaking and implement an
independent appeals process to curtail regulatory overreach. I
look forward to continuing to lead the Financial Institutions
Subcommittee and getting to work.
Chairman Hill. The gentleman yields back.
The chair recognizes the Ranking Member of the Subcommittee
for Financial Institutions, Mr. Foster of Illinois, for 1
minute.
STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM ILLINOIS
Mr. Foster. Thank you, Chairman Hill, and to our witnesses.
The State of Illinois is home to more than 500 community
banks and credit unions, employing over 41,000 Illinois
residents. When I was starting a business with my brother years
ago, I learned the value of having many banks, large and small,
competing for our business. It allowed us to shop around for
the interest rates and lending terms that were the best fit for
our situation.
Today, community banks and credit unions face many
challenges. They do not have the skill to compete with mega
banks for large accounts, and they often do not have the
technology or the consumer data to compete with online banks
and financial technologies (fintechs), for smaller accounts.
Now they are faced with a specter of competing against online
payment systems like X Money at the same time that X owner's,
Elon Musk, has been given unprecedented access to private
payment data on every American business and every American.
Small bank customers were hit hard during the tariff wars
of the first Trump, which threw us into a manufacturing
recession a full year before COVID hit, and retaliatory tariffs
devastated farm export markets in small towns across America
requiring a $20 billion tax bailout simply to keep U.S. farmers
afloat.
Small banks matter, and I look forward to working with the
chair and this committee to address many of these issues.
I yield back.
Chairman Hill. The gentleman's time is expired.
Today we welcome the testimony of Mr. Pat Kennedy, Jr.,
founding partner of the law firm Kennedy Sutherland, San
Antonio; Ms. Susannah Marshall, who is the Bank Commissioner
from the Arkansas State Bank Department; Cathy Owen, Executive
Chairman of Eagle Bank and Trust, located in Little Rock,
Arkansas; Rebeca Romero Rainey, President and CEO of the
Independent Community Bankers of America; and Mitria Spotser,
Vice President of Federal policy for the Center for Responsible
Lending.
We welcome all of you. Each of you will be recognized for 5
minutes to give an oral presentation of your testimony.
Without objection, your written testimony will be made part
of the record.
Mr. Kennedy, we start with you. You are recognized for 5
minutes.
STATEMENT OF PATRICK J. KENNEDY JR., FOUNDING PARTNER, KENNEDY
SUTHERLAND, LLP
Mr. Kennedy. Thank you, Mr. Chairman, Ranking Member
Waters, and members of the committee. Thank you very much for
inviting me to attend this hearing and submit written
testimony.
I have been a practicing Lawyer representing community
banks for 45 years, their shareholders, directors, and officers
and related entities, on a wide range of matters so I have had
a lot of exposure to the industry. I am also the principal
shareholder of a Texas State savings bank with roots in rural
West Texas, which in the last 5 years during the Paycheck
Protection Program (PPP) as Ranking Member Waters had
commented, this little, small bank did over 10,000 PPP loans,
average size of about 11,000. We ended up as a little small
community bank being the 10th largest Main Street lender in the
country. A firm called Wells Fargo was number seven.
When I last had the opportunity to testify before this
committee's Subcommittee on Financial Institutions at the
invitation of Congressman Luetkemeyer in 2017, there were 6,300
banks in the United States. As of last September, 30 percent of
those are gone, and we have about 4,500 banks today. This loss
is extremely unfortunate and is a trend that I strongly
encourage Congress to reverse.
In my professional career, I have witnessed the value of
having locally owned and operated banks, particularly in rural
communities. No other country in the world has anything like
this historic population. It is a unique element of the
American economy and, unfortunately, in the last 15 years,
particularly since the enactment of Dodd-Frank, has undergone
significant stress, and that is the reason for the continual
decline.
Prior to 2008, there were approximately, as the chairman
noted, 200 new charters annually over the prior 20 years.
Today, that number has dwindled to something like 7 per year.
During that same period, capital ratios and the Basel
Committee, the European-based Basel Committee initiatives have
been forced--designed, really, for the largest banks in the
world but have been trickled down and forced on every community
bank, even the smallest community banks, and placed enormous
burdens on this unique set of an important group of banks.
Despite the laudable attempts of Congress during the first
term to--during President Trump's first term to lessen that
burden by the establishment of the community bank leverage
ratio concept of getting away from the Basel at 9 percent, that
still is a higher number and really continues to put pressure
on profitability of community banks and I think discourages
entrance into the business.
Twenty seven years ago, I was involved, and, thankfully,
Congress adopted an amendment to the Internal Revenue Code that
permitted banks for the first time to elect Subchapter S tax
treatment, and that has been credited as one of the most
important pieces of legislation unknowingly that has affected
positively community banks in the last 50 years. About a third
of the banks in the United States--at that time, there were
13,000, I think, and today, as we said 4,500--about a third of
the banks in the United States are--maintain a Subchapter S
election, and that was continued in the Tax Act of 2017, in
section 199A. That expires this year, and so I call that to the
attention of the committee. I know it is in the purview of the
Ways and Means Committee, but it is extremely important that we
make that provision permanent for the benefit of some 1,500
community banks, most of them rural based.
While there are many other laudable initiatives identified
by the chairman in his initiatives, I want to underscore the
importance of encouraging and allowing responsible innovation
by community banks. Financial technology has and will continue
to create substantial value for the industry through efficiency
and reduction of costs. It is important that we have a
regulatory framework that allows that innovation.
I would also point out that it is really important that we
have open and timely discussion of material supervisory
determinations. Public enforcement actions should, in my view,
be reserved really for the most egregious situations, and
cooperative and open dialog should be the word for the future.
Finally, I believe that the appropriate pricing of
examination and application fees may need to be adjusted so
that the industry is self-funding and the regulatory burden
that is on community banks is lessened. Thank you very much.
[the prepared statement of Mr. Kennedy follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Hill. Thank you, Mr. Kennedy.
Commissioner Marshall, you are recognized for 5 minutes.
STATEMENT OF SUSANNAH MARSHALL, BANK COMMISSIONER, ARKANSAS
STATE BANK DEPARTMENT
Ms. Marshall. Good morning, Chairman Hill, Ranking Member
Waters, and members of the Financial Services Committee. My
name is Susannah Marshall, and I am the Commissioner of the
Arkansas State Bank Department. I also serve as the Arkansas
Securities Commissioner and on the Executive Committee of the
Conference of State Bank Supervisors. I have dedicated my
entire career to the banking and regulatory industry, starting
as a commercial bank examiner in 1995.
As Commissioner, I regularly travel across Arkansas and
spend time at our banks talking with bankers about their issues
and working to understand the challenges facing the
institutions, our economy, and consumers. The dual banking
system and our State supervisors are a fundamental part of our
U.S. financial services market that supports varied business
models and brings together differing regulatory perspectives to
produce better outcomes for our consumers and our local
economies.
States charter and are the primary regulator of 79 percent
of the Nation's banks, most of which are community banks. In
general, these banks have assets under $10 billion, traditional
business models, limited geographic footprints, and less
complex risk profiles. They pose minimal financial stability
risk.
The 70 banks my department oversees are all community banks
in the truest sense, regardless of any regulatory or
supervisory definition. Community banks are the economic
bedrock of their communities and a solid foundation for the
overall U.S. economy. Yet, over the last decade, we have lost
nearly 2,000 community banks, one-third of their members in
2014, and only 62 de novo community banks formed over that same
period.
Like many of my State supervisor colleagues, my department
has a mandate for safety and soundness, consumer protection,
and economic growth. We are accountable to the local
communities and local institutions. A healthy economy means
that all consumers, no matter where they live, have access to a
broad array of financial services.
Community banks are central to this mission. They are a
core component of a vibrant economy, especially in rural areas.
In one quarter of U.S. counties, a community bank is the only
physical banking presence and nearly 2/3 of all rural deposits
are held by community banks. When community banks close, their
neighborhoods suffer. Low income households are often the
hardest hit. Our Nation's institutions simply do not reach the
areas that depend on community banks for economic support.
Those largest institutions do not reach those areas. The
business models are not an adequate substitute for the
relationship lending models so crucial to local small
businesses and entrepreneurs. That is why State supervisors
care so deeply about the health, vitality, and future of the
community banking business model.
Unfortunately, this model is under tremendous pressure from
a multitude of forces, from increased competition and funding
challenges to high technology and personnel costs. In addition
to these headwinds, a heavy blanket of ever increasing Federal
regulatory and compliance cost is smothering an already
severely stressed community banking sector. To preserve
community banking and support the communities that rely on
these institutions, we must act now. Regulations for community
banks should be tailored to limit their risk profiles. We must
focus Federal supervision on core safety and soundness risk and
avoid imposing a process tax on banks. This supervisory
approach often distracts bankers from financial issues that
could actually pose significant risk to their institutions.
One such area in need of funding reform is the Bank Secrecy
Act (BSA) and Anti-Money Laundering (AML) supervision. No one
in our financial system wants it to be used by criminals or
terrorists, but the current BSA/AML regime is burdensome; its
effectiveness is often unclear, and the associated compliance
costs are strangling smaller institutions.
Static regulatory thresholds that penalize banks for
growing alongside the economy should be indexed or discarded
for rules that focus on the relative complexity and business
models and risk of the institution. Community banks must also
continue to innovate. The next generation of customers is
demanding more convenient access to services and new and
innovative financial products.
Federal regulators, however, have responded with vague
guidance in ever-increasing supervisory expectations that can
stifle new business models. A culture shift among our Federal
counterparts and meaningful coordination with State regulators
can help harness the benefits of new technologies and protect
consumers. Changes to the regulatory framework and the process
for approaching de novo applications should encourage new
market entrance.
Healthy merger applications, particular local to local
mergers that preserve community banks, must be considered in a
timely, transparent, and fair process. Today's hearing comes at
a crucial time for the community banking industry, and I
applaud the chairman and the members of the committee for your
focus on this crucial sector. Without collective action from
Congress and Federal banking agencies, we will continue to lose
community banks at an alarming rate, and the communities that
depend on their financial services will struggle to find simple
alternatives. Working together, we can establish a regulatory
and supervisory environment that allows the cornerstone of this
industry to not just survive but thrive. Thank you.
[The prepared statement of Ms. Marshall follows:]
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Chairman Hill. Thank you, Commissioner.
Ms. Owen, you are recognized for 5 minutes.
STATEMENT OF CATHY OWEN, EXECUTIVE CHAIRMAN, EAGLE BANK & TRUST
COMPANY, LITTLE ROCK, ARKANSAS
Ms. Owen. Chairman Hill, Ranking Member Waters, and members
of the committee, thank you for this opportunity to testify at
today's hearing, ``Making Community Banking Great Again.''
First, I want to thank Chairman French Hill. Not only is he a
dedicated husband, father, and public servant, but he is also a
dear friend. I have known him for over 50 years. His deep
understanding of financial services and tenured bank experience
is invaluable as he leads the committee.
I also want to thank each of you for serving on the House
Financial Services Committee as you have an exceptionally
important job ahead of you.
I fear community banking has never been more difficult than
it is today. Just as so many community bankers are striving to
serve their customers and communities, many are also struggling
to survive. We desperately need your help to address the
overwhelming regulatory burden we face. I know you are the
people we need to get the job done and offer my thanks in
advance for your support of the chairman as he works to make
community banks great again.
My name is Cathy Owen. I am Chair, President, and CEO of
State Holding Company and Executive Chair of the Eagle Bank and
Trust Company, a $490 million community bank in Central
Arkansas with a rich 100-plus year history of serving its
customers and communities. Last year, I celebrated 50 years in
banking, having started my career as a shred clerk when I was a
teenager.
In addition to running our bank, I am currently Vice Chair
of the American Bankers Association (ABA). I have chaired the
ABA's Government Relations Council and the American Bankers--
excuse me, the Arkansas Bankers Association, and I am also very
involved in advocacy efforts on behalf of America's banks. I am
also a mother, a wife, and a grandmother.
In preparing for this hearing, I asked our compliance team
to provide real-world examples of unnecessary and
counterproductive regulatory red tape. Although well-intended,
the Consumer Financial Protection Bureau's (CFPB's) final rule
on section 1071 presents both a tremendous compliance burden on
lenders and privacy concerns for small business loan
applicants, and we strongly support congressional action to
overturn it.
The lack of transparency and accountability at the CFPB is
taking a heavy toll on America's banking industry and the
millions of customers we serve. Replacing the sole director
with a five-member bipartisan commission and placing the CFPB
under the congressional appropriations process would introduce
sorely needed accountability to the Bureau. We want to comply
with the Community Reinvestment Act (CRA) and serve our
communities, but there are vast gray areas left up to
interpretation by both regulators and bankers. CRA should be
reformed to clearly tell us what we need to do and what format
and documentation is required.
Just before the end of 2024, our bank grew suddenly to over
$500 million in assets. Regulators have informed us to comply
with the new FDIC Improvement Act requirements by year end.
Meaning, we only had 2 weeks to comply, which was impossible.
Instead, we chose to shrink the bank by moving deposits of
customers out of the bank.
If asset thresholds are imposed on the industry, they
should be indexed to inflation. Borrowers constantly complain
about the required waiting periods for receiving the closing
disclosures in the Truth in Lending Act's trade rules when
waiting an additional 3 to 6 days for actually closing and
receiving their funds. This unnecessary red tape should be
eliminated.
In my written testimony, I mentioned several bills that we
support. One of those bills that I think is important is the
Promoting New Bank Formation Act. This will promote increased
availability of banking and financial services for local
communities by helping to create new de novo banks.
Finally, combating fraud is a critical issue for our banks
and customers. Congress and the regulatory agencies should
pursue an all-of-government approach to combating fraud to
reduce the number of Americans who fall victims to scams.
In conclusion, at Eagle Bank and Trust, we have a long
history of service to our local communities in Arkansas, and
our commitment to community development loans and investments
is shared by the thousands of community banks across the
country. Many of these banks are under pressure to survive due
to regulatory overreach and unfair competition.
We support your ambitious agenda to provide needed
regulatory relief for community banks and hope you will
consider the many ideas presented in this testimony and ABA's
blueprint for growth. Thank you once again.
[The prepared statement of Ms. Owen follows:]
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Chairman Hill. Thank you, Ms. Owen.
Ms. Rainey, you are recognized for 5 minutes.
STATEMENT OF REBECA ROMERO RAINEY, PRESIDENT & CEO, INDEPENDENT
COMMUNITY BANKERS OF AMERICA
Ms. Rainey. Chairman Hill, Ranking Member Waters, and
members of the committee, my name is Rebeca Romero Rainey, and
I am President and CEO of the Independent Community Bankers of
America (ICBA). I testify today on behalf of thousands of
community banks across the country in rural, urban, and
suburban markets.
Before joining ICBA, I was Chairman and CEO of Sentinel
Bank, a $415 million bank and Minority Depository Institution
(MDI) headquartered in Taos, New Mexico. I am a proud third
generation community banker. Sentinel was founded by my
grandfather, Eliu Romero, in 1969. Years earlier he had been
denied a loan to finance a new law practice. That experience
led him to start a bank that would provide credit for all in
his community, and I am proud to carry on his legacy, first at
Sentinel and now at ICBA.
Thank you so much for convening today's hearing on making
community banking great again. I am delighted that we share a
commitment to a future of great community banks to promote
American prosperity, and I would like to say a few words about
what makes community banks great. We have deep roots in the
communities we serve. More than a thousand community banks are
more than 100 years old and have survived historic systemic
shocks, standing with our customers in catastrophic times.
Others are de novo charters poised for growth, and we need more
of those.
In a community bank, local deposits are reinvested back
into local credit. The business model is the purest form of
economic development that there is. We often serve communities
overlooked by larger out-of-market institutions and offer
customized products and personalized services to seat the
unique--suit the unique needs of our customers.
Community banks are responsible for a disproportionate
number of main street small business loans, especially in
smaller communities, and some 70 percent of bank agricultural
loans. In one in three U.S. counties, community banks are the
only on-the-ground banking option. Whether historic or de novo,
community banks are modernizing and embracing innovation and
new technologies to reach more customers and small businesses.
Responsible innovation is our motto.
I want to thank Chairman Hill for crafting a set of banking
principles to guide policymaking in the new Congress. There is
strong overlap between those principles and ICBA's agenda for
the new Congress, which has been endorsed by all 44 of our
State affiliates and is attached to my written testimony.
As we enter 2025, top of mind for community bankers and
small business borrowers is the impending implementation of
section 1071 of the Dodd-Frank Act. The intrusive data
collection required under 1071 will compromise the privacy of
small business applicants and effectively commoditize small
business lending and increase the cost of credit. ICBA strongly
supports Congressman Roger Williams' 1071 Repeal to Protect
Small Business Lending Act. Short of full statutory repeal, the
law will be significantly improved by Chairman Hill's Small
Lender Act, which would provide community banks and small
businesses with critical relief to support ongoing credit and
community growth.
To enhance the future of community banking, we need more de
novo formation. Congressman Barr's Promoting New Bank Formation
Act would promote the creation of de novos, especially in rural
areas by providing more regulatory capital and lending
flexibility to those banks. Chairman Hill's principles also
include changes to resolution policy that would help ensure
that failing banks are not purchased by the largest banks,
thereby exacerbating industry consolidation, and waiver of the
least cost resolution if the FDIC finds that a transaction
would increase competition and facilitate economic growth, an
examination reform that would create independent review and
better transparency and accountability. The exam cycle would
also be increased from 12 to 18 months for more well-rated
highly capitalized community banks.
In addition, ICBA's agenda calls for measures to promote
and strengthen our Community Development Financial Institutions
(CDFI) and MDI members, curb the sale of trigger leads that
compromise consumer privacy, create a flood of unwanted
solicitations and confusion for customers, and address the
surging problem of check fraud, among other provisions. I urge
you to review my written statement for our full agenda for a
more detailed discussion of these and other important
provisions.
Let me close by again invoking my grandfather, Eliu. I
seriously doubt he could have formed Sentinel in today's
excessive regulatory and de novo environment. In fact, it would
have been impossible. This should serve as a historical
benchmark for the reforms we need to make community banking
even greater.
[The prepared statement of Ms. Rainey follows:]
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Chairman Hill. The gentlewoman yields.
Ms. Spotser, you are recognized for 5 minutes, and welcome.
STATEMENT OF MITRIA SPOTSER, VICE PRESIDENT OF FEDERAL POLICY,
CENTER FOR RESPONSIBLE LENDING
Ms. Spotser. Thank you so much.
Good morning, Chairman Hill, Ranking Member Waters, and
members of the committee.
Over the weekend, I had a moment to really think about the
title of this hearing and ultimately what we were talking about
in making community banking great again. It occurred to me that
the way to make community banking great again, if it is not
already great, is to put communities first.
What I would like to talk to you about today in this short
amount of time that I have are policies that put communities
first and relationship banking and the people that financial
institutions serve and policies that undermine the
relationships that community bankers are designed to reinforce
and build.
Let us start with community relationships or community
policies that actually help banking and help people. Those are
policies that level the playing field between banking
depository institutions and nondepository institutions because
one of the biggest challenges that banks are facing right now
is the encouragement of other lenders who are not abiding by
the same regulatory obligations. By stepping in and holding
those institutions accountable, making them abide by
disclosures to consumers and allowing consumers the information
to make informed decisions about what is the best product, we
can elevate community banks and help consumers make strong
financial decisions that keep them financially secure.
Another way that we can actually put communities first by
developing a community banking agenda is by actually increasing
the amount of funding that we allocate to the institutions who
are doing that work, and that includes CDFIs. Enforcing the
work that they do as well as the technical assistance that they
provide to so many small businesses across the United States is
essential for us reinforcing the notion that our lending
relationships as community bankers drives small business.
Finally, another thing that we can do to stimulate
community banking and put communities first in the process is
seriously consider proposals that are designed to increase
resources for small businesses by raising their deposit
insurance cap and making those institutions feel more
comfortable.
I would encourage us as a group to actually think about
those types of policies and their direct benefit in not only
helping and assisting community financial institutions but also
assisting the consumers that they serve.
Now, there are a number of other policies, and
unfortunately, some of them are being considered in connection
with this hearing, that I do not think actually put communities
first. One of those policies I have to be very clear about is
the overemphasis on deregulation. It was not that long ago that
we can all remember the 2008 financial crisis, but what we
sometimes do not talk about in the midst of talking about
regulatory burden is what led to that crisis. The reality is
that it was a series of deregulation, a lack of emphasis on
oversight that--particularly as it relates to larger financial
institutions--that led to the financial crisis, and community
banks, even though they engaged in sound banking practices,
were forced to feel the consequences due to the economic
downturn and impact that it had on consumers. Deregulation is
the type of policy and practice that leads to harm on a long-
term basis for community banks.
The other thing that leads to harm here is policies that
undermine the independence and the effectiveness of the
regulator that is charged with ensuring that there is a level
and fair playing field for financial institutions and
consumers, and that regulator is the Consumer Financial
Protection Bureau. There has been a lot of conversation about
what is going to happen with the CFPB, and certainly there have
been changes in the leadership.
I think it is true that reasonable minds can disagree as to
the full impact or specific provisions with respect to the
Bureau, but what reasonable minds cannot disagree with is the
reality that ensuring that consumers are protected in the
financial marketplace, stamping out predatory financial
products, making sure that consumers have accurate information
are all things that are essential for our financial marketplace
to function effectively.
For those reasons, we need to pursue an agenda, a
regulatory agenda and a legislative agenda, that puts
communities first by ensuring that we have appropriate rules
and regulations governing the financial marketplace. Thank you
so much.
[The prepared statement of Ms. Spotser follows:]
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Chairman Hill. The gentlewoman yields. Thank you so much.
I recognize myself for 5 minutes for questions.
Commissioner Marshall, it is so good to see you.
I told her when she walked in, I trembled a little bit
because she used to be my regulator when I was a banker. She
still makes me nervous being in the same room.
You served our State for over 30 years, and we have a
vibrant banking sector. We have some of the Nation's most
competitive financial institutions and successful, and I will
say, big, small investment, money management, credit union,
commercial banking. Congratulations on doing a good job both as
Securities Commissioner and Banking Commissioner of the State,
big responsibility.
Ms. Spotser, in her testimony, I saw on page 13, asserts
that there is no--there is a lack of data about small business
lending in the United States and hints for a strong support for
section 1071 in Dodd-Frank's implementation, this rulemaking
that we have been talking about for the last few years.
Are you familiar with the call report data on small
business lending, Commissioner?
Ms. Marshall. Thank you for your comments, Mr. Chairman.
When we look at 1071, I can assure you that, as a regulator, I
am as concerned about that as the banks are. I believe that
CFPB took an outsized approach to their implementation of this
rule, and I applaud this group and others that--and Congress as
you are going to look at 1071 and the future of it. The amount
of data that is going to be required to be collected by the
banks and the reporting of that data will increase and provide
a significant burden on our institutions.
Chairman Hill. Could you see it driving small business
lending out of the depository institution sector to the biggest
banks in the country and some automated credit box or, even
more so, out of the regulated financial sector into the online
small business lending sector? Is that possible, do you think?
Ms. Marshall. I agree, Mr. Chairman, because the consumer
already struggles with providing the amount of information that
banks are required to collect from them. They do not understand
that. The banks are struggling to collect that information and
in a small business setting, no two small business loans are
alike. There is nothing that is going to make a great
comparison when looking at one small business loan to the
other. I grew up in a family with two small businesses, and I
can assure you they were very different, but our community bank
served us well.
Chairman Hill. I think that is a good point, but on this
point about data, I believe we collect for--every depository
institution in the country reports on their financial
statements' loans under $100,000 and loans between 100 and
$250,000. Is that right?
Ms. Marshall. Off the top of my head, Mr. Chairman, I do
not--I cannot confirm that, but I can assure you the call
report data is expansive. It is growing every day, and the
burden that those institutions are required for even additional
documentation is significant.
Chairman Hill. Because I have access to chat generative
pre-trained transformer (ChatGPT), I can report to you that RD-
C, part 2 of the call report, requires banks to report all
loans under $100,000 and all loans between 100 and $250,000.
Clearly, that is data, and it is indicative of small
businesses.
Cathy Owen, sometimes I think the regulators are not all on
the same page, and the bigger the company, the more likely they
are not on the same page. In your experience, are the Federal
Reserve System (Fed), the FDIC, and the State all on the same
page on community reinvestment or whether or not you can have a
fintech partnership or how they coordinate their exams?
Ms. Owen. We are a Fed State bank, so I can only comment on
the Federal Reserve and the State Bank Department. For the
large part, we are very fortunate in that our Fed region and
our State Bank Department do work very closely together and
coordinate closely.
Chairman Hill. Thank you.
Ms. Rainey, what do you think about that? What do you hear
from your members on that? Exam coordination and are they on
exactly the same page about reviewing a fintech investment or
how the CRA should operate, the Community Reinvestment Act,
operate or any other--and coordinating exams, particularly for
your members that are larger and maybe subject to direct
examination by the CFPB, for example?
Ms. Rainey. This is something we hear a lot about, and I
can tell you that there is not a lot of direct coordination and
a lot of confusion in terms of what one entity might require
and another to what extent they may examine, best practices,
how they get rolled down to community banks. There is not a lot
of coordination today.
Chairman Hill. Mr. Kennedy, thinking about the--I hear a
lot of comments, and I noted them about how bank CEOs and
boards of directors are thinking about the Capital Adequacy,
Asset Quality, Management, Earnings, Liquidity and Sensitivity
to Market Risk (CAMELS) rating, the transparency of it, and
some bankers have asserted anecdotally that it is not a fair
process. As a bank director, founder, lawyer, can you comment
on how the CAMELS process might be reformed.
Mr. Kennedy. As a lawyer, not specifically in reference to
our bank, but just in my 40-plus years of representing banks
and seeing the application of CAMELS, I think your suggestions
about focusing in on following the definitions and making those
definitions clear. In my comments, I commented on the idea that
instead of doing an exam on a point in time with a snapshot,
think more about a dynamic trend for the bank in terms of how
they apply, how the regulators would apply that CAMELS rating.
It is very important. Those ratings can lead to a whole lot of
positive or negative things, so I think that is a very
important matter to cover.
Chairman Hill. Thank you very much. Thank the panel.
I now recognize the ranking member, the gentlewoman from
California, for 5 minutes of questions.
Ms. Waters. Thank you very much, Mr. Chairman.
Ms. Spotser, welcome back. It is so nice to have a former
staffer testify before our committee. Good to see you.
Ms. Spotser. Thank you, ma'am.
Ms. Waters. Today Democrats would offer the types of bills
our committee should be considering. If we are going to do
reform, it is just not about getting rid of regulations. We
should be considering bills that lower costs for families and
small businesses and protect community banks and credit unions.
For example, I have a bill that will halt all Trump import
tax increases and his dumb trade war until we know that small
businesses and the community banks will not be harmed. I have
another bill that rejects co-President Musk's efforts to end
deposit insurance and the FDIC. These bills will ensure there
is a future for community banks. Ms. Spotser, as I explained in
my opening statement, I am deeply troubled by Trump's and the
unelected billionaire Musk's early actions, including the
effort to pause all kinds of Federal financial assistance.
Would you discuss--you have done that somewhat, but would you
continue to discuss how these efforts would hurt individuals
and small banks and how they would undermine the community
lenders they prefer to bank with. For example, if loans backed
by the Federal Housing Administration and Small Businesses
Administration were no longer available, would that make it
harder for banks and credit unions to provide mortgage and
small business lending?
Ms. Spotser. It certainly would, and one of the things that
I would like to point out is, not too long ago, I actually
received a telephone call from one of our colleagues at another
organization who had received a message basically indicating
that they would no longer be able to actively work in providing
technical assistance to small businesses as a result of the
funding freeze and a series of the executive orders. I think
these types of policies directly impact our ability to do what
we do best as community bankers, right, which is first, small
businesses. Give them the resources that they need to scale,
and so, as we go forward, we have to think about making a
conscious decision to pursue policies that empower businesses
rather than hurt them.
Ms. Waters. Thank you. The Trump Administration even
included interest payments on our national debt and a list of
programs they maybe paused before a court blocked their freeze.
If we were to default on our debt, would that not trigger a
broad economic crisis that would harm community banks, credit
unions, and their customers?
Ms. Spotser. It certainly sounds like it would, yes, ma'am.
Ms. Waters. Thank you. What will happen when Trump's new
import taxes are imposed on a bank? This can happen in a month.
Will that raise the cost of groceries and gas for consumers?
What about farmers who export their crops? Will they be harmed
when our neighbors respond by taxing American exports? Will all
of this make it harder for community bank customers to repay
their loans?
Ms. Spotser. Yes, ma'am. I think the broader question here
is exactly what you are saying. All of these decisions have an
impact on the wallets of Americans. As a result of that, it
creates pressure for them to actually continue to pay their
debts, and that has an implication for every financial
institution.
Ms. Waters. Thank you. Now, if we care about community
banks and credit unions, Congress must not turn a blind eye to
all the harm Trump is trying to inflict on working families,
small businesses, community financial institutions, and our
economy. Again, Mr. Chairman, and members, we support community
banks, and both sides of the aisle do, but it is not going to
be simply getting rid of regulations that we have worked so
hard to put in place so that we could protect our community
banks. I think it is important for us to look at some of these
executive orders and what they are doing and the possible harm
that they may cause our community banks, and so that is what
our members are going to do today. We are just going to be very
open about what we understand is being done, because we all
want to protect our community banks. We do not want to
undermine them at this important time in the history of the
changes that are being made in this country.
I yield back the balance of my time.
Mr. Huizenga [presiding]. The gentlelady's time has
expired.
I now recognize myself for 5 minutes.
Ms. Romero Rainey, you testified this morning that, when
banks fail, a speedy resolution is critical, which I fully
agree with, and you had said that the FDIC should not ``pick
winners and losers.'' I would contend, and many of us over here
who lived through what happened with Silicon Valley Bank (SVB)
and a few other recent bank failures is that they were lacking
in that area. They did, in fact, pick winners and losers, and
we saw that scenario play out. Not only was former FDIC Chair
Marty Gruenberg slow to react to the failures of Silicon Valley
Bank, we heard that--as chair of the Oversight and
Investigations Committee-- but we also heard that time and time
and time again from people who were involved in it, both
Silicon Valley Bank and Signature Bank.
When it came to First Republic, he allowed their assets to
be purchased by a large U.S. bank rather than eroding--rather
than putting it out for bid and really having a reinforcement
of the competitive nature of the banking landscape.
I want to know, are there ways that you think the FDIC
specifically could improve the bidding process that would
include everybody in that failed bank assets when those
unfortunately occurred--occurrences happened?
Ms. Rainey. Yes, and I appreciate the question. I think
there are many ways for us to examine what is required under
least cost resolution that, in time of a failure, would ensure
that: one, we are not simply allowing the largest banks in this
country to grow even larger; that we are taking into account
the unique needs of the communities and the customers they
serve; and looking at the concept of least cost resolution to
be defined over a period of time, not in just that singular
moment. This is something we would welcome engagement with the
committee on.
Mr. Huizenga. Do you believe community banks have the
ability, and are they in a position to absorb the assets of
banks like this?
Ms. Rainey. Absolutely, and I think, as we reflect on these
situations, there were many examples of smaller banks that were
willing to bid that, again, if there were more flexibility and
the willingness to look at these costs over, again, an extended
period of time. Multiple banks with unique ties to those
communities could have stepped up to the plate and ensured a
better resolution for those customers.
Mr. Huizenga. In 2018, this committee passed on a
bipartisan basis actually, some relief to those community
banks. Yet, we still have some who are saying that we need to
regulate you all as we would a large city bank or other large
banks. Can you help the committee understand how Congress can
build on the tailoring requirements that were, as part of
Senate bill 2155 back 6, 7 years ago, and how it helped
revitalize the banking sector.
Ms. Rainey. Tailoring is critical for a viable future where
community banks thrive.
Mr. Huizenga. That is because they are just different risk
profiles?
Ms. Rainey [continuing]. different risk profiles, and the
concept one size fits all is not what we need when it comes to
bank regulation. The risk model that is a community bank is
succinctly different from those of the larger banks.
Mr. Huizenga. Some would want to call that rolling back.
Others would call that maybe commonsense application, right? If
you have a different type of animal that we are dealing with,
is it appropriate to then have different regulations on them,
correct?
Ms. Rainey. That is correct. For a smaller community bank
that is focused on ensuring the success of that community
thrives, that risk profile is going to look completely
different, again, from the larger institutions.
Mr. Huizenga. Ms. Marshall, I want to turn to you here. In
a recently released survey of the Conference of State Banking
Supervisors, community banks listed regulations as one of their
chief external risks. Is that what you are seeing in Arkansas
and among your other colleagues?
Ms. Marshall. Yes, sir, absolutely, and I appreciate the
point to the sentiment index survey that--and in our community
bank survey where regulatory burden is highlighted as one of
the number one risks facing institutions. When I go out and
visit with my banks, whether it is in Western Arkansas or
Eastern Arkansas or my colleagues across this country, I can
assure you that it is top of mind for them.
Mr. Huizenga. I think I know the answer to this, but you
would not say that Senate bill 2155 actually caused these
previously mentioned banks to fail.
Ms. Marshall. No, sir.
Mr. Huizenga. I did not think so. I just wanted to make
sure we were on the same page here.
Ms. Marshall, Ms. Owen, I want to follow up on comments
from Chair Hill about de novo banking. My home State of
Michigan, we currently have 79 chartered banks, which is down
from 86 just a year ago. That represents nearly 2,000 branches,
50,000 employees, and $314 billion in customer deposits.
Ms. Marshall, your testimony highlighted just how hard it
is to form a new bank. I am hearing that same message from back
home. What can we do as the consequences--what are going to be
the consequences? My time is expiring, but very quickly.
Ms. Marshall. I think the message I am tailoring is
appropriate and getting away from process-driven examinations.
Mr. Huizenga. Great. Thank you. I know we have a title of
``Making Community Banking Great Again,'' but ultimately it is
all of our goal to make sure that credit is available, and
through access, whether it is credit unions. Those are those
communities that really are where the rubber hits the road.
With that, I recognize the gentleman from California, Mr.
Sherman, who is recognized for 5 minutes and 30 seconds.
Mr. Sherman. Thank you.
I want to thank the ranking member for focusing on how
disruption disrupts our entire economy and hurts every private
sector decision-maker. The ranking member points out that this
administration was toying with the idea of maybe we just will
not make payments on our national debt. How is somebody
supposed to do business and take all the risks involved in
being in the private sector?
We have a 25 percent tariff on Canada. Then we do not. Then
we might. Then it depends on whether their Prime Minister says
something nice about how our President looks.
How is a community bank--and this is just a rhetorical
question--supposed to decide whether to make a loan to a
business when they do not know whether they are going to lose
all their Canadian and Mexican sales next month? It is just
throwing a wrecking ball at everything in our economy. Gets
good ratings. Dominates the news cycle. I think it would be--it
is hard to say that being a community banker is great when you
have to deal with that.
We have to make banking great, not just for the bankers and
the community bankers, but for the consumers. For God's sakes,
we cannot abolish the CFPB. They produce $21 billion for
consumers. We are going to save $6.1 billion on overdraft fees.
The way to make banking great is not to leave consumers without
protection.
Another thing that was not so great about banking a couple
years ago was the collapse of several banks, including
Signature Bank, where we are told that one of the factors was
that the FDIC was understaffed. Now we are told that they are
still understaffed. They do not have enough bank examiners, but
200 bank examiners who had offers are now seeing those offers
pulled. Now, those barely qualified might wait around to see,
but the ones with the most qualifications, the ones that are
wanted by the private sector, will have 10 other jobs by the
end of next week. They are gone.
We also see the FDIC being told, if you work for the FDIC,
hey, you can get 8 months' pay for quitting your job. Who is
going to quit? The people who can easily get an even better job
in the private sector, we lose our best and our brightest.
I will ask Ms. Spotser. If the FDIC is unable to prevent
future bank failures, is that bad for the image of community
banks and their ability to attract depositors?
Ms. Spotser. It certainly is.
Mr. Sherman. I thought that was an easy question.
Community banks make mortgage loans. They cannot afford to
maintain--to hold those loans on their balance sheet. They sell
them to Fannie and Freddie. If we abolish Fannie and Freddie,
is that good for community banks?
Ms. Spotser. No, not at all.
Mr. Sherman. Okay. We have a law in Florida--which I hope
this committee would see fit to preempt--that says anytime you
are turned down for a loan in Florida, you can say that it is
because of my political beliefs, and you start a State
investigation. Is that good for community banks?
Ms. Spotser. I am not familiar with the law, sir, but it
does not sound like it is good.
Mr. Sherman. It creates a circumstance where the Federal
law says that you better not reveal the fact that you filed a
suspicious activity report, but the Florida law says you have
to explain why you did not want to do business with somebody
who was suspicious. You are in a conundrum where you are forced
to do something by State law, prohibited doing something for
Federal law. Does that make community banking great?
Ms. Spotser. It certainly creates compliance challenges.
Mr. Sherman. Okay. Then we have rules that apply--let us
just say we still have a CFPB. There are those who say we will
impose those rules on loans made in dollars, but we will exempt
crypto. Since banks have their deal with dollars--all of them I
know--if they are at a competitive disadvantage for the crypto
industry, does that make community banking great?
Ms. Spotser. No, sir.
Mr. Sherman. I yield back.
Mr. Huizenga [presiding]. The gentleman has 6 seconds. The
gentleman yields back.
With that, the gentleman from Oklahoma, Mr. Lucas, is now
recognized for 5 minutes.
Mr. Lucas. Thank you, Mr. Chairman, and thank you to all of
our witnesses for testifying today.
Community banks are the heartbeat of local communities. In
my district, it is agriculture, it is energy, it is Main
Street, and community bankers uniquely address the needs of
those capital-intensive industries like the ones in my home
State.
Ms. Owen, before I start my first question to you, I would
just like to offer an observation. My first banker was an older
banker at the time. He had been my father's banker, he had been
both of my grandfather's banker, and as a very young banker, he
banked 2 of my great-grandfathers, so community banking and
those relationships are important to me having lived it
firsthand.
Ms. Owen, what does it mean--and I know--just simply say
this is a hearing about stressing the importance. What does it
mean for the local community when community banks are able to
thrive in communities like mine and in many across the country?
Ms. Owen. It is huge for the communities, the customers. If
a community bank cannot thrive, then we cannot serve that
community. We cannot buy school uniforms. We cannot supply food
for the food pantries. We cannot provide financial education.
We cannot make the loans that are necessary for those
communities.
Mr. Lucas. Turning to you, Ms. Romero Rainey. The chairman
and the vice chairman have discussed how, in 2018, Congress
rolled back some regulatory burdens placed on community banks.
Could you expand, from your perspective, what other areas of
focus does Congress need to consider building on that progress?
Ms. Rainey. Certainly. I think as we build on that progress
of creating, again, not a one-size-fits-all path to regulation,
whether we are talking about the exam environment in which
community banks operate and how we allow for more flexibility
for well-capitalized and well-managed institutions. I think
another significant opportunity is how we think about de novo
banking.
Again, the one-size-fits-all charter for a community in
Oklahoma does not look the same as it does in downtown New York
City, and we need to think about it differently in terms of
what regulation should be required and how we appropriately
give flexibility. That is really what we are looking for. As we
serve unique communities of all shapes and sizes across this
country, we need that flexibility. It is not about--it is about
enforcing and creating added approach to safety and soundness
but giving us the flexibility to manage within that.
Mr. Lucas. Ms. Marshall, we have seen a dramatic decrease
in the number of new banks created in the last 20 years, as my
colleagues have noted. I have listened personally to investors
talk about, at different times in the last 20 years, where the
regulators were so focused on making people take problem banks
that they would not allow--would not encourage new charters, de
novos, until that was taken care of.
What are some of the challenges that you see in entering
the market, and what should the government do to consider
incentivizing new bank formation?
Ms. Marshall. Yes, sir, and Arkansas is no different. We
have only seen 20--pardon me. In 20 years, we have not seen a
new de novo bank application, and that is a trend I would like
to see change, not just for my State, but across the country.
I believe we need to focus on ensuring those interested
parties that our industry is open for business. We need to
focus on reminding them that the regulatory burden is
manageable, and we can do that through tailoring, as I have
mentioned before. We need to spend this time and take this
opportunity to review static thresholds that have, quite
frankly, not been indexed or reviewed in quite some time,
because $10 billion today is not what it was when some of those
thresholds were put into place. I allude to the Bank Secrecy
Act or other thresholds within the regulatory environment.
We also need to ensure that we have healthy entrance into
the marketplace, and we also have that opportunity for exits
through mergers and acquisitions (M&A) activity and no barriers
to that for local-to-local bank mergers.
Mr. Lucas. I just want to say that access to capital is a
hugely important topic in districts with the kind of industries
I have back in Oklahoma, and I look forward to working with my
colleagues on the committee and the new administration to
address these issues that we highlighted today.
I think of my first old banker who was a multigeneration
banker and he had his institution open for 5 and a half days a
week. On Saturday afternoon, when he closed at noon, he would
get in his pickup and he would drive around the county looking
at your farm, looking at your field, looking at your business,
doing a personal eye assessment of what was going on. He
survived the Great Depression. He survived the drought of the
`50s. He survived the meltdown of the 1980s. I have the
greatest of respect for that kind of community banker.
I yield back.
Mr. Huizenga. The gentleman's time has expired.
With that, the gentleman from Georgia, Mr. Scott, is now
recognized for 5 minutes.
Mr. Scott. Thank you, Chairman.
Ms. Spotser, thank you for your excellent and well-
delivered testimony. I learned a lot. Most importantly, put
communities first. You are absolutely right. Our banking system
is much like a heart in the body. It pumps blood throughout.
Our banks do the same thing. That is what pumps our money, our
lending out. It is the basis.
Now, Ms. Spotser, yesterday, the former CEO of Silicon
Valley Bank, Mr. Ken Wilcox, warned that President Trump's
deregulation agenda could lead to more bank failures similar to
those experienced by Silicon Valley and others in 2023. Worst
of all, Mr. Wilcox said this. He said that ``We could
potentially see failures like those seen during the 2008
financial crisis because of loosened regulatory enforcement.''
Now, tell us, do you agree with Mr. Wilcox's statement, and
where do you see President Trump's banking deregulation agenda
causing the most damage?
Ms. Spotser. Thank you for that question, sir.
One of the most fascinating things is that we are at a time
where Americans across the country are already facing financial
hardship. We see that because we see that people are more
likely to pay just the minimum statement--minimum due on their
credit cards. We see that when we hear consumers talk about the
fact that they are struggling to buy groceries.
Any act that makes it more expensive to access credit and
any act that does that by virtue of, quite candidly, a policy
that pursues deregulation but allows as a result of
deregulation for consumers to experience paying more what we
have called in the past junk fees is a policy that actually
will, in the long-term basis, hurt us all.
Mr. Scott. Going to your point about putting the
communities first--excuse me. I have a slight cold.
Ms. Spotser, in your opinion, what happens when the people
in the community who are advocating for caution, who are
advocating for soundness, are not even involved in the decision
making process about such a critical area?
Ms. Spotser. I think we all suffer, and I think that we
have heard from all of the witnesses on the panel. The thing
that makes community banking so important and relevant is that
it is relationship-based. It involves people actually listening
or institutions actually listening to their customers and
hearing their concerns as well as their desires to build. If it
is relationship-based banking and that is what makes it
important, then, obviously, it is critical to pay attention to
the concerns that are raised by communities.
Mr. Scott. How is this environment exacerbated specifically
speaking about community banks?
Ms. Spotser. I think we have heard a bunch of conversations
about the challenges. With larger financial institutions as
well as nonbanking, nondepository institutions not being held
accountable to the same standard, it creates a situation where
community banks can be less competitive. That is one of the
biggest challenges here.
I think that the ways to increase the competitiveness of
community banks have something to do with giving them
opportunities to expand their competitiveness by, for example,
increasing the amount of deposit cap that relates to small
businesses, providing increased technical assistance and
opportunities, allowing them more access to technology, as we
talked about before, and making that affordable to them.
It is not to say that we do not believe in the notion that
regulation should be tailored. What we are saying is that we
already acknowledge that regulations have been tailored and
that many of the rules that people have pointed to as creating
regulatory burden in fact do not apply to community banks in
the United States.
Mr. Scott. Thank you, Ms. Spotser. I appreciate that.
Mr. Huizenga. The gentleman's time has expired.
With that, the gentlewoman from Missouri, Mrs. Wagner, is
now recognized for 5 minutes.
Mrs. Wagner. I thank the vice chair, and I thank the
chairman for organizing this inaugural hearing of the 119th
Congress on community banks, local institutions that provide
absolutely essential banking services for communities across my
home State of Missouri and the Nation. Ninety percent of the
banks in my district are community banks, and they are often
the main source of funding for small businesses and farmers
throughout Missouri's Second District.
After the passage of Dodd-Frank, community banks were
forced to contend with complex, overly prescriptive, and a
burdensome suite of regulations--I do not think there are any
junk fees. I think there are junk regulations imposed, if you
want my humble opinion, but--that made basic financial services
less accessible to small businesses and middle-income
Americans.
The bills we are examining today will give local banks
much-needed relief from these one-size-fits-all regulations,
allowing them to better serve and meet the needs of local
businesses, which will lead to investments and economic growth
in Missouri and across the country.
Ms. Rainey, the vice chair and others have touched on this.
You noted that, after Dodd-Frank passed, de novo charters,
which allow for the formation of new banks--I do not know why
we just do not say that. De novo. Whatever--dropped from an
average of 170 per year to just a handful. This sharp drop in
new banking opportunities is depriving communities of access to
banking and local credit, especially in rural areas.
Ms. Rainey, what reforms can Congress and/or regulators
make to reverse this trend and encourage more de novo
formation, new banks, new community banks?
Ms. Rainey. Thank you for the question and, yes, as the
chairman noted earlier, we have only had 82 new banks formed
since 2010, and that is just----
Mrs. Wagner. It is insane.
Ms. Rainey. That is not enough. There is so much that can
be done here.
I really want to draw your attention to the minimum capital
requirements, especially as you look at smaller, more rural
areas. We need a proportionate connection to how much capital
is required to what is the business that we are going to do,
and we look at it more, again, from a one-size-fits-all period
of time and--so base minimum capital requirements, and then a
period of time for them to grow that capital to, again, allow
for that flexibility and take into account the unique needs
within that community.
Mrs. Wagner. Thank you. I think there is that and minimum
capital requirements and much more that need to be addressed.
Ms. Rainey. Yes.
Mrs. Wagner. In 2020, based on robust data collection and
analysis and an extensive public comment period, the FDIC
crafted a new rule governing brokered deposits that allowed
financial institutions to access diverse funding sources and
gave consumers more control over their financial decisions.
Yet, late in the previous administration, Chairman Gruenberg
attempted to rush through a rule returning brokered deposit
governance to the pre-2020 status quo without conducting
analyses to justify the change and, in fact, seeking to collect
data from banks on the characteristics of their brokered
deposits--are you ready for this--after the proposed rule.
After many of my colleagues and I joined Financial
Institutions Subcommittee, Chair Barr--Andy Barr--in urging the
FDIC to reverse course. I was glad to see FDIC Acting Chairman
Travis Hill withdraw this very poorly crafted rule on January
21st.
Ms. Marshall, can you discuss how community banks use
brokered deposits to access funding, which allows them to make
more loans to small businesses and to families?
Ms. Marshall. Yes, ma'am. Thank you for the question.
Deposit competition is greater now for our community banks
than ever before. They are being forced to look at all of the
tools and resources that are available and have a broad
playbook of funding sources to be able to meet those demands
and needs for their customers and those loan opportunities.
You need to be able, for a community bank, to use brokered
deposits, allow core funding, have access and utilization of
wholesale activities, such as the Federal Home Loan Bank System
or the Federal Reserve discount window. All of those things in
measure with appropriate parameters make for a holistic and
appropriate funding structure for community banks to operate
under. Community banks have used brokered deposits successfully
for a long time, and they need to be able to continue to do so.
Mrs. Wagner. Yes. My time is expiring here, but, Mr.
Kennedy, I do have 2 questions for you, and I am going to
submit them for the record.
I yield back to the chair.
Mr. Huizenga. Great, that is a good reminder to all the
members. If you have questions that you are not able to get to
for the panelists, please direct the inquiry through the chair,
which we will get to the panelists, and then we would request
that you would, in very short order, reply to those. We
appreciate that.
Sticking with our Missouri theme, we are going to go now to
the gentleman from Missouri, Mr. Cleaver, for 5 minutes.
Mr. Cleaver. Thank you very much, Mr. Chairman.
Ms. Rainey, thank you for being here. Thank all of you for
coming today.
There is a great deal of discussion--maybe even
accusations--as it relates to diversity, equity, and inclusion
for small banks and community banks, particularly in rural
areas.
Is it important to have balloon notes on a mortgage?
Ms. Rainey. Is it important to have balloon notes? Is that
what I heard? I am sorry. Yes.
Balloon notes provide some level of flexibility for those
community banks that desire to keep that mortgage loan on their
balance sheet but are unable to take the interest rate risk
over a 30-year period of time. Yes, in some cases, that is part
of their model to do balloon notes.
Mr. Cleaver. If we, Congress, unconsciously halt balloon
notes, would that be like intentionally trying to hurt small
banks, community banks?
Ms. Rainey. Yes. By removing the ability for community
banks to offer balloon notes, that would hamper their ability
to serve the customers and to provide that level of service in
their community.
Mr. Cleaver. I agree with you 100 percent, but the issue
is, if members of this committee approve some legislation that
would, in fact, eliminate it, would it mean that the members
here are just mean people discriminating against small
community banks?
Ms. Rainey. No, I do not believe that is what it would
mean.
Mr. Cleaver. I agree with you.
Ms. Rainey. I think it is just a limitation of the
services.
Mr. Cleaver. Yes. I agree with you.
If people make decisions even unconsciously that exclude
people, should they not be addressed, or to exclude people or
communities?
Ms. Rainey. Yes. If groups are excluded, that should be
addressed. That is one of the things I love about community
banks. They are so close to the community, they are able to
understand what those unique needs and those relationships
allow them to serve. It is why our bank was founded as trying
to serve everyone in the community.
Mr. Cleaver. I do not disagree with you. The point I am
making is that sometimes people are exclusionary in their
practices, things they do, unconsciously. There is no
intentionality, we just do something.
For example, I had a little town in my congressional
district, and they wanted to apply for some Community
Development Block Grant moneys. They cannot do it because you
have to have 50,000 people to get what is called an entitlement
grant, and the little, small communities cannot get it. They
have to compete with 200 other little towns.
Then this little town I am talking about, the mayor's
office was in the grocery store. They have no grant writers. If
that is required--and it is right now--are we trying to
discriminate against them? Anybody?
Yes. We are discriminating. We are hurting little towns. I
am saying that it can be done unconsciously, which is why
diversity, equity, and inclusion is important to try to cancel
that out. I am not saying people just sit up and say, let us
discriminate against people of color and women, but if you
design things unconsciously, you can hurt them. What you need
to do is try to figure out what we can do to stop that, hurt
that may even be unintentional. Diversity, equity, and
inclusion are trying to do that, and we are saying, no, let us
forget that.
What happened to a little town like Orrick, Missouri, who
had a tornado come through, you have to have a special kind of
process to go after--to get Federal Emergency Management Agency
(FEMA) money in a little town. Do you think people sat up in
here and said, let us try to figure out how to hurt little
towns after a devastating tornado?
My time is running out. I hope you got my point.
I yield back, Mr. Chairman.
Mr. Williams of Texas [presiding]. The gentleman yields
back.
The gentleman from Kentucky, Mr. Barr, is now recognized
for 5 minutes.
Mr. Barr. Thank you, Mr. Chairman.
A major problem that has prevented new bank formation in
our country over the last few decades is burdensome initial
capital requirements. Often as high as $30 million when all is
said and done. These requirements leave the organizers of a new
financial institution with a razor-thin margin of error in
executing its business strategy and generating a profit. That
is why we have seen a dearth of new banks and de novo charters
in our country over the last decade or so. That is why I have
reintroduced my Promoting New Bank Formation Act, which would
establish a 3-year phase-in period for new banks to comply with
Federal capital requirements in the community bank leverage
ratio.
Ms. Romero Rainey, can you discuss how giving startup banks
more time and flexibility to meet these initial regulatory
requirements could foster de novo bank formation in rural and
urban communities throughout the country? I would ask you to
direct your testimony to my colleagues on the other side of the
aisle, including Mr. Vargas and Ranking Member Waters, who have
expressed interest in working with me on this issue.
Ms. Rainey. Thank you. I appreciate your long work and
engagement in this issue.
When we think about new charter formation, as we have
discussed here today, the first step is that capital
requirement. As I mentioned in my opening statement, my
grandfather started a bank with $300,000. There is no way that
would happen today, and that is what I am advocating for.
Those base-level capital requirements need to be reflective
of the size of the community and the business model that bank
would represent, not only those opening business requirements
and capital requirements, but also the business plan over time
to allow that flexibility to engage in the business of banking
to retain that local community capital so they can be deployed
in the form of loans and create that source of economic
development that is so lacking in so many of our rural
communities.
Mr. Barr. Thank you for that and let me ask a question
about 1071 also.
The Kentucky Bankers Association created a simple
questionnaire explaining the statutory requirement for
financial institutions to collect data pursuant to Section 1071
small business data collection rule. This questionnaire would
allow the customer to fully understand why the data is being
collected, removing any uncertainty from the client and easing
the potential litigation on the bank.
I know there are concerns about another mandate in the
final rule that a bank's low response rate may indicate
noncompliance, but, generally, Ms. Owen, do you think a
questionnaire like this would provide more certainty for your
clients and could it ease liability concerns for your
institution?
Ms. Owen. The questionnaire could certainly help explain
more, better define the information that is being requested to
the customer.
I really cannot respond to the liability concerns because I
do not know how the regulators will look at it when they
analyze the information and if the customers choose not to
disclose and there are few responses. If we will be forced
still to go ahead and comply.
Mr. Barr. The data collection requirement under the final
rule is pretty burdensome. Would you agree with that?
Ms. Owen. Very burdensome.
Mr. Barr. Yes. Burdensome, and I worry that it would force
many small banks to exit small business lending altogether.
That does not help minority-owned small businesses, does it?
Ms. Owen. Not at all. Most of them have a very difficult
time gathering the information that is needed to comply with
various regulations.
Mr. Barr. One thing that I will recall from our
conversations and debates with the ranking member and other
members on the other side of the aisle on 1071 was that they,
in addition to Director Chopra, said that this was voluntary.
If it is voluntary--if it is truly voluntary for these small
businesses to provide this data, we want a questionnaire so
that they can actually choose whether or not it would be
burdensome for them to supply the information or not.
Mr. Kennedy, let me shift back to brokered deposits,
following up from Congresswoman Wagner's good line of
questioning. How did the uncertainty generated by Chair
Gruenberg's push to overturn the 2020 brokered deposits rule
harm your institutions and customers?
Mr. Kennedy. If you ask me the bigger question, really get
to it is that, frankly, I think that the term ``brokered
deposits'' should just go away. It was really instituted in
1989 to address an ill where banks were buying brokered
deposits, and we just simply do not have that anymore. We have
responsible deposit networks that community banks like ours and
many of our clients use to provide better deposit insurance to
customers and institutions in those communities.
Mr. Barr. My time is expiring, but bottom line, Mr.
Kennedy, did the 2020 rule--the previous rule--did it improve
community banks' access to diverse funding streams?
Mr. Kennedy. Yes, it did.
Mr. Barr. Great.
I yield back. Thank you so much.
Mr. Williams of Texas. The gentleman yields back.
I now call on the gentleman from the great State of
Illinois. Mr. Foster is now recognized for 5 minutes.
Mr. Foster. Thank you, Mr. Chair.
I had mentioned my very positive experience with banks of
all sizes during the time our business was growing. I would
like to focus the work of this committee on what we can
actually do to help, and we have to--the starting point of that
has to have a clear-eyed view of what the real situation is.
There is an interesting set of articles in The Wall Street
Journal from the last couple of years that looked at the stress
of small community banks, and much of it is simply the result
of fundamental economic forces that we have to recognize. If we
need to subsidize the existence of small banks, we may have to
do it explicitly because these are real forces. It is simply
the lack of economies of scale, which is very important in the
increasing digital economy we have.
The brutal fact is, in dying rural towns there are not many
profitable opportunities for loans, that is just the fact. In
The Wall Street Journal, they talked about banks whose survival
strategy was to keep branches in the tiny towns that they
started in, then establish branches simply to get deposits in
those small towns, and then do their actual loans in the nearby
bigger city. You understand the fundamental forces there, and
we just have to understand that as well. However, we have to be
careful of this narrative that all we have to do is get
government out of the way and everything will be fine.
Mr. Kennedy, you look like you and I have enough gray hair
that we remember the savings and loan crisis or at least its
aftermath. For those members who are not familiar with it--most
of the members of this committee were not in Congress during
the Wall Street crisis of 2008, and I think none of us were
there during the savings and loan crisis, but it was a much
bigger deal.
In the end, during the 2008 crisis when we had to pass
Troubled Asset Relief Program (TARP), taxpayers eventually got
paid back with interest on that. We made money on the TARP
bailout. That was not the case for the savings and loan bailout
where Congress had to vote on $150 billion, which corresponds
to about three-quarters of a trillion dollars in Gross Domestic
Product (GDP) terms today. Much of it, frankly, went into
Texas, which caused a certain amount of stress inside Congress
and probably was the result the Super Collider was killed,
which is a separate discussion. This was a big deal.
If you look at that--as I say, members should just spend a
few minutes on the Wikipedia article or the Investopedia
article, if you prefer that, on the savings and loan crisis.
Understand this was the simultaneous failure of many, many
smaller institutions caused by misguided deregulation, the
elimination, in some cases, of capital requirements at all,
causing these zombie thrifts to go and continue to get deeper
in the hole. In the end, the government was--the taxpayer was
on the hook for about 2.5 percent of GDP. As I said, just a
huge amount of money and this can happen again if we do not
maintain knowledge of what happened.
Be careful of that, but what can we actually do to help?
One of the things that actually, I guess, Ms. Marshall
mentioned was the cost of Know Your Customer (KYC) compliance,
and that is something where I think we can do some good.
There is a--the tool at hand for that is the REAL ID-
compliant digital driver's license. It is completely feasible
to onboard customers today by having them get out their cell
phone, do their biometric log-in, present their REAL ID,
National Institute of Standards and Technology (NIST)-
compliance digital driver's license, and have them prove they
are who they say they are. Go hit Financial Crimes Enforcement
Networks (FinCEN's) website or whatever to see is this person
on the list of bad actors, and if they come back clear, you
onboard them.
I have actually discussed with the chair of the full
committee the possibility of setting up a pilot program to see
if this very lightweight onboarding could be a huge benefit
both for lowering the cost of KYC compliance and dealing with
the fraud problems, that is another huge cost for small banks.
They do not have the same fraud prevention team as J.P. Morgan.
I was just wondering if you have a reaction to that sort of
proposal.
Ms. Marshall. I appreciate any opportunity for Congress to
look at the BSA/AML laws that have been in place for far too
long without appropriate review. I think technology and
innovation in the financial services sector are going to be
able to yield big results for us as both regulators in the
industry and in policymakers. I think we need to look at all
those types of options that you described as potential
enhancements to that burdensome regulation. It is appropriate
because no one, again, wants the BSA/AML or the financial
services sector to be used by criminals or for illicit
activity, but that needs a fresh set of eyes after almost 50
years.
I will make an additional comment on your point of fraud.
It is one of the top risks, along with the regulatory burden
that I speak to my institutions about, as well as cyber risk,
those three areas certainly need our attention.
Mr. Foster. Thank you. I yield back.
Mr. Williams of Texas. The gentleman yields back.
I now recognize myself for 5 minutes from the great State
of Texas.
This past November, the American people have made their
message very clear. American families, small businesses,
community bankers, farmers, and ranchers are all tired of
burdensome regulations that hinder the financial service
industry.
The previous Biden Administration continuously pushed
policies that were out of touch and only led to higher
compliance costs, and one policy in particular was the CFPB's
famous Section 1071 small business data collection rule. I have
been consistently hearing from small community bankers back in
my district and across the country about how they are concerned
with the complicated reporting requirements in this rule that
will tie up loan officers and increase compliance costs and
officers. Ultimately, forcing bankers to pass these costs down
to their customers.
Furthermore, lenders who worry this rule will push the
industry toward a standardized small business loan product can
kill relationship banking. This overly burdensome rule will
limit the banks' lending abilities and make it harder for small
businesses to access the capital they need.
Yesterday, I proudly introduced the 1071 Repeal to Protect
Small Business Lending Act, which repeals the 1071 small
business loan data collection requirement to help eliminate
costly regulatory burdens on financial institutions. Thanks to
my colleagues who signed on to this legislation. I look forward
to working with Chairman Hill and the Trump Administration to
repeal this deeply flawed regulation.
Ms. Owen, could you elaborate on the CFPB's 1071 rule, how
it will negatively impact community banks and lead to a
reduction in small business lending? Additionally, how will an
increased compliance burden affect the ability of local lenders
to provide relationship-based lending?
Ms. Owen. Yes. Thank you very much for your question.
No doubt, for community banks, it will be a
disproportionate expense to them for the implementation and
training to be able to implement all 81 of the data point
fields that are required with 1071, which is of great concern.
A concern that many community banks may not be able to afford
that implementation, which then would limit and restrict their
ability to loan to small businesses.
I also have great concerns on the privacy issues of 1071
since much of the information is to be released to the public.
Although it will be anonymized, in a small community, it will
not be difficult to know which small business, grocery store,
gas station, factory, either was approved for a loan or
declined a loan.
Mr. Williams of Texas. Thank you, Ms. Owen.
With that, I would like to submit 2 letters for the record
from the Leasing and Finance Association and the Defense Credit
Union Council supporting my legislation to repeal Section 1071.
[The information referred to can be found in the appendix.]
Another issue with the rulemaking agenda of the previous
administration was the lack of regulatory tailoring and the
one-size-fits-all approach to regulations. Because of the lack
of regulatory tailoring, community banks were forced to comply
with the same set of rules as our Nation's largest banks. This
leads to hundreds of additional hours spent on compliance,
forcing community banks to close their doors or merge to be
able to meet the needs of their communities.
Ms. Romero Rainey, could you discuss how one-size-fits-all
mandates harm similar institutions and how this regulatory
approach impacts the availability of credit for small
businesses in rural communities?
Ms. Rainey. Yes, sir. One of the things I appreciate most
about community banking is the fact that their success depends
on the success of the local community. When we think about
regulatory burden, if it is not proportionate to the risk that
a smaller institution represents, then it creates an undue
burden that prevents their ability to offer those customized
products to meet those needs of the community.
It hampers the ability to create new banks. It also hampers
the ability in terms of how they expand, how they compete
competitively, and in terms of their technological offerings.
We have to look beyond one-size-fits-all and ensure that we are
proportionately managing the risks the institution represents.
Mr. Williams of Texas. Okay. Thank you.
I have a short amount of time, but, Ms. Marshall, can you
explain how the decline in community banks and the lack of new
bank formations are harming rural communities, and why is a
more competitive banking environment ultimately beneficial not
just for consumers but for the banks themselves?
Ms. Marshall. Thank you, sir.
Yes, no two banks are alike. No two community banks are
alike, and the largest institutions are not focused on
operating in rural parts of this country. It is imperative that
we have institutions that have an appropriate-sized risk
profile and business model to serve those smaller areas, or
those individuals will not have access to the funding sources,
the lending opportunities, and the deposit opportunities that
they need.
It is very important that we all recognize that not
everyone lives in a large city. They may not all have access to
broadband. They may not, quite frankly, not all use a cell
phone. That local community bank with that neighborhood
presence where those bankers go to church----
Mr. Williams of Texas. My time is up. Thank you for that.
Mr. Williams of Texas. Next, the gentlewoman from the great
State of Ohio, Mrs. Beatty, is now recognized for 5 minutes.
Mrs. Beatty. Thank you to our witnesses.
We are here today to talk about making community banks
great again, although I think our community banks have always
been great. We all value our community banks. These vital
institutions provide our constituents with access to credit and
other critical financial services that create local jobs,
extend mortgages, give loans to small businesses, and promote
economic development in our communities.
It is ridiculous to be having this conversation while the
President of the United States is actively taking steps to hurt
our community banks and our economy. When his proposed 25
percent tariff on Mexico and Canada go into effect, this will
have a disastrous knock-on effect for community banks.
Make no mistakes here today. When you inflict financial
harm on bank customers like hardworking families and small
businesses, Mr. Chairman, you inflict harm on community banks.
When a trade war causes small business supply costs to go up or
increase the cost of exporting materials, this financial strain
will make it harder for those businesses to repay the loans
they receive from community banks. The same will be true for
consumers paying more for gas, more for groceries, and more for
a lot of other things, making it hard to keep up with their
mortgage loan payments, again, to community banks.
His illegal, ludicrous attempts to freeze nearly all
government financial assistance programs will impact all kinds
of bank customers. It will undermine small businesses' support
programs like the State Small Business Credit Initiative. It
will hinder CDFIs, including community banks and credit unions,
from getting support from CDFI--the CDFI Fund to serve small
businesses and underserved communities.
His radical crusade against diversity, equity, and
inclusion and now accessibility will do significant damage to
our economy because diversity, equity, inclusion, and
accessibility is good for business and, yes, it is good for
banks. Already his sweeping, senseless executive orders are
creating disastrous unintended consequences, causing Federal
agencies to eliminate completely diversity, equity, inclusion,
and accessibility-related web pages, materials, resources, and
programs.
Mr. Chairman, we now have an unelected, unaccountable
billionaire with access to the entire Federal payment system
that disburses trillions of dollars in government expenditures
from Social Security payments to tax refunds, creating a data
privacy violation of an unprecedented altitude. Mr. Chairman, I
hope that all of our colleagues on your side of the aisle are
as bothered by this as I am bothered.
Finally, so while I appreciate our community banks as our
chairman does, and I have prepared questions for our witnesses
today, I simply cannot ignore the hypocrisy of having this
discussion in the face of absolute chaos and havoc this
administration is recklessly inflicting on our economy.
With that said, Ms. Rainey, I would like to direct this
question to you. As we all know, financial fraud is on the
rise. Bad actors are finding new and more sophisticated ways to
steal customers' hard-earned money. I know that community banks
are on the front line of this fight through Know Your Customer,
identity verification, financial literacy program, and more.
What more can regulators do to help community banks combat
fraud and protect our consumer funds?
Ms. Rainey. Thank you for the question because it is a
significant issue that we are seeing a dramatic increase in
things as simple as I like to say back-to-the-future check
fraud where we are seeing checks being stolen from the mail,
washed, and then redeposited.
What we are looking for here is greater coordination
amongst the agencies as well as financial institutions. Also,
working on things like coordination with the post office to
make sure we can communicate and begin to tamper out fraud. I
think this is an area where coordination is going to be very
helpful.
Mrs. Beatty. Thank you for that.
Mr. Chairman, I yield back.
Mr. Loudermilk [presiding]. The gentlewoman yields.
I now recognize myself for 5 minutes.
Mr. Loudermilk. First of all, I want to thank our chairman
for choosing our first hearing to be about the community banks,
which is so important to many of our communities, especially
those in Georgia. That said, I think a great deal of what we
discuss here can also apply to the credit unions as well--
especially in the line of questioning that I am going to have--
because they face many of the same problems at the national
level in terms of regulation.
First, let me start off by taking us a little back into
history, back to 1970 when Congress passed the Bank Secrecy
Act, which, among other things, required financial institutions
to report unusually large transactions to Federal law
enforcement. Congress did not specify what constituted
unusually large at that time.
Early privacy advocates challenged the law on the grounds
that it violated the Fourth Amendment, protected privacy--that
the Fourth Amendment protects privacy rights. When it reached
the Supreme Court in 1974, the Court took an unprecedented step
and considered the Treasury Department's rule impending the
law, in their view, of the law itself. They found that the
$10,000 threshold was high enough in that it would not capture
everyday transactions. Consequently, the law was upheld. Yet,
if adjusted for inflation--which it has not been--that $10,000
back then would be around $80,000 today.
Ms. Owen, I would like to open up with a question for you.
Would you say that your bank frequently handles transactions
greater than $10,000 in a single day?
Ms. Owen. Absolutely.
Mr. Loudermilk. Probably many times over, I can imagine.
Ms. Owen. Yes.
Mr. Loudermilk. Approximately, if you know this,
approximately how much manpower goes into processing currency
transaction reports at your bank?
Ms. Owen. For our small bank, we have four BSA officers,
not to mention the tellers that are completing these
transactions and the others that are checking behind them
before it goes to BSA.
Mr. Loudermilk. The bulk portions of the reports, I can
imagine, are Anti-Money Laundering and Combating the Financing
of Terrorism (CFT) compliance. How much do you think your bank
spends on compliance on those each year? If you do not know,
just give me a guess or an estimation.
Ms. Owen. I wish I could give you a guess or estimation. I
have not written it down or put a pencil to it. It is kind of
scary to think about it. No doubt, those are positions that are
working on this but are not generating dollars or income for
the bank.
Mr. Loudermilk. Okay. Let me share a little something that
the Government Accounting Office (GAO) found out. In previous
hearings, I mentioned that law enforcement only issues a tiny
fraction of the Currency Transaction Report (CTR) data--or uses
only a tiny fraction. This time I would like to focus on what
we can do about it.
Without objection, I would like to insert a December 2024
report from GAO on this. This 110-page report states that even
a small adjustment to the filing threshold from $10,000 to
$30,000 would reduce the reporting burden for banks for as much
as 60 percent.
[The information referred to can be found in the appendix.]
Let me just quickly read the closing note from the report.
It says, ``By taking steps to reduce the number of unused CTRs,
such as though adjusting the reporting threshold and by
eliminating rarely used fields and clarifying aggregation
requirements, FinCEN could reduce unnecessary filer burden
without affecting CTR's usefulness to law enforcement.'' That
is what I think we want to do, and I actually have a bill to do
that, and I think it is something we can bipartisan do.
Ms. Owen, if you had a 60 percent reduction in regulatory
burden, would your bank be able to pass those savings on to
your customers?
Ms. Owen. Absolutely. We would love to have that
opportunity.
Mr. Loudermilk. Last question for you and I am running out
of time. As a banker, do you believe that FinCEN provides
adequate feedback or follow up once your AML-compliant staff
file, the CTR or Suspicious Activity Report (SAR)?
Ms. Owen. Unfortunately, no, we do not receive any
feedback.
Mr. Loudermilk. That is what we are hearing from a lot of
small--especially small institutions and large is that--
especially with suspicious activity reports, it is very
generic, very broad in definition.
Since you are not getting that, does that impact your
assessment of customer risk?
Ms. Owen. Absolutely. Even when we have made calls to them
and tried to schedule appointments to make sure that we are
submitting all the information they need on a particular item,
communication would be hugely important, and I think hugely
important in trying to resolve what they are trying to do.
Mr. Loudermilk. Thank you. My time has expired, and I just
want to thank you all for working with us as we try to make
changes here.
Mr. Loudermilk. I now recognize the gentleman from
Connecticut, Mr. Himes, for 5 minutes.
Mr. Himes. Thank you, Mr. Chairman and thanks to the panel
for being here. Very important topic.
I watched very carefully during the pandemic the remarkable
work that community banks did with the PPP. They really were
lifesaving for a lot of businesses and very conscious of the
power of relationship banking, but I have two concerns.
I arrived here in January 2009 as the wreckage of the
mortgage crisis smoked around us, and so I am super conscious
of efforts that are sort of ongoing and always deregulatory.
The Congress obviously has always been amenable to having
tailored regulation for community and smaller banks, but I fear
that the pressures associated with economies of scale on the
community banks are so intense that it will be very hard
without creating risk in the system of doing a whole lot more
deregulation. That is a whole other conversation because I
actually want to take the conversation a slightly different but
related direction, which is housing.
We have just shocking housing supply crisis in this
country, certainly where I come from. The multifamily business
at the Government Sponsored Enterprises (GSEs), has been
resilient and helpful to the construction in particular of
multifamily housing, but there is only a small number--30, I
think--of lenders that are authorized to access the program.
My question--and maybe I can start with Ms. Rainey, but if
we have time, we will go to others. Would really emphasizing
and incentivizing community banks to be--or other small lenders
to get multifamily licenses and to access that program, would
that be both an additional source of business for our community
banks and maybe actually help with our housing crisis?
Ms. Rainey. Yes. I think, as we think about solving for the
housing crisis, it is about creating as many opportunities and
solutions as we can. Multiple points of access and various
partners to work with are a tremendous part of the solution.
Mr. Himes. Why have historically--I was trying to figure
this out earlier. Why do these 25 Delegated Underwriting
Servicing (DUS) lenders tend to be the big guys? Why is that
true? How can we make it easier for community banks to be as
involved as the big guys are in multifamily housing?
Ms. Rainey. I am not specifically experienced with the
program, but my experience would tell you that when we look at
the size of transactions that we are dealing with multifamily,
that may limit when you think about whether it is lending
limits or concentration limits that community banks have to
manage. Again, this is an area where a solution to this problem
is how do we facilitate partnership and ability for community
banks to work together to provide that single credit in
coordination with the entity.
Mr. Himes. Any other thoughts on the--again, I come at this
thinking that we could just deregulate ourselves into
catastrophe in the very noble pursuit of trying to keep the
independent community banks alive. My mind does go to what
other sources of business are there for the smaller banks.
Any other thoughts on multifamily lending from the panel?
I guess not. Okay. All right. Thank you.
Mr. Kennedy. I think there is plenty----
Mr. Himes. Go ahead, sir.
Mr. Kennedy. I think there is plenty of opportunity. I am,
frankly, not familiar with that program, and I made a note I am
going to find out about it, but I do think there are plenty of
opportunities for multifamily. Housing is a big issue. There
are a lot of government guarantee programs that a lot of--
frankly, people just do not know about. As a lawyer advising
community banks, that is one of the things we like to try to
do.
It is important that those kinds of programs and the
agencies that are responsible for them to get that word out. It
can be done on a local basis and, frankly, a national basis as
well.
Mr. Himes. Thank you. Thank you. I appreciate that, and I
yield back.
Chairman Hill [presiding]. The gentleman yields back.
The gentleman from Tennessee, Mr. Rose, is recognized for 5
minutes.
Mr. Rose. Thank you, Chairman Hill, and I want to thank
Ranking Member Waters for holding this hearing. Thank you to
our witnesses for your time and commitment to being here today.
I truly do believe that Chairman Hill's ``Making Community
Banking Great Again'' agenda will do incredible things for
banks and consumers and, frankly, the greater community
financial system. I, like Chairman Hill, have experience with
community banks in my State in Tennessee and serving with those
banks and working with them, and they are very much in need of
attention and relief. I commend the chairman for holding this
hearing.
Commissioner Marshall, in Tennessee, we are blessed to
have, frankly, a phenomenal Banking Commissioner in Greg
Gonzales, who is a dear friend and a fellow alum of Tennessee
Tech University. I will put in a plug. This will be his 20th
year as Banking Commissioner in our State in Tennessee, serving
Governors of both parties, and I think it is just a testament
to the work that he does.
One idea that Commissioner Gonzales and I have been
discussing is the concept of having State regulators, such as
the Tennessee Department of Financial Institutions, conduct
bank examinations for smaller community banks in place of the
Federal Deposit Insurance Corporation, or FDIC. The idea here
would be that for your smaller banks--then say 500 million--the
State banking regulator could conduct the exam and make sure
that it is sent to the FDIC.
Commissioner Marshall, would you and do you believe that
other State banking regulators would be willing to take part in
such a proposal?
Ms. Marshall. Thank you for the question, and yes, my dear
friend, Commissioner Gonzales, is a great regulatory partner.
I will agree with you that this is an area that we need to
explore because if it was enacted and something that we wanted
to find--that we found good benefit from, my State--not
speaking from my legislature or our governing body, but that is
something that I would be interested in engaging in. I think
there are other State Commissioners that would be willing to do
so as well because the smallest community banks have a very
traditional risk profile. Like I said, they are often not
engaging in outer-territory or new-market activities, but they
have the ability to serve their customers.
Our one-on-one relationship with them is boots on the
ground with local representatives and understanding of those
markets that they operate in. We have that perspective, and I
think we could be able to oversee the smallest of the
institutions independently but with good communication,
coordination, and collaboration with our Federal partners in
whatever fashion that means.
Mr. Rose. Thank you. That is good to hear. I know that some
may have concerns as to the rigor of these State banking
regulator examinations. On that point, I have also considered
potentially providing that staff can randomly attend certain
examinations, FDIC staff that is, could randomly attend
examinations conducted by State banking regulations--
regulators. Do you have any feedback on that portion of this
proposal or idea?
Ms. Marshall. If you do not mind, repeat exactly what you
are----
Mr. Rose. The idea that randomly FDIC could monitor or
participate in these examinations where the State banking
regulator was taking the lead.
Ms. Marshall. I certainly think that, as the insurance
agency for our institutions and that along with us is the
chartering authority, there is a role for the Federal
regulators to continue to play in that oversight. We do have
some of that right now. On independent examinations, if there
is a reason, a basis, or a need for the Federal regulatory
partner to be in the room, we certainly work collaboratively
with them to make that happen. I think that is a process that
could be worked out with plenty of time to review the proposal,
work together to ensure that we are on the same page, have good
communication, a good framework around it, and explore those
opportunities.
Mr. Rose. Thank you.
Shift gears, Ms. Owen, for smaller community banks like
Eagle Bank and Trust, can it be difficult navigating the
process of managing both Federal and State level banking
examinations?
Ms. Owen. We are very fortunate that we have a wonderful
Federal Reserve region that we operate within as well as a
wonderful Bank Commissioner, and they work very closely
together. They collaborate together. If there is a need for
both of them, it is not unusual that we will sit down and meet
with both of them to get their opinions and thoughts. We are
very fortunate. I have heard from other banks that it is not
always the case, and it can be very difficult for other banks.
Mr. Rose. This proposal of streamlining Federal and State
banking examination is one that I think could ease the
regulatory burden that community banks face. To all the
witnesses here today, if you have any additional thoughts on
this topic, please do not hesitate to reach to me--reach out to
me and my office with feedback.
My time has expired. I yield back.
Chairman Hill. The gentleman yields back.
The gentleman from Illinois is recognized for 5 minutes.
Mr. Casten. Thank you, Mr. Hill.
Thank you all for being here. Ms. Owen, Sheila Bair, the
former Republican FDIC Chair, recently said that there is
strong consumer confidence in the FDIC brand and that customers
are ``comforted by the `FDIC insured' sign on their doors.''
Would your customers agree with that?
Ms. Owen. I think it is very important to have it on our
doors, yes.
Mr. Casten. Excellent. She said that because--in direct
response to reports that Trump's advisers and members of this
so-called DOGE team are talking about ways to reform or
completely eliminate the FDIC. Stay vigilant.
Number two, when you get a customer who comes in who asks
for a loan from your bank and you are evaluating whether or not
you want to issue a loan, what interest rates are you going to
charge, do you look at their payment history with their other
vendors, dead and otherwise?
Ms. Owen. Yes. We work up a cash-flow, because we want to
know that they can adequately service the loan that they are--
--
Mr. Casten. Okay. Just to be clear, if they have a history
of nonpayment or late payment, that is going to be a negative
impact on their credit score, right?
Ms. Owen. Yes.
Mr. Casten. Okay. Last week, I spent most of my time with
mayors, with contractors, with businesses who had signed
contracts with the Federal Government and were asking me
whether the Federal Government was going to welch on that deal,
whether they should demobilize construction crews that they
expected to come through, whether they could count on money
that was contractually obligated to them. I am assuming that
our vendors are going to be just as diligent as your bank is
and say, ``If you're defaulting on some of your creditors, why
are not you going to default on me?'' At some point, that leads
to an increase in Treasury rates. Would higher Treasury rates
help or hurt the community banking industry?
Ms. Owen. That is an excellent question. I would have to
really think through it because we have short-term loans, and
we have long-term loans.
Mr. Casten. Sure, we just recently saw the FDIC bail out
banks that all of a sudden had a squeeze because they had
higher Treasury rates, right?
Ms. Owen. Correct.
Mr. Casten. This administration is not acting slowly to
destroy the U.S. economy. They are acting very quickly to
destroy the U.S. economy, right? Higher Treasury rates are not
good.
Last point, question for you, in response to--in your
exchange with Mr. Williams, you mentioned you had some concerns
about privacy issues and making sure that information provided
to regulators does not leak out into the private. Would you
have concerns if a bunch of teenagers who were unvetted by any
security apparatus had full access to the Treasury payment
system? From a privacy perspective, that is.
Ms. Owen. I am always concerned about privacy and the
protection of all of our customers and clients and all of our
personal information. I am not familiar with what you are
speaking to.
Mr. Casten. Okay. This week, for clarity so that everybody
understands, Elon Musk has put teenagers who have not been
vetted, that had been recently identified who are controlling
trillions of dollars of Treasury payments. This is confidential
information, top secret information. They are going to decide
who can go through and access this information. I have big
privacy concerns about that. I would imagine that your
customers might also have those concerns. I cannot believe that
this is partisan.
Look, this hearing is called ``Making Community Banks Great
Again.'' I appreciate that, out of deference to the majority,
you all made nice comments at the start about how you also want
to make community banks great again, and I share your
commitment to making community banks great. I find myself
questioning, when we say ``great again,'' exactly when are we
referring to? If I look back in history, and I say, when was
there a point when we did not have an independent Fed? When was
there a point when we did not have an FDIC protecting loan on
the banks? When was there a point when the robber barons were
in charge of our government? When was there a point where the
Federal Government refused to enforce the 13th, 14th, and 15th
Amendments to the Constitution passed under Reconstruction in
order to make sure that we actually honor our protection--our
constitutional obligation to equal protection? Let me go back
to the 1890s. Oh, we also had really dumb tariff policies then.
Any Ferris Bueller fans here? Bueller, Bueller? Tariffs,
anyone? That was an era where we had a run on the banks, a
recession darn near every 4 or 5 years. Of course, that led to
the Great Depression afterwards. Is that the era we are going
back to?
I put this to all of you. You are all leaders in your own
fields. The entire country right now is wondering whether we
are going to stand up for the Constitution, for the rule of
law, for making America greater than it is right now, or are we
going to stand and sit in cowardice and complicity with those
who are trying to destroy it? That is a question for all of us
here. It is all of our obligation to move forward.
I yield back.
Chairman Hill. The gentleman's time has expired.
The gentleman from Wisconsin, the Chair of the Financial
Technology, Digital Assets, Artificial Intelligence
Subcommittee, Mr. Steil of Wisconsin, is recognized for 5
minutes.
Mr. Steil. Thank you very much, Mr. Chairman. Before I dive
into the conversation, I just want to respond to my colleague
across the aisle. The Federal Reserve's high interest rates is
a direct response to the horrific economic policies of the
Biden Administration we finally escaped from. The massive
spending, the aggressive regulatory state of the Biden
Administration drove inflation up. The Federal Reserve
responded to that. We are now working to actually bring down
inflation through addressing the regulatory burdens of the
Biden Administration, addressing spending. In part, I think
this is an opportunity to have a conversation about making
community banks great again in particular by right-sizing a lot
of our regulations.
Let us stage set in particular on fintechs, if I can. I am
going to start with you, Ms. Owen, and I will come over to Ms.
Marshall on this topic. As we know, a lot of banking is
shifting into the palm of our hands. I have my iPhone here. I
can jump on and do personal banking as probably almost anybody
in this room could do with their smartphone. That is a great
thing.
We know some of our Nation's largest banks have the ability
to invest millions and millions of dollars in capital
expenditures (CapEx), to develop their own proprietary apps or
other tools in the fintech space. Our community banks are often
relying on partnerships with fintechs. In particular, if I can
start with you, Ms. Owen. From the perspective of a community
bank, how does that partnership with fintech work, and does
that give you the ability to compete with some of our Nation's
largest banks for tools that consumers need?
Ms. Owen. An excellent question. Thank you very much. As a
very small community bank, we have yet to partner with any
fintechs. We have looked at several of them, but there is
considerable amount of expense and work to make them work with
our legacy systems, the legacy core banking systems that we
have today, which also entails a lot of additional expense.
Mr. Steil. As we look at this, this is going to be a lot
about right-sizing the regulatory environments that you can
engage, knowing that there is a real cost for you to do this.
Let me come to you, Ms. Marshall. When you analyze the
ability of, in particular, community banks that partner with
fintechs, what are the roadblocks that you are seeing in that
space?
Ms. Marshall. Thank you for the question. Banks need to
continue to innovate effectively. They need to be able to adopt
technology in other forums to be able to compete and especially
those that cannot do it themselves. That third-party
relationship is critical and essential to that path going
forward. One of the roadblocks is the fact that the guidance
that has been put out thus far is not clear.
Mr. Steil. --finish your sentence.
Ms. Marshall. It is not clear. It is not concise, and it
can be more appropriately directed with the bank adoption in
mind.
Mr. Steil. Do you think that some of the biggest and most
important regulators, the Fed, the FDIC, and the Office of the
Comptroller of the Currency (OCC), promulgated really one-size-
fits-all rules that were not scaled for community banks to be
able to engage and that they were actually dissuading community
banks from engaging with fintech providers?
Ms. Marshall. I agree that their current proposal, the
guidelines and guidance, out there is more of a one-size-fits-
all approach. I will take an extraordinary turn that I believe
we need to stop using the word ``fintech'' because that could
have such a broad application of areas where there is not high
risk for a new technology that simply helps someone analyze a
credit report, but if it is a technology that is going to focus
in on core banking functions, such as deposit taking, lending,
payments, or custody, that has a high-risk profile and needs a
very tailored approach from a regulatory perspective.
Mr. Steil. I agree. We have good debates on the
nomenclature of fintech versus other terminology, but I
completely agree with you on the importance of right-sizing the
risk. I think the human mind is really good at identifying new
risks when new technology comes online, actually not as good at
identifying and determining what are the long-term benefits and
ways that we can safeguard and right-size that risk. I think
what you are saying is what I have seen is that we have seen a
regulatory environment where it is a one-size-fits-all approach
where they are not scaling this for our smaller community
banks. As more and more consumers are asking our community
banks to be able to have the ability to navigate whether or not
it is on your phone or any other technological tool, we really
need to be pushing our regulators to be able to right-size that
risk so that our smaller community banks or Ms. Owen do not
have the burden that she has. She can partner with fintech
technology, fintech players in the space to be able to provide
a service that her customers are looking for. This is really
important in particular in rural America and other areas that
do not have easy access to a brick-and-mortar facility.
Appreciate you all for being here.
Mr. Chairman, appreciate it.
Chairman Hill. The gentleman yields back.
The gentlewoman from Texas, Ms. Garcia, is recognized for 5
minutes.
Ms. Garcia. Thank you, Mr. Chairman, and thank you to all
our witnesses here today.
Ms. Spotser, I wanted to start with you. First, let me just
say that I grew up in rural South Texas on a farm. When we went
into town, whether it was just to go say hello to my uncle or
to do business, we always worked with community banks.
Obviously, there were only two. Now I represent Houston, where
we have 33 and a lot of what you all would call big banks, but
my heart is still with community banks, because they always had
the little lollipops at the cashier desk for you to get. As a
child, I enjoyed that.
Banks have just changed a lot, have they not? Since the
pandemic, the big banks are heavily embracing technology to
make their service available to more customers. However, the
community banks we have relied on for years are facing several
cybersecurity risks and technology challenges as they compete
with mega banks and big-tech firms. In turn, communities they
represent are sometimes left behind.
One of these challenges is providing services in languages
other than English. According to data from the U.S. Census
Bureau, over 20 percent of U.S. households speak a language
other than English. What can we do to ensure that community
banks can serve limited English proficiency individuals just as
well as any other customer that works in the town?
Ms. Spotser. One of the things that we can do as regulators
when we have disclosures and those sorts of things, we can make
sure that they are provided in languages other than English, so
that can actually assist and help facilitate the banking
institutions to be able to use those forms.
Another thing that we can do is we can continue to invest
in our minority depository institutions that are, in fact,
often the institutions that are located in those communities
and providing services. I think that in particular is one of
the best approaches that we can have to address that concern.
Ms. Garcia. I want to talk about a recent report from
CDFIs, which states that women and employees of color still
fall behind White men in being represented in several key jobs,
including only 27 percent of economists were people of color,
and only 34 percent of their examiners were women. I know we
have at least one former examiner here in the room. It is kind
of nice to hear that Mr. Hill gets nervous still.
Do you think President Trump's recent actions to fire
Director Chopra from the CFPB, impose a governmentwide hiring
freeze, and nonsense attacks on diversity, equity, and
inclusion and issues will aggravate the challenges at CDFIs as
well as other agencies?
Ms. Spotser. I think it will. I think we are looking at the
reality that 8 out of 10 net new households created in the
United States are households of color, and given that is the
reality, it is imperative that we make progress in serving
communities of color and customers of color. Increasing
diversity, recognizing it as an advantage rather than a
challenge or something to be looked down upon should be a
critical priority.
Ms. Garcia. Thank you. I want to focus on the outrageous
overdraft fees that large banks charge to users. One of the--
third of working class people earning less than $65,000 a year
pay overdraft fees each year. This is not once or twice. Many
of them pay hundreds of dollars in overdraft fees and risk
losing their bank accounts so they cannot afford those costs.
The CFPB recently issued a rule that would cap the
overdraft fees to $5 to help protect the hard-earned money of
working class consumers. My colleagues on the other side of the
aisle recently issued a Congressional Review Act, CRA,
resolution, that would rescind the CFPB rule. How would you--
how would reversing the CFPB overdraft rule harm working class
people?
Ms. Spotser. For all the reasons that we have talked about
during this hearing, now is a time when people are experiencing
significant financial challenges. One of the things that we
have to talk about when we talk about overdraft is a series of
regulations that have taken place. It is not just that
consumers are paying $35 right now for an overdraft of $2. It
is also that it was ever true that financial institutions had
the ability to kind of pick and choose how they would
withdraw--hit--allow transactions to hit in order to amplify
the amount of money that was being charged, and that is why it
got the reputation of being a junk fee.
If we repeal this regulation, which by the way does not
apply to community financial institutions, which is one of the
reasons why it is interesting, it is being considered in
correlation with this hearing, but if we repeal this, then we
are looking at the reality that consumers will continue to
pay--
Chairman Hill. The gentlewoman's time has expired.
Ms. Garcia. It just applies to large institutions.
Chairman Hill. The gentlewoman's time has expired.
The gentleman from South Carolina, Mr. Timmons, is
recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman, and I want to thank
the witnesses for being here today. Many of us here could
easily speak for hours about the CFPB under the Biden
Administration and how its policies have expanded government
overreach. We have stories from our districts, stories from
constituents and small businesses negatively impacted by Mr.
Chopra's actions over the last 4 years.
We all believe in the mission of protecting consumers, but
the extreme policies put in place by Director Chopra have done
more to harm consumers than they have good. After the election,
just weeks ago, Chairman Hill and Chairman Scott in the Senate
sent letters to all government agencies in the jurisdiction of
Senate Banking and House Financial Services encouraging those
agencies to halt rulemaking and new enforcement actions until
new leadership could be confirmed. Almost unanimously, those
requests were well-received and the various government agencies
proceeded accordingly.
Not surprisingly, there was an exception. The CFPB.
Director Chopra--we are going to get the records, but it seems
that they just went on a flurry of enforcement actions, and one
of them at the very last minute adversely impacted multiple
businesses in my district. He--I guess the news was received
Saturday morning, just a few days ago, and Friday--this is kind
of crazy. Friday, at 5:55 p.m. and at 6:05 p.m., businesses in
my district received Civil Investigative Demands (CIDs). For
those of you listening, that is basically a subpoena to civil
investigative demand. These, if you are publicly traded, have
disclosure requirements. You have to tell the world that you
are under investigation by the CFPB, and that has an adverse
impact.
How many people think that the CFPB has people working
every Friday at 5:55 p.m.? I would bet that is the first time
ever and I even think Director Chopra might have sent these
CIDs out himself right before he submitted his resignation.
Let me tell you what I spent my weekend doing. I got a call
Saturday morning. These businesses are very concerned. They
obviously know that there is a new direction because of the
election. Again, I just want to clarify, the election results
are exactly the response to this type of approach to
government. We have been out of balance for the last 4 years,
and we are going to find balance.
I worked all weekend to notify committee staff, to notify
Chairman Hill and Chairman of Financial Institutions
Subcommittee Barr, and worked on a letter. I ended up sending
this letter to who I thought--this is the best part; I thought
that she was the Acting Director at the time, because I was
unaware of the development that we heard about Monday, but I
just asked who I thought was the Acting Director, Martinez, to
basically not send the CIDs out.
The email was sent notifying these businesses that they
were going to send by certified mail Monday, which would
trigger disclosure requirements on Wednesday. I sent this
letter out. I emailed to her.
Mr. Chairman, I would like to submit these for the record.
Chairman Hill. Without objection.
[The information referred to can be found in the appendix.]
Mr. Timmons. Thank you. Obviously, I worked feverishly all
weekend to try to get these businesses in my district relief. I
guess, Ms. Rainey, do you believe that it is normal for the
CFPB to send out CIDs on Friday after business hours?
Ms. Rainey. Seems a bit extraordinary to me, but I am not
familiar with after-hours practices.
Mr. Timmons. Government workers use government hours. I can
guarantee you that it is not normal, and we are going to get to
the bottom of this. I think that Chairman Hill and Chairman
Scott have requested a list of all the enforcement actions that
they have engaged in. Obviously, I was very pleased when I
found out that I had sent the letter to the wrong Acting
Director on Monday morning.
We had dinner with Secretary Bessent Monday night, and I
thanked him for giving these businesses relief. This is crazy.
Not only did they send out the CIDs late Friday night, but
after the news broke on Monday--Bloomberg I think got it
first--CFPB staff initially said that action does not apply to
the CIDs that they sent. Obviously, they changed course a few
hours later after additional questions, but this is not the way
that businesses need to expect the government to interact. We
have to protect consumers 100 percent. I am all in but when the
CFPB goes rogue and starts acting in this manner, it is
detrimental to the U.S. economy, and we have to put a stop to
it.
Chairman Hill. The gentleman's time has expired.
Mr. Timmons. Thank you, Mr. Chair.
Chairman Hill. The gentleman from Texas, Mr. Green, is
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman, and I thank the ranking
member as well.
I am very much concerned about small banks. I understand
that the definition of a ``community bank'' per the FDIC is a
bank with less than $10 billion in assets. Small banks are
important to me because, literally, I am here because of a
small bank. I went into a bank in Houston, Texas, small bank,
and I needed a loan when I was in law school. The president of
the bank interviewed me for the loan. As a Member of Congress,
I can walk into a bank today and probably not meet the
president.
Small banks get to know people. They put a lot of stock
into what people can do based upon sometimes an interview. I
hope you can understand why I pursue this line of questioning.
Unfortunately, small Black banks suffer. They cannot get
capitalized because, first of all, they service an area where
you do not have a lot of billionaires, and they have
regulations that require them to help certain people. I support
this, but they do not get capitalized as quickly.
Most banks in this country have assets under a billion
dollars. There are thousands of banks, more than four--
probably, but when it comes to Black banks, less than 25. There
is something wrong with this picture. We have to have more
Black banks. I get a lot of heat because I support Black
people. I would just hope that someone would understand that
having grown up Black, having lived Black, having suffered
Black, having benefited sometimes from being Black, that I am
going to support Black people and Black banks. Please
understand, what can we do to enhance the opportunity for us to
have more Black banks?
Ms. Owen, you have been banking for a long time. What is
your bank capitalized at, assets?
Ms. Owen. Our assets are $490 million.
Mr. Green. 490 million, so you appreciate the smallness of
banking.
Ms. Owen. Yes.
Mr. Green. I have a bank in my district that is small, less
than a billion dollars. I have many banks, by the way, in my
district, but you have a problem with technology. What can we
do that can benefit you, which will probably benefit some of
these Black banks that are trying to hold on? What can we do?
Ms. Owen. First, I would like to say that both the American
Bankers Association and I strongly support funding for MDIs as
well as CDFIs. They fulfill a hugely needed niche for banking,
and I believe in them strongly. Lessening regulations would be
huge in helping us be able to expand our technology.
Mr. Green. I will just comment on that. We tried this in
the past. I have been here for a number of years now. The big
banks always swoop in and say, ``We would like to have that
too.'' Can the small banks stand up to the big banks such that
we can do something for the small banks and not have to fight
the big banks all the way and, in the end, not get it done
because the big banks will not allow it? Can you stand up?
Ms. Owen. I believe we do stand up and share and speak our
minds when we come to D.C. with Congress and our senators. We
do advocate for ourselves, but I also have to say that I
believe big banks fill an entirely different niche than what
community banks fill. There is a need for all of us, and we can
work together.
Mr. Green. Thank you, Mr. Chairman. I will yield back the
balance of my time.
Chairman Hill. The gentleman from Texas yields back.
The gentleman from South Carolina, Mr. Norman, is
recognized for 5 minutes.
Mr. Norman. Thank you for being here. By hearing the
conversation and the questions that are being asked, it shows
you the dichotomy that we have.
I like my good friend Al, but I do not know what a Black
bank is, nor do I know what a White bank is. I know what an
American bank is.
Mr. Green. Will the gentleman yield? I can tell you what a
Black bank is.
Mr. Norman. Let me finish. I will get after with you. I do
not know what a Black bank, a White bank. I know an American
bank. You are all in a competitive business.
Ms. Owen, I mentioned to you what we are battling up here,
is just what my good friend Ms. Garcia said. Their answer is
government regulations to everything you do, junk fees and
taking credit reports that omit bad debt. I am sorry; you have
to--you rank credit as it is, and all you have to go on is
history, and so it is--that is why the American people chose--
77 million chose not to continue the last disastrous 4 years of
government regulations that each one of you have talked about,
and this diversity, equity and inclusion (DEI), thank God,
President Trump has eliminated that. It is merit. Merit-based.
Some of the most successful bankers I know have been of all
races.
When you get a bank loan, you do not look at--and I am sure
my good friend realized that, if he goes to get a bank loan for
a property, if one with I guess what he describes as a Black
officer has a 5 percent higher rate on interest rates versus
someone that is a different color, he is going to pick the
lower rate because it is better for him.
Anyway, my point is, and you, Ms. Owen, you all need to
stay involved to fight this kind of thing because, as has been
mentioned, the CFPB has been overregulating and an agency that
should be abolished, which hopefully we will try to do. You
have more power than you realize as far as your customer base,
and you serve--you are in a competitive business with other
banks. You get big because of good service, because of being
competitive, not for making bad loans where you do not know
what the credit score is and where you do not--where you are
forced to hire somebody because anything other than merit,
which I am glad this President is doing.
Mr. Kennedy, in your testimony, you mentioned that serving
as a bank board member or control investor should be rethought.
You also said that appropriate pricing of examination
application fees may be adjusted. I agree with both of those.
Would you give me some, I guess, guardrails that you would
recommend?
Mr. Kennedy. It is difficult to do that. I do think the
initial point is that we really--the industry should be self-
funding. We have the regulatory structures, but they need to be
efficient as well. They need to be educated. We need to provide
the funding for the regulatory agencies to understand what is
going on and better understand what is going on in technology,
artificial intelligence (AI), and what the future will bring;
that is the key point in my view there.
Director liability is an issue that has been in the law for
a long, long time and it has gotten worse, and if you just step
back and say, ``Why do not we have as many community banks,''
that is one of the key reasons. We have to rethink that. I do
not have any immediate--I can provide some more detail about
it, but it is a topic that keeps people from going into that
business.
Mr. Norman. I agree with you, and community banks, we all
have been on bank boards. Pretty much everybody up here. It is
regulations that keep bank boards back from showing profit on
the bottom line. It is the reluctance of board members to get
involved because most States need tort reform. South Carolina
is one of them that indirectly and directly affect your banks.
What can we do more to incentivize and help with what you are
doing? Ms.--right now, I will start with you and go down the
line.
Ms. Rainey. These conversations are a great start, but I
think as we have talked here today, de novo, and as Mr. Kennedy
alluded to how we create new charters, how we ensure in
regulation whether it is our ability to work with fintechs and
create a community bank-fintech partnership is--and some clear
rules of the road would be incredibly helpful. How we ensure
that the examination environment is, again, proportionate to
the risks that we represent--so, for well-capitalized, well-
managed institutions to extend the timeline between those
examinations. As we reviewed here today, I think there are many
pieces where again, let us think about it not as a one-size-
fits-all solution.
Mr. Norman. Thank you all so much.
Chairman Hill. The gentleman's time has expired.
The Ranking Member for our Small Business Committee in the
House, Ms. Velazquez of New York, is recognized for 5 minutes.
Ms. Velazquez. Thank you, Mr. Chairman.
Ms. Spotser, I was not prepared to ask the question that I
am going to make--be making now. I have another set of
questions, but listening to the attacks to 1071 and
[inaudible], I feel compelled to set the record straight. The
ranking member and I have been long-time champions of section
1071. We wrote it. Can you explain how section 1071 will
increase lending to small businesses?
Ms. Spotser. Section 1071 is a sunshine provision. It lets
the light in on what is actually happening in small business
lending across the country. The way in which it does that--it
differs than just call report data. It requires reporting of
the race of the applicants. It also requires reporting around
denials. In doing that, it will help us make informed decisions
about why people are not getting access to business loans in
the United States.
Ms. Velazquez. Can you explain how the majority of
community banks are exempted from section 1071?
Ms. Spotser. Yes. Actually, when the Consumer Financial
Protection Bureau issued the regulation, they were very careful
as part of that process to exclude a number of financial
institutions making over--so that the actual regulation
establishes a threshold of loans that have to be accomplished
before the reporting requirement kicks in.
Ms. Velazquez. Can you explain the other steps the CFPB
took to make the reporting requirements less burdensome by
giving them more time to comply?
Ms. Spotser. Yes. One of the really interesting things here
is that the provision, which has actually been on the books for
15 years, was not actually, after the regulation was finalized,
implemented immediately. It has a phase-in period, and it
actually allows smaller financial institutions an extended
period of time of compliance. Currently, the regulation's
effective date has been suspended altogether.
Ms. Velazquez. Is it not true that most banks are already
collecting most of this information?
Ms. Spotser. I would think that a financial institution
would want to collect financial information relating to its
business clients. It may not be true that they are collecting
information directly about their race and those dynamics, but
it is certainly true that they are collecting information about
their business profile.
Ms. Velazquez. Through Home Mortgage Disclosure Act (HMDA),
can you explain how the CFPB was required by law and then a
court order to write this rule, and this was not something that
CFPB chose to do?
Ms. Spotser. Yes. This--the small business lending
provision was, as you acknowledged, a requirement of the Dodd-
Frank Act. It has been on the books for the past 15 years, and
unfortunately, there was a lag in implementing it. During that
time period, we have still had a lack of access to capital for
minority small businesses in the United States.
Ms. Velazquez. Thank you for setting the record straight.
To everyone on this panel, I support community banks. I
have already publicly said I want to work on FDIC insurance and
deposit insurance reform in order to make them more
competitive. Yet, President Trump and his Republican allies
want to eliminate the FDIC altogether. Does anyone think
eliminating the FDIC is a good idea? Does anyone think this
will make them more competitive? Yes or no? Do you think it
would make them more competitive?
Ms. Rainey. We do not know enough to know that. We need
deposit insurance in this country. The FDIC plays a very vital
role.
Ms. Velazquez. That is a good start. Ma'am?
Ms. Marshall. The Federal banking agencies, the FDIC, the
Federal Reserve, and the OCC, are our partners in supervision
for the institutions. Just like the foundation of the dual
banking system where banks have a charter of choice, whether
they choose the State charter or the national charter. They
should be able to choose whether they want a Federal charter,
Federal supervision of the Fed or the FDIC, and the protection
of the FDIC insurance fund is very important to the
stabilization of our--
Ms. Velazquez. Is that a yes or no, if you agree? Yes?
Ms. Spotser. Yes. The FDIC plays a critically important
role, and in its absence, it would be highly problematic for
all financial institutions.
Ms. Velazquez. Thank you. I yield back.
Chairman Hill. The gentlewoman yields back.
Mr. Meuser from Pennsylvania is recognized for 5 minutes.
Mr. Meuser. Thank you very much, Mr. Chairman.
Thank you all to our witnesses very much.
Over the past 4 years, community banks have been a little
bit under the gun from 1071 to CRAs to overdraft fees being
eliminated. Credit card late fees and such have been reduced, I
think, from $35 to $8, something of that nature. My guess is,
if we reduced speeding tickets from $100 to $5 there would be a
lot more people speeding, so my guess is you have a lot more
community banks overdrafts taking place.
I am hearing a lot from my community banks as well about
the increased cost of compliance and regulatory burdens. In
fact, I just heard a story not too long ago where CFPB came
into a bank, community bank, and said, ``Hey, how we doing?''
They said, ``Well, not well, I have had to hire three new
compliance officers to help,'' and the CFPB manager-
representative-stated, ``Well, that is wonderful; we are
adding--we are creating three jobs.'' They really do not get
it.
The Pennsylvania Bankers Association obviously pays a lot
of attention to community banks as they are essential
throughout Pennsylvania, and they informed me that recently a
de novo bank was told by the FDIC to slow its deposit growth
because it was meeting a new yet underserved population that
happened to be Amish. Again, brought to my attention by the
Pennsylvania Bankers Association.
Ms. Marshall, is this something that you found FDIC
meddling in?
Ms. Marshall. I do not have an example specifically of what
you are describing, but I will tell you that the concentration
of power at the Federal banking agencies here in D.C. needs to
be reversed and that delegation of authority needs to go back
down to the regional offices of the FDIC or the districts of
the Federal Reserve because they, like State regulators, are
local. They know the communities. They know the institutions.
They have a better gauge, and so, we do not need a one-size-
fits-all approach to the Federal oversight of our industry. We
need that appropriate balance between centralization of
direction, but we need that execution and that independence of
those individual districts and regions to make the best--make
the choice structure for our institutions.
Mr. Meuser. Have you found that to be the case? Has the
FDIC been engaged in such drive-bys and stop-bys? Are they
basing it upon the reserves? Are they basing it upon a business
equation, or are they just basing it upon a de novo bank that
happens to be growing faster than they predicted?
Ms. Marshall. Again, I have not heard anything
specifically, but I hope that all regulators, like I do, focus
on safety, soundness, and consumer protection. In a de novo
situation, you are looking closely at the business model and
the business plan but work with that institution. You do not
want to stifle the growth or the opportunity for those banks to
serve those communities, especially when we have a new de novo
in place. That can be balanced with true risk-management
practices and to ensure that the bank and the regulators are
working together for the best outcome, and I believe banks do
an excellent job overall of managing risks. That is what they
do every day, and so that collaboration and discussion between
the bank and their regulators are very important.
Mr. Meuser. Okay. I would like to ask you about the
importance of raising the FDIC insurance from $250,000
particularly, perhaps for small business payables, but I would
rather just--I would like that answered. Mr. Kennedy, we are
going to start with you and just go down the line. Community
banks are not happy. There is not one that I meet with that
says, ``Hey, we do not feel under duress. We feel great. We are
flexing our muscles. We are gaining new customers. We are
rolling.''
They are feeling as if they are being somewhat suffocated.
What can we do in this community and in this Congress to
improve that situation?
Mr. Kennedy. Thanks for the question. It is the question of
the day. Frankly, what the chairman has put out is a masterful
list, and others who have talked about the legislation, they
have planned or have already engaged in, provided, but I think
that, based on my 45 years of watching this industry and
participating in it, something really dramatic to remove
community banks from the heavy regulation that Congress has put
on them. You can--you cannot blame all of the agencies because
really the law is here. That is what started--and all of it has
been in reaction, but it has been an overreaction, and it
starts out, well, it is only the big banks, but then it is
trickled down. You can ask any community banker that the
trickle-down effect is always there.
Mr. Meuser. Thank you. Mr. Chairman, I yield back.
Chairman Hill. The gentleman's time has expired.
the gentleman from California, Mr. Liccardo, is recognized
for 5 minutes.
Mr. Liccardo. Thank you, Chairman Hill, and thank you,
Ranking Member Waters, for holding this hearing.
Thank you to all the witnesses for coming forward to speak.
I very much appreciate the testimony. I have learned quite
a bit.
I guess I had a question primarily for Ms. Romero Rainey
about, as you look across community banking in this country, is
it fair to say that commercial real estate (CRE) lending is a
significant share of the portfolio for many banks?
Ms. Rainey. Yes, it is.
Mr. Liccardo. What steps do you believe are necessary from
the standpoint of the banks to protect against volatility in
that market that we are seeing today?
Ms. Rainey. This is something that community banks are
experienced in doing and have over time in terms of knowing
that the markets change, and we have to prepare for that
volatility. The other thing that I would really point out, when
you look at a traditional community bank's portfolio, the
majority of their CRE is owner occupied, and so that creates a
very different dynamic as we think about the cash-flows and the
impact in terms of how that business is able to manage. They
are typically in those investments for the long term.
Mr. Liccardo. Some significant share, and I think I saw an
FDIC report suggested it could be more than 30 percent, is non-
owner-occupied, nonresidential. This could be an office retail,
et cetera. I guess what I am concerned about is, as a
recovering mayor of a city, is I have had those conversations
almost 2 years ago listening to developers, owners of these
properties telling me a lot of keys are going back to the
banks. When they do, the valuations are going to be severely
reduced, and the banks are going to be inheriting a lot of very
poorly performing assets that are very far under water. I am
wondering at this point, knowing what we think we know about
the state of commercial real estate right now, is this the time
when we need less regulation over, for example, issues around
portfolio safety?
Ms. Rainey. A couple thoughts there. First is, as I look at
concentrations of commercial real estate, a lot of this is
going to vary regionally. I am candidly not hearing a lot from
our members that they are--their portfolios are struggling.
There will be pockets, and that will have to be dealt with.
Again, that is a perfect example of why one-size- fits-all is
not the approach that we need to take here.
Again, as I started with my comments, that is the beauty of
a community bank is these are portfolios that they have built
expertise in years of mastery in terms of knowing how to
weather those storms. Again, let us look into those areas of
challenge and think about how we support those communities as
opposed to painting with a wide brush in terms of how we
support the industry as a whole.
Mr. Liccardo. Forgive me for staying at the wide brush for
a moment. Nationally, I think, in the fourth quarter of last
year, they can see rises of 19.8 percent in office. A lot of
folks believe that is a significant understatement given what
we know about the fact that an awful lot of space is being
subleased, and those leases are coming up, and essentially
there are going to be a lot of nonrenewals.
I am thinking about that, thinking about I know, in the
hotel industry, we are seeing a significant number of
foreclosures on the West Coast. I cannot help but wonder if, at
some point, the other shoe is going to drop and to what extent
these banks are going to be as aware, small community banks, of
the severe difficulties that are really underneath the surface.
That vacancy rate, by the way, is about twice as high as it
was right after the Great Recession, 2009. This is a monumental
moment for failure of commercial real estate. How can we be
assured sitting here that, 2 years from now, we are not going
to be having hearings about the string of bank failures
resulting from all these failed investments or all these failed
loans, I should say?
Ms. Rainey. What I know today is, when you think about a
community bank operator, they are the ones right there on the
ground watching what is happening in those markets and in those
buildings so that we suggest a surprise in terms of a sudden
shift that they are not prepared for, that is not the community
bank business model. They have proactively--they are
monitoring--again, they are in those markets watching that
happen. How we prepare, give the flexibility, and take into
account the fact that they are there within those markets----
Chairman Hill. The gentleman's time has expired.
Mr. Liccardo. Thank you. I yield back.
Chairman Hill. The gentlewoman from California, the
Chairwoman of the Asia Pacific Subcommittee on House Foreign
Relations, Ms. Kim is recognized for 5 minutes.
Mrs. Kim. Thank you, Mr. Chairman. I want to congratulate
you on holding this very first full committee hearing on a
great topic, and I look forward to working with you as chairman
of the committee.
I also want to thank all of our witnesses for joining us to
examine how we can make community banking great.
Today I am concerned about the decline of our community
banking. In our country since the 1980s, the number of banks in
America has declined from 18,000 banks to less than 5,000 banks
operating today. What that means is that less banks in our
communities means less competition, less access to capital for
small businesses, and less essential banking services for
communities that need it.
Let me ask the first question to Ms. Romero. Can you give
us your view on how we got to this point of having 13,000 less
banks today than what we had in the 1980s?
Ms. Rainey. I think it is accumulation of looking at this
industry from a one-size-fits-all approach. When you look at
the compliance costs and the regulatory burden that have just
been added on and added on in the last 2 years, over 4,000
pages of new regulation, that comes at a cost.
Mrs. Kim. Can you tell me, how much does it cost for a
community bank to comply with State and Federal regulations?
Ms. Rainey. It is significant. The stories that we have
heard today of banks adding more and more compliance officers.
Those are not folks on the ground helping small businesses get
to the next level, figuring out how to finance and transition
that business to the next generation, and that is the shift
that I think we really need to focus on.
Mrs. Kim. I share with you, and my sense is also that the
small banks are more worried about complying with regulations
and focusing on how to comply with those regulations than
focusing on what they need to do best, and that is making
capital available for businesses and for worthy projects that
they want to fund.
Ms. Romero, I do have concerns about the supervisory
appeals process as well. That it has not been very transparent
and has very little oversight. Can you give us your
perspectives on how we could improve the supervisory appeals
process and make it more transparent?
Ms. Rainey. I appreciate the question, because that is all
we are looking for is transparency, and very much appreciate
Chairman Hill's bill that would create this appeal process and
examination transparency by looking to the FDIC to have an
independent approach in which bankers can raise their questions
and challenge the findings.
Mrs. Kim. Sure. Ms. Marshall, in your testimony, you speak
about the need to facilitate community bank innovation through
third-party partnerships. Can you speak on how greater
regulatory certainty and clarity with third-party partnerships
can help small community banks, and how can you help consumers
have greater access to many banking services?
Ms. Marshall. Yes, ma'am, thank you. I think the consumer
is a large part of this conversation, because they are
demanding that you--they utilize new products and tools and
services to meet their banking needs. They want that. They
expect that. Community banks need to keep up because, quite
frankly, they may not be able to innovate themselves, but that
partnership gives them that opportunity to continue to serve
their customers and attract future customers. The ability to do
so is going to be very--the successful ability to do so is
going to be very important. As we look at improving and
enhancing current third-party risk-management guidance, we need
a regulatory framework that is clear cut, a roadmap that gives
the rules of the road for banks to be able to follow, and not
just them but the third parties themselves as well as the
consumer. You need clear guidance. We need clear definitions.
We need it to be a transparent process in how regulators and
bankers, and, quite frankly, the third parties can facilitate
those conversations about what that looks like for the next
generation because it is here to stay. I think it is very
important for the vitality of our industry and meeting consumer
needs.
Mrs. Kim. Thank you.
Ms. Owen, let me ask you a question. In my home district in
southern California, I regularly meet and hear from small
businesses--the banks--of the need to enact the Safe Banking
Legislation, so can you talk about that, how enacting safe
banking legislation can help local community banks?
Ms. Owen. Banks do need good legislation, but it needs to
be clear. It needs to be tailored. It needs to be very
thoughtful in its implementation and timelines.
Chairman Hill. The gentlewoman's time has expired.
Mrs. Kim. Thank you, Chairman. I yield back.
Chairman Hill. The gentlewoman from Michigan, Ms. Tlaib, is
recognized for 5 minutes.
Ms. Tlaib. Thank you so much, Mr. Chair.
Can everyone on the panel agree that our government should
be promoting residents' economic security, not the--serving the
whims of billionaires? Does everyone here agree with that? If
you disagree, raise your hand.
Mr. Kennedy. I did not understand your question. Sorry.
Ms. Tlaib. Is our government's role and responsibility to
promote our residents' economic security, not serving
billionaires? Okay. You are uncomfortable, Mr. Kennedy?
Mr. Kennedy. No.
Ms. Tlaib. Oh, Okay. I just want to be clear. We are
community banks, right?
Mr. Kennedy. I was thinking about my answer.
Ms. Tlaib. For real people. No, we are community banks. I
do not know. Maybe you do have a lot of billionaires you serve.
I do not know. This is important because the topic of today's
hearing is community banking, but we just cannot act like there
is not a crisis going on.
Do you know the people calling my office, it is hundreds of
people calling my office right now saying, ``What is going
on?'' With access to the Treasury payment system, Elon Musk can
simply stop funding any Federal Government programs like
Medicare or Social Security. My residents know that he does not
care about them. They are not experiments.
Our people in our communities and our families are not
experiments for Elon Musk. It is really hard to be in this
space to talk about something that I think a lot of people do
care about, but at this moment, we are acting like there is not
a crisis going on in our government right now.
One thing I do want to talk to you all about, and I think
it is really important, is--and this is for any of the
witnesses here. Do you know which State right now specifically,
and to get to community banking, but which State has the most
community lenders per capita? Does anybody here know? No?
It is North Dakota, which has around 64 banks and credit
unions per hundred thousand residents. That is pretty great,
right? North Dakota has six times as many locally owned
financial institutions as the national average. Does anybody on
the panel know that?
For any of the witnesses, again, what makes North Dakota so
special in its support of community lenders? Can anybody guess?
Do you know what makes them special? A large part of the answer
is the Bank of North Dakota. The Bank of North Dakota has
operated successfully as a public bank for over 100 years.
Today it provides business loans, student loans, home loans,
and agricultural loans. I do not know if the chairman and
others know this. Public banking is incredibly important to
support in our country, especially during this time where we
see a lot of folks in a stronghold of, again, the economic
security and the future of our families. Did you know that
North Dakota--the Bank of North Dakota--invested $1 billion in
legislative directed programs that build schools, water
infrastructure, and medical facilities? A public bank did that.
In 2023, it returned $140 million to the State general
fund, and over time it has returned more than $1 billion in
funds to the State, money back to the State, to the
communities. I do not even know if my own Ranking Member,
Congresswoman Waters, knows this, but importantly the Bank of
North Dakota does not compete with community banks. They do not
compete with you all. It partners with you. About half of its
$5 billion loan portfolio is lent in partnership with community
financial institutions. Participation loans increase the
capital available for community development, provide community
lenders with greater access to capital.
This is important as somebody that authors the public
banking bill. Thanks to the Bank of North Dakota, no banks in
the State failed during the 2008 financial crisis. I am going
to repeat this, no bank in North Dakota failed during the 2008
financial crisis. In fact, the bank continued lending while
others pulled back, helping the State achieve the lowest
foreclosure. As somebody that literally lives in the county
with one of the worst foreclosures in the country in Wayne
County, Michigan, but it helped achieve the lowest foreclosure
and credit card default rates. Again, the lowest.
My Public Banking Act would actually help States establish
similar robust community banking sectors, which will be
partners to all of you. If we are serious about assisting
community banks, we should look to the longstanding and proven
track record of The Bank of North Dakota. This is so important
for many of my colleagues. Many are not here right now. I hope
they are dealing with the crisis that is happening.
However, it is important to understand the role of public
banking. It is actually a great way to, again, protect the
economic security and future of our families that, again, feel
like we do not have our--have their back.
With that, Mr. Chair, I yield.
Chairman Hill. The gentlewoman yields back.
The gentleman from Florida, Mr. Donalds, is recognized for
5 minutes.
Mr. Donalds. Thank you, Mr. Chairman. I am not even going
to get into it. Thank you so much.
Mr. Kennedy, how has the regulatory structure imposed by
Dodd-Frank negatively impacted community banking in the United
States?
Mr. Kennedy. I think it was about a thousand pages of
legislation by Congress and probably 10 times that of
regulations that were issued under that act.
Mr. Donalds. Okay. Specifically, in your view, has
community banking in the country, frankly, been devastated by
Dodd-Frank?
Mr. Kennedy. Yes. It was done to react to a problem or
series of problems, clearly, but it was an overreaction, and it
applied to every bank in the country and beyond. It is--
stepping back, it is a serious problem. It is overregulation.
Mr. Donalds. Okay. Thank you.
Ms. Rainey, can you discuss how increasing the asset
threshold for small bank holding companies could help with
capital formation?
Ms. Rainey. Yes. I appreciate the question.
As we increase that threshold, what we allow these smaller
bank holding companies to do is to grow to lend more and
potentially partner with other smaller community institutions
to keep that presence in the local community.
Mr. Donalds. Okay. Awesome. Do you believe that a
proliferation of small banks and small bank holding companies
will be better--would be better in terms of addressing the
needs of capital for individuals, microbusinesses, and small
businesses?
Ms. Rainey. It is the answer, and that historically--when
we look at the footprint of small businesses in this country,
which is unlike anywhere else in the world, we can attribute it
directly to the presence of small banks and those that are on
the ground that are taking that local capital and redeploying
it to small businesses so that they can grow and create
additional capital for that community.
Mr. Donalds. All right. Thank you.
Ms. Owen, can you describe the role community banks can
play in revitalizing local economies and uplifting American
communities?
Ms. Owen. Absolutely. I am a proponent of the Access to
Credit for Rural Communities (ACRE) which will provide lower
interest rate loans as well as additional credit to our rural
communities and our farmers and our ranchers, the agriculture
that is so vital to not only my State but our country.
Mr. Donalds. Okay. Thank you.
Ms. Marshall, what immediate action can Congress take to
address the regulatory cliffs you mentioned in your testimony?
Ms. Marshall. I think starting with the static thresholds
that have existed. We need to review those. They need to be
indexed for the current environment, the current economy so
that banks can continue to grow and expand alongside that
economy and not fear that they--as they approach this arbitrary
asset threshold, that they either need to pull back from their
operations or, quite frankly, seek another alternative.
We need to let them continue to grow alongside in the
natural pace that they will be able to keep up from a risk
management standpoint, and we need to take that stigma away
that there is something magical or something horrible that
happens when you cross over to be a $10-billion bank. As I said
earlier, $10 billion is not the threshold that should define a
community bank.
Mr. Donalds. Let me ask you, Ms. Marshall, to follow up.
What do you think the threshold is that should be defining
community banks in the United States?
Ms. Marshall. Something north--I have never been asked
that, Mr. Donalds. Thank you very much. Certainly something
north of 10, maybe something less than a hundred.
Mr. Donalds. Fair enough. I understand why you do not want
to--as a former community banker, I understand that a $10-
billion bank, although it is big, quote/unquote, you are not
talking about the national banks, which are massively larger
than $10 billion.
Ms. Marshall. Right.
Mr. Donalds. I do acknowledge that.
Before I yield, Mr. Chairman, it was raised about the Bank
of North Dakota. As a former banker or I would say a recovering
banker, the State of North Dakota, the reason why they had to
create a State bank is because there was no ability for any
lending to occur because there were no banks in the State of
North Dakota.
I am quite sure every American understands, especially
people from North Dakota, that it is a very rural State. It can
be a very tough State, and there were not a lot of banks that
could survive in that climate. The State of North Dakota
decided, I believe around 1910, 1920, to create a State bank in
North Dakota. It still remains to this day.
I know that there are people in other States who brought up
the idea of creating a State bank, but the reality is that
commercial banking has been able to supply the needs in
everybody's cities and economies, and there are now obviously
community banks and other banks that operate in the State of
North Dakota.
I do not think that the topic of raising a State bank is
the panacea to whatever the ills might be coming from the other
side of the aisle. The real cure is unwinding the regulatory
behemoth that is Dodd-Frank.
I yield, Mr. Chairman.
Mr. Fitzgerald [presiding]. The gentleman yields back.
The gentleman from New York, Mr. Torres, is recognized for
5 minutes.
Mr. Torres. Thank you.
There are 45 million Americans who have no credit score,
who have been deemed credit-invisible or unscoreable. According
to an analysis by VantageScore, expanding the scope of credit
scoring to include alternative data like rent payments would
generate a first-time credit score for about 33 million
Americans. Of the 33 million, 13 million would have a credit
score high enough to qualify for a mortgage.
Ms. Spotser, do you believe as I do that banks should
originate mortgages based on credit scores that take into
account alternative data like rent payments?
Ms. Spotser. Yes. I think it is a very important concept,
and I think we are very pleased and supportive of the Federal
Housing Finance Agency's efforts to make sure that the GSEs
pursue it.
Mr. Torres. Ms. Rainey, do you have any thoughts?
Ms. Rainey. I think this is something that community banks
do today. It is something that I love about relationship
lending, it is not just credit-score-driven. We are able to
take into account many of those factors, and so I am
appreciative of anything that brings that information to the
table.
Mr. Torres. There are 5.6 million households, 4.2 percent
of the population, that are unbanked. Nineteen million
households, 14.2 percent of the population, are underbanked.
There is a national initiative known as BankOn that offers free
or affordable bank accounts.
In your experience, how effective has the initiative been
at reducing the unbanked and under-banked population in the
United States?
Ms. Rainey. I do not have the information specific to
BankOn, but I think so much of this is about education and
creating pathways for folks to understand, to create
connections to banks, and anything we can do to help with that
is good.
Mr. Torres. Ms. Spotser, do you have----
Ms. Spotser. I think education is important, but I do not
think that is the reason why we do not have--people are not
getting access to bank accounts. I think it is the absence of
service in communities that are traditionally underserved.
One of the things that we have talked about is the absence
or the consolidation of banks, but what we have not talked
about is the disappearance of bank branches by existing
financial institutions in communities of color, and that has
consequences that lead to an increase in lack of access in
banking account opportunities for people of color.
Mr. Torres. In places like the Bronx?
Ms. Spotser. In those places.
Ms. Owen. Mr. Torres, I would like to add.
Mr. Torres. Yes. Sure.
Ms. Owen. We do offer BankOn accounts and are very proud to
do so. It has certainly allowed us to bank some of our unbanked
population and help them so that they can get direct deposits
at the bank and protect those--protect them from the risk of
their checks going through the mail, payroll checks and other
things. We are very proud to be able to offer that.
Mr. Torres. In spring of 2023, the fear of contagion risk
led the Federal Government to insure the uninsured depositors
of SVB, Signature, and First Republic. If the Federal
Government feels compelled by contagion risks to insure the
uninsured at the back end why not provide unlimited deposit
insurance at the front end? In finance, as in healthcare, it
would seem to me preventative medicine may be more cost-
effective than emergency medicine. What do you make of that
argument?
Ms. Rainey. I think there is a lot we need to talk about
here, and I think that there are two pieces to this. One is the
contagion effect. The agencies should have had the ability to
implement a transaction account guarantee immediately so that
we were not talking about a contagion effect. Then as we think
about, ultimately, reforms to the deposit insurance system, how
are we ensuring that moneys are safe regardless of the size of
the institution and that----
Mr. Torres. Indulge my hypothetical for a moment. In a
world of unlimited deposit insurance, what incentive is left
for a depositor to withdraw all their deposits from a bank?
Ms. Rainey. There is none, but there is also a cost that
comes with that unlimited insurance. How that then creates a
disproportionate burden on the smaller banks is the piece that
we need to solve for.
Mr. Torres. How can we--how would you solve for that?
Ms. Rainey. I would solve for it by thinking about a system
of assessments that puts more of that burden on the largest
institutions.
Mr. Torres. A tiered system of assessments?
Ms. Rainey. Yes. Yes.
Mr. Torres. What do you make of the role of the Federal
Home Loan Banks as emergency liquidity providers? It has been
said that emergency liquidity from the Federal Home Loan Banks
is much more accessible than the Fed discount window. What do
you make of that role?
Ms. Rainey. I think the Federal Home Loan Banks play a very
critical role in terms of providing, not just immediate
liquidity, but liquidity over time that allow community banks
to manage their balance sheets and have--like I said, given
seasonal aspects, whatever it may be, they are very critical to
banks' liquidity.
Mr. Torres. I see my time has expired. Thank you.
Mr. Fitzgerald. The gentleman yields back.
I now recognize the gentleman from Nebraska, Mr. Flood, for
5 minutes.
Mr. Flood. Thank you, Mr. Chairman of Wisconsin.
The State of our banking system is not what it used to be
post-Dodd-Frank. I represent a district, and I live in a State
full of outstanding community banks.
In the 1980s, there were more than 18,000 banks in the
United States. Today, there are fewer than 5,000 commercial
banks. When I started on the Nebraska Unicameral Legislature's
Banking Committee, we had over 300 banks, and today, we have
137 and dropping. One is consolidation, and the other is a lack
of de novo charters when it comes down to the big issues, and I
both believe--I believe both have the same root cause,
regulatory burdens.
Ms. Romero Rainey, in your testimony earlier today, you
spoke to how inefficient and prescriptive regulations led to
further bank consolidation. Can you expand on that point for
our benefit?
Ms. Rainey. Absolutely. I think the core theme for me here
is, as we look at the community bank business model that is
tied directly to relationship lending, we need to look at it
through a lens of how do we proportionally manage that risk.
Unfortunately, regulation that has been written over the
years--4,000 new pages in the last 2 years--has not been
proportionate to the community bank business model, and that
comes at a higher cost to community banks, which absolutely
contributes to consolidation.
Mr. Flood. One of the things I love about our banking
system in America is that it is diverse. You have the Global-
systemically Important Banks (G-SIBs). You have the regionals.
You have the community banks and then you look at Europe. How
many banks are calling the shots over in Europe? A couple? A
handful? Here we have this diverse system that is the envy of
the Nation, and we seem to be killing off one of the three legs
of the stool.
Let us talk about these de novo bank charters. We have seen
a staggering drop in the number of these over the years.
Congressman Barr's legislation would seek to address that
problem, and I am a proud cosponsor of the bill.
Another question to you, Ms. Romero Rainey. You made a
really interesting comment in your testimony that your family's
community bank, Centinel, would not have been chartered today
given the regulatory environment. Which specific barriers do
you feel would have been most challenging to chartering a new
bank de novo with the circumstances you had when your family
bank started?
Ms. Rainey. First and foremost, the minimum amount of
capital. As we think about what is required, again, it is a
one-size-fits-all approach. That has to be solved for
immediately, especially as we look at access to capital in
rural areas.
Mr. Flood. Very good.
Mr. Kennedy, in your testimony, you touched on the
importance of allowing community banks to innovate and use
technology to confront some of the barriers posed by the
regulatory burdens. I totally agree. I would be fearful, if I
were running a community bank, of getting into bed with a
third-party vendor that could take me to a place where my
license could be suspended.
How can technology help smaller institutions face the
challenges posed by the regulatory burdens? What do you think
of that?
Mr. Kennedy. I think technology can level the playing field
and has for the last 20 years and will continue to do that.
There are just--there are a lot of different meanings to the
word ``fintech.'' I think the Commissioner talked about it
earlier. We have to be innovative, and the regulatory agencies
have to understand that and give the banking community space to
do that.
Mr. Flood. Do you think the regulators of community banks
are as maybe open-minded to some of the fintech possibilities
as maybe the large G-SIBs with their regulations?
Mr. Kennedy. I think they are. I am not sure that the
leadership in Washington of late, particularly in the last 4
years, has allowed them to be.
Mr. Flood. Very fair.
Mr. Kennedy. I urge in my remarks and also in my written
testimony that we give the regulatory folks an opportunity,
fund them better, give them the opportunity to understand and
work side by side with banks as we innovate.
Mr. Flood. Ms. Marshall, I appreciate seeing you again this
week. A lot of banks in my home State have gone from an OCC
charter to a State charter. Are you seeing that in Arkansas as
well?
Ms. Marshall. Absolutely. Yes, sir. There are only seven
State charter banks--seven national banks chartered in
Arkansas, and so almost 90 percent of our banks are State-
chartered. That has happened fairly recently over the last few
years.
Mr. Flood. Why is that?
Ms. Marshall. I will say it is our relationship with those
institutions, our knowledge of the local communities, our
accessibility, our willingness to partner with them in a way
that is not inappropriate but best suited for both
organizations to maintain that healthy, vibrant community
banking sector.
Mr. Flood. Do you think the OCC wants a larger bank to
regulate? Do they want to be in the space of community banks?
Ms. Marshall. I would not be able to speak to what the OCC
would or would not want. I can just assure you that our banks
are pleased with the relationship they have with the State.
Mr. Flood. Thank you very much. I yield back.
Mr. Fitzgerald. The gentleman yields back.
The ranking member is now recognized for a unanimous
consent request.
Ms. Waters. Mr. Chair, I have a statement. I have a
unanimous consent request to enter a few statements in the
record.
I have a statement from the Americans for Financial Reform,
representing more than 200 groups, supporting CFPB and its
rules.
I have two other letters from more than 200 consumers,
civil rights, labor, and other groups supporting CFPB's
overdraft rule.
I have seven other letters from various groups, including
the Leadership Conference on Civil and Human Rights, Rise
Economy, and the Responsible Business Lending Coalition,
strongly supporting CFPB's small business lending transparency
rule, the National Bankers Association, and inclusive each
submitted statement urging us to build on our bipartisan work
to support CDFIs and MDIs.
Last, the Free Speech Coalition submitted a statement
highlighting how debanking hurts marginalized communities.
Mr. Fitzgerald. Without objection.
[The information referred to can be found in the appendix.]
Mr. Fitzgerald. We now go to the gentleman from Indiana,
Mr. Stutzman. You are now recognized for 5 minutes.
Mr. Stutzman. Thank you, Mr. Chairman.
Thank you for being here. This is such an important issue
for our communities. I come from a district in Northeast
Indiana that is very diverse, a lot of rural areas, a lot of
agriculture, a lot of manufacturing. We have, of course, the
city of Fort Wayne, so we have an urban area and some suburban
areas.
I have been absent from Congress for the last 8 years, and
so I have been very active in our community, in the business
space and have worked with a lot of our banks--small, medium,
large, all of them--and working to create jobs and to make--
create better opportunities for our communities.
One of the things that I find interesting--and Mr. Flood
touched on just a little bit of it--is the diversity in our
banking system, which I find to be very beneficial as a
business owner and working with banks from whether it is
startups or whether it is existing companies, agriculture,
which is tricky. Not just any bank is involved in agriculture.
What I continually heard from friends in the industry is
the--and I do not think that they even wanted to complain
because they wanted to be sensitive and careful to the
circumstances that we were in, but it just seemed like their
hands were tied continually in a variety of ways.
I know one of the key things for this hearing is just
fairness, transparency, right-sizing the government. President
Trump signed an executive order, which launched massive
deregulation initiatives, including a provision to eliminate 10
regulations for each new regulation issued. I guess I am just
kind of curious. Would that be possible? How easy would that be
for the industry?
I guess, maybe especially for smaller community banks, that
do not have the large group of attorneys that are readily
available to help, but I know that there has been a lot of
hardships on the banks, which creates the hardships for small
businesses and folks in the community that are really building
up our small communities.
I will tell you, rural communities are struggling. It is
tough out there. That is why I believe this hearing is so
important. How can we help? Is that the right direction? I
support President Trump's end goal and initiatives, but is that
something that will be a useful tool?
Ms. Rainey. I think it is. As we think about our theme here
today, again, how are we thinking proportionally to the risks
that we are trying to mitigate and manage because that really
is what is at the core of a successful community bank, is risk
management.
How do we provide, to your words, the flexibility for these
banks to do the good work that they are not just in the easy
times but more importantly, in the challenging times. There is
a reason that community banks make over 70 percent of the
agriculture loans in this country. It is because they are
experts, and they have proven their ability to stand the test
of time.
To think about--to pull back, to repeal 1071 that would
make that less effective or efficient, to think about the
examination process in a different way for these smaller
institutions, to think about their access to capital and
ability to grow through the Small Bank Holding Company Act. I
think there are a lot of ways that we can just think
differently in a way that acknowledges the very different
business model that is community banking.
Mr. Stutzman. Yes. I have only a minute left, but I would
be curious, how is the next generation responding? Is there an
interest in banking? Is there an interest in being a loan
officer? I know we have one particular bank that has a really
nice program with the local high school with high school
students, but is there an interest? Are you seeing that across
the country because it is important for our rural communities
to be viable going forward for generations to come?
Ms. Rainey. I take a personal interest in that as a third-
generation community banker, making sure this goes on to the
next generation, and I think exactly what you are talking
about. Community banks grow their own, and they do it through
internships. They do it through engaging with local schools.
This is where, again, we need more of that and really creating
that understanding that a career in community banking is about
giving back and engaging in community is such a wonderful
story.
Mr. Stutzman. Yes. My fear is that too much regulation
drives people apart in the relationship business. We are
constantly critiquing--the banks critiquing customers. It is
important, but at the same time, there has to be a win-win for
everybody involved.
Thank you for being here. Thank you for your testimony
today.
Mr. Fitzgerald. The gentleman yields back.
I am now going to recognize myself for 5 minutes.
Thanks to the witnesses for being patient. I know it has
been a long morning, afternoon.
I just want to dig a little bit deeper into the CFPB, and
the question is for Ms. Owen. I know other members have kind of
talked a little bit about this, this morning.
Section 1071 rule requires lenders that make a certain
number of small business loans to collect and report to the
CFPB a total of--there is 80-plus--81 separate fields--data
fields--and it all applies, obviously, to the loan. It is a
gathering of information, right. Seems excessive, which is why
I am bringing it up. As I understand it, a lender is required
to comply with this rule if they make at least 100 small
business loans, arbitrary number.
Ms. Owen, can you please kind of explain or can you tell us
any more information about the enormous data collection that is
happening and what impact that has on small businesses,
community banks, and the credit unions that serve them?
Ms. Owen. Absolutely. Thank you very much for your
question.
No doubt, trying to collect those 81 data points from a
customer is going to be very difficult. Often, they come in
with basic information. We use financial education to help
educate our small businesses and end up giving them a list of
items that we need for them to bring back. Now we are going to
have to add an additional amount of data that they will need to
collect.
Often, these customers are very private, so they really do
not want to disclose some of the information. We have had them
often tell us, ``It is none of your business.'' When we tell
them, ``We have to ask these questions,'' they often do not
like it.
Mr. Fitzgerald. Yes. Let me interrupt you there because it
is kind of the next follow up question that I had.
Because 1071 requires CFPB to publish the data it gets from
lenders every year, that is kind of what you are referring to
as kind of this otherwise undisclosed information that small
business people are uncomfortable with. If you include that
information, whether the lender denied a small business loan or
whether or not they are granted it, right, what steps do you
think the CFPB could be doing to protect that information and
the privacy that otherwise--small businesses are not really
offered any guarantee that is going to happen. Is that correct?
Ms. Owen. Yes. We are very concerned about the release of
private information into the marketplace and what it can mean
for those individuals. As I said before, ``it is not going to
be difficult to determine whether or not someone was approved
or denied a loan, especially in a small community where there
are only so many businesses especially of a particular
industry.'' There are great concerns there.
Mr. Fitzgerald. Thank you very much.
To Ms. Rainey, kind of switching topics a little bit.
Currently, credit unions, whether they are farm credits or
fintechs, are not considered competitors for the purpose of the
concentration analysis done under the bank mergers. Congressman
Barr and I have been working on a number of pieces of
legislation on that front to make that more streamlined and
easier.
Can you discuss how this makes the bank mergers, especially
in rural markets--kind of creates this artificially
concentrated area and it is misleading, I think? Would you
agree?
Ms. Rainey. It is absolutely misleading because it is not
painting a picture of the full market. When you look at the
other financial services providers and if you exclude credit
unions and farm credit, especially in rural communities, that
does not tell the picture and it, I think, hampers some of the
opportunity for some of the smaller banks to merge and work
together.
Mr. Fitzgerald. Thank you.
The last thing I just wanted to touch on, I guess, is,
again, going back to Ms. Owen. Community bank lending to
farmers and ranchers is critical. We hear it especially from,
obviously, a number of members that either have been or have
some type of history on that issue, whether they are on the
Financial Services Committee or they may be on other locally
serving community boards that are focused on farms and
ranchers.
Can you tell us again, that Access to Credit for Rural
Economy Act--it is a bill that we have been working on--how
this could be implemented and how this could be very important
to those communities that are kind of watching what Congress is
doing right now?
Ms. Owen. Yes. It will lower the cost of financing for our
farmers and ranchers and agriculture industry, rural
communities, as well as allow additional access to credit for
them, which is vitally important. They are in need of this.
Mr. Fitzgerald. Thank you very much. I yield back.
I will now recognize the gentleman from Ohio, Mr. Davidson,
for 5 minutes.
Mr. Davidson. Thank you and thank you for our witnesses for
taking time out of your businesses to come share with us and
hopefully make the market a better, more functional place.
Ohio is home to many strong community banks and some bigger
regional banks, and we have a diverse financial services sector
in our own State. It reflects the potential strength of our
country's economy. Maybe one of the themes that we will do is
making America great by making our community banks great again,
but may be by reprivatizing our economy, because for a while it
has felt like the Federal regulators have decided that they
need to weigh in on almost everything.
I really just, Ms. Marshall, wanted to ask you about State-
regulated banks that choose to do that for a reason, but, of
course, there always seems to be a Federal nexus. Could you
kind of highlight for us what that tension has been like
historically and maybe lately between State regulators and
Federal regulators?
Ms. Marshall. Thank you for the question.
Yes, as a State bank, you are going to have two regulators,
the State regulator and the Federal regulator of their choice.
We work very hard at the local level to make that as seamless
and efficient and effective as possible, but it is that
direction that is coming from D.C. that is directing perhaps--
or challenging their local offices to manage situations in a
specific way and overriding what the examiners on the ground
may feel or think is the appropriate outcome.
One of the things that I think that could really make a
difference here is, quite frankly, Congress' support of the
existing law, which is to ensure that there is a State bank
regulator that sits on the FDIC board. That is in law and--
someone with State bank regulatory experience. Pardon me. That
is something that has been absent for quite some time, and I
think that would help temper this overarching direction that we
have seen for quite some time. I think that would help ensure
that there was an equal voice for State and community banks to
provide this commonsense approach and balance out some of that
direction.
Mr. Davidson. Yes. I think we are hopeful that we will get
somebody with that kind of regulatory experience even at the
Fed when we look at the Fed's desire to reach into virtually
everything as well.
Ms. Owen, when you look at your experience in the market,
one of the things that you see maybe across sectors is that
consolidation and concentration generally reduces innovation
and it almost always reduces competition. How have you seen
that play out in the market as a community banker?
Ms. Owen. Yes. We have certainly seen consolidation within
the State of Arkansas and, frankly, across the country, as you
have seen with the shrinkage of the number of banks. It hurts
all of our communities when they lose a financial institution
that--a successful financial institution is so vital to each
and every community.
We are very much in favor of de novo banking and making the
requirements on capital not so rigorous as well as allowing
more time for compliance with regulation for these de novo
banks.
Mr. Davidson. Yes. I appreciate it. You guys have
highlighted some great legislation, some of my colleagues have,
with Congressman Donalds on the Small Bank Holding Company Act,
Congressman Williams on the 1071 fix, Congressman Barr and
others on some of the community bank regulations that deal with
capital leverage ratios.
I was speaking with a small community banker today. They
are holding 17 percent. The whole concept of tailoring is out
the window because they are being pressured. They do not really
own their own balance sheet. They cannot decide what is on
their books in their own way, and that is a factor.
Ms. Rainey, could you talk about that? Have you had some
observations in the market where it feels like regulators are
steering lending decisions instead of the banks?
Ms. Rainey. Yes. Again, I think that is core to all of
this. Community banks have proven their ability to manage
risks, to understand their local markets, and let us give them
the freedom and flexibility to do that.
Mr. Davidson. Yes. Thank you for that.
Maybe the last question for you, Mr. Kennedy. Structure
makes a lot of difference, and one of the, I think, really
important innovations is the way that you get a return is not
just leverage. It is also how you can retain some of the
equity, and a lot of the equity in a lot of business deals goes
to the IRS. You have the small--the S-corp election for a lot
of smaller banks. Can you talk about how that is important and
how that shapes the market?
Mr. Kennedy. Thank you for the question. It is extremely
important. As I alluded to earlier, the Federal Reserve study--
excuse me. Yes. The New York Fed studied that legislation that
allowed banks to have some S elections. It is the reason--the
principal reason we have as many that we still do, but it is
extremely important that we give that--extend that----
Mr. Davidson. I will be fighting to keep that.
Thank you all for your time, and I yield back.
Mr. Downing [presiding]. The gentleman yields.
The gentleman from Iowa, Mr. Nunn, is now recognized for 5
minutes.
Mr. Nunn. Thank you, Mr. Chair. I appreciate that.
As most Iowans know, their local lender allows their
institution to offer pretty customized services, particularly
where they live and operate. This could be a farmer, a small
business owner, just a fellow dad trying to help out.
Iowa has approached our financial regulatory framework, I
think, pretty thoughtfully, which is why we still have over 250
small lenders across our community. Many States five or six
times our size do not even have that type of diversity in the
lending system.
I look forward to reversing some of the damages, Mr. Chair,
that were done under the Biden-Harris Administration that have
hindered lenders, restricted our economic growth, and
disproportionately affected rural communities across our
country.
Mr. Chair, I would like to submit for the record the list
of priorities coming from my Iowa Bankers Association, from the
Iowa credit unions, and our Iowa community bankers. This lays
out a very good framework of what is working in a place like
Iowa and maybe a recommendation on things we should be doing at
the Federal level.
Mr. Downing. Without objection.
[The information referred to can be found in the appendix.]
Mr. Nunn. Thank you.
Let us get to work. First and foremost, Section 1071 rule.
I remain concerned that 1071 forces our small banks to level
additional burdens on our businesses. In fact, they are
requiring 81 different data fields. Now, that is a 30 percent
increase over what is Federally mandated. This is already
something when we talk about efficiency we can start looking
at.
An Iowa bank with just 17 full-time employees wrote to me
recently and said, we do not have enough manpower on staff to
address the compliance requirements coming out of 1071. It is
going to force us to hire another employee. Now, in a small
community, when you are spending another six-figure investment
to meet a compliance requirement, that is money that is not
being spent in that community or helping a local borrower.
Ms. Owen, I would like to talk with you. How does the
impact on community institutions to report 133 different data
fields between 1071 and the beneficial ownership reporting
requirement impact a local lender?
Ms. Owen. It would require us--or it will require us to
invest more in the compliance side of complying with this
regulation, which absolutely directly affects what we are able
to invest in the communities not only making loans in the
community and staffing loan officers to be able to do that, but
also supporting the local food pantries and financial education
and many things that we do.
Mr. Nunn. You hit the nail on the head and thank you for
highlighting the ripple effect this has across communities.
It is one of the reasons I am proud, Mr. Chair, to
cosponsor Chairman Williams' bill to repeal 1071.
I would like to also speak to tailoring. Now, institutions
of different sizes and business models are purposefully
different inherent on where they are. In fact, most Iowa
lenders have under $7 billion in assets. The Biden
Administration chose to treat every lending institution the
same as a multinational bank in New York with $3.9 trillion in
assets.
Now, with respect to my friends from New York, across the
rest of the country, we are talking multibillions of dollars.
For comparison, 7 billion inches is roughly 110 miles. That is
enough for me in Des Moines to drive to the birthplace of John
Wayne in Madison County. It would take that same amount of
inches--if we were trying to talk about 39 trillion inches from
my house--the same distance would be to the sun. Put that into
perspective. This is how we are treating vastly different sums
of money and regulations on a small bank that is here in
Madison County versus a big bank which would be the equivalent
from Des Moines to the center of the universe.
Ms. Marshall, I would like to ask you, do you think that
tailoring regulatory caps to account for inflation will
alleviate some of the immense regulatory burden that is
crippling banks and lenders right in Iowa?
Ms. Marshall. I absolutely do.
Mr. Nunn. I am glad to hear that.
Ms. Marshall. Mr. Nunn, if I may.
Mr. Nunn. Yes, ma'am.
Ms. Marshall. Your previous question about the compliance
impact on our institutions and our community banks, in addition
to the cost, what I also find when I talk to bankers is that
they are having a hard time finding the talent. Quite frankly,
not so much the willingness but the expertise and sometimes it
is the willingness of staff that they are going to bring in.
To an earlier member's question about the next generation
of bankers, who is going to come into those institutions in
those rural communities and take on this massive burden? Where
is that resource going to come from? That is another reason our
community banks are looking at how we can continue to survive
when we do not have the resources both financially and
personnel.
Mr. Nunn. Ms. Marshall, I could not agree more because what
I want my local lender to do is to help Main Street buy that
first combine for a farmer, help a kid get an F-150, not spend
most of their time trying to understand regulatory compliance
out of D.C. that is outdated, overbloated, and can be
rescinded.
Thank you.
Ms. Marshall. It is all about economic development.
Mr. Nunn. Yes, ma'am.
Mr. Downing. The gentleman's time is up.
The gentleman from North Carolina, Mr. Moore, is now
recognized for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman.
Today's hearing is about restoring certainty and common
sense to the way we regulate community banks. In my home State
of North Carolina, of course, Charlotte is--part of Charlotte
is in my district. We have a good number of banks and financial
institutions there. We rely on our local banks to provide small
business loans, mortgages, and financial services that keep our
families and our communities thriving. Many of these banks are
locally owned, deeply invested in their communities, and
essential to our economy.
Yet instead of supporting community banks, the Consumer
Financial Protection Bureau, the CFPB, has been driving up
costs, increasing red tape, and making it harder for them to
serve their customers. You all have answered a number of
questions. I noticed this is a common theme of coming back to
this same agency.
By the way, thank you for sitting here for almost 3.5
hours. That has been a tough assignment, Mr. Chairman, for
these witnesses. Thank you for doing this.
I think we are getting a sense that Section 1071 is a
leading rule that is an example of a big government agenda at
CFPB. It seems that this rule, from the testimony you provided
so far to the other questions, is forcing small banks to
collect, I believe, as referenced, already over 80 different
data points on every small business loan application, including
intrusive personal financial information on business owners.
It is not just a paperwork burden, as you have all already
spoken to, but it is a mandate that discourages lending to
small businesses and ultimately reduces access to capital for
small businesses, particularly in rural communities, as my good
friend from Iowa was just commenting about.
The other thing that is very frightening to me in this
agency is that the CFPB is operating with no accountability. I
do not know how many Americans are aware of this disastrous
policy that was passed and the way it was implemented under the
previous administration, under President Biden. It seems that
we have a choice that we can either continue down this path of
bureaucratic red tape that will ultimately lead to economic
stagnation, or we can institute commonsense reforms that allow
community banks to lend, to grow, and to support their local
economies.
I look forward to working with you all. I look forward to
working with your peers and my colleagues here on this
committee and in the House so that we can get this right.
I do have a couple questions, but I do not want to be
repetitive of other questions that have been asked. The first
question would be to Ms. Romero Rainey.
In the final days--and this has been mentioned earlier--but
in the very final days of the Biden Administration, Director
Chopra used his final days to issue a flurry of harmful
regulations. What I would say is, one, if you had to narrow it
down to one, two, or three, which would you say are the most
concerning that you have seen? Two, if not rolled back, how
would these policies affect small businesses and put American
banks and businesses at a disadvantage internationally?
Ms. Rainey. I am not as familiar with what happened in the
last 24 hours. What I think I would like to speak about is to
pick up one more piece. As I think about most harmful, I go
straight to 1071. There is one more piece that we have not
talked about as much, and it is the ripple effect back to the
small businesses, as you were alluding to.
The last thing small businesses need in this country is the
commoditized approach to small business lending, which is what
this rule would require. Again, as we have demonstrated in
multiple aspects, small businesses do not need one-sized
approach. No two small community banks look alike, no two small
businesses look alike, nor should their lenders treat them as
if they were alike.
Mr. Moore. Yes, ma'am. Thank you.
Mr. Kennedy, a question for you, sir. The CFPB's scrutiny
of nontraditional banking services such as the fintech
partnerships has made it harder, I would argue--and I believe
there is testimony to this--for banks to innovate and to offer
modern financial products. Given that, how would you suggest
that Congress set clear limits on the CFPB's role in regulating
financial technology? Secondly, how would you define that the
current uncertainty is affecting the industry?
Mr. Kennedy. The CFPB has a trickle-down effect on banks
under $10 billion, of course, and so I think having clear
guidelines from the agencies that really regulate banks and
understand banks and the relationship of fintechs is extremely
important.
I think we have all got to recognize in the regulatory and
in the business world, we have to work together. Things move
very rapidly, and we have to work cooperatively. That is my
thought.
Mr. Moore. Thank you, sir.
I yield back the balance. I give you back the 25 seconds of
your day today.
Mr. Downing. The gentleman yields back.
The gentleman from New York, Mr. Lawler, is now recognized
for 5 minutes.
Mr. Lawler. Thank you.
Like many of my colleagues, I have been alarmed during the
last administration by a steady stream of partisan rules from
regulators that failed to be accompanied by substantive cost-
benefit analysis, that lacked in understanding of the
cumulative effects they would cause, and whose adverse effects
would be borne by American families and businesses of all
sizes, including by increased costs and reduced availability of
credit.
We should be doing everything we can to ensure businesses
and entrepreneurs have access to the resources they need to
thrive and drive an innovative and competitive economy, and we
need our community banks to be thriving as part of that effort.
I know the chairman's ``Making Community Banking Great Again''
principles include ensuring access to diverse sources of
funding and capital. With that in mind, I would like to touch
on brokered deposits.
Ms. Romero Rainey and Mr. Kennedy, following up on the
question from my colleague, Mrs. Wagner, to Commissioner
Marshall, can you discuss some of the ways that community banks
use brokered deposits to access funding which allows them to
make more loans to small businesses and families?
Ms. Rainey. Yes. Brokered deposits have been a significant
tool for community banks in a few different ways. One is just
as you think about seasonality in a bank's balance sheet. Maybe
I am an agricultural (AG) lender and so deposits are going to
be high in one part of the year and maybe not as much in
another. In my community bank, we are tourism-driven. Very much
varies the peaks and valleys in terms of the deposit flow.
Brokered deposits are a critical source of helping to
maintain stability in that balance sheet regardless of what
those local deposits are doing, and so that provides--they are
contractual, they are safe, they are secure. It is a great tool
for community banks to use.
Mr. Lawler. Mr. Kennedy.
Mr. Kennedy. Thank you. Most of our clients in our own
community bank do not use brokered deposits, but we importantly
use deposit networks that allow us to provide Federal deposit
insurance through reciprocal arrangements. This has been around
for the last 27 years, and it is an extremely important way for
us and these community banks to maintain their deposits locally
for institutions and individuals that have more deposits than
$250,000, particularly a lot of public entities.
It is a very valuable tool. Not many people are aware of
it, but it is a way that--there is no big cost to it. It is not
the theoretical--and the FDIC has defined that as brokered
deposits only once you get to a certain limit. There is not a
lot of logic to that, but it is an important element of this
whole notion of Federal deposit insurance.
Ms. Marshall. Mr. Lawler, may I have a moment on brokered
deposits that have not been addressed today?
Mr. Lawler. Sure.
Ms. Marshall. Speaking with my community banks that have
used them quite successfully for many years, another very
important part is that they are often the most cost-effective
source for funding. When net interest margins are squeezed and
there is an extreme amount of increase on interest expenses
that are going on to banks' balance sheets. That is another
reason why they are looking to find all the opportunities to
have low-cost funding sources to then turn around and lend
money to the consumers that need it most.
Mr. Lawler. Thank you for that.
The 2020 final rule on brokered deposits was preceded by
significant study and public rulemaking with an advanced notice
of proposed rulemaking, a notice of proposed rulemaking in
consideration of 220 comments before finalization. Last year,
the FDIC issued a proposed rule modifying brokered deposits.
However, last year's proposal featured incomplete data that did
not indicate what problem the FDIC saw based on data and
analysis that would justify a wholesale rescission of its 2020
rule.
It was alarming to me and many of my colleagues that this
proposal appears it would have had a unique and negative impact
on community banks. By widening the scope of deposits
classified as brokered, last year's proposed rule would have
increased the deposit insurance fund assessments banks must pay
to the FDIC. Such costs would have been borne out by customers
in the form of higher fees, higher interest charged on loans,
and lower interest paid on deposits.
Can any of you speak to that in the brief time that I have
left?
Ms. Rainey. I would just say to your point, the rule was
made with incomplete and very dated data in terms of the basis
for it, so flawed.
Mr. Lawler. I appreciate it. Thank you.
I yield back.
Mr. Downing. The gentleman yields.
The gentleman from New York, Mr. Garbarino, is now
recognized for 5 minutes.
Mr. Garbarino. Thank you, Chairman.
Thank you to the witnesses, for all being here today.
Originally set up to be an objective assessment of
financial institution safety, soundness, and overall health,
CAMELS has turned into an opaque process marred with
inconsistency and subjectivity. The management rating is
uniquely subjective as it is not based on any empirical
standard.
Initially, the management rating flowed from other ratings
since it was a logical train of thought that if your bank has
satisfactory capital assets and earnings, then it was safe to
presume the bank was well managed. However, today, it appears
examiners have delinked the management rating causing banks to
potentially receive an unsatisfactory rating simply because
they did not manage their operations or conduct their
businesses how the examiner mandated.
As a result of a poor rating, a bank could face limits on
acquisitions of potentially higher deposit insurance premiums
for multiple years with no way to appeal the examiner's
decision.
Mr. Kennedy, can you describe how the management rating has
been misused over the years?
Mr. Kennedy. It is a difficult question because there is a
lot of confidential information involved in that, but I think
it is just a subjective--that is the unfortunate thing about
CAMELS. Each one of those ratings in CAMELS are very
subjective, and I have seen them in my 45 years of practicing
law and representing banks all over the country, widely
divergent in terms of those decisions.
Mr. Garbarino. Does the examiner--when a bank gets a low
rating, does the examiner provide a detailed reason for the
rating, or is there a mechanism for a bank to challenge that
rating?
Mr. Kennedy. There is, but it is not effective.
Mr. Garbarino. How would you make it effective?
Mr. Kennedy. I think I would make it more open, and have an
independent agency as suggested, I think, by the chairman.
Mr. Garbarino. You can challenge the rating, but it should
be more open and you would use an independent----
Mr. Kennedy. Yes, sir.
Mr. Garbarino [continuing]. takes you using an independent
agency?
Mr. Kennedy. Yes, sir.
Mr. Garbarino. Thank you very much.
Mergers present banks of varying sizes, from community to
regional banks, with the opportunity to grow and benefit from
economies of scale. They also promote competition and generate
cost savings that can be then passed on to customers and
consumers.
As the number of de novo bank formations decreases; bank
mergers have effectively become the only avenue for increasing
competition. Unfortunately, under the Biden-Harris
Administration, bank merger evaluations became more stringent,
making mergers more difficult to complete. Rather than making
the bank merger evaluation more subjective, costly, or time-
consuming, regulators should seek to provide clarity through
objective metrics to evaluate potential mergers. Further, clear
expectations and timelessness for merger approvals allow banks
to make informed decisions on how to grow and meet the needs of
their customers.
Ms. Owen, can you explain how inconsistent timelines can
impact decisions to merge?
Ms. Owen. Absolutely. It impacts so much more than people
initially think of. It is not only a matter of putting the two
banks together; it affects people's lives. There are jobs
involved with mergers. There are the communities and decisions
made of whether or not branches are going to remain open or
whether or not they need to be closed, where operation centers
are going to be located. It goes on and on and on.
There is a multitude of decisions and things that come out
of or are part of a merger, not just what people initially
think of the combining of two financial institutions.
Mr. Garbarino. Do you have any recommendations on how we
could fix what the Biden-Harris Administration did over the
last 4 years when it comes to mergers?
Ms. Owen. I am very much in favor of what Chairman Hill has
proposed with a timeframe for completing the mergers unless
there is reason not to do so.
Mr. Garbarino. Thank you very much for that answer.
S. 2155 directed potential regulators to create a
simplified capital framework for community banks known as a
Community Bank Leverage Ratio (CBLR). As a result, a final rule
was approved to allow community banks with a leverage capital
ratio of at least 9 percent to be considered in compliance with
Basel III capital requirements and exempt from the complex
Basel calculation. The intent behind this section was to
simplify the capital regime for community banks, ensure they
maintain enough capital to weather a downturn.
Ms. Romero Rainey, at the time of this rulemaking and even
today, would you say that the majority of qualifying community
banks that have at least 8 percent CBLR already meet the well-
capitalized, risk-based capital ratios?
Ms. Rainey. Yes.
Mr. Garbarino. Can you please describe the benefits that
community banks saw from lowering the CBLR to 8 percent?
Ms. Rainey. Again, part of this was to allow for additional
flexibility and whether it is the definition of well-
capitalized or they are looking to pursue other opportunities.
Mr. Garbarino. That is a great answer, and I appreciate it.
I am running out of time, so I will yield back. Thank you.
Mr. Downing. The gentleman yields.
I now recognize myself for 5 minutes.
Thank you all again for being here. I know it has been a
long day.
In 2008, there were 64 State-chartered banks in Montana.
Now, today, there are only 36, almost half. The situation
nationwide is not much better. The vast majority of these banks
that left the business were small community banks with crushing
regulations being the primary factor.
Now, as we have covered throughout this hearing, there are
many challenges that prevent new banks from forming or lead to
mergers or closures of existing banks. That is particularly
devastating for rural communities like Montana's Second
District, which I proudly represent.
Montana is a heavy producer of cattle, of wheat. It is the
number 1 producer of lentils in the United States. Montana
banks support over 24,000 small farm loans across the State.
Now, these are the family farms that put food on our tables and
clothes on our backs. The biggest obstacle community banks face
from examiners is not safety and soundness but the Bank Secrecy
Act and the Anti-Money Laundering laws.
These laws have a role in preventing fraud but are now far
past the point of common sense. One bank in Montana with about
$800 million in assets has six full-time employees doing
compliance, roughly half of which is just spent on the BSA and
the AML.
My first question, Ms. Owen or Mr. Kennedy, can you--either
one of you--talk about the difficulties community banks face
with our outdated BSA and AML laws?
Ms. Owen. I will start. We have four BSA officers, and I am
just under $500 million in size. We do a lot of reporting, as
was mentioned earlier, on transactions of $10,000 or more. We
never get any feedback back from FinCEN.
Mr. Downing. Do these regulations make opening new accounts
for customers difficult as well?
Ms. Owen. Absolutely. It takes a lot more time. You cannot
come in and quickly open an account. You might as well plan to
be there for a while.
Mr. Downing. Thank you.
Ms. Romero Rainey, what should Congress do to fix this?
Ms. Rainey. First, we need to start with the thresholds. As
we have discussed here today, the CTR thresholds that Ms. Owen
just referenced were created in the `70s and have not been
revisited or indexed since then. I think there is a really easy
and simple fix, if there is such a thing, but that is a great
place to start.
Mr. Downing. Right. Thank you for these responses. It is
clear that lawmakers and regulators need to do much more to
ease the burden on our small banks. No one is hurt more by bank
closures than the communities they serve.
I yield back. Thank you.
Now I will--the gentleman from Florida, Mr. Haridopolos, is
recognized for 5 minutes.
Mr. Haridopolos. Thank you, Mr. Chairman.
First, I want to applaud you for your endurance. Great job
today. I am your last person. I guess they are saving the best
for last.
With that in mind, I first have to say this, when I was
running for Congress, I had some concerns about the CFPB. Now
that I have actually been under the hood for the last few
weeks, I have even larger concerns. We are so grateful for your
willingness to testify today and give an honest appraisal of
how it hits the real world, and we are so grateful for this
testimony. I will try to be brief.
The first question will be for Mr. Kennedy, if you do not
mind. Can you discuss putting a kind of shot clock on bank
mergers and how that could provide clarity for institutions and
help prevent long and drawn-out mergers that drain resources?
Mr. Kennedy. Absolutely. There is no such shot clock, as
you say. They can continue to ask questions and more questions,
and I have seen it go on for years. The cost on the uncertainty
is just not workable.
That same shot clock ought to be applied to really every
application, including de novos, because a de novo--that is one
of the big burdens with de novos. It is not only capital, but
the process of those applications needs to be accelerated.
Mr. Haridopolos. Thank you.
Ms. Romero Rainey, if I could, the CFPB recently finalized
an overdraft rule that I am concerned about because, again, it
is overly complex and can really limit or eliminate consumer
access to funds that can help cover emergency expenses. Would
you discuss some of the problems that you faced or potentially
face with that rule?
Ms. Rainey. Yes. To your point, it is about limiting
options. While in the rule, in all fairness, community banks
under $10 billion were exempt from the rule, there are two
pieces that were--we have talked about today, trickle down and
what that means in terms of how this will be applied to
community banks, as well as specifics within the rule that say
that could be revisited over time.
At the end of the day, this is about ensuring that
consumers have access to products and services and, in these
cases, very well-disclosed services that they have chosen to
pay a fee for.
Mr. Haridopolos. Mr. Chairman, with that, it has been a
long day. I want to yield back my time so these folks can get
on to the day but thank you very much for making the time for
us. It has been very helpful, especially as a new Member of the
Congress. Thank you.
Chairman Hill [presiding]. The gentleman is modeling good
behavior. He yields back. That is appreciated by our witnesses.
I want to thank all of our witnesses for your outstanding
testimony today. Thanks for presenting your views to the
committee. It will help us in our work.
Without objection, all members will have 5 legislative days
to submit additional written questions to the witnesses to the
chair, and we will forward those to you for your response. I
ask our witnesses to respond no later than March 31, 2025, to
those written questions.
[The information referred to can be found in the appendix.]
This hearing is adjourned. Thanks.
[Whereupon, at 2:01 p.m., the committee was adjourned.]
APPENDIX
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