[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
ENHANCING COMPETITION: SHAPING THE FUTURE
OF BANK MERGERS AND DE NOVO FORMATION
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON FINANCIAL
INSTITUTIONS
OF THE
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
MAY 14, 2025
__________
Serial No. 119-23
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
__________
U.S. GOVERNMENT PUBLISHING OFFICE
60-552 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
------
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
ANDY BARR, Kentucky, Chairman
BARRY LOUDERMILK, Georgia, BILL FOSTER, Illinois, Ranking
Vice Chairman Member
BILL HUIZENGA, Michigan NYDIA M. VELAZQUEZ, New York
ROGER WILLIAMS, Texas GREGORY W. MEEKS, New York
JOHN W. ROSE, Tennessee DAVID SCOTT, Georgia
WILLIAM R. TIMMONS IV, South BRAD SHERMAN, California
Carolina AL GREEN, Texas
RALPH NORMAN, South Carolina JUAN VARGAS, California
DANIEL MEUSER, Pennsylvania SEAN CASTEN, Illinois
YOUNG KIM, California STEPHEN F. LYNCH, Massachusetts
BYRON DONALDS, Florida JOYCE BEATTY, Ohio
SCOTT FITZGERALD, Wisconsin CLEO FIELDS, Louisiana
MIKE FLOOD, Nebraska
MONICA DE LA CRUZ, Texas
TIM MOORE, North Carolina
C O N T E N T S
----------
Wednesday, May 14, 2025
OPENING STATEMENTS
Page
Hon. Andy Barr, Chairman of the Subcommittee on Financial
Institutions, a U.S. Representative from Kentucky.............. 1
Hon. Bill Foster, Ranking Member of the Subcommittee on Financial
Institutions, a U.S. Representative from Illinois.............. 3
STATEMENTS
Hon. French Hill, Chairman of the Committee on Financial
Services, a U.S. Representative from Arkansas.................. 4
Hon. Maxine Waters, Ranking Member of the Committee on Financial
Services, a U.S. Representative from California................ 4
WITNESSES
Mr. Keith Costello, President and CEO, Locality Bank............. 5
Prepared statement........................................... 7
Ms. Mary Usategui, President and CEO, BankMiami.................. 13
Prepared statement........................................... 15
Ms. Amanda K. Allexon, Partner, Simpson Thacher & Barlett LLP.... 22
Prepared statement........................................... 24
Mr. John Berlau, Senior Fellow and Director of Finance Policy,
Competitive Enterprise Institute (CEI)......................... 34
Prepared statement........................................... 36
Mrs. ReShonda Young, Founder, Jabez, Inc......................... 42
Prepared statement........................................... 44
APPENDIX
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to questions for the record from Representative
Maxine Waters
Mr. Keith Costello........................................... 72
Ms. Mary Usategui............................................ 73
Mr. John Berlau.............................................. 74
LEGISLATION
H.R. ----, the Bank Failure Prevention Act of 2025............... 75
H.J.Res. 92, Providing for congressional disapproval under
chapter 8 of title 5, United States Code, of the rule submitted
by the Office of the Comptroller of the Currency of the
Department of the Treasury relating to the review of
applications under the Bank Merger Act......................... 84
H.R. ----, the Financial Institution Regulatory Tailoring
Enhancement Act................................................ 86
H.R. ----, the Stress Testing Accountability and Transparency Act 88
H.R. ----, the Bringing the Discount Window into the 21st Century
Act............................................................ 91
H.R. ----, a bill to require the Comptroller of the Currency to
study how bank-fintech partnerships can support new bank
formation...................................................... 98
H.R. ----, a bill to require the Federal prudential regulators to
study improving the growth, capital adequacy, and profitability
of rural depository institutions............................... 100
H.R. ----, a bill to require annual reports on Federal depository
institution charter applications, bank holding company
applications, Federal deposit insurance applications, and State
depository institution charter applications.................... 102
H.R. ----, a bill to require the Comptroller General of the
United States to study the consideration of insured depository
institution merger applications by Federal prudential
regulators to ensure they align with statutory requirements and
are not in any way influenced by political issues or
considerations................................................. 106
H.R. ----, a bill to require the Inspector General of each
Federal prudential regulator to carry out a review of every 3
years of the regulator's handling of insured depository
institution merger applications................................ 109
ENHANCING COMPETITION: SHAPING THE FUTURE OF BANK
MERGERS AND DE NOVO FORMATION
----------
Wednesday, May 14, 2025
U.S. House of Representatives,
Subcommittee on Financial Institutions,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:15 p.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Present: Representatives Barr, Huizenga, Williams of Texas,
Rose, Timmons, Norman, Meuser, Kim, Fitzgerald, Flood, De La
Cruz, Moore, Foster, Waters, Velazquez, Sherman, Green, Vargas,
Casten, Lynch, Beatty, and Fields.
Chairman Barr. 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 titled, ``Enhancing Competition: Shaping
the Future of Bank Mergers and De Novo Formation.''
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 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM KENTUCKY
First, let me thank our witnesses for joining us today and
lending their expertise to such an important discussion. This
subcommittee is focused on how we in Congress can strengthen
competition and encourage innovation in the banking sector,
particularly by improving the bank merger process and creating
a regulatory environment that supports the formation of new
banks. Despite what my colleagues on the other side of the
aisle like to attest, mergers and acquisitions are not
inherently bad. In fact, they are an essential part of a
dynamic and evolving financial system. They allow community and
regional banks to grow into new markets, reach more customers,
diversify their services, and achieve economies of scale, all
of which can translate into lower costs and better access to
banking services for families and small businesses across the
country.
In reality, mergers are pro-competition, something that all
capitalists in this room should promote, but today, the merger
process is broken. The current system for reviewing bank
mergers is too slow, too uncertain, and too costly. Delays and
unpredictable agency reviews discourage applications, drain
bank resources, and lead to employee attrition, all while
deterring the kind of strategic consolidation that could
benefit consumers. That is why I have introduced the Bank
Failure Prevention Act, a bill to bring more certainty and
efficiency to the merger review process. This bill would put a
shot clock on merger applications--this is a term that we like
in basketball in Kentucky--requiring Federal banking agencies
to complete their merger reviews within a specific timeframe,
which will provide clarity to applicant banks and reduce
unnecessary, costly delays.
I have also introduced a Congressional Review Act
resolution to overturn the political and harmful merger rule
issued under the prior administration, a rule that has
thankfully been rescinded by acting comptroller, Rodney Hood.
We must prevent future leadership from reinstating those
misguided policies, and I intend to see that resolution
through. This Congressional Review Act (CRA) has passed the
Senate, and I urge House leadership to bring it to the floor
for a vote.
On a separate front, I remain deeply concerned about the
decline in de novo bank formation, which has all but dried up
since Dodd-Frank. In the past 10 years, only 60 new banks have
been chartered in this country. That is not a sign of
stability. It is a sign of stagnation. That is why I have
introduced the Promoting New Bank Formation Act, which recently
passed this committee with bipartisan support. This bill would
give new banks the breathing room they need by phasing in
capital requirements and lowering the community bank leverage
ratio in their early years. We need to remove barriers, not
build them higher, if we want to revitalize community banking.
As consolidation occurs in the midsize and regional banking
segment of the market, we need to backfill that with more de
novo charters to preserve the diversity and heterogeneity of
the banking sector because the truth is this: a banking system
with no new entrants and stifled growth is not safe. It is
fragile.
The last decade has proven that excessive regulation is
choking innovation, driving consolidation, and leaving too many
communities without access to basic banking services. We need a
course correction. Today's hearing is an important step in that
direction, and it is a step in terms of preserving a dynamic
banking system where healthy mergers, healthy consolidation,
can occur to provide better services and more competition to
the big, largest too-big-to-fail banks, and also provide those
new entrants and that dynamism so that we preserve those
relationship lenders and the new business formation, the
entrepreneurship, on main street, USA. I look forward to
hearing from our panel and engaging in a thoughtful discussion,
and with that, I yield back.
The chair now recognizes the ranking member of the
subcommittee, Dr. Foster, for 4 minutes for an opening
statement.
OPENING STATEMENT OF HON. BILL FOSTER, RANKING MEMBER OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM ILLINOIS
Mr. Foster. Thank you, Chairman Barr, and to our witnesses.
Since the 1980s, there has been a steady consolidation
within the U.S. banking system. Mergers of community banks, a
drought of de novo bank formation, and the low-interest rate
environment of the early 2000s contributed to a reduction in
the total number of commercial banks from around 14,000 in the
1980s to around 4,500 today. When I was a business owner
starting and growing my small business, I saw the value of
having a diverse banking system with a wide distribution of
institutions by size firsthand. Having multiple banks in the
community strengthened the negotiating power of our small
businesses and the many others in our area by forcing financial
institutions to compete with one another for our business.
Strong competition in the banking system has been shown to
lead to better terms, better interest rates, and services for
American communities. I do not think there is a single member
of this committee that does not believe that we should use our
positions here to support small community banks and credit
unions. To do so, we should enact policies that support those
institutions, as well as the community development financial
institutions and minority depository institutions that step in
to fill the gaps left by other firms. Today, these institutions
also face unprecedented economic and regulatory uncertainty
brought on by the Trump Administration's new policies.
The President has doubled down on the market-wrenching
tariff policies from his first term that directly impact the
farmers and the rural communities that many members, including
myself, represent, as well as paralyzed manufacturers and small
businesses who work with our community banks. Examiners of
these institutions are being laid off in the name of efficiency
when staff shortages at the prudential regulators have been
cited by the inspector generals as an area of concern. We see a
move to cutoff funding for the Community Development Financial
Institutions (CDFI) Fund, which has provided more than $12
billion of support access to support access to credit in
unbanked and underbanked communities. Meanwhile, the Consumer
Financial Protection Bureau has effectively been shut down,
meaning that small community banks are being supervised for
compliance with consumer protection laws, while the biggest
banks have no oversight at all in this area.
It is easy to say deregulation is the solution to the
challenges that community banks and credit unions face, but
that sentiment ignores other reforms that would provide
benefits to community banks without risking their safety and
soundness. One area that is ripe for reform is deposit
insurance. Following the collapse of Silicon Valley Bank, there
was a flight of nearly $120 billion of deposits from community
banks and two large banks that were seen as too big to fail.
Reforms to the discount window, restoration of National Credit
Union Association's (NCUA's) emergency Central Liquidity Fund
authorities, and efforts to address the high cost of technology
for small banks and credit unions are other areas that I feel
we could find bipartisan solutions for. We have an experienced
panel before us that has firsthand experience with the merger
and de novo processes, and I look forward to your testimony
today. Thank you, Chairman. I yield back.
Chairman Barr. The gentleman yields back. The chair now
recognizes the chairman of the full committee, Mr. Hill, for 1
minute.
STATEMENT OF HON. FRENCH HILL, CHAIRMAN OF THE COMMITTEE ON
FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM ARKANSAS
Mr. Hill. Thank you, Chairman Barr. Today's hearing will
continue advancing our Making Community Banking Great Again set
of proposals. Our financial institutions need consistent and
timely guidance during the bank merger review process. They
need the tools at their disposal to make informed decisions
about pursuing or withdrawing applications without wasting time
and money navigating changing and opaque standards. We must
reform the regulatory framework in a way that encourages new
bank entrants to enter the market. We can accomplish this by
lowering unnecessary barriers, modernizing capital and
compliance expectations, and restoring a pipeline for community
financial institutions that fuel our economic growth. Legacy
rules from Dodd-Frank and recent regulatory trends have
discouraged market entry, reduced banking access, and favored
consolidation over competition. This is all at the expense of
consumers, particularly consumer choice and those in rural and
underserved areas. I appreciate Chairman Barr's leadership, and
I look forward to our panel discussion. I yield back.
Chairman Barr. The gentleman yields. The chair now
recognizes the ranking member of the full committee, Ms.
Waters, for 1 minute.
STATEMENT OF HON. MAXINE WATERS, RANKING MEMBER OF THE
COMMITTEE ON FINANCIAL SERVICES, A U.S. REPRESENTATIVE FROM
CALIFORNIA
Ms. Waters. Thank you very much, Mr. Chairman. Good
afternoon, everyone. Republicans want faster bank mergers,
which will wipe out community banks and credit unions and leave
just a few megabanks to serve our constituents. Trump's
regulators just rubber-stamped the Capital One and Discover
merger, which will lead to more consumer harm. Democrats
support the formation of new or de novo banks, and I am pleased
Mrs. Young is testifying. Mrs. Young bravely responded to
lending discrimination by suing the Consumer Financial
Protection Bureau, I do believe, and so I would just like to
say that I am very pleased that Mrs. Young is here today. I
have been paying attention to what the gentleman, the chairman,
has been trying to do, but because this protection bureau, the
Consumer Financial Protection Bureau (CFPB), was basically
challenged by Mrs. Young, we are finding----
Chairman Barr. The gentlelady's time has expired. The
gentlelady's time has expired.
Ms. Waters. Thank you very much. I will listen, and I look
forward to hearing from the witnesses today.
Chairman Barr. Today, we welcome the testimony of Mr. Keith
Costello, President and CEO of Locality Bank; Ms. Mary
Usategui, President and CEO of BankMiami; Ms. Amanda Allexon,
Partner of Simpson Thatcher & Bartlett LLP; Mr. John Berlau,
Senior Fellow and Director of Finance Policy, Competitive
Enterprise Institute; and Mrs. ReShonda Young, Founder of
Jabez, Inc. We thank you for taking the time to be here. You
each will be recognized for 5 minutes to give an oral
presentation of your testimony. Without objection, your written
statements will be made part of the record.
Mr. Costello, you are now recognized for 5 minutes.
STATEMENT OF KEITH COSTELLO, PRESIDENT AND CEO, LOCALITY BANK
Mr. Costello. Chairman Barr, Ranking Member Foster, members
of the committee, thank you for the opportunity to speak with
you today. I am honored to share my perspective on the value
that de novo banks bring to our economy and our communities.
I spent nearly 40 years in banking, and I am currently the
Chairman, President, and CEO of Locality Bank. We launched it
in Fort Lauderdale, Florida in 2022, recently exiting de novo.
It was the first new bank opened in South Florida since 2009,
when I also Co-Founded Broward Bank of Commerce. What drove me
to start both banks was simple. I was inspired by
entrepreneurial bankers who had the courage to leave safe,
comfortable corporate roles to build something local,
meaningful, and community focused. I saw firsthand how much
more responsive and impactful a bank can be when headquartered
in the community it serves, not just a branch of a larger, out-
of-market institution. Community banks are small businesses
that serve other small businesses. Starting and running one
gives you a deep appreciation for the challenges entrepreneurs
face daily, something that cannot be replicated by working in a
large corporate financial institution.
So, why are there not more de novo banks? The answer is
largely economic. Starting a new bank today is not financially
viable for most entrepreneurs or investors, and the return on
investment is not competitive with other options. Since the
Dodd-Frank Act, regulatory burden has increased dramatically.
Capital requirements are higher, approval timelines longer,
compliance costs are steep, and these burdens fall hardest on
the very banks, community banks, that did not cause the
financial crisis. As a result, we have seen lending shifts
outside of heavily regulated banks to financial technologys
(fintechs), private money lenders, and merchant cash advance
firms. These players do not offer the relationship-based,
community-focused service that small businesses need.
My motivation to launch Locality Bank was reinforced during
the pandemic when I was on the sidelines due to a noncompete. I
received call after call from local business owners who could
not access Paycheck Protection Program (PPP) loans or even get
a call back from their bank. That was a wake-up call. I began
to look for reasons by studying the local banking market. In
2015, there were 11 banks headquartered in Broward County. By
2020, there were only three. Community bank assets had dropped
from $11 billion to just 600 million. The same thing had
happened in many other communities across the country. We
responded by raising $38 million from local citizens and
business owners to launch Locality Bank. In 3 years, we have
grown to $300 million in assets, but it was not easy. Our
capital requirement was double what it was to open a similar
bank 13 years earlier, and because of regulatory costs, we
cannot profitably offer consumer banking or residential
mortgages, services that should be part of a full service
community bank.
H.R. 478, the Promoting New Bank Formation Act, would
alleviate the capital and regulatory obstacles I have
identified. I thank Chairman Barr for introducing this bill and
the committee for passing it. H.R. 478 proposes curing capital
requirements for de novo banks, addressing the very real
challenges I laid out in raising capital. It proposes a more
reasoned approach by regulators in responding to changing
business plans, giving the many appropriate reasons a bank
would need to deviate from the plan.
In closing, if we want more de novo banks and all the
community value that they bring, we must make the economics
viable. Let's unleash the power of free enterprise, the same
force that built this country. If that happens, we will not
need congressional hearings to discuss why new banks are not
forming. They will already be open for business. Thank you for
your time and your leadership, and I look forward to your
questions.
[Prepared statement of Mr. Costello follows:]
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Chairman Barr. Chairman Barr. Thank you, Mr. Costello. Ms.
Usategui, you are now recognized for 5 minutes.
STATEMENT OF MARY USATEGUI, PRESIDENT AND CEO, BANKMIAMI
Ms. Usategui. Chairman Barr, Ranking Member Foster, and
distinguished members of the committee, thank you for the
opportunity to appear before you today to talk about my
experiences as a community banker.
I am the Founder, President, and CEO of BankMiami, a newly
formed de novo bank headquartered in Miami, Florida. With over
20 years of banking experience, I have seen and been involved
with both de novo formation and been both the acquirer and
acquiree in a merger and acquisition deal. I am passionate
about the pivotal role bankers play in supporting the needs of
our communities and the dreams of our clients. I am sharing my
story in the hope that it will pave an easier path for others
to do the same in their communities.
BankMiami opened its doors almost 2 months ago on March 17,
a formation process that took twice as long as we initially
thought it would, with a number of challenges along the way. I
will outline a few in a moment to showcase how some small
changes can go a long way in de novo bank reform. When we began
making the business case for BankMiami, the need for more
banking services in our market was clear. From 2008 to 2023,
the number of banks headquartered in Miami-Dade dropped from 42
to just 18, even as the population and economy exploded.
Florida's population grew nearly 15 percent between 2010 and
2020, and Miami saw billions of new business wages, yet there
had not been any de novo banks since 2008.
In addition, Miami is a unique market with both domestic
and international influence. Standardized banking does not
typically work for much of the county's population, yet the
majority of the banks that offered bespoke banking solutions
were acquired during that time. It was the result of mass
consolidation in our market that led me to realize there was a
real opportunity for a community bank that focused on custom-
tailored banking solutions. Community banks are the heartbeat
of our banking system, and without them, small businesses will
be gravely affected. Mergers and acquisitions are healthy for
markets, but without new banks forming, communities are left
underserved. There are many different barriers of entry.
However, I think the biggest challenge is raising capital for a
de novo bank under the current rules.
We had to raise over $32 million to receive our charter. We
hit about 75 percent of our goal rather quickly, then took
about another 6 months to finalize and complete our raise. Only
after we cleared the minimum threshold did many new potential
investors come forward, and even more so since we opened our
doors. That is why a capital phase-in period, as proposed in
Chairman Barr's bill, would be an excellent solution for banks
that have the clear need in the community, yet may need more
time to finalize their capital raise. It would allow banks to
open sooner, meet market needs faster, and bring in investors
more efficiently.
Another challenge for de novo banks is that we cannot
accept capital until the charter application is accepted by our
regulators. Since there is no clock on how long regulators have
to accept an application, we cannot give potential investors
certainty on timing. Many investors who give verbal commitments
end up putting their capital to work in other investments due
to the wait time, causing de novo banks to have to find
additional investors and delaying the capital raise process.
Moreover, since founders cannot count on a timeline for
acceptance of an application, much less approval, it can be
difficult to estimate and manage costs. To apply for the
charter, we must fund significant expenses, particularly when
it comes to building the right team and have to pay them to sit
on the sidelines waiting for approval to begin operating. That
goes on for months. This delay causes the initial
organizational expense to be significantly higher as each month
goes on, requiring more and more capital in the process to
offset the higher organizational costs.
I support the efforts of the sponsors in this committee in
passing H.R. 478. The bill would provide more regulatory
capital and lending flexibility to facilitate de novo bank
creation, encourage investment in these banks, and promote
their viability. In particular, the provision directing Federal
banking agencies to issue rules that provide for a 3-year
phase-in of capital standards would lower one of the primary
barriers I outlined in my statement, raising capital.
The bill would also allow de novo banks to request
permission from the Federal Deposit Insurance Corporation
(FDIC) to deviate from the approved business plan. While that
has not been a problem for BankMiami yet, it certainly would
provide flexibility for us through the 3 years of de novo
status that remain ahead. Local economic circumstances change,
and we must have the ability to adapt so that we can succeed.
Today, there are 4,487 banks in the United States, nearly 50
percent lower than that in 2005. Of the banks active today,
only 85 were established after 2010. I am proud to be one of
those 85, but there should be more of us.
I am grateful to the committee for your sincere interest in
a robust, competitive banking industry that serves our
customers and communities. I am hopeful that the necessary
reforms will be made by Congress and Federal and State
regulators to support that outcome. Thank you for your time and
attention, and I look forward to your questions. Thank you.
[Prepared statement of Ms. Usategui follows:]
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Chairman Barr. Ms. Allexon, you are now recognized for 5
minutes.
STATEMENT OF AMANDA K. ALLEXON, PARTNER, SIMPSON THACHER &
BARLETT LLP
Ms. Allexon. Chairman Barr, Ranking Member Foster,
honorable members of the subcommittee, thank you for having me
here today. I appreciate the appreciate the committee's
leadership on this issue and giving me the opportunity to share
my thoughts and perspectives as someone who has helped guide
parties through the bank applications process----
Chairman Barr. Could you pull your microphone----
Ms. Allexon. Yes.
Chairman Barr [continuing]. a little closer? Thank you.
Ms. Allexon. Through the bank applications process for over
20 years. I am a Partner at Simpson Thatcher, where I represent
banks of all sizes on regulatory matters, including mergers and
acquisitions. I am here today in my individual capacity, and my
views do not necessarily represent those of my firm or my
clients.
My perspective on bank mergers in de novo formations is
somewhat unique because of my background. In addition to my
years in private practice, I began my career almost 25 years
ago today working for Chairman Jim Leach in this very room. I
also spent almost 10 years in the legal division of the Federal
Reserve reviewing applications, including through the financial
crisis. I have submitted a full statement for the record and
want to focus these remarks on a couple key topics.
First, the diversity of the business models that we have in
our banking system is one of its great strengths. In 2025,
customers have more choices than ever with respect to where and
how they bank. Another feature of our banking system is that it
is in constant transition. Keeping up with this changing
environment and maintaining diversity within our market
requires continuous streams of new market entrants, as well as
the ability for parties to engage in business combinations that
enhance their competitive impact. Although many straightforward
merger transactions are processed in the normal course within a
few months, too many transactions are languishing well beyond
the normal processing periods. These delays expose both parties
to escalating risk. As someone who has spent material times on
both sides of applications processing, I can tell you that
there are a few key reasons why applications are delayed. I
would opine that most all of these can be readily addressed
through thoughtful combination of action by the Federal banking
agencies and targeted legislative actions.
A number of otherwise straightforward transactions are held
up by outmoded or misused agency procedures. This committee has
already correctly identified that flexibility within these
procedures renders the statutory and regulatory time periods
practically moot. Without any sense of urgency, it is easy for
the applications process to drag on or just to simply take a
back seat to other, more pressing agency matters. Actions such
as the proposed shot clock legislation, automatic agency
escalation of applications when they have been pending for a
certain period of time, similar to what the FDIC enacted last
year, and perhaps set calendars for decisionmakers to act on
applications, could make a material difference in processing
times.
Next, the agencies must find ways to ways to expedite the
review of public comments. This is one of the biggest culprits
for long processing periods. While it is important to consider
timely and substantive comments, the receipt of a public
comment should not add months to processing or immediately
trigger heightened agency actions. Simply adjusting agency
rules to allow staff to make decisions with respect to which
comments can be handled in the normal course and which deserve
more detailed consideration would dramatically reduce
processing times.
Third, the Federal banking agencies must work to right size
information expectations. Applications have never been
lengthier or more detailed. At some point, one has to ask, who
is reviewing all of this information? Is this information nice
to know or need to know, and against what functional measure is
the information evaluated? Lastly, the agency leadership and
application staff must take action to avoid duplicating the
supervisory process. Routine supervisory matters, whether
existing or new, should not be roadblocks to transactions
unless those matters directly and materially implicate the
proposal or management's ability to safely effectuate the
transaction.
The commonsense suggestions that I have discussed here and
in my written testimony could help rationalize the applications
process and support a more dynamic industry that can better
serve the needs of all Americans. I appreciate this opportunity
and look forward to any questions?
[Prepared statement of Ms. Allexon follows:]
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Chairman Barr. Thank you. Mr. Berlau, you are now
recognized for 5 minutes.
STATEMENT OF JOHN BERLAU SENIOR FELLOW AND DIRECTOR OF FINANCE
POLICY, COMPETITIVE ENTEPRISE INSTITUTE
Mr. Berlau. Chairman Barr, Ranking Member Foster, and
honorable members of this subcommittee and this committee,
thank you for this opportunity to present testimony on behalf
of my organization, the Competitive Enterprise Institute. This
is a hearing on the critically important topics of de novo
banks and bank mergers that are both vital parts of reaching
consumers and small businesses in our financial system.
Competitive Enterprise Institute (CEI) is a Washington-
based free market think tank, founded in 1984, that studies the
effects of regulations on job growth and economic well-being.
At CEI, we have long championed private sector innovation that
serves all Americans and have warned about government red tape
that contributes to the problems facing the Nation's unbanked
and underbanked population in both rural and urban areas. We
are concerned about the burdensome regulatory barriers that
have been erected since the financial crisis of 2008 to the
formation of new or de novo banks and more recent barriers
erected, and now, thankfully, being knocked down, to bank
mergers that would benefit consumers and entrepreneurs.
Let me start with de novo banks. In every business sector,
new entrants are essential to the functioning of a competitive
free market economy. In this hearing, I look forward to
learning from my fellow witnesses, who are recent founders of
de novo banks, about their innovative financial products and
services they are providing to their communities. Previously to
this committee and in my writings, I have pointed to the
example of the Bank of Bird-in-Hand in the heart of the Amish
country of Pennsylvania as an example of new banks providing
practical, if not what many would consider the most
technologically sophisticated, innovations to serve their
communities, including drive-thru lanes for horses and buggies
that the Amish use. That bank grew from $17 million to more
than $1 billion in less than 10 years in assets.
While the Bank of Bird-in-Hand and the two banks of my
fellow witnesses are certainly success stories to be
celebrated, they are three of only a handful of new banks
approved by the Federal Deposit Insurance Corporation since the
2008 financial crisis. In 2023 and 2024, just six de novo banks
were approved each year. In some of the years following the
financial crisis, no new banks were approved. By contrast, in
the 4 decades before the crisis, the FDIC approved more than
100 new banks in most years. This was the case even in the late
1980s and early 1990s, at the height of the savings and loan
crisis.
There may be multiple causes for the decline of new banks,
including the increase in general regulatory compliant costs
from the Dodd-Frank law. Still, we know from the testimony
here, from de novo bank founders and an aspiring de novo bank
founder, that the FDIC is imposing unreasonable burdens, both
in the process and upfront capital of de novo applications.
That is why legislative efforts such as Chairman Barr's
Promoting New Bank Formation Act, which passed the committee
recently with bipartisan support, are so needed. The Chairman's
bill would move Federal banking agencies toward a system of
phased-in capital that would allow de novo banks to build
capital as they gain customers, rather than having to meet a
nearly impossible burden for massive amounts of capital
upfront.
Both Congress and the regulatory agencies also need to
remove unnecessary red tape that hampers beneficial mergers of
existing banks. Changes in policies on mergers pushed through
last year at the FDIC and Office of the Comptroller of the
Currency, both of which thankfully have begun to be reversed,
would have made mergers of banks much more difficult and time
consuming. Mergers and acquisitions are most often a healthy
part of capitalism's competitive process that brings innovation
and dynamism to industries, and in the banking sector are
necessary, according to former regulators such as Sheila Bair
and Tom Hoenig, to help prevent failures and to allow regional
banks to better compete against megabanks. Both mergers of
existing businesses and the creation of new businesses are
essential parts of a competitive market and a competitive
financial system in which a variety of entrepreneurs create
products and services for a variety of consumers, enabling a
financial system and an economy that is resilient and
beneficial to all Americans.
Thank you again for inviting me to testify, and I look
forward to your questions.
[Prepared statement of Mr. Berlau follows:]
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Chairman Barr. Thank you. Mrs. Young, you are now
recognized.
STATEMENT OF RESHONDA YOUNG, FOUNDER, JABEZ, INC.
Mrs. Young. Chairman Barr, Ranking Member Foster, and
distinguished members of the committee, thank you for allowing
me allowing me the opportunity to speak with you today. Again,
my name is ReShonda Young. I am the Founder of the proposed
Bank of Jabez in Iowa, which would be a State-chartered de novo
bank designed to address the systemic inequalities and
discrimination that I have witnessed and personally experienced
in banking over more than 20 years. I am a landlord, a real
estate developer, and business consultant with the Small
Business Development Center. Through those roles, I have seen
firsthand how deeply unjust lending practices impact minority
women and immigrant-owned business owners, not just
financially, but emotionally and physically due to the amount
of stress that these situations add to their lives.
My personal experience that got me to the point of, really,
praying for a solution to the banking problems that I was
having involved a multi-billion-dollar local community bank
that held all of my real estate assets. When I started working
with the bank, a good friend of mine was the Vice President at
the bank. He knew the problems that both my dad and I were
having with obtaining access to capital to grow our businesses.
He introduced me to the commercial loan officer at the bank,
and we embarked on a great relationship for the next 6 years. I
had been with the bank 7 years in 2019 when I called for a
simple request. My friend and loan officer had both left the
bank, and I was told by the new loan officer that they did not
want me at their bank, and if I decided not to move my
accounts, that they would foreclose on me and take everything I
own. This new loan officer did not just threaten me. He also
began filing legal documents to try and make good on his
threat.
For 16 months, the commercial loan officer and others at
the bank, including the CEO, tried to illegally steal my
properties that I had worked so hard for. It was only after
involving the media and exposing documentation of the bank's
misconduct that a settlement was reached. After enduring those
16 months of intense and unnecessary stress, I prayed about
what I needed to do to make sure that this does not happen to
others. I heard very clearly that I needed to start a bank that
treats all people with dignity and respect.
I did not accept the task of starting a bank lightly. I
immediately reached out to a banking professional, who became
my cofounder. We downloaded the FDIC guide to starting a de
novo bank, engaged banking consultants to help guide us through
the process, and received a checklist involving 74 items that
we needed to complete in order to actually charter a bank. That
alone can be daunting. Pair that with average pre-opening
expenses of $800,000 to $1.5 million and post-charter capital
needs of at least $20 million, and most people would abort the
mission.
We initiated engagement with the FDIC in January 2021. Our
overall experience has been favorable. They have been
responsive to our questions and willing to meet with us to help
keep us moving along with the process. We also began our
engagement with the Iowa Division of Banking in 2021. We
quickly learned that de novo banks are rare. Iowa's last in de
novo bank charters were issued in 1997. No one who is currently
at the Iowa Division of Banking has ever gone through the de
novo charter issuance before. As kind as the Iowa regulators
are, there are many things that they are learning right along
with me and my team. That is a bit unsettling for us. Our
banking attorney has been called on to give guidance to the
Iowa banking attorneys.
Another challenge is also opening as an Minority Depository
Institution (MDI). MDIs are rare, representing roughly 3
percent of banks in the United States. MDIs meet critical needs
in low-and moderate-income communities, yet few regulators have
deep experience with them and there are limited resources to
support the process. We need greater technical assistance for
both banks and regulators to make MDI formations a more viable
process. Starting a de novo is very expensive, and it is an
arduous process. The guidelines around how capital can be
raised and who it can be raised from, generally accredited
investors, poses a barrier to entry. These requirements need to
be adjusted.
Finally, I just want to address the ongoing need for strong
banking regulations. Not all banks act ethically, and it is not
just the big ones. Smaller community banks and credit unions
also engage in discriminatory practices. That is why I joined
the lawsuit against the CFPB to enforce Section 1071 and
require data transparency on lending to women and minority-
owned businesses. Collecting and reporting this data may cost
banks a little bit more, but it protects consumers from
potentially devastating financial harm. Thank you.
[Prepared statement of Mrs. Young follows:]
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Chairman Barr. Chairman Barr. Thank you for your testimony,
all, and we will now turn to member questioning. The chair now
recognizes himself for 5 minutes.
Let me start with Ms. Allexon and your important testimony
that the receipt of a public comment should not add months to
processing or immediately trigger heightened agency action. It
is an important comment, I think, because we hear from banks a
lot about pressure in connection with their merger applications
to enter into pledges with community groups on meeting specific
investment and lending goals. Some have even used the word,
``extortion,'' in describing these tactics. They fear community
groups will file negative comments on the merger, thereby
slowing down or even jeopardizing the transaction.
Ms. Allexon, do you agree that agencies should approve bank
mergers promptly, solely based on whether an application is
complete and meets the key statutory criteria? When you answer
that question, keep in mind that one of the things that we hear
a lot is that these negative comments filed by community groups
after a merger is merely announced should not be a cause for a
public hearing or be relevant to a regulator approving a deal,
especially when they have already been rated as having an
outstanding or satisfactory Community Reinvestment Act (CRA)
rating?
Ms. Allexon. Thank you for that question. Public comments
are one of the main holdups in applications processing. I do
not see these things as being mutually exclusive. I think the
banking agencies can give due consideration to public comments
and still process them in a timely manner. The statutes, each
of the statutes--the Bank Merger Act, the Bank Holding Company
Act, Change in Control--allow for public comments. That is
built into the statute, but it is in the discretion of the
agencies how they are considered and under what processes. I
think, as I said in my testimony, there are some really, like,
easy things that they can do to streamline that process and
make sure that comments that are substantive and are relevant
are given due consideration and that other ones can be
expedited?
Chairman Barr. Thank you. Yes, and again, I would view, and
I would hope the agencies would view, with great skepticism
comments from community groups that are pejorative about an
institution that has an outstanding CRA rating. Mr. Berlau, I
thought your testimony was very important when you said
acquisitions by strong banks of weaker ones can prevent
failures while protecting communities from the disruption of
banking services that inevitably comes with liquidation of a
failed bank. Frankly, that is exactly why I named my
legislation the Bank Failure Prevention Act. Can you expand on
why a shot clock and avoiding a long, drawn-out merger review
process is important for financial stability and preventing
failures?
Mr. Berlau. Thank you for the question, Chairman Barr. I
think the shot clock is important both with de novo banks and
bank mergers. Obviously, just like a business, you do not want
a government agency to take forever. Who knows what could
happen with the financial stability in the community? The shot
clock does not require a yes or a no, but it requires an
explanation from the agency and, and say, in the case of a de
novo or a merger application, of what they can do better. That
provides more certainty to entrepreneurs and to communities.
Chairman Barr. Thanks. To the extent we saw some
instability in the sector after the Silicon Valley Bank, I
think, if we want to protect the Deposit Insurance Fund,
allowing for healthy mergers to happen and not let those
applications languish is very, very important for safety and
soundness of the system.
Ms. Allexon, one more question. Last year, the Office of
the Comptroller of the Currency (OCC) finalized new policies
that revised the criteria used to evaluate the bank merger
applications, including eliminating the OCC's expedited review
process and streamlined application procedures. Additionally,
the Department of Justice under the Biden Administration
announced that it was formally withdrawing from the 1995 joint
Bank Merger Guidelines. Can you discuss how these moves
discouraged healthy merger activity that would have promoted
competition in the banking sector, and do you think that
preventing the OCC from promulgating a similar rule in the
future would best ensure that the merger review process will
continue to allow healthy mergers?
Ms. Allexon. Yes. As someone who works at an agency, it is
very difficult drafting any sort of guidance or rulemaking.
Every word means something, and so when you are putting
together a proposal like that in the hopes of creating
transparency or expediting the process, there can be unintended
consequences. Those particular pieces of guidance created some
presumptions that bank merger transactions were negative. Like,
you are creating a presumption that you are starting out
behind. Like, instead of starting in a neutral position, you
are starting behind the eight-ball. So, every applicant has the
obligation to satisfy the statutory factors, but it makes a big
difference if you are starting behind or not.
Chairman Barr. Thank you very much for your testimony. The
gentleman from Illinois, the ranking member of the
subcommittee, Dr. Foster, is now recognized.
Mr. Foster. Thank you, Mr. Chairman. Mrs. Young, I would
first like to thank you and the rest of our witnesses for being
here and for sharing your stories. I found Mrs. Young's story
particularly compelling. The obstacles that you faced during
your time as a small business owner have clearly influenced
your decision to enter the banking industry. You have
experienced instances of blatant racism and discrimination that
no business and no person should have to endure in any
situation, let alone when trying to just finance your business.
After those experiences, not only did you push the CFPB to
implement Section 1071 of the Dodd-Frank Act to increase
transparency for small business lending practices, you also
went a step further and decided to start your own bank. Now,
could you talk a little bit about how these experiences
influenced your decision to form your own bank and how they
influence the business plan for your bank?
Mrs. Young. Yes. Thank you for your question. What I
realized early on was that, because of the illegal things that
were tried to be done to me or that were done to me, you cannot
always legislate a person's heart, so, legislations may be put
forth, and I think they are very necessary. You are still going
to find people who are going to try and circumvent the system.
We do not want to circumvent the system. We want to follow the
system. We want to follow the rules. We want to make sure that
every person, no matter what their race, creed, color, anything
--it does not matter--we want to make sure that they are
treated with dignity and respect. As much as, like I say, I
believe that regulations are very necessary, there are people
who will circumvent the system.
With our business plan, we are highly focused on making
sure that each person, individual business--it does not
matter--that they are able to evolve their selves financially
as a result of working with us. We do not want it to be just a
numbers game. We want it to actually have impact for the people
in the communities that we serve.
Mr. Foster. Yes, thank you. I am a scientist, and it is
really very difficult to fix a problem if you do not have the
data to understand it. Do you believe the 1071 rule would help
to prevent others from experiencing the same sort of
discrimination that you faced?
Mrs. Young. I do believe that the 1071 rule is very
necessary in helping to prevent others from enduring what I
did. So. having that enforcement, not just having it on the
books, but having it enforced. It more than just puts a slap on
somebody's wrist in terms of the bank. It really is going to
make them do the things that they are supposed to do for fear
that they are going to be fined or that they are going to have
negative consequences.
Mr. Foster. Yes. Yes. One of the things--it is tough to
design a law that might prevent that--is in things like, I will
say, realtors steering people on the basis of race. There are
thousands, millions of realtor customers, so it is easy to set
up a testing program to find out if out if there is a systemic
problem here. The number of customers for even small banks and
large banks is just not that large, so you do not have the
statistics to set up that sort of system, so I do not think
there is an alternative to do pretty broad-based information
collection on the front end. It would be nice if someone came
up with a better system, but I was very disappointed that
President Trump and the Republicans have really worked as hard
as they can to overturn that rule. It would be nice to live in
a world where we did not need it, but I think we are going to
need to get that information to know how to fix it.
Let us see. Actually, this is to, I guess, all of our
witnesses. Small community banks and new institutions face many
challenges, especially when it comes to competing with the
larger peers. One area that I believe is critical for small
banks and credit unions to compete relates to technology. I
think that a lot of what is driving the consolidation of
banking is simply the difficulty of you do not have the scale
to compete on the technological front with the bigger players.
Consumers have come to expect things like mobile banking apps,
online banking services, that can take significant resources to
stand them up. If you have to do it yourself, it is typical to
turn to third-party vendors, but the cost of setting up a new
account with a third-party vendor, getting all the training for
your employees, is not small.
I had mentioned, when we were talking earlier, the
possibility that there could be a useful way of sort of safely
subsidizing your technology costs for de novo startups. I am
nearly out of time, but I will be asking, for the record, if
there is some sort of voucher program or something that we
might come up with that would really take a big burden off of
this and not be abusable, which is the danger with any subsidy?
Chairman Barr. The gentleman's time has expired. The
Chairman of the House Small Business Committee, the gentleman
from Texas, Mr. Williams, is now recognized.
Mr. Williams of Texas. Thank you, Mr. Chairman. Mr.
Costello, in your testimony, you mentioned significant hurdles
that you faced when starting a bank. From capital challenges to
navigating a consistently changing regulatory environment,
starting a new bank has only become more and more difficult to
do, so de novo banks play an important role in our financial
system. They serve as lifelines for small businesses, provide
relationship-based lending to rural areas, and ensure that
local economies are not left behind. Yet without meaningful
reform, we risk losing the community-driven lenders that many
of my constituents, and myself included. In Texas, we rely on
that. Mr. Costello, can you expand on the challenges you faced
when starting the bank and how those barriers impacted your
ability to raise capital and serve the needs of your local
community?
Mr. Costello. I started a bank in 2009 and then just
started one recently in 2022. The difference when I started
that first bank in 2009, I was required to raise $12.5 million
of capital. This second bank in 2022, the capital requirement
was double, in the same city, in Fort Lauderdale, Florida. Just
prior to my opening in 2022, there had been another gentleman
who tried to start a bank in the community and could not get
the capital to raise it and had to abandon the charter attempt.
Mr. Williams of Texas. So, for many community and regional
banks, mergers are a way to stay viable in a complex and costly
regulatory environment. We saw a lot of that in this past
administration. These banks often look to combine resources in
order to invest in technology, expand product offerings, and
better serve their customers. When done responsibly, bank
mergers can enhance competition by allowing smaller
institutions to grow and support more diverse and resilient
banking ecosystems. As we have heard today, the current review
process is slow, opaque, and unpredictable. Regulatory agencies
have the ability to still stall mergers without issuing formal
details, leaving the banks in limbo and discouraging future
transactions. You have talked about that, and this uncertainty
narrows strategic options for banks in all sizes and further
contributes to market concentration.
Ms. Allexon, could you elaborate on how a transparent and
timely merger review process would enhance the competition in
the banking industry?
Ms. Allexon. There are a number of reasons why people want
to engage in a merger or acquisition transaction, and you guys
have mentioned a number of them. Economies of scale is
important. Expanding products and service is important.
Expanding your geographic footprint is important. So, having a
timely process is important to those things because you enter
into a purchase agreement, and you have staff. You have money
that you are laying out, and the longer the process goes on,
the more those banks become at risk, right? You lose employees,
you lose money, and it creates uncertainty. Also, during that
time period, it can create a situation where who knows what
supervisory situation or economic changes might develop, and so
a deal that made sense a year ago might not make sense today.
So, having that process be timely so that they can execute
their strategic vision and have more competitive impact in
their market, I think, is critical to a healthy system.
Mr. Williams of Texas. Good. Over the past several decades,
the U.S. banking landscape has changed dramatically. In 1984,
there were 14,000 banks, and today, that number has fallen
below 4,000. Now, while some degree of consolidation is
natural, the pace and scale of this decline raises serious
concerns about the long-term health of our financial system. A
lot of these have been community banks, right? People like me,
we need that, and it hurts the ability to borrow, and
particularly when it comes to access, competition, and choice
in local communities. Now regional and community bank numbers
are falling. At the same time, there is a lack of banks
entering the market. Ms. Usategui, what do you see as the most
significant factors contributing to long-term decline in the
number of banks in the United States, which gives opportunity
to a small business to grow and thrive?
Ms. Usategui. I think, back before the financial crisis,
there was probably the same amount of mergers and acquisitions
occurring, but you had de novo banks replacing them. After the
financial crisis, only 85 banks, since 2010, have been formed.
The overabundance of capital requirements is significant, I
think, at least in our story. We had to raise over $32 million
to get our doors open, and I think that is the biggest
challenge today. Having that ramp-up period of allowing
potentially 6 percent to start and get to 8 percent by the end
of the 3-year period is a lot more achievable to many to be
able to achieve more de novo bank formation.
Mr. Williams of Texas. Thank you. I yield back, but I also
want to thank all of you for lending to Main Street America,
the greatest system we have. Thank you very much, and I yield
my time back.
Chairman Barr. The gentleman yields.
The gentlewoman from California, Ms. Waters, is now
recognized.
Ms. Waters. Thank you very much, Mr. Chairman. Mrs. Young,
it is good to see you again. I remember when we last spoke, and
I have a great appreciation that you have taken time out one
more time to travel to Washington, DC. to share your story with
our committee.
Too many entrepreneurs face discrimination when they seek
to get a loan from a bank, which is unlawful and not right. I
appreciate that you responded by filing a lawsuit with the
Consumer Financial Protection Bureau to compel them to finish
their work on Section 1071 of Dodd-Frank. A provision that Ms.
Velazquez and I fought to include so that small-business
lending has the same transparency, fairness, and competition as
mortgage lending. When you kept pressing forward to launch your
own bank so that you could provide a fair service for your
neighbors that you yourself and your neighbors did not get.
Now, I want to ask a question, or some questions, about
your bank application process, as I would like to introduce
what I believe should be a bipartisan legislation to address
your challenges. Mrs. Young, in your testimony, you referenced
that the FDIC new bank or de novo bank list involves 74 items.
While I imagine there were good intentions along the way to add
more items, it seems like no one has one has taken a fresh look
at that checklist to know what is helpful or necessary to
approve in a bank. Would it be helpful if Congress required our
banking agencies to review and streamline some of those
requirements?
Mrs. Young. It would be very helpful if they had to review
and streamline those requirements.
Ms. Waters. Thank you. I think we got this from you. Okay.
I want to thank you, Mrs. Young. You also raised concerns about
communication and lack of expertise with the de novo process
since none of the staff was around when the last new bank was
chartered in 1997. Would it be helpful if Congress required
Federal agencies to set up a de novo advisory panel where
applicants and new approved banks can regularly meet with
Federal and State banking regulators to give them feedback on
ways to improve the application process?
Mrs. Young. That would also be very helpful, yes.
Ms. Waters. Thank you very much. Okay. You mentioned
challenges you faced as a new minority depository institution
and eligibility criteria you must meet. Would it be helpful if
Congress required the creation of a de novo mentor protege
program where any de novo applicant could be paired with a
similarly situated bank that recently went through the de novo
process and could share advice, even if they were in a
different State?
Mrs. Young. That would also be very helpful.
Ms. Waters. Thank you again for sharing your story. There
are other concerns you have raised. Now, I plan to address all
of what you have advised us in legislation, and I hope that
Republicans will work with Democrats to support the creation of
a variety of new depository institutions in a safe and sound
way, including rural banks, MDIs, credit unions, and community
development financial institutions all across the country.
Thank you so very much.
I want to say something to Mr. Berlau. It is good to see
you once again. You testified before our committee in 2021 and
endorsed my bill that was expanding financial access for
``underserved communities,'' which allows credit unions to
expand their field of membership to banking deserts where banks
have closed branches. Do you still support my bill, and do you
think this committee should mark it up?
Mr. Berlau. I do indeed. We need all types of financial
institutions--banks, credit unions--all of the above, so yes,
very, very much. The bill is still needed for a variety of
choices for consumers and competition.
Ms. Waters. I want you to know, between you and Mrs.
Young's presence here today, I am beginning to like this
committee a little better. Thank you very much.
Mr. Berlau. Thank you.
Ms. Waters. I yield back.
Chairman Barr. The gentlelady yields back. The gentleman
from Georgia, Mr. Loudermilk, is now recognized.
Mr. Loudermilk. Thank you, Mr. Chairman. Thank you all for
attending today. Very important subject, especially in my home
State of Georgia, which has suffered greatly since the 2008
financial crisis with very, very few new banks coming in,
leaving a lot of the areas of our State underbanked or some
without even a local small bank branch in the area.
First, let me start off asking a question about the Office
of Comptroller of the Currency. Under Acting Director Rodney
Hood, he recently reversed a Uniformed Services Employment and
Reemployment Rights Act (USERRA) policy that delayed the
approval of bank merger applications. While the rule was only
in effect for a few months, we heard a great deal of concern
from the banking industry. Mr. Berlau, what were tangible
effects of the OCC's 2024 final rule on bank mergers, and why
is it so important that banks have clarity on merger policies
and processes?
Mr. Berlau. It was a chilling effect--that banks had an
uncertainty about whether--it shifted the burden to banks,
including small community banks, as far as that they would have
to justify the merger to the OCC rather than the previous
policy of letting this merger go through unless the OCC found
significant problems, and it is good now that it has been
rescinded after the Senate passed the CRA resolution. As
Chairman Barr said, you need to prevent a future OCC from
having that comeback, so it is vital that the House finish the
work and pass that CRA resolution to stop the rule.
Mr. Loudermilk. Thank you. Ms. Allexon, do you concur or do
you have anything you would like to add to that?
Ms. Allexon. Yes. I agree that it created a chilling
effect, but I also want to add that we do have to be careful
with these wild swings in policy.
Mr. Loudermilk. Right.
Ms. Allexon. Certainty in policy is really important in
banking. It is true on applications processing. It is true in
supervision. I think everybody agrees that they want banks to
operate in a safe and sound way and they want mergers to be
reviewed in a thoughtful manner, but we just cannot keep
swinging one way or the other. Like, we need to stay in the
middle of the road.
Mr. Loudermilk. That is what I am hearing, even from other
businesses, that say if you are going to regulate me, just let
me know how are you going to regulate me and stick with it. Mr.
Costello, on the de novo formation side, we have all heard how
difficult it is to form a new bank in 2025. This has real
impact on access to affordable credit. In Georgia, nationwide
consumers are turning to less tangible forms of credit for
their business needs, even if they might qualify for credit at
a community bank. Is this something that you have seen in your
own communities?
Mr. Costello. Yes, we have seen that and, I think, due
primarily to the fact that there just are not as many community
banks in our community.
Mr. Loudermilk. Right.
Mr. Costello. We have seen these lightly regulated, let us
say, not regulated like we are, become more prevalent, and I
think the businesses that utilize them find the costs are
higher.
Mr. Loudermilk. Right.
Mr. Costello. You do not have that relationship that you
have at a community bank. I think most would prefer in the
businesses that I talk to, when they find out that we have a
community bank in Fort Lauderdale, are happy to deal with us.
Mr. Loudermilk. Do you see that not having these community
banks, the lack of de novo banks, impacts consumers in the
small-dollar-loan arena?
Mr. Costello. Absolutely, yes. Those same people, local
citizens, they would come together, and actually, many times, a
lot of those people would form banks previously, right, or a
family would start a bank----
Mr. Loudermilk. Right. Right.
Mr. Costello [continuing]. when the capital requirements
were not so high. I think the thing that I like the most about
H.R. 478 is the requirement to study it, because I think all of
the procedures are so outdated and really need to be addressed
and brought current.
Mr. Loudermilk. Since we are talking about especially rural
areas, especially in Georgia, the agricultural areas are way
underbanked, and some of the counties, it may be one bank
branch in the whole county. How important are fintech
partnerships in terms of competitiveness for small banks?
Mr. Costello. They are very important, and we still have to
compete with the largest banks no matter where you are located.
In order to do that, that is a requirement, really. You have to
create these fintech partnerships in order to have a viable
technology base, which more and more people, especially younger
people, really, that is their main way that they access
financial services.
Mr. Loudermilk. Okay. Thank you. I yield back.
Chairman Barr. The gentleman yields. The gentlewoman from
New York, Ms. Velazquez, is now recognized.
Ms. Velazquez. Thank you, Mr. Chairman and Ranking Member,
and I want to thank all the witnesses for being here today.
Mrs. Young, as you know, Ranking Member Maxine Waters and I
were the authors of Section 1071, and I want to thank you for
sharing your story. Mrs. Young, some of the arguments we have
heard against Section 1071 were the same arguments that were
made when the Home Mortgage Disclosure Act (HMDA) was
implemented. Is that not correct?
Mrs. Young. That is correct.
Ms. Velazquez. Now, banks implement HMDA every day,
correct?
Mrs. Young. Correct?
Ms. Velazquez. Mrs. Young, could you explain now--Section
1071--how could it actually increase lending in underserved
markets?
Mrs. Young. Absolutely. One of the jobs that I have is as a
Small Business Development Center (SBDC) Consultant for small
business owners. I work with a high number of immigrant
business owners, and what I am finding is they will be very
qualified. I help them with their plans, with their financials,
and a lot of times, it may be language barriers or just a bias
with the lending officer. I will get phone calls from the
office when they are with the lender, and the lender will say,
well, I cannot understand them, and so then I will start to
help translate, and then I will get a phone call from the
lender denying them. There has not been one case where the
applicant has gotten a phone call, a letter, or anything
letting them know that they have been denied and by not even
having to prove you are meeting with these people--you are not
even proving that you are meeting with them. You are sending
them nothing to say that they have been denied. Section 1071
and enforcing that would help a whole lot because----
Ms. Velasquez. Thank you for that----
Mrs. Young [continuing]. access to capital.
Ms. Velasquez [continuing]. for that answer. Now, you are
on the other side. You own a bank. Do you think the Section
1071 disclosure requirements are difficult to comply with?
Mrs. Young. We are still in the process of chartering the
bank. However, as we talk with compliance officers and other
bank mentors that I have now, it is something that is
difficult, but it is necessary. Even though it is difficult, my
team and I do not mind, having to comply.
Ms. Velasquez. Thank you. Mrs. Young, while President Trump
campaigned on lower prices, he has advanced massive tariffs,
not only on China, but practically every country on earth.
Despite what some may try to argue, these tariffs are paid by
U.S. consumers and businesses. In 2018, as a small business
owner, you raised concerns with the relatively smaller tariffs
that Trump imposed back then. Do you have any concerns about
these much larger tariffs being imposed on other countries and
what it means for small businesses and farmers across the
country?
Mrs. Young. Absolutely. I do have concerns with that.
Ms. Velasquez. Last week, the Trump Administration
announced a trade deal with the U.K. with little detail and a
90-day pause on tariffs with China. They have also imposed and
lifted or created exemptions to tariffs with Canada and Mexico
multiple times. You have been a small business owner. Would not
you agree that small businesses need certainty, and the
erratic, on-again-off-again tariff policy from the Trump
Administration is making it difficult for small businesses to
negotiate with suppliers, set costs and production targets, and
forecast for the future?
Mrs. Young. Yes, that is something that I am experiencing
with the business owners that I work with.
Ms. Velasquez. Thank you.
Mrs. Young. You are welcome.
Ms. Velasquez. I yield back.
Chairman Barr. The gentleman from Tennessee, Mr. Rose, is
now recognized for 5 minutes.
Mr. Rose. Thank you, and I want to thank Chairman Barr and
Ranking Member Foster for holding this important hearing, and
thank you to our to our witnesses for taking time to be with us
today.
I shifted gears a little from what I had planned to do
because of a call I got from a constituent this morning, and so
I am going to launch in. I am concerned that ongoing financial
institution mergers and consolidation are having an adverse
impact regarding access to cash, which, despite the rise in
digital payments, remains a vital component and driver of our
consumer-spending-based national economy. This concern is
especially acute in the face of the persistent and widespread
wrongful denial of banking services for our Nation's
independent ATM operators. These mostly small-to medium-sized
businesses are a prime example of America's hardworking
entrepreneurs, who now account for the majority of ATMs
deployed throughout the country, often the only ones serving
smaller rural communities most dependent upon cash access.
Unfortunately, my understanding is that virtually all the
largest national banks and most of the regional and community
banks and credit unions across the country continue to
categorically deny ATM businesses access to essential banking
services based upon the wholly inaccurate misimpression and
historic regulatory misguided direction that these entities
present an elevated risk of money laundering or other illicit
activities.
I know firsthand from the intensive work done on this
subject previously with the financial regulators and my former
colleagues, Blaine Luetkemeyer and Carolyn Maloney, that there
is zero evidence of any illicit activities by this industry
sector that would justify the wholesale categorical denial of
banking services to which they continue to be subject. Just
today, as I foreshadowed earlier, I learned that ServisFirst
Bank in Nashville is closing one of my constituent's--Powell
Group USA, LLC's--accounts after almost a decade simply because
they that constituent an ATM operator. Beyond competition,
Federal banking agencies are also required to evaluate other
statutory factors under the Bank Merger Act, such as
convenience and needs. It is my strong belief that Federal
banking agencies, when reviewing a bank merger, should review
whether banks provide services to independent ATM operators. It
is also imperative that when Federal banking agencies are
examining a merger for anti-money-laundering compliance, that
no bank suffers adverse consequences simply for serving
independent ATM operators.
Mr. Costello, you have worked at a number of banks
throughout your career. Did any of the financial institutions
you worked at provide banking services to independent ATM
operators?
Mr. Costello. My experience has been that we view every
business as a business. As long as it is a legal business, we
are happy to talk to them about banking them.
Mr. Rose. That is good to hear. Mr. Costello, thinking
about the financial institutions you have worked at, was the
decision whether to provide banking services--I think you have
answered this--to independent ATM operators based upon
individual account-by-account analysis, as required by
regulations, and did you ever get pressure from Federal
regulators to unbank a customer simply because they might be
involved in a business like that?
Mr. Costello. No, I never was pressured by a regulator.
Mr. Rose. Unfortunately, in a prior Congress, Mr.
Luetkemeyer and Mrs. Maloney, and I learned that the regulators
were, in fact, applying that pressure systematically, in fact,
had it in the examiners guide that these categories of
customers were considered to be higher risks. I hope that we
are not seeing a continuation of that with the current
activities of the regulators.
Ms. Allexon, as someone with experience with complex
mergers and acquisitions, do you believe that it is appropriate
for Federal banking agencies to examine whether banks provide
services to independent ATMs as a part of the Bank Merger Act
review process?
Ms. Allexon. The convenience and needs of the community is
already a statutory factor that they can take into
consideration a wide variety of topics. I have not specifically
seen that specific thing be considered in connection with an
application, but it is something that they can do if that is a
material issue in connection with that particular transaction
or particular issue in that market.
Mr. Rose. Have you ever seen other maybe categorical issues
like this, where the bank regulators have maybe not served
community needs and interest with respect to the way in which
they review bank mergers?
Chairman Barr. The gentleman's time has expired. Could you
respond for the record?
Mr. Rose. Thank you. I yield back.
Chairman Barr. The gentleman from California, Mr. Vargas,
is now recognized for 5 minutes.
Mr. Vargas. I thank the chairman very much, and I very much
thank the witnesses for being here. Thank you very much.
I read that the hearing today is called, ``Enhancing
Competition: Shaping the Future of Bank Mergers and De Novo
Formation.'' One of the things we seldom talk about are credit
unions. Credit unions are interesting because they seem to
serve the community. They seem to be in areas that are banking
deserts. Anyway, I throw that out there because when we talk
about the formation of banks, it is very important. I agree we
need more of that. At the same time, it seems like there is
this whole segment of financial institutions that we do not
talk about. I know the conflict between the banks and the
credit unions. Nobody likes each other, but the truth is that
they are there, and I think they are very important. Second, I
do want to talk about a little bit of the dissonance that I
hear here. When the hearing started, I wrote down some of the
comments that the chairman made saying that mergers were good,
very good, and reasons why he believed that they were good, and
gave some, I think, some important reasons. Then I heard most
of the testimony here, and the testimony was not about bank
mergers or acquisitions. It really was the value of small
banks, small community lending, being close to the community,
which seems different than having a bank become bigger and
bigger and bigger until it gets ultimately bought by the
biggest banks. Is there not some dissonance here?
Mr. Costello, I read your background. You successfully
created or founded two banks, my understanding, both as CEO.
You were able to exit those banks, I assume, by acquisition or
by merger, I am not sure. Then you did talk about, at some
point, there was a noncompete clause, so it gave you more
emphasis to work on this banking situation. So, why do you not
comment on that because, again, there seems to be some
disconnect here.
Mr. Costello. Sure, I would be happy to. I guess in my
comments also, I talked about the value of the free enterprise
system, so the value to create a business, start a business, be
able to lend money in a local community, but also grow that
business and then eventually maybe sell that business and make
money for your investors and for your people that work at the
bank. I did it twice, so then I went out and I started another
de novo. I think that dynamic process needs to occur to keep
the system----
Mr. Vargas. I understand that, but if you take it to its
logical conclusion, I mean, you start one bank, it is
successful, you start a second one, successful. You are on your
third one, and I hope it is successful for you and for the
people you represent. Would it not then be more efficient just
to allow the big, giant bank to bank all these groups, Just
allow them to swallow up all the small banks, the community
banks? Would there not be efficiency there? They talk about
technology. I do not think so, personally. I think everyone has
a place, but it seems like the logical conclusion. If you
believe in this sort of unbridled capitalism that you just
talked about, we will just keep growing it and selling it to
the bigger guy until the biggest guy owns everything.
Mr. Costello. That is not what I advocate at all. That is
not what not what I said at all. What I am talking about is----
Mr. Vargas. No, but I mean, that is the logical conclusion
of growing a business and selling it----
Mr. Costello. You may think that is a logical conclusion. I
would----
Mr. Vargas. I do. I do, if you keep being effective and
efficient. I am a car guy. I can tell you, way back when, in
the 1910s or so, you had a whole bunch of different car makers.
You had, like, 20 of them in the United States. Now we are down
to about four. Why? Because the big ones bought everything up.
As they got bigger and bigger, they got more effective and
efficient at building cars. So, the Packards are gone. You do
not have Duesenbergs. You do not have Cords. You do not have a
whole bunch of cars that used to exist. There is no Franklin,
no Morgan, no Stanley Steamer. None of these cars exist anymore
because the natural conclusion was that they kept growing
bigger and bigger and bigger. Now you have Tesla competing, but
again, it took so many decades.
I am going to go to somebody else now because I do want to
talk about CDFIs. CDFIs are proposed to take a big hit. Now,
Mrs. Young, could you comment on that because I think that is
problematic.
Mrs. Young. Yes, definitely. The CDFIs play a critical
role, especially when it comes to microlending. With the cuts
that are being proposed for CDFIs, it will put additional needs
on banks and credit unions to serve populations that CDFIs----
Mr. Vargas. My time is up. I just wanted to say again, I
believe in small banks, I believe in community banks, I believe
in credit unions, but there is some dissonance in some of the
comments that were made here, in my opinion. Thank you.
Chairman Barr. The gentleman from Pennsylvania, Mr. Meuser,
is now recognized for 5 minutes.
Mr. Meuser. Thank you, Chairman. Thank you to all of you
very much.
Thanks to some very strong appointments to the Federal
Reserve System (Fed), OCC, the FDIC, we finally have an
opportunity to reshape banking regulations that promote
competition, reduce costs, and expand access to access to
capital. Drawn-out bank merger reviews by regulators and the
lack of de novo charters have stifled entry, shrinking new bank
formations from 132 per year from 2000 to 2009 to fewer than
six per year since 2010. Today, we can build on the Trump
Administration's push for better and more competitive banking.
This starts by creating hard deadlines and application reviews,
the return of expedited approval pathways, clear rules, and
incentives for new mutual banks, and checking your ideology at
the door. Ms. Usategui, there has been only one mutual bank
formed in the last 50 years. Can you explain why de novo mutual
banks are so rare and how can we fix this problem?
Ms. Usategui. Thank you for the question. I am not quite
sure why those folks would choose not to go that path. I know
there was a huge crisis in the 1980s, and so many folks now, I
think, want to be part of either a State-regulated bank or the
OCC just based on familiarity. I mean, that is the banks that
most of us have been a part of. Going through this process, it
is tedious enough that you want to make sure that you are
aligning yourselves with regulators that understand your
business plan and will be supportive of the application
process. It took us over 19 months from the time that we had
decided to start BankMiami to opening, and so being very
closely aligned with regulators that have that same opinion and
understanding of the process to make it all the faster is quite
significant and important?
Mr. Meuser. All right. Thank you. Ms. Allexon, why are
other models for bank formation preferred under current rules,
and what tools should Congress give mutuals if we would like
them to be formed successfully?
Ms. Allexon. Just to clarify, you are talking about a
mutual charter?
Mr. Meuser. Yes.
Ms. Allexon. Okay. That is a specialty type of charter that
is very common in the Massachusetts area. Those are charters
that are owned by, like, individuals.
Mr. Meuser. Right.
Ms. Allexon. It is different than a normal commercial bank
charter.
Mr. Meuser. Yes.
Ms. Allexon. They are difficult to organize because of the
disclosure obligations and the reporting that comes along with
that, so it is a little bit clunky. Those rules have not been
updated in a very long time. They used to be supervised by the
Office of Thrift Supervision, which obviously was eliminated
during Dodd-Frank. They have been decreasing in size over time,
so I think that they are just not a priority for either the OCC
or the Federal Reserve?
Mr. Meuser. All right. Thank you. Mr. Costello, how and why
do regulators stall merger applications indefinitely without
issuing formal denials?
Mr. Costello. That can be very problematic for any bank.
Obviously, when you are operating in that period of time
between the approval and when everybody knows that there is a
merger occurring, that there is talks occurring, it is very
hard to operate your business in that environment when there is
that much uncertainty, hold on to your employees, rumors, all
these things. It is really a difficult situation for any bank
to go through.
Mr. Meuser. So, why do they do it, just for the purpose of
keeping it from happening?
Mr. Costello. I cannot tell you. I have no idea.
Mr. Meuser. Okay. Hopefully, we can change that. Can you
describe the single biggest cost a bank faces--I guess it is
obvious--when a regulator lets a merger sit in limbo for 90
days?
Mr. Costello. Yes, it is definitely going to impact the
situation, and I think anything----
Mr. Meuser. General activity, yes.
Mr. Costello. Yes.
Mr. Meuser. Everything in general.
Mr. Costello. I think the hardest thing is being able to
hang on to your employees during a period like that----
Mr. Meuser. Yes.
Mr. Costello [continuing]. and customers.
Mr. Meuser. Yes. Okay. That certainly makes sense for all
businesses. Mr. Berlau, can you describe the describe the Trump
Administration's/OCC's 15-day deemed-approved pathway?
Mr. Berlau. This is involving mergers and acquisitions. To
tell you the truth, I am not that familiar with it, but I like
the fact that Chairman Hood rescinded the policy of the Biden
Administration against mergers, and I am interested in learning
more about that. I think, generally, it is good to relax the
red tape around mergers and acquisitions so that you can have
regional banks be able to compete with megabanks, and for
safety and soundness reasons, as I said.
Mr. Meuser. Yes. The Biden Administration removed the
pathway, but we will move on, which kept mergers from taking
place. Mr. Chairman, my time has expired. I yield back.
Chairman Barr. The gentleman from Illinois, Mr. Casten, is
now recognized for 5 minutes.
Mr. Casten. Thank you, and I appreciate the chairman
calling this hearing. I think this is the second one. I forget
if it was this term or last, but the last time we had a hearing
on this topic was with regulators, so I appreciate having
practitioners on the other side of this.
When we had the regulators here before, one of the pieces
that struck me as interesting was this tension between bank
stability and antitrust enforcement, and I guess I would love
to start with you, Ms. Allexon. When you were at the Federal
Reserve, when you were reviewing a bank merger, was there a
standard protocol? You have the bank stability jurisdiction.
The Department of Justice (DOJ) has the antitrust. Was there a
standard protocol that you guys worked together? Was it
situation-specific? Without getting into the details, like, how
do the two separate regulators balance that tension?
Ms. Allexon. On the competition factor?
Mr. Casten. Yes.
Ms. Allexon. Yes. Under Federal law, there is dual
jurisdiction over the competition factor on bank merger
transactions, so the Federal Reserve or the other primary
regulator that is handling the bank-level merger transaction
reviews the competitive implications of it, and the Department
of Justice reviews it separately. They have slightly different
approaches to it, but in the end, they usually come out close
enough together.
Mr. Casten. I have two questions that I struggle with, and
maybe Mr. Costello is the best for this, but if you have one,
chime in, as well. Let us imagine that you have a town with two
regional banks in it, two small local banks. They want to merge
together, right?
Ms. Allexon. Yes.
Mr. Casten. Locally, that is an antitrust concern.
Ms. Allexon. Yes.
Mr. Casten. On the other hand, if that growing bank needs
capital and says, well, if I merge with a bigger out-of-town
bank, it is not an antitrust issue, but now, I have one fewer
community bank, right?
Ms. Allexon. Yes.
Mr. Casten. Mr. Costello, I am not asking you asking you
to, like, divulge your long-term plans, but if you were to
grow, would you not have a bias to look for an out-of-town
buyer?
Mr. Costello. I do not think so, necessarily. Fort
Lauderdale, Florida, in Broward County----
Mr. Casten. Okay. Maybe you are in a big enough community--
--
Mr. Costello. Yes, it is a pretty urban----
Mr. Casten. I guess then, Ms. Allexon, like, how do the
regulators think about that tradeoff, because is that not going
to hurt----
Ms. Allexon. Yes. Yes, so----
Mr. Casten [continuing]. like, the smaller communities and,
therefore, the small community banks?
Ms. Allexon. It is. This is actually an issue that was
debated in the original Bank Merger Act in 1960, so this issue
was isolated a long time ago. Right now, the way that they are
reviewed for competitive purposes is through their local
market, so if there is a concentration there, it triggers a
heightened scrutiny.
Mr. Casten. That is going to bias in favor of the out-of-
town bank?
Ms. Allexon. Yes, yes. There is a bias against an out-of-
town buyer, but it does not rule it out completely if there are
reasons for it. If that smaller institution is having some
trouble, or if there is, like, some really legitimate reasons
for it, they can overcome that.
Mr. Casten. No, and I do not mean to be so short, but I am
watching this clock.
Ms. Allexon. Yes.
Mr. Casten. Let me get to the bigger one. Whether it was JP
Morgan buying First Republic, USB buying Credit Suisse, when a
bank is about to fail and there is a bank run, we seem to
ignore all antitrust concerns because we need to get this
quickly into a bank that has the capitalization, has the
sophistication to move quickly, and I am not saying that is
wrong, right? I mean, goodness knows that all of us who have
been through a banking crisis have appreciated that. Has there
ever been a time in history when we have said we need the
global systemically important bank (GSIB) to buy this, but then
we need to have some kind of a disgorgement process on the back
end so as not to concentrate?
Ms. Allexon. So, divestitures are a remedy that are often
used in bank merger transactions.
Mr. Casten. As stapled to the deal, right?
Ms. Allexon. Yes.
Mr. Casten. If we are sitting there saying, we need you to
do this right now----
Ms. Allexon. Yes.
Mr. Casten. Lehman Brothers is failing, we need you to take
over Lehman Brothers, but we need you to disgorge yourselves of
those assets and get down to the asset level----
Ms. Allexon. Right then? Off the top of my head, I cannot
think of that situation, but in just regular merger-and-
acquisition transactions, divestitures are a solution that are
frequently used when there is concentrations and you are trying
to preserve local----
Mr. Casten. Then you have to have, like, after the fact,
right?
Ms. Allexon. You have to have a signed purchase agreement
before the agencies will act on it.
Mr. Casten. Okay. I would welcome, and we are tight on
time, you or either Mr. Berlau because it feels to me to be
inherently anticompetitive if we are providing essentially a
one-way arbitrage risk that the big banks are the only ones who
can buy in a merger. Like, if we could have some protocol to
say that when we do that, as necessary, it would be good to
have some kind of a mandate.
The last thing, and I was going to ask you, Mr. Berlau, but
maybe I will just make the statement for the record and you can
write in if you feel differently. Having spent a long time in
the electric industry, I would be very cautious around some of
these shot-clock rules. We have had a lot of public utility
commissions that have been mandated that they have to approve
rates within a finite period, and what it ends up doing is
giving a huge advantage to the person who can file the most
complicated, hard-to-digest hearing, which gives a big
incumbency advantage and hurts smaller players, unless we
staple that to significantly expanded funding for the
regulators to do the enforcement.
Chairman Barr. The gentleman's time has expired. You can
respond for the record. For the written record, yes. Time has
expired.
Chairman Barr. The gentlewoman from California, Mrs. Kim,
is now recognized----
Mr. Casten. Welcome your thoughts in writing.
Chairman Barr [continuing]. for 5 minutes.
Mrs. Kim. Thank you, Chairman and Ranking Member, for
hosting this hearing, and I want to thank all the witnesses for
joining us today.
As I have said before, I am gravely concerned with the
decline of community banks across our country and specifically
in California. Over the last few hearings on this topic, we
have learned that a reduction in banking services can result in
decline in small business lending and increased costs that are
forced upon the consumers. Unfortunately, the current banking
regulatory climate has disincentivized mergers that would
preserve banking services and the formation of new banks. Mr.
Costello, I know that you have founded not one, but two banks
over the last 20 years, so I want to ask you, what were the
biggest differences in the regulatory regime that you
experienced when you founded your bank, Locality Bank, in 2022?
Mr. Costello. First, let me say, instead of going the de
novo route in 2022, we were trying to buy a bank because it
would have been easier to go out and buy a bank than go through
that whole process, but we could not, and so we decided to do
the de novo route. The biggest issue for me was the capital
requirement was double what it was just a few years earlier, 13
years earlier. I would also say it was interesting because the
bank in 2009, the de novo period became 7 years at that time,
after the great financial crisis, and then fortunately, it was
reduced back to 3 years, which is what we just went through,
but I also questioned, who determines that 3 years? Who
determines 7 years?
Mrs. Kim. Uh-huh.
Mr. Costello. Where do they come up with these de novo
periods? I think that is a thing that should be looked at, as
well, along with capital.
Mrs. Kim. Yes, let me focus on that, the business plan that
you are required to submit for a new bank formation. I
understand that these plans are expected to endure from
submission to 3 years of operation. Mr. Castello, through your
experience, how often does there arise a time when a leadership
team may need to refine a business plan?
Mr. Costello. I think we all know in business that nothing
is static. Things are constantly changing. During the time
since we operated, we went through the Silicon Valley Bank
(SVB) failure and the deposit crisis. I think you are
constantly having to, in any business, update your business
plan, so I think the faster we can have regulators react to
those changes would be a lot easier for us.
Mrs. Kim. How do regulators react when you inform them that
you need to make a change?
Mr. Costello. I think it depends on the change, obviously.
We did not have any real structural changes. We did not enter
any new businesses.
Mrs. Kim. Uh-huh.
Mr. Costello. Most of our changes revolved around modifying
our budget, and I would say that, other than for the length of
time it took, they were responsive.
Mrs. Kim. Ms. Usategui, are you hesitant to change your
business plan at BankMiami because of the concerns that we are
discussing?
Ms. Usategui. We are only 2 months old, so I have not had
to have been presented with that problem just yet, but as Keith
mentioned, markets change, and not to say I am hesitant. I have
a great relationship with the regulators, but how quickly they
respond is a concern because sometimes, on a whim, we will get
presented with a new opportunity that we want to have an answer
to be able to act quicker, that may actually help strengthen
the community bank. Without having a clear timeline on
response, and, honestly, having to recreate a whole new
business plan in some cases, depending on how big of a change
it is, it could be, I do not want to say detrimental to the
bank, but it could significantly impact the potential of new
earnings and gathering more capital through that process.
Mrs. Kim. Thank you. As someone who founded and operated my
own small business, changing my business plan was not a sign of
increased risk, but a testimony to my adaptability and desire
to succeed. It is disappointing to hear that some of the
regulators may not see it the same way.
Now, I want to shift gear and highlight the importance of
diversity in banking business models for consumers. Mrs.
Allexon--sorry--when a consumer has access to large, midsize,
and community banks and credit unions, how do these options
benefit a consumer?
Ms. Allexon. It is just variety of choices. Each of those
institutions offers different sets of products and services.
Some are competitive with each other, but you can just pick and
choose for yourself. It is not one-stop shopping, but you can
choose between different parties for different financial needs.
Also, I think we have to consider other nonbanking fintech
providers or just nonbanking providers, too. All of these
provide different financial services options that people can
pick and choose for all of their different needs.
Chairman Barr. The gentlewoman's time has expired.
Mrs. Kim. Thank you.
Chairman Barr. The gentleman from Texas, Mr. Green, is now
recognized for 5 minutes.
Mr. Green. Thank you, Mr. Chairman. I thank the witnesses
for appearing, and having been a litigator for some point in my
life, we engaged in a process known as voir dire, or voir dire,
depending on where you are from. I am told it is a French term
that means to speak the truth. Hence, this will become a truth-
telling moment for you, members of the panel. If you believe
that invidious discrimination in banking exists--meaning that
some people get discriminated against simply because of the way
they look, color of skin--if you believe that it exists, kindly
extend a hand into the air?
[Hand raised.]
Mr. Green. Take a photograph of that, please, sir. Keep
your hand up, please, ma'am. I have in my office a series of
pictures and I have under these pictures, ask me about this
picuture. I was interviewed yesterday, and I had to go through
about a dozen of them to explain the pictures. Let the record
reflect that but one person, Mrs. Young, believes that
invidious discrimination exists in banking. I would challenge
my colleagues across the aisle to engage in a testing process
to get the latest empirical evidence of what Mrs. Young has
experienced, what I have experienced.
As a brief vignette, some years ago, when I was a neophyte
lawyer, went in, received a loan. Paid it back early, never
late with a payment. Went back to get a second loan. The loan
officer at that time denied us the loan. Four lawyers, denied
the loan. Paid a loan back early, never late. The query was
why, and the answer was because you should not have received
the first loan. Invidious discrimination in banking. Can any of
you on the panel recall or recount a time in the history of
this country when we had sufficient number of minority banks?
[No response.]
Mr. Green. Would you get the shot, please? Let the record
reflect that no one can recall or recount a time. Can anyone
explain to me how this legislation that we are currently
considering as it relates to de novo banks, how it can improve
and help us with minority banks, banks in Black neighborhoods
and Latino neighborhoods? Yes, it will probably help us with
rural and others, but can you give me some rationale as to how
it is going to help us get more Black banks, please?
Mr. Berlau. Congressman Green, yes, I believe I can.
Mr. Green. I welcome your word, sir. Just be terse and
laconic, pithy, and concise.
Mr. Berlau. Thank you. Yes, I am not familiar with the
specifics of all of Mrs. Young's application, but I think she
was talking about some of the same things as rural banks face,
requiring too much upfront capital----
Mr. Green. I understand, but if I may, please.
Mr. Berlau. Yes.
Mr. Green. If I may intercede, and you are being very kind
to me, so I do not mean to be rude, crude, and unrefined, but
that will not help with the problem that Black people have with
starting banks. It really is a money problem. How does that
help us get more people who can raise this large sum of money
necessary to start a de novo bank?
Mr. Berlau. I do not know that it would solve all the
problems.
Mr. Green. I am not talking about all. Let's talk about one
in particular that we all seem to have who are of color, and
that is money.
Mr. Berlau. If you need less money in front and you have
phased-in capital, I think that would help----
Mr. Green. If you have what?
Mr. Berlau. If you have phased-in capital, like the bill
does, rather than having to put, like, I think the gentleman
here mentioned, like, say, $4 million, and then it was twice as
much, the others. I think all of the sort of entrepreneurs
outside the system who have trouble raising that kind of money,
this would be a benefit, too.
Mr. Green. I have 22 seconds, and I concur with you that
phased-in is better. I prognosticate that, with phased-in, you
will not phase in very many banks that will be owned by African
Americans. It looks good on paper, but when you are talking
about millions, it does not benefit people who do not have
millions, and this has been a problem for us since our arrival
here. We have integrated things, but we have not integrated the
money.
Chairman Barr. The gentleman's time has expired.
Mr. Green. I am for integrating everything, and that
includes the money.
Chairman Barr. The gentleman's time has expired.
Mr. Green. Thank you, Mr. Chairman.
Chairman Barr. The gentleman from North Carolina, Mr.
Moore, is now recognized for 5 minutes.
Mr. Moore. Thank you, Mr. Chairman. For decades, America's
community banks and credit unions have served, really, as a
critical lifeline for small businesses, for rural communities,
and for working families, but one thing that struck me is that
the ability to form new banks has nearly vanished. Some
interesting statistics: from 2000 to 2009, over 1,300 new banks
were chartered in the United States. That is an average of 132
per year, but get this: since 2010, only 88 new banks have been
formed. Some States have not even seen a new bank chartered in
years, but that is not because there is less demand or anything
like that. It is the need for community-oriented banking
remains high.
What the problem is, from what I understand, is the current
regulatory framework, that instead of promoting competition, it
actually entrenches incumbency and discourages innovation and
natural and organic growth. My understanding is it is now
prohibitively difficult for new entrants to navigate the
process, to raise sufficient capital and achieve long-term
viability. Questions just a moment ago had to do with about
different banks, about folks who maybe have been either
underserved or underrepresented being able to have banks and so
forth. What it looks like to me is that part of the regulatory
framework that is in there actually is part of the problem that
is reducing the incentive for new banks to form and for banks
to grow.
My first question would be to Ms. Usategui, and I apologize
if I mispronounced your name--I am sorry--but you have helped
build new banks from the ground up. What are the most
burdensome or outdated regulatory barriers that you faced in
securing a charter?
Ms. Usategui. Thank you for the question. I still believe
that capital is the number one challenge of de novo banks. The
high amount of capital that is required nowadays is much larger
than many of people can put to work. Back before the financial
crisis, as Mr. Costello has attested, in my prior organization,
we only had to raise about one-third that, and so I think the
biggest barrier of entry right now is the capital component.
I think the second one, in terms of regulatory scrutiny,
like, we have had a great relationship with our regulators. I
do believe the process is burdensome. The application process
in some ways is duplicative between both agencies. I think
streamlining that could be very efficient in producing, I
think, more opportunity for people to form new banks, but the
cost, too, is significant because we do not have a set
timeline. Usually, you need to identify a CEO, a CFO, your
chief banking officer, along those lines, and you need to pay
them to be part of this. So, the longer the application process
is drawn out, the more expensive the organizational expenses
become, which then, in turn, requires more capital to hit those
minimal capital requirements. I think streamlining the process
and making sure there are set deadlines of when a regulator
needs to accept an application or at least respond to the
acceptance of an application, could be very beneficial in new
bank formation.
Mr. Moore. Let me ask you this. Do you think that a
requirement that Federal agencies publish annual public reports
detailing the number, the status, and the processing timelines
of depository charter applications, holding company approvals
and deposit insurance requests, help bring transparency to the
current process and identify where the reforms are needed?
Ms. Usategui. I think it could help, but I think the
biggest challenge is really that period of time from when an
application is submitted to when it is accepted. There are
timelines already in place once an application is accepted to
once it needs to be responded to on an approval process, but
that initial timeframe is really the biggest challenge on the
unknown.
Mr. Moore. As I understand, even after a bank secures the
approval, the regulatory environment really remains
challenging. For the first 3 years, for example, new banks are
subjected to heightened scrutiny. I believe they have to seek
prior approval for any changes in senior management, subject to
the enhanced reporting obligations, and often required to
maintain capital levels that are significantly above regulatory
minimums. This level of regulatory micromanagement really
crushes innovation and makes entrepreneurship and banking an
uphill battle. Mr. Costello, you were involved in one of the
last banks chartered in Florida. In your experience, how do
these post-charter rules affect your ability to grow, attract
talent, or adapt to market demands?
Mr. Costello. Yes, that is a great question. I will say,
when you become a new bank, you are subject to an exam every 6
months, and then on top of that, you have internal audits,
external audits. We would go from one exam, and we would exit
one exam and we would start another one. I would also like to
echo what Mary said. The regulators we dealt with have been
great. It is the regulations that need to be changed.
Chairman Barr. The gentleman's time has expired.
Mr. Moore. Thank you.
Chairman Barr. The gentleman from South Carolina, Mr.
Timmons, is now recognized for 5 minutes.
Mr. Timmons. Thank you, Mr. Chairman, and thank you to each
of the witnesses for joining us today.
Today's hearing is important as Congress and regulators
consider how current rules impact mergers and acquisitions in
the banking sector, especially for midsized banks. Complex,
overlapping regulations make the merger and aquisition (M&A)
process costly and time-consuming, often discouraging midsize
banks from pursuing strategic mergers. To ensure a competitive
and resilient banking sector, we need to reassess these
regulations and create a more streamlined process that allows
midsize banks to grow and better serve their communities. A
barbell banking system, dominated by very large and very small
banks, could reduce competition, threaten financial stability,
and harm consumers and businesses. Last year, the U.S. Chamber
of Commerce published a white paper titled, ``Antimerger
Regulatory Proposals Threaten U.S. Financial Markets,'' which
underscores the importance of bank M&A for the stability and
growth of our financial system.
Ms. Allexon, given the current competitive landscape, can
you elaborate on how bank mergers and acquisitions contribute
to financial stability and consumer choice? Specifically, how
might the Biden-era M&A guidelines disproportionately affect
midsize banks, potentially leading to a barbell banking system
dominated by large national banks and small community banks?
Ms. Allexon. Yes. Strategic combinations diversify banks'
product offerings and the geographic reach of banks. This
allows banks to provide more products and services to a wider
array of people, and that creates a more stable and diversified
funding base and an asset mix, and that leads to a more safe
and sound bank. It also enables particularly midsize banks to,
while simultaneously being able to continue to compete in the
local market that they grew up in, be more viable competitors
to larger institutions.
Mr. Timmons. Thank you for that. If midsize banks continue
to face disproportionate regulatory hurdles in the merger
process, what are the potential long-term consequences for
access to credit?
Ms. Allexon. It stifles business growth, right, and it also
forces more borrowers and more customers to financial products
that are outside of the regulatory system. Like, we see the
growth in private credit is one of those places, and while
those are all viable financial services, we have to think, in
the future, like, what direction is our bank regulatory system
going? As more and more things get outside of the system and
our banking system becomes smaller and smaller, our ability to
make sure that it operates in a safe and sound way collectively
decreases.
Mr. Timmons. Thank you for that. As we consider rolling
back many of the overbearing regulations from the Biden
Administration, it is crucial that we focus not just on
identifying the issues, but also on finding practical solutions
to address them. By doing so, we can create a regulatory
environment that supports growth and innovation while ensuring
that consumer protections remain intact. The OCC's 2024 merger
guidance document is a key place to start. By eliminating the
expedited merger approval process, the Biden Administration
removed important efficiencies that were already built into the
system. I could easily spend my entire 5 minutes outlining the
numerous provisions in this guidance that slow down the merger
process and place unnecessary burdens on institutions seeking
to grow or consolidate responsibly, but I want to ask you, Mr.
Costello, regarding the OCC specifically, which other
rulemakings do you believe are most negatively impacting the
bank merger process, and what practical solutions would you
recommend to help this space thrive?
Mr. Costello. I would defer to Ms. Allexon on that
question, really. I do not have a lot of experience with the
OCC and mergers.
Mr. Timmons. Sure. Great. Thanks.
Ms. Allexon. I can answer that. There are a couple
different things, and it is true across the different banking
agencies. They need to think a little bit harder about their
internal processes and the types of information that they get
on applications and how it is considered and their decision
making chain throughout their organization. There is some
really easy things that they could do to streamline that. Like,
the shot-clock legislation is a good step in that direction,
but internally, they could create more expedited processes,
dedicated applications, calendars, and change their delegation
criteria to speed up processing.
Mr. Timmons. Thank you for that. Finally, I am glad to see
Chairman Barr's bill, the Financial Institution Regulatory
Tailoring Enhancement Act, included in today's hearing. This
bill rightly acknowledges that a one-size-fits-all regulatory
approach does not work for our diverse financial system. By
raising the asset threshold from $10 billion to $50 billion, it
ensures that smaller and regional financial institutions are
not burdened with the same complex regulations designed for the
largest systemically important institutions. This targeted
relief will allow community banks and credit unions to focus on
what they do best serving families, small businesses and local
economies, while still maintaining strong oversight where it is
truly needed. With that, thank you, Mr. Chairman. I yield back.
Chairman Barr. The gentleman yields The gentleman from
Wisconsin, Mr. Fitzgerald is now recognized for 5 minutes?
Mr. Fitzgerald. Thank you, Chair. Ms. Allexon, as
consolidated trends continue in the banking sector, we should
be supporting mergers that enable regional banks to grow and
better serve their communities in the face of regulatory and
market pressures. As Congress considers reforms, can you
explain how bank mergers, especially those involving kind of
the midsize regional banks, help promote a healthier, more
competitive banking system?
Ms. Allexon. Sure. Sure. There are a number of reasons why
midsize banks enter into combinations, but those strategic
mergers can create economies of scale that offset regulatory
and compliance costs, and this creates space for more
innovation and investment in systems and technologies that we
all know are essential moving forward. As I just noted before,
it also diversifies their product offerings and their
geographic markets, and that creates a more stable, diversified
funding base and asset mix that just creates a more stable,
strong financial institution. That in turn allows them to be
more competitive against large banks with national footprints,
but it also simultaneously allows them to stay competitive
within the local geography that they grew up in.
Mr. Fitzgerald. In your role, as you advise financial
institutions, do you think it is time we modernize how
competition is evaluated in the bank mergers to reflect a
broader range of financial service providers in the market, so
decisions are based on real-world dynamics?
Ms. Allexon. Yes, I believe that there is a general
consensus that the current analysis used to review the
competitive factors should be modernized. I talked about this a
little bit in my written testimony, but we have clearly
transitioned away from a very competitively isolated banking
market into something that is totally different, and the
historic approach that the agencies used, including the
Department of Justice, to evaluate mergers is completely
dependent on market deposits. We need to look at a wider array
of competitors, nonbank competitors and online deposits in
order to get a true, accurate picture of what the competitive
market looks like.
Mr. Fitzgerald. Chairman, this is the point in the hearing
where I promote my own piece of legislation, and that is why I
plan to introduce the Bank Competition Modernization Act, which
would categorize credit unions, fintechs, farm credit companies
for the purposes of concentration analysis and bank mergers.
The Bank Competition Modernization Act brings much-needed
reform to how bank mergers are reviewed by making sure
regulators consider the full scope of today's competitive
financial landscape. Right now, community and regional banks
are being evaluated as if they are the only complete piece in
these regions, ignoring the massive growth of credit unions,
fintech, and farm credit institutions that offer similar
products. The bill ensures that all major players are accounted
for in merger reviews, creating a fairer, more accurate
process. By modernizing these outdated standards, we can reduce
unnecessary regulatory roadblocks and support local banks and
promote financial systems.
I will just ask a final question of Ms. Allexon. Can you
discuss some of the implications of the OCC and the FDIC's 2024
guidance and what effect would it have had on bank merger
application reviews if it had not been for Trump's
administrators, the rescissions that now are happening?
Ms. Allexon. So, those policy statements created a chilling
effect on bank mergers. It is not the only factor that led to a
decrease in bank consolidation over the last number of years.
There has been economic factors that have supported that as
well, but having inconsistency in policies with respect to bank
mergers only created more insecurity with whether or not to
proceed with the transaction. They are costly. They hey are
time consuming. If you are not going to get favorable
treatment, then it is nerve wracking for institutions to
proceed.
I think the other thing that those policy statements did is
they kind of created a presumption that parties were starting
from a negative position. If you are filing an application, and
everybody is starting from a neutral position, and you have to
justify your factors, that is how the system has always worked.
If you are starting from behind, if there is an assumption that
the transaction is bad to begin with, it is just the further
you have to travel. It is very difficult to draft guidance.
Every word means something. It is like legislation, every word
means something, and so I think just guidance has to be very
careful that you are not inadvertently creating presumptions
like that?
Mr. Fitzgerald. Thank you very much. I yield back.
Chairman Barr. The gentleman yields. First, I would like to
thank all of our witnesses for your testimony today and taking
time to come and be before the committee.
Without objection, all members will have 5 legislative days
to submit additional written questions for the witnesses to the
chair. The questions will be forwarded to the witnesses for
their response, and, witnesses, please respond no later than
June 20, 2025.
[The information referred to can be found in the appendix.]
Chairman Barr. With that, this hearing is adjourned.
[Whereupon, at 4:17 p.m., the subcommittee was adjourned.]
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