[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.