[House Hearing, 119 Congress]
[From the U.S. Government Publishing Office]
PROMOTING THE HEALTH OF THE
BANKING SECTOR: REFORMING RESOLUTION
AND BROADENING FUNDING ACCESS
FOR LONG-TERM RESILIENCE
=======================================================================
HEARING
before the
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS
of the
COMMITTEE ON FINANCIAL SERVICES
U.S. HOUSE OF REPRESENTATIVES
ONE HUNDRED NINETEENTH CONGRESS
FIRST SESSION
__________
SEPTEMBER 9, 2025
__________
Serial No. 119-38
Printed for the use of the Committee on Financial Services
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
www.govinfo.gov
______
U.S. GOVERNMENT PUBLISHING OFFICE
63-033 PDF WASHINGTON : 2026
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
----------
Tuesday, September 9, 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
WITNESSES
Mr. Dory Wiley, President and CEO, Commerce Street Holdings...... 4
Prepared Statement........................................... 6
Mr. James B. Barresi, Partner, Squire Patton Boggs............... 15
Prepared Statement........................................... 17
Mr. Hugh Carney, Executive Vice President of Financial
Institution Policy and Regulatory Affairs, American Bankers
Association (ABA).............................................. 28
Prepared Statement........................................... 30
Dr. Norbert Michel, Vice President and Director, Cato Institute
Center for Monetary and Financial Alternatives................. 39
Prepared Statement........................................... 41
Mr. Robert James, President and CEO, Carver Financial
Corporation, on behalf of National Bankers Association......... 61
Prepared Statement........................................... 63
APPENDIX
MATERIALS SUBMITTED FOR THE RECORD
Hon. Sean Casten:
Chicago's Cryto ATMs Are Magnets For Drug-Dealing And Scams
On Older Adults............................................ 104
RESPONSES TO QUESTIONS FOR THE RECORD
Written responses to question for the record from Representative
French Hill
Mr. Hugh Carney.............................................. 117
Written responses to question for the record from Representative
Maxine Waters
Mr. Dory Wiley............................................... 119
LEGISLATION
H.R. 3234, To amend the Federal Deposit Insurance Act to modify
the amount of reciprocal deposits of an insured depository
institution that are not considered to be funds obtained by or
through a deposit broker, and for other purposes............... 120
H.R. ------, the Bank Competition Modernization Act.............. 123
H.R. ------, the Merchant Banking Modernization Act.............. 131
H.R. ------, the Community Bank Deposit Access Act of 2025....... 133
H.R. ------, the Community Bank Capital Flexibility and Growth
Act of 2025.................................................... 139
H.R. ------, the Least Cost Exception Act........................ 143
H.R. ------, the Enhancing Bank Resolution Participation Act..... 148
H.R. ------, the Failing Bank Acquisition Fairness Act........... 152
PROMOTING THE HEALTH OF THE
BANKING SECTOR: REFORMING RESOLUTION
AND BROADENING FUNDING ACCESS
FOR LONG-TERM RESILIENCE
----------
Tuesday, September 9, 2025
U.S. House of Representatives,
Subcommittee on Financial Institutions,
Committee on Financial Services,
Washington, DC.
The subcommittee met, pursuant to notice, at 2:20 p.m., in
room 2128, Rayburn House Office Building, Hon. Andy Barr
[chairman of the subcommittee] presiding.
Present: Representatives Barr, Hill, Huizenga, Williams of
Texas, Loudermilk, Rose, Timmons, Norman, Meuser, Kim,
Fitzgerald, Flood, De La Cruz, Moore, Foster, Waters, Scott,
Sherman, Green, Vargas, Casten, Lynch, and Beatty.
Chairman Barr. The Subcommittee on Financial Institutions
will come to order.
Without objection, the chair is authorized to declare a
recess of the committee at any time.
This hearing is titled ``Promoting the Health of the
Banking Sector: Reforming Resolution and Broadening Funding
Access for Long-Term Resilience.''
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 5 minutes for an opening
statement.
OPENING STATEMENT OF HON. ANDY BARR, CHAIRMAN OF THE
SUBCOMMITTEE ON FINANCIAL INSTITUTIONS, A U.S. REPRESENTATIVE
FROM KENTUCKY
Thank you to our witnesses for being here and for offering
their expertise on this important discussion. Today we will
explore a series of topics that focus on promoting a healthy
banking industry for institutions of all sizes. We will examine
ways to promote competition in the Federal Deposit Insurance
Corporation's (FDIC's) resolution process for failed banks and
explore how decisions made in response to the 2023 bank
failures, such as the invocation of the systemic risk exception
to guarantee all uninsured deposits, created unnecessary
uncertainty at a time when clear guidance was especially
necessary.
We will also look into potential reforms to the FDIC's
bidding process for failed banking assets and liabilities, with
the goal of ensuring that community banks have a fair
opportunity to acquire all or part of a failing institution--
community banks and regional banks--particularly when such
outcomes best serve the interest of local communities. More
broadly, the least cost test should not operate as a rigid
constraint that effectively limits participation in the
resolution process to only the largest institutions. We want
all institutions of all sizes to be able to bid on these failed
banks.
We will also discuss how access to diverse funding sources
allows banks to remain competitive and continue to serve their
communities. The current misalignment in the regulatory
treatment of brokered reciprocal and custodial deposits has
placed handcuffs on small, well-managed financial institutions'
ability to sustainably fund themselves, and reform is
necessary.
I look forward to hearing from the witnesses about how
legislation attached to this hearing would remove unnecessary
barriers to bank funding, ensuring banks have access to diverse
and stable sources of deposits that allow them to continue the
lending activities that make our economy thrive. Restrictions
on various deposit types, such as brokered, reciprocal, and
custodial, should be based on actual risks to stability, not
the whims of banking regulators.
Finally, we will highlight the imperative that Congress
rightsize the capital framework for small and midsized banks in
the post-Dodd-Frank world. Our capital regime has moved too far
away from a tailored system, negatively impacting small and
midsized banks and hindering their ability to survive and
compete against larger institutions. We must reverse course on
this as a diverse banking system is at the heart of a resilient
and competitive banking sector.
On a bipartisan basis, Congress directed regulators in 2018
to tailor regulations based on an institution's size, risk
profile, and complexity. However, under the Biden
Administration, regulators failed to fulfill this statutory
mandate, and we look forward to new leadership to ensure that a
regulatory scheme designed for the biggest banks does not
become the rules for all banks. Luckily, the regulators have
the tools to further tailor regulations and reduce red tape
hampering the growth of small and midsized banking
institutions.
This committee will continue to urge the Federal banking
agencies to use the authorities they currently possess to
provide much needed relief for banks while protecting financial
stability and safety and soundness. Community and regional
banks have the unique ability to put necessary cash in the
pockets of local businesses, and today's discussion will
highlight the need for reform to guarantee long-term resilience
and access to capital.
The overly burdensome regulations imposed by the Dodd-Frank
Act and subsequent rulemakings from the Federal banking
agencies have crippled community banks and midsized banks and
regional banks through heightened capital and liquidity
standards, narrower sources of funding, and a miscalibrated
bank merger review process.
I look forward to hearing from our expert witnesses on
these important topics and what we can do in Congress to
reverse the negative impact of burdensome regulations.
With that, I yield back, and I now recognize 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.
Today the subcommittee will examine topics that underpin
the stability of the U.S. financial system. We will understand
the avenues banks used to fund their operations, weather
stress, and promote economic growth in our communities.
Alongside this hearing, we will consider changes to the
resolution process to ensure that failing financial
institutions wind down their operations in a way that minimizes
disruption for customers and the broader financial system while
preserving competition. I believe that these are timely
important topics as this body and the administration look to
make changes in the regulatory and supervisory framework
governing the American banking system.
Throughout this process, we should promote updates that
reflect the current state of the banking system, respond to
changing technology and the composition of the banking system,
and keep in mind the unique needs of small community banks and
credit unions.
Technological innovation, while often beneficial, carries
some risk. In 2023, we saw mobile banking technology on social
media supercharge bank runs on Silicon Valley Bank, leading
depositors to pull out nearly $40 billion in deposits from the
bank in under 48 hours. The failure of Silvergate and Silicon
Valley Banks triggered runs on several other banks, ultimately
forcing regulators to invoke emergency authorities to stem
contagion. So I fear that this type of situation will become
more common as technology reduces friction in banking and
increases the speed of information across the country.
That said, the regional bank failures in 2023 started an
important conversation about how to prevent rapid and large-
scale bank failures from rippling across the economy. J.P.
Morgan's acquisition of First Republic Bank raised questions
about the appropriateness of FDIC's least cost resolution and
whether there may be alternative approaches worth considering.
I would also like to thank Chair Barr and Hill for noticing
Congressman Lynch's bill, the Failing Bank Acquisition Fairness
Act, which would ensure that small institutions have an
opportunity to bid on failing banks, assuming they can do so in
a manner that is cost effective for the deposit insurance fund.
Members of our committee have also sought ways to manage the
risks associated with high levels of uninsured deposits which
were a contributing factor to the failure of Silicon Valley
Bank (SVB). Deposit insurance reform and expanded access to
reciprocal deposits and other changes to the regulatory
framework are among the proposals being considered in this
hearing today.
So as our committee considers these issues, we must
continue supporting the financial institutions in all of our
communities. This includes more than 30 years of congressional
support for Community Development Financial Institution, CDFIs,
and Minority Depository Institutions, MDIs, that serve low
income and historically underserved communities.
Since its creation, the CDFI fund has supported more than
19 million loans, totaling more than $300 billion, leveraging
private capital to spur investments in infrastructure,
childcare center, homeownership, and entrepreneurship across
all 50 States.
I really appreciate the timing and subject of this hearing
and look forward to hearing from the witnesses.
Chairman Barr. The gentleman yields back.
Today we welcome the testimony of Mr. Dory Wiley, president
and CEO of Commerce Street Holdings, Dallas; Mr. James Barresi,
partner in Squire Patton Boggs; Mr. Hugh Carney, executive vice
president of Financial Institutions Policy and Regulatory
Affairs of the American Bankers Association; Dr. Norbert
Michel, vice president and director of the Cato Institute
Center for Monetary and Financial Alternatives; and Mr. Robert
James, president and CEO of Carver Financial Corporation, here
on behalf of the National Bankers Association.
We thank each of you for taking time to be here. Each of
you 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. Wiley, you are now recognized for 5 minutes for your
oral remarks.
STATEMENT OF DORY WILEY, PRESIDENT AND CEO, COMMERCE STREET
HOLDINGS
Mr. Wiley. Thank you, Chairman.
Chairman Barr, Ranking Member Foster, members of the
subcommittee, thank you for having me here today, and hopefully
I can provide some small help in any way I can. Glad to be
here.
I am Dory Wiley, president and CEO of Commerce Street
Holdings, a Dallas-based investment bank that does mergers and
acquisitions (M&A) advisory and investing in banks. For almost
40 years I have started banks, raised capital for banks,
invested billions of dollars, raised billions of dollars for
community banks, and advised through crises. These crises
include the savings and loan (S&L) crisis of the eighties,
where we lost over 1,000 banks; the Texas banking crash, where
we lost over 200 bank failures. We have a roadmap of the scars
on our back from those time periods. The 2008 Great Recession,
with over 500 failures, and, of course, the 2023 failures that
we are all familiar with of those four banks. Experience shows
that we must make banking investable again. I think we forget
that sometimes.
Now, first of all, I would like to say we have the best
banking system in the world, in world history, and what we are
doing is just fine-tuning what we have here, but we want to
ensure fair investing, fair funding rules, and let these banks
compete. We have to remember that. They are not utilities. We
want them to compete. We are partnering with them on the
government side.
The 2023 failures exposed some familiar problems: low
equity capital, poor risk management, and shaky confidence.
Now, however, most banks came through with shining colors. Most
of them did a very good job of asset liability management,
credit underwriting, and holding high capital standards. These
exceptions should not have happened, but they did.
We saw similar runs in broker deposits in 2008 and the
1980s, and the vast--the biggest issue, bank holding companies
like Silicon Valley Banks had dangerously low capital, around
5.5 percent. These holding companies have to be a source of
strength. When they do not have enough capital, they cannot--
there is no room or margin for error. They cannot support their
banks, just like during the Great Recession when things went
wrong.
Now, Dodd-Frank's rules, amazingly banks have adapted quite
a bit, but they cost banks $60 billion a year, having crushed
community bank profits; pushing opportunities outside the
system; increasing, not necessarily reducing, systemic danger
and risk, and this has turned away investors and talent, making
banking less attractive. Congress should cut these regulatory
burdens to bring investment capital back to banks.
Let me close by emphasizing an appeal to and the critical
role of virtue in our financial system. George Washington
wisely noted few men have the virtue to withstand the highest
bidder, yet over my decades in banking I have witnessed the
vast majority of bankers embody this virtue, running their
institutions with integrity, prioritizing customers, and
upholding trust. This is especially vital in the United States,
the only Nation with a robust community banking system in the
world. These banks are the backbone of our economy, fueling job
creation, and nurturing small businesses that drive innovation
and growth.
Our community bankers, together with regulators and, by
extension, Congress, honor this principle, acting as stewards
of public trust, ensuring capital serves Main Street, not just
Wall Street. Let us continue to support and strengthen this
virtuous foundation, ensuring our community banks, our banking
system, in general, and our whole economy thrive for
generations to come.
Thank you.
[The prepared statement of Mr. Wiley follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Mr. Barresi, you are now recognized for 5
minutes.
STATEMENT OF JAMES B. BARRESI, PARTNER, SQUIRE PATTON BOGGS
Mr. Barresi. Thank you, Chairman Barr, Ranking Member
Foster, and members of the subcommittee, for the opportunity to
testify here with you today. My name is Jim Barresi. I lead the
financial services practice at Squire Patton Boggs, which is a
global law firm. I am here today in my personal capacity, not
on behalf of my firm or any client of our firm.
I am here in hopes to share with you practical insight that
I have obtained for spending more than 30 years laser focused
on advising Main Street banks and also having on two occasions
during that time period spent multiple years embedded in-house
as the deputy general counsel of a--what started as a small
regional bank that after a string--a long string of large
acquisitions ultimately became a very safe and well-regarded
super-regional bank that competes with the largest banks in the
country.
Turning to the state of our U.S. banking system. For a long
time, our banking system has been both the envy of the world
and the engine for economic growth in the United States, but
the laws and regulatory framework that govern it are antiquated
now. They need updating to function effectively in a fast
moving digital era. We need to be able to move quickly, because
sometimes, as we saw in the spring of 2023, the inability to
move with dexterity itself can be dangerous. So we are hopeful
that this committee will continue to be assertive in adopting
change, like it did with the Guiding and Establishing National
Innovation for U.S. Stablecoins (GENIUS) Act, and we are
greatly appreciative of that.
I would like to use the auto industry as a quick
illustration for what we have in mind. The auto industry, of
course, is regulated like the financial services industry, but
in the last few decades, you have seen widespread adoption of
innovative tools, like air bags, automatic emergency braking,
lane keeping assistance, blind spot monitoring, and many
others. I do not think there is any doubt that these tools
improve safety and the efficient operation of our
transportation system, but it is much harder to do that in bank
land than it is in other regulated industries because of the
multilayered, overlapping regulatory regime and structure we
have and because of the trepidation that our regulatory regime
has historically shown to innovation.
What we are asking Congress to do here is to build the
financial equivalent of an interstate highway system that
enables our banks of various types, just like various types of
vehicles on the road, to move with efficient capability and the
speed to safely deliver financial products to those throughout
the United States.
So we have a host of recommendations in our written
testimony. I will not repeat them all here, but just to
highlight some you for you. First, with respect to the bank
resolution process, it is way too rigid, and it is not
competitive for anyone other than the biggest banks in the
country. It needs to be modified to enable smaller players to
participate effectively in auctions. It needs to enable those
banks to show up and have their capital capacity evaluated.
For example, if they show up with private capital sources
or the ability to bring additional capital to the table to
effect transactions, and there are techniques like virtual data
rooms that could be maintained on a real-time basis to enable
bidders to act. Deposit insurance, of course, is part and
parcel of any discussion on improving resolutions, and I will
not rehash that here, other than to note that our deposit
insurance systems need some updating and I have in my written
testimony and I am happy to address some ideas that are not
expensive for the system and that could be utilized.
Third, I think the 2023 bank failures identify issues with
liquidity in two respects. One, access to reliable emergency
liquidity for banks that are in difficulty, and we can
proactively combat the stigma at the Federal Reserve's Discount
Window and improve the operational readiness of each of the
Federal Reserve (Fed) and the Federal home loan banks so that
they can act to process large volumes of requests and
prioritize among them.
Finally, to harmonize some of the collateral practices
across all the Fed regional banks and the Federal Home Loan
Banks (FHLBs).
Broker deposits and reciprocal deposits, we have an
outdated system. Fortunately, we have unwound a system that
treated them very--or would have treated them very unfairly in
2024, but it still needs to be updated to enable the proper use
of these tools which provide a great deal of liquidity.
Bank mergers are also important on the agenda, and I think
that they demonstrate the need and ability of community banks
to grow and serve our country.
Chairman Barr. The gentleman's time is expired.
Mr. Barresi. Thank you.
[The prepared statement of Mr. Barresi follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you very much and we will get to more
of your testimony in Q&A, I am sure.
Mr. Barresi. Thank you.
Chairman Barr. Mr. Carney, you are now recognized for 5
minutes.
STATEMENT OF MR. HUGH CARNEY, EXECUTIVE VICE PRESIDENT OF
FINANCIAL INSTITUTION POLICY AND REGULATORY AFFAIRS, AMERICAN
BANKERS ASSOCIATION (ABA)
Mr. Carney. Chairman Barr, Ranking Member Foster, and
members of the subcommittee, thank you for the opportunity to
testify on promoting the health of the banking sector. I am
Hugh Carney, executive vice president for regulatory affairs at
the American Bankers Association, which represents banks of all
sizes and business models across the country.
I have spent the past 20 years working in prudential
regulatory matters, both at the Office of the Comptroller of
the Currency and at ABA. My remarks today focus on four
priorities: indexing regulatory thresholds, modernizing the
resolution framework, updating funding statutes, and
recalibrating capital standards. These changes will make
regulations more predictable, transparent, and risk focused,
while preserving the vibrancy and competitiveness of the
American banking system.
For decades, many regulatory thresholds stayed fixed, even
as the economy has grown. For example, heightened auto
requirements established by the FDIC in 1993 become operational
when a bank's assets reach $500 million. Back then it meant the
more stringent requirements only applied to 7 percent of banks.
Today it applies to 41 percent. Dozens of thresholds have
drifted the same way.
This drift creates three problems. First, it burdens
institutions never meant to be captured; second, it discourages
organic growth; and third, it dilutes regulatory resources. The
solution is indexing.
ABA recommends, after a one-time adjustment to correct for
past inaction, linking asset-based thresholds to nominal gross
domestic product (GDP), which reflects the size of the economy
and the scale of the banking sector. If the FDIC's $500 million
auto threshold had been indexed, it would be $2.2 billion
today, restoring its original scope. Indexing is a low-cost,
high-impact reform that allows regulators to focus on where the
risk really is.
We applaud the FDIC's recent proposal to index some of its
regulatory thresholds and urge other policymakers to consider
this issue, including Congress, since some thresholds are set
by statute.
Shifting to bank resolutions. The bank failures of 2023
showed that resolution rules must evolve. Earlier this year,
ABA formed a task force in deposit insurance and resolution
issues. The task force recommends three reforms to bank
resolution policy. First, broaden the least-cost test so
regulators can consider costs that a particular bank resolution
may impose on the public, including potential costs of
contagion and impacts on relevant communities. Second, allow
greater community bank participation of failed bank resolutions
through consortium bids and flexible evaluation standards.
Third, improve transparency in the bidding process by
publishing clear qualification criteria and timelines. These
changes will help maintain stability, preserve local access to
financial services, and reduce long-term systemic costs.
Funding rules also need to be modernized. One example of an
outdated law in need of modernization is the statute governing
broker deposits, which has not been updated in over 35 years.
Since the statute was enacted, regulatory, market, and
technological changes have reconfigured banking and the
provision of financial services. The result is that, today, a
deposit classified as brokered is stigmatized based on an
arbitrary interpretation of what entities are deposit brokers
rather than a deposit's actual risk characteristics or a bank's
broader liquidity risk management.
ABA recommends repealing section 29 of the Federal Deposit
Insurance Act (FDIA) and replacing it with a framework that
limits asset growth for banks that are less than well
capitalized. This preserves the original purpose while allowing
healthy banks to maintain access to stable, diverse funding
sources.
Finally, I would like to address capital. It is important
to recognize that capital rules are not just bank rules. They
directly affect borrowers, businesses, and the functioning of
the capital markets. That is why the 2023 Basel III Endgame
Proposal generated such strong public concern. Miscalibrated
capital standards can raise borrowing costs, reduce credit
availability, and restrict liquidity in the economy.
As the agencies reconsider Basel III Endgame, we urge a
capital-neutral framework that removes excess gold plating that
has been layered on top of international norms and remove
double counting with the stress testing framework. In addition,
we encourage rapid finalization of the proposed changes to the
enhanced supplementary leverage ratio to restore to its role as
a backstop. Moreover, we encourage revisiting leverage
requirements more generally, including excluding low risk
assets from leverage ratio calculations and reducing the
community bank leverage ratio to 8 percent at most.
Finally, we recommend recognizing mutual capital
certificates as capital without unnecessary compliance burdens.
Taken together, indexing, modernizing resolution standards,
updating funding policy, and recalibrating capital standards
will make the banking industry safer, more competitive, and
better equipped to serve customers.
Thank you for your attention, and I look forward to your
questions.
[The prepared statement of Mr. Carney follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you.
Dr. Michel, you are now recognized.
STATEMENT OF DR. NORBERT MICHEL, VICE PRESIDENT AND DIRECTOR,
CATO INSTITUTE CENTER FOR MONETARY AND FINANCIAL ALTERNATIVES
Mr. Michel. Good afternoon, Chairman Barr, Ranking Member
Foster, and members of the committee. Thank you for the
opportunity to testify at today's hearing. I am Norbert Michel.
I am vice president and director for the Cato Institute Center
for Monetary and Financial Alternatives, but the views I
express in this testimony today are my own and should not be
construed as representing any official position of the Cato
Institute.
In my testimony today I argue that the existing bank
regulatory framework creates enormous cost with little
perceptible economic benefit for the typical American. Larger
firms find it comparatively easier to adapt to the system, so
the framework itself creates the incentives for larger firms to
grow larger as also the incentive for smaller firms to petition
Congress for relief, protection, and better rules.
For decades now, it has been obvious that there are too
many rules and regulations in the banking sector and that those
rules are overly complicated and often counterproductive. It is
perfectly understandable that people in the banking and
financial industries regularly ask Federal officials for a
better system. They need clarification of rules, and they
naturally want rules tailored to their business models. Their
lives depend on working within those rules.
So it makes sense that we are here today seeking ways to
develop less costly and more effective rules to fund banks, to
capitalize banks, to compete with banks, to develop rules that
are more commensurate with risk, and even to do a better job
resolving failed banks. These issues are critically important,
but the regulatory framework suffers from a much bigger
foundational problem. It is driven by the idea that the free
enterprise system does not really work when it comes to
financial markets. In financial markets, supposedly, we need
prescriptive rules to guarantee safety, and if we can just get
the rules right, everything will be fine. There will be very
few to no failures or instability or crises.
The truth, though, is that if we are going to allow people
to take financial risks, something which we must do in a free
society, then there is simply no way to compile a set of rules
and regulations that guarantee these rosy outcomes. It simply
will not work.
Much like the advocates of socialism who insist that we
just have not tried the right version of socialism yet,
advocates for the current regulatory approach are engaged in an
exercise of wishful thinking that ignores the harmful outcomes
the current approach is guaranteed to create, including those
which we are here discussing today.
We simply cannot have a system based on thousands of
prescriptive rules that assume regulators are infallible, back
it up with virtually endless amounts of both implicit and
explicit Federal backing and then expect anything other than
the outcomes that we currently have. We justify the system
based on securing financial stability, and we have done that
for decades, even long before the 2008 financial crisis, and we
know that it does not work. We use words like ``panicked'' and
``contagion'' and pretend that we can stop people from
panicking, but even with the government backing that we have,
now and prior to 2008, we clearly cannot stop people from
panicking.
When you build the system based explicitly on maintaining
stability, you are effectively saying that the Federal
Government will protect people from losing money, and the only
question left is who the government will protect from losing
money and that is the problem, because then the system helps
those people panic, those people who want to make sure that
they are not the ones who lose money. It creates the
constituencies that seek more backing and it justifies even
more rules, thus worsening the problem. We end up pitting
ourselves against each other, whether it is Wall Street versus
Main Street, big banks versus small banks, or, now, big and
small banks versus medium-sized banks. Nobody should be amazed
that we have banks of all sizes wanting different rules, and we
can deny it all we want, but the regulatory system that we have
created leads directly to this issue.
Worse, it gives groups of banks by different size classes
with balance sheets that look virtually identical. It narrows
the way people can earn and invest money, and it makes people
dependent on the government. That is a fragile system, not a
resilient one, but that is the problem that we have created and
worsened. If we really wanted to fix these things, we need to
take a different approach and regulate from the principle that
free markets can work, even in financial markets. We have to
let business owners be business owners and even let bankers be
bankers. We have to stop pretending that the free market does
not work in financial markets.
Thank you for your consideration, and I am happy to answer
any questions you have.
[The prepared statement of Mr. Michel follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you.
Now, Mr. James, you are recognized for 5 minutes.
STATEMENT OF ROBERT JAMES, PRESIDENT AND CEO, CARVER FINANCIAL
CORPORATION, ON BEHALF OF NATIONAL BANKERS ASSOCIATION
Mr. James. Thank you.
Chairman Barr, Chairman Hill, Ranking Member Foster,
Ranking Member Waters, and members of the subcommittee, good
afternoon. Thank you for the opportunity to testify on
``Promoting the Health of the Banking Sector: Reforming
Resolution and Broadening Funding Access for Long-Term
Resilience.''
This hearing comes at a critical time as the administration
weighs regulatory reform. Congress should play a critical role
in shaping those reforms, ensuring a healthy banking system--
sector that serves institutions of all sizes.
My name is Robert James II, president of Carver Financial
Corporation, parent of Carver State Bank of Savannah, Georgia,
and BHM Bank of Birmingham, Alabama. I am also immediate past
chairman of the National Bankers Association, which advocates
for our Nation's minority depository institutions. These
mission-driven community banks, many also certified CDFIs like
Carver, are vital sources of strength and engines of economic
development in low-and moderate-income communities. My
testimony will focus on access to capital and deposits, FDIC
insurance reform, and regulatory modernization.
Tier 1 capital, or the equity invested in a bank, is the
most critical component of its resilience and is essential for
banks to grow in scale. While MDIs maintain adequate capital
ratios, limited access to capital over decades has left them
undersized for the needs of their communities. Pending
legislation before this committee, including the Community Bank
Capital Flexibility and Growth Act of 2025 and the Promoting
and Advancing Communities of Color Through Inclusive Lending
Act, will help ensure mission-driven banks not only survive but
thrive.
Capital alone is not sufficient. Our banks also need access
to stable deposits. Community banks deploy deposits to fuel
small business growth and provide affordable credit for
consumers. We support an all-of-the-above strategy to expand
community bank access to core deposits, including regulatory
changes, broadened access to Federal deposits, and partnerships
with financial technologies (fintechs), larger banks, and other
third parties.
As banking business models evolve, and fintech and other
third-party partnerships begin to play a more prominent role,
the laws governing how banks accept and categorize core
deposits should evolve too. Unfortunately, virtually any third-
party involvement in connecting banks to deposits results in
those deposits being categorized as brokered, triggering
supervisory burdens and higher insurance premiums even when
they function as core deposits. Updating these rules is vital.
Legislation such as H.R. 3234, to allow well-managed banks
to utilize more reciprocal deposits, and the Community Bank
Deposit Access Act of 2025 are important steps in the right
direction.
The failure of Silicon Valley Bank highlighted the risk to
small businesses when banks collapse abruptly. It also drove
funds away from community banks toward banks deemed too big to
fail. To maintain competence, the Mortgage Bankers Association
(MBA) has supported expanding FDIC coverage for small business
accounts, including a permanent transaction account guarantee
program providing up to $10 million in coverage for payroll and
operating deposits. We also support increased coverage on
interest bearing accounts, provided smaller banks are not
saddled with higher premiums.
Efforts to modernize FDIC coverage have wide bipartisan
support, including from the Vice President, who introduced a
bill when he was in the Senate to reform deposit insurance.
Current legislative proposals, such as the Failing Bank
Acquisition Fairness Act and the Employee Paycheck and Small
Business Protection Act, warrant serious consideration.
We support the administration's focus on fortifying the
financial system but caution against reforms that overlook
community banks. Regulations must be consistent with national
policy goals, such as closing the homeownership gap, supporting
small businesses, and ensuring financial inclusion. If not,
more activity may migrate outside the regulated banking system,
making it harder to manage risk.
We urge Congress and the administration to fully fund the
CDFI fund, which is vital for community investment, and
streamline data collection, record keeping, and reporting to
reduce unnecessary burdens on smaller banks.
The MBA applauds this subcommittee's attention to these
issues. We look forward to working with you on legislation that
will strengthen community banks, expand capital and deposits,
and ensure regulatory processes align with our shared goals.
Strong, mission-driven community banks mean stronger small
businesses, broader homeownership, and lasting economic growth
in every community.
Thank you for the opportunity to testify. I look forward to
your questions.
[The prepared statement of Mr. James follows:]
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
Chairman Barr. Thank you for all of your testimony, and we
will now turn to member questions. I will recognize myself
initially for 5 minutes for questioning.
Mr. Carney, this committee has repeatedly advocated for the
Federal banking regulators to tailor regulatory thresholds
rather than operate under a one-size-fits-all framework. This
ensures that a small bank in rural Kentucky is subject to a set
of standards that reflects their own unique size, complexity,
and business model.
What has been the result of regulatory thresholds remaining
static while the economy and banking sector grows?
Mr. Carney. As banks grow, what we see, what we refer to as
regulatory drift, and indexing would allow for a more
consistent risk-appropriate framework over time and a static
threshold, what it means is, as a bank approaches that
threshold, they are looking at, potentially, increased
compliance costs if they cross that threshold. So they begin to
defensively manage their balance sheets to try and stay under
that regulatory threshold or do what we refer to as jumping a
threshold, which is an acquisition to spread those increased
compliance costs over a larger institution.
That is not appropriate. That is not a way of--it is far
better to let a bank grow organically, continue to fund loans
in their communities, rather than be forced into those two
situations.
Chairman Barr. I have heard from banks in the $9 billion
category, especially because of Durbin and other regulatory
pressures that trigger up the Consumer Financial Protection
Bureau (CFPB) supervision at 10, they want to jump really high
and really fast in order to deal with that. So indexing these
thresholds would create a more dynamic and flexible framework
that would keep pace with economic realities?
Mr. Carney. That is what we are recommending. We are
recommending indexing to nominal GDP which captures the values
of goods and services provided.
Chairman Barr. Okay. Small and midsize banks rely on access
to diverse sources of stable funding to remain competitive. You
all testified to this. One of the funding streams is reciprocal
deposits, where banks place deposits into a network between
multiple banks, exchanging customer deposits with each other in
amounts below FDIC's coverage limit. These reciprocal deposits
offer a valuable tool for protecting depositors and promoting
financial stability by allowing banks to offer full FDIC
insurance on large deposits while keeping equal funds at their
banks. Removing barriers to their use would promote depositor
confidence, strengthen funding stability, and enhance overall
financial system resilience.
I was proud to co-sponsor Majority Whip Emmer and
Congresswoman Beatty's bipartisan H.R. 3234, which would modify
the amount of reciprocal deposits that are considered to be
nonbrokered, permitting greater use of the stable funding
source, especially for community banks.
Mr. James, you noted in your testimony in a letter that you
support this bill. Can you briefly talk about how Carver State
Bank uses reciprocal deposits and why they are important to
your institution?
Mr. James. Mr. Chairman, thank you for the question. Just
before I came into this hearing room, I had a call with a large
Wall Street bank that has made a deposit in our institution.
Our bank is headquartered in a census tract with over 60
percent poverty. There is not a lot of spare cash lying around
in that community for us to deploy to grow businesses or make
consumer loans available.
I was fortunate that the institution that we have this
relationship with, which is using a reciprocal deposit product,
decided that because of the impact that we are having in
community, they want to increase the amount of that deposit.
Those funds will be made directly available to underserved
urban and rural communities all across the State of Georgia and
now into Alabama as we have acquired an institution there.
It is very important that we be able to in-source capital
from higher net worth individuals or corporations or
municipalities in order to make capital and credit available in
the communities that we serve.
Chairman Barr. That is a great example.
Mr. Barresi, could you explain how increasing limits for
well-rated financial institutions before reciprocal deposits
are considered brokered could support community banks and
securing stable funding?
Mr. Barresi. Thank you, Chairman. Sure. Absolutely. There
are institutions all over the country who are heavily reliant
on relationships with partners or large depositors where they
need the ability to use and IntraFi or similar system for
reciprocal deposits to be able to fund their activities.
Increasingly, those enterprises do business with partners that
are subject to scrutiny under systems that essentially penalize
those deposits, and it impairs their ability to have consistent
and stable funding. So flexibility on reciprocal deposits is
crucial for smaller institutions to be able to fund the
activities in their communities.
Chairman Barr. My time is expiring, but on a related note,
the regulatory treatment of broker deposits has been in limbo
since the Biden-era FDIC moved to rescind the framework
implemented under the first Trump Administration. So it is
important that Congress restore stability in this broker
deposits regulatory regime.
With that, the gentleman from Illinois, Mr. Foster--Dr.
Foster, is now recognized for 5 minutes.
Mr. Foster. Thank you, Chair Barr, and to our witnesses.
Mr. James, in President Trump's first budget request, he
included a proposal to largely wind down the CDFI fund,
characterizing as a, quote, woke, unquote, program. I disagree
with his assessment and as do a bipartisan group of 26 Senators
who urge the administration to release hundreds of millions of
dollars of discretionary CDFI funds. These Senators represent a
diverse group of States, both urban and rural communities, that
benefit from the work of CDFIs.
Could you briefly discuss the history of the CDFI fund and
whether the program has helped, in particular, farmers, small
businesses, and families in rural areas?
Mr. James. Thank you, Mr. Ranking Member. The CDFI fund is
a program that has enjoyed wide bipartisan support on both
sides of Congress. We became a CDFI shortly after the CDFI fund
opened up certifications in the year 2000. In just the past 5
years, we have deployed over $170 million of resources directly
into communities, in urban and rural communities across our
State.
I looked at a map this morning, and we have made
investments in the last 5 years in 12 out of the 14
congressional districts in the State of Georgia, and our
institution is a $130 million institution, so we are punching
way above our weight class. A lot of that is due to the
resources that we are provided by the CDFI fund. We have used
those investments to create nearly 8,000 jobs across the State
of Georgia in both urban and rural communities, and I think you
will see similar results from other CDFIs all across the
country.
Mr. Foster. Obviously, none of that would happen if the
CDFI fund was wound down as recommended.
Mr. James, also, following the collapse of Silvergate,
Silicon Valley, and First Republic Banks in 2023, I think that
regulators and members of this committee were shocked at the
speed at which the events unfolded. As I mentioned in my
testimony, SVB's depositors attempted to withdraw nearly $40
billion from the bank in under 48 hours leading to its failure.
I am very concerned that we are going to see similar situations
play out in the future as social media and digital banking
technology increase the rate that deposits can move.
I also worry that artificial intelligence and artificial
intelligence agents will make the situation even worse, with AI
agents given the ability to move funds at the first sign of
trouble. In fact, that will be part of their fiduciary
responsibility to get your money the heck out of any bank which
there is even a rumor that it is in trouble.
Do you share this concern? Do you think that deposit
insurance reform or a greater reliance on reciprocal deposits,
or what are your recommendations for an effective curb against
these AI-driven bank routes?
Mr. James. Thanks again for that question. I do share some
concern with regard to the speed of implementation of
technology, and I really hope that our regulatory system can
try to keep up with it and evolve and so I believe that
increasing our ability to rely on reciprocal deposits, such as
the example that I mentioned earlier, is really important for
community banks to remain competitive for larger deposits.
I also think that FDIC insurance reform to index insurance
coverage or to protect those transaction accounts so that our
small business customers do not quote/unquote, outgrow us and
maintain their deposits with us here in the local communities
is very, very important.
So while I do share some concern with regard to the
rapidity of technological change, I also think that we need to
embrace technology in order to provide smaller community banks
with access to broader sources of deposits so that they can
provide liquidity into communities.
Mr. Foster. Mr. Carney, in a recent hearing, my staff and I
have thought a lot about the various regulatory thresholds, and
this is something I remember back at the time we were writing
Dodd-Frank arguing about what the threshold for too big to fail
is and arguing at the time for a fraction of GDP is the thing
that would scale, which is what you referenced.
On the other hand, if you are talking about things like the
damage, financial damage to an individual consumer from abuse,
or something like that, the threshold there might be scaled
with just normal inflation rather than GDP. Can you discuss a
little bit about the pros and cons of those two different
metrics?
Mr. Carney. Sure. Generally, as the discussions have been
ongoing, there are three areas that folks are looking at. One
is inflation, which captures price; the second is nominal GDP,
which is what ABA is recommending; and the third is total bank
assets.
Nominal GDP for an asset threshold perspective, we believe,
is the most appropriate measure because it captures a broader
set of goods and services produced, and that represents the
role of the banking sector in the broader economy. If it is a
consumer-facing regulation, then inflation may be the best
measure.
Chairman Barr. The gentleman's time has expired.
The gentleman from Arkansas, Chairman Hill, is now
recognized.
Chairman Hill. Thank you, Mr. Chairman, and thanks to our
panel for--really, a great informative set of witnesses to help
us in our work.
I want to start out and talk initially about trying to
bring resolution to the least-cost resolution mandate. This was
written back when I was a Treasury official in 1991, so I am
familiar with it, having lived through the S&L crisis, both in
the private sector and the public sector. We know that it was
meant to tackle the open bank assistance, obviously, of the
eighties but when we look at the more recent banking
conditions, the bank failures of 2023 showed many gaps and sort
of pitfalls around the FDIC's overall resolution process. It
seemed to be kind of creaky, not very up to speed as it was 20
or 30 years ago. The trend of depositors fleeing to the
Nation's largest banks that enjoy an implicit guarantee for
bank deposits is not a sustainable issue and it is antithetical
to a healthy industry.
Mr. Barresi, I want to start with you. We attached to this
hearing a discussion draft about the issue of least-cost
resolution. Basically, it would allow the FDIC to approve an
alternative bid in the case of a resolution of a bank that, if
the cost of the alternative bid is less than the cost of
liquidating the bank, does not exceed the cost of the least
costly bid by more than a certain percentage that the
regulators would think through, and that the FDIC determines
that the additional cost is mitigated--this is the key point
from my point philosophy--that would limit further
consolidation, increasing competition in the banking. Do you
think this kind of amendment deserves consideration?
Mr. Barresi. Thank you, Mr. Chairman. I think that
absolutely deserves consideration and I think you see, in the
recent past, a very disturbing trend where the bank with the
biggest balance sheet on the day of the bid wins the bid, and
you have seen it in 2023, and it is a problem. The least-cost
process is not considering the costs of diminished competition
or costs over an extended period of time as a result. I think
there are a host of things that should be able to be done,
including what you are describing.
I can tell you from firsthand experience that we were
involved in advising potential buyers and/or investors in some
of the banks that failed in early 2023, and in some cases had
capital sources available on the sidelines to come in and help
and were not considered because we did not have the biggest
balance sheet on the day of the bid.
Chairman Hill. Yet we routinely, in these bank failure
situations, waive the deposit cap, which is also a 1980s
special, where we basically said to the biggest banks in the
country you cannot have more than 10 percent of your deposits.
So we have kind of regulated that, and yet we waive it all the
time.
Another attached bill to this hearing would restrict the
circumstances under which bank regulators can waive that
nationwide deposit cap and liability concentration limits,
requiring them to prioritize bids to comply with existing
concentration rules.
Again, similar to my question--first question. Do you think
that would be a possible situation and limit the growth of too-
big-to-fail institutions?
Mr. Barresi. I do. I think that is a smart and tailored
solution that limits the growth that we see daily on too big to
fail, and there is already enough transformation into that
space as it is of----
Chairman Hill. Yes. You know, in those bad days of a lot of
failures between the S&Ls and commercial banks from, say, 1980
to 1996, we had a lot of expertise at the FDIC inside and
outside. We had a lot of experience, and they kept lists of
people who could provide capital.
Mr. Wiley, let me turn to you. You are in the investment
banking business for banks. You know, nonbank capital, I think,
should play a major role here, and this idea--we also have a
proposal for shelf charters, where people can come together, a
bank and nonbanks, and bring capital into a resolution
situation. Do you think that it would benefit the regulators to
have an idea of a preapproved self-charter concept to help find
more bidders?
Mr. Wiley. Yes, Mr. Chairman, from the eighties and early
nineties, we learned a lot of lessons, a lot of failures and
there was no capital available back then, if you remember, but
there were plenty of problem banks. Well, there is plenty of
capital today and what is interesting about all those banks
that failed in 2023 is that at one point they were all very
prime investment banks. In other words, investable
opportunities. They traded at high multiples, they were very
profitable, they did very well. They made some mistakes, most
of them asset liability management type. All they needed was
capital.
Chairman Hill. Yep.
Mr. Wiley. They were great institutions. All they needed is
capital. It was very sad to just see it flipped over to a money
center----
Chairman Hill. Appreciate that. Appreciate the increase in
competition and these good ideas.
I yield back to you, Mr. Chairman.
Chairman Barr. The gentleman yields.
The gentleman from Georgia, Mr. Scott, is now recognized.
Mr. Scott. Thank you, Chairman.
Mr. James, now, I am kind of disturbed about this. Why do
you believe that the President would do such a thing to take
and to cut $291 million from the CFDIC
It is a bipartisan deal. It is much needed. It is very
critical to both the rural and the urban parts of our district,
and most importantly, to the lower income and middle income
individuals of this Nation. I am really frustrated about that.
You know, and the President is a very smart man. He went to
the Wharton School of Finance. I did too. We were there at the
same time, but this really disturbs me. Why do you think he did
this?
Mr. James. Mr. Scott, thank you so much for your question.
I do want to acknowledge the broad bipartisan support for
the CDFI fund. The CDFI Caucus on the U.S. Senate side has an
equal member of--number of Republican and Democratic members. I
think that you are correct in articulating the wide and deep
impact of the CDFI fund across urban and rural communities
across the country.
Our institution is a great user of CDFI resources in order
to deploy capital in underserved communities. I just also want
to acknowledge that I do know that the Secretary of the
Treasury, Mr. Bessent, is a big supporter of the CDFI fund and
has announced his support for our institutions and continued
funding for the CDFIs.
Mr. Scott. Yes. Now, has the administration proposed any
type of alternative mechanism to generate the same scale of
private investment, particularly to the underserved
communities, the very group that needs the help the most?
Mr. James. Well, I do know that generally speaking, if you
look at the leverage power of CDFI funding, typically, CDFI is
going to leverage those dollars 8 to 1. So for every dollar
that is expended by the CDFI fund, there is going to be an
eight times leverage of that funding, which really is an ideal
public-private partnership, where the public sector puts in a
certain amount, but the private sector dollars that are coming
from these institutions is really leveraged eightfold in order
to have impacting communities.
I have not seen an alternative proposal that would have
greater impact than the CDFI fund, and we continue to encourage
broad--the broad bipartisan support of the fund and encourage
the administration to listen to members of their party as well
as Democratic members with regard to support for the CDFI fund.
Mr. Scott. Yes. Let us take, for example, a very needed but
yet vulnerable group, and that is first time home buyers. What
is going to help them? This is particularly true that in the
President's Fiscal Year 2016 budget proposal to eliminate CDFI
fund programs used by credit unions, like financial assistance
(FA) and technical assistance (TA). How will that impact first
home buyers with this going away?
Mr. James. Yes. In addition to the CDFI fund, of course,
first time home buyers are impacted by lack of access to
capital with small community banks, as well as limitations on
liquidity. I think it is an all-of-the-above approach. You
know, we certainly support continued funding for CDFIs, but we
also really want to make sure that we have access to other
sources of capital as well as liquidity.
Mr. Scott. Well, we are going to continue to fight this,
both Democrats and Republicans. A lot of very needed people,
whether they be White, Black, rural Americans, it is truly an
American program to help Americans from every single walk of
life. We have to find help for them.
Chairman Barr. The gentleman's time is expired.
The gentleman from Michigan, Mr. Huizenga, is now
recognized.
Mr. Huizenga. Thank you, Chairman Barr.
This brings me back to our work last Congress when I was
chair of the O&I, Oversight and Investigations, and you, as we
were looking at bank failures and things that had gone on
there. Obviously, part of that investigation into the bank
failures of SVB and Signature Bank became abundantly clear, I
think to all of us, that regulators were unprepared at that
time.
We found in our investigations that the FDIC ultimately
picked winners and losers when it came to resolving these bank
failures, sometimes very last minute. We heard stories about
not being able to get a decision made and having it be very
late in this, and that I think leads to a more difficult
outcome for the banking system.
Dr. Michel, I am going to start with you. I have long
advocated that nonbanks should have the equal opportunity to
purchase failed bank assets in the time of crisis, something
that I believe you just wrote about recently, and when you
said, quote, There is no good reason that anyone at the FDIC
should be able to decide winners and losers by making it more
difficult for nonbanks to purchase failed banks. All Americans
are paying for this mess as well as FDI insurance and they are
not banks, close quote.
During our investigation with both bank executives and
nonbank market participants, this is what we heard time and
time again, that the FDIC was slow to react, and that when they
did act and react, they created a scenario that allowed them to
use the systemic risk exemption in that.
My question to you is kind of two-part. Do you believe that
the decision by the FDIC to dismiss nonbanks from purchasing
SVB or Signature, ultimately, increased the cost to the
insurance fund and then in the concept of private nonbank
investors bidding for failed banks, that is not really a new
concept, correct? Expound on that a little bit, if you would.
Mr. Michel. Sure. I certainly think that it increased the
cost of the overall resolution. Whether it was specifically to
the Depositors Insurance Fund (DIF), I would have to defer. I
suspect that it did raise the cost. It is not a new concept,
and I think it is sort of the hesitancy to blur the line, if
you will, between, say, securities or capital markets and
banking. It is sort of a holdover from the Glass-Steagall era.
It is not helpful. It was not a good idea then.
There is a lot of economic research that shows that the
banks that were mixed with capital market firms were actually
safer and sounder and better capitalized and better able to
withstand turmoil, and there is really no economic reason to
think that would not still be the case now. Yes, it is not at
all helpful. It is not economically sound.
Mr. Huizenga. In writing, because I am down to 2 minutes, I
am going to ask you to expound on why do you think it was that
way, and I think you were touching on it, but we will send that
question to you as to what created that situation.
Mr. Michel. Okay.
Mr. Huizenga. I do want to kind of take a jumping off spot
from where Chairman Hill was when it comes to bank resolution.
Regulators were given certain tools after the 2008 financial
crisis, and do you believe they effectively used those tools
during the 2023? For example, Federal regulators could have
used orderly liquidation authority in 2023, but they chose not
to.
Anyone care to weigh in on that?
Mr. Michel. It is a mystery.
Mr. Huizenga. Mystery? Kind of a shrug? Had the tool, just
did not use it. Okay. Well----
All right. Mr. Barresi, one of the potential missed
opportunities during the run of bank failures in 2023 was the
purchase of First Republic Bank by JPMorgan Chase. One of the
largest banks in the world became larger. In addition, we heard
stories of deposit fleeing community financial institutions to
safer ground in the, quote, too-big-to-fail banks. This puts
the smaller institutions at a competitive disadvantage.
Do you think allowing community and regional banks to merge
would help promote competition with the larger banks which have
gained more of the market share post-Dodd-Frank?
Mr. Barresi. No question. Thank you for the question,
Congressman Huizenga. No question that allowing smaller and
regional banks to merge would provide for greater competition
with larger institutions. We have a problem right now where you
see midsized banks getting hollowed out, and they need to be
recreated through the combination of some regional banks and
smaller banks to facilitate a good competitive environment.
Mr. Huizenga. That ultimately should be what it is about, a
competitive environment that allows the customer the best
product and the best opportunities and the freedom of choice on
how they are going to do their banking, in my humble opinion.
With that, I yield back. My time has expired.
Chairman Barr. The gentleman yields.
The gentleman from California, Mr. Vargas, is recognized.
Mr. Vargas. Thank you very much, Mr. Chairman. I appreciate
the opportunity again. I want to thank the witnesses for being
here.
Mr. Barresi, we have your curriculum vitae here, and we
also heard from you. You started off Main Street banks, you
went to the super regional bank, talked about the banking
system here being the envy of the world and the engine of
economic growth, and we need to be able to move quickly.
What about crypto? Is it something that is going to allow
us to move quickly? Is it safe for banks? Is there a problem
there? Is there a risk there?
You are the banker--you are the attorney. Could you comment
on that?
Mr. Barresi. Sure. First, thank you for the question.
I think there are risks with all financial products. I
think the action that Congress took recently to adopt the
GENIUS Act was good action to take a measured approach with
respect to crypto. The issuers of payment stablecoins would not
be permitted to be financial institutions, and I think that is
a smart decision.
Mr. Vargas. Did we pick winners or losers there?
Mr. Barresi. No, I do not think that you picked winners or
losers with respect to the GENIUS Act so far. I would also note
that we have a long way to go before regulations are
implemented.
Mr. Vargas. Did we put banks at a disadvantage? I mean, we
hear from banks now. Some of them say that they were placed at
a disadvantage.
Mr. Barresi. I would say that there are questions about
whether that will cause migration of deposits, and we will see
what happens with respect to remaining legislation and
regulation. I think that there is a long way to go before the
regulation is ultimately seen.
Mr. Vargas. Okay. Dr. Michel, good to see you again.
Same question for you. I mean, we heard about picking
winners and losers. I did remember, I think Cato commented--you
could comment if you would like--on the government taking 10
percent position on intel. I mean, are we picking winners or
losers there?
Mr. Michel. That one is pretty clear. No. Surprisingly, no,
I am not a fan of that decision.
Mr. Vargas. No, I know. I mean, I find that interesting but
I--you know, I respect your positions and that you are very
ideologically driven.
I do have the question and--the same question for you. What
about crypto, the bill that we passed, did we pick winners or
losers there?
Mr. Michel. Well, I mean, I do not think anything is
perfect, any bill is perfect. I think crypto is a broad term. I
think we have to be careful with how we would use--exactly what
we are talking about.
I think stablecoins, for example, if we are talking about
fully backed stablecoins as a payment option, I do not see any
reason to say that, by itself, is overly risky and should be
kept out of the banking system, whether it is through a
relationship where a bank is providing a fintech company with a
relationship, or whether it is a bank providing the stablecoin.
No, I would--I would blend--I have no trouble blending
that.
Mr. Vargas. Okay. Fair enough. I do have to say, the
comment aside, I do find interesting my colleagues on the other
side often talk about not picking winners or losers, yet they
seem to be fine with intel. I do not seem to hear a comment out
of them, a peep. I do hear it from ideological groups, so I
think it is appropriate.
It would be appropriate, too, maybe if we heard it from
some on the other side, but I think the base might be a little
tough on them because of who is in favor of that.
Moving on, CDFIs, I mean, you spoke a little bit, Mr.
James, about it but could you speak about it in the context of
the rural areas of Georgia and other places? I mean, everybody
thinks it is an urban. That is not true. It is both, right?
Mr. James. Thank you, Mr. Vargas. The vast majority, I
would say--not maybe vast, but the majority of CDFI resources
are directed toward rural communities across the country. I
think that is something that is very clear.
If you look at the membership, again, of the CDFI caucus on
the Senate side, you see members from both highly urbanized
States, as well as very rural States because of recognition
that rural communities actually have an outsized benefit from
the CDFI fund.
Our institution, again, we are located in an urban area,
but we have made a very intentional decision to make sure that
we are reaching those underserved rural communities as well
with resources that we have been able to win from the CDFI
fund.
Mr. Vargas. Thank you. I have about 20 seconds left. So I
want to say, it is interesting when you talk about diversity,
equity, and inclusion (DEI) or CDFIs. Everybody talks about
urban communities, and yet we hear a lot of the damage it does
in rural communities when you do away with these programs.
So anyway, with that, I thank the chair, and I yield back.
Chairman Barr. The gentleman yields.
The gentleman from Texas, Mr. Williams, is now recognized.
Mr. Williams of Texas. Thank you very much. Thank you all
for being here today.
One of the main issues I hear from lenders every day back
in Texas is how regulatory costs are squeezing community's
regional banks from capital requirements that do not reflect
the bank's true risk profile, duplicate of reporting the
liquidity standards. Smaller institutions are spending more and
more time and money on compliance instead of serving their
customers and static thresholds on one-size-fits-all frameworks
forcing Main Street lenders to divert resources away from small
business loans and mortgages and undermining their role as the
backbone of local economy.
Dr. Michel, can you discuss some of the costs that burdens
and regulations have on the broader economy, whether you think
the volumes of regulations even make the financial system more
stable?
Mr. Michel. Sure. I mean, anything--any service that a bank
is going to provide, or any other financial company is going to
be providing, you will have less of it.
The higher the cost that you implement, or that you force
on to the bank, or the financial companies. So that is a cost
sometimes that is difficult to measure because it is the
absence of something, but we know, for example, in Mr. James'
communities and others, there is an issue with banks being able
to serve their communities and one of those reasons is
certainly regulatory cost. It is not easy to comply with
banking regulation writ large, and many of the specific pieces
of it as well.
Mr. Williams of Texas. Thank you. The bank resolution
process plays an important role in protecting depositors and
maintaining confidence in a banking institution that fails but
if the FDIC lacks sophistication and transparency in the
bidding process, it can limit the options available for healthy
institutions to continue serving their customers and
communities. So that can make it hard to preserve a diverse and
competitive banking system.
Mr. Barresi, I was interested in your discussion of the
need for the FDIC to evaluate the capital capacity of potential
buyers more thoroughly, which could expand the pool of
potential buyers to include smaller and regional banks.
How can Congress reform the bank resolution process to
ensure it supports competition and avoids accelerating
consolidation in the industry?
Mr. Barresi. Thank you, Congressman, for the question. I do
think there are several things that the FDIC could do to
provide more competition in connection with failed bank
process, and I think you could direct it to be more flexible in
its activity with respect to least-cost resolution as one
illustration.
I think there are other tools that the FDIC could utilize
to ease that process. I mentioned maintenance of live data
rooms that would contain the kind of information that people
like Mr. Wiley would advise them on maintaining. Also, frankly,
the FDIC use of technology and tools to help not only identify
and resolve situations that create risk, but also to help
identify buyers and the paired offerings by multiple
institutions or institutions of capital.
Mr. Williams of Texas. Thank you. Mr. Carney, custodial
deposits have become an increasingly important tool, especially
as more businesses look for efficient ways to manage funds on
behalf of customers. For banks, these accounts offer low cost
of reliable source of funding, and for businesses, they provide
the convenience of pooling client money in one place with the
added protection of deposit insurance.
So at a time when community and regional banks are
competing for stable funding sources, these arrangements can
make a real difference.
My question is, could you elaborate on how custodial
deposits are a way for regional and community banks to have
access to additional sources of low-cost funding?
Mr. Carney. Custodial deposits are a form of funding that
is appealing to many institutions, but we think that the
biggest problem with the deposit framework right now is the
treatments of broker deposits, where it is a treatment that is
fundamentally outdated and has not been updated in over 35
years.
When the program deposit framework was first put in place,
banks advertised through newspapers, the internet was in its
infancy and iPhones did not exist. So, we are really trying to
focus as much attention as possible on the removal of Section
29 of the FDIA and replacing it with restrictions on asset
growth for less than well-capitalized banks.
Mr. Williams of Texas. Thank you. I will give some time
back, and I yield back to the chairman.
Chairman Barr. The gentleman yields.
The gentlewoman from California, the ranking member, Ms.
Waters, is now recognized.
Ms. Waters. Thank you very much. My question will be
directed to Mr. James.
Following the regional bank failures in 2023, including
Silicon Valley Bank, it quickly became apparent that our
deposit insurance framework needed to be updated. Small
businesses have enough to do. They should not have to be a bank
regulated and figure out if their federally regulated bank
would suddenly fail, especially if another bank failed.
At a minimum, they should be able to maintain their payroll
and operating funds at a bank and be assured that they can
still pay their workers even if their bank suddenly closes.
Furthermore, while small businesses who banked at SVB were
rescued by the government taking emergency action, there have
been at least 37 smaller bank failures since 2007, including
one in Oklahoma just last year where no emergency tools were
used, and small businesses lost money through no fault of their
own.
That is why I introduced H.R. 4551, the Employee Paycheck
and Small Business Protection Act, to improve emergency tools
and require the FDIC and National Credit Union Administration
(NCUA) to take a data-driven approach to expand deposit
insurance, to not only protect small businesses and their
workers, but allow their smaller lenders and midsized banks to
compete for these deposits. Other Republicans agree, with
Treasury Secretary Bessent voicing support for reform, and
similar proposals introduced by Senators Bill Hagerty and Mike
Braun, as well as Vice President JD Vance when he was in the
Senate.
Mr. James, it has been about 15 years since Congress last
updated our deposit insurance framework. What do you think?
Should we expand it as I have proposed to help community banks,
small businesses, and their workers?
Mr. James. Ranking Member Waters, thank you so much for
your question and thank you for authoring the Employee Paycheck
and Small Business Protection Act. We are very large--very
major supporters of that legislation to modernize FDIC
insurance coverage, as well as other approaches to ensure that
small community lenders have access to more liquidity.
It is very important that our institutions are able to in-
source capital. Many of the institutions that our member banks
serve are the lower income communities that are serving both
rural and urban communities across the country, and most of
those communities do not have access to additional cash.
So when we have small businesses that are innovating within
our communities and growing because of the capital that we are
investing in them; We want to be able to keep those customers;
We want to be able to not have them outgrow us.
So the FDIC insurance coverage should--should modernize so
that we can keep those customers with us instead of,
essentially, pushing them toward these banks that have been
deemed too big to fail.
Ms. Waters. Thank you very much. I have heard when I came
into some discussion about CDFIs and you know that CDFIs and
MDIs have been a bipartisan affair for many years, and I am
very much involved in trying to strengthen the CDFIs.
Even in Trump's first term, Republicans and Democrats
worked together to ensure these community financial
institutions could support underserved communities.
Congresswoman Velazquez and I, with former Treasury Secretary
Mnuchin, we worked with him to secure a $60 billion set-aside
for community leaders, including CDFIs and MDIs to provide
paycheck protection program loans to small businesses.
We worked together with congressional Republicans to secure
$12 billion in capital investments for CDFIs and MDIs.
Unfortunately, now the White House is seeking to undermine the
progress, including withholding funds that Congress previously
appropriated.
In case my colleagues have forgotten, CDFIs operate in all
50 States and have issued over 19 million loans totaling more
than $300 billion supporting underserved communities in rural
and urban areas alike and are ignored by traditional banks.
Mr. James, has the CDFI fund been a good investment for
taxpayers? Would you briefly discuss how CDFIs have helped
borrowers in rural communities?
Mr. James. Ranking Member Waters, yes, the CDFI fund has
been an excellent investment for taxpayers, and I want to
personally thank you for the bipartisan work that you did
during the first Trump Administration to ensure access to
capital and resources for CDFIs and the President for signing
that legislation into law.
The most historic investment in CDFIs in the Nation's
history has had enormous impact in urban and rural communities,
job creation, as well as home ownership and access to capital.
Chairman Barr. The gentlelady's time has expired. The
gentleman from Georgia----
Ms. Waters. Thank you very much.
Chairman Barr [continuing]. the vice chair of the
subcommittee, Mr. Loudermilk, is recognized for 5 minutes.
Mr. Loudermilk. Thank you, Mr. Chairman.
Mr. Carney, how do banks typically adjust their behavior as
they approach regulatory threshold, and what are the broader
implications of this dynamic?
Mr. Carney. As banks approach regulatory threshold, they
are looking at increased compliance cost as they cross that
threshold.
Oftentimes, they defensively manage their balance sheets to
try and stay underneath that threshold or they, what we say is
jump a threshold, where they seek out an acquisition to spread
the increased compliance cross--across a broader institution.
What this does, though, is it inhibits organic growth,
which is really what you want to see with a bank. It also
dilutes regulatory resources because the more banks that cross
a threshold, the more scrutiny the regulators are having to
give, and that dilutes their focus.
Mr. Loudermilk. Let me follow on to that. Dodd-Frank's one-
size-fits-all approach has been one of its most criticized
aspects. Mid-sized regional and small community banks, which
did not contribute to the financial crisis, have been subjected
to the same regulatory regime designed for the largest, most
complex financial institutions.
My Taking Account of Institutions with Low Operation Risk
(TAILOR) Act would require Federal regulators to tailor their
regulations in accordance with the size, business model, and
risk of each type of firm they regulate.
Can you speak to the impact that an approach like the
TAILOR Act would have on these midsized regional and small
community banks?
Mr. Carney. I think it would be very beneficial. ABA has
supported the TAILOR Act in the past and will likely do so
again. It is not--it is complementary, I think, to the indexing
approach that we are recommending. The two can work together.
Mr. Loudermilk. Okay. Thank you.
Dr. Michel, what can Congress do to streamline and improve
the bank resolution process to promote competition, broaden
participation, and prevent industry consolidation?
Mr. Michel. Well, the more radical approach would be to get
it out of the FDIC. You know, bankruptcy is supposed to be an
orderly resolution of a company, and there is really no
economic reason not to do that. FDIC deposit insurance is the
reason that we do it the way we do it but if you are in regular
bankruptcy and you take your money out of a company really fast
before the judge gets to go in and resolve the company, you
have to bring it back. So that could theoretically still work.
That would be one way to do it.
If you are not going to do it that way, I understand why.
You know, but then there are--there are ways to open it up a
bit more, so you let nonbank companies--or nonbank financial
companies get involved in bidding processes.
A lot of the way that this is driven is specifically to
combine a larger and a smaller bank to make the asset size
larger and theoretically sounder, but that is not necessarily
the case. That is historically what has happened.
I think, honestly, the systemic risk exception is a
mistake. If you are going to resolve the bank, resolve the
bank. If stability is the reason that you are regulating, then
an open bank resolution--although it was disastrous from a cost
standpoint in the 1990s with the S&L crisis, an open resolution
is the way to do that.
Mr. Loudermilk. What would be your recommendation to
Congress on what to do to----
Mr. Michel. I would take the all-of-the-above approach.
Mr. Loudermilk. Okay. All right. Thank you.
Mr. Wiley, are there ways that you think the FDIC could
improve the bidding process for failed bank assets through
self-charters and nonbank capital?
Mr. Wiley. Pardon me. How can they improve the bidding
process?
One, I think they need to take their time a little bit
more. Speed is essential when there is deposit runs, but at the
same time, this is why I have a little bit of a problem with
the least-cost initiative that comes in. I think it misses the
point of what is best for the overall system.
When we put all the deposits at risk, these large deposits,
then it adversely hurts the smaller community banks versus the
larger banks, which are too big to fail. So the resolution
needs to take that into account.
There has been less than $1 billion, I think, the FDIC has
had to force them to eat on large deposits over time, because
they tend to get it back. Is it really worth it? There is a lot
of talk about what the new deposit risk minimums ought to be
and the resolution process.
At the end of the day, the best legislation ever enacted
was the FDIC insurance. It stabilized economies for all time,
and we are fine-tuning it. We have to remember that it is a
system with confidence. It is about confidence.
So when we can introduce more competition and take delays,
use bridge banks like they did in the late 1980s, self-
charters, things like that, I think you will have better
results.
Mr. Loudermilk. Thank you, Mr. Chairman. I yield back.
Chairman Barr. The gentleman yields.
The gentleman from California, Mr. Sherman, is now
recognized.
Mr. Sherman. Thank you. Thank you for holding this hearing.
I know we are focused a bit on Silicon Valley Bank and its
resolution. We should not lose track of why it failed. It
failed because we did not deal with interest rate risk, and we
still do not. We do not force it to mark-to-market, both its
held-to-maturity and it has available-for-sale bonds.
As long as we do not do that, we have perverse incentives
where a bank can invest in long-term instruments, sell them at
a profit if they go up, or hide the loss if they go down and
that creates a perverse incentive for executives and board
members.
The least-cost method of resolving an institution butts up
against our desire to have--to give an advantage to smaller
banks if they are bidding on some or all of the assets. Keep in
mind, if you increase the cost, that cost then has to be borne
by all the banks in the country through increased FDIC premiums
that are ultimately passed on to depositors. So, we have to
balance our desire to help small banks with our desire not to
have these additional costs incurred.
A lot of this hearing is about brokered deposits, whether
that be reciprocal, which is, in effect, a brokered deposit or
the traditional brokered deposit. We are not focused much here
on just increasing the $250,000 limit, but, in effect, brokered
deposits do just that.
So a rule will be going forward, the limit is kept at
$250,000, unless there is a middleman who can make a profit by
splitting it up and sending it to a bunch of institutions.
Mr. Wiley, I believe, talks about us not having a
threshold. On the other hand, if you are going to have separate
rules for smaller institutions than larger institutions, you
got to have a threshold between them.
I would like to see us having more than one category so
that moving from category A to category B is not moving from
category A to category Z but we simultaneously are told to have
not one-size-fits-all but to have special rules for smaller
banks. Now we are being told, when a smaller bank becomes
larger, we should not apply the standards that we have for
banks of that new size.
Mr. Carney, do your members find value in the flexible
terms available from the regional home loan banks in their
area?
Mr. Carney. Yes. Banks of all sizes have very good
relationship with the Federal home loan bank system, and it
serves a critical role in liquidity.
Mr. Sherman. Thank you. I would like to note that the
recent bipartisan National Housing Crisis Task Force action
plan released in June showcased the importance of community
development financial institutions' access to the Federal home
loan banks as a key tool in addressing housing affordability.
We do not have anyone here, I believe, from the credit
union side of things, but I would just point out that we need
to have parity what we do for banks should also be done for the
credit unions.
The--Senators Hagerty and Alsobrooks have offered an
National Defense Authorization Act (NDAA) amendment to increase
deposit insurance, NCUA insurance, up to $20 million for
noninterest-bearing transactions accounts.
Mr. Carney, is that a movement in the right direction to
allow small-and medium-sized banks to continue to hold on to
businesses as they get larger?
Mr. Carney. ABA has not taken a position on any deposit
insurance legislation. Instead, we have developed a series of
recommendations that focus on FDIC emergency authorities,
studying increased deposit insurance levels, and reforming the
resolution framework.
We think that bills that are being introduced are useful
discussion points, and it is worth having the discussion now
while we are not in a crisis situation.
Mr. Sherman. Thank you. I yield back the last 8 seconds.
Chairman Barr. The gentleman from Tennessee, Mr. Rose, is
now recognized.
Mr. Rose. Thank you, Chairman Barr and Ranking Member
Foster, for holding this important hearing, and thanks to our
witnesses for taking time to be with us today.
I want to highlight the issue of limited banking access for
independent ATM operators. Many have reported difficulty in
establishing and maintaining existing banking relationships due
to a mistaken belief that they pose a higher money laundering
risk despite little or no evidence to substantiate that.
Additionally, some have lost long-standing bank accounts
without clear explanation, often due to overly cautious
compliance practices. It is crucial to address and prevent the
debanking of independent ATM operators in my opinion.
Mr. Carney, would the American Bankers Association support
requiring merging banks to demonstrate how their post-merger
compliance framework will balance anti-money laundering
obligations with the statutory duty to meet the convenience and
needs of lawful businesses such as independent ATM operators?
Mr. Carney. I think there are two components to that
question. One, for the first part, banks that are going through
a merger are complying with Bank Secrecy Act (BSA) requirements
before, during, and after the merger.
To the broader question, though, you raise a very
interesting point related to compliance, BSA compliance, and
access to financial services and the rules on the BSA side are
very much outdated. They are more focused on cash transactions
than anything else, which does raise some flags with those
independent operators that you are talking about.
It is worth mentioning that over 20 million Currency
Transaction Reports (CTRs) annually are filed. That is one out
of almost every 16 Americans, which is an extremely high
amount. The net is capturing too much, and I think there needs
to be an evaluation of whether or not those levels are set at
the right level.
Mr. Rose. Okay. Thank you.
Mr. Carney, roughly, what percent of American Bankers
Association members currently provide banking services to
independent ATM operators?
Mr. Carney. I do not have that information, but I can try
and find it.
Mr. Rose. Yes, if you please will, and maybe respond in
writing as we move forward.
Dr. Michel, should banks that categorically deny services
to entire industries like independent ATM operators without
individualized risk assessments be reflected negatively in
their ratings during merger reviews?
Mr. Michel. Well, given the Bank Secrecy Act requirements,
I would have to say no, that is not really fair. I think the
problem--I think really that is the core of the problem. It is
the BSA. It is overly broad, a lot of discretion there and we
know that it is not--it is catching up a lot more people in a
dragnet than actually criminals.
That is, I think, the base of the problem, really, or the
core of the problem. It is not the banks. It is not the ATMs.
It is the Bank Secrecy Act.
Mr. Rose. Sure. I guess I would--to maybe give a little
background here, I had worked on this issue during the time I
have been in Congress. Former Congressman Blaine Luetkemeyer
and former Congresswoman Carolyn Maloney and I worked--dug into
this issue, ultimately, achieving getting the prudential
regulators to amend the Federal Financial Institutions
Examination Council (FFIEC) examination manual to note
specifically that independent ATM operators do not present an
extraordinary risk.
Then, ultimately, we were able to get each of the
regulators that participated in the FFIEC to note in specific
to their examiners that this was not the case. Yet, we
continued to see banks debanking independent ATM operators.
So it is a very real concern to me. While I hear what you
are saying about the Bank Secrecy Act, I think there should be
sufficient guidance at this point to banks that there should
not be a categorical disadvantage given to customers who
operate independent ATM networks.
Mr. Barresi, the Bank Merger Act requires consideration of
anti-money laundering compliance, but is it not equally
important to ensure that the banks are not being overzealous in
applying those rules in ways that result in broad denial of
services to lawful industries, like ATM operators?
Mr. Barresi. I think in--again, in this ATM operator case,
it is a difficult case, and I do not know enough about the ATM
operator and--and I think BSA/anti-money laundering (AML)
compliance is a real issue.
In my view, the regulatory analysis that has historically
occurred in connection with bank mergers is plenty robust in
its current form, and I would not look to expand that.
Mr. Rose. Thank you. My time expired. I yield back.
Chairman Barr. The gentleman yields.
The gentleman from Mr. Illinois, Mr. Casten, is now
recognized for 5 minutes.
Mr. Casten. Thank you, Mr. Chair. Thank you all for being
here.
I have to preface this by saying the questions I am going
to ask are completely bizarre, because it never would have
dawned on me a year ago that I would ever be asking the
questions I am about to get to, but we are in different times.
I am going to preface that by saying that I think the
single best way--and I presume you would all agree--the single
best way that we ensure a robust financial system is to ensure
a robust economy. Rising tide tends to lift all boats.
Number two, everything that we all learned of substance in
our freshman macroeconomics class is now deeply partisan. I
learned that an independent Fed was a good idea. I learned that
the 1890s and having a financial panic every decade was bad,
and the United States policies that led to that were bad but to
acknowledge that now is to be partisan in this town.
I say all that because I would like you to answer this as
if it was a year ago, because I think my freshman
macroeconomics book is still right. As a friend of mine who
describes herself as an Anarcho-Libertarian recently told me,
this moment is proving that the economists are always right.
That is funny and not funny.
Mr. Carney, I want to start with you specifically given the
ABA's role in our mortgage markets. The Fed, of course, there
is all this pressure for the Fed to cut rates, but the Fed, of
course, only cuts the overnight borrowing rate and the--I think
the general consensus--and I guess I would ask you if you
agree--that 30-year mortgages tend to index more off the 10-
year Treasury than the overnight rate.
Would you agree with that?
Mr. Carney. I think that is generally correct.
Mr. Casten. Okay. I think Fannie has made that point as
well.
So what is your sense, then, of why it is that over the
last several months we have seen a steepening yield curve? Put
another way, a growing spread between the Fed funds rate and
the 10-year Treasury. The 10-year Treasury has not really
budged much, even through the rate been cut over the last
several months.
What is your sense of why that yield curve is steepening
right now?
Mr. Carney. I am not in a position to actually answer that.
I can ask some of our economists to try and find out more
information on why that spread is occurring. There could be a
variety of factors related to increased credit risk or things
along those lines.
Mr. Casten. Okay. Well, I mean JPMorgan, one of your
members, has said that the--they have ascribed it to concerns
over tariff uncertainty, higher nature of inflation and fiscal
deficits.
Mike Konczal, the Twitter writer, has described this as the
moron premium because if you have a risk about the long-term
stability, you tend not to assume that current things are going
to work through. In that vein, we have now got these attacks on
the independence of the Fed, a tax on Lisa Cook.
Citadel CEO--a pretty partisan guy, I would add--recently
wrote an op-ed saying that these actions risk stoking high
inflation and higher long-term rates. We have attacks on--you
know, I guess if you do not like the data now, you just fire
the head of the data agency. So we fired the head of Bureau of
Labor Statistics (BLS) because BLS gave numbers that--that a
certain man-child did not like.
Dr. Michel, in a recent New York Times article talking
about that firing, you said, quote, ``We will just start seeing
things get chipped away and eventually it kind of blows up.''
Would you agree that when the government manipulates data,
as we saw when Argentina distorted their inflation rate, when
we saw that when Greece manipulated deficit, that tends not to
end well?
Mr. Michel. Yes, I would agree with that. That is not a
good spot to be in. Hope that does not happen.
Mr. Casten. Did you ever think we would be at a point where
we would be comparing U.S. macroeconomic policy to Argentina
and Greece?
Mr. Michel. Not in this way, no.
Mr. Casten. It just strikes me that we are sitting in this
moment. Well, we are talking about bank stability. We all want
bank stability, right? Why would the Fed lower rates right now?
Inflation is close to 3 percent. It is not at the 2 percent
target.
The way to lower inflation would be to cut tariffs, but
that would, of course, to be--acknowledge the 1890s monetary
policy was stupid. We are not going to do that.
So maybe we are going to lower rates because unemployment
is going to go so high, and I guess the--all of these
employment data is pointing in that direction, but stagflation
is a terrible idea for all of us. If we cannot, on a bipartisan
basis, acknowledge that my freshman macroeconomics textbook is
still right, then we are going to make all of your banks, all
of your clients in a--much, much less stable than they are.
I just hope we can--we can start acting like adults again
pretty soon and not just on this side of the aisle.
I yield back.
Chairman Barr. Gentleman yields.
Gentleman from South Carolina, Mr. Timmons, is now
recognized.
Mr. Timmons. Thank you, Mr. Chairman. I guess I will start
by saying I wish my colleagues across the aisle had not spent
$7 trillion in their 4 years to get us into this situation with
high interest rates and high inflation.
Now, on to the actual subject at hand. When Congress passed
S. 2155, we recognize that small community banks, particularly
those in rural areas, were being overburdened by capital
requirements that were originally designed for the largest and
most complex institutions. That is why we created the Community
Bank Leverage Ratio.
The Community Bank Leverage Ratio (CBLR) was intended to
provide a simpler, more appropriate capital framework for low-
risk community banks. It was supposed to reduce compliance
costs and give small institutions a clearer path to demonstrate
capital adequacy, allowing them to focus more on serving their
customers and less on navigating complex regulatory frameworks.
However, the results so far suggest that the framework is
not functioning as intended. Today, only about 41 percent of
eligible community banks have chosen to opt in. That tells us
there is a disconnect between the policy goal and the practical
outcome.
For small banks operating with limited staff in tight
margins, unnecessarily high capital requirements mean fewer
loans to small businesses and fewer resources for their
communities.
Mr. James, what are some of the reasons that only about 41
percent of community banks have opted into the CBLR?
Mr. James. Congressman, I think some of the reasons are
some of the things that you stated in your question. I mean, I
think our institution, as well as the National Bankers
Association, are in support of the Community Bank Capital
Flexibility and Growth Act of 2025, which would adjust down
slightly those--that community bank leverage ratio in order to
allow us to deploy more resources for staff as well as systems
that will help us to be more efficient in serving the
community.
So I cannot speak for all the institutions that did not opt
into the Community Bank Leverage Ratio. We have. We tend to be
very conservative about how we manage our capital, but it would
allow us a little more flexibility if we could move that number
down slightly so that we could invest those resources back into
growing our team, as well as our technology resources to better
serve the communities across the State of Georgia and Alabama.
Mr. Timmons. Thank you for that.
Follow up to that, Mr. Carney, what are some potential
changes that could make the CBLR a more practical and
attractive option for these institutions?
Mr. Carney. Just to pick up where Mr. James started, when
we talked to institutions about opting into the Community Bank
Leverage Ratio, one of the things that we have heard is that
banks like to hold buffers above any regulatory minimum. So, a
bank opting into 9 percent might only be comfortable doing that
if they are at 11, 12, 13 percent.
Oftentimes, we have been very disappointed that only 1600
of the roughly 4,000 institutions eligible have opted in. We
are supportive of lowering the Community Bank Leverage Ratio,
and also, we are supportive of increasing the threshold in
which banks may opt in. That is another $10 billion mark.
Chair Barr mentioned the Durbin amendment and a number of
other things that are tied into $10 billion, and this is
another one and this is another threshold that can be indexed.
Mr. Timmons. Thank you for that.
I would also like to highlight the critical role that
community banks and credit unions play in the rural areas of my
district.
Many of these institutions have served local families and
small businesses for generations. Their success is not built on
sophisticated technology, but on deep relationships and trust
within the community. Yet, I consistently hear from these
institutions that the rising cost of compliance and the
duration of regulatory examinations are placing significant
strain on already limited resources and personnel.
One particular area of concern is the treatment of brokered
deposits. For many community banks, brokered deposits are a
critical tool for managing liquidity in a safe-and-sound
manner. However, inconsistent definitions and overly broad
restrictions have created significant regulatory uncertainty,
even in cases where there is little to no elevated risk.
Mr. Wiley, can you discuss some of the ways community banks
use the brokered deposits to access funding that allows them to
make more loans to small businesses and families?
Mr. Wiley. I am sorry. I am struggling to hear you a little
bit.
More ways that banks can access funding, is that what you
said?
Mr. Timmons. Can you discuss some of the ways community
banks use brokered deposits to access funding that allows them
to make more loans to small businesses and families?
Mr. Wiley. Well, I do think they need them. I do think that
the rules need to be relaxed a little bit, and they need to be
customized for the bank, and they need to be used--judgment
needs to be used by the local regulators.
Mr. Timmons. Thank you for that.
It is essential that our regulatory framework reflects the
realities community banks face and that it supports their
continued role in strengthening local economies.
With that, Mr. Chairman, I am out of time, and I yield
back.
Chairman Barr. The gentleman yields back his 5 seconds.
The gentleman from Massachusetts, Mr. Lynch, is now
recognized.
Mr. Lynch. Thank you, Mr. Chairman and Ranking Member
Foster, and I want to thank the witnesses. You have been very
helpful today.
In the wake of the--some of this is going to follow up on
Mr. Huizenga's line of questioning earlier. In the wake of the
collapse of First Republic, Silicon Valley Bank, and Signature
Bank in 2023--at the time those were the second, third, and
fourth largest bank failures in U.S. history--consumer and
advocacy organizations, such as Better Markets and Americans
for Financial Reform raised some serious concerns about the
advantages that were being afforded to large, interconnected
financial institutions in bidding for the assets of those
failed banks.
Now, while Federal law prohibits large banks with more than
10 percent of total U.S. deposits from acquiring another bank,
that nationwide depository cap does not apply, as you know, to
the acquisitions of failing banks. As you also know, the FDIC
is currently required to resolve a failed bank by selecting the
bid that would present the least cost to the deposit insurance
fund.
In the case of First Republic, JPMorgan Chase, the largest
U.S. bank with more than--well, now it has got more than $4
trillion in assets, entered into a purchase and assumption
agreement with the FDIC to assume more than $100 billion in
deposits, and $230 billion in assets, and a deal that included
a FDIC loss share agreement that greatly reduced the risk and
cost of that acquisition by requiring the FDIC deposit
insurance fund to absorb the majority of losses that may have
resulted from certain First Republic loan portfolios.
While a number of healthy banks also bid to acquire First
Republic, JPMorgan officials stated that their winning bid was
predicated on the bank's financial strength and business model
that facilitated a minimal cost transaction.
Again, to Mr. Huizenga's point, JPMorgan then promptly
announced plans to shut down one quarter of First Republic's 84
branches, which they viewed as duplicative or redundant to
their own operation and their existing network, at the expense
of depositors who were left with no local branch, and then we
had about a thousand employees who were laid off.
So Mr. James, as we seek to promote health in the banking
sector, can you offer us your perspective on why it might be
important to ensure that smaller qualifying institutions,
community banks, regional banks, might have a fair shot when it
comes to bidding on the assets of those failing banks?
Mr. James. Thank you, Congressman.
The diversity of our financial institutions is extremely
important to the functioning of our economy. I think one of my
colleagues stated earlier that the American financial system is
the best in the world because of its diversity, because of the
different types of institutions.
So we would support maintaining that diversity,
particularly when it comes to resolution. Ensuring that smaller
institutions have fair opportunities to acquire and resolve
failed institutions is critical to those depositors in the
communities that those institutions were serving.
Mr. Lynch. That is great. Thank you.
So I will be introducing my legislation, the Failing Bank
Acquisition Fairness Act to enhance fairness in this bidding
process and recognize the critical role that smaller financial
institutions, either community banks or regional banks, serve
to provide tailored banking services to their communities and
advance financial inclusion.
Specifically, my bill would restrict larger financial
institutions that hold more than 10 percent of total U.S.
deposits from acquiring failed bank assets where community
banks or other smaller institutions have also submitted a
qualifying bill.
So I am grateful to my friend, French Hill, Chairman Hill,
and Chairman Barr for attaching a discussion draft of this
legislation to be discussed today.
Do any of the other witnesses have any thoughts on that? I
mean, it seems to make sense that if we want to increase
competition, and also, we want to provide--provide those
services to a wide--a wider community, then it is better to
let--let as many banks bid as possible and have the opportunity
to be successful.
Mr. Carney. So ABA is supportive of expanding the least
cost test and what bids are considered, things we have
considered--thought about is community bank consortium bids.
The FDIC generally also has a preference for whole bank, which
automatically excludes smaller institutions because it is very
difficult for a small bank to put a bid on a larger
institution. However, you could bid on parts of it, and so we
do think these are issues worth exploring.
Mr. Lynch. Okay. That is great.
Mr. Chairman, my time has expired, and I yield back. Madam
Chair, sorry.
Mrs. Kim [presiding]. Thank you.
I now recognize the gentleman from Nebraska, Mr. Flood, for
5 minutes.
Mr. Flood. Thank you, Madam Chair. Thank you all for being
here.
It seems to me the fundamental question that we have today
is how should we prioritize different policy goals as it
relates to the bank resolution process?
One recent instance where we saw some of these public
policy goals collide in real time during a fast-paced
resolution process was during the collapse, as Mr. Lynch noted,
of First Republic Bank back in 2023. After being appointed
receiver for First Republic, the FDIC entered into a purchase-
and-assumption agreement with JPMorgan Chase to assume all of
First Republic's deposits and most of its assets.
Now, because of this agreement, the regulators did not have
to use the systemic risk exception for First Republic. Instead,
they found a transaction that would allow another bank to take
on the uninsured deposits and, thus, save the DIF from another
costly hit after the collapse of Silicon Valley Bank and
Signature Bank in March of the same year.
If your objective is to minimize losses to the DIF, this
move made sense. To be clear, with the statutory least-cost
resolution for the FDIC of minimizing cost to the DIF is their
primary objective.
The question here is whether we, as policymakers, should
adjust the priorities of our regulators in these situations
going forward. While I understand that is the merits of the
least-cost resolution, I understand that. If we end up with
resolutions that lead to a U.S. bank crossing the 10 percent of
total U.S. deposits threshold, particularly since there were
reports of other bids on First Republic, then perhaps we need
to think more about which factors we are optimizing to.
So my first one is for Mr. Barresi. Do you feel that the
least-cost resolution mandate should remain unchanged? If not,
what do you think the other factors we need to consider are in
the process?
Mr. Barresi. Thank you for the question, Congressman.
No, I do not think the least-cost resolution provisions
should remain unchanged. I do think that careful analysis is
required to understand cost, right? We talked a little bit here
today about restricting competition. There is cost associated
with that, although that is not viewed as part of the equation
currently.
Timing is also another factor but I do think that some of
the policy suggestions that you have made are very helpful and
enabling other institutions to participate, or even have a
successful bid, if it is a reasonable bid, over a--north of 10
percent bidder is helpful to competition in the system and
should be implemented.
Mr. Flood. Thank you.
Dr. Michel, how do you think we should think about these
conflicting priorities in this area? If we are weighing the
public policy objective of minimizing the cost of the DIF
against the public policy objective of preventing further
market concentration of the banking market, what is the right
way to think about this effective balance between these two
competing priorities given that, in my opinion, when you exceed
10 percent of all U.S. deposits, that can be very dangerous and
to have that kind of market concentration.
Mr. Michel. Well, I mean, you cannot have everything, so to
speak, right? I mean, if you are going to have the FDIC run
this, and you are going to have exclusively FDIC deposit
insurance, and you are exclusively going to have to protect it,
then you have opened the door and you have created the reason
to have all of these rules and regulations, you know.
Yet, you still have a fair amount of discretion, and good
reason to believe--or at least reason to believe that the
primary reason nonbankers were held out of that resolution
process was simply a bias against nonbanks by the chairman at
the time.
So, I mean, I think you could pick any one area that you
want to, sort of, focus in on and restrict more, but--like,
eventually, you are going to have to pick something, right?
Mr. Flood. Understood. You know, in my opinion, if we tweak
how the FDIC handles the resolution process, I will not want to
inject lots of subjectivity and complexity to it.
To your point, I know that the American Bankers Association
has supported some policy change around resolutions, and my
time is running out. I think it is important, though, that we
pay attention as Members of Congress to the market
concentration issue as banks get bigger.
I come from a State that prides itself on community banks
and sometimes I wonder will we be able to preserve this very
Main-Street level of banking opportunity for people in my
State.
Thank you. I yield back.
Mrs. Kim. Thank you. I now recognize the gentlewoman from
Ohio, Mrs. Beatty, for 5 minutes.
Mrs. Beatty. Thank you, Madam Chair, and ranking member,
and thank you to the witnesses for being here.
Madam Chair, let the record show that I had a series of
questions on CDFIs, but in light of the conversations, so many
of those questions being addressed, I would just like to enter
into the record that I support those words and especially those
of Ranking Member Maxine Waters.
Mrs. Kim. Sure. Without objection.
Mrs. Beatty. Also, in that same light, I would like to
express that the March executive order by President Trump that
directed the funds to be reduced or eliminated is not something
I support, nor that in May of this year when the White House
put out their budget documents that included a proposal to wind
down CDFI funds, that I am also in opposition with that.
Now, with that said, I will move on to the reciprocal
deposit bill and say thank you first to Mr. James for your
comments in support of that. I would also like the record to
know that I have colleagues on both sides of the aisle, and
three members on the other side who are cosponsors of that
bill, and Andy Barr mentioned it today prior to his leaving.
Mr. James, I am going to start with you. Before I go to my
question, let me just say thank you. I have had some time and
have been in Savannah, Georgia, and have some mutual banking
friends who had just praised the work that you and your
family--that you have done and that you continue to do there in
your financial institution.
Thank you for identifying working with CDFIs, or MDIs, only
2021 in the country now of MDIs. You used the terminology,
``financial freedom'' and thank you for that, because I think
that puts into perspective what we do here when we talk about
the economy and we talk about finance, that one of the things
in banking is to make sure that we have financial freedom for
individuals.
I will go on to my bill with Congressman Emmer and myself.
As you know, this bill updates the reciprocal deposit caps to
allow for greater flexibility for community banks to receive
nonbrokered treatment of reciprocal deposits.
Can you have some dialog with us on what types of
depositors use reciprocal deposits, and are they business
folks, are they individuals, not-for-profits, et cetera?
Mr. James. Congresswoman, first of all, thank you very much
for the bill, and thank you for continuing to have a bipartisan
support for expanding opportunities for small community
institutions like ours to access deposits that we can in-source
back into our community.
Our institution has survived for 98 years. We will be
celebrating our 98th birthday in February 2026 and the reason
we have been able to do that is because we have been able to
invite a diversity of institutions to support us.
So the types of institutions that support our institution--
which, again, is headquartered in a census tract that has
almost 70 percent poverty--are individuals, corporations,
nonprofits, municipalities, and larger financial institutions.
It is really critical for us to be able to deliver services
and have impact in our community to deliver on our mission,
which is to provide the building blocks to financial freedom,
to be able to bring capital from other places. Folks in
corporations, or larger institutions, or nonprofits that are
interested in the impacts that we have in community and are
willing to make large deposits with us have allowed us to
actually almost double the size of our institution on the heels
of the historic investment in the CDFI fund that has trickled
down into our institutions.
So, being able to access that liquidity from larger
organizations has really amped up our ability to invest in
small businesses and home ownership and----
Mrs. Beatty. My time is going to run out but I did want to
go to Mr. Carney and ask him, how important are reciprocal
deposits, in your opinion?
Mr. Carney. Reciprocal deposits are important, and
expanding their access without any sort of negative inference
from regulators is very important.
The legislation you mentioned would be a positive step
forward. Again, we think that the bigger issue relates to
brokered deposits and the need to repeal Section 29 of the
FDIA.
Mrs. Beatty. Thank you. Hopefully, we can continue this
dialog.
I yield back.
Mrs. Kim. Thank you and I now recognize myself for 5
minutes of questioning, and I would thank all of our witnesses
for joining us today.
In California, where I am from, community banks have relied
upon the Community Bank Leverage Ratio to lower their
regulatory burden, and instead, invest that money saved in the
communities around them.
However, if we could lower the Community Bank Leverage
Ratio by an additional percentage point or more, we could see
even more community banks uplifting their surrounding
communities. Congressional Research Service (CRS) estimated in
2020 that lowering the Community Bank Leverage Ratio from 9
percent to 8 percent would result in an additional 550 banks
being eligible for a simple capital ratio and lower regulatory
burden.
So in California an additional eight banks would have been
able to receive regulatory relief and spend more time focused
on their community and customers. That is why I am introducing
the Community Bank Lift Act, which would review the components
of the leverage ratio, and allow regulators to lower the
Community Bank Leverage Ratio and make needed reforms to the
ratio.
So combined, my bill will help uplift community banks and
allow them to better serve the communities. Now, let us talk
about the community banks that have opted into the Community
Bank Leverage Ratio framework.
Can you tell me--Mr. Carney, let me start with you--what
benefits would they experience compared to the traditional
capital requirements?
Mr. Carney. The Community Bank Leverage Ratio allows banks
to--if they opt in, to just do a simple leverage ratio
requirement rather than the complex risk-based regime. There is
significant compliance costs related to the risk-based regime.
The first immediate savings would be taking that compliance
cost and being able to deploy it in the communities that they
serve.
By lowering to 8 percent or lower, you would also lower the
minimum capital requirement that they are using, and that would
free up resources. One thing I just want to note is that even
banks that--many banks that are eligible have not opted into
the framework even though they have--exceed the capital levels.
In part, that is because they want to maintain buffers
above any minimum threshold. As a result--you mentioned 500
banks. I would expect, if you dropped it to 8 percent, you
would actually have more than 500 banks opting in.
Mrs. Kim. I was talking about how it affects my district,
too but as we can see, there are some tangible impacts that
this will bring on our community.
Mr. Carney. Absolutely.
Mrs. Kim. Can you also talk about how would that additional
flexibility allow community banks to support small businesses
through more robust lending? Can you talk a little more----
Mr. Carney. Oh, sure. Absolutely. Capital generally is
viewed as the most expensive form of funding. It is a buffer.
It is the first exposure to taking a loss at a bank. Therefore,
investors demand a higher--higher rate. Those higher amounts
would be passed through to customers if you have higher capital
requirements.
So by lowering the Community Bank Leverage Ratio, in
effect, you are making products and services for bank customers
cheaper and more available.
Mrs. Kim. Thank you. In 2023, when Silicon Valley Bank
collapsed, many of my constituents feared that this would be
the first of many California banks to collapse. Thankfully,
that did not happen and--but we have been proactive now to
ensure that we learned from that crisis. One thing that we have
identified through those subsequent hearings is that there is a
stigma associated with the discount window.
Let me ask this question to Mr. Wiley. Do you have any
recommendations on how we can address the stigma surrounding
the discount window?
Mr. Wiley. The stigma around what again?
Mrs. Kim. The stigma around----
Mr. Wiley. Oh, the Discount Window. Yes, I am sorry.
Mrs. Kim. The Discount Window. Yes.
Mr. Wiley. Well, there should not be one, that is for sure,
and maybe that is communication and promotion from the
regulators more than anything. I do not think there should be a
stigma with that at all, but you have to assume that there will
be some banks that do not go to the Discount Window and say--
you know, try to use that against their competition.
I will tell you, in dealing with trust preferred and
Treasury lending and things like that in the past, you know,
from 2008, that stigma was not real big.
Mrs. Kim. Let me ask a question to Mr. Barresi. What role
do you think confidentiality protections could play in removing
the stigma around the Discount Window, since you seem to know
more about it?
Mr. Wiley. Do I think there should be some
confidentiality----
Mrs. Kim. I am talking to Mr. Barresi.
Mr. Wiley. Oh, I am sorry.
Mr. Barresi. I do think the confidentiality requirements,
if expanded, would help remove stigma. I know lots of banks
that are very worried about accessing the Discount Window, some
who do periodically test and very intentionally do it in very
small denominations so it is clear that when publication occurs
they do not need it. So anything that could make the tap more
confidential would help, as would requiring banks to do it more
consistently.
Mrs. Kim. Thank you. My time is up.
Let me now recognize the gentleman from Texas, Mr. Green,
for 5 minutes.
Mr. Green. Thank you, Madam Chair.
I thank the ranking member for her comments and would
associate myself with the comments of the ranking member.
I would call to our attention the intelligence that has
been provided to me indicating that there are 4,487 FDIC-
insured institutions, and it is my belief that less than 50 are
Black-owned. In fact, less than 40 are Black-owned. To be more
accurate, less than 30 are Black-owned. To be even more
accurate, less than 1 percent are Black-owned.
I am interested in knowing how we can use this topic of
funding access to acquire more Black banks. I have been with
friends who started banks. It is not easy to acquire Tier 1
capital. Tier 1 capital. There is not a Black bank in the
country with $10 billion in Tier 1 capital; probably two exceed
$1 billion, probably two.
Now, Mr. James, you are much more educated on these things
than I, so correct me, do we have more than two Black banks
with Tier 1 capital exceeding a billion dollars?
Mr. James. Thank you for the question, Congressman Green.
Actually, there are 25 Black-owned institutions in the
United States, and there are two that exceed $1 billion in
total assets. Technically, no, there are no institutions that
are Black-owned that have more than a billion dollars in Tier 1
capital. These are institutions that are just over a billion
dollars in total assets.
Mr. Green. The truth is this: We did not get here because
Black people are not intelligent, because they cannot count,
because they cannot be educated. It is racism. So the question
becomes, how do we overcome this racism so that Black people
can own banks and acquire capital? I do not have the answer,
but I know what has created the problem. Until we confront
this, I am not sure that we will be able to resolve the issues
associated with starting and maintaining Black banks.
Mr. James, do you have any answer for me to help me
understand how we can acquire more Black banks and deal with
the racism that still exists?
Mr. James. Thanks again. I do want to acknowledge that in
the last 5 years, for the first time in American history, we
have seen a convulsion in the United States economy, such as
what happened during the pandemic, and actually not seen a
decline in African American owned institutions.
Typically, you know, when you had the Great Depression or
the Great Recession, you would lose--typically around half of
the Black-owned institutions would fail because they were
undercapitalized. In the last 5 or 6 years, there has been more
capital available, and so we have actually seen a slight
uptick. At the beginning of the pandemic there were only 19
Black-owned banks and now there are 25. That is good news.
I think it would be very helpful to, again, you know,
reduce that Community Bank Leverage Ratio to a smaller--to a
smaller number to increase the access for reciprocal deposits
and other forms of liquidity so that you can have smaller
institutions of all types, whether they serve urban and rural
communities, whether they be Black-owned or owned by anyone
else, where you just could encourage more competition and more
different types of institutions.
Regulatory reform is also important, because if we can
evolve regulatory regulation, we can have more institutions.
Mr. Green. I am going to have to intercede--I will have to
intercede because I have to close with this. Two things. The
first is, I think that we can do things to help all banks, but
at some point we will have to do something to help Black
people. We really will. We did not get here because we were
unable to help ourselves. It was because others would not allow
us to help ourselves.
The final thing is, are there no women who can do what you
men do? I always pay attention to who is on these panels. All-
male panel, but for this African Amer---I assume you are
African American. You look like one to me. I do not know but
for the Democrats, we would not have an African American on the
panel.
Mr. Fitzgerald [presiding]. The gentleman's time has
expired.
Mr. Green. The gentleman's time has always expired. I yield
back.
Mr. Fitzgerald. The gentleman yields back.
I now recognize the gentleman from Pennsylvania, Mr.
Meuser.
Mr. Meuser. Thank you, Mr. Chairman.
Thank you to our witnesses for the last couple of hours,
2.5 hours of testimony. Important information being provided.
Thank you.
In 2018, Congress passed S. 2125--or 55 to tailor
regulations for banks on asset size, providing relief to
community banks. The Trump Administration now is continuing
this push, moving away from a one-size-fits-all regulatory
approach, while the Biden Administration really was pushing the
opposite way. Recently, Fed Vice Chair of Supervision Bowman
proposed changes to Community Bank Leverage Ratio, a framework
that allows community banks to meet a single simple capital
standard of 9 percent, as you well know and we have been
discussing.
Important changes to reciprocal deposits like those
proposed in Emmer's bill, which I co-sponsored, could provide a
stable source of funding for smaller banks, especially those
that rely on the reciprocal deposits to give their customers
extra protection.
Mr. James, I would like to start with you. Community banks
follow complex rules that assign different capital requirements
depending on the type of asset they hold. The Community Bank
Leverage Ratio takes a simpler approach. Banks just need to
hold capital equal to at least 9 percent of the total assets.
Why is this a simpler standard--why is this simpler standard
more effective? Do you believe in it, and how would lowering
that threshold as Vice Chair Bowman suggested help banks like
yours?
Mr. James. Thank you very much for your question. I want to
echo the comments earlier of my colleague, Mr. Carney. Just
simplicity and flexibility. I mean for a small institution like
ours that has a very limited staff and limited resources,
complying with complex rules just takes resources away that we
could otherwise deploy in communities. By having that Community
Bank Leverage Ratio, that simplifies one of the many myriads of
regulatory requirements.
If you want to encourage more institutions and more
competition and more access to capital, particularly within
regulated financial institutions, so that you are not just
having a proliferation of nonregulated banks and financial
institutions, then reducing that Community Bank Leverage Ratio
is a good idea, because it will bring more people back into a
regulated financial system that would not expose folks to as
much risk.
Mr. Meuser. Very well said. Thank you.
Mr. Carney, similar question. What do you see as the
biggest advantage of having capital requirements designed
specifically with community banks in mind?
Mr. Carney. The Community Bank Leverage Ratio is
specifically designed for community banks. It does provide the
relief that we have been discussing. We would like to see that
relief expanded. We would like to see the Community Bank
Leverage Ratio level drop to 8 percent at most. Regulators can
do that currently within their purview now, but Congress can
actually drop it lower than that amount also.
By doing so, you will have more banks opt in. Banks have
typically tried to hold buffers above regulatory thresholds. If
it is 9 percent now, they would only be comfortable opting in
if they were at 11, 12, 13 percent. By lowering that ratio, I
think you would have--community banks would have a lot more
resources to deploy into their communities and compliance costs
would be cut.
Mr. Meuser. All right. Important comments. Thanks.
On a scale of 1 to 10, how hard is it for community banks
to comply with the current complex rules compared to the
straightforward CBLR?
Mr. Carney. The Community Bank Leverage Ratio is almost
automatic. It is a leverage ratio within the call report, so
compared to anything else, it is a lot easier.
Mr. Meuser. Great. Mr. Wiley, reciprocal deposits are a way
for banks to give customers more FDIC insurance coverage than
the usual 250K limit. For the benefit of people back home, can
you explain in simple terms why banks engage in them?
Mr. Wiley. Why do banks typically use reciprocal deposits?
Mr. Meuser. Yes.
Mr. Wiley. One, to access funding because they need it and
they are growing. Two, customers that they have, they want to
reduce the risk and try to get under the $250,000 limit.
Mr. Meuser. Do you see any harm in it? Do you see any harm
in it?
Mr. Wiley. Pardon me?
Mr. Meuser. Do you find any harm in it?
Mr. Wiley. Do I find harm in it?
Mr. Meuser. Right.
Mr. Wiley. No.
Mr. Meuser. Okay. Good. That is what I wanted to ask. All
right.
Mr. Chairman, I yield back my time.
Mr. Fitzgerald. The gentleman yields back. I now recognize
myself for 5 minutes.
Thank you, gentlemen, for being here this afternoon.
I am also a member of the Judiciary Committee, chairing the
Antitrust. My first question kind of goes to--it is a bigger
question--but I believe, my opinion, the Biden-Harris
Administration took kind of a negative posture toward mergers
and acquisitions across the board, resulting in applications
being substantially--they were either delayed or there was very
little transparency. U.S. bank mergers faced kind of a unique
multiagency review requirement involving both antitrust and
prudential regulators. In my opinion again, caused delays and
uncertainties. It was varying from whatever sector you were
referring to.
Healthy mergers can increase, obviously, competition to
make the banking system more dynamic. Allowing banking
organizations to realize the economies of scale and scope via
mergers or acquisitions creates competition and generates cost
savings that can be passed on. I understand that there are
issues with the size of some of these institutions, but I just
felt there was kind of a negative approach to this.
So, Mr. Barresi, it is kind of self-serving, but I have a
bill, the Bank Competition Modernization Act, which is noticed
to this hearing, including the provision directing regulators
to find that mergers resulting in a bank with less than $10
billion in assets do not create a monopoly or substantially
lessen competition.
So given your experience--I know you have kind of addressed
some of this stuff directly and on the fringe here this
afternoon--but can I just ask you, what is your opinion on
this, and given your experience advising banks, specifically
finance firms and fintechs, how do you advise them to approach
this moving forward?
Mr. Barresi. I think your proposal is--would be very
helpful and if I can, I am going to try to tie together a few
things we have talked about. It is incredibly difficult for
small banks to compete in the United States of America. If you
look at ratios of returns on assets, returns on equity,
multiples in the market, stock price, in other words, there is
a direct correlation between size or scale on the one hand and
positivity on the other. Good returns.
Small banks face a huge uphill battle and allowing them to
combine in a way that is efficient and fast and does not cause
them operational difficulty while they are waiting for
extensive periods of time to obtain approval is very helpful.
Banks are subject to tons of competition from credit unions and
financial technology companies. You are hard pressed to say
that you cannot find access to financial services in the United
States, except in some rural areas where it can be hard to get
physical presence.
So I think what you suggest is a good idea, and I think it
would help not only with the approval process but with a host
of things that we have discussed as to why it is tough to be a
small bank.
Mr. Fitzgerald. Mr. Carney, let me just ask you quickly.
The Competition Modernization Act is designed to ensure
regulators fully account for all types of competitors,
including credit unions, the farm credit institutions, and
nonbank financial companies. How would you include these
additional entities in a competitive factor when you are trying
to analyze this, giving the regulators a more complete picture
of the full market?
Mr. Carney. The merger rules are over 30 years old now.
Goes back to 1995. Banking and financial services have
fundamentally changed and so taking into account competition
wherever and however that competition occurs is important.
Focusing in on local bank branches is no longer appropriate.
Mr. Fitzgerald. Very good.
I will just finish, Mr. James, can you talk a little bit
about when you are involved in a merger and you find yourself
having to continue to market your services and you are caught
in maybe a 90-day holding pattern?
Mr. James. Thank you for the question. Yes, I think quicker
resolution of merger and acquisition activity would always be
helpful so that you can stop focusing on compliance and
regulation and be more focused on--and get more focused on
customers. You know, we have seen instances where customers get
concerned about the debit card number changing and core
conversions, and those are real operational issues that we
would rather focus on, rather than complying with regulation or
responding to inquiries from supervisors.
Mr. Fitzgerald. Very good. Thank you so much.
I would like to thank all the witnesses. Thank you,
gentlemen, for being here this afternoon.
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 the
response. Witnesses, please respond no later than October 14,
2025.
This hearing is adjourned.
[The information referred to can be found in the appendix.]
[Whereupon, at 4:36 p.m., the subcommittee was adjourned.]
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