[House Report 117-229]
[From the U.S. Government Publishing Office]
117th Congress } { Report
HOUSE OF REPRESENTATIVES
2d Session } { 117-229
======================================================================
PROMOTING NEW AND DIVERSE DEPOSITORY INSTITUTIONS ACT
_______
January 20, 2022.--Committed to the Committee of the Whole House on the
State of the Union and ordered to be printed
_______
Ms. Waters, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 4590]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred
the bill (H.R. 4590) to require the Federal banking regulators
to jointly conduct a study and develop a strategic plan to
address challenges faced by proposed depository institutions
seeking de novo depository institution charters; and for other
purposes, having considered the same, reports favorably thereon
with an amendment and recommends that the bill as amended do
pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 3
Section-by-Section Analysis of the Legislation................... 4
Hearings......................................................... 5
Committee Consideration.......................................... 5
Committee Votes.................................................. 5
Committee Oversight Findings..................................... 5
Statement of Performance Goals and Objectives.................... 5
New Budget Authority and C.B.O. Cost Estimate.................... 5
Committee Cost Estimate.......................................... 7
Federal Mandates Statement....................................... 7
Advisory Committee Statement..................................... 7
Applicability to Legislative Branch.............................. 7
Congressional Earmarks, Limited Tax Benefits, and Limited Tariff
Benefits....................................................... 7
Duplicative Federal Programs..................................... 8
The amendment is as follows:
Strike all after the enacting clause and insert the
following:
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Promoting New and Diverse Depository
Institutions Act''.
SEC. 2. STUDY AND STRATEGIC PLAN.
(a) In General.--The Federal banking regulators shall jointly--
(1) conduct a study about the challenges faced by proposed
depository institutions, including proposed minority depository
institutions, seeking de novo depository institution charters;
and
(2) submit to the Committee on Financial Services of the
House of Representatives and the Committee on Banking, Housing,
and Urban Affairs of the Senate and publish publically, not
later than 18 months after the date of the enactment of this
section--
(A) an analysis based on the study conducted pursuant
to paragraph (1);
(B) any findings from the study conducted pursuant to
paragraph (1); and
(C) any legislative recommendations that the Federal
banking regulators developed based on the study
conducted pursuant to paragraph (1).
(b) Strategic Plan.--
(1) In general.--Not later than 18 months after the date of
the enactment of this section, the Federal banking regulators
shall jointly submit to the Committee on Financial Services of
the House of Representatives and the Committee on Banking,
Housing, and Urban Affairs of the Senate and publish publically
a strategic plan based on the study conducted pursuant to
subsection (a) and designed to help proposed depository
institutions (including proposed minority depository
institutions) successfully apply for de novo depository
institution charters in a manner that promotes increased
availability of banking and financial services, safety and
soundness, consumer protection, community reinvestment,
financial stability, and a level playing field.
(2) Contents of strategic plan.--The strategic plan described
in paragraph (1) shall--
(A) promote the chartering of de novo depository
institutions, including--
(i) proposed minority depository
institutions; and
(ii) proposed depository institutions that
could be certified as community development
financial institutions; and
(B) describe actions the Federal banking regulators
may take that would increase the number of depository
institutions located in geographic areas where
consumers lack access to a branch of a depository
institution.
(c) Public Involvement.--When conducting the study and developing the
strategic plan required by this Act, the Federal banking regulators
shall invite comments and other feedback from the public to inform the
study and strategic plan.
(d) Definitions.--In this Act:
(1) Depository institution.--The term ``depository
institution'' has the meaning given in section 3 of the Federal
Deposit Insurance Act, and includes a ``Federal credit union''
and a ``State credit union'' as such terms are defined,
respectively, under section 101 of the Federal Credit Union
Act.
(2) Community development financial institution.--The term
``community development financial institution'' has the meaning
given in section 103 of the Riegle Community Development and
Regulatory Improvement Act of 1994.
(3) Federal banking regulators.--The term ``Federal banking
regulators'' means the Board of Governors of the Federal
Reserve System, the Comptroller of the Currency, the Federal
Deposit Insurance Corporation, the National Credit Union
Administration, and the Director of the Bureau of Consumer
Financial Protection.
(4) Minority depository institution.--The term ``minority
depository institution'' has the meaning given in section
308(b) of the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989.
PURPOSE AND SUMMARY
On July 21, 2021, Representative Auchincloss introduced
H.R. 4590, the Promoting New and Diverse Depository
Institutions Act, which would require Federal banking
regulators to conduct an 18-month study examining challenges
prospective de novo depository institutions face. (A de novo
depository institution is a newly chartered depository
institution.) The bill would also require Federal banking
regulators to develop a strategic plan based on the study to
promote the creation of newly chartered depository
institutions, especially minority depository institutions
(MDIs) and community development financial institutions
(CDFIs), in a manner that promotes increased access to
financial services, including in banking deserts, as well as
safety and soundness, consumer protection, and community
reinvestment.
BACKGROUND AND NEED FOR LEGISLATION
Since the 1980s, the banking industry has steadily
consolidated.\1\ In 1985, there were more than 18,000 banks;
today, there are fewer than 4,500.\2\ There has been similar
consolidation of credit unions: in 1985, there were more than
15,000 credit unions; today, there are a little more than 5,000
credit unions.\3\ Moreover, despite a mandate that banking
regulators work to preserve the number of MDIs and encourage
the creation of new MDIs pursuant to Section 308 of Financial
Institutions Reform, Recovery, and Enforcement Act of 1989
(FIRREA), there has been a one- third decline in the number of
MDIs since the 2008 financial crisis, with a more steep 52
percent decline in the number of Black-owned banks.\4\
---------------------------------------------------------------------------
\1\See Testimony of Sarah Edelman, Center for American Progress,
before the House Subcommittee on Financial Institutions and Consumer
Credit hearing entitled, Ending the De Novo Drought: Examining the
Application Process for De Novo Financial Institutions (Mar. 21, 2017).
\2\FDIC, BankFind Suite: Find Annual Historical Bank Data (accessed
July 22, 2021), and FDIC, Quarterly Banking Profile (Third Quarter
2021).
\3\NCUA, 1985 Annual Report (April 1986), and NCUA, Quarterly Data
Summary Reports (Third Quarter 2021).
\4\Specifically, in 2008, there were 215 MDI banks, including 42
Black-owned banks, and today, there are 142 MDI banks, including only
20 Black-owned banks. See FDIC, Minority Depository Institutions
Program--Historical Data Year-by-Year 2001-2020 (accessed July 22,
2021). As of 2013, there were 805 MDI credit unions compared to 527 MDI
credit unions today. See NCUA, Minority Depository Institution
Preservation (accessed July 22, 2021).
---------------------------------------------------------------------------
While the industry consolidation has occurred over the past
few decades, the formation of de novo depository institutions
has slowed in recent years. Between 2009 and 2019, 64 new banks
were chartered, compared to 1,837 new banks that were chartered
between 1998 and 2008. There have been a range of reasons given
for this development. For example, while some have suggested
these developments are driven by regulatory factors, Federal
Reserve research suggests there may be a stronger correlation
between the number of new banks formed in recent years and the
interest rate environment and other non-regulatory factors.\5\
Even at times when more de novo banks are being chartered,
research has shown that new banks are financially fragile, in
some cases failing at more than twice the rate established
banks fail.\6\
---------------------------------------------------------------------------
\5\Robert M. Adams and Jacob P. Gramlich, Federal Reserve Board,
Where Are All the New Banks? The Role of Regulatory Burden in New
Charter Creation, (Dec. 16, 2014).
\6\See Yan Lee and Chiwon Yom, FDIC, The Entry, Performance, and
Risk Profile of De Novo Banks, (Apr. 7, 2016).
---------------------------------------------------------------------------
While Federal banking regulators have advanced their own
initiatives in recent years to support MDIs and CDFIs as well
as the formation of de novo depository institutions,\7\
regulators have not conducted a joint study or detailed a
strategic plan on steps that could be taken to encourage the
formation of new depository institutions, including MDIs and
CDFI depository institutions. H.R. 4590 would require them to
do so. This effort to encourage the formation of de novo
depository institutions, especially MDIs and CDFIs, complements
recently enacted legislation to shore up and strengthen
existing MDIs and CDFIs, specifically through $12 billion in
capital investment and grant programs to support MDIs as well
as CDFIs enacted into law in December 2020.\8\ In 2021, the
Department of Treasury and the CDFI Fund announced the
deployment of nearly $10 billion of these funds to support
these diverse and mission-driven community financial
institutions.
---------------------------------------------------------------------------
\7\See, e.g., FDIC, FDIC Rescinds De Novo Time Period Extension;
Releases Supplemental Guidance on Business Planning (Apr. 6, 2016);
FDIC, Investing in the Future of Mission-Driven Banks--A Guide to
Facilitating New Partnerships; OCC, OCC Marks the First Anniversary of
Project Reach (Jul. 15, 2021).
\8\House Financial Services Committee, One pager on the provisions
providing Emergency Support for CDFIs and MDIs in the December COVID-19
stimulus package (Dec. 2020).
---------------------------------------------------------------------------
Research and testimony received by the House Financial
Services Committee has shown that MDIs and CDFIs are far more
likely to serve underbanked communities of color and LMI
communities than large banks and non-minority community
banks.\9\ For example, MDIs are far more likely to be located
in LMI communities with high representation of minorities, and
loan data confirms that MDIs lend to minorities at dramatically
higher rates. Indeed, per the FDIC, the median share of
estimated service area population living in LMI census tracts
is 69% for African American MDIs, 45% for Asian American MDIs,
and 30% for Hispanic American MDIs, compared to 26% for non-MDI
noncommunity banks, and 21% for non-MDI metro-area nonfarm
community banks.\10\ Mortgage and small business lending
disparities are similar across banks types.\11\ Furthermore,
through May 2021, CDFIs provided 1.3 million Paycheck
Protection Program (PPP) loans to small business totaling over
$30 billion in support.\12\ The average PPP loan size CDFIs
provided was $21,653 compared to a program-wide average of
$41,560, and nearly 40% of CDFI loans reached business in LMI
communities, compared to 28% for the overall program. Given
this track record, supporting existing MDIs and CDFIs and
encouraging the creation of de novo MDIs and CDFIs, as provided
by H.R. 4590, is critical to help ensure underserved
communities have access to affordable banking products and
services, as well as emergency support from the government
through programs like PPP.
---------------------------------------------------------------------------
\9\House Financial Services Committee hearing, Promoting Inclusive
Lending During the Pandemic: Community Development Financial
Institutions and Minority Depository Institutions (Jun. 3, 2021).
\10\FDIC, 2019 Minority Depository Institutions: Structure,
Performance, and Social Impact (2019).
\11\Id.
\12\Small Business Administration, PPP data (accessed Jan. 12,
2022). See also Testimony of John Holdsclaw IV, Executive Vice
President, National Cooperative Bank and President, CDFI Coalition
before the Senate Committee on Banking, Housing, and Urban Affairs
(Jan. 5, 2021).
---------------------------------------------------------------------------
H.R. 4590 is supported by the following organizations:
American Bankers Association, California & Nevada Credit Union
Leagues, Community Development Bankers Association, Credit
Union National Association, Inclusiv, Independent Community
Bankers Association, National Association of Federally-Insured
Credit Unions, National Bankers Association, and National
Community Reinvestment Coalition.
SECTION-BY-SECTION ANALYSIS
Section 1. Short title
This section establishes the short title of the bill as
``Promoting New and Diverse Depository Institutions Act.''
Section 2. Study and strategic plan
This section requires the Federal Deposit Insurance
Corporation (FDIC), Board of Governors of the Federal Reserve
System (Fed), Office of Comptroller of the Currency (OCC),
National Credit Union Administration (NCUA), and Consumer
Financial Protection Bureau (CFPB) to conduct an 18-month study
examining the challenges faced by proposed de novo depository
institutions, including de novo MDIs. The regulators must
report to Congress and publish their analysis, findings, and
legislative recommendations. It also requires those banking
regulators to produce a strategic plan based on the study to
encourage the formation of de novo depository institutions,
including de novo MDIs and CDFIs, in a manner that promotes the
availability of banking and financial services (especially in
banking deserts), safety and soundness, consumer protection,
community reinvestment, financial stability, and a level
playing field. This section further requires the regulators to
invite public feedback to inform the study and strategic plan.
HEARINGS
For the purposes of section 3(c)(6) of House rule XIII, the
Committee on Financial Services' on May 19, 2021 held a hearing
to consider H.R. 4590 entitled ``Oversight of Prudential
Regulators: Ensuring the Safety, Soundness, Diversity, and
Accountability of Depository Institutions.''
COMMITTEE CONSIDERATION
The Committee on Financial Services met in open session on
July 29, 2021, and ordered H.R. 4590 to be reported favorably
to the House with an amendment in the nature of a substitute by
a voice vote.
COMMITTEE VOTES AND ROLL CALL VOTES
In compliance with clause 3(b) of rule XIII of the Rules of
the House of Representatives, the Committee advises that no
roll call votes occurred during consideration of H.R. 4590.
STATEMENT OF OVERSIGHT FINDINGS AND RECOMMENDATIONS OF THE COMMITTEE
In compliance with clause 3(c)(1) of rule XIII and clause
2(b)(1) of rule X of the Rules of the House of Representatives,
the Committee's oversight findings and recommendations are
reflected in the descriptive portions of this report.
STATEMENT OF PERFORMANCE GOALS AND OBJECTIVES
Pursuant to clause (3)(c) of rule XIII of the Rules of the
House of Representatives, the goals of H.R. 4590 are to examine
the challenges prospective de novo depository institutions face
and promote the creation of newly chartered depository
institutions, especially MDIs and CDFIs, in order to increase
access to financial services as well as safety and soundness,
consumer protection, and community reinvestment.
NEW BUDGET AUTHORITY AND CBO COST ESTIMATE
Pursuant to clause 3(c)(2) of rule XIII of the Rules of the
House of Representatives and section 308(a) of the
Congressional Budget Act of 1974, and pursuant to clause
3(c)(3) of rule XIII of the Rules of the House of
Representatives and section 402 of the Congressional Budget Act
of 1974, the Committee has received the following estimate for
H.R. 4590 from the Director of the Congressional Budget Office:
U.S. Congress,
Congressional Budget Office,
Washington, DC, November 29, 2021.
Hon. Maxine Waters,
Chairwoman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Madam Chairwoman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 4590, the
Promoting New and Diverse Depository Institutions Act.
if you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Stephen
Rabent.
Sincerely,
Phillip L. Swagel,
Director.
Enclosure.
H.R. 4590 would direct the Federal Deposit Insurance
Corporate (FDIC), the National Credit Union Administration
(NCUA), the Comptroller of the Currency (OCC), the Consumer
Financial Protection Bureau (CFPB), and the Federal Reserve to
study the challenges faced by new depository institutions
seeking a charter. Those banking regulators also would be
required to jointly issue a strategic plan to increase the
number of entities applying for new depository institution
charters.
The operating costs for the CFPB, FDIC, NCUA, and OCC are
classified in the federal budget as direct spending. Using
information from some of those agencies, CBO estimates that
each agency would require about two employees to complete the
bill's requirements over a two-year period, increasing gross
direct spending by $4 million over the 2022-2031 period.
However, the NCUA and the OCC collect fees from financial
institutions to offset their operating costs; those fees are
treated as reductions in direct spending. Thus, on net, CBO
estimates that enacting the bill would increase direct spending
by $2 million over the same period.
Costs incurred by the Federal Reserve reduce remittances to
the Treasury, which are recorded in the budget as revenues. CBO
estimates that enacting H.R. 4590 would decrease revenues by $1
million over the 2022-2031 period.
If the OCC and NCUA increased annual fee collections to
offset the costs associated with implementing the bill, H.R.
4590 would increase the cost of an existing private-sector
mandate on entities required to pay those fees. CBO estimates
that the incremental cost of the mandate would be small and
would fall below the thresholds established in the Unfunded
Mandates Reform Act (UMRA) for private-sector mandates ($170
million in 2021, adjusted annually for inflation).
H.R. 4590 contains no intergovernmental mandates as defined
in UMRA.
The CBO staff contacts for this estimate are Stephen Rabent
(for federal costs), Nathaniel Frentz (for revenues), and Fiona
Forrester (for mandates). The estimate was reviewed by H.
Samuel Papenfuss, Deputy Director of Budget Analysis.
COMMITTEE COST ESTIMATE
Clause 3(d)(1) of rule XIII of the Rules of the House of
Representatives requires an estimate and a comparison of the
costs that would be incurred in carrying out H.R. 4590.
However, clause 3(d)(2)(B) of that rule provides that this
requirement does not apply when the committee has included in
its report a timely submitted cost estimate of the bill
prepared by the Director of the Congressional Budget Office
under section 402 of the Congressional Budget Act.
UNFUNDED MANDATE STATEMENT
Pursuant to Section 423 of the Congressional Budget and
Impoundment Control Act (as amended by Section 101(a)(2) of the
Unfunded Mandates Reform Act, Pub. L. 104-4), the Committee
adopts as its own the estimate of federal mandates regarding
H.R. 4590, as amended prepared by the Director of the
Congressional Budget Office.
ADVISORY COMMITTEE
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
APPLICATION OF LAW TO THE LEGISLATIVE BRANCH
Pursuant to section 102(b)(3) of the Congressional
Accountability Act, Pub. L. No. 104-1, H.R. 4590, as amended,
does not apply to terms and conditions of employment or to
access to public services or accommodations within the
legislative branch.
EARMARK STATEMENT
In accordance with clause 9 of rule XXI of the Rules of the
House of Representatives, H.R. 4590 does not contain any
congressional earmarks, limited tax benefits, or limited tariff
benefits as described in clauses 9(e), 9(f), and 9(g) of rule
XXI.
DUPLICATION OF FEDERAL PROGRAMS
Pursuant to clause 3(c)(5) of rule XIII of the Rules of the
House of Representatives, the Committee states that no
provision of H.R. 4590 establishes or reauthorizes a program of
the Federal Government known to be duplicative of another
federal program, a program that was included in any report from
the Government Accountability Office to Congress pursuant to
section 21 of Public Law 111-139, or a program related to a
program identified in the most recent Catalog of Federal
Domestic Assistance.