[Congressional Record (Bound Edition), Volume 157 (2011), Part 15]
[House]
[Pages 21362-21364]
[From the U.S. Government Publishing Office, www.gpo.gov]




           IMPACT OF INSURED DEPOSITORY INSTITUTION FAILURES

  Mr. WESTMORELAND. Mr. Speaker, I move to suspend the rules and concur 
in the Senate amendments to the bill (H.R. 2056) to instruct the 
Inspector General of the Federal Deposit Insurance Corporation to study 
the impact of insured depository institution failures, and for other 
purposes.
  The Clerk read the title of the bill.
  The text of the Senate amendments is as follows:

       Senate amendments:
       On page 2, line 10, insert ``and'' after the semicolon.
       On page 2, line 14, strike the semicolon and all that 
     follows through line 19 and insert a period.
       On page 4, strike line 14 and all that follows through page 
     5, line 5, and insert the following:
       (2) Losses.--The significance of losses, including--
       (A) the number of insured depository institutions that have 
     been placed into receivership or conservatorship due to 
     significant losses arising from loans for which all payments 
     of principal, interest, and fees were current, according to 
     the contractual terms of the loans;
       (B) the impact of significant losses arising from loans for 
     which all payments of principal, interest, and fees were 
     current, according to the contractual terms of the loans, on 
     the ability of insured depository institutions to raise 
     additional capital;
       (C) the effect of changes in the application of fair value 
     accounting rules and other accounting standards, including 
     the allowance for loan and lease loss methodology, on insured 
     depository institutions, specifically the degree to which 
     fair value accounting rules and other accounting standards 
     have led to regulatory action against banks, including 
     consent orders and closure of the institution; and
       (D) whether field examiners are using appropriate appraisal 
     procedures with respect to losses arising from loans for 
     which all payments of principal, interest, and fees were 
     current, according to the contractual terms of the loans, and 
     whether the application of appraisals leads to immediate 
     write downs on the value of the underlying asset.
       On page 9, strike lines 15 through 19, and insert the 
     following:

     SEC. 2. CONGRESSIONAL TESTIMONY.

       The Inspector General of the Federal Deposit Insurance 
     Corporation and the Comptroller General of the United States 
     shall appear before the Committee on Banking, Housing, and 
     Urban Affairs of the Senate and the Committee on Financial 
     Services of the House of Representatives, not later than 150 
     days after the date of publication of the study required 
     under this Act to discuss the outcomes and impact of Federal 
     regulations on bank examinations and failures.

  The SPEAKER pro tempore. Pursuant to the rule, the gentleman from 
Georgia (Mr. Westmoreland) and the gentleman from Massachusetts (Mr. 
Frank) each will control 20 minutes.
  The Chair recognizes the gentleman from Georgia.


                             General Leave

  Mr. WESTMORELAND. Mr. Speaker, I ask unanimous consent that all 
Members may have 5 legislative days in which to revise and extend their 
remarks and to add extraneous material.
  The SPEAKER pro tempore. Is there objection to the request of the 
gentleman from Georgia?
  There was no objection.
  Mr. WESTMORELAND. Mr. Speaker, I yield myself such time as I may 
consume.
  The bill before the House today is one that will provide much needed 
transparency to the FDIC, the Federal Reserve, and the OCC bank 
examination and resolution procedures.
  First, I'd like to thank Chairman Bachus and Subcommittee Chairwoman 
Capito, Ranking Member Frank, and Subcommittee Ranking Member Maloney 
for their support of H.R. 2056.
  I'd also like to thank Senator Chambliss and his staff for working to 
pass this bill on the Senate side. We are pleased to have an agreement 
with the other Chamber, which is highly unusual, and look forward to 
the outcome of this study.
  As I have said many times before, there is no greater threat to our 
communities than bank failures, especially in my State of Georgia. 
Since the House last debated this bill in July, more banks in Georgia 
have been closed by the regulators. Now 73 banks are no longer serving 
their communities, and 22 banks alone have failed

[[Page 21363]]

in 2011. Sadly, there are some communities in my district that are no 
longer served by a community bank.
  I have often referenced the so-called ``ten over ten.'' These are the 
10 States that have had more than 10 bank failures since 2008. These 10 
unlucky States are Georgia, Florida, Illinois, California, Minnesota, 
Washington, Michigan, Nevada, Missouri and Arizona. In fact, six of the 
10 States have had more than 10 percent of their banks fail in the last 
3 years.
  Mr. Speaker, the deeper I dig into the actions of the FDIC, the Fed 
and the OCC, the more concerned I am that our community banks are being 
regulated like public utilities rather than the job creators they are. 
H.R. 2056 is designed to cut through all the information to analyze the 
underlying fundamentals that continue to cause bank failures across 
this country.
  The bill directs the FDIC Inspector General, in consultation with 
Treasury and the Federal Reserve IGs, to study the bank regulators' 
policies and practices with regard to loss share agreements, the fair 
application of regulatory capital standards, appraisals, the FDIC 
procedures for loan modifications, and the FDIC's handling of consent 
orders in cease and desist orders.
  Further, the GAO also has a study in the bill to pursue those 
questions that the FDIC IG is unable to fully explore, such as the 
causes of the high number of bank failures. The impact of fair market 
value accounting has been a tremendous impact on our banks. Analysis of 
this impact of the failures on the community banks is especially 
needed. The overall effectiveness of loss share agreements for 
resolving banks is another thing that should be looked at very 
carefully.
  The changes made by the Senate now ensure that the House Financial 
Services Committee and the Senate Banking Committee will have a hearing 
on this important study once it is issued.
  I know this bill can never bring back the banks that have been lost 
in this crisis, but this bill and the study will provide Congress and 
the communities in my district and in other districts the information 
they need to ensure these failures never happen again.
  I encourage my colleagues to support this bill.
  Mr. Speaker, I reserve the balance of my time.
  Mr. FRANK of Massachusetts. Mr. Speaker, I yield myself such time as 
I may consume.
  This was a matter brought to me by the gentleman from Georgia who 
just spoke, and his Georgia colleague, the gentleman, Mr. Scott, who's 
a member of the Financial Services Committee, because of their 
understandable concern that the impact bank failures could have in the 
State they represent. I am very supportive.
  I do want to make clear that nothing in the passage of this should be 
taken as a criticism of the FDIC. I have been very impressed with the 
leadership that was given to the FDIC by the recently retired chair, 
Sheila Bair, an appointee of President Bush, who was not only, I think, 
a first-rate chair at the FDIC, but gave us a great deal of her useful 
advice as we dealt with financial reform.
  Bank failures are an unfortunate fact of life. We don't want them to 
be done unnecessarily, but neither can they be avoided. And, obviously, 
in the overwhelming majority of cases, the problem is in the business 
community. The right to fail, as we must remind ourselves, is part of 
the right to do business.
  Having said that, I agree that what the FDIC does should be very 
transparent. And there is one aspect of what the FDIC does, not 
directly affected in this bill, but it's one that I think you have 
bipartisan agreement on in the committee, namely, and I will mention 
this because of its impact on our economy.
  Understandably, bank examiners felt very sensitive to criticism that 
during the first part of this century they did not say no to enough 
loans. Loans were made in the mortgage field that shouldn't have been 
made, but you cannot retroactively go back and undo that by now being 
too tough and denying loans that should be made. And we have had a 
frustration on the part of members of our committee because we hear 
reports from people in the field in the community banks that bank 
examiners are being too tough.
  No one wants to encourage imprudent lending, and the bank regulators 
tell us they agree with that; but I want to take every opportunity I 
can to remind the bank examiners that if they run into a situation in 
which no bank loan ever defaults, then they have been too tough because 
perfection is unattainable; and what we want to do is minimize the 
number of failures, but not move them out all together with a regime 
that will keep good loans from being made.
  Having said that, to go back to this, it is appropriate that we get a 
full study of what happens when a bank fails; and we would ask the 
FDIC, when they are dealing with a failed bank, to take into account 
the needs of that particular community so that the disposition is one 
that has some sensitivity, and that is what I think is here.
  I would just say, with regard to community banks, there was a 
continued recognition they're important. And I would just note in the 
financial reform bill signed last year, there were several provisions 
that were in there at the specific request of the community banks to 
help them. For example, one of the disadvantages community banks have 
felt is that people with large amounts to deposit would go to larger 
institutions because the limitation on deposit insurance would make 
them a little worried about going to a community bank.

                              {time}  1620

  We increase that number from $100,000 to $250,000, which is a 
significant advantage for community banks over the prior situation.
  We also, for the first time in our history, change the way in which 
assessments are levied on banks for deposit insurance by introducing a 
risk factor. Before the bill was signed, every deposit was levied the 
same amount of insurance cost. Now there is a risk factor, which means 
that, dollar for dollar, the larger institutions which engage in 
riskier activities will be paying more than the smaller institutions.
  We also extended, for a period--I would have liked to make it 
permanent; we didn't have the votes to do that--the transactional 
accounts.
  So, yes, we are aware of the importance of community banks. And I 
would just repeat what I said at the first, because I have found, 
surprisingly, that not everybody listens to everything I say the first 
time I say it. This is not meant as a criticism of the FDIC. It is a 
recognition of the importance of this process being open and that 
people understand it.
  So I say to the gentleman from Georgia (Mr. Westmoreland), the 
gentleman from Georgia (Mr. David Scott), they were serving their 
constituents well by bringing this forward, and I hope the bill passes.
  I reserve the balance of my time.
  Mr. WESTMORELAND. Mr. Speaker, I yield such time as she may consume 
to the chairwoman of the Financial Institutions Subcommittee of 
Financial Services, the gentlelady from West Virginia (Mrs. Capito).
  Mrs. CAPITO. Mr. Speaker, I want to thank the gentleman from Georgia 
(Mr. Westmoreland) for his leadership on this topic. He has been very 
dedicated to finding a solution here. He's worked with both sides of 
the aisle to find a way to get to the transparency and accountability 
that we need to have in terms of the examination process with our 
community banks, and I know he has been a tireless advocate for the 
communities in his district.
  We actually went to Mr. Westmoreland's district, to Newnan, Georgia, 
and had a legislative hearing, and we learned about the bank closures 
and the financial examination procedures. Regulators were all there. 
Financial institutions were there. But I think the one thing that 
struck me more than anything in the course of the conversation was, 
when a bank fails--and a lot of times a community bank is the only 
community bank, local bank, local ownership, know the people down the 
street. When that bank fails, it really guts the community in a way 
that's hard to describe.

[[Page 21364]]

  The larger banks are there; branches are there. But, still, losing 
that community anchor in a community bank can be a devastating thing, 
not just for individuals and families but also for the shop owner, the 
car dealer, the individual farmer, the folks that rely on the 
relationship banking that you get so spectacularly through a community 
bank. You lose that and, unfortunately, never to come back again in a 
lot of cases. I think that he's very concerned about that, and the 
people of Newnan, Georgia, in that district, are very concerned.
  This study I think will help us to see what's really going on here, 
pull the curtain back, look at the practices and the examination 
procedures. I know that Senator Levin made some technical changes in 
this, and I would like to thank Mr. Westmoreland for working with the 
Senator.
  Now, maybe that should be a life lesson for us here in terms of 
what's going on today, but I think we've reached a good consensus and a 
good agreement. We will hear the results of this study in our 
subcommittee and in our full committee to find out if we need to work 
with the regulators to change the regulations, make it so that what the 
banking institutions are hearing on the ground from their regulators is 
actually what is moving forward in their written reports that are sent 
to Washington, et cetera, et cetera.
  One of the things that we are challenged with here in Congress 
certainly is creating jobs and creating a climate where banks are going 
to lend and creating a regulatory climate where banks are going to lend 
and want to lend to small businesses. This issue that Mr. Westmoreland 
has highlighted I think will help us with that and, hopefully, will 
undo some of the needless shackles that some of our examiners are 
placing on our smaller institutions or on our community banks to be 
able to get back lending, and then our small businesses and job 
creators can then get back to the business of creating jobs so we can 
grow our economy.
  I would like to again thank everybody for their efforts, and I look 
forward to the passage of this bill.
  Mr. FRANK of Massachusetts. I yield back the balance of my time.
  Mr. WESTMORELAND. Mr. Speaker, I want to encourage all of the Members 
to vote for this. As the chairlady mentioned, we had a field hearing in 
my district with my colleague Mr. Scott from Georgia, also. I think it 
was a very good field hearing. We had testimony from bankers and from 
borrowers about the different regulations that had interfered with 
their ability to actually do business and the difference in the capital 
requirements that the FDIC is putting on some of these banks.
  We understand that the FDIC has to enforce the rules, but we do think 
there are some cases, as the ranking member mentioned, that there has 
been some overbearing on some loans that have been performing and are 
quality loans. So we think that this study will at least open some 
people's eyes to this and give us a better idea on maybe some of the 
things that we need to do to make sure that our community banks stay 
open.
  Mr. Speaker, I have no further requests for time, and I yield back 
the balance of my time.
  Mr. POSEY. Mr. Speaker, as an elected Representative from one of the 
states hardest hit by the financial crisis, I strongly support H.R. 
2056, introduced by my colleague, Representative Lynn Westmoreland, 
which takes a closer look at how our Nation's small community banks are 
failing at the hands of overzealous regulators.
  H.R. 2056 directs the Federal Deposit Insurance Corporation (FDIC) 
and the Government Accountability Office to study whether certain 
practices and procedures employed by federal regulators while examining 
financial institutions has played a role in a record number of 
community banks failing in recent years. Among these are important 
issues relating to loss-sharing agreements and examiners' policies 
relating to appraisals.
  Among other things, the FDIC must determine whether financial 
institutions are being placed into receivership or conservatorship due 
to significant losses arising from loans for which all payments were 
made on time and the contractual terms of the loans have been met. With 
Congressman Westmoreland, I believe that a performing loan is exactly 
that--one that is performing according to the terms of the contract. A 
regulator should not be able to step in and interject an opinion on why 
the loan may not perform at some point in the future, and thus penalize 
a community bank.
  The introduction and passage of this bill indicates that there is a 
real world problem here, one that deserves swift diagnosis and 
treatment. I have heard from bankers time and again that regulators 
have shifted away from considering objective evaluations of loan 
performance, such as borrower payment history, and looked instead to 
subjective opinions on whether a loan may experience difficulties in 
the future. No business can thrive in that kind of volatile 
environment. Community banks are struggling in Florida. To make matters 
worse, surviving banks are operating in fear of overzealous regulators 
and as a result, small businesses are finding it almost impossible to 
obtain the capital they need to expand and hire more workers. Community 
banks are the lifeblood of our local communities and are best 
positioned to help our economy recover if they are able to make loans, 
using reasonable underwriting standards, without being penalized by 
their examiners.
  It has been shown that states with the highest number of bank 
failures also have the highest unemployment and foreclosure rates in 
the country. That being said, it will be difficult to realize a full 
national economic recovery without addressing the issue of why so many 
small banks are closing their doors and why so many of them are unable 
to make loans in their community. As Congress continues to work to see 
that our economy recovers, it is essential that we press regulators for 
answers to the issues raised in Representative Westmoreland's study.
  No one wants to see a repeat of what transpired in 2008 and the 
effects that still linger on today. However, we must remember that 
small banks did not cause the financial crisis. Their business 
practices are by nature thorough and cautious. I urge my colleagues to 
take a serious look at the issues raised by Representative Westmoreland 
and join me in pressing financial regulators for answers.
  The SPEAKER pro tempore. The question is on the motion offered by the 
gentleman from Georgia (Mr. Westmoreland) that the House suspend the 
rules and concur in the Senate amendments to the bill, H.R. 2056.
  The question was taken.
  The SPEAKER pro tempore. In the opinion of the Chair, two-thirds 
being in the affirmative, the ayes have it.
  Mr. WESTMORELAND. Mr. Speaker, I object to the vote on the ground 
that a quorum is not present and make the point of order that a quorum 
is not present.
  The SPEAKER pro tempore. Pursuant to clause 8 of rule XX, further 
proceedings on this question will be postponed.
  The point of no quorum is considered withdrawn.

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